UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-14387
United Rentals, Inc.
Commission File Number 1-13663
United Rentals (North America), Inc.
(Exact Names of Registrants as Specified in Their Charters)
|
Delaware Delaware |
06-1522496 06-1493538 |
|
| (States of Incorporation) | (I.R.S. Employer Identification Nos.) | |
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Five Greenwich Office Park,
Greenwich, Connecticut |
06831 | |
| (Address of Principal Executive Offices) | (Zip code) | |
Registrants’ telephone number, including area code: (203) 622-3131
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ Accelerated Filer ¨ Non-Accelerated Filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
As of August 4, 2006, there were 80,605,380 shares of United Rentals, Inc. Common Stock, $.01 par value, outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc.
This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in General Instruction (H)(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by such instruction.
UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
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PART I |
FINANCIAL INFORMATION |
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Item 1 |
3 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
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Notes to Unaudited Condensed Consolidated Financial Statements |
7 | |||
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Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 | ||
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Item 3 |
30 | |||
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Item 4 |
31 | |||
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PART II |
OTHER INFORMATION |
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Item 1 |
33 | |||
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Item 1A |
33 | |||
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Item 2 |
34 | |||
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Item 4 |
35 | |||
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Item 6 |
36 | |||
| 37 | ||||
| Item 1. | Financial Statements |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in millions, except per share data and unless otherwise indicated)
|
June 30,
2006 |
June 30,
2005 |
December 31,
2005 |
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ASSETS |
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Cash and cash equivalents |
$ | 208 | $ | 254 | $ | 316 | ||||||
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Accounts receivable, net of allowance for doubtful accounts of $43 on June 30, 2006, $42 on June 30, 2005 and $45 on December 31, 2005 |
566 | 517 | 572 | |||||||||
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Inventory |
195 | 178 | 174 | |||||||||
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Prepaid expenses and other assets |
140 | 120 | 154 | |||||||||
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Rental equipment, net |
2,587 | 2,283 | 2,252 | |||||||||
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Property and equipment, net |
462 | 415 | 445 | |||||||||
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Goodwill |
1,341 | 1,291 | 1,328 | |||||||||
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Other intangible assets, net |
31 | 35 | 33 | |||||||||
| $ | 5,530 | $ | 5,093 | $ | 5,274 | |||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Liabilities: |
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Accounts payable |
$ | 284 | $ | 336 | $ | 211 | ||||||
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Accrued expenses and other liabilities |
435 | 304 | 420 | |||||||||
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Debt |
2,894 | 2,954 | 2,930 | |||||||||
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Subordinated convertible debentures |
222 | 222 | 222 | |||||||||
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Deferred taxes |
293 | 187 | 262 | |||||||||
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Total liabilities |
4,128 | 4,003 | 4,045 | |||||||||
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Stockholders’ equity: |
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Preferred stock—$0.01 par value, 5,000,000 shares authorized: |
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Series C perpetual convertible preferred stock—$.30 liquidation preference, 300,000 shares issued and outstanding |
— | — | — | |||||||||
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Series D perpetual convertible preferred stock—$.15 liquidation preference, 150,000 shares issued and outstanding |
— | — | — | |||||||||
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Common stock—$.01 par value, 500,000,000 shares authorized, 80,620,652 shares issued and outstanding on June 30, 2006, 78,011,621 shares issued and outstanding on June 30, 2005 and 77,302,915 shares issued and outstanding on December 31, 2005 |
1 | 1 | 1 | |||||||||
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Additional paid-in capital |
1,417 | 1,352 | 1,345 | |||||||||
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Deferred compensation |
— | (17 | ) | (12 | ) | |||||||
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Accumulated deficit |
(79 | ) | (280 | ) | (155 | ) | ||||||
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Accumulated other comprehensive income |
63 | 34 | 50 | |||||||||
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Total stockholders’ equity |
1,402 | 1,090 | 1,229 | |||||||||
| $ | 5,530 | $ | 5,093 | $ | 5,274 | |||||||
See accompanying notes.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except per share data and unless otherwise indicated)
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||
| 2006 | 2005 | 2006 | 2005 | ||||||||||
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Revenues: |
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Equipment rentals |
$ | 698 | $ | 627 | $ | 1,289 | $ | 1,141 | |||||
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Sales of rental equipment |
85 | 87 | 163 | 167 | |||||||||
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New equipment sales |
62 | 55 | 114 | 96 | |||||||||
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Contractor supplies sales |
109 | 85 | 197 | 149 | |||||||||
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Service and other revenues |
41 | 34 | 78 | 67 | |||||||||
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Total revenues |
995 | 888 | 1,841 | 1,620 | |||||||||
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Cost of revenues: |
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Cost of equipment rentals, excluding depreciation |
340 | 320 | 646 | 601 | |||||||||
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Depreciation of rental equipment |
99 | 95 | 195 | 189 | |||||||||
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Cost of rental equipment sales |
59 | 65 | 113 | 122 | |||||||||
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Cost of new equipment sales |
51 | 45 | 94 | 79 | |||||||||
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Cost of contractor supplies sales |
89 | 64 | 160 | 112 | |||||||||
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Cost of service and other revenue |
19 | 16 | 38 | 32 | |||||||||
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Total cost of revenues |
657 | 605 | 1,246 | 1,135 | |||||||||
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Gross profit |
338 | 283 | 595 | 485 | |||||||||
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Selling, general and administrative expenses |
164 | 136 | 317 | 258 | |||||||||
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Non-rental depreciation and amortization |
24 | 15 | 40 | 29 | |||||||||
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Operating income |
150 | 132 | 238 | 198 | |||||||||
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Interest expense, net |
52 | 43 | 102 | 86 | |||||||||
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Interest expense—subordinated convertible debentures |
3 | 4 | 7 | 8 | |||||||||
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Other (income) expense, net |
(1 | ) | 3 | — | 3 | ||||||||
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Income before provision for income taxes |
96 | 82 | 129 | 101 | |||||||||
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Provision for income taxes |
40 | 32 | 53 | 39 | |||||||||
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Net income |
$ | 56 | $ | 50 | $ | 76 | $ | 62 | |||||
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Earnings per share—basic: |
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Income available to common stockholders |
$ | 0.58 | $ | 0.53 | $ | 0.80 | $ | 0.65 | |||||
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Earnings per share—diluted: |
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Income available to common stockholders |
$ | 0.51 | $ | 0.48 | $ | 0.71 | $ | 0.60 | |||||
See accompanying notes.
4
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(In millions)
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Series C
Perpetual Convertible Preferred Stock |
Series D
Perpetual Convertible Preferred Stock |
Common Stock |
Additional
Paid-in Capital |
Deferred
Compensation |
Accumulated
Deficit |
Comprehensive
Income |
Accumulated
Other Comprehensive Income |
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Number of
Shares |
Amount | ||||||||||||||||||||||||||||
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Balance, December 31, 2005 |
$ | — | $ | — | 77 | $ | 1 | $ | 1,345 | $ | (12 | ) | $ | (155 | ) | $ | 50 | ||||||||||||
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Comprehensive income: |
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Net income |
76 | 76 | |||||||||||||||||||||||||||
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Other comprehensive income: |
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Foreign currency translation adjustments |
11 | 11 | |||||||||||||||||||||||||||
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Derivatives qualifying as hedges, net of tax of $1 |
2 | 2 | |||||||||||||||||||||||||||
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Comprehensive income |
$ | 89 | |||||||||||||||||||||||||||
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Reclassification of unearned stock compensation in connection with adoption of FAS 123(R) |
(12 | ) | 12 | ||||||||||||||||||||||||||
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Exercise of common stock options and warrants |
4 | 63 | |||||||||||||||||||||||||||
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Tax benefit on vesting of restricted stock and exercise of stock options |
18 | ||||||||||||||||||||||||||||
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Other |
3 | ||||||||||||||||||||||||||||
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Balance, June 30, 2006 |
$ | — | $ | — | 81 | $ | 1 | $ | 1,417 | $ | — | $ | (79 | ) | $ | 63 | |||||||||||||
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
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Six Months Ended
June 30, |
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| 2006 | 2005 | |||||||
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Cash Flows From Operating Activities: |
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Net income |
$ | 76 | $ | 62 | ||||
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
239 | 221 | ||||||
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Gain on sales of rental equipment |
(50 | ) | (45 | ) | ||||
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Gain on sales of non-rental equipment |
(2 | ) | (1 | ) | ||||
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Non-cash adjustments to equipment |
11 | 19 | ||||||
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Amortization of deferred compensation |
5 | 5 | ||||||
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Increase in deferred taxes |
43 | 38 | ||||||
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Changes in operating assets and liabilities: |
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Accounts receivable |
8 | (28 | ) | |||||
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Inventory |
(21 | ) | (60 | ) | ||||
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Prepaid expenses and other assets |
9 | (6 | ) | |||||
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Accounts payable |
73 | 119 | ||||||
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Accrued expenses and other liabilities |
(22 | ) | (6 | ) | ||||
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Net cash provided by operating activities |
369 | 318 | ||||||
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Cash Flows From Investing Activities: |
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Purchases of rental equipment |
(612 | ) | (484 | ) | ||||
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Purchases of non-rental equipment |
(47 | ) | (32 | ) | ||||
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Proceeds from sales of rental equipment |
163 | 167 | ||||||
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Proceeds from sales of non-rental equipment |
11 | 7 | ||||||
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Purchases of other companies |
(39 | ) | (3 | ) | ||||
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Proceeds from sales of branches |
— | 3 | ||||||
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Net cash used in investing activities |
(524 | ) | (342 | ) | ||||
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Cash Flows From Financing Activities: |
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Payments of debt |
(15 | ) | (25 | ) | ||||
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Proceeds from the exercise of common stock options |
63 | 2 | ||||||
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Other |
(1 | ) | (1 | ) | ||||
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Net cash provided by (used in) financing activities |
47 | (24 | ) | |||||
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Effect of foreign exchange rates |
— | (1 | ) | |||||
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Net decrease in cash and cash equivalents |
(108 | ) | (49 | ) | ||||
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Cash and cash equivalents at beginning of period |
316 | 303 | ||||||
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Cash and cash equivalents at end of period |
$ | 208 | $ | 254 | ||||
See accompanying notes.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data and unless otherwise indicated)
1. Organization and Basis of Presentation
General
United Rentals, Inc. (“Holdings,” “United Rentals” or the “Company”) is principally a holding company and conducts its operations primarily through its wholly owned subsidiary United Rentals (North America), Inc. (“URNA”), and subsidiaries of URNA. Holdings’ primary asset is its ownership of all of the issued and outstanding shares of common stock of URNA. URNA’s various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder.
We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others in the United States, Canada and Mexico. In addition to renting equipment, we sell new and used rental equipment, as well as related contractor supplies, parts and services. The nature of our business is such that short-term obligations are typically met by cash flow generated from long-term assets. Therefore, the accompanying balance sheets are presented on an unclassified basis.
We have prepared the accompanying unaudited condensed consolidated interim financial statements in accordance with the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2005 (the “2005 Form 10-K”) and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the 2005 Form 10-K. Certain reclassifications have been made to prior year financial information to conform to the current year presentation.
In our opinion, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of financial position, operating results and cash flows for the interim periods presented have been made. Interim results of operations are not necessarily indicative of the results of the full year.
In August 2004 we received notice from the SEC that it was conducting a non-public, fact-finding inquiry of the Company. The SEC inquiry appears to relate to a broad range of the Company’s accounting practices and is not confined to a specific period. In March 2005, our board of directors formed a special committee of independent directors (the “Special Committee”) to review matters related to the SEC inquiry. Our board of directors received and acted upon findings of the Special Committee in January 2006. The actions that we took with respect to the Special Committee’s findings and actions that we took with respect to certain other accounting matters, including the restatement of previously issued consolidated financial statements for 2003 and 2002, are discussed in our 2005 Form 10-K.
Recent Accounting Changes and New Accounting Standards
Effective January 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“FAS 123(R)”), which is an amendment of SFAS No. 123, “Accounting for Stock-Based Compensation,” using the modified prospective transition method, and therefore we did not restate the results of prior periods.
The effect of adopting FAS 123(R) on our net income for the three and six months ended June 30, 2006 was not material. FAS 123(R) requires that cash flows from tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (“excess tax benefits”) be classified as financing cash flows prospectively from January 1, 2006. Prior to the adoption of FAS 123(R), such excess tax benefits were presented as operating cash flows.
7
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
Refer to notes 2 and 14 in our 2005 Form 10-K for further information regarding our adoption of FAS 123(R) and our stock-based compensation arrangements, including related disclosures required upon the adoption of FAS 123(R).
Restricted stock awards are issued at the fair value of the stock on the grant date. Prior to the adoption of FAS 123(R), unearned compensation for grants of restricted stock equivalent to the fair value of the shares at the date of grant was recorded as a separate component of shareholders’ equity and subsequently amortized to compensation expense over the awards’ vesting period. In accordance with FAS 123(R), shareholders’ equity is credited commensurate with the recognition of compensation expense. All unamortized unearned compensation at January 1, 2006 was reclassified to additional paid-in capital.
Prior to January 1, 2006, in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” we did not recognize compensation expense relating to employee stock options because the exercise price was equal to or greater than the market price at the date of grant. If we had elected to recognize compensation expense using a fair value approach as required by FAS 123, our pro forma income and earnings per share for the three and six months ended June 30, 2005 would have been as follows:
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Three Months Ended
June 30, 2005 |
Six Months Ended
June 30, 2005 |
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Net income as reported |
$ | 50 | $ | 62 | ||||
|
Plus: Stock-based compensation expense included in reported net income, net of tax |
2 | 4 | ||||||
|
Less: Stock-based compensation expense determined using the fair value method, net of tax |
(2 | ) | (4 | ) | ||||
|
Pro forma net income |
$ | 50 | $ | 62 | ||||
|
Basic earnings per share: |
||||||||
|
As reported |
$ | 0.53 | $ | 0.65 | ||||
|
Pro forma |
$ | 0.53 | $ | 0.65 | ||||
|
Diluted earnings per share: |
||||||||
|
As reported |
$ | 0.48 | $ | 0.60 | ||||
|
Pro forma |
$ | 0.48 | $ | 0.60 | ||||
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (an interpretation of FAS 109, “Accounting for Income Taxes”), which is effective for fiscal years beginning after December 15, 2006 with earlier adoption encouraged. This interpretation was issued to clarify the accounting for uncertainty in income taxes recognized in the financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We are currently evaluating the potential impact of this interpretation.
2. Segment Information
Our reportable segments are general rentals, trench safety, pump and power and traffic control. The general rentals segment includes the rental of construction, aerial, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities and homeowners. The general rentals segment operates throughout the United States and Canada and has one location in Mexico. The trench safety, pump and power segment includes
8
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
the rental of specialty construction products and related services. The trench safety, pump and power segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates in the United States and has one location in Canada. The traffic control segment includes the rental of equipment used in the management of traffic-related services and activities. The traffic control segment’s customers include construction companies involved in infrastructure projects and municipalities. The traffic control segment operates in the United States. All three reporting segments generate revenues from equipment rentals as well as the sale of new and used equipment and related contractor supplies. Our external segment reporting is aligned with the manner in which management evaluates and allocates resources. We evaluate segment performance based on segment operating results.
Operating segment financial information for the three and six months ended June 30, 2006 and 2005 were as follows:
9
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
3. Acquisitions
We completed two acquisitions during the six months ended June 30, 2006 and none during the six months ended June 30, 2005. The results of operations of the businesses acquired in these acquisitions have been included in our results of operations from the respective acquisition dates. In March 2006, we acquired the equipment and sales assets of Handy Rent-All Center, which had annual revenues of approximately $16. The aggregate purchase price for this acquisition was approximately $23. In June 2006, we acquired the equipment and sales assets of D. Larry Carter, Inc., which had annual revenues of approximately $10. The aggregate purchase price for this acquisition was approximately $18. Pro forma results of operations giving effect to these acquisitions would not vary materially from historical results.
The purchase price for these acquisitions has been allocated to the assets acquired and liabilities assumed based on their fair values at the respective acquisition dates. Purchase price allocations are subject to change when additional information concerning asset and liability valuations is completed. The preliminary purchase price allocations that are subject to change primarily consist of rental and non-rental equipment valuations. These allocations are finalized within twelve months of the acquisition date and are not expected to result in significant differences between the preliminary and final allocations.
4. Goodwill and Other Intangible Assets
The carrying amount of the Company’s goodwill was $1,341 at June 30, 2006, $1,291 at June 30, 2005 and $1,328 at December 31, 2005. We review our goodwill for impairment annually as of a scheduled review date. However, if events or circumstances suggest that goodwill could be impaired, we may conduct an earlier review. The scheduled review date is October 1 of each year.
Other intangible assets consist of customer relationships and non-compete agreements and are amortized over periods ranging from three to twelve years. Amortization expense for other intangible assets was $1 for the three months ended June 30, 2006 and 2005 and $2 for the six months ended June 30, 2006 and 2005. The cost of other intangible assets and the related accumulated amortization as of June 30, 2006 was as follows:
|
June 30,
2006 |
||||
|
Gross carrying amount |
$ | 62 | ||
|
Accumulated amortization |
(31 | ) | ||
|
Net amount |
$ | 31 | ||
5. Legal and Regulatory Matters
SEC Non-Public Fact Finding Inquiry and Special Committee Review
As previously announced, on August 25, 2004, the Company received a letter from the SEC in which the SEC referred to an inquiry of the Company. The letter transmitted a subpoena requesting certain of the Company’s documents. The letter and the subpoena referred to an SEC investigation entitled In the Matter of United Rentals, Inc. The notice from the SEC states that the inquiry does not mean that the SEC has concluded that the Company or anyone else has broken the law or that the SEC has a negative opinion of any person, entity or security. As previously announced, the inquiry appears to relate to a broad range of the Company’s accounting practices and is not confined to a specific period.
10
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
The Company has since received additional document subpoenas from the SEC. As previously announced, in March 2005, the Company’s board of directors formed the Special Committee to review matters related to the SEC inquiry. The Special Committee retained independent counsel. The board of directors received and acted upon findings of the Special Committee in January 2006. The actions that we took with respect to the Special Committee’s findings and actions that we took with respect to certain other accounting matters, including the restatement of previously issued consolidated financial statements for 2003 and 2002, are discussed in our 2005 Form 10-K.
The Company has provided documents in response to the SEC subpoenas to the SEC or to the Special Committee, which has, in turn, provided documents to the SEC. The Company is cooperating fully with the SEC in complying with the subpoenas. The Company is also responding to the SEC’s informal requests for information. The U.S. Attorney’s office has also requested information from the Company about matters related to the SEC inquiry. The Company is cooperating fully with this office.
Shareholder Class Action Lawsuits and Derivative Litigation
As previously announced, in August 2004 the Company received notice from the SEC that it was conducting a non-public, fact-finding inquiry of the Company. As previously announced, following the Company’s public announcement of the SEC inquiry, three purported class action lawsuits were filed against the Company in the United States District Court for the District of Connecticut. The plaintiff in each of the lawsuits initially sought to sue on behalf of a purported class comprised of purchasers of the Company’s securities from October 23, 2003 to August 30, 2004. The lawsuits initially named as the defendants the Company, its chairman, its vice chairman and chief executive officer, its former president and chief financial officer, and its former corporate controller. These initial complaints alleged, among other things, that certain of the Company’s SEC filings and other public statements contained false and misleading statements which resulted in damages to the plaintiffs and the members of the purported class when they purchased the Company’s securities. On the basis of those allegations, plaintiffs in each action asserted claims (a) against all defendants under Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and (b) against one or more of the individual defendants under Section 20(a) of such Act. The complaints sought unspecified compensatory damages, costs and expenses. On February 1, 2005, the Court entered an order consolidating the three actions. On November 8, 2005, the Court appointed City of Pontiac Policeman’s and Fireman’s Retirement System as lead plaintiff for the purported class. The consolidated action is now entitled In re United Rentals, Inc. Securities Litigation. The parties agreed upon, and the Court subsequently approved, a schedule for the filing of a consolidated amended complaint in this action and the briefing of any motions to dismiss directed to the operative complaint in the action. On June 5, 2006, lead plaintiff filed a consolidated amended complaint, which (a) adds allegations relating to, among other things, the conclusions of the Special Committee and to other matters disclosed in the 2005 Form 10-K, (b) amends the purported class period to include purchasers of the Company’s securities from February 28, 2001 to August 30, 2004 and (c) names as an additional defendant the Company’s first chief financial officer. The Company intends to defend against this action vigorously.
As previously announced, in January 2005 an alleged shareholder filed an action in Connecticut State Superior Court, Judicial District of Norwalk/Stamford at Stamford, purportedly suing derivatively on the Company’s behalf. The action, entitled Gregory Riegel v. John N. Milne, et al., names as defendants certain of the Company’s current and/or former directors and/or officers, and names the Company as a nominal defendant. The complaint asserts, among other things, that the defendants breached their fiduciary duties to the Company by causing or allowing the Company to disseminate misleading and inaccurate information to shareholders and the
11
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
market and by failing to establish and maintain adequate accounting controls, thus exposing the Company to damages. The complaint seeks unspecified compensatory damages, costs and expenses against the defendants. The parties to the Riegel action have agreed that the proceedings in this action will be stayed pending the resolution of anticipated motions to dismiss in the purported shareholder class actions.
As previously announced, in November 2004 the Company received a letter from counsel for an alleged shareholder, raising allegations similar to the ones set forth in the derivative complaint described above and demanding that the Company take action in response to those allegations against certain of the Company’s current and/or former directors and/or officers. Following receipt of the letter, the Company’s board of directors formed a special committee to consider the letter. In August 2005, this alleged shareholder commenced an action in Connecticut State Superior Court, Judicial District of Norwalk/Stamford at Stamford, purporting to sue derivatively on the Company’s behalf. The action, entitled Nathan Brundridge v. Leon D. Black, et al., initially named as defendants certain of the Company’s current and/or former directors and/or officers, and named the Company as a nominal defendant. The initial complaint in this action asserted, among other things, that all of the defendants breached fiduciary obligations to the Company by causing or allowing the Company to disseminate misleading and inaccurate information to shareholders and the market, and by failing to establish and maintain adequate accounting controls, thus exposing the Company to damages. The initial complaint in this action also asserted a claim for unjust enrichment against the Company’s chairman and its vice chairman and chief executive officer. The initial complaint sought unspecified compensatory damages, equitable relief, costs and expenses against all of the defendants. The initial complaint also sought an order, in connection with plaintiff’s unjust enrichment claim, directing the defendants against whom that claim was asserted to disgorge certain compensation they received from the Company with respect to fiscal years 2001, 2002 and 2003. The parties agreed upon a schedule for the filing of an amended complaint in this action, and the briefing of any motions to dismiss directed to the operative complaint in this action. On June 5, 2006, plaintiff filed an amended complaint, which (a) adds allegations relating to, among other things, the conclusions of the Special Committee and to other matters disclosed in the 2005 Form 10-K, and (b) names as an additional defendant the Company’s former president and chief financial officer and asserts the same claims against him as it previously asserted and continues to assert against the Company’s chairman and its vice chairman and chief executive officer.
As previously announced, in August 2005 another alleged shareholder filed an action in the United States District Court for the District of Connecticut, purporting to sue derivatively on the Company’s behalf. The action, entitled Natalie Gordon v. Wayland R. Hicks, et al., names as defendants certain of the Company’s current and/or former directors and/or officers, and names the Company as a nominal defendant. The initial complaint in this action asserted claims against each of the defendants for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment. Each of these claims is premised on, among other things, the theory that the individual defendants caused or permitted the Company to disseminate misleading and inaccurate information to shareholders and to the market, and failed to establish and maintain adequate accounting controls, thus exposing the Company to damages. The initial complaint also asserted (a) a claim that a former director breached fiduciary obligations by selling shares of the Company’s common stock while in possession of material, non-public information, and (b) a claim against the Company’s chairman, its vice chairman and chief executive officer, and its former president and chief financial officer for recovery of certain incentive-based compensation under section 304 of the Sarbanes-Oxley Act. The initial complaint sought unspecified compensatory damages, equitable relief, restitution, costs and expenses against all of the defendants. The initial complaint also sought an order declaring that the defendants against whom the section 304 claim was directed are liable under the Sarbanes-Oxley Act and directing them to reimburse the Company for all bonuses or other incentive-based or equity-based compensation they received for the fiscal years 1999 through 2004. The parties agreed upon, and the Court approved, a schedule for the filing of an amended
12
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
complaint in this action, and the briefing of any motions to dismiss directed to the operative complaint in this action. On June 5, 2006, plaintiff filed an amended complaint, which (a) adds allegations relating to, among other things, the conclusions of the Special Committee and to other matters disclosed in the 2005 Form 10-K, and (b) names as additional defendants certain other of the Company’s current and/or former directors and/or officers. The amended complaint also asserts an additional claim against certain of the Company’s current and/or former directors for violation of Section 14(a) of the Exchange Act.
