SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-1
Amendment No. 7
Tender Offer Statement
Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934
Rental Service Corporation
(Name of Subject Company)
UR Acquisition Corporation
United Rentals, Inc.
(Bidders)
Common Stock, par value $.01 per share
(Title of Class of Securities)
76009V 10 2
(CUSIP Number of Class of Securities)
United Rentals, Inc.
Four Greenwich Office Park
Greenwich, CT 06830
Attn.: Bradley S. Jacobs
Chairman of the Board and
Chief Executive Officer
Telephone:(203) 622-3131
Facsimile:(203) 622-6080
(Name, Address and Telephone Number of Person authorized to
Receive Notices and Communications on Behalf of Bidders)
Copy to:
Milton G. Strom, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
UR Acquisition Corporation, a Delaware corporation ("Purchaser") and
a wholly owned subsidiary of United Rentals, Inc., a Delaware corporation
("Parent"), and Parent hereby amend and supplement their Tender Offer
Statement on Schedule 14D-1 (as amended from time to time, the "Schedule
14D-1"), filed with the Securities and Exchange Commission (the "SEC" or
the "Commission") on April 5, 1999, with respect to the Purchaser's offer
to purchase all of the shares of common stock, par value $0.01 per share,
and the associated preferred stock purchase rights if and when issued
(collectively, the "Shares"), of Rental Service Corporation, a Delaware
corporation (the "Company"), at a price of $22.75 per Share, net to the
seller in cash (such price, or such higher price per Share as may be paid
in the Offer, the "Offer Price"), upon the terms and subject to the
conditions set forth in the Offer to Purchase and in the related Letter of
Transmittal referred to in the Schedule 14D-1(which, as amended from time
to time, together constitute the "Offer"). Unless otherwise indicated
herein, each capitalized term used but not defined herein shall have the
meaning ascribed to such term in the Schedule 14D-1 or in the Offer to
Purchase referred to therein.
Item 10. Additional Information.
The information set forth in Item 10(e) of the Schedule 14D-1 is
hereby amended and supplemented by the following information:
On April 22, 1999, the Company filed an amended counterclaim (the
"Amended Counterclaim") in the United States District Court for the
District of Connecticut alleging violations of Section 8 of the Clayton Act
and seeking by way of a second motion for preliminary injunction (the
"Second Preliminary Injunction") to enjoin Purchaser and Parent from
attempting to place six officers and/or directors originally nominated by
Parent to the Company's Board of Directors. The Amended Counterclaim
alleges that if Parent succeeds in electing such officers and directors to
the Company's Board of Directors, interlocking directorships would exist
among competing corporations in violation of the Clayton Act. Parent
believes the Amended Counterclaim and Second Preliminary Injunction are
without merit and intends to vigorously defend against such motion.
However, Parent believes that it is in the best interests of the Company's
stockholders that Parent be able to move forward expeditiously with its
solicitation of consents and afford the Company's stockholders the
opportunity to act on the proposals set forth in Parent's consent
solicitation statement. Accordingly, in order to avoid delay in the consent
solicitation as a result of the allegations presented in the Amended
Counterclaim, each nominee originally designated by Parent who is an
officer and/or a director of Parent has withdrawn as a nominee, and a total
of nine persons who are not directors or officers of Parent or its
affiliates have been designated by Parent as nominees to the Company's
Board of Directors.
The foregoing descriptions of the Amended Counterclaim and the Second
Preliminary Injunction are qualified in their entirety by reference to the
complete text of the Amended Complaint, a copy of which is filed as Exhibit
(g)(6) hereto, and the Second Preliminary Injunction, a copy of which is
filed as Exhibit (g)(7) hereto, each of which is incorporated by reference
herein.
The information set forth in Item 10(f) of the Schedule 14D-1 is
hereby amended and supplemented by incorporating by reference therein (i)
the press release issued by Parent on April 27, 1999, a copy of which press
release is filed as Exhibit (a)(14) hereto, and (ii) the script of the
remarks of Bradley S. Jacobs, Chairman and Chief Executive Officer of
Parent, relating to the Offer which were made during Parent's quarterly
investor conference call with investors on April 27, 1999, a copy of which
script is filed as Exhibit (a)(15) hereto.
The information set forth in Item 10(f) of the Schedule 14D-1 is
hereby further amended and supplemented by the following information:
The second sentence of the third paragraph of the "INTRODUCTION"
Section of the Offer to Purchase is hereby amended and supplemented to read
as follows:
Parent is seeking to negotiate a merger with the Company (the
"Proposed Merger") pursuant to which, as soon as practicable after
consummation of the Offer, Purchaser or another direct or indirect
subsidiary of Parent would be merged with and into the Company.
The first sentence of the third paragraph of Section 9 of the Offer
to Purchase is hereby amended and supplemented to read as follows:
Parent is the largest equipment rental company in North America,
based upon 1998 equipment rental revenues, with 482 branch locations
in 41 states, Canada and Mexico.
The first sentence of the fourth paragraph of Section 9 of the Offer
to Purchase is hereby amended and supplemented to read as follows:
Parent believes that it has one of the most comprehensive and newest
customer rental fleets in the industry.