We are also subject to a number of claims and proceedings that generally arise out of the ordinary conduct of our business. These matters include, but are not limited to, general liability claims (including personal injury, product liability, and property and auto claims), indemnification and guarantee obligations, employee injuries and employment-related claims, self-insurance obligations, tax examinations and contract and real estate matters. Based on advice of counsel and available information, including current status or stage of proceeding, and taking into account accruals for matters where we have established them, we currently believe that any liabilities ultimately resulting from these claims and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or cash flows.
6. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding and, if dilutive, the Series C and Series D preferred shares as if converted to common shares (since such shares are participating securities). Diluted earnings per share also includes the impact of other dilutive securities. The following table sets forth the computation of basic and diluted earnings per share:
13
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
7. Condensed Consolidating Financial Information of Guarantor Subsidiaries
URNA is 100 percent owned by Holdings (the “Parent”) and has outstanding (i) certain indebtedness that is guaranteed by the Parent and (ii) certain indebtedness that is guaranteed by both the Parent and substantially all of URNA’s United States subsidiaries (the “guarantor subsidiaries”). However, this indebtedness is not guaranteed by URNA’s foreign subsidiaries and certain of its United States subsidiaries (the “non-guarantor subsidiaries”). The guarantor subsidiaries are all 100 percent-owned and the guarantees are made on a joint and several basis and are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors; however, condensed consolidating financial information is presented. The condensed consolidating financial information of the Company and its subsidiaries is as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2006
14
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2005
15
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2005
16
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
| For the Three Months Ended June 30, 2006 | ||||||||||||||||||||||
| Parent | URNA |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Other and
Eliminations |
Consolidated
Total |
|||||||||||||||||
|
Revenues: |
||||||||||||||||||||||
|
Equipment rentals |
$ | 314 | $ | 324 | $ | 60 | $ | 698 | ||||||||||||||
|
Sales of rental equipment |
46 | 32 | 7 | 85 | ||||||||||||||||||
|
New equipment sales |
28 | 25 | 9 | 62 | ||||||||||||||||||
|
Contractor supplies sales |
41 | 56 | 12 | 109 | ||||||||||||||||||
|
Service and other revenues |
22 | 14 | 5 | 41 | ||||||||||||||||||
|
Total revenues |
451 | 451 | 93 | 995 | ||||||||||||||||||
|
Cost of revenues: |
||||||||||||||||||||||
|
Cost of equipment rentals, excluding depreciation |
140 | 167 | 33 | 340 | ||||||||||||||||||
|
Depreciation of rental equipment |
49 | 39 | 11 | 99 | ||||||||||||||||||
|
Cost of rental equipment sales |
32 | 22 | 5 | 59 | ||||||||||||||||||
|
Cost of new equipment sales |
23 | 21 | 7 | 51 | ||||||||||||||||||
|
Cost of contractor supplies sales |
36 | 43 | 10 | 89 | ||||||||||||||||||
|
Cost of service and other revenue |
11 | 5 | 3 | 19 | ||||||||||||||||||
|
Total cost of revenues |
291 | 297 | 69 | 657 | ||||||||||||||||||
|
Gross profit |
160 | 154 | 24 | 338 | ||||||||||||||||||
|
Selling, general and administrative expenses |
64 | 80 | 20 | 164 | ||||||||||||||||||
|
Non-rental depreciation and amortization |
$ | 3 | 11 | 9 | 1 | 24 | ||||||||||||||||
|
Operating income (loss) |
(3 | ) | 85 | 65 | 3 | 150 | ||||||||||||||||
|
Interest expense, net |
3 | 47 | 2 | 3 | $ | (3 | ) | 52 | ||||||||||||||
|
Interest expense—subordinated convertible debentures |
— | — | — | — | 3 | 3 | ||||||||||||||||
|
Other (income) expense, net |
— | 3 | 4 | (8 | ) | — | (1 | ) | ||||||||||||||
|
Income (loss) before provision (benefit) for income taxes |
(6 | ) | 35 | 59 | 8 | — | 96 | |||||||||||||||
|
Provision (benefit) for income taxes |
(3 | ) | 14 | 23 | 6 | — | 40 | |||||||||||||||
|
Income (loss) before equity in net earnings of subsidiaries |
(3 | ) | 21 | 36 | 2 | — | 56 | |||||||||||||||
|
Equity in net earnings of subsidiaries |
59 | 38 | — | — | (97 | ) | — | |||||||||||||||
|
Net income (loss) |
$ | 56 | $ | 59 | $ | 36 | $ | 2 | $ | (97 | ) | $ | 56 | |||||||||
17
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
| For the Three Months Ended June 30, 2005 | ||||||||||||||||||||||
| Parent | URNA |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Other and
Eliminations |
Consolidated
Total |
|||||||||||||||||
|
Revenues: |
||||||||||||||||||||||
|
Equipment rentals |
$ | 280 | $ | 297 | $ | 50 | $ | 627 | ||||||||||||||
|
Sales of rental equipment |
42 | 34 | 11 | 87 | ||||||||||||||||||
|
New equipment sales |
27 | 21 | 7 | 55 | ||||||||||||||||||
|
Contractor supplies sales |
32 | 44 | 9 | 85 | ||||||||||||||||||
|
Service and other revenues |
19 | 12 | 3 | 34 | ||||||||||||||||||
|
Total revenues |
400 | 408 | 80 | 888 | ||||||||||||||||||
|
Cost of revenues: |
||||||||||||||||||||||
|
Cost of equipment rentals, excluding depreciation |
125 | 171 | 24 | 320 | ||||||||||||||||||
|
Depreciation of rental equipment |
46 | 39 | 10 | 95 | ||||||||||||||||||
|
Cost of rental equipment sales |
32 | 24 | 9 | 65 | ||||||||||||||||||
|
Cost of new equipment sales |
21 | 18 | 6 | 45 | ||||||||||||||||||
|
Cost of contractor supplies sales |
25 | 32 | 7 | 64 | ||||||||||||||||||
|
Cost of service and other revenue |
8 | 6 | 2 | 16 | ||||||||||||||||||
|
Total cost of revenues |
257 | 290 | 58 | 605 | ||||||||||||||||||
|
Gross profit |
143 | 118 | 22 | 283 | ||||||||||||||||||
|
Selling, general and administrative expenses |
59 | 62 | 15 | 136 | ||||||||||||||||||
|
Non-rental depreciation and amortization |
$ | 1 | 5 | 7 | 2 | 15 | ||||||||||||||||
|
Operating income (loss) |
(1 | ) | 79 | 49 | 5 | 132 | ||||||||||||||||
|
Interest expense, net |
4 | 42 | (1 | ) | 2 | $ | (4 | ) | 43 | |||||||||||||
|
Interest expense—subordinated convertible debentures |
— | — | — | — | 4 | 4 | ||||||||||||||||
|
Other (income) expense, net |
— | 4 | 4 | (5 | ) | — | 3 | |||||||||||||||
|
Income (loss) before provision (benefit) for income taxes |
(5 | ) | 33 | 46 | 8 | — | 82 | |||||||||||||||
|
Provision (benefit) for income taxes |
(2 | ) | 13 | 18 | 3 | — | 32 | |||||||||||||||
|
Income (loss) before equity in net earnings of subsidiaries |
(3 | ) | 20 | 28 | 5 | — | 50 | |||||||||||||||
|
Equity in net earnings of subsidiaries |
53 | 33 | — | — | (86 | ) | — | |||||||||||||||
|
Net income (loss) |
$ | 50 | $ | 53 | $ | 28 | $ | 5 | $ | (86 | ) | $ | 50 | |||||||||
18
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
| For the Six Months Ended June 30, 2006 | |||||||||||||||||||||
| Parent | URNA |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Other and
Eliminations |
Consolidated
Total |
||||||||||||||||
|
Revenues: |
|||||||||||||||||||||
|
Equipment rentals |
$ | 585 | $ | 594 | $ | 110 | $ | 1,289 | |||||||||||||
|
Sales of rental equipment |
82 | 65 | 16 | 163 | |||||||||||||||||
|
New equipment sales |
54 | 44 | 16 | 114 | |||||||||||||||||
|
Contractor supplies sales |
76 | 100 | 21 | 197 | |||||||||||||||||
|
Service and other revenues |
43 | 26 | 9 | 78 | |||||||||||||||||
|
Total revenues |
840 | 829 | 172 | 1,841 | |||||||||||||||||
|
Cost of revenues: |
|||||||||||||||||||||
|
Cost of equipment rentals, excluding depreciation |
272 | 314 | 60 | 646 | |||||||||||||||||
|
Depreciation of rental equipment |
95 | 79 | 21 | 195 | |||||||||||||||||
|
Cost of rental equipment sales |
59 | 43 | 11 | 113 | |||||||||||||||||
|
Cost of new equipment sales |
44 | 37 | 13 | 94 | |||||||||||||||||
|
Cost of contractor supplies sales |
67 | 75 | 18 | 160 | |||||||||||||||||
|
Cost of service and other revenue |
21 | 12 | 5 | 38 | |||||||||||||||||
|
Total cost of revenues |
558 | 560 | 128 | 1,246 | |||||||||||||||||
|
Gross profit |
282 | 269 | 44 | 595 | |||||||||||||||||
|
Selling, general and administrative expenses |
123 | 159 | 35 | 317 | |||||||||||||||||
|
Non-rental depreciation and amortization |
$ | 5 | 15 | 16 | 4 | 40 | |||||||||||||||
|
Operating income (loss) |
(5 | ) | 144 | 94 | 5 | 238 | |||||||||||||||
|
Interest expense, net |
7 | 94 | 3 | 5 | $ | (7 | ) | 102 | |||||||||||||
|
Interest expense—subordinated convertible debentures |
— | — | — | — | 7 | 7 | |||||||||||||||
|
Other (income) expense, net |
— | 7 | 7 | (14 | ) | — | — | ||||||||||||||
|
Income (loss) before provision (benefit) for income taxes |
(12 | ) | 43 | 84 | 14 | — | 129 | ||||||||||||||
|
Provision (benefit) for income taxes |
(5 | ) | 18 | 34 | 6 | — | 53 | ||||||||||||||
|
Income (loss) before equity in net earnings of subsidiaries |
(7 | ) | 25 | 50 | 8 | — | 76 | ||||||||||||||
|
Equity in net earnings of subsidiaries |
83 | 58 | — | — | (141 | ) | — | ||||||||||||||
|
Net income (loss) |
$ | 76 | $ | 83 | $ | 50 | $ | 8 | $ | (141 | ) | $ | 76 | ||||||||
19
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
| For the Six Months Ended June 30, 2005 | |||||||||||||||||||||
| Parent | URNA |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Other and
Eliminations |
Consolidated
Total |
||||||||||||||||
|
Revenues: |
|||||||||||||||||||||
|
Equipment rentals |
$ | 522 | $ | 527 | $ | 92 | $ | 1,141 | |||||||||||||
|
Sales of rental equipment |
79 | 68 | 20 | 167 | |||||||||||||||||
|
New equipment sales |
49 | 36 | 11 | 96 | |||||||||||||||||
|
Contractor supplies sales |
56 | 77 | 16 | 149 | |||||||||||||||||
|
Service and other revenues |
38 | 22 | 7 | 67 | |||||||||||||||||
|
Total revenues |
744 | 730 | 146 | 1,620 | |||||||||||||||||
|
Cost of revenues: |
|||||||||||||||||||||
|
Cost of equipment rentals, excluding depreciation |
244 | 309 | 48 | 601 | |||||||||||||||||
|
Depreciation of rental equipment |
92 | 77 | 20 | 189 | |||||||||||||||||
|
Cost of rental equipment sales |
58 | 49 | 15 | 122 | |||||||||||||||||
|
Cost of new equipment sales |
39 | 31 | 9 | 79 | |||||||||||||||||
|
Cost of contractor supplies sales |
43 | 57 | 12 | 112 | |||||||||||||||||
|
Cost of service and other revenue |
17 | 11 | 4 | 32 | |||||||||||||||||
|
Total cost of revenues |
493 | 534 | 108 | 1,135 | |||||||||||||||||
|
Gross profit |
251 | 196 | 38 | 485 | |||||||||||||||||
|
Selling, general and administrative expenses |
111 | 117 | 30 | 258 | |||||||||||||||||
|
Non-rental depreciation and amortization |
$ | 3 | 10 | 13 | 3 | 29 | |||||||||||||||
|
Operating income (loss) |
(3 | ) | 130 | 66 | 5 | 198 | |||||||||||||||
|
Interest expense, net |
8 | 82 | — | 4 | $ | (8 | ) | 86 | |||||||||||||
|
Interest expense—subordinated convertible debentures |
— | — | — | — | 8 | 8 | |||||||||||||||
|
Other (income) expense, net |
— | 7 | 7 | (11 | ) | — | 3 | ||||||||||||||
|
Income (loss) before provision (benefit) for income taxes |
(11 | ) | 41 | 59 | 12 | — | 101 | ||||||||||||||
|
Provision (benefit) for income taxes |
(4 | ) | 15 | 24 | 4 | — | 39 | ||||||||||||||
|
Income (loss) before equity in net earnings of subsidiaries |
(7 | ) | 26 | 35 | 8 | — | 62 | ||||||||||||||
|
Equity in net earnings of subsidiaries |
69 | 43 | — | — | (112 | ) | — | ||||||||||||||
|
Net income (loss) |
$ | 62 | $ | 69 | $ | 35 | $ | 8 | $ | (112 | ) | $ | 62 | ||||||||
20
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data and unless otherwise indicated)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Six Months Ended June 30, 2006
| Parent | URNA |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Other and
Eliminations |
Consolidated
Total |
|||||||||||||||||||
|
Net cash provided by operating activities |
$ | 2 | $ | 160 | $ | 163 | $ | 44 | $ | — | $ | 369 | ||||||||||||
|
Net cash used in investing activities |
(72 | ) | (275 | ) | (194 | ) | (46 | ) | 63 | (524 | ) | |||||||||||||
|
Net cash provided by (used in) financing activities |
70 | 45 | (5 | ) | — | (63 | ) | 47 | ||||||||||||||||
|
Net decrease in cash and cash equivalents |
— | (70 | ) | (36 | ) | (2 | ) | — | (108 | ) | ||||||||||||||
|
Cash and cash equivalents at beginning of period |
— | 200 | 105 | 11 | — | 316 | ||||||||||||||||||
|
Cash and cash equivalents at end of period |
$ | — | $ | 130 | $ | 69 | $ | 9 | $ | — | $ | 208 | ||||||||||||
For the Six Months Ended June 30, 2005
| Parent | URNA |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Other and
Eliminations |
Consolidated
Total |
|||||||||||||||||||
|
Net cash provided by (used in) operating activities |
$ | (7 | ) | $ | 99 | $ | 209 | $ | 17 | $ | — | $ | 318 | |||||||||||
|
Net cash used in investing activities |
(2 | ) | (168 | ) | (145 | ) | (29 | ) | 2 | (342 | ) | |||||||||||||
|
Net cash provided by (used in) financing activities |
9 | (31 | ) | — | — | (2 | ) | (24 | ) | |||||||||||||||
|
Effect of foreign exchange rate changes on cash and cash equivalents |
— | — | — | (1 | ) | — | (1 | ) | ||||||||||||||||
|
Increase (decrease) in cash and cash equivalents |
— | (100 | ) | 64 | (13 | ) | — | (49 | ) | |||||||||||||||
|
Cash and cash equivalents at beginning of period |
247 | 34 | 22 | — | 303 | |||||||||||||||||||
|
Cash and cash equivalents at end of period |
$ | — | $ | 147 | $ | 98 | $ | 9 | $ | — | $ | 254 | ||||||||||||
21
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in millions, except per share data and unless otherwise indicated) |
Executive Overview
We are the largest equipment rental company in the world, with an integrated network of more than 760 rental locations in the United States, Canada and Mexico. The equipment rental industry is highly fragmented and diverse and we believe we are well positioned to take advantage of this environment because as a larger company, we have more resources and certain competitive advantages over our smaller competitors. These advantages include greater purchasing power, the ability to provide customers with a broader range of equipment and services, as well as newer and better maintained equipment, and greater flexibility to transfer equipment among branches.
We offer for rent over 20,000 classes of rental equipment, including construction equipment, industrial and heavy machinery, aerial work platforms, traffic control equipment, trench safety equipment and homeowner items. Our revenues are derived from the following sources: equipment rentals, sales of rental (used) equipment, sales of new equipment, contractor supplies sales and service and other. Rental equipment revenues have historically accounted for more than 70 percent of our total revenues and we expect this to continue.
In August 2004, we received notice from the SEC that it was conducting a non-public, fact-finding inquiry of the Company. The SEC inquiry appears to relate to a broad range of the Company’s accounting practices and is not confined to a specific period. As previously announced, in March 2005, our board of directors formed a Special Committee to review matters related to the SEC inquiry. The Special Committee retained independent counsel. The board of directors received and acted upon findings of the Special Committee in January 2006. The actions that we took with respect to the Special Committee’s findings, including the restatement of previously issued consolidated financial statements for 2003 and 2002, are discussed in our 2005 Form 10-K. The SEC inquiry is ongoing and we are continuing to cooperate fully with the SEC. The U.S. Attorney’s office has also requested information from the Company about matters related to the SEC inquiry. The Company is cooperating fully with this office.
Results of Operations
As discussed in note 2 to our condensed consolidated financial statements included in this Report, our reportable segments are general rentals, trench safety, pump and power and traffic control. The general rentals segment includes the rental of construction, aerial, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities and homeowners. The general rentals segment operates throughout the United States and Canada and has one location in Mexico. The trench safety, pump and power segment includes the rental of specialty construction products and related services. The trench safety, pump and power segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates in the United States and has one location in Canada. The traffic control segment includes the rental of equipment used in the management of traffic-related services and activities. The traffic control segment’s customers include construction companies involved in infrastructure projects and municipalities. The traffic control segment operates in the United States. All three reporting segments generate revenues from equipment rentals as well as the sales of new and used equipment and related contractor supplies. Our external segment reporting is aligned with how management evaluates and allocates resources. We evaluate segment performance based on segment operating results.
Our revenues and operating results fluctuate from quarter to quarter reflecting the seasonal rental patterns of our customers, with rental activity tending to be lower in the winter.
22
Revenues by segment were as follows:
Equipment rentals .
Three months ended June 30, 2006 and 2005. 2006 equipment rentals of $698 increased $71, or 11 percent, reflecting a 5.6 percent increase in rental rates and an 8.6 percent increase in same-store rental revenues. The increase also reflected an increase in our dollar equipment utilization rate (which is calculated with consideration to our rental equipment revenue and the average original cost of equipment in out rental fleet) from 64.0 percent for the three months ended June 30, 2005 to 65.3 percent for the three months ended June 30, 2006. On a segment basis, equipment rentals represented approximately 68 percent, 76 percent and 89 percent of total revenues for general rentals, trench safety, pump and power and traffic control, respectively. General rentals equipment rentals increased $58, or 11 percent, reflecting increased rental rates and an 8.6 percent increase in same-store rental revenues. Trench safety, pump and power equipment rentals increased $10, or 31 percent, reflecting a 13.5 percent increase in same-store rental revenues. Traffic control equipment rentals increased $3, or 5 percent, reflecting a 6.2 percent increase in same-store rental revenues, partially offset by the impact of store closures.
23
Six months ended June 30, 2006 and 2005. 2006 equipment rentals of $1,289 increased $148, or 13 percent, reflecting a 6.0 percent increase in rental rates and a 10.9 percent increase in same-store rental revenues. The increase also reflected an increase in our dollar equipment utilization rate from 58.9 percent for the six months ended June 30, 2005 to 61.9 percent for the six months ended June 30, 2006. On a segment basis, equipment rentals represented approximately 68 percent, 78 percent and 88 percent of total revenues for general rentals, trench safety, pump and power, and traffic control, respectively. General rentals equipment rentals increased $120, or 12 percent, reflecting increased rental rates and a 10.7 percent increase in same-store rental revenues. Trench safety, pump and power equipment rentals increased $23, or 40 percent, reflecting an 18.7 percent increase in same-store rental revenues. Traffic control equipment rentals increased $5, or 5 percent, reflecting a 8.1 percent increase in same-store rental revenues, partially offset by the impact of store closures.
Sales of rental equipment . “Sales of rental equipment” represents revenues associated with selling used equipment. For the three and six months ended June 30, 2006, sales of rental equipment represented approximately 9 percent of our total revenues and our general rentals segment accounted for approximately 95 percent of these sales. For the three and six months ended June 30, 2005, sales of rental equipment represented approximately 10 percent of our total revenues and our general rentals segment accounted for approximately 95 percent of these sales. Sales of rental equipment for trench safety, pump and power and traffic control were insignificant for all periods. The decrease in sales of rental equipment for the three months ended June 30, 2006 primarily relates to the mix of equipment sold and the decrease in sales for the six months ended June 30, 2006 primarily relates to a decrease in the volume of equipment sold.
New equipment sales . For the three and six months ended June 30, 2006 and 2005, sales of new equipment represented approximately 6 percent of our total revenues. Our general rentals segment accounted for between 89 and 94 percent of these sales. Sales of new equipment for trench safety, pump and power and traffic control were insignificant for all periods. The increase in sales of new equipment for the three months ended June 30, 2006 primarily relates to the mix of equipment sold and for the six months ended June 30, 2006 primarily relates to an increase in the volume of equipment sold.
Sales of contractor supplies . “Sales of contractor supplies” represents our revenues associated with selling a variety of contractor supplies including construction consumables, tools, small equipment and safety supplies. Consistent with sales of rental and used equipment, general rentals accounts for substantially all of our contractor supplies sales. For the three and six months ended June 30, 2006 and 2005, general rentals accounted for between 88 and 90 percent of total sales of contractor supplies. The increase in sales of contractor supplies for the three and six months ended June 30, 2006 primarily relates to an increase in the volume of supplies sold.
Service and other revenues . “Service and other revenues” represents our revenues earned from providing services (including parts sales). Consistent with sales of rental and new equipment as well as sales of contractor supplies, general rentals accounts for substantially all of our service and other revenue. The increase in service and other revenue for the three months ended June 30, 2006 primarily relates to increased service and parts sales and for the six months ended June 30, 2006 primarily relates to increased parts sales.
24
Segment Operating Profit.
Segment operating profit and operating margin were as follows:
|
General
rentals |
Trench safety,
pump and power |
Traffic control | Total | |||||||||||||
|
Three months ended June 30, 2006 |
||||||||||||||||
|
Operating Profit (Loss) |
$ | 142 | $ | 13 | $ | (5 | ) | $ | 150 | |||||||
|
Operating Margin |
16 | % | 24 | % | -7 | % | 15 | % | ||||||||
|
Three months ended June 30, 2005 |
||||||||||||||||
|
Operating Profit (Loss) |
$ | 123 | $ | 11 | $ | (2 | ) | $ | 132 | |||||||
|
Operating Margin |
16 | % | 25 | % | -3 | % | 15 | % | ||||||||
|
Six months ended June 30, 2006 |
||||||||||||||||
|
Operating Profit (Loss) |
$ | 224 | $ | 26 | $ | (12 | ) | $ | 238 | |||||||
|
Operating Margin |
14 | % | 25 | % | -10 | % | 13 | % | ||||||||
|
Six months ended June 30, 2005 |
||||||||||||||||
|
Operating Profit (Loss) |
$ | 194 | $ | 17 | $ | (13 | ) | $ | 198 | |||||||
|
Operating Margin |
14 | % | 22 | % | -11 | % | 12 | % | ||||||||
General rentals . For the three months ended June 30, 2006, operating margin remained flat as compared to the same period in 2005. Higher selling costs related to growth in the business and increased costs for labor and benefits associated with normal inflationary increases were offset by higher rental rates.
For the six months ended June 30, 2006, operating margin was flat as compared to the same period in 2005. The benefit of higher rental rates was offset by higher selling costs related to growth in the business, increased costs for labor and benefits associated with normal inflationary increases, and increased professional costs related to regulatory issues and related matters.
Trench safety, pump and power . Trench safety, pump and power operating profit increased by $2 for the three months ended June 30, 2006 as compared to the same period in 2005. The increase reflects increased revenues of 25 percent due to higher rental rates and a 9 percent increase in same store revenues.