The first sentence of the fifth paragraph of Section 9 of the Offer
to Purchase is hereby amended and supplemented to read as follows:
Parent began operations in October 1997 and has grown through a
combination of internal growth and the acquisition of 117 companies
(through April 27, 1999).
Section 9 of the Offer to Purchase is hereby amended and supplemented
to include the following paragraph immediately prior to the paragraph
captioned "Available Information."
Selected Financial Information. Set forth below is certain selected
consolidated financial information with respect to Parent, excerpted
or derived from Parent's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (the "Parent 1998 Form 10-K") , filed by
Parent with the SEC pursuant to the Exchange Act. More comprehensive
financial information is included in such report and in other
documents filed by Parent with the SEC. The following summary is
qualified in its entirety by reference to such report and other
documents and all of the financial information (including any related
notes) contained therein. Such reports and other documents may be
inspected and copies may be obtained from the SEC in the manner set
forth below. Purchaser is newly formed for the purpose of the Offer
and conducts no activities unrelated to the Offer. Accordingly, no
meaningful financial information is available for Purchaser.
During the periods presented below, Parent completed certain
acquisitions that were accounted for as pooling-of-interests
(including a merger in September 1998 with U.S. Rentals and others
that were accounted for as purchases. The selected financial data
presented below has been restated for all periods presented to
include the accounts of the businesses acquired in transactions
accounted for as pooling-of-interests (excluding one such transaction
which was not material) as if Parent and these businesses acquired
were combined for all periods presented. The accounts of businesses
acquired in transactions accounted for as purchases are included from
their respective acquisition dates. In view of the fact that Parent's
operating results for the periods presented below were impacted by
acquisitions that were accounted for as purchases, Parent believes
that its results of operations for the years presented are not
directly comparable. See Note 3 of the notes to the Consolidated
Financial Statements of Parent included in the Parent 1998 Form 10-K.
<TABLE>
<CAPTION>
UNITED RENTALS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ----------- ----------
(dollars in thousands, except per share data)
Income statement data:
<S> <C> <C> <C> <C> <C>
Total revenues........... $222,326 $283,432 $354,478 $489,838 $1,220,282
Total cost of operations. 153,769 194,234 241,445 340,546 796,834
---------- ---------- ---------- --------- ----------
Gross profit............. 68,557 89,198 113,033 149,292 423,448
Selling, general and
administrative expenses. 34,948 39,707 54,721 70,835 195,620
Merger-related expenses.. 47,178
Non-rental depreciation
and amortization....... 5,107 6,916 9,387 13,424 35,248
Termination cost of
deferred compensation
agreements............. 20,290
---------- ---------- ---------- --------- ----------
Operating income......... 28,502 42,575 48,925 44,743 145,402
Interest expense......... 6,245 7,490 11,278 11,847 64,157
Preferred dividends of a
subsidiary trust........ 7,854
Other (income) expense,
net.................... (3,768) 1,304 (499) (2,021) (4,906)
---------- ---------- ---------- --------- ----------
Income before provision
for income taxes and
extraordinary items..... 26,025 33,781 38,146 34,917 78,297
Provision for income
taxes................... 523 484 420 29,508 43,499
---------- ---------- ---------- --------- ----------
Income before
extraordinary items.... 25,502 33,297 37,726 5,409 34,798
Extraordinary items,
net(1)................. 1,511 21,337
---------- ---------- ---------- --------- ----------
Net income............... $ 25,502 $ 33,297 $ 37,726 $ 3,898 $ 13,461
========== ========== ========== ========= ==========
Pro forma provision for
income taxes before
extraordinary
items(2).............. $ 10,637 $ 13,715 $ 15,487 $ 14,176 $ 44,386
Pro forma income before
extraordinary
items(2)............... 15,388 20,066 22,659 20,741 33,911
Basic earnings before
extraordinary items per
share.................... $ 1.28 $ 1.47 $ 1.67 $ 0.12 $ 0.53
Diluted earnings before
extraordinary items per.. $ 1.28 $ 1.47 $ 1.67 $ 0.11 $ 0.48
Basic earnings per
share(3)................. $ 1.28 $ 1.47 $ 1.67 $ 0.08 $ 0.20
Diluted earnings per
share (3)................ $ 1.28 $ 1.47 $ 1.67 $ 0.08 $ 0.18
Other financial data:
EBITDA (4)............... $ 73,446 $101,438 $ 123,606 $160,554 $ 403,738
Depreciation and
amortization........... 44,944 58,863 74,681 95,521 211,158
December 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
------------------------------------------------------------
(dollars in thousands)
Balance sheet data:
Cash and cash equivalents $ 2,956 $ 3,728 $ 2,906 $ 2,411 $ 20,410
Rental equipment, net.... 136,731 182,082 235,055 461,026 1,143,006
Total assets............. 233,359 297,994 381,228 826,010 2,634,663
Total debt............... 107,284 131,771 214,337 264,573 1,314,574
Company-obligated
mandatorily Redeemable
convertible preferred
securities of a subsi-
diary trust.......... 300,000
Stockholders' equity..... 77,600 104,392 105,420 446,388 726,230
(1) Parent recorded an extraordinary item (net of income taxes) of $1.5
million in 1997 and an extraordinary item (net of income taxes) of
$21.3 million in 1998. Such charge in 1997 resulted from the
prepayment of certain debt by U.S. Rentals. Such charge in 1998
resulted from the early extinguishment of certain debt and primarily
reflected prepayment penalties on certain debt of U.S. Rentals.
(2) U.S. Rentals was taxed as a Subchapter S Corporation until its initial
public offering in February 1997, and another company acquired in a
pooling-of-interests transaction was taxed as a Subchapter S
Corporation until being acquired by Parent in 1998. In general, the
income or loss of a Subchapter S Corporation is passed through to its
owners rather than being subjected to taxes at the entity level. Pro
forma provision for income taxes before extraordinary items and pro
forma income before extraordinary items reflect a provision for income
taxes as if all such companies were liable for federal and state
income taxes as taxable corporate entities for all periods presented.
(3) Parent's earnings during 1997 were impacted by $20.3 million of
expenses relating to the termination of certain deferred compensation
expenses in connection with U.S. Rentals' initial public offering, a
$7.5 million charge to recognize deferred tax liabilities of U.S.
Rentals and an extraordinary item (net of income taxes) of $1.5
million. Parent's earnings during 1998 were impacted by merger-related
expenses of $47.2 million ($33.2 million net of taxes), a $4.8 million
charge to recognize deferred tax liabilities of a company acquired in
a pooling-of-interests transaction and an extraordinary item (net of
income taxes) of $21.3 million. Excluding such amounts, (i) basic
earnings per share for the years ended 1997 and 1998 would have been
$0.70 and $1.10, respectively, and (ii) diluted earnings per share for
the years ended 1997 and 1998 would have been $0.66 and $1.00,
respectively.
(4) EBITDA is defined as net income (excluding (i) non-operating income
and expense, (ii) a $20.3 million non-recurring charge incurred by
U.S. Rentals in 1997 arising from the termination of deferred
compensation agreements with certain executives and (iii) $47.2
million in merger-related expenses in 1998 related to the three
acquisitions accounted for as pooling-of-interests, including the
merger with U.S. Rentals) plus interest expense, income taxes and
depreciation and amortization. EBITDA data is presented to provide
additional information concerning Parent's ability to meet its future
debt service obligations and capital expenditure and working capital
requirements. However, EBITDA is not a measure of financial
performance under generally accepted accounting principles.
Accordingly, EBITDA should not be considered an alternative to net
income or cash flows as indicators of Parent's operating performance
or liquidity.
The fifth paragraph of Section 11 of the Offer to Purchase is hereby
amended and supplemented to read as follows:
On April 5, 1999, Parent and Purchaser commenced the Offer and sent
the following letter to Mr. Reid regarding a proposed business
combination between the Company and Parent.
Subclause (2) of the first paragraph of Section 14 of the Offer to
Purchase is hereby amended and supplemented to read as follows:
at any time on or after April 5, 1999, and prior to the expiration of
the Offer, any of the following events shall occur or shall be
determined by Purchaser to have occurred:
The third sentence of Section 16 of the Offer to Purchase is hereby
amended and supplemented to read as follows:
If Parent or an affiliate of Parent acquires less than 50% of the
Shares or the Company's assets (based on the book value thereof),
Parent will pay Goldman Sachs a mutually acceptable transaction fee
commensurate with transactions of this nature and size.
Item 11. Materials to be Filed as Exhibits.
(a)(14) Press Release of Parent dated April 27, 1999.
(a)(15) Script of Remarks of Bradley S. Jacobs, Chairman and
Chief Executive Officer of Parent, relating to the Offer,
made during Parent's quarterly investor conference call
held on April 27, 1999.
(g)(6) Amended Counterclaims and Jury Demand of the Company,
dated April 22, 1999, filed by the Company in the United
States District Court for the District of Connecticut.
(g)(7) Motion for a Preliminary Injunction and Memorandum of
Points and Authorities in Support of the Company's Motion
for Preliminary Injunction, dated April 22, 1999, filed
by the Company in the United States District Court for
the District of Connecticut.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
UR ACQUISITION CORPORATION
By: /S/ JOHN N. MILNE
_________________________
Name: John N. Milne
Title: President
UNITED RENTALS, INC.
By: /S/ BRADLEY S. JACOBS
__________________________
Name: Bradley S. Jacobs
Title: Chairman and Chief Executive
Officer
Date: April 27, 1999
INDEX TO EXHIBITS
Exhibit
Number Exhibit
(a)(14) Press Release of Parent dated April 27, 1999.
(a)(15) Script of Remarks of Bradley S. Jacobs, Chairman and
Chief Executive Officer of Parent, relating to the Offer,
made during Parent's quarterly investor conference call
held on April 27, 1999.
(g)(6) Amended Counterclaims and Jury Demand of the Company, dated
April 22, 1999, filed by the Company in the United States
District Court for the District of Connecticut.
(g)(7) Motion for a Preliminary Injunction and Memorandum of Points
and Authorities in Support of the Company's Motion for
Preliminary Injunction, dated April 22, 1999, filed by the
Company in the United States District Court for the District of
Connecticut.
</TABLE>
FOR IMMEDIATE RELEASE
UNITED RENTALS REPORTS STRONG FIRST QUARTER RESULTS
SAME-STORE REVENUE INCREASES 26%
CONTINUES TENDER OFFER FOR SHARES OF RENTAL SERVICE CORP. AT $22.75 PER SHARE
GREENWICH, CT, APRIL 27, 1999 - United Rentals, Inc. (NYSE:URI) today
announced financial results for the first quarter ended March 31, 1999.