For the six months ended June 30, 2006, operating margin increased 3 percentage points as compared to the same period in 2005. Operating profit growth reflects a 33 percent increase in revenue primarily relating to a 17 percent increase in same store revenues.
Traffic control . Traffic control operating loss increased by $3 for the three months ended June 30, 2006 as compared to the same period in 2005, reflecting increased operating costs primarily due to an increase in the cost of materials consumed, as well as increased selling costs. The adverse impact of these increased costs was partially offset by increased revenues of approximately 3 percent.
Gross Margin . Gross margins by revenue classification were as follows:
| Three Months Ended | ||||||
|
June 30,
2006 |
June 30,
2005 |
|||||
|
Total gross margin |
34.0 | % | 31.9 | % | ||
|
Equipment rentals |
37.1 | % | 33.8 | % | ||
|
Sales of rental equipment |
30.6 | % | 25.3 | % | ||
|
New equipment sales |
17.7 | % | 18.2 | % | ||
|
Contractor supplies sales |
18.3 | % | 24.7 | % | ||
|
Service and other revenues |
53.7 | % | 52.9 | % | ||
25
| Six Months Ended | ||||||
| June 30, 2006 | June 30, 2005 | |||||
|
Total gross margin |
32.3 | % | 29.9 | % | ||
|
Equipment rentals |
34.8 | % | 30.8 | % | ||
|
Sales of rental equipment |
30.7 | % | 26.9 | % | ||
|
New equipment sales |
17.5 | % | 17.7 | % | ||
|
Contractor supplies sales |
18.8 | % | 24.8 | % | ||
|
Service and other revenues |
51.3 | % | 52.2 | % | ||
For the three months ended June 30, 2006, total gross margin improved 2.1 percentage points as compared to the same period in 2005. Equipment rentals gross margin improved 3.3 percentage points primarily due to a year-over-year increase in rental rates of 5.6 percent and strong revenue growth in trench safety, pump and power. The reduction in the gross margin on contractor supplies sales of 6.4 percentage points resulted primarily from increased costs related to the opening of new distribution centers and increased provisions for excess and slow moving inventory. The fluctuations in gross margin on sales of rental equipment and new equipment result primarily from changes in the mix of equipment sold.
For the six months ended June 30, 2006, total gross margin improved 2.4 percentage points as compared to the same period in 2005. Equipment rentals gross margin improved 4.0 percentage points primarily due to a year-over-year increase in rental rates of 6.0 percent and strong revenue growth in trench safety, pump and power. The reduction in the gross margin on contractor supplies sales of 6.0 percentage points resulted primarily from increased costs related to the opening of new distribution centers and increased provisions for excess and slow moving inventory. The increase in gross margin on the sales of rental equipment resulted from improved pricing and a change in the mix of equipment sold.
Selling, general and administrative expenses (“SG&A”) . SG&A expense information for the three and six months ended June 30, 2006 and 2005 was as follows:
| Three Months Ended | ||||||||
| June 30, 2006 | June 30, 2005 | |||||||
|
Total SG&A expenses |
$ | 164 | $ | 136 | ||||
|
SG&A as a percentage of revenue |
16.5 | % | 15.3 | % | ||||
| Six Months Ended | ||||||||
| June 30, 2006 | June 30, 2005 | |||||||
|
Total SG&A expenses |
$ | 317 | $ | 258 | ||||
|
SG&A as a percentage of revenue |
17.2 | % | 15.9 | % | ||||
SG&A expense primarily includes sales force compensation, bad debt expense, advertising and marketing expenses, third party professional fees, management salaries and clerical and administrative overhead.
For the three months ended June 30, 2006, SG&A expense increased $28. This increase reflects normal inflationary increases, higher selling and administrative costs related to growth in the business, as well as increased costs associated with professional fees for business improvement initiatives.
For the six months ended June 30, 2006, SG&A expense increased $59. In addition to normal inflationary increases as well as higher selling and administrative costs related to growth in the business, the year-over-year growth in SG&A expense reflects increased professional costs related to regulatory issues and related matters of $11 as well as professional fees for business improvement initiatives.
26
Non-rental depreciation and amortization for the three and six months ended June 30, 2006 and 2005 was as follows:
| Three Months Ended | ||||||||
|
June 30,
2006 |
June 30,
2005 |
|||||||
|
Non-rental depreciation and amortization |
$ | 24 | $ | 15 | ||||
|
Non-rental depreciation and amortization as a percent of revenue |
2 | % | 2 | % | ||||
| Six Months Ended | ||||||||
|
June 30,
2006 |
June 30,
2005 |
|||||||
|
Non-rental depreciation and amortization |
$ | 40 | $ | 29 | ||||
|
Non-rental depreciation and amortization as a percent of revenue |
2 | % | 2 | % | ||||
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 amortization expense associated with leasehold improvements and (ii) the amortization of other intangible assets. Our other intangible assets primarily consist of customer relationships and non-compete agreements. During the second quarter of 2006, we determined that we had been depreciating certain vehicles on capital lease over a period which exceeded the related contractual lease terms. As a result, our non-rental depreciation and amortization expense for the three and six months ended June 30, 2006 includes a pre-tax charge of $5 ($3 net of tax) to correct depreciation expense recorded since the fourth quarter of 2002. This correction does not affect historical or future cash flows and its effect on our current and prior years’ net income, cash flows from operations, and shareholders’ equity is not material.
Interest expense, net for the three and six months ended June 30, 2006 and 2005 was as follows:
| Three Months Ended | ||||||
|
June 30,
2006 |
June 30,
2005 |
|||||
|
Interest expense, net |
$ | 52 | $ | 43 | ||
| Six Months Ended | ||||||
|
June 30,
2006 |
June 30,
2005 |
|||||
|
Interest expense, net |
$ | 102 | $ | 86 | ||
Interest expense for the three and six months ended June 30, 2006 increased $9 and $16, respectively, reflecting the increase in interest rates applicable to our floating rate debt. As of June 30, 2006, approximately 42 percent of our debt was floating rate debt.
Income taxes . The following table summarizes our consolidated provision for income taxes and the related effective tax rate for the three and six months ended June 30, 2006 and 2005:
| Three Months Ended | ||||||||
|
June 30,
2006 |
June 30,
2005 |
|||||||
|
Pre-tax income |
$ | 96 | $ | 82 | ||||
|
Provision for income taxes |
$ | 40 | $ | 32 | ||||
|
Effective tax rate |
42 | % | 39 | % | ||||
| Six Months Ended | ||||||||
|
June 30,
2006 |
June 30,
2005 |
|||||||
|
Pre-tax income |
$ | 129 | $ | 101 | ||||
|
Provision for income taxes |
$ | 53 | $ | 39 | ||||
|
Effective tax rate |
41 | % | 39 | % | ||||
27
The difference between the consolidated effective tax rates and the U.S. federal statutory income tax rate of 35 percent primarily relates to state taxes as well as certain non-deductible charges. Additionally, during the second quarter, we recorded a net charge of $3 primarily related to an identified tax contingency item.
Our effective tax rate is based on recurring factors including the geographical mix of income before taxes and the related tax rates in those jurisdictions. In addition, our effective tax rate will change based on discrete or other nonrecurring events (such as audit settlements) that may not be predictable. We anticipate that our full year tax rate will approximate 39.9%.
Liquidity and Capital Resources
Liquidity . We manage our liquidity using internal cash management practices, which are subject to (1) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services, (2) the legal requirements of the agreements to which we are a party and (3) the statutes, regulations and practices of each of the local jurisdictions in which we operate.
Our principal existing sources of liquidity are cash generated from operations and from the sale of rental equipment and borrowings available under our revolving credit facility and receivables securitization facility. As of June 30, 2006, we had (i) $478 of borrowing capacity available under the revolving credit facility portion of our $1.55 billion senior secured credit facility, (ii) $200 of borrowing capacity available under our receivables securitization facility (reflecting the size of the eligible collateral pool as of such date and no loans outstanding) and (iii) cash and cash equivalents of $208. We believe that our existing sources of cash will be sufficient to support our existing operations over the next twelve months.
We expect that our principal needs for cash relating to our existing operations over the next twelve months will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory items offered for sale, (iii) payments due under operating leases, (iv) debt service and (v) acquisitions. We plan to fund such cash requirements from cash generated from operations as well as our existing sources of liquidity discussed above. In addition, we may seek additional financing through the securitization of some of our equipment or real estate or through the use of additional operating leases.
While emphasizing internal growth, we intend to continue to expand through a disciplined acquisition program. We will consider potential transactions of varying sizes and may, on a selective basis, pursue acquisition or consolidation opportunities involving other public companies or large privately-held companies. We expect to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. To the extent that our existing sources of cash described above are not sufficient to fund such future acquisitions, we will require additional debt or equity financing and, consequently, our indebtedness may increase or the ownership of existing stockholders may be diluted as we implement our growth strategy.
Sources and Uses of Cash . During the six months ended June 30, 2006, we (i) generated cash from operations of $369 and (ii) generated cash from the sale of rental equipment of $163. We used cash during this period principally to (i) purchase rental equipment of $612 (including the buy-out of equipment under operating leases of $44), (ii) purchase non-rental equipment of $47, (iii) purchase other companies, net of cash acquired, of $39 and (iv) make debt repayments of $15.
During the six months ended June 30, 2005, we (i) generated cash from operations of $318 and (ii) generated cash from the sale of rental equipment of $167. We used cash during this period principally to (i) purchase rental equipment of $484, (ii) purchase non-rental equipment of $32, (iii) purchase other companies, net of cash acquired, of $3 and (iv) make debt repayments of $25.
28
Our corporate family credit ratings as of August 7, 2006 were as follows:
| Corporate Rating | Outlook (1)(2)(3) | |||
|
Moody’s |
B2 | Developing | ||
|
S&P |
BB- | Developing | ||
|
Fitch |
BB- | Stable |
| (1) | On April 3, 2006, Moody’s changed its outlook to Developing from Negative. |
| (2) | On April 13, 2006, S&P changed its outlook to Developing from Negative. |
| (3) | On June 6, 2006, Fitch changed its outlook to Stable from Negative. |
Both our ability to obtain financing and the related cost of borrowing are affected by our credit ratings, which are periodically reviewed by these rating agencies. Our current credit ratings are below investment grade and we expect our access to the public debt markets to be limited to the non-investment grade segment until our ratings reflect an investment grade rating.
Certain Information Concerning Off-Balance Sheet Arrangements
We lease real estate, rental equipment and non-rental equipment under operating leases as a regular business activity. As part of some of our equipment operating leases, we guarantee that the value of the equipment at the end of the term will not be less than a specified projected residual value. If the actual residual value for all equipment subject to such guarantees were to be zero, then our maximum potential liability under these guarantees would be approximately $11. Under current circumstances we do not anticipate paying significant amounts under these guarantees; however, we cannot be certain that changes in market conditions or other factors will not cause the actual residual values to be lower than those currently anticipated. In accordance with Financial Accounting Standards Board Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” this potential liability was not reflected on our balance sheet as of June 30, 2006 or December 31, 2005 or any prior date because the leases associated with such guarantees were entered into prior to January 1, 2003.
Relationship Between Holdings and URNA
Holdings is principally a holding company and primarily conducts its operations through its wholly owned subsidiary, URNA, and subsidiaries of URNA. Holdings provides certain services to URNA in connection with its operations. These services principally include: (i) senior management services, (ii) finance and tax related services and support, (iii) information technology systems and support, (iv) acquisition related services, (v) legal services, and (vi) human resource support. In addition, Holdings leases certain equipment and real property that are made available for use by URNA and its subsidiaries.
Forward-Looking Statements
Certain statements in this Item 2 or contained elsewhere in this Report, as well as other oral and written statements made by us to the public, contain and incorporate by reference forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements can generally be identified by words such as “believes,” “expects,” “plans,” “intends,” “projects,” “forecasts,” “may,” “will,” “should,” “on track,” “affirms” or “anticipates,” or the negative thereof or comparable terminology, or by discussions of strategy or outlook. Our businesses and operations are subject to a variety of risks and uncertainties, many of which are beyond our control, and, consequently, actual results may differ materially from those projected by any forward-looking statements. Factors that could cause actual results to differ from those projected include, but are not limited to, the following: (1) weaker or unfavorable economic and industry conditions can reduce demand and prices for our products and services, (2) non-residential construction spending, or governmental funding for highway, infrastructure and other construction projects, may not reach
29
expected levels, (3) we may not have access to capital that our businesses or growth plans may require, (4) any companies we acquire could have undiscovered liabilities, may stretch our management capabilities and may be difficult to integrate, (5) rates we can charge may increase less than anticipated, or costs we incur may increase more than anticipated, (6) we are highly-leveraged, which requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions, (7) we have not yet successfully remediated a previously identified material weakness in our internal controls relating to our financial close process, (8) we are subject to an ongoing inquiry by the SEC, and there can be no assurance that its outcome will not require additional changes in our accounting policies and practices, restatements of financial statements, revisions of results or guidance, or otherwise have adverse consequences for us and (9) we may incur additional significant expenses in connection with the SEC inquiry, our related internal reviews, the class action lawsuits and derivative actions that were filed in light of the SEC inquiry, or other litigation, regulatory or investigatory matters, related thereto or otherwise. For a fuller description of these and other possible uncertainties, please refer to our 2005 Form 10-K, as well as to our subsequent filings with the SEC.
Our forward-looking statements contained herein speak only as of the date of this Report or, in the case of any document incorporated by reference, the date of that document. We make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Our exposure to market risk primarily consists of (i) interest rate risk associated with our variable rate debt and (ii) foreign currency exchange rate risk primarily associated with our Canadian operations.
Interest Rate Risk . We periodically utilize interest rate swap agreements and interest rate cap agreements to manage our interest costs and exposure to changes in interest rates. As of June 30, 2006, we had swap agreements with an aggregate notional amount of $1.2 billion and cap agreements with an aggregate notional amount of $725. The effect of the swap agreements was, at June 30, 2006, to convert $1.2 billion of our fixed rate notes to floating rate instruments. The fixed rate notes being converted consisted of (i) $445 of our 6 1 / 2 percent notes through 2012, (ii) $375 of our 7 percent notes, and (iii) $375 of our 7 3 / 4 percent senior subordinated notes through 2013.
As of June 30, 2006, after giving effect to our interest rate swap and cap agreements, we had an aggregate of $1.3 billion of indebtedness that bears interest at variable rates. For this purpose, the portion of the term loan subject to the cap is considered fixed. The debt that is subject to fluctuations in interest rates includes $143 of borrowings under our Canadian revolving credit facility, $1.2 billion in swaps, and $8 of term loans not subject to an interest rate cap. The weighted-average effective interest rates applicable to our variable rate debt on June 30, 2006 were (i) 6.2% percent for the revolving credit facility (represents the Canadian rate since the amount outstanding was in Canadian borrowings), (ii) 7.4% percent for the term loan and (iii) 7.9% percent for the debt subject to our swap agreements. As of June 30, 2006, based upon the amount of our variable rate debt outstanding, after giving effect to our interest rate swap agreements, our annual earnings would decrease by approximately $8 for each one percentage point increase in the interest rates applicable to our variable rate debt. The amount of our variable rate indebtedness may fluctuate significantly as a result of changes in the amount of indebtedness outstanding under our revolving credit facility and receivables securitization facility from time to time.
Currency Exchange Risk . The functional currency for our Canadian operations is the Canadian dollar. As a result, our future earnings could be affected by fluctuations in the exchange rate between U.S. and Canadian dollars. Based upon the level of our Canadian operations during 2005 relative to the Company as a whole, a 10 percent change in this exchange rate would not have a material impact on our earnings. In addition, we periodically enter into foreign exchange contracts to hedge our transaction exposures. We had no outstanding
30
foreign exchange contracts as of June 30, 2006. We do not engage in purchasing forward exchange contracts for speculative purposes.
| Item 4. | Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Offer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of June 30, 2006, our management carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a–15(e) and 15d–15(e) of the Exchange Act. Based on the continued existence of the material weakness in internal control over financial reporting described below, our chief executive officer and chief financial officer have concluded that, as of June 30, 2006, our disclosure controls and procedures were not effective.
In light of the material weaknesses in internal control described below, we performed additional procedures to ensure that our unaudited condensed consolidated financial statements included in this Report were prepared in accordance with GAAP. These steps included, among other actions, expansion of our closing procedures, including performing detailed analyses of accounts and review of subsequent transactions to affirm account balances. As a result of the additional procedures, management has concluded that the unaudited condensed consolidated financial statements included in this Report are fairly stated, in all material respects, in accordance with GAAP.
Under the supervision of our chief executive officer and chief financial officer, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. As previously described in greater detail in Item 9A of our 2005 Form 10-K, we determined that internal controls over the financial statement close process were not effective and represented a material weakness in internal control over financial reporting as of December 31, 2005. This material weakness in internal control over financial reporting had not been effectively remediated, and therefore continued to exist, as of June 30, 2006.
During 2006, we are implementing short-term enhancements to the financial close process to remediate the material weakness in internal control over financial reporting, as well as a long-term finance transformation. The short-term enhancements include:
| • | Formalizing the account reconciliation and analysis processes to ensure accounts are properly analyzed and reconciled monthly; |
| • | Performing additional review and documentation of the assumptions and processes used in determining the reserve balances for judgmental accounts, including converting underlying system queries to production reports where practical; |
| • | Adopting measures to verify that journal entries have been properly prepared with supporting documentation and approved by appropriate management; |
| • | Documenting policies and procedures governing the financial statement close process; and |
31
| • | Recruiting an experienced Corporate Controller and other additional staff for the corporate finance and accounting functions. |
In addition to these short-term measures, in the first quarter of 2006 we initiated a long-term enterprise-wide finance transformation project to assess and improve various aspects of our financial operations and systems. Substantial improvements to our financial operations are expected to be achieved from this project over a twelve- to eighteen-month period.
Until the short-term remediation measures discussed above are completed, the material weakness in the financial statement close process will continue to exist. Management presently anticipates, but cannot guarantee, that the short-term changes necessary to remediate this material weakness will be in place by year-end 2006. Until such time that the remediation is effectively completed, we will rely on additional analyses and other detailed procedures to assist us with meeting the objectives otherwise fulfilled by an effective internal control environment.
Changes in Internal Control over Financial Reporting
Except for the ongoing progress related to the remediation measures discussed above, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2006 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
32
| Item 1. | Legal Proceedings |
The information set forth under note 5 to our unaudited condensed consolidated financial statements in this Report is incorporated by reference in answer to this Item.
| Item 1A. | Risk Factors |
There have been no material changes with respect to this Item from the disclosure included in our 2005 Form 10-K.
33
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Purchases of Equity Securities by the Issuer
The following table provides information about purchases of the Company’s common stock by the Company during the second quarter of 2006:
|
Period |
Total Number of
Shares Purchased (1) |
Average Price
Paid per Share |
|||
|
April 1, 2006 to April 30, 2006 |
2,910 | $ | 33.76 | ||
|
May 1, 2006 to May 31, 2006 |
3,776 | $ | 32.56 | ||
|
June 1, 2006 to June 30, 2006 |
— | — | |||
|
Total |
6,686 | ||||
| (1) | The shares were surrendered to the Company by employees in order to satisfy tax withholding obligations upon the vesting of restricted stock. These shares were not acquired pursuant to any repurchase plan or program. |
34
| Item 4. | Submission of Matters to a Vote of Security Holders |
The Company’s Annual Meeting of Stockholders was held on June 13, 2006. The following directors were elected by holders of shares of our common stock and our Class D-1 Perpetual Convertible Preferred Stock, as follows:
| Votes | ||||
| For | Withheld | |||
|
Class 1 Directors |
||||
|
Wayland R. Hicks |
71,150,101 | 3,680,151 | ||
|
Singleton B. McAllister |
71,159,207 | 3,671,045 | ||
|
John S. McKinney |
71,150,367 | 3,679,885 | ||
|
Class 2 Directors |
||||
|
Brian D. McAuley |
70,524,236 | 4,306,016 | ||
|
Jason Papastavrou |
71,158,947 | 3,671,305 | ||
|
Gerald Tsai, Jr. |
71,062,105 | 3,768,147 | ||
The Class 1 directors were elected for a two-year term expiring in 2008 and the Class 2 directors were elected for a three-year term expiring in 2009.
In addition, the following directors were elected by holders of shares of our Series C Perpetual Convertible Preferred Stock (the “Series C Preferred Stock”) for a one-year term expiring in 2007, as follows:
| Votes | ||||
| For | Withheld | |||
|
Series C Preferred Stock Directors |
||||
|
Leon D. Black |
12,000,000 | 0 | ||
|
Michael S. Gross |
12,000,000 | 0 | ||
The following individuals, who were not up for election at the 2006 Annual Meeting of Stockholders, continue to serve as our Class 3 directors for a term expiring in 2007: Bradley S. Jacobs (chairman); Howard L. Clark, Jr.; Mark A. Suwyn; and Lawrence “Keith” Wimbush.
The other matters voted upon at the 2006 Annual Meeting of Stockholders, and the results of those votes, are as follows:
| • | To amend and restate the United Rentals, Inc. 2001 Senior Stock Plan (now the United Rentals, Inc. 2001 Comprehensive Stock Plan). |
|
For |
Against | Abstain | Broker Non-Votes | |||
|
50,532,627 |
30,843,497 | 37,092 | 5,417,036 |
| • | To ratify the appointment of Ernst & Young LLP as the independent public auditors of the Company for 2006. |
|
For |
Against | Abstain | Broker Non-Votes | |||
|
85,082,855 |
1,709,667 | 37,730 | 0 |
| • | To adopt a non-binding stockholder proposal concerning the repeal of the Company’s classified board. |
|
For |
Against | Abstain | Broker Non-Votes | |||
|
51,785,896 |
29,345,754 | 281,566 | 5,417,036 |
There were no additional matters voted upon at the 2006 Annual Meeting of Stockholders. An anticipated stockholder proposal concerning director election by majority vote was not presented at the meeting and, accordingly, votes on the proposal were not tabulated.
35
| Item 6. | Exhibits |
(a) Exhibits:
|
Exhibit
Number |
Description of Exhibit |
||
| 3 | (a) | Amended and Restated Certificate of Incorporation of United Rentals, Inc., (incorporated by reference to exhibit 3.1 of United Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 1998) | |
| 3 | (b) | Certificate of Amendment to the United Rentals, Inc. Amended and Restated Certificate of Incorporation dated, September 29, 1998 (incorporated by reference to Exhibit 4.2 to the United Rentals, Inc. Registration Statement on Form S-3, No. 333-70151) | |
| 3 | (c) | By-laws of United Rentals, Inc. (incorporated by reference to exhibit 3.2 of United Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 1998) | |
| 3 | (d) | Form of Certificate of Designation for Series C Perpetual Convertible Preferred Stock (incorporated by reference to exhibit 3(f) of United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2001) | |
| 3 | (e) | Form of Certificate of Designation for Series D Perpetual Convertible Preferred Stock (incorporated by reference to exhibit 3(g) of United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2001) | |
| 3 | (f) | Form of Certificate of Designation for Series E Junior Participating Preferred Stock (incorporated by reference to Exhibit A of Exhibit 4 of the United Rentals, Inc. Current Report on Form 8-K filed on October 5, 2001) | |
| 3 | (g) | Rights Agreement dated September 28, 2001 between United Rentals, Inc. and American Stock Transfer & Trust Co., as Rights Agent (incorporated by reference to Exhibit 4 of the United Rentals, Inc. Current Report on Form 8-K filed on October 5, 2001) | |
| 3 | (h) | Amended and Restated Certificate of Incorporation of United Rentals (North America), Inc., (incorporated by reference to Exhibit 3.3 of the United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998) | |
| 3 | (i) | By-laws of United Rentals (North America), Inc., (incorporated by reference to Exhibit 3.4 of the United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998) | |
| 10 | (a)* | Employment Agreement dated June 5, 2006, between United Rentals, Inc. and Michael J. Kneeland | |
| 10 | (b)* | Form of United Rentals, Inc. Restricted Stock Unit Agreement for Senior Management | |
| 10 | (c)* | Form of United Rentals, Inc. Restricted Stock Unit Agreement for Non-Employee Directors | |
| 10 | (d)* | Compensation Program for Non-Employee Directors of United Rentals, Inc. | |
| 10 | (e)* | Employment Agreement dated June 14, 2006, between United Rentals, Inc. and Roger E. Schwed, including a form of indemnification agreement | |
| 10 | (f)* | 2001 Comprehensive Stock Plan (formerly the 2001 Senior Stock Plan) | |
| 31 | (a)* | Rule 13a-14(a) Certification by Chief Executive Officer | |
| 31 | (b)* | Rule 13a-14(a) Certification by Chief Financial Officer | |
| 32 | (a)* | Section 1350 Certification by Chief Executive Officer | |
| 32 | (b)* | Section 1350 Certification by Chief Financial Officer | |
| * | Filed herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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UNITED RENTALS, INC. |
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| Dated: | August 7, 2006 |
By: |
/s/ M ARTIN E. W ELCH III | |||||||
| Martin E. Welch III | ||||||||||
| Chief Financial Officer | ||||||||||
| (Principal Financial and Accounting Officer) | ||||||||||
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UNITED RENTALS (NORTH AMERICA), INC. |
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| Dated: | August 7, 2006 |
By: |
/s/ M ARTIN E. W ELCH III | |||||||
| Martin E. Welch III | ||||||||||
| Chief Financial Officer | ||||||||||
| (Principal Financial and Accounting Officer) | ||||||||||
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Exhibit 10(a)
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the “Agreement”), made in Greenwich, Connecticut as of June 5, 2006, between United Rentals, Inc., a Delaware corporation (the “Company”), and Michael J. Kneeland (“Executive”).
WHEREAS, the Company has employed Executive as its Executive Vice President, Operations;
WHEREAS, the Company desires to continue to employ Executive as its Executive Vice President, Operations, and Executive desires to accept such continued employment on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements hereinafter set forth, the Company and Executive agree as follows:
1. At Will Employment .
Executive will be employed by the Company at will, which means that either the Executive or the Company may terminate the employment relationship at any time and for any reason or no reason. Notwithstanding the foregoing, following the termination of Executive’s employment, Executive shall be entitled to the compensation and benefits provided for in Section 4 of this Agreement, as applicable depending on the circumstances of such termination.
2. Employment .
(a) Employment by the Company . Executive agrees to be employed by the Company upon the terms and subject to the conditions set forth in this Agreement. Executive shall serve as Executive Vice President, Operations of the Company and shall report to the Chief Executive Officer of the Company and/or the President of the Company, as determined by the Company.
(b) Performance of Duties . During his employment, Executive shall faithfully and diligently perform Executive’s duties in conformity with the directions of the Company and serve the Company to the best of Executive’s ability. Executive shall devote his full business time and best efforts to the business and affairs of the Company. In his capacity as Executive Vice President, Operations, Executive shall have such duties and responsibilities as are customary for Executive’s position and any other duties or responsibilities he may be assigned by the Chief Executive Officer of the Company and/or the President of the Company.
(c) Place of Performance . Executive shall be based at the Company’s offices in Greenwich, Connecticut. Executive recognizes that his duties will require, at the Company’s expense, travel to domestic and international locations.
3. Compensation and Benefits .
(a) Base Salary . The Company agrees to pay to Executive a base salary (“Base Salary”) at the annual rate of $400,000. Upon recommendation of the Chief Executive Officer, the Compensation Committee of the Board of Directors of the Company may determine in its sole discretion to increase, but not decrease, the Base Salary. Payments of the Base Salary shall be payable in equal installments in accordance with the Company’s standard payroll practices.
(b) Annual Incentive Bonus Plan . Executive shall be eligible to receive an annual cash incentive bonus (the “Annual Bonus”) pursuant to the terms of the United Rentals, Inc. Annual Incentive Compensation Plan, as it may be amended from time to time (the “Annual Incentive Plan”). The Target Allocation (as defined in the Annual Incentive Plan) shall be 100% of Base Salary. The maximum incentive opportunity shall be 125% of base salary. Executive has been determined by the Committee (as defined in the Annual Incentive Plan) to be a Covered Employee (as defined in the Annual Incentive Plan) under the Annual Incentive Plan, and Executive’s Performance Goals (as defined in the Annual Incentive Plan) shall be determined by the Committee (as defined in the Annual Incentive Plan) in accordance with Section 2.11.1 and Article V of the Annual Incentive Plan. The Annual Bonus shall be paid to Executive at such times and in such amounts as provided in the Annual Incentive Plan.
(c) Restricted Stock Units . Executive shall receive an aggregate grant of 100,000 restricted stock units (50,000 to vest over time and 50,000 to vest upon the achievement of certain performance objectives), in accordance with and subject to the provisions of the United Rentals, Inc. 2001 Comprehensive Stock Plan, as it may be amended from time to time, and a 2001 Comprehensive Stock Plan Restricted Stock Unit Agreement in substantially the form attached hereto as Exhibit A.
(d) Benefits and Perquisites . Executive shall be entitled to participate in, to the extent Executive is otherwise eligible under the terms thereof, the benefit plans and programs, and receive the benefits and perquisites, generally provided by the Company to executives of the Company, including without limitation family medical insurance (subject to applicable employee contributions). Executive shall be entitled to 20 vacation days per year, such days to be accrued in accordance with Company policy. Without limiting the foregoing, Executive may in the future be eligible for consideration of an award of units under the United Rentals, Inc. Long-Term Incentive Plan (the “LTIP”), as it may be amended from time to time, any such award being subject to the approval of the Committee (as such term is defined in the LTIP).
(e) Business Expenses . The Company agrees to reimburse Executive for all reasonable and necessary travel, business entertainment and other business expenses incurred by Executive in connection with the performance of his duties under this Agreement in accordance with, and subject to, the Company’s standard policies. Such reimbursements shall be made by the Company on a timely basis upon submission by Executive of vouchers in accordance with the Company’s standard procedures.
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(f) Company Automobile . During Executive’s employment with the Company, the Company shall provide to Executive an automobile owned or leased by the Company in accordance with, and subject to, Company practice and policy. The Company shall be responsible for all reasonable costs associated with the purchase or lease of such automobile, insurance, routine maintenance, and service and repair of the vehicle.
(g) Indemnification . The Company shall indemnify Executive in accordance with, and subject to, the terms of the Indemnification Agreement between the Company and Executive entered into as of August 3, 2004 (the “Indemnification Agreement”). Notwithstanding anything in this Agreement to the contrary, the rights and obligations of the parties with respect to indemnification (including dispute resolution, governing law and notice) shall be governed by the Indemnification Agreement.
(h) No Other Compensation or Benefits; Payment . The compensation and benefits specified in this Section 3 and in Section 4 of this Agreement shall be in lieu of any and all other compensation and benefits. Payment of all compensation and benefits to Executive specified in this Section 3 and in Section 4 of this Agreement (i) shall be made in accordance with the relevant Company policies in effect from time to time to the extent the same are consistently applied, including normal payroll practices, and (ii) shall be subject to all legally required and customary withholdings.
(i) Cessation of Employment . In the event Executive shall cease to be employed by the Company for any reason, then Executive’s compensation and benefits shall cease on the date of such event, except as otherwise specifically provided herein or in any applicable employee benefit plan or program or as required by law.
4. Compensation Following Termination . Executive shall be entitled only to the following compensation and benefits upon termination of employment:
(a) General . On any termination of Executive’s employment, he shall be entitled to:
| (i) | any accrued but unpaid Base Salary for services rendered through the date of termination; |
| (ii) | any vacation accrued to the date of termination; |
| (iii) | any accrued but unpaid expenses required to be reimbursed in accordance with Section 3(e) of this Agreement; |
| (iv) | receive any benefits to which he may be entitled upon termination pursuant to the plans and programs referred to in Section 3(d) hereof or as may be required by applicable law; and |
| (v) |
receive any amounts or benefits to which he may be entitled upon termination pursuant to the plans and |
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agreement referred to in Sections 3(b) and 3(c) hereof in accordance with the terms of such plans and agreement. |
(b) Termination by Reason of Death or Disability; Termination by the Company for Cause; Termination by Executive Without Good Reason . In the event that Executive’s employment is terminated (i) by reason of Executive’s death or Disability (as defined below); (ii) by the Company for Cause (as defined below) or (iii) by Executive without Good Reason (as defined below), Executive (or his estate, as the case may be) shall be entitled only to those items identified in Section 4(a).
(c) Termination by the Company Without Cause; Termination by Executive for Good Reason . In the event that Executive’s employment is terminated (i) by the Company without Cause or (ii) by Executive for Good Reason, Executive shall be entitled only to the following:
| (i) | those items identified in Section 4(a); and |
| (ii) | the continued payment of the Base Salary (as determined pursuant to Section 3(a)) for two years. Such sums shall be paid at the times and in the amounts Executive’s Base Salary would have been paid had Executive’s employment not terminated; provided, however, that if necessary to comply with Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable administrative guidance and regulations, the payment of such sums shall be made as follows: (A) no payments shall be made for a six-month period following the date of termination, (B) an amount equal to six months of Base Salary shall be paid in a lump sum six months following the date of termination, and (C) during the period beginning six months following the date of termination through the remainder of the two-year period, payment of the Base Salary shall be made at the times Executive’s Base Salary would have been paid had Executive’s employment not terminated. |
(d) Definitions of Cause, Good Reason and Disability .
(i) For purposes of this Agreement, the term “Cause” shall mean any of the following: (A) Executive has misappropriated any funds or property of the Company or its affiliates, or has willfully or negligently destroyed property of the Company or its affiliates; (B) Executive has been convicted of any crime that impairs the Executive’s ability to perform his duties and responsibilities with the Company, or that causes or may, in the determination of the Company, cause damage to the Company or its affiliates or their operations or reputation, or that involves fraud, embezzlement or moral turpitude; (C) Executive has (1) obtained personal profit from any transaction of or involving the Company or an affiliate of the Company (or engaged in any activity with the intent of obtaining such a personal profit)
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without the prior written approval of the Company or (2) engaged in any other conduct which constitutes a breach of fiduciary duty or the duty of loyalty to the Company or its affiliates and which, in the determination of the Company, has resulted or may result in damage to the Company or its affiliates; (D) Executive’s material failure to perform his duties with the Company (other than as a result of total or partial incapacity due to physical or mental illness), as determined by the Company; (E) Executive has engaged in on-the-job conduct that falls below the standards the Company may reasonably expect; (F) Executive’s use of alcohol or drugs has interfered with his ability to perform his duties and responsibilities with the Company, as determined by the Company; (G) Executive has knowingly made any untrue statement or omission to the Company or an affiliate of the Company, including, without limitation, on Executive’s application for employment with the Company, regardless of when discovered; (H) Executive has falsified Company records (or those of one of its affiliates); (I) Executive has committed any act intended to damage the reputation of the Company or an affiliate of the Company or which in fact, damages the reputation of the Company or an affiliate, as determined by the Company; (J) Executive (1) has violated the Company’s material policies or rules (including, but not limited to, the Company’s equal employment opportunity policies) or (2) is guilty of gross negligence or willful misconduct in the performance of his duties with the Company; or (K) Executive has breached a covenant set forth in Section 5 or otherwise violated any confidentiality, non-competition or non-solicitation prohibitions imposed on Executive under common law or under the terms of any agreement with the Company; provided, however, that, if susceptible of cure, a termination by the Company under Sections 4(d)(i)(D) or 4(d)(i)(E) shall be effective only if, within 30 days following delivery of a written notice by the Company to Executive that the Company is terminating his employment for Cause, Executive has failed to cure the circumstances giving rise to Cause.
(ii) For purposes of this Agreement, the term “Good Reason” shall mean any of the following: (A) demotion from the position of Executive Vice President, Operations; (B) the Company decreases or fails to pay the compensation described in Sections 3(a) and 3(b) of this Agreement (in accordance with, and subject to, such provisions); (C) a material breach of this Agreement by the Company (except as qualified by Section 4(d)(ii)(E) below); (D) Executive’s job site is relocated to a location which is more than fifty (50) miles from Greenwich, Connecticut, unless the parties mutually agree to such relocation; or (E) material diminution of Executive’s duties or responsibilities (it being understood by the parties that a simultaneous increase and decrease of Executive’s duties and responsibilities consented to by the parties, such consent not to be unreasonably withheld, shall not constitute Good Reason); provided, however, that a termination by Executive for Good Reason under any of clauses (A) – (E) of this Section 4(d)(ii) shall be effective only if, within 30 days following delivery of a written notice by Executive to the Company that Executive is terminating his employment for Good Reason, the Company has failed to cure the circumstances giving rise to Good Reason.
(iii) For purposes of this Agreement, a “Disability” shall occur in the event Executive is unable to perform the duties and responsibilities contemplated under this Agreement for a period of either (A) 90 consecutive days or (B) 6 months in any 12-month period due to physical or mental incapacity or impairment. During any period that Executive fails to perform Executive’s duties hereunder as a result of incapacity or impairment due to physical or mental illness (the “Disability Period”), Executive shall continue to receive the
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compensation and benefits provided by Section 3 of this Agreement until Executive’s employment hereunder is terminated; provided, however, that the amount of base compensation and benefits received by Executive during the Disability Period shall be reduced by the aggregate amounts, if any, payable to Executive under any disability benefit plan or program provided to Executive by the Company.
(iv) For the avoidance of doubt, the definitions of “Cause,” “Good Reason” and “Disability” included in this Agreement shall also apply to any prior or future award of units to Executive under the LTIP.
(e) Effect of Material Breach of Section 5 on Compensation Following Termination of Employment Pursuant to Section 4(c)(ii) . If, at the time of termination of Executive’s employment or any time thereafter, Executive is in material breach of any covenant contained in Section 5 hereof, Executive shall not be entitled to any payments (or if payments have commenced, any continued payment) under Section 4(c)(ii).
(f) No Further Liability; Release . Other than providing the compensation and benefits provided for in accordance with this Section 4, the Company and its directors, officers, employees, subsidiaries, affiliates, stockholders, successors, assigns, agents and representatives shall have no further obligation or liability to Executive or any other person under this Agreement. The payment of any amounts pursuant to this Section 4 (other than payments required by law) is expressly conditioned upon the delivery by Executive to the Company of a release in form and substance reasonably satisfactory to the Company of any and all claims Executive may have against the Company and its directors, officers, employees, subsidiaries, affiliates, stockholders, successors, assigns, agents and representatives arising out of or related to Executive’s employment by the Company and the termination of such employment.
5. Exclusive Employment; Noncompetition; Nonsolicitation; Nondisclosure of Proprietary Information; Surrender of Records; Inventions and Patents .
5.1 No Conflict; No Other Employment . During the period of Executive’s employment with the Company, Executive shall not: (i) engage in any activity which conflicts or interferes with or derogates from the performance of Executive’s duties hereunder nor shall Executive engage in any other business activity, whether or not such business activity is pursued for gain or profit, except as approved in advance in writing by the Company; provided, however, that Executive shall be entitled to manage his personal investments and otherwise attend to personal affairs, including charitable, social and political activities, in a manner that does not unreasonably interfere with his responsibilities hereunder, or (ii) accept or engage in any other employment, whether as an employee or consultant or in any other capacity, and whether or not compensated therefor.
5.2 Noncompetition; Nonsolicitation .
(a) Executive acknowledges and recognizes the highly competitive nature of the Company’s business and that access to the Company’s confidential records and proprietary information renders him special and unique within the Company’s industry. In consideration of the payment by the Company to Executive of amounts that may hereafter be
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paid to Executive pursuant to this Agreement (including, without limitation, pursuant to Sections 3 and 4 hereof) and other obligations undertaken by the Company hereunder, Executive agrees that during (i) his employment with the Company, and (ii) the period beginning on the date of termination of employment and ending two years after the date of termination of employment (the “Covered Time”), Executive shall not, directly or indirectly, engage (as owner, investor, partner, stockholder, employer, employee, consultant, advisor, director or otherwise) in any Competing Business in any Restricted Area (each as defined below), provided that the provisions of this Section 5.2(a) will not be deemed breached merely because Executive owns less than 5% of the outstanding common stock of a publicly-traded company. For purposes of this Agreement, “Competing Business” shall mean (i) any business in which the Company is currently engaged, including, but not limited to, renting and selling equipment and merchandise to the commercial and general public, including construction equipment, earthmoving equipment, aerial equipment, aerial work platforms, traffic safety equipment, trench safety equipment, industrial equipment, landscaping equipment, and home repair and maintenance equipment, as well as highway construction related technologies and the buying of companies that engage in such activities along with the computer hardware and software systems designed, developed and utilized with respect to any of the foregoing; (ii) any other future business which the Company engages in during Executive’s employment with the Company; and (iii) any of the entities identified on Exhibit B. For purposes of this Agreement, “Restricted Area” means each of: (i) any state in the United States and any province in Canada in which the Company conducts any business currently or during Executive’s future employment with the Company; and (ii) 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 Executive shall have performed any duties for the Company during his employment with the Company.
(b) In further consideration of the payment by the Company to Executive of amounts that may hereafter be paid to Executive pursuant to this Agreement (including, without limitation, pursuant to Sections 3 and 4 hereof) and other obligations undertaken by the Company hereunder, Executive agrees that during his employment and the Covered Time, he shall not, directly or indirectly, (i) solicit, encourage or attempt to solicit or encourage any of the employees, agents, consultants or representatives of the Company or any of its affiliates to terminate his, her, or its relationship with the Company or such affiliate; (ii) solicit, encourage or attempt to solicit or encourage any of the employees, agents, consultants or representatives of the Company or any of its affiliates to become employees, agents, representatives or consultants of any other person or entity; (iii) solicit or attempt to solicit any customer, vendor or distributor of the Company or any of its affiliates with respect to any product or service being furnished, made, sold, rented or leased by the Company or such affiliate; or (iv) persuade or seek to persuade any customer of the Company or any affiliate to cease to do business or to reduce the amount of business which any customer has customarily done or contemplates doing with the Company or such affiliate, whether or not the relationship between the Company or its affiliate and such customer was originally established in whole or in part through Executive’s efforts. For purposes of this Section 5.2(b) only, during the Covered Time, the terms “customer,” “vendor” and “distributor” shall mean a customer, vendor or distributor who has done business with the Company or any of its affiliates within twelve months preceding the termination of Executive’s employment.
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(c) During Executive’s employment with the Company and during the Covered Time, Executive agrees that upon the earlier of Executive’s (i) negotiating with any Competitor (as defined below) concerning the possible employment of Executive by the Competitor, (ii) receiving an offer of employment from a Competitor, or (iii) becoming employed by a Competitor, Executive will (A) immediately provide notice to the Company of such circumstances and (B) provide copies of Section 5 of this Agreement to the Competitor. Executive further agrees that the Company may provide notice to a Competitor of Executive’s obligations under this Agreement, including without limitation Executive’s obligations pursuant to Section 5 hereof. For purposes of this Agreement, “Competitor” shall mean any entity (other than the Company or any of its affiliates) that engages, directly or indirectly, in any Competing Business.
(d) Executive understands that the provisions of this Section 5.2 may limit his ability to earn a livelihood in a business similar to the business of the Company or its affiliates but nevertheless agrees and hereby acknowledges that the consideration provided under this Agreement, including any amounts or benefits provided under Sections 3 and 4 hereof and other obligations undertaken by the Company hereunder, is sufficient to justify the restrictions contained in such provisions. In consideration thereof and in light of Executive’s education, skills and abilities, Executive agrees that he will not assert in any forum that such provisions prevent him from earning a living or otherwise are void or unenforceable or should be held void or unenforceable.
5.3 Proprietary Information . Executive acknowledges that during the course of his employment with the Company he will necessarily have access to and make use of proprietary information and confidential records of the Company and its affiliates. Executive covenants that he shall not during his employment or at any time thereafter, directly or indirectly, use for his own purpose or for the benefit of any person or entity other than the Company, nor otherwise disclose to any individual or entity, any proprietary information, unless such disclosure has been authorized in writing by the Company or is otherwise required by law. Executive acknowledges and understands that the term “proprietary information” includes, but is not limited to: (a) the software products, programs, applications, and processes utilized by the Company or any of its affiliates; (b) the name and/or address of any customer or vendor of the Company or any of its affiliates or any information concerning the transactions or relations of any customer or vendor of the Company or any of its affiliates with the Company or such affiliate or any of its or their partners, principals, directors, officers or agents; (c) any information concerning any product, technology, or procedure employed by the Company or any of its affiliates but not generally known to its or their customers, vendors or competitors, or under development by or being tested by the Company or any of its affiliates but not at the time offered generally to customers or vendors; (d) any information relating to the computer software, computer systems, pricing or marketing methods, sales margins, cost of goods, cost of material, capital structure, operating results, borrowing arrangements or business plans of the Company or any of its affiliates; (e) any information which is generally regarded as confidential or proprietary in any line of business engaged in by the Company or any of its affiliates; (f) any business plans, budgets, advertising or marketing plans; (g) any information contained in any of the written or oral policies and procedures or manuals of the Company or any of its affiliates; (h) any information belonging to customers or vendors of the Company or any of its affiliates or any other person or entity which the Company or any of its affiliates has agreed to hold in
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confidence; (i) any inventions, innovations or improvements covered by this Agreement; and (j) all written, graphic and other material relating to any of the foregoing. Executive acknowledges and understands that information that is not novel or copyrighted or patented may nonetheless be proprietary information. The term “proprietary information” shall not include information generally available to and known by the public or information that is or becomes available to Executive on a non-confidential basis from a source other than the Company, any of its affiliates, or the directors, officers, employees, partners, principals or agents of the Company or any of its affiliates (other than as a result of a breach of any obligation of confidentiality).
5.4 Confidentiality and Surrender of Records . Executive shall not during his employment or at any time thereafter (irrespective of the circumstances under which Executive’s employment by the Company terminates), except as required by law, directly or indirectly publish, make known or in any fashion disclose any confidential records to, or permit any inspection or copying of confidential records by, any individual or entity other than in the course of such individual’s or entity’s employment or retention by the Company. Upon termination of employment for any reason or request by the Company, Executive shall deliver promptly to the Company all property and records of the Company or any of its affiliates, including, without limitation, all confidential records. For purposes hereof, “confidential records” means all correspondence, reports, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, or electronic or other media or equipment of any kind which may be in Executive’s possession or under his control or accessible to him which contain any proprietary information. All property and records of the Company and any of its affiliates (including, without limitation, all confidential records) shall be and remain the sole property of the Company or such affiliate during Executive’s employment with the Company and thereafter.
5.5 Inventions and Patents . All inventions, innovations or improvements (including policies, procedures, products, improvements, software, ideas and discoveries, whether patent, copyright, trademark, service mark, or otherwise) conceived or made by Executive, either alone or jointly with others, in the course of his employment by the Company, belong to the Company. Executive will promptly disclose in writing such inventions, innovations or improvements to the Company and perform all actions reasonably requested by the Company to establish and confirm such ownership by the Company, including, but not limited to, cooperating with and assisting the Company in obtaining patents, copyrights, trademarks, or service marks for the Company in the United States and in foreign countries.
5.6 Enforcement . Executive acknowledges and agrees that, by virtue of his position, his services and access to and use of confidential records and proprietary information, any violation by him of any of the undertakings contained in this Section 5 would cause the Company and/or its affiliates immediate, substantial and irreparable injury for which it or they have no adequate remedy at law. Accordingly, Executive agrees and consents to the entry of an injunction or other equitable relief by a court of competent jurisdiction restraining any violation or threatened violation of any undertaking contained in this Section 5. Executive waives posting by the Company or its affiliates of any bond otherwise necessary to secure such injunction or other equitable relief. Rights and remedies provided for in this Section 5 are cumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any other agreement or applicable law.
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6. Assignment and Transfer .
(a) Company . This Agreement shall inure to the benefit of and be enforceable by, and may be assigned by the Company without Executive’s consent to, any purchaser of all or substantially all of the Company’s business or assets, any successor to the Company or any assignee thereof (whether direct or indirect, by purchase, merger, consolidation or otherwise).
(b) Executive . The parties hereto agree that Executive is obligated under this Agreement to render personal services of a special, unique, unusual, extraordinary and intellectual character, thereby giving this Agreement special value. Executive’s rights and obligations under this Agreement shall not be transferable by Executive by assignment or otherwise, and any purported assignment, transfer or delegation thereof shall be void; provided, however, that if Executive shall die, all amounts then payable to Executive hereunder shall be paid in accordance with the terms of this Agreement to Executive’s estate.
7. Miscellaneous .
(a) Other Obligations . Executive represents and warrants that neither Executive’s employment with the Company nor Executive’s performance of Executive’s obligations hereunder will conflict with or violate or otherwise are inconsistent with any other obligations, legal or otherwise, which Executive may have. Executive covenants that he shall perform his duties hereunder in a professional manner and not in conflict or violation, or otherwise inconsistent with other obligations legal or otherwise, which Executive may have.
(b) Nondisclosure; Other Employers . Executive will not disclose to the Company, use, or induce the Company to use, any proprietary information, trade secrets or confidential business information of others. Executive represents and warrants that Executive does not possess any property, proprietary information, trade secrets and confidential business information belonging to any prior employers.