Revenues for the quarter were $392.3 million, a 129% increase over the
$171.1 million reported for the first quarter of 1998. On a same-store
basis, revenues increased approximately 26%. EBITDA for the quarter was
$127.8 million, compared to $51.0 million in the year ago quarter. Net
income for the first quarter was $16.2 million, a 142% increase over the
$6.7 million reported in the same period last year. Diluted earnings per
share were $0.18, a 64% increase from the $0.11 reported in the first
quarter of 1998. The weighted average number of fully diluted shares during
the first quarter was 90.9 million shares, compared to 63.5 million shares
a year ago.
For the first quarter of 1999, rental revenues comprised 73.5% of
total revenues, sales of used equipment comprised 9.2%, and sales of new
equipment and merchandise comprised 17.3%. This compares to rental
revenues of 74.0%, sales of used equipment of 9.4% and sales of new
equipment and merchandise of 16.6% in the same period last year.
Bradley Jacobs, chairman and chief executive officer, said, "Our
operations in the quarter benefited from continued strong internal growth
in all of our regions. We continued our focus on operating fundamentals --
increasing margins, and efficiently integrating and optimizing the
companies we acquire. Among other things, we further consolidated back-
office functions throughout the Company, and achieved additional favorable
purchase discounts with equipment suppliers as a result of our increased
purchasing power."
In the first quarter, the Company acquired 17 companies with
approximately $110 million in combined annual revenues, all of which have
been previously announced. The Company today announced that it has
acquired 10 additional companies with approximately $30 million in
combined annual revenues. The companies acquired were A&B Tool and
Equipment Rental, Inc. (with two locations in Alaska), ABZ Equipment, Inc.
(two locations in Arizona), Alban Equipment Company (one location in
Ohio), Connecticut Drill Rod and Supply, Inc. (one location in
Connecticut), Koral Equipment Company, Inc. (one location in
Massachusetts), Minneapolis Equipment Company, Inc. (one location in
Minnesota), Purves Ritchie Equipment, Ltd. (five locations in British
Columbia, Canada), Southern Equipment Company, Inc. (one location in
Louisiana), Stephan's Tool Rental & Sales, Inc. (three locations in
Alaska) and West Georgia Rents, Inc. (two locations in Georgia). These
companies were acquired for approximately 4.0 times trailing adjusted
EBITDA on an aggregate basis. The Company's present letter of intent
backlog consists of 31 companies, with 75 locations and combined annual
revenues of approximately $260 million.
Mr. Jacobs also commented on the Company's $22.75 per share all cash
tender offer for all of the shares of Rental Service Corporation (NYSE:RSV)
on terms announced on April 5, 1999. The Hart-Scott-Rodino waiting period
for this offering has expired.
Mr. Jacobs said, "The choice for Rental Service stockholders is clear:
United Rentals' all cash $22.75 per share offer, or surrendering control to
NationsRent, Inc. (NYSE:NRI) with no premium. Our offer represents a
premium of approximately 32% over the $17.25 closing price of Rental
Service shares immediately prior to the announcement of our offer. We
disagree with the accretion and value estimates that have been disseminated
by Rental Service. We are disciplined buyers and will not overpay."
United Rentals said that it is continuing its litigation to invalidate
the termination fee and lock up option which the Rental Service board
built into the NationsRent merger agreement to inhibit competing offers.
The Company expects shortly to actively solicit consents from Rental
Service stockholders to remove the current board of directors and replace
them with a new slate of directors nominated by United Rentals.
United Rentals, Inc. is the largest equipment rental company in North
America and serves over 900,000 customers through its present network of
482 locations in 41 states, Canada and Mexico. The Company's 1998 annual
report is available on the Company's web site at www.unitedrentals.com.
Certain statements contained in this press release are forward-looking
in nature. These statements can be identified by the use of forward-
looking terminology such a "believes," "expects," "may," "will," "should,"
or "anticipates" or the negative thereof or comparable terminology, or by
discussions of strategy. The Company's business and operations are subject
to a variety of risks and uncertainties and, consequently, actual results
may materially differ 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) a downturn in
construction and industrial activity could lead to a decrease in demand for
the Company's equipment, (2) the prices the Company is required to pay for
acquisitions could increase, (3) the cost or difficulty of integrating the
businesses that the Company acquires may be greater than expected, (4) the
Company may not realize expected cost savings, synergies, revenues and
earnings from its acquisitions, including its proposed transaction with
Rental Service Corporation, (5) the Company cannot be certain that it will
always have access to the additional capital that it may require for its
growth strategy or that its cost of capital will not increase, (6)
companies that United Rentals acquires could have undiscovered liabilities
and (7) the Company is highly dependent on the services of its senior
management. These risks and uncertainties, as well as others, are
discussed in greater detail in the Company's filings with the Securities
and Exchange Commission, including its most recent Annual Report on Form
10-K. The Company makes no commitment to revise or update any forward-
looking statements in order to reflect events or circumstances after the
date any such statement is made.