(c) Cooperation . Following termination of employment with the Company for any reason, Executive shall cooperate with the Company, as requested by the Company, to effect a transition of Executive’s responsibilities and to ensure that the Company is aware of all matters being handled by Executive.
(d) Assistance in Proceedings, Etc . Executive shall, during and after his employment, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal proceeding, including any external or internal investigation, involving the Company or any of its affiliates. The Company shall (i) pay Executive any base salary he loses from a subsequent employer for material work performed in connection with such obligation subsequent to termination of Executive’s employment with the Company, provided that (A) such work is approved in advance in writing by the Company, (B) no payments shall be due in connection with assistance provided during any period for which Executive is receiving payments pursuant to Section 4(c)(ii) and (C) no payments shall be due for any time Executive spends testifying before the SEC or in any proceeding ( e.g. , class action litigation) or time spent by him consulting
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with his own counsel; and (ii) reimburse Executive’s reasonable expenses incurred in connection with the foregoing obligations.
(e) Mitigation . Executive shall not be required to mitigate damages or the amount of any payment provided to him under Section 4 of this Agreement by seeking other employment or otherwise, nor shall, except as otherwise provided under Section 4(d)(iii) of this Agreement, the amount of any payments provided to Executive under Section 4 be reduced by any compensation earned by Executive as the result of employment by another employer after the termination of Executive’s employment or otherwise.
(f) No Right of Set-off Etc . The obligation of the Company to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others.
(g) Protection of Reputation . During Executive’s employment with the Company and thereafter, Executive agrees that he will take no action which is intended, or would reasonably be expected, to harm the Company or any of its affiliates or its or their reputation or which would reasonably be expected to lead to unwanted or unfavorable publicity to the Company or its affiliates. Nothing herein shall prevent Executive from making any truthful statement in connection with any legal proceeding or investigation by the Company or any governmental authority.
(h) Governing Law . This Agreement shall be governed by and construed (both as to validity and performance) and enforced in accordance with the internal laws of the State of Connecticut applicable to agreements made and to be performed wholly within such jurisdiction, without regard to the principles of conflicts of law or where the parties are located at the time a dispute arises.
(i) Arbitration .
| (i) |
General . Executive and the Company specifically, knowingly, and voluntarily agree that they shall use final and binding arbitration to resolve any dispute (an “Arbitrable Dispute”) between Executive, on the one hand, and the Company (or any affiliate of the Company), on the other hand. This arbitration agreement applies to all matters relating to this Agreement and Executive’s employment with and/or termination of employment from the Company, including without limitation disputes about the validity, interpretation, or effect of this Agreement, or alleged violations of it, any payments due hereunder and all claims arising out of any alleged discrimination, harassment or retaliation, including, but not limited to, those covered by Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of |
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1967, as amended, and the Americans With Disabilities Act or any other federal, state or local law relating to discrimination in employment. |
| (ii) | Injunctive Relief . Notwithstanding anything to the contrary contained herein, the Company and any affiliate of the Company (if applicable) shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction to enforce Section 5 of this Agreement. For purposes of seeking enforcement of Section 5, the Company and Executive hereby consent to the jurisdiction of any state or federal court sitting in the County of Fairfield, State of Connecticut. |
| (iii) | The Arbitration . Any arbitration pursuant to this Section 7(i) will take place in New York, New York, under the auspices of the American Arbitration Association, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect, and before a panel of three arbitrators selected in accordance with such rules. Judgment upon the award rendered by the arbitrators may be entered in any state or federal court sitting in the County of Fairfield, State of Connecticut. |
| (iv) | Fees and Expenses . In any arbitration pursuant to this Section 7(i), except as otherwise required by law, each party shall be responsible for the fees and expenses of its own attorneys and witnesses, and the fees and expenses of the arbitrators shall be divided equally between the Company, on the one hand, and Executive, on the other hand. |
| (v) | Exclusive Forum . Except as permitted by Section 7(i)(ii) hereof, arbitration in the manner described in this Section 7(i) shall be the exclusive forum for any Arbitrable Dispute. Except as permitted by Section 7(i)(ii), should Executive or the Company attempt to resolve an Arbitrable Dispute by any method other than arbitration pursuant to this Section 7(i), the responding party shall be entitled to recover from the initiating party all damages, expenses, and attorneys’ fees incurred as a result of that breach. |
(j) Reimbursement of Reasonable Attorney’s Fees and Expenses in Connection with Agreement . The Company shall pay or reimburse Executive for reasonable attorneys’ fees and expenses incurred by Executive in connection with the drafting and negotiating of this Agreement, provided that the Company’s total obligation pursuant to this
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Section 7(j) shall not exceed $7,500. It is agreed that the payment or reimbursement of such fees shall be considered a working condition fringe benefit.
(k) Section 409A of the Code . The Company makes no representations regarding the tax implications of the compensation and benefits to be paid to Executive under this Agreement, including, without limitation, under Section 409A of the Code. Executive and the Company agree that in the event Executive or the Company reasonably determines that the terms hereof would result in Executive being subject to tax under Section 409A of the Code, Executive and the Company shall negotiate in good faith to amend this Agreement to the extent necessary to prevent the assessment of any such tax, including by delaying the payment dates of any amounts hereunder.
(l) Entire Agreement . This Agreement (including the plans and agreement referenced in Section 3) contains the entire agreement and understanding between the parties hereto in respect of Executive’s employment and supersedes, cancels and annuls any prior or contemporaneous written or oral agreements, understandings, commitments and practices between them respecting Executive’s employment, including, without limitation, the Amended and Restated Employment Agreement between the parties entered into as of June 9, 2004; provided, however, that this Agreement shall not, except as expressly provided herein, supersede, cancel or annul: (i) the Indemnification Agreement, (ii) the terms of any equity grant made to Executive prior to the date of this Agreement or (iii) the terms of any prior award under the LTIP.
(m) Amendment . This Agreement may be amended only by a writing which makes express reference to this Agreement as the subject of such amendment and which is signed by Executive and, on behalf of the Company, by its duly authorized officer.
(n) Severability . If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction or arbitration panel to be invalid or unenforceable to any extent, the remainder of this Agreement, or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be enforced to the fullest extent permitted by law. If any provision of this Agreement, or any part thereof, is held to be invalid or unenforceable because of the scope or duration of or the area covered by such provision, the parties hereto agree that the court or arbitration panel making such determination shall reduce the scope, duration and/or area of such provision (and shall substitute appropriate provisions for any such invalid or unenforceable provisions) in order to make such provision enforceable to the fullest extent permitted by law and/or shall delete specific words and phrases, and such modified provision shall then be enforceable and shall be enforced. The parties hereto recognize that if, in any judicial or arbitral proceeding, a court or arbitration panel shall refuse to enforce any of the separate covenants contained in this Agreement, then that invalid or unenforceable covenant contained in this Agreement shall be deemed eliminated from these provisions to the extent necessary to permit the remaining separate covenants to be enforced. In the event that any court or arbitration panel determines that the time period or the area, or both, are unreasonable and that any of the covenants is to that extent invalid or unenforceable, the parties hereto agree that such
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covenants will remain in full force and effect, first, for the greatest time period, and second, in the greatest geographical area that would not render them unenforceable.
(o) Construction . The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. The language in all parts of this Agreement shall be in all cases construed according to its fair meaning and not strictly for or against the Company or Executive. As used herein, the words “day” or “days” shall mean a calendar day or days.
(p) Nonwaiver . Neither any course of dealing nor any failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by its duly authorized officer.
(q) Notices . Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or if sent by registered or certified mail, postage prepaid, with return receipt requested, addressed: (i) in the case of the Company, to Chief Executive Officer, United Rentals, Inc., Five Greenwich Office Park, Greenwich, Connecticut 06831; and (ii) in the case of Executive, to Executive’s last known address as reflected in the Company’s records, or to such other address as Executive shall designate by written notice to the Company. Any notice given hereunder shall be deemed to have been given at the time of receipt thereof by the person to whom such notice is given if personally delivered or at the time of mailing if sent by registered or certified mail.
(r) Survival . Cessation or termination of Executive’s employment with the Company shall not result in termination of this Agreement. The respective obligations of Executive and the Company as provided in Sections 4, 5, 6 and 7 of this Agreement and the Indemnification Agreement shall survive cessation or termination of Executive’s employment hereunder.
(s) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be deemed to be one and the same instrument. Signatures delivered by facsimile shall be effective for all purposes.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed on its behalf by an officer thereunto duly authorized and Executive has duly executed this Agreement, all as of the date and year first written above.
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UNITED RENTALS, INC. |
EXECUTIVE: |
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By: |
/s/ Wayland R. Hicks |
/s/ Michael J. Kneeland |
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Name: Wayland R. Hicks |
Michael J. Kneeland |
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Title: Chief Executive Officer |
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Exhibit 10(b)
FORM OF
2001 COMPREHENSIVE STOCK PLAN
RESTRICTED STOCK UNIT AGREEMENT – SENIOR MANAGEMENT
Awardee: (“Awardee”)
Grant Date:
Restricted Stock Units:
This RESTRICTED STOCK UNIT AGREEMENT (the “Agreement”) is made as of the Grant Date by and between UNITED RENTALS, INC., a Delaware corporation having an office at Five Greenwich Office Park, Greenwich, CT 06831 (the “Company”), and Awardee. Capitalized terms not defined herein shall have the meanings ascribed to them in the Company’s 2001 Comprehensive Stock Plan (the “Plan”).
In consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
| 1. | Grant of Restricted Stock Units . The Company hereby grants Restricted Stock Units (the “Units”) to Awardee pursuant to the Plan, subject to the terms and conditions of this Agreement and the Plan. |
| 2. | Vesting; Forfeiture . |
| (a) | Time vesting. of the Units (the “Time Vested Units”) shall vest and become nonforfeitable as follows: (A) Units shall vest on [first anniversary of Grant Date], Units shall vest on [second anniversary of Grant Date], and Units shall vest on [third anniversary of Grant Date] (each such date, a “Time Vesting Date”), provided in each case that Awardee’s employment with the Company continues through such date. |
| (b) | Performance vesting. of the Units (the “Performance Vested Units”) shall vest and become nonforfeitable upon the achievement of the performance goals set forth below, the achievement of which to be determined by the Committee in good faith: |
[Insert Performance Vesting Criteria]
| (c) | Termination of Employment/Change in Control . |
| (i) |
In the event that Awardee’s employment is terminated by the Company without Cause or by the Awardee for Good Reason (as such term is defined in the employment agreement between Awardee and the Company (the “Employment Agreement”)), a number of Time Vested Units shall be |
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vested on the date of such termination equal to multiplied by a fraction the denominator of which is 365 and the numerator of which is the number of days since the preceding Time Vesting Date until the date of termination. All Time Vested Units that are unvested and do not become vested on the date of such termination and all unvested Performance Vested Units shall be forfeited on the date of such termination. |
| (ii) | In the event of a Change in Control (as such term is defined in the Plan) all Time Vested Units shall become immediately vested and nonforfeitable as of the date of such Change in Control. |
| (iii) | In the event of a Change in Control (as such term is defined in the Plan) that results in none of the common stock of the Company or any direct or indirect parent entity of the Company being traded on a public securities exchange, all Performance Vested Units shall be fully vested as of the date of such Change in Control. |
| (iv) | In the event that Awardee’s employment is terminated by the Company without Cause or buy Awardee for Good Reason (as each such term is defined in the Employment Agreement) within 12 months following a Change in Control (as such term is defined in the Plan), other than a Change in Control described in clause (iii) above, all Performance Vested Units shall become immediately vested and nonforfeitable upon such termination of employment. |
| (v) | In the event Awardee’s employment terminates other than as set forth in clauses (i) and (iv) hereof, all unvested Units shall be forfeited as of the date of such termination. |
| 3. | Payment upon Vesting . |
| (a) | General . Vested Units shall be settled in Stock on a one-for-one basis. On the fifth business day following each date on which one or more Units vest, the Company shall deliver to Awardee (or Awardee’s beneficiary or estate, if no beneficiary is designated or in the event any chosen beneficiary predeceases Awardee, in the event of the death of Awardee) a certificate, free and clear of any restrictive legend, representing a number of shares of Stock equal to the number of Units that vested on such date. |
| (b) | Section 409A . If necessary to comply with Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable administrative guidance and regulations, the payment of vested Units shall not be made until six months after Awardee terminates employment with the Company. |
4. Dividends and Dividend Equivalents . No dividends or dividend equivalents shall accrue or be paid with respect to any Units.
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5. Transferability . Units are not transferable by the Awardee, whether by sale, assignment, exchange, pledge, or hypothecation, or by operation of law or otherwise.
6. Transferability of Shares of Stock . The Company shall, to the extent it has not already done so, file a Registration Statement on Form S-8 (or otherwise) with the Securities and Exchange Commission relating to the shares of Stock to be delivered hereunder and comply with all applicable state securities laws prior to the distribution of shares of Stock hereunder and to do everything else necessary to ensure that shares of Stock delivered to Awardee upon or following the vesting of any Unit will not be treated as “restricted securities” within the meaning of Rule 144 promulgated under the Securities Act.
7 . Conformity with Plan . Except as specifically set forth herein, this Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan, which is incorporated herein by reference. Any inconsistencies between this Agreement and the Plan with respect to any mandatory provisions of the Plan shall be resolved in accordance with the terms of the Plan. By executing and returning the enclosed copy of this Agreement, Awardee acknowledges its receipt of the Plan and its agreement to be bound by all the terms of the Plan. All definitions stated in the Plan apply to this letter.
8. Withholding Taxes . Awardee shall pay to the Company, or make provision satisfactory to the Administrator for payment of, any taxes required to be withheld in respect of the vesting or distribution of shares of Stock hereunder no later than the date of the event creating the tax liability. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Awardee, including any shares of Stock to be delivered hereunder. In the event that payment to the Company of such tax obligations is made in shares of Stock, such shares shall be valued at their fair market value on the applicable date for such purposes.
9. Awardee Advised To Obtain Personal Counsel and Tax Representation . IMPORTANT: The Company and its employees do not provide any guidance or advice to individuals who may be granted an Award under the Plan regarding the federal, state or local income tax consequences or employment tax consequences of participating in the Plan. Each person who may be entitled to any benefit under the Plan is responsible for determining their own personal tax consequences of participating in the Plan. Accordingly, you may wish to retain the services of a professional tax advisor in connection with any Awards under the Plan.
10. Beneficiary Designation . Awardee may designate one or more beneficiaries, from time to time, to whom any benefit under this Agreement is to be paid in case of Awardee’s death. Each designation must be in writing, signed by Awardee and delivered to the Company. Each new designation will revoke all prior designations.
11. Adjustments for Changes in Capital Structure . In the event of any change in capital structure or business of the Company by reason of any Stock dividend or extraordinary dividend, Stock split or reverse Stock split, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares of Stock, non-cash distributions with respect to its outstanding Stock, reclassification of the Company’s capital stock, any sale or transfer of all or part of the Company’s assets or business, or any similar change affecting the
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Company’s capital structure or business or the capital structure of any business of any Subsidiary, the Administrator shall make such appropriate adjustments to the Units as are equitable and reasonably necessary or desirable to preserve the intended benefits under this Agreement.
| 12. | Miscellaneous . |
| (a) | This Agreement may not be changed or terminated except by written agreement signed by the Company and Awardee. It shall be binding on the parties and on their personal representatives and permitted assigns. |
| (b) | This Agreement sets forth all agreements of the parties. It supersedes and cancels all prior agreements with respect to the subject matter hereof. It shall be enforceable by decrees of specific performance (without posting bond or other security) as well as by other available remedies. |
| (c) | This Agreement shall be governed by, and construed in accordance with, the laws of Delaware. Any litigation instituted by any party to this Agreement pertaining to this Agreement must be filed before a court of competent jurisdiction in Connecticut or Delaware and both parties hereby consent irrevocably to the jurisdiction of such courts over them. |
| (d) | All notices, requests, service of process, consents, and other communications under this Agreement shall be in writing. Notice shall be deemed given and effective (a) three (3) business days after the deposit in the U.S. mail of a writing addressed as provided below and sent first class mail, certified, return receipt requested, (b) when received by the addressee, if sent by a nationally recognized air courier for next day delivery service (receipt requested), or (c) upon personal delivery (with written confirmation of receipt). Either party may change the address for notice by notifying the other party of such change in accordance with this paragraph. Notices shall be addressed (i) to Awardee at the last address he or she has filed in writing with the Company and (ii) to the Company at its principal offices attention Legal Department. Either party hereto may designate a different address by providing written notice of such new address to the other party hereto as provided above. |
| (e) | This Agreement may be signed in one or more counterparts, each of which shall be an original, with the same effect as if the signature thereto and hereto were upon the same instrument. |
Dated: As of [Date and Year]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
| UNITED RENTALS, INC. | ||
| By: | ||
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Name: Title: |
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| AWARDEE: | ||
| By: | ||
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Name: Title: |
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Exhibit 10(c)
FORM OF
2001 COMPREHENSIVE STOCK PLAN
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK UNIT AGREEMENT
Awardee: (“Awardee”)
Grant Date:
Restricted Stock Units:
This RESTRICTED STOCK UNIT AGREEMENT (the “Agreement”) is made as of the Grant Date by and between UNITED RENTALS, INC., a Delaware corporation having an office at Five Greenwich Office Park, Greenwich, CT 06831 (the “Company”), and Awardee. Capitalized terms not defined herein shall have the meanings ascribed to them in the Company’s 2001 Comprehensive Stock Plan (the “Plan”).
In consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant of Restricted Stock Units . The Company hereby grants to Awardee Restricted Stock Units (the “Units”), representing a number of shares with a value of $ , based on the opening price on the Grant Date. The grant of Units is pursuant to the Plan and subject to the terms and conditions of this Agreement and the Plan.
2. Vesting . The Units are fully vested as of the Grant Date.
3. Payment . Units shall be settled in shares of the Company’s common stock (“Stock”) on a one-for-one basis. On the earlier of (i) [third anniversary of Grant Date], (ii) the fifth business day following the date Awardee’s service terminates for any reason, and (iii) the date of a change in control, within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and accompanying administrative guidance, the Company shall deliver to Awardee (or Awardee’s beneficiary or estate, if no beneficiary is designated or in the event any chosen beneficiary predeceases Awardee, in the event of the death of Awardee) a certificate, free and clear of any restrictive legend, representing a number of shares of Stock equal to the number of Units that vested on such date.
4. Dividends and Dividend Equivalents . No dividends or dividend equivalents shall accrue or be paid with respect to any Units.
5. Transferability . Units are not transferable by the Awardee, whether by sale, assignment, exchange, pledge, or hypothecation, or by operation of law or otherwise.
6. Transferability of Shares of Stock . The Company shall, to the extent it has not already done so, file a Registration Statement on Form S-8 (or otherwise) with the Securities and Exchange Commission relating to the shares of Stock to be delivered hereunder and comply with all applicable state securities laws prior to the distribution of shares of Stock hereunder and do everything else necessary to ensure that shares of Stock delivered to Awardee upon or following
the vesting of any Unit will not be treated as “restricted securities” within the meaning of Rule 144 promulgated under the Securities Act.
7. Conformity with Plan . Except as specifically set forth herein, this Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan, which is incorporated herein by reference. Any inconsistencies between this Agreement and the Plan with respect to any mandatory provisions of the Plan shall be resolved in accordance with the terms of the Plan. By executing and returning the enclosed copy of this Agreement, Awardee acknowledges its receipt of the Plan and its agreement to be bound by all the terms of the Plan. All definitions stated in the Plan apply to this letter.
8. Awardee Advised To Obtain Personal Counsel and Tax Representation . IMPORTANT: The Company and its employees do not provide any guidance or advice to individuals who may be granted an Award under the Plan regarding the federal, state or local income tax consequences or employment tax consequences of participating in the Plan. Each person who may be entitled to any benefit under the Plan is responsible for determining their own personal tax consequences of participating in the Plan. Accordingly, you may wish to retain the services of a professional tax advisor in connection with any Awards under the Plan.
9. Beneficiary Designation . Awardee may designate one or more beneficiaries, from time to time, to whom any benefit under this Agreement is to be paid in case of Awardee’s death. Each designation must be in writing, signed by Awardee and delivered to the Company. Each new designation will revoke all prior designations.
10. Adjustments for Changes in Capital Structure . In the event of any change in capital structure or business of the Company by reason of any Stock dividend or extraordinary dividend, Stock split or reverse Stock split, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares of Stock, non-cash distributions with respect to its outstanding Stock, reclassification of the Company’s capital stock, any sale or transfer of all or part of the Company’s assets or business, or any similar change affecting the Company’s capital structure or business or the capital structure of any business of any subsidiary, the Administrator shall make such appropriate adjustments to the Units as are equitable and reasonably necessary or desirable to preserve the intended benefits under this Agreement.
11. Miscellaneous .
| (a) | This Agreement may not be changed or terminated except by written agreement signed by the Company and Awardee. It shall be binding on the parties and on their personal representatives and permitted assigns. |
| (b) | This Agreement sets forth all agreements of the parties. It supersedes and cancels all prior agreements with respect to the subject matter hereof. It shall be enforceable by decrees of specific performance (without posting bond or other security) as well as by other available remedies. |
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| (c) | This Agreement shall be governed by, and construed in accordance with, the laws of Delaware. Any litigation instituted by any party to this Agreement pertaining to this Agreement must be filed before a court of competent jurisdiction in Connecticut or Delaware and both parties hereby consent irrevocably to the jurisdiction of such courts over them. |
| (d) | All notices, requests, service of process, consents, and other communications under this Agreement shall be in writing. Notice shall be deemed given and effective (a) three (3) business days after the deposit in the U.S. mail of a writing addressed as provided below and sent first class mail, certified, return receipt requested, (b) when received by the addressee, if sent by a nationally recognized air courier for next day delivery service (receipt requested), or (c) upon personal delivery (with written confirmation of receipt). Either party may change the address for notice by notifying the other party of such change in accordance with this paragraph. Notices shall be addressed (i) to Awardee at the last address he or she has filed in writing with the Company and (ii) to the Company at its principal offices attention Legal Department. Either party hereto may designate a different address by providing written notice of such new address to the other party hereto as provided above. |
| (e) | This Agreement may be signed in one or more counterparts, each of which shall be an original, with the same effect as if the signature thereto and hereto were upon the same instrument. |
Dated: As of [Date and Year]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
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UNITED RENTALS, INC. |
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By: |
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Name: |
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Title: |
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AWARDEE: |
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| By: | ||
| Name: | ||
| Title: Director | ||
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Exhibit 10(d)
Revision to Compensation Program for Non-Employee Directors
Below is a summary written description of material changes to the terms of the compensation program for non-employee directors. The compensation program is not set forth in a formal document.
Annual Board Retainer . The annual cash retainer will be increased from $45,000 to $55,000.
Annual Equity Grant . Deferred restricted stock units will replace the annual grant of 3,000 stock options. Directors will receive $45,000 in fully vested RSUs, to generally be paid after three years.
Board Meeting Fee . The Board meeting fee will be increased from $1,500 to $2,000.
Annual Retainers . The Lead Director will receive an annual retainer of $7,500. The chairpersons of the Audit Committee and the Special Committee will receive increased annual retainers of $12,500 (instead of the current $10,000), and the chairpersons of the Compensation Committee and the Nominating and Governance Committee will receive increased annual retainers of $7,500 (instead of the current $5,000).
Stock Ownership . A stock ownership requirement will be implemented pursuant to which directors will be expected to achieve, within four years, stock ownership equal to at least three times the amount of their annual cash retainer.
Exhibit 10(e)
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the ‘Agreement’), made in Greenwich, Connecticut as of June 14, 2006, between United Rentals, Inc., a Delaware corporation (the ‘Company’), and Roger E. Schwed (‘Executive’).
WHEREAS, the Company desires to employ Executive as its Executive Vice President and General Counsel, and Executive desires to accept such employment on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements hereinafter set forth, the Company and Executive agree as follows:
1. At Will Employment .
Executive will be employed by the Company at will, which means that either the Executive or the Company may terminate the employment relationship at any time and for any reason or no reason. Notwithstanding the foregoing, following the termination of Executive’s employment, Executive shall be entitled to the compensation and benefits provided for in Section 4 of this Agreement, as applicable depending on the circumstances of such termination.
2. Employment .
(a) Employment by the Company . Executive agrees to be employed by the Company upon the terms and subject to the conditions set forth in this Agreement. Executive shall serve as Executive Vice President and General Counsel of the Company and shall report directly to the Chief Executive Officer of the Company.