This press release is neither an offer to purchase nor a solicitation
of an offer to sell any shares of Rental Service Corporation. Such offer
is made solely by the Offer to Purchase dated April 5, 1999 of United
Rentals, Inc. and UR Acquisition Corporation and the related Letter of
Transmittal. In addition, this press release should not be construed to
constitute a solicitation of proxies for any meeting of the stockholders
of Rental Service, nor should this press release be construed to
constitute a solicitation of any consent. Any such solicitation which
United Rentals or any affiliate thereof might make would be made only
pursuant to separate proxy or consent materials prepared and filed with
the Securities and Exchange Commission in compliance with the requirements
of the Securities Exchange Act of 1934, as amended.
###
Investor contact: Media contact:
Robert Miner Fred Bratman or Tracy Williams
United Rentals Sard Verbinnen & Co.
Phone: 203-622-3131 Phone: 212-687-8080
Fax: 203-622-6080 Fax: 212-687-8344
E-mail: [email protected] E-mail: [email protected]
or [email protected]
-- financial tables attached --
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(000's, except per share data)
Three months Three months
ended ended
March 31, 1999 March 31, 1998(a)
Revenues:
Equipment rentals $288,385 $126,611
Sales of rental equipment 35,943 16,048
Sales of new equipment,
merchandise and other revenues 67,981 28,482
Total revenues 392,309 171,141
Cost of revenues:
Cost of equipment rentals,
excluding depreciation 125,819 63,196
Depreciation of rental
equipment 59,113 29,280
Cost of rental equipment sales 20,842 8,014
Cost of new equipment
and merchandise sales and
other operating costs 52,544 22,740
Total cost of revenues 258,318 123,230
Gross profit 133,991 47,911
Selling, general and
administrative expenses 65,260 26,154
Non-rental depreciation
and amortization 12,170 5,496
Operating income 56,561 16,261
Interest expense 29,248 5,787
Other (income) expense, net (206) (796)
Income before provision
for income taxes 27,519 11,270
Provision for income taxes 11,294 4,566
Net income $16,225 $ 6,704
Diluted earnings per share $0.18 $0.11
Weighted average diluted
shares outstanding 90,941 63,532
(a) Restated to reflect the poolings-of-interests with U.S. Rentals,
Inc. and Rental Tools and Equipment Co.
Script of Remarks of Bradley S. Jacobs, Chairman and Chief Executive
Officer of Parent, relating to the Offer, made during Parent's quarterly
investor conference call held on April 27, 1999.
PRESENTATION OF BRADLEY S. JACOBS - TENDER SEGMENT
1. Thanks, John. In short, On April 5th we made a $22.75 all cash offer
for the outstanding shares of Rental Service.
2. Let me give you five highlights, then we'll go through the issues one
by one.
i) We received our HSR clearance last week, and we anticipate
beginning to solicit consents to remove the Rental Service board soon.
ii) Based on the information we have, we see no basis to raise our
offer, even by a penny, at this time.
iii) We believe Rental Service's stock price has traded up over our
offer price because of misconceptions based on certain information
that's been put out there.
iv) The transaction would not be anywhere near 30 cents accretive to
us, as Rental Service would like stockholders to believe.
v) We're making good progress in our litigation, particularly in
Delaware, and we are baffled why the Rental Service board doesn't do
the obvious right thing, which is to get in a room and meet with us.
Now let me discuss these issues one by one:
3. We believe that the Rental Service share price has traded higher than
our offer price, because Rental Service has put out information, which
we believe has confused the marketplace. For example, they said that
they had great record first quarter results, but when you look
closely, you can see that they beat expectations by significantly
accelerating the sale of used equipment. In fact, used equipment sales
as a percent of total revenues increased by 73% over the average level
experienced over the last 10 quarters, and 37% more than the previous
highest level of used equipment sales ever recorded in their company's
history. When you normalize their used equipment sales, they actually
would have missed meeting consensus estimates for the quarter by a
penny or two.
4. But the problem doesn't stop with just Rental Service's so-called
record performance in the first quarter they would like you to
believe that a $22.75 cash transaction would be 30 cents accretive to
United Rentals' earnings. Well, you know, from their lips to God's
ears, but the fact of the matter is, in order to even approach that
level of accretion, you would have to accept financial projections for
Rental Service which show margins significantly higher than they've
ever achieved and even substantially higher than they've recently
given guidance for. We see no reason to base our offer on an overly
optimistic 38.9% 1999 EBITDA margin assumption, when their own
management on their conference call guided analysts to a range of 36-
38%. This difference alone could account for over $20 million in
annual EBITDA.
5. Furthermore, if you take into account additional equity that we would
be necessary to keep our debt to total cap ratio within our targeted
level of 55% or lower, the acquisition would be even less accretive
for us.
6. Now let me update you on the status of our lawsuit in Delaware. Among
other things, this lawsuit seeks to invalidate the $40 million of
break-up fees and the cross-options contained in the Rental
Service/NationsRent merger agreement, and we believe we have very
favorable facts here. We asked for and won our motion for expedited
discovery, the depositions have been taking place and will continue,
and we look forward to the May 17 preliminary injunction hearing date
in Delaware. While obviously you never know what can happen in court,
we think its basic common sense that the so-called "merger of equals"
between Rental Service and NationsRent should be determined actually
to be a sale of the company.
7. It's incomprehensible to us how you could call it a "merger of equals"
when NationsRent would end up with majority control of the board,
would have more than 5 times the insider stock ownership post-deal
than the Rental Service insiders, and it would have the NationsRent
CEO becoming the CEO of the combined company.
8. In a change of control situation, the Rental Service board has
explicit so-called "Revlon" duties to entertain alternative offers for
the sale of the company. Rental Service has denied its stockholders
the right to benefit from our proposal when they told us in January
that they quote were not for sale unquote just six days before the
announcement of their NationsRent agreement.
9. We believe that the $40 million break up fee that Rental Service
agreed to pay to NationsRent is clearly exorbitant. The break up fee
represents 7% of Rental Service's equity value prior to the
announcement of the proposed merger, and 11% of NationsRent's equity
value prior to the announcement. To our knowledge, Delaware courts
have not upheld a break up fee that high, and have stated that break
up fees should be in the range of 3-5% of the target company's equity
value. Even a 5% breakup fee is rare.
10. We intend to aggressively pursue our Consent Solicitation to remove
Rental Service's current board of directors, because we really do
believe they have not upheld their fiduciary duties to their
stockholders in agreeing to give up control of the company to
NationsRent, and in fact, actually paying a 26% premium to NationsRent
based on the trading price of NationsRent shares prior to the signing
of their merger agreement. And this is in addition to putting in all
these impediments that prevent Rental Service stockholders from
entertaining competing offers.
11. The Rental Service board has created this predicament which the
company now finds itself in, and more importantly it is not taking the
proper steps in our view to resolve the problem.
12. Over the last couple of weeks, we've had phone discussions with many
of Rental Service's stockholders. And while we don't expect at this
very early stage to necessarily get a majority of the shares tendered
to us this week, we nevertheless would like to encourage all the
Rental Service stockholders to please tender their shares to United
Rentals. This will send a strong message to the Rental Service board
that the right thing for them to do is not to continue to paint
themselves into a corner and pretend that we don't exist, or hope we
don't exist, but to sit down, and meet with us.
13. And, despite their protestations to the contrary, it would be very
simple for them to share information with us. All they have to do is
reach a determination that our proposal is superior, not necessarily
acceptable, but superior, to the proposed stock merger with
NationsRent. We believe this should be a no-brainer determination,
especially in light of the fact that their merger agreement with
NationsRent allows them to talk to us without giving NationsRent the
right to terminate their merger.
14. So in short, the Rental Service opportunity is one that we're going to
pursue it diligently and professionally pursue. On a very disciplined
basis. If it works out, great. If it doesn't work out, we've got
plenty of other opportunities to continue to deliver the growth we and
our other fellow shareholders expect from United Rentals.
SUMMARY REMARKS OF BRADLEY S. JACOBS (AFTER Q&A)
1. Thank you operator, and thank you very much everyone, for
participating in this call. We appreciate for your interest in United
Rentals and your support for our efforts to create long-term
shareholder value for all of our fellow shareholders.
2. By way of summary, we've made excellent progress in all three core
aspects of the company, which is reflected in our strong first quarter
results:
- running the business well each and every day and Wayland and his
team have done an excellent job at integrating and optimizing the
businesses.
- completing sensible and accretive acquisitions and John and his
team have done an excellent job at being careful with what we buy
and how much we pay.
- and Mike and his financial group have certainly been very active
and successful in raising the capital necessary to invest in our
future growth.
3. With respect to Rental Service, I think we still have a fair amount of
wood to chop in terms of getting all the facts out there, and making
sure people understand that this transaction only works for us at a
sensible valuation -- using good numbers and good information.
4. And the final point I'd like to leave everybody with, is that
regardless of what happens or doesn't happen with Rental Service, the
bottom line is we don't need to do that transaction in order to
deliver the growth our shareholders expect of us in the future. If we
can complete this transaction on terms that are fair and accretive,
we'll do it. If we can't, the $4-500 million of acquired revenue of
private companies or divisions of other public companies that John and
his team are working on day-in and day-out, will provide quite a lot
of external growth to complement the robust internal growth we expect
going forward.
5. So again, thank you very much everybody for your interest and we look
forward to seeing you when we are on the road soon. And for those of
you who we won't have the pleasure of seeing in person, we look
forward to talking with you on our next quarterly conference call, and
of course, we're always available on the phone here in Greenwich.
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
=======================================
UR ACQUISITION CORPORATION :
and UNITED RENTALS, INC. : CIVIL ACTION NO.
: 399CV00625 (DJS)
Plaintiffs, :
:
V. :
:
JAMES L. KIRK, RENTAL SERVICE :
CORPORATION and NATIONSRENT, INC. : APRIL 22, 1999
:
Defendant. :
=======================================
AMENDED COUNTERCLAIMS AND JURY DEMAND
OF RENTAL SERVICE CORPORATION
As its counterclaims against UR Acquisition Corporation, United
Rentals Inc., Bradley S. Jacobs, Richard J. Heckmann, Wayland R. Hicks,
John . Milne, Michael J. Nolan and Gerald Tsai, Jr. (collectively, "URI"),
Rental Services Corporation ("RSC") alleges as follows:
INTRODUCTION
1. RSC has filed its counterclaims to obtain declaratory and
injunctive relief halting URI's unlawful scheme to mislead RSC stockholders
by concealing the financing condition in URI's April 5, 1999 tender offer.