(b) Performance of Duties . During his employment, Executive shall faithfully, diligently and professionally perform Executive’s duties and serve the Company to the best of Executive’s ability and efforts. Executive shall devote his full business time to the business and affairs of the Company. In his capacity as Executive Vice President and General Counsel, Executive shall have such duties and responsibilities as are customary for Executive’s positions and any other duties or responsibilities he may be assigned by the Chief Executive Officer of the Company and/or the Board of Directors of the Company, provided that such duties or responsibilities are consistent with his positions as Executive Vice President and General Counsel. Notwithstanding the foregoing, Executive may serve as a director of I Challenge Myself, Inc. and any other boards approved in advance in writing by the Company (such approval not to be unreasonably withheld), provided that such service does not unreasonably interfere with Executive’s responsibilities hereunder (‘Outside Positions’).
(c) Place of Performance . Executive shall be based at the Company’s offices in Greenwich, Connecticut. Executive recognizes that his duties will require, at the Company’s expense, reasonable travel to domestic and international locations.
3. Compensation and Benefits .
(a) Base Salary . The Company agrees to pay to Executive a base salary (‘Base Salary’) at the annual rate of $400,000. Upon recommendation of the Chief Executive Officer, the Compensation Committee of the Board of Directors of the Company may determine in its sole discretion to increase, but not decrease, the Base Salary. Payments of the Base Salary shall be payable in equal installments in accordance with the Company’s standard payroll practices.
(b) Signing Bonus . The Company shall pay a signing bonus to Executive of $35,000 (the ‘Signing Bonus’). Except as provided in Sections 4(d)(ii), 4(e)(ii) and 4(f)(ii) of this Agreement, Executive must be employed by the Company on July 14, 2006 (the ‘Signing Bonus Accrual Date’) to be eligible for the Signing Bonus. The Signing Bonus shall be paid on July 14, 2006. Notwithstanding the foregoing, in the event Executive terminates his employment with the Company without Good Reason (as defined in Section 4(h)(ii) of this Agreement) within the first ninety days of his employment, Executive shall repay the Signing Bonus to the Company within thirty days following such termination.
(c) 2006 Bonus . Executive shall be eligible to receive a bonus for 2006 in accordance with this Section 3(c) (the ‘2006 Bonus’). The 2006 Bonus shall be a performance-based bonus with a target bonus of 90% of Executive’s Base Salary for 2006 and a maximum bonus equal to 125% of Executive’s Base Salary for 2006, provided that the 2006 Bonus shall not be less than $200,000 (the ‘2006 Minimum Bonus’). Performance goals for the 2006 Bonus shall be established in accordance with Section 2.11 of the Annual Incentive Plan (as defined below), although the 2006 Bonus is not pursuant to the Annual Incentive Plan. The 2006 Bonus shall be paid on the date that bonuses for 2006 are paid generally by the Company under the Annual Incentive Plan (such date, the ‘2006 Bonus Payment Date’). Notwithstanding anything in the foregoing to the contrary, Executive must be employed by the Company on the 2006 Bonus Payment Date to be eligible for the 2006 Bonus (or any portion thereof), except as otherwise set forth in Sections 4(d)(iii) and 4(f)(iii) of this Agreement.
(d) Annual Incentive Bonus Plan . With respect to each year after 2006, Executive shall be eligible to receive an annual cash incentive bonus (the ‘Annual Bonus’) pursuant to the terms of the United Rentals, Inc. Annual Incentive Compensation Plan, as it may be amended from time to time (the ‘Annual Incentive Plan’). The Target Allocation (as defined in the Annual Incentive Plan) shall be 90% of Base Salary. The maximum incentive opportunity shall be 125% of Base Salary. Executive has been determined by the Committee (as defined in the Annual Incentive Plan) to be a Covered Employee (as defined in the Annual Incentive Plan) under the Annual Incentive Plan, and Executive’s Performance Goals (as defined in the Annual Incentive Plan) shall be determined by the Committee (as defined in the Annual Incentive Plan) in accordance with Section 2.11.1 and Article V of the Annual Incentive Plan. The Annual Bonus shall be paid to Executive at such times and in such amounts as provided in the Annual Incentive Plan.
(e) Restricted Stock Units . As soon as reasonably practicable after the date hereof, the Company shall award to Executive an aggregate grant of 45,000 restricted stock units (35,000 to vest over time and 10,000 to vest upon the achievement of certain performance
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objectives), in accordance with and subject to the provisions of the United Rentals, Inc. 2001 Comprehensive Stock Plan, as it may be amended from time to time, and a 2001 Comprehensive Stock Plan Restricted Stock Unit Agreement in substantially the form attached hereto as Exhibit A (the ‘RSU Agreement’).
(f) Benefits and Perquisites . Executive shall be entitled to participate in, to the extent Executive is otherwise eligible under the terms thereof, the benefit plans and programs, and receive the benefits and perquisites, generally provided by the Company to executives of the Company, including without limitation family medical insurance (subject to applicable employee contributions). Executive shall be entitled to 20 vacation days per year, such days to be accrued in accordance with Company policy.
(g) Business Expenses . The Company agrees to reimburse Executive for all reasonable and necessary travel, business entertainment and other business expenses incurred by Executive in connection with the performance of his duties under this Agreement in accordance with, and subject to, the Company’s standard policies. Such reimbursements shall be made by the Company on a timely basis upon submission by Executive of vouchers in accordance with the Company’s standard procedures.
(h) Company Automobile . During Executive’s employment with the Company, the Company shall provide to Executive an automobile owned or leased by the Company in accordance with, and subject to, Company practice and policy. The Company shall be responsible for all reasonable costs associated with the purchase or lease of such automobile, insurance, routine maintenance, and service and repair of the vehicle.
(i) Indemnification . The Company shall indemnify Executive in accordance with, and subject to, the terms of an indemnification agreement in the form attached hereto as Exhibit B (the ‘Indemnification Agreement’). Notwithstanding anything in this Agreement to the contrary, the rights and obligations of the parties with respect to indemnification (including dispute resolution, governing law and notice) shall be governed by the Indemnification Agreement.
(j) No Other Compensation or Benefits; Payment . The compensation and benefits specified in this Section 3 and in Section 4 of this Agreement shall be in lieu of any and all other compensation and benefits. Payment of all compensation and benefits to Executive specified in this Section 3 and in Section 4 of this Agreement (i) shall be made in accordance with the relevant Company policies in effect from time to time to the extent the same are consistently applied, including normal payroll practices, and (ii) shall be subject to all legally required or authorized withholdings.
(k) Cessation of Employment . In the event Executive shall cease to be employed by the Company for any reason, then Executive’s compensation and benefits shall cease on the date of such event, except as otherwise specifically provided herein or in any applicable employee benefit plan or program or as required by law.
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4. Compensation Following Termination . Without limiting any rights Executive may have under the Indemnification Agreement, Executive shall be entitled only to the following compensation and benefits upon termination of employment:
(a) General . On any termination of Executive’s employment, he shall be entitled to:
| (i) | any accrued but unpaid Base Salary for services rendered through the date of termination; |
| (ii) | any vacation accrued to the date of termination; |
| (iii) | any accrued but unpaid expenses required to be reimbursed in accordance with Section 3(g) of this Agreement; |
| (iv) | receive any benefits to which he may be entitled upon termination pursuant to the plans and programs referred to in Section 3(f) hereof or as may be required by applicable law; and |
| (v) | receive any amounts or benefits to which he may be entitled upon termination pursuant to the plans and agreement referred to in Sections 3(d) and 3(e) hereof in accordance with the terms of such plans and agreement. |
(b) Termination by the Company for Cause . In the event that Executive’s employment is terminated by the Company for Cause (as defined below), Executive shall be entitled only to those items identified in Section 4(a).
(c) Termination by Executive Without Good Reason . In the event that Executive’s employment is terminated by Executive without Good Reason (as defined below), Executive shall be entitled only to the following
| (i) | those items identified in Section 4(a); and |
| (ii) | if Executive timely elects COBRA continuation coverage, the Company will pay through the COBRA Payment End Date (as defined below) the monthly premiums for the level of coverage Executive maintained on the date of termination. The ‘COBRA Payment End Date’ shall be the earlier of (A) one year following the date of termination and (B) the date Executive becomes employed by a third party and is eligible for coverage under the group benefits plan of the new employer. If during the period Executive is receiving this benefit, Executive obtains new employment and becomes eligible for coverage under the group benefits plan of the new employer, Executive must promptly notify the Company in writing of such eligibility. |
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(d) Termination by Reason of Executive’s Death or Disability . In the event that Executive’s employment is terminated by reason of Executive’s death or Disability (as defined below), Executive (or his estate, as the case may be) shall be entitled only to the following:
| (i) | those items identified in Section 4(a); |
| (ii) | if such termination occurs prior to the Signing Bonus Accrual Date, the Signing Bonus; |
| (iii) | if such termination occurs prior to the 2006 Bonus Payment Date, an amount equal to the product of (A) the 2006 Minimum Bonus multiplied by (B) a fraction, the numerator of which is the number of days between the date hereof and the date of such termination (inclusive) and the denominator of which is the number of days between the date hereof and the 2006 Bonus Payment Date (inclusive) (such amount, the ‘Prorated 2006 Minimum Bonus’); and |
| (iv) | if Executive (or his surviving spouse or children, as the case may be) timely elects COBRA continuation coverage, the Company will pay through the COBRA Payment End Date the monthly premiums for the level of coverage Executive maintained on the date of termination. If during the period Executive is receiving this benefit, Executive obtains new employment and becomes eligible for coverage under the group benefits plan of the new employer, Executive must promptly notify the Company in writing of such eligibility. |
(e) Termination by Executive for Good Reason . In the event that Executive’s employment is terminated by Executive for Good Reason, Executive shall be entitled only to the following:
| (i) | those items identified in Section 4(a); |
| (ii) | if such termination occurs prior to the Signing Bonus Accrual Date, the Signing Bonus; |
| (iii) | the payment of 190% of Executive’s Base Salary (as determined pursuant to Section 3(a)) payable over one year in accordance with the Company’s normal payroll practices (the ‘Severance Pay’) (such percentage equal to 100% of Executive’s Base Salary, plus the Target Allocation); and |
| (iv) |
if Executive timely elects COBRA continuation coverage, the Company will pay through the COBRA Payment End Date the monthly premiums for the level of coverage |
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Executive maintained on the date of termination. If during the period Executive is receiving this benefit, Executive obtains new employment and becomes eligible for coverage under the group benefits plan of the new employer, Executive must promptly notify the Company in writing of such eligibility. |
(f) Termination by the Company Without Cause . In the event that Executive’s employment is terminated by the Company without Cause, Executive shall be entitled only to the following:
| (i) | those items identified in Section 4(a); |
| (ii) | if such termination occurs prior to the Signing Bonus Accrual Date, the Signing Bonus; |
| (iii) | if such termination occurs prior to the 2006 Bonus Payment Date, the Prorated 2006 Minimum Bonus; |
| (iv) | the Severance Pay (as defined above in Section 4(e)(iii)); and |
| (v) | if Executive timely elects COBRA continuation coverage, the Company will pay through the COBRA Payment End Date the monthly premiums for the level of coverage Executive maintained on the date of termination. If during the period Executive is receiving this benefit, Executive obtains new employment and becomes eligible for coverage under the group benefits plan of the new employer, Executive must promptly notify the Company in writing of such eligibility. |
(g) Timing of Payments Under Sections 4(d)(ii), 4(d)(iii), 4(e)(ii), 4(e)(iii), 4(f)(ii), 4(f)(iii) and 4(f)(iv) .
| (i) | Payment of the Signing Bonus under Sections 4(d)(ii), 4(e)(ii) or 4(f)(ii) shall be made at the time such sum would have been paid had Executive’s employment not terminated; provided, however, if necessary to comply with Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the ‘Code’), and applicable administrative guidance and regulations, such payment shall be made six months following the date of termination of employment. |
| (ii) |
Payment of the Prorated 2006 Minimum Bonus under Sections 4(d)(iii) or 4(f)(iii) shall be made on the 2006 Bonus Payment Date; provided, however, if necessary to |
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comply with Section 409A(a)(2)(B)(i) of the Code, and applicable administrative guidance and regulations, such payment shall be made six months following the date of termination of employment. |
| (iii) | The Severance Pay to be made under Sections 4(e)(iii) or 4(f)(iv) shall be paid at the times Executive’s Base Salary would have been paid had Executive’s employment not terminated; provided, however, that if necessary to comply with Section 409A(a)(2)(B)(i) of the Code, and applicable administrative guidance and regulations, the payment of such sums shall be made as follows: (A) no payments shall be made for a six-month period following the date of termination, (B) an amount equal to six months of Severance Pay shall be paid in a lump sum six months following the date of termination, and (C) during the period beginning six months following the date of termination through the remainder of the one-year period, payment of the Severance Pay shall be made at the times Executive’s Base Salary would have been paid had Executive’s employment not terminated. |
(h) Definitions of Cause, Good Reason and Disability .
(i) Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the Nominating and Corporate Governance Committee of the Board of Directors of the Company finding that in the good faith opinion of such committee, Executive, after giving effect to any applicable cure period described below, was guilty of conduct set forth in any of clauses (A) – (J) of this Section 4(h) and that reasonably identifies the reason(s) for such opinion. For purposes of this Agreement, the term ‘Cause’ shall mean any of the following: (A) Executive has willfully misappropriated any funds or property of the Company or its affiliates, or has willfully destroyed property of the Company or its affiliates; (B) Executive has been convicted of (1) a felony or (2) any crime (x) involving fraud, dishonesty or moral turpitude or (y) that materially impairs Executive’s ability to perform his duties and responsibilities with the Company or that causes material damage to the Company or its affiliates or their operations or reputation; (C) Executive has (1) obtained personal profit from any transaction of or involving the Company or an affiliate of the Company (or engaged in any activity with the intent of obtaining such a personal profit) without the prior approval of the Company or (2) engaged in any other willful conduct which constitutes a breach of fiduciary duty or the duty of loyalty to the Company or its affiliates and which has resulted or is reasonably likely to result in material damage to the Company or its affiliates; (D) Executive’s material failure to perform his duties with the Company (other than as a result of total or partial incapacity due to physical or mental illness), provided, however, that, if susceptible of cure, a termination by the Company for Cause under this Section 4(h)(i)(D) shall be effective only if, within 15 days following delivery of a written notice by the Company to Executive that Executive has materially failed to perform his duties and that reasonably identifies the reason(s)
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for such determination, Executive has failed to cure such failure to perform (nothing herein being intended to eliminate the requirement included in the first sentence of this Section 4(h)(i)); (E) Executive’s use of alcohol or drugs has materially interfered with his ability to perform his duties and responsibilities with the Company; (F) Executive has knowingly made any untrue statement or omission of a material nature to the Company or an affiliate of the Company; (G) Executive has knowingly falsified Company records (or those of one of its affiliates); (H) Executive has willfully committed any act (1) which is intended to materially damage the reputation of the Company or an affiliate of the Company or (2) which in fact materially damages the reputation of the Company or an affiliate; (I) Executive (1) has willfully violated the Company’s material policies or rules (including, but not limited to, the Company’s equal employment opportunity policies), which violation is materially injurious to the Company or its affiliates, or (2) is guilty of gross negligence or willful misconduct in the performance of his duties with the Company, which is materially injurious to the Company or its affiliates; or (J) Executive has materially breached a covenant set forth in Section 5 or otherwise materially violated any confidentiality, non-competition or non-solicitation prohibitions imposed on Executive under common law or under the terms of any agreement with the Company.
(ii) For purposes of this Agreement, the term ‘Good Reason’ shall mean any of the following: (A) demotion from the positions of Executive Vice President or General Counsel; (B) the Company decreases or fails to pay the compensation described in Sections 3(a), 3(b), 3(c), 3(d) or 3(e) of this Agreement (in accordance with, and subject to, such provisions); (C) a material breach of this Agreement, the RSU Agreement or the Indemnification Agreement by the Company (except as qualified by Section 4(h)(ii)(E) below); (D) Executive’s job site is relocated to a location which is more than fifty (50) miles from Greenwich, Connecticut, unless the parties mutually agree to such relocation; or (E) material diminution of Executive’s duties or responsibilities (it being understood by the parties that a simultaneous increase and decrease of Executive’s duties and responsibilities consented to by the parties, such consent not to be unreasonably withheld, shall not constitute Good Reason); provided, however, that a termination by Executive for Good Reason under any of clauses (A) – (E) of this Section 4(h)(ii) shall be effective only if, within 15 days following delivery of a written notice by Executive to the Company that Executive is terminating his employment for Good Reason and that reasonably identifies the reason(s) for such determination, the Company has failed to cure the circumstances giving rise to Good Reason.
(iii) For purposes of this Agreement, a ‘Disability’ shall occur in the event Executive is unable to perform the duties and responsibilities contemplated under this Agreement for a period of either (A) 90 consecutive days or (B) 6 months in any 12-month period due to physical or mental incapacity or impairment. During any period that Executive fails to perform Executive’s duties hereunder as a result of incapacity or impairment due to physical or mental illness (the ‘Disability Period’), Executive shall continue to receive the compensation and benefits provided by Section 3 of this Agreement until Executive’s employment hereunder is terminated; provided, however, that the amount of base compensation and benefits received by Executive during the Disability Period shall be reduced by the aggregate amounts, if any, payable to Executive under any disability benefit plan or program provided to Executive by the Company in respect of such period.
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(i) Effect of Material Breach of Section 5 on Compensation Following Termination of Employment Pursuant to Section 4 . If, at the time of termination of Executive’s employment or any time thereafter, Executive is in material breach of any covenant contained in Section 5 hereof, Executive (or his estate, as applicable) shall not be entitled to any future payments (or if payments have commenced, any continued payment) under Sections 4(c)(ii), 4(d)(ii), 4(d)(iii), 4(d)(iv), 4(e)(ii), 4(e)(iii), 4(e)(iv), 4(f)(ii), 4(f)(iii), 4(f)(iv) or 4(f)(v).
(j) No Further Liability; Release . Other than providing the compensation and benefits provided for in accordance with this Section 4, the Company and its directors, officers, employees, subsidiaries, affiliates, stockholders, successors, assigns, agents and representatives shall have no further obligation or liability to Executive or any other person under this Agreement, except as otherwise required by law. The payment of any amounts pursuant to this Section 4 (other than Section 4(a)) is expressly conditioned upon the delivery by Executive to the Company of a release in form and substance reasonably satisfactory to the Company of any and all claims Executive may have against the Company and its directors, officers, employees, subsidiaries, affiliates, stockholders, successors, assigns, agents and representatives arising out of or related to Executive’s employment by the Company and the termination of such employment (other than claims under the Indemnification Agreement).
5. Exclusive Employment; Noncompetition; Nonsolicitation; Nondisclosure of Proprietary Information; Surrender of Records; Inventions and Patents .
5.1 No Conflict; No Other Employment . During the period of Executive’s employment with the Company, Executive shall not: (i) engage in any activity which conflicts or interferes with or derogates from the performance of Executive’s duties hereunder nor shall Executive engage in any other business activity, whether or not such business activity is pursued for gain or profit, except as approved in advance in writing by the Company; provided, however, that Executive shall be entitled to manage his personal investments and otherwise attend to personal affairs, including charitable, social and political activities, in a manner that does not unreasonably interfere with his responsibilities hereunder, or (ii) accept or engage in any other employment, whether as an employee or consultant or in any other capacity, and whether or not compensated therefor. Notwithstanding the foregoing, Executive may serve in the Outside Positions as permitted pursuant to Section 2(b) above.
5.2 Noncompetition; Nonsolicitation .
(a) Executive acknowledges and recognizes the highly competitive nature of the Company’s business and that access to the Company’s confidential records and proprietary information renders him special and unique within the Company’s industry. In consideration of the payment by the Company to Executive of amounts that may hereafter be paid to Executive pursuant to this Agreement (including, without limitation, pursuant to Sections 3 and 4 hereof) and other obligations undertaken by the Company hereunder, Executive agrees that during (i) his employment with the Company, and (ii) the period beginning on the date of termination of employment and ending one year after the date of termination of employment (the ‘Covered Time’), Executive shall not, directly or indirectly, engage (as owner, investor, partner, stockholder, employer, employee, consultant, advisor, director or otherwise) in any Competing Business in any Restricted Area (each as defined below), provided that the provisions of this
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Section 5.2(a) will not be deemed breached merely because Executive owns less than 5% of the outstanding common stock of a publicly-traded company. For purposes of this Agreement, ‘Competing Business’ shall mean (i) any business in which the Company is currently engaged, including, but not limited to, renting and selling equipment and merchandise to the commercial and general public, including construction equipment, earthmoving equipment, aerial equipment, aerial work platforms, traffic safety equipment, trench safety equipment, industrial equipment, landscaping equipment, and home repair and maintenance equipment, as well as highway construction related technologies; (ii) any other future business which the Company engages in to a material extent during Executive’s employment with the Company; and (iii) any of the entities identified on Exhibit C. For purposes of this Agreement, ‘Restricted Area’ means each of: (i) any state in the United States and any province in Canada in which the Company conducts any business currently or during Executive’s future employment with the Company; and (ii) 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 Executive shall have performed any duties for the Company during his employment with the Company.
(b) In further consideration of the payment by the Company to Executive of amounts that may hereafter be paid to Executive pursuant to this Agreement (including, without limitation, pursuant to Sections 3 and 4 hereof) and other obligations undertaken by the Company hereunder, Executive agrees that during his employment and the Covered Time, he shall not, directly or indirectly, (i) solicit, encourage or attempt to solicit or encourage any of the employees, agents, consultants or representatives of the Company or any of its affiliates to terminate his, her, or its relationship with the Company or such affiliate; (ii) solicit, encourage or attempt to solicit or encourage any of the employees, agents, consultants or representatives of the Company or any of its affiliates to become employees, agents, representatives or consultants of any other person or entity; (iii) solicit or attempt to solicit any customer, vendor or distributor of the Company or any of its affiliates in connection with a Competing Business with respect to any product or service being furnished, made, sold, rented or leased by the Company or such affiliate; or (iv) persuade or seek to persuade any customer, vendor or distributor of the Company or any affiliate to cease to do business or to reduce the amount of business which the customer, vendor or distributor has customarily done or contemplates doing with the Company or such affiliate, whether or not the relationship between the Company or its affiliate and such customer, vendor or distributor was originally established in whole or in part through Executive’s efforts. For purposes of this Section 5.2(b) only, during the Covered Time, the terms ‘customer,’ ‘vendor’ and ‘distributor’ shall mean a customer, vendor or distributor who has done business with the Company or any of its affiliates within twelve months preceding the termination of Executive’s employment.
(c) Executive understands that the provisions of this Section 5.2 may limit his ability to earn a livelihood in a business similar to the business of the Company or its affiliates but nevertheless agrees and hereby acknowledges that the consideration provided under this Agreement, including any amounts or benefits provided under Sections 3 and 4 hereof and other obligations undertaken by the Company hereunder, is sufficient to justify the restrictions contained in such provisions. In consideration thereof and in light of Executive’s education, skills and abilities, Executive agrees that he will not assert in any forum that such provisions prevent him from earning a living or otherwise are void or unenforceable or should be held void or unenforceable.
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5.3 Proprietary Information . Executive acknowledges that during the course of his employment with the Company he will necessarily have access to and make use of proprietary information and confidential records of the Company and its affiliates. Executive covenants that he shall not during his employment or at any time thereafter, directly or indirectly, use for his own purpose or for the benefit of any person or entity other than the Company, nor otherwise disclose to any individual or entity, any proprietary information, unless such disclosure has been authorized in writing by the Company or is otherwise required by law. Executive acknowledges and understands that the term ‘proprietary information’ includes, but is not limited to: (a) the software products, programs, applications, and processes utilized by the Company or any of its affiliates; (b) the name and/or address of any customer or vendor of the Company or any of its affiliates or any information concerning the transactions or relations of any customer or vendor of the Company or any of its affiliates with the Company or such affiliate or any of its or their partners, principals, directors, officers or agents; (c) any information concerning any product, technology, or procedure employed by the Company or any of its affiliates but not generally known to its or their customers, vendors or competitors, or under development by or being tested by the Company or any of its affiliates but not at the time offered generally to customers or vendors; (d) any information relating to the computer software, computer systems, pricing or marketing methods, sales margins, cost of goods, cost of material, capital structure, operating results, borrowing arrangements or business plans of the Company or any of its affiliates; (e) any information which is generally regarded as confidential or proprietary in any line of business engaged in by the Company or any of its affiliates; (f) any business plans, budgets, advertising or marketing plans; (g) any information contained in any of the written or oral policies and procedures or manuals of the Company or any of its affiliates; (h) any information belonging to customers or vendors of the Company or any of its affiliates or any other person or entity which the Company or any of its affiliates has agreed to hold in confidence; (i) any inventions, innovations or improvements covered by this Agreement; and (j) all written, graphic and other material relating to any of the foregoing. Executive acknowledges and understands that information that is not novel or copyrighted or patented may nonetheless be proprietary information. The term ‘proprietary information’ shall not include information that is or becomes generally available to and known by the public or information that is or becomes available to Executive on a non-confidential basis from a source other than the Company, any of its affiliates, or the directors, officers, employees, partners, principals or agents of the Company or any of its affiliates (other than as a result of a breach of any obligation of confidentiality).