Concurrently with its tender offer, URI's chairman and chief executive
officer stated publicly that URI's offer was "fully financed" and offered
"certainty." URI's summary advertisement and press release concerning the
offer described several conditions of the offer, but never mentioned any
need to secure financing or any financing condition. URI's voluminous
Securities and Exchange Commission filing similarly failed to set forth the
financing condition in its summary of the conditions to the offer; instead,
URI set forth this key condition at the very end of a boilerplate
description of the conditions to the offer at the back of its filing. By
misstating and concealing the material terms of its tender offer, URI has
violated federal laws and regulations; only prompt injunctive relief
requiring curative disclosure can ensure that RSC's stockholders will not
be misled.
2. RSC now files these amended counterclaims to obtain additional
declaratory and injunctive relief halting URI's unlawful scheme to place a
controlling block of six of its current officers and/or directors on the
Board of Directors of RSC. URI and RSC are direct competitors in the
equipment rental industry. By seeking to control RSC's Board with its own
officers and/or directors, URI has violated Section 8 of the Clayton Act,
15 U.S.C. ss.19.
JURISDICTION AND VENUE
3. The Court has jurisdiction over this action pursuant to 15 U.S.C.
ss. 78aa and 28 U.S.C. ss. 1331. Venue in this court is proper pursuant to
15 U.S.C. ss. 78aa and 28 U.S.C. ss. 1391(b).
THE PARTIES
4. Counterclaimant RSC is a Delaware corporation with its principal
executive offices in Scottsdale, Arizona. RSC rents construction and
industrial equipment. RSC's common stock is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and is
traded on the New York Stock Exchange.
5. Counterdefendant UR Acquisition Corporation is a Delaware
corporation and is a wholly owned subsidiary of Counterdefendant United
Rentals, Inc.
6. Counterdefendant United Rentals, Inc. is a Delaware corporation
with its principal executive offices in Greenwich, Connecticut.
7. Counterdefendant Bradley S. Jacobs is the Chairman, Chief
Executive Officer and a director of United Rentals, Inc.
8. Counterdefendant Richard J. Heckmann is a director of United
Rentals, Inc.
9. Counterdefendant Wayland R. Hicks is Chief Operating Officer and a
director of United Rentals, Inc.
10. Counterdefendant John N. Milne is Vice Chairman, Chief
Acquisition Officer and a director of United Rentals, Inc.
11. Counterdefendant Michael J. Nolan is Chief Financial Officer of
United Rentals, Inc.
12. Counterdefendant Gerald Tsai, Jr. is a director of United
Rentals, Inc.
URI'S MISLEADING PUBLIC STATEMENTS AND TENDER OFFER
13. On April 5, 1999, URI announced an unsolicited, highly
conditional tender offer for all of the outstanding shares of RSC common
stock (the "Offer"). URI announced the Offer through several media,
including: (a) an interview given by Bradley Jacobs to Reuters, a major
news agency; (b) a formal press release; (c) a summary advertisement in the
Wall Street Journal; and (d) filings with the SEC.
14. In his interview with Reuters, Jacobs asserted that URI had
secured the financing required to purchase RSC, stating:
"We're prepared to move quickly, it's ALL CASH and IT'S ALL
FULL FINANCED. . . . We offer CERTAINTY and no lingering doubts
because it's a CASH OFFER" (emphasis added)
URI's April 5, 1999 pre release stated:
"United Rentals has a firm commitment from Goldman, Sachs & Co.
to provide $2 billion in financing to complete the transaction
and for other corporate purposes." URI's press release also
stated that the Offer was subject to certain conditions:
"The offer is conditioned on, among other things, the tender to
United Rentals of a majority of Rental Service shares on a
fully-diluted basis, the termination of the merger agreement
between Rental Service and NationsRent Inc., the agreement by
the board of directors of Rental Service to enter into a merger
agreement for the acquisition of Rental Service by United
Rentals, the expiration or termination of the waiting period
under the Hart- Scott-Rodino Antitrust Improvements Act of
1976, and the termination or invalidation of a 19.9% lock-up
option and break-up fee provided to NationsRent in its merger
agreement with Rental Service."
15. In a Summary Advertisement for the Offer, published in the Wall
Street Journal on April 5, 1999, URI again described the conditions to the
Offer:
The Offer is conditioned upon, among other things, (1) there
being validly tendered and not withdrawn prior to the
expiration of the Offer that number of Shares which constitutes
a majority of the Shares outstanding on a fully diluted basis
(the "Minimum Condition"), (2) the stockholders of the Company
not having approved the Agreement and Plan of Merger, dated as
of January 20, 1999 (the "NationsRent Merger Agreement"),
between the Company and NationsRent, Inc., a Delaware
corporation ("NationsRent"), (3) Purchaser being satisfied, in
its sole discretion, that the NationsRent Merger Agreement has
been terminated in accordance with its terms, and the Company
having entered into a definitive merger agreement with Parent
and Purchaser, to provide for the acquisition of the Company
pursuant to the Offer and the proposed merger described in the
Offer to Purchase, (4) Purchaser being satisfied, in its sole
discretion, that the provisions of Section 203 of the Delaware
General Corporation Law, as amended, are inapplicable to the
Offer and the proposed merger described in the Offer to
Purchase, (5) the Company not having entered into or
effectuated any agreement or transaction with any person or
entity having the effect of impairing Purchaser's ability to
acquire the Company or otherwise diminishing the expected
economic value to Purchaser of the acquisition of the Company,
(6) any applicable waiting period under the Hart-Scot-Rodino
Antitrust Improvements Act of 1976, as amended, having expired
or been terminated prior to the expiration of the Offer, and
(7) the option held by NationsRent to purchase up to 19.9% of
the outstanding Shares having been terminated or invalidated
without any Shares having been issued thereunder. The Offer is
also subject to other terms and conditions set forth in the
offer to Purchase."
Securing financing was not one of the listed conditions.
16. Also, on April 5, 1999, URI filed with the SEC a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1"), which provided further
information regarding the Offer, including URI's Offer to Purchase. The
first page of the Offer to Purchase again listed a number of conditions of
the Offer, but did not mention any financing condition. In the introduction
of the offer to Purchase, under the heading "CERTAIN CONDITIONS TO THE
OFFER," URI described the eight conditions of the Offer. Once again, no
financing condition was set forth.
17. Buried deep within the offer to Purchase, URI revealed that it
can elect not to proceed with the purchase of RSC stock, if, in its sole
judgment, certain conditions arise that make it inadvisable to proceed with
the purchase. (Offer to Purchase, pp. 27-30, P. 14(a)-(j).) The tenth and
last of the listed conditions was URI's failure to obtain the requisite
financing. (Offer to Purchase, p. 30, P. 14(j).) Even more troubling, the
Offer to Purchase states:
"Although [URI] expects that the [financing] will be available
to provide funds for the consummation of the Offer . . . there
can be no assurance that the [financing] will be consummated."
(Offer to Purchase, p. 20).
18. The Offer to Purchase also reveals that Goldman, Sachs' financing
is subject to many conditions, including: (a) the completion of loan
documents, (b) Goldman, Sachs' determination of whether there has been any
adverse change to URI's or RSC's general affairs, management, prospects or
financial position, (c) no disruption of financial or capital markets, and
(d) no litigation that may have a material impact on URI's or RSC's general
affairs, management, prospects or financial position.
URI'S PLAN TO PLACE ITS OWN DIRECTORS
AND OFFICERS ON RSC'S BOARD
19. RSC and United Rentals, Inc. are direct competitors in the
equipment rental industry. They rent substantially the same equipment to
substantially the same categories of customers. They operate in many of the
same geographic markets.
20. As part of its unlawful scheme, URI has nominated six of its
current directors and/or officers to be placed on RSC's Board in direct
violation of Section 8 of the Clayton Act, 15 U.S.C. ss.19.
FIRST COUNTERCLAIM FOR RELIEF
(VIOLATION OF SECTION 14(E) OF THE EXCHANGE ACT, 15 U.S.C. SS. 78N(E))
21. RSC realleges and incorporates by reference each and every
allegation contained in paragraphs 1-18, inclusive, as though fully set
forth herein.
22. Section 14(e) of the Exchange Act, 15 U.S.C. ss.78n(e), makes it
unlawful for any person to make any untrue statement or to engage in any
fraudulent, deceptive, or manipulative acts in connection with any tender
offer.
23. In connection with the Offer, URI has violated Section 14(e) in
at least the following ways.
(a) URI has publicly asserted in the financial press that the
Offer is "fully financed" and "all cash," when in fact, URI has no
assurances that its financing will be consummated;
(b) Jacobs asserted in his Reuters' interview, and URI asserted
in its Press Release and Summary Advertisement, that the Offer does not
include a financing condition, when in fact, buried deep within the Offer
to Purchase, URI has reserved the right to withdraw or abandon the Offer if
it cannot obtain satisfactory financing; and
(c) URI has publicly stated that the Offer provides "certainty"
and is "fully financed," when in fact, the Offer is subject to multiple
conditions that cannot possibly be fulfilled before the expiration of the
Offer.
24. Through the above described acts and omissions, URI engaged in
fraudulent, deceptive, or manipulative practices in connection with its
Offer in violation of Section 14(e).
25. The provisions of Section 14(e) of the Exchange Act were designed
to protect stockholders by ensuring that they have adequate and accurate
information on which to base their decisions to sell, tender or hold their
shares. URI's effort to conceal its financing condition and financing
uncertainty is depriving RSC, its stockholders and the investing public of
the protections of Section 14(e). URI's conduct has harmed RSC's and the
public's interest in full disclosure in connection with tender offers and
sound financial markets.
26. Unless URI is ordered to make corrective disclosures and is
enjoined from such further actions, RSC and its stockholders will be forced
to make decisions with respect to the Offer based on inaccurate and
misleading information that does not comply the federal regulatory scheme.
RSC has no adequate remedy at law.
SECOND COUNTERCLAIM FOR RELIEF
(VIOLATION OF SECTION 14(D) OF THE EXCHANGE ACT, 15 U.S.C. SS.78N(D))
27. RSC realleges and incorporates by reference each and every
allegation contained in paragraphs 1-18, inclusive, as though fully set
forth herein.
28. Section 14(d) of the Exchange Act, 15 U.S.C. ss.78n(d) and the
SEC's rules promulgated thereunder, mandate that a tender