5.4 Confidentiality and Surrender of Records . Executive shall not during his employment or at any time thereafter (irrespective of the circumstances under which Executive’s employment by the Company terminates), except as required by law, directly or indirectly publish, make known or in any fashion disclose any confidential records to, or permit any inspection or copying of confidential records by, any individual or entity other than in the course of such individual’s or entity’s employment or retention by the Company. Upon termination of employment for any reason or request by the Company, Executive shall deliver promptly to the Company all property and records of the Company or any of its affiliates, including, without limitation, all confidential records. For purposes hereof, ‘confidential records’ means all correspondence, reports, memoranda, files, manuals, books, lists, financial, operating or marketing records, magnetic tape, or electronic or other media or equipment of any kind which may be in Executive’s possession or under his control or accessible to him which
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contain any proprietary information. All property and records of the Company and any of its affiliates (including, without limitation, all confidential records) shall be and remain the sole property of the Company or such affiliate during Executive’s employment with the Company and thereafter.
5.5 Inventions and Patents . All inventions, innovations or improvements (including policies, procedures, products, improvements, software, ideas and discoveries, whether patent, copyright, trademark, service mark, or otherwise) conceived or made by Executive, either alone or jointly with others, in the course of his employment by the Company, belong to the Company. Executive will promptly disclose in writing such inventions, innovations or improvements to the Company and perform all actions reasonably requested by the Company to establish and confirm such ownership by the Company, including, but not limited to, cooperating with and assisting the Company in obtaining patents, copyrights, trademarks, or service marks for the Company in the United States and in foreign countries.
5.6 Enforcement . Executive acknowledges and agrees that, by virtue of his position, his services and access to and use of confidential records and proprietary information, any violation by him of any of the undertakings contained in this Section 5 would cause the Company and/or its affiliates immediate, substantial and irreparable injury for which it or they have no adequate remedy at law. Accordingly, Executive agrees and consents to the entry of an injunction or other equitable relief by a court of competent jurisdiction restraining any violation or threatened violation of any undertaking contained in this Section 5. Executive waives posting by the Company or its affiliates of any bond otherwise necessary to secure such injunction or other equitable relief. Rights and remedies provided for in this Section 5 are cumulative and shall be in addition to rights and remedies otherwise available to the parties hereunder or under any other agreement or applicable law.
6. Assignment and Transfer .
(a) Company . This Agreement shall inure to the benefit of and be enforceable by, and may be assigned by the Company without Executive’s consent to, any purchaser of all or substantially all of the Company’s business or assets, any successor to the Company or any assignee thereof (whether direct or indirect, by purchase, merger, consolidation or otherwise). Notwithstanding the foregoing sentence, nothing in this Section 6(a) is intended or shall be construed to diminish the obligations of any such purchaser, successor or assignee or the rights of Executive under Section 4 of this Agreement.
(b) Executive . The parties hereto agree that Executive is obligated under this Agreement to render personal services of a special, unique, unusual, extraordinary and intellectual character, thereby giving this Agreement special value. Executive’s rights and obligations under this Agreement shall not be transferable by Executive by assignment or otherwise, and any purported assignment, transfer or delegation thereof shall be void; provided, however, that if Executive shall die, all amounts then payable to Executive hereunder shall be paid in accordance with the terms of this Agreement to Executive’s estate.
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7. Miscellaneous .
(a) Other Obligations . Executive represents and warrants that neither Executive’s employment with the Company nor Executive’s performance of Executive’s obligations hereunder will conflict with or violate or otherwise are inconsistent with any other obligations, legal or otherwise, which Executive may have.
(b) Nondisclosure . Executive will not disclose to the Company, use, or induce the Company to use, any proprietary information, trade secrets or confidential business information of others.
(c) Cooperation . Following termination of employment with the Company for any reason, Executive shall cooperate with the Company, as reasonably requested by the Company, to effect a transition of Executive’s responsibilities and to ensure that the Company is aware of all matters being handled by Executive. The Company shall (i) pay Executive a per diem fee based on Executive’s Base Salary for work performed in connection with such obligation, provided that Executive is not then receiving payments pursuant to Sections 4(e)(iii) or 4(f)(iv) above and such work is approved in advance in writing by the Company and (ii) reimburse Executive’s reasonable expenses incurred in connection with such pre-approved work.
(d) Assistance in Proceedings, Etc . Executive shall, during and after his employment, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal proceeding, including any external or internal investigation, involving the Company or any of its affiliates. The Company shall (i) pay Executive a per diem fee based on Executive’s Base Salary (with portions of days being aggregated to form days of eight hours) for material work performed in connection with such obligations ( i.e., Executive is required to attend a meeting or spend more than one hour during a day responding to or otherwise participating in telephone, email, or telecopy communications) subsequent to termination of Executive’s employment with the Company, provided that (A) such work is approved in advance in writing by the Company, (B) no payments shall be due in connection with assistance provided during any period for which Executive is receiving payments pursuant to Sections 4(e)(iii) or 4(f)(iv) above and (C) no payments shall be due for any time Executive spends testifying before the SEC or in any proceeding ( e.g. , class action litigation); and (ii) reimburse Executive’s reasonable expenses incurred in connection with the foregoing obligations.
(e) Mitigation . Executive shall not be required to mitigate damages or the amount of any payment provided to him under Section 4 of this Agreement by seeking other employment or otherwise, nor shall the amount of any payments provided to Executive under Section 4 be reduced by any compensation earned by Executive as the result of employment by another employer after the termination of Executive’s employment or otherwise.
(f) No Right of Set-off Etc . The obligation of the Company to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, set-off, counterclaim,
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recoupment, defense or other claim, right or action which the Company may have against Executive or others.
(g) Protection of Reputation . Following the termination of Executive’s employment with the Company, Executive agrees that he will take no action which is intended, or would reasonably be expected, to harm the reputation of the Company or any of its affiliates or which would reasonably be expected to lead to unwanted or unfavorable publicity to the Company or its affiliates. Nothing herein shall prevent Executive from making any truthful statement in connection with any investigation by the Company or any governmental authority or in any legal proceeding.
(h) Governing Law . This Agreement shall be governed by and construed (both as to validity and performance) and enforced in accordance with the internal laws of the State of Connecticut applicable to agreements made and to be performed wholly within such jurisdiction, without regard to the principles of conflicts of law or where the parties are located at the time a dispute arises.
(i) Arbitration .
| (i) | General . Executive and the Company specifically, knowingly, and voluntarily agree that they shall use final and binding arbitration to resolve any dispute (an ‘Arbitrable Dispute’) between Executive, on the one hand, and the Company (or any affiliate of the Company), on the other hand. This arbitration agreement applies to all matters relating to this Agreement, the RSU Agreement and Executive’s employment with and/or termination of employment from the Company, including without limitation disputes about the validity, interpretation, or effect of this Agreement, or alleged violations of it, any payments due hereunder or thereunder and all claims arising out of any alleged discrimination, harassment or retaliation, including, but not limited to, those covered by Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended, and the Americans With Disabilities Act or any other federal, state or local law relating to discrimination in employment. For the avoidance of doubt, it is understood that an Arbitrable Dispute does not include any dispute under the Indemnification Agreement. |
| (ii) |
Injunctive Relief . Notwithstanding anything to the contrary contained herein, the Company and any affiliate of the Company (if applicable) shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction to enforce Section 5 of this Agreement. For purposes of seeking enforcement of |
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Section 5, the Company and Executive hereby consent to the jurisdiction of any state or federal court sitting in the County of Fairfield, State of Connecticut, or in the City, County and State of New York. |
| (iii) | The Arbitration . Any arbitration pursuant to this Section 7(i) will take place in New York, New York, under the auspices of the American Arbitration Association, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect, and before a panel of three arbitrators selected in accordance with such rules. Judgment upon the award rendered by the arbitrators may be entered in any state or federal court sitting in the County of Fairfield, State of Connecticut, or in the City, County and State of New York. |
| (iv) | Fees and Expenses . In any arbitration pursuant to this Section 7(i), each party shall be responsible for the fees and expenses of its own attorneys and witnesses, and the fees and expenses of the arbitrators shall be divided equally between the Company, on the one hand, and Executive, on the other hand. Notwithstanding the foregoing, the Company shall pay the reasonable legal fees, costs and expenses incurred by Executive in connection with any action arising under this Agreement and/or the RSU Agreement, provided that any dispute or controversy between the parties regarding this Agreement or the RSU Agreement is resolved in any manner in favor of Executive. |
| (v) | Exclusive Forum . Except as permitted by Section 7(i)(ii) hereof, arbitration in the manner described in this Section 7(i) shall be the exclusive forum for any Arbitrable Dispute. Except as permitted by Section 7(i)(ii), should Executive or the Company attempt to resolve an Arbitrable Dispute by any method other than arbitration pursuant to this Section 7(i), the responding party shall be entitled to recover from the initiating party all damages, expenses, and attorneys’ fees incurred as a result of that breach. Nothing hereunder, however, shall restrict either party from proposing or agreeing to pursue consensual mediation of any Arbitrable Dispute. |
(j) Reimbursement of Reasonable Attorney’s Fees and Expenses in Connection with Agreement . The Company shall pay or reimburse Executive for reasonable attorneys’ fees and expenses incurred by Executive in connection with the drafting and negotiating of this Agreement, provided that the Company’s total obligation pursuant to this
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Section 7(j) shall not exceed $7,500. It is agreed that the payment or reimbursement of such fees shall be considered a working condition fringe benefit.
(k) Section 409A of the Code . The Company makes no representations regarding the tax implications of the compensation and benefits to be paid to Executive under this Agreement, including, without limitation, under Section 409A of the Code. The parties agree that in the event Executive or the Company reasonably determines that the terms hereof would result in Executive being subject to tax under Section 409A of the Code, Executive and the Company shall negotiate in good faith to amend this Agreement to the extent necessary to prevent the assessment of any such tax, including by delaying the payment dates of any amounts hereunder.
(l) Entire Agreement . This Agreement (including the plans and the RSU Agreement referenced in Section 3) and the Indemnification Agreement contain the entire agreement and understanding between the parties hereto in respect of Executive’s employment and supersedes, cancels and annuls any prior or contemporaneous written or oral agreements, understandings, commitments and practices between them respecting Executive’s employment.
(m) Amendment . This Agreement may be amended only by a writing which makes express reference to this Agreement as the subject of such amendment and which is signed by Executive and, on behalf of the Company, by its duly authorized officer.
(n) Severability . If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction or arbitration panel to be invalid or unenforceable to any extent, the remainder of this Agreement, or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be enforced to the fullest extent permitted by law. If any provision of this Agreement, or any part thereof, is held to be invalid or unenforceable because of the scope or duration of or the area covered by such provision, the parties hereto agree that the court or arbitration panel making such determination shall reduce the scope, duration and/or area of such provision (and shall substitute appropriate provisions for any such invalid or unenforceable provisions) in order to make such provision enforceable to the fullest extent permitted by law and/or shall delete specific words and phrases, and such modified provision shall then be enforceable and shall be enforced. The parties hereto recognize that if, in any judicial or arbitral proceeding, a court or arbitration panel shall refuse to enforce any of the separate covenants contained in this Agreement, then that invalid or unenforceable covenant contained in this Agreement shall be deemed eliminated from these provisions to the extent necessary to permit the remaining separate covenants to be enforced. In the event that any court or arbitration panel determines that the time period or the area, or both, are unreasonable and that any of the covenants is to that extent invalid or unenforceable, the parties hereto agree that such covenants will remain in full force and effect, first, for the greatest time period, and second, in the greatest geographical area that would not render them unenforceable.
(o) Construction . The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. The language in all parts of this Agreement shall be in all cases construed
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according to its fair meaning and not strictly for or against the Company or Executive. As used herein, the words ‘day’ or ‘days’ shall mean a calendar day or days.
(p) Nonwaiver . Neither any course of dealing nor any failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by its duly authorized officer.
(q) Notices . Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or if sent by registered or certified mail, postage prepaid, with return receipt requested, addressed: (i) in the case of the Company, to Chief Executive Officer, United Rentals, Inc., Five Greenwich Office Park, Greenwich, Connecticut 06831; and (ii) in the case of Executive, to Executive’s last known address as reflected in the Company’s records, or to such other address as Executive shall designate by written notice to the Company. Any notice given hereunder shall be deemed to have been given at the time of receipt thereof by the person to whom such notice is given if personally delivered or on the date that is three (3) days after the date of mailing if sent by registered or certified mail.
(r) Survival . Cessation or termination of Executive’s employment with the Company shall not result in termination of this Agreement, the RSU Agreement or the Indemnification Agreement. The respective obligations of Executive and the Company as provided in the RSU Agreement, the Indemnification Agreement and Sections 4, 5, 6 and 7 of this Agreement shall survive cessation or termination of Executive’s employment hereunder.
(s) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be deemed to be one and the same instrument. Signatures delivered by facsimile shall be effective for all purposes.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed on its behalf by an officer thereunto duly authorized and Executive has duly executed this Agreement, all as of the date and year first written above.
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UNITED RENTALS, INC. |
EXECUTIVE: |
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By: |
/s/ Wayland R. Hicks |
/s/ Roger E. Schwed |
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Name: Wayland R. Hicks |
Roger E. Schwed |
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Title: Chief Executive Officer |
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EXHIBIT B
FORM OF
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is entered into as of this day of , 2006, by and between United Rentals, Inc., a Delaware corporation (the ‘Company’), and (‘Indemnitee’).
RECITALS
A. The Company is aware that because of the increased exposure to litigation costs, talented and experienced persons are increasingly reluctant to serve or continue serving as directors and officers of corporations unless they are protected by comprehensive liability insurance and indemnification.
B. The statutes and judicial decisions regarding the duties of directors and officers are often difficult to apply, ambiguous, or conflicting, and therefore fail to provide such directors and officers with adequate guidance regarding the proper course of action.
C. The Board of Directors of the Company (the ‘Board’) has concluded that, in order to retain and attract talented and experienced individuals to serve as officers and directors of the Company and its subsidiaries and to encourage such individuals to take the business risks necessary for the success of the Company and its subsidiaries, the Company should contractually indemnify its officers and directors, and the officers and directors of its subsidiaries, in connection with claims against such officers and directors in connection with their services to the Company and its subsidiaries, and has further concluded that the failure to provide such contractual indemnification could be detrimental to the Company, its subsidiaries and stockholders.
NOW, THEREFORE , the parties, intending to be legally bound, hereby agree as follows:
1. Definitions .
(a) Agent . ‘Agent’ with respect to the Company means any person who is or was a director, officer, employee or other agent of the Company or a Subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the interests of, the Company or a Subsidiary of the Company as a director, officer, employee or agent of another entity or enterprise; or was a director, officer, employee or agent of a predecessor corporation (or other predecessor entity or enterprise) of the Company or a Subsidiary of the Company, or was a director, officer, employee or agent of another enterprise at the request of, for the convenience of, or to represent the interests of such predecessor.
(b) Expenses . ‘Expenses’ means all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’ fees, costs of investigation and related disbursements) incurred by the Indemnitee in connection with the investigation, settlement, defense or appeal of a Proceeding covered hereby or the establishment or enforcement of a right to indemnification under this Agreement.
(c) Proceeding . ‘Proceeding’ means any threatened, pending, or completed claim, suit or action, whether civil, criminal, administrative, investigative or otherwise.
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(d) Subsidiary . ‘Subsidiary’ means any corporation or other entity of which more than 10% of the outstanding voting securities or other voting interests is owned directly or indirectly by the Company, and one or more other Subsidiaries, taken as a whole.
2. Maintenance of Liability Insurance .
(a) The Company hereby covenants and agrees with Indemnitee that, subject to Section 2(b), the Company shall obtain and maintain in full force and effect directors’ and officers’ liability insurance (‘D&O Insurance’) in reasonable amounts as the Board of Directors shall determine from established and reputable insurers. In no event shall the terms of such D&O Insurance be less favorable to Indemnitee than the terms generally applicable to the Company’s executive officers generally.
(b) Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that the premium costs for such insurance are (i) disproportionate to the amount of coverage provided after giving effect to exclusions, and (ii) substantially more burdensome to the Company than the premiums charged to the Company for D&O Insurance currently in effect.
3. Mandatory Indemnification . The Company shall defend, indemnify and hold harmless Indemnitee:
(a) Third Party Actions . If Indemnitee is a person who was or is a party, or is threatened to be made a party, to any Proceeding (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was or is claimed to be an Agent of the Company, or by reason of anything done or not done by Indemnitee in any such capacity, or by reason of the fact that Indemnitee personally guaranteed any obligation of the Company at any time, against any and all Expenses and liabilities of any type whatsoever (including, but not limited to, legal fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) incurred by such person in connection with the investigation, defense, settlement or appeal of such Proceeding, so long as the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe such person’s conduct was unlawful.
(b) Derivative Actions . If Indemnitee is a person who was or is a party, or is threatened to be made a party, to any Proceeding by or in the right of the Company by reason of the fact that he is or was an Agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all Expenses and liabilities of any type whatsoever (including, but not limited to, legal fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) incurred by him in connection with the investigation, defense, settlement or appeal of such Proceeding, so long as the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification under this subsection shall be made, and Indemnitee shall repay all amounts previously advanced by the Company, in respect of any claim, issue or matter for which such person is judged in a final, non-appealable decision to be liable to the Company by a court of competent jurisdiction, unless and only to the extent that the court in which such Proceeding was brought or the Court of Chancery of Delaware shall determine that Indemnitee is fairly and reasonably entitled to indemnity.
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(c) Actions Where Indemnitee Is Deceased . If Indemnitee is a person who was or is a party, or is threatened to be made a party, to any Proceeding by reason of the fact that he is or was an Agent of the Company, or by reason of anything done or not done by him in any such capacity, and prior to, during the pendency of, or after completion of, such Proceeding, the Indemnitee shall die, then the Company shall defend, indemnify and hold harmless the estate, heirs and legatees of the Indemnitee against any and all Expenses and liabilities incurred by or for such persons or entities in connection with the investigation, defense, settlement or appeal of such Proceeding on the same basis as provided for the Indemnitee in Sections 3(a) and 3(b) above.
The Expenses and liabilities covered hereby shall be net of any payments by D&O Insurance carriers or others.
4. Partial Indemnification . If Indemnitee is found under Section 3, 6 or 9 hereof not to be entitled to indemnification for all of the Expenses relating to a Proceeding, the Company shall indemnify the Indemnitee for any portion of such Expenses not specifically precluded by the operation of such Section 3, 6 or 9.
5. Indemnification Procedures; Mandatory Advancement of Expenses .
(a) Promptly after receipt by Indemnitee of notice to him or her of the commencement or threat of any Proceeding covered hereby, Indemnitee shall notify the Company of the commencement or threat thereof, provided that any failure to so notify shall not relieve the Company of any of its obligations hereunder.
(b) If, at the time of the receipt of a notice pursuant to Section 5(a) above, the Company has D&O Insurance in effect, the Company shall give prompt notice of the Proceeding or claim to its insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay all amounts payable as a result of such Proceeding in accordance with the terms of such policies.
(c) Indemnitee shall be entitled to retain one or more counsel from time to time selected by it in its sole discretion to act as its counsel in and for the investigation, defense, settlement or appeal of each Proceeding.
(d) The Company shall bear all fees and Expenses (including invoices for reasonable and customary advance retainers) of such counsel, and all fees and Expenses invoiced by other persons or entities, in connection with the investigation, defense, settlement or appeal of each such Proceeding. Such fees and Expenses are referred to herein as ‘Covered Expenses.’
(e) Until a determination to the contrary under Section 6 hereof is made, the Company shall advance all Covered Expenses in connection with each Proceeding. If required by law, as a condition to such advances, Indemnitee shall, at the request of the Company, agree to repay such amounts advanced if it shall ultimately be determined by a final order of a court that Indemnitee is not entitled to be indemnified by the Company by the terms hereof or under applicable law.
(f) Each advance to be made hereunder shall be paid by the Company to Indemnitee within 10 days following delivery of a written request therefor by Indemnitee to the Company.
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(g) The Company acknowledges the potentially severe damage to Indemnitee should the Company fail timely to make such advances to Indemnitee.
6. Determination of Right to Indemnification .
(a) To the extent Indemnitee has been successful on the merits or otherwise in defense of any Proceeding, claim, issue or matter covered hereby, Indemnitee need not repay any of the Expenses advanced in connection with the investigation, defense or appeal of such Proceeding.
(b) If Section 6(a) is inapplicable, the Company shall remain obligated to indemnify Indemnitee, and Indemnitee need not repay Expenses previously advanced, unless the Company, by motion before a court of competent jurisdiction, obtains an order for preliminary or permanent relief suspending or denying the obligation to advance or indemnify for Expenses.
(c) Notwithstanding a determination by a court that Indemnitee is not entitled to indemnification with respect to a specific Proceeding, Indemnitee shall have the right to apply to the Court of Chancery of Delaware for the purpose of enforcing Indemnitee’s right to indemnification pursuant to this Agreement.
(d) Notwithstanding any other provision in this Agreement to the contrary, the Company shall indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with any Proceeding under Section 6(b) or 6(c) and against all Expenses incurred by Indemnitee in connection with any other Proceeding between the Company and Indemnitee involving the interpretation or enforcement of the rights of Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims and/or defenses of Indemnitee in any such Proceeding were frivolous or made in bad faith.
7. Certificate of Incorporation and By-Laws . The Company agrees that the Company’s Certificate of Incorporation and By-laws in effect on the date hereof shall not be amended to reduce, limit, hinder or delay (i) the rights of Indemnitee granted hereby, or (ii) the ability of the Company to indemnify Indemnitee as required hereby. The Company further agrees that it shall exercise the powers granted to it under its Certificate of Incorporation, its By-laws and by applicable law to indemnify Indemnitee to the fullest extent possible as required hereby.
8. Witness Expenses . The Company agrees to compensate Indemnitee for the reasonable value of his or her time spent, and to reimburse Indemnitee for all Expenses (including attorneys’ fees and travel costs) incurred by him or her, in connection with being a witness, or if Indemnitee is threatened to be made a witness, with respect to any Proceeding, by reason of his or her serving or having served as an Agent of the Company.
9. Exceptions . Notwithstanding any other provision hereunder to the contrary, the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee . To indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense (other than Proceedings under Section 6(b) or Section 6(c) or brought to establish or enforce a right to indemnification under this Agreement or the provisions of the Company’s Certificate of Incorporation or By-laws unless a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such Proceeding were not made in good faith or were frivolous).
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(b) Unauthorized Settlements . To indemnify Indemnitee under this Agreement for any amounts paid in settlement of a Proceeding covered hereby without the prior written consent of the Company to such settlement.
10. Non-exclusivity . This Agreement is not the exclusive arrangement between the Company and Indemnitee regarding the subject matter hereof and shall not diminish or affect any other rights which Indemnitee may have under any provision of law, the Company’s Certificate of Incorporation or By-laws, under other agreements, or otherwise.
11. Continuation After Term . Indemnitee’s rights hereunder shall continue after the Indemnitee has ceased acting as a director or Agent of the Company and the benefits hereof shall inure to the benefit of the heirs, executors and administrators of Indemnitee.
12. Interpretation of Agreement . This Agreement shall be interpreted and enforced so as to provide indemnification to Indemnitee to the fullest extent now or hereafter permitted by law.
13. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable, provisions of the Agreement shall not in any way be affected or impaired thereby, and to the fullest extent possible, the provisions of this Agreement shall be construed or altered by the court so as to remain enforceable and to provide Indemnitee with as many of the benefits contemplated hereby as are permitted under law.
14. Counterparts, Modification and Waiver . This Agreement may be signed in counterparts. This Agreement constitutes a separate agreement between the Company and Indemnitee and may be supplemented or amended as to Indemnitee only by a written instrument signed by the Company and Indemnitee, with such amendment binding only the Company and Indemnitee. All waivers must be in a written document signed by the party to be charged. No waiver of any of the provisions of this Agreement shall be implied by the conduct of the parties. A waiver of any right hereunder shall not constitute a waiver of any other right hereunder.
15. Notices . All notices, demands, consents, requests, approvals and other communications required or permitted hereunder shall be in writing and shall be deemed to have been properly given if hand delivered (effective upon receipt or when refused), or if sent by a courier freight prepaid (effective upon receipt or when refused), in the case of the Company, at the addresses listed below, or to such other addresses as the parties may notify each other in writing.
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To Company: |
United Rentals, Inc. Five Greenwich Office Park Greenwich, CT 06830 Attention: Chief Executive Officer |
To Indemnitee: At the Indemnitee’s residence address and facsimile number on the records of the Company from time to time.
16. Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware.
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IN WITNESS WHEREOF, the parties hereto have entered into this Indemnification Agreement effective as of the date first above written.
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Exhibit 10(f)
UNITED RENTALS, INC.
2001 COMPREHENSIVE STOCK PLAN
As amended and restated*
(formerly the 2001 Senior Stock Plan)
ARTICLE I
GENERAL
1.1 Purpose. The purpose of the Plan is to provide additional incentive to certain employees, officers and directors of United Rentals, Inc. and its subsidiaries (the “Corporation”) and consultants who render services to the Corporation. It is intended that Awards granted under the Plan strengthen the desire of such persons to remain in the employ or act as directors of the Corporation, to otherwise render services to the Corporation, and to stimulate their efforts on behalf of the Corporation.
1.2 Effective Date; Term. The Plan was originally effective on March 23, 2001 with respect to 4,000,000 shares. The amended and restated Plan is effective as of the date on which the amendment and restatement of the Plan was adopted by the Board, subject to approval of the stockholders within twelve months before or after such date. No Award shall be granted under the Plan with respect to the 4,000,000 shares originally authorized under the Plan after March 22, 2011 and no Award shall be granted under the Plan with respect to the 2,239,575 shares authorized by the amendment and restatement of the Plan after the close of business on the day immediately preceding the tenth anniversary of shareholder approval of the amendment and restatement of the Plan. The provisions of the Plan respecting the conditioning of the granting or vesting of Awards upon the achievement of performance goals shall terminate on the fifth anniversary of the adoption by the Board of the amendment and restatement of the Plan. Subject to other applicable provisions of the Plan, all Awards made under the Plan prior to the applicable termination of the right to grant Awards shall remain in effect until such Awards have been satisfied or terminated in accordance with the Plan and the terms of such Awards.
1.3 Shares Subject to the Plan. Subject to adjustments as provided in Article IX, the number of shares of Stock that may be delivered, purchased or used for reference purposes (with respect to SARs or Stock Units) with respect to Awards granted under the Plan shall be 6,239,575 shares. If any Award, or portion of an Award, under the Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares without the delivery of shares of Stock or other consideration, the shares subject to such Award shall thereafter be available for further Awards under the Plan.
1.4 Annual Limit. No Award may be granted to any individual in any calendar year with respect to more than 300,000 shares.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth below.
2.1 “Administrator” means: (i) with respect to Awards made to executive officers and directors, the Compensation Committee, (ii) for all other purposes, the Special Stock Option Committee or any other committee which is designated by the Board as the “Administrator.”
2.2 “Award” means any Stock Options (including ISOs and NSOs), SARs (including free-standing and tandem SARs), Restricted Stock Awards, Stock Units, Performance Awards or any combination of the foregoing granted pursuant to the Plan, except, however, when the term is being used under the Plan with respect to a particular category of grant in which case it shall only refer to that particular category of grant.
| * | As amended and restated on April 19, 2006 and amended on June 13, 2006. |
2.3 “Board” means the Board of Directors of the Corporation.
2.4 “Code” means the Internal Revenue Code of 1986, as amended.
2.5 “Fair Market Value” of the Stock on any given date means the average of the high and low price of a share of Stock, as traded on a national securities exchange.
2.6 “Grant Agreement” means the agreement between the Corporation and the Participant pursuant to which the Corporation authorizes an Award hereunder.
Each Grant Agreement entered into between the Corporation and a Participant with respect to an Award granted under the Plan shall contain such provisions, consistent with the provisions of the Plan, as may be established by the Administrator.
2.7 “Grant Date” means the date on which the Administrator formally acts to grant an Award to a Participant or such other date as the Administrator shall so designate at the time of taking such formal action.
2.8 “ISO” means any Stock Option designated and qualified as an “incentive stock option” as defined in Code section 422.
2.9 “NSO” means any Option that is not an ISO.
2.10 “Option” means any option to purchase shares of Stock granted under Article V.
2.11 “Parent” means a corporation, whether now or hereafter existing, within the meaning of the definition of “parent corporation” provided in Code section 424(e), or any successor to such definition.
2.12 “Participant” means any person to whom any Award is granted pursuant to the Plan.
2.13 “Performance Award” means the right to receive Shares and/or cash if the Company attains certain performance goals during a designated period.
2.14 “Restricted Stock Award” means any Award of shares of restricted Stock granted pursuant to Article VII of the Plan.
2.15 “SAR” means a stock appreciation right, as awarded under Article VI.
2.16 “Stock” means the voting common stock of the Corporation, subject to adjustments pursuant to the Plan.
2.17 “Stock Unit” means credits to a bookkeeping reserve account solely for accounting purposes, where the amount of the credit shall equal the Fair Market Value of a share of Stock on the date of grant (unless the Administrator provides otherwise in the Grant Agreement) and which shall be subsequently increased or decreased to reflect the Fair Market Value of a share of Stock. Stock Units do not require segregation of any of the Corporation’s assets. Stock Units are awarded under Article VII.
2.18 “Subsidiary” means any corporation or other entity (other than the Corporation) in any unbroken chain of corporations or other entities, beginning with the Corporation, if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50% or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain.
ARTICLE III
ADMINISTRATION
3.1 General. The Plan shall be administered by the Administrator. The Administrator’s determinations under the Plan (including without limitation determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by the Administrator selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated.
3.2 Duties. The Administrator shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Administrator deems necessary or advisable, all within the Administrator’s sole and absolute discretion. The Administrator shall have full power and authority to take all other actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to:
(a) construe the Plan and any Award under the Plan;
(b) select the persons to whom Awards may be granted and the time or times at which Awards shall be granted;
(c) determine the number of shares of Stock to be covered by or used for reference purposes for any Award;
(d) determine and modify from time to time the terms and conditions, including restrictions, of any Award (including provisions that would allow for cashless exercise of Awards) and to approve the form of written instrument evidencing Awards, provided, however, that no such modification shall lower the Exercise Price of an Option or the base price per share of a SAR;
(e) accelerate or otherwise change the time or times at which an Award becomes vested or when an Award may be exercised or becomes payable and to waive or accelerate the lapse, in whole or in part, of any restriction or condition with respect to such Award, including, but not limited to, any restriction or condition with respect to the vesting or exercisability of an Award following a Participant’s termination of employment or death;
(f) impose limitations on Awards, including limitations on transfer and repurchase provisions; and
(g) modify, extend or renew outstanding Awards, provided, however, that no such modification or substitution shall have the effect of lowering the Exercise Price of an Option or the base price per share of a SAR.
ARTICLE IV
ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. Officers, directors, employees and consultants of the Corporation shall be eligible to participate in the Plan.
ARTICLE V
STOCK OPTIONS
5.1 General. Subject to the other applicable provisions of the Plan, the Administrator may from time to time grant to eligible Participants Awards of ISOs or NSOs. The ISO or NSO Awards granted shall be subject to the following terms and conditions.
5.2 Grant of Option. The grant of an Option shall be evidenced by a Grant Agreement, executed by the Corporation and the Participant, describing the number of shares of Stock subject to the Option, whether the Option is an ISO or NSO, the Exercise Price of the Option, the vesting period for the Option and such other terms and conditions that the Administrator deems, in it sole discretion, to be appropriate, provided that such terms and conditions are not inconsistent with the Plan.
5.3 Price. The price per share payable upon the exercise of each Option (the “Exercise Price”) shall be determined by the Administrator and set forth in the Grant Agreement; provided, however, that in the case of ISOs, the Exercise Price shall not be less than 100% of the Fair Market Value of the shares on the Grant Date.
5.4 Payment. Options may be exercised in whole or in part by payment of the Exercise Price of the shares to be acquired in accordance with the provisions of the Grant Agreement, and/or such rules and regulations as the Administrator may prescribe, and/or such determinations, orders, or decisions as the Administrator may make.
5.5 Terms of Options. The term during which each Option may be exercised shall be determined by the Administrator; provided, however, that in no event shall an ISO be exercisable more than ten years from the date it is granted.
5.6 Reload Options. The terms of an Option may provide for the automatic grant of a new Option Award when the Exercise Price of the Option and/or any related tax withholding obligation is paid by tendering shares of Stock.
5.7 Restrictions on ISOs. ISO Awards granted under the Plan shall comply in all respects with Code section 422 and, as such, shall meet the following additional requirements:
(a) Grant Date. An ISO must be granted within ten (10) years of the earlier of the Plan’s adoption by the Board of Directors or approval by the Corporation’s shareholders.
(b) Exercise Price and Term. The Exercise Price of an ISO shall not be less than 100% of the Fair Market Value of the shares on the date the Option is granted and the term of the Option shall not exceed ten (10) years. Notwithstanding the immediately preceding sentence, the Exercise Price of any ISO granted to a Participant who owns, within the meaning of Code section 422(b)(6), after application of the attribution rules in Code section 424(d), more than ten percent (10%) of the total combined voting power of all classes of shares of the Corporation, or its Parent or Subsidiary corporations, shall be not less than 110% of the Fair Market Value of the Stock on the Grant Date and the term of such ISO shall not exceed five (5) years.
(c) Maximum Grant. The aggregate Fair Market Value (determined as of the Grant Date) of shares of Stock with respect to which all ISOs first become exercisable by any Participant in any calendar year under this or any other plan of the Corporation and its Parent and Subsidiary corporations may not exceed $100,000 or such other amount as may be permitted from time to time under Code section 422. To the extent that such aggregate Fair Market Value shall exceed $100,000, or other applicable amount, such Options shall be treated as NSOs. In such case, the Corporation may designate the shares of Stock that are to be treated as stock acquired pursuant to the exercise of an ISO by issuing a separate certificate for such shares and identifying the certificate as ISO shares in the stock transfer records of the Corporation.
(d) Participant. ISOs shall only be issued to employees of the Corporation, or of a Parent or Subsidiary of the Corporation.
(e) Tandem Options Prohibited. An ISO may not be granted in tandem with a NSO in such a manner that the exercise of one affects a Participant’s right to exercise the other.
(f) Designation. No option shall be an ISO unless so designated by the Administrator at the time of grant or in the Grant Agreement evidencing such Option.
5.8 Exercisability. Options shall be exercisable as provided in the Grant Agreement.
5.9 Transferability. ISOs shall be non-transferable. Except as provided in the Grant Agreement, NSOs shall not be assignable or transferable by the Participant, except by will or by the laws of descent and distribution.
ARTICLE VI
STOCK APPRECIATION RIGHTS
6.1 Award of SARs. Subject to the other applicable provisions of the Plan, the Administrator may at any time and from time to time grant SARs to eligible Participants, either on a free-standing basis (without regard to or in addition to the grant of an Option) or on a tandem basis (related to the grant of an underlying Option).
6.2 Restrictions on Tandem SARs. ISOs may not be surrendered in connection with the exercise of a tandem SAR unless the Fair Market Value of the Stock subject to the ISO is greater than the Exercise Price for such ISO. SARs granted in tandem with Options shall be exercisable only to the same extent and subject to the same conditions as the related Options are exercisable. The Administrator may, in its discretion, prescribe additional conditions to the exercise of any such tandem SAR.
6.3 Amount of Payment Upon Exercise of SARs. A SAR shall entitle the Participant to receive, subject to the provisions of the Plan and the Grant Agreement, a payment having an aggregate value equal to the product of (i) the excess of (A) the Fair Market Value on the exercise date of one share of Stock over (B) the base price per share specified in the Grant Agreement, times (ii) the number of shares specified by the SAR, or portion thereof, which is exercised. In the case of exercise of a tandem SAR, such payment shall be made in exchange for the surrender of the unexercised related Option (or any portions thereof which the Participant from time to time determines to surrender for this purpose).
6.4 Form of Payment Upon Exercise of SARs. Payment by the Corporation of the amount receivable upon any exercise of a SAR may be made by the delivery of Stock or cash, or any combination of Stock and cash, as determined in the sole discretion of the Administrator.
6.5 Transferability. SARs shall be transferable only as provided in the Grant Agreement.
ARTICLE VII
RESTRICTED STOCK AND STOCK UNITS
7.1 Grants. Subject to the other applicable provisions of the Plan, the Administrator may grant Restricted Stock or Stock Units to Participants in such amounts and for such consideration, including no consideration or such minimum consideration as may be required by law, as it determines. Such Awards shall be made pursuant to a Grant Agreement.
7.2 Terms and Conditions. A Restricted Stock Award entitles the recipient to acquire shares of Stock and a Stock Unit Award entitles the recipient to be paid the Fair Market Value of the Stock on the exercise date. Stock Units may be settled in Stock, cash or a combination thereof, as determined by the Administrator. Restricted Stock Awards and Stock Unit Awards are subject to vesting periods and other restrictions and conditions as the Administrator may include in the Grant Agreement.
7.3 Restricted Stock.
(a) The Grant Agreement for each Restricted Stock Award shall specify the applicable restrictions on such shares of Stock, the duration of such restrictions, and the times at which such restrictions shall lapse with respect to all or a specified number of shares of Stock that are part of the Award. Notwithstanding the foregoing, the Administrator may reduce or shorten the duration of any restriction applicable to any shares of Stock awarded to any Participant under the Plan.
(b) Share certificates with respect to restricted shares of Stock may be issued at the time of grant of the Restricted Stock Award, subject to forfeiture if the restrictions do not lapse, or upon lapse of the restrictions. If share certificates are issued at the time of grant of the Restricted Stock Award, the certificates shall bear an appropriate legend with respect to the restrictions applicable to such Restricted Stock Award (as described in Section 11.1) or, alternatively, the Participant may be required to deposit the certificates with the Corporation during the period of any restriction thereon and to execute a blank stock power or other instrument of transfer.
(c) The extent of the Participant’s rights as a shareholder with respect to the Restricted Stock shall be specified in the Grant Agreement.
7.4 Stock Units.
(a) The grant of Stock Units shall be evidenced by a Grant Agreement that states the number of Stock Units evidenced thereby and the terms and conditions of such Stock Units.
(b) Stock Units may be exercised in the manner described in the Grant Agreement.
(c) The extent of the Participant’s rights as a shareholder with respect to the Stock Units shall be specified in the Grant Agreement.
7.5 Transferability. Unvested Restricted Stock Awards or Stock Units may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided in the Grant Agreement.
ARTICLE VIII
PERFORMANCE AWARDS
8.1 The Administrator may, from time to time, in its discretion and subject to the provisions of the Plan, provide an incentive opportunity to any or all eligible persons based on achievement by the Corporation for any calendar year or other period chosen by the Administrator. Each Performance Award shall be embodied in a “Performance Award Agreement” signed by the Participant and the Corporation providing that the Performance Award shall be subject to the provisions of this Plan and containing such other provisions the Administrator may prescribe not inconsistent with the Plan. The Administrator will determine, in its sole discretion, the performance targets and whether Performance Awards should be payable in the form of Shares or cash.
ARTICLE IX
TAX WITHHOLDING
9.1 Corporation’s Right to Demand Payment for Withholding.
(a) Subject to subparagraph (b), as a condition to taking any action otherwise required under the Plan or any Grant Agreement, the Corporation shall have the right to require assurance that the Participant will remit to the Corporation when required an amount sufficient to satisfy federal, state and local tax withholding requirements. The Administrator may permit such withholding obligations to be satisfied through cash payment by the Participant, through the surrender of shares of Stock which the Participant already owns, through the surrender of shares of Stock to which the Participant is otherwise entitled under the Plan or through any other method determined by the Administrator.
(b) If a Participant makes a disposition of shares of Stock acquired upon the exercise of an ISO within either two (2) years after the Option was granted or one (1) year after its exercise by the Participant, the Participant shall promptly notify the Corporation and the Corporation shall have the right to require the Participant to pay to the Corporation an amount sufficient to satisfy federal, state and local tax withholding requirements.
ARTICLE X
CORPORATE TRANSACTIONS
10.1 Recapitalizations, etc. In the event of any change is made to the Corporation’s common stock by reason of any stock dividend, stock split or reverse stock split, recapitalization, split-up, combination or exchange of shares, or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities and the exercise price, base price or purchase price per share in effect under each outstanding option or other Award under the Plan and (iii) if applicable, the maximum number and/or class of securities for which any one person may be granted stock options, separately exercisable stock
appreciate rights and direct stock issuances under the Plan per calendar year. Such adjustments to outstanding options are to be effected in a manner which shall preserve the rights of the Award holder without enlargement or dilution. Adjustments by the Administrator shall be final, binding and conclusive.
10.2 Change in Control.
In the event of (i) a dissolution or liquidation of the Corporation, (ii) a sale of all or substantially all of the Company’s assets, (iii) a merger or consolidation involving the Corporation in which the Corporation is not the surviving corporation or (iv) a merger or consolidation involving the Corporation in which the Corporation is the surviving corporation but the holders of shares of Stock receive securities of another corporation and/or other property, including cash, the Administrator shall, in its absolute discretion, have the power to:
(a) cancel, effective immediately prior to the occurrence of such event, each Option and SAR outstanding immediately prior to such event (whether or not then exercisable), and, in full consideration of such cancellation, pay to the grantee to whom such Option or SAR was granted an amount in cash, for each share of Stock subject to such Option or SAR, respectively, equal to the excess of (x) the value, as determined by the Administrator in its absolute discretion, of the property (including cash) received by the holder of a share of Stock as a result of such event over (y) the exercise price of such Option or SAR;
(b) provide that each holder of an Option or SAR (whether or not then exercisable) shall be given at least 15 days prior to the occurrence of such event in which to exercise such Option or SAR, after which time such Options and SARs shall terminate; or
(c) provide for the exchange of each Option and SAR outstanding immediately prior to such event (whether or not then exercisable) for an Option on or SAR with respect to, as appropriate, some or all of the property which a holder of the number of shares of Stock subject to such Option or SAR would have received and, incident thereto, make an equitable adjustment as determined by the Administrator in its absolute discretion in the exercise price of the Option or SAR, or the number of shares or amount of property subject to the Option or SAR or, if appropriate, provide for a cash payment to the grantee to whom such Option or SAR was granted in partial consideration for the exchange of the Option or SAR.
ARTICLE XI
AMENDMENT AND TERMINATION
11.1 Amendment. The Board may amend the Plan at any time and from time to time, provided that (i) no amendment shall deprive any person of any rights granted under the Plan before the effective date of such amendment, without such person’s consent; and (ii) amendments may be subject to shareholder approval to the extent needed to comply with applicable law and stock exchange requirements.
11.2 Termination. The Board reserves the right to terminate the Plan in whole or in part at any time, without the consent of any person granted any rights under the Plan.
ARTICLE XII
QUALIFIED PERFORMANCE-BASED COMPENSATION
12.1 Qualified Performance-Based Compensation. To the extent the Compensation Committee determines it is desirable to grant an award to an individual it anticipates might be a “162(m) covered employee” (as defined below), with respect to which award the compensation realized by the grantee will or may not otherwise be deductible by operation of section 162(m) of the Code, the Compensation Committee may, as part of its effort to have such an award treated as “qualified performance-based compensation” within the meaning of Code section 162(m), make the granting and/or vesting of the award subject to the attainment of one or more pre-established objective performance goals during a performance period, as set forth below:
(a) Covered Employees. An individual is a “162(m) covered employee” if, as of the last day of the Corporation’s taxable year for which the compensation related to an award would otherwise be deductible (without regard to section 162(m)), he or she is (A) the chief executive officer of the Corporation (or is acting in such capacity) or (B) one of the four highest compensated officers of the Corporation other than the chief executive officer. Whether an individual is described in either clause (A) or (B) above shall be determined in accordance with applicable regulations under section 162(m) of the Code.
(b) Performance Goals. Prior to the ninety-first (91st) day of the applicable performance period or during such other period as may be permitted under Section 162(m) of the Code, the Compensation Committee shall establish one or more objective performance goals with respect to such performance period. Such performance goals should be expressed in terms of one or more of the following criteria: earnings per share; net income; return on equity; revenue growth; gross margin; reduction in selling, general and administrative expenses (SGA); earnings before interest, taxes, depreciation and amortization (EBITDA); return on assets; return on invested capital; market capitalization; stock price appreciation; operating income; net income; free cash flow; improvement in, or attainment of, working capital levels; repayment of debt; and strategic business goals relating to acquisitions. The performance goals may be expressed with respect to the entire Corporation or specific divisions.
To the extent applicable, the measures used in performance goals set under the Plan shall be determined in accordance with generally accepted accounting principles (“GAAP”) and in a manner consistent with the methods used in the Corporation’s regular reports on Forms 10-K and 10-Q.
(c) Performance Period. The Compensation Committee in its sole discretion shall determine the length of each performance period.
ARTICLE XIII
MISCELLANEOUS
13.1 Restrictive Legends. The Corporation may at any time place legends referencing any restrictions described in the Grant Agreement and any applicable federal or state securities law restrictions on all certificates representing shares of Stock underlying an Award.
13.2 Compliance with Governmental Regulations. Notwithstanding any provision of the Plan or the terms of any Grant Agreement entered into pursuant to the Plan, the Corporation shall not be required to issue any shares hereunder prior to registration of the shares subject to the Plan under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, if such registration shall be necessary, or before compliance by the Corporation or any Participant with any other provisions of either of those acts or of regulations or rulings of the Securities and Exchange Commission thereunder, or before compliance with other federal and state laws and regulations and rulings thereunder, including the rules any applicable securities exchange or quotation system.
13.3 No Guarantee of Employment. Participation in this Plan shall not be construed to confer upon any Participant the legal right to be retained in the employ of the Corporation or give any person any right to any payment whatsoever, except to the extent of the benefits provided for hereunder.
13.4 Governing Law. The provisions of this Plan shall be governed by, construed and administered in accordance with applicable federal law; provided, however, that to the extent not in conflict with federal law, this Plan shall be governed by, construed and administered under the laws of Connecticut, other than its laws respecting choice of law.
13.5 Severability. If any provision of the Plan shall be held invalid, the remainder of this Plan shall not be affected thereby and the remainder of the Plan shall continue in force.
EXHIBIT 31(a)
CERTIFICATIONS
I, Wayland R. Hicks, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of United Rentals, Inc. and United Rentals (North America), Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report; |
| 4. | The registrants’ other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrants and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrants’ internal control over financial reporting that occurred during the registrants’ most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting; and |
| 5. | The registrants’ other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting. |
August 7, 2006
|
/s/ W AYLAND R. H ICKS |
|
Wayland R. Hicks Chief Executive Officer |
EXHIBIT 31(b)
CERTIFICATIONS
I, Martin E. Welch III, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of United Rentals, Inc. and United Rentals (North America), Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report; |
| 4. | The registrants’ other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrants and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrants’ internal control over financial reporting that occurred during the registrants’ most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting; and |
| 5. | The registrants’ other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting. |
August 7, 2006
|
/s/ M ARTIN E. W ELCH III |
|
Martin E. Welch III Chief Financial Officer |
EXHIBIT 32(a)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of United Rentals, Inc. and United Rentals (North America), Inc. (the “Companies”) on Form 10-Q for the period ended June 30, 2006 as filed with the Securities and Exchange Commission (the “Report”). I, Wayland R. Hicks, Chief Executive Officer of the Companies, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m); and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies. |
|
/s/ W AYLAND R. H ICKS |
|
Wayland R. Hicks Chief Executive Officer |
August 7, 2006
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Companies and will be retained by the Companies and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32(b)
CERTIFICATION PURSUANT TO
187 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of United Rentals, Inc. and United Rentals (North America), Inc. (the “Companies”) on Form 10-Q for the period ended June 30, 2006 as filed with the Securities and Exchange Commission (the “Report”), I, Martin E. Welch III, Chief Financial Officer of the Companies, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m); and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies. |
| /s/ M ARTIN E. W ELCH III |
|
Martin E. Welch III Chief Financial Officer |
August 7, 2006
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Companies and will be retained by the Companies and furnished to the Securities and Exchange Commission or its staff upon request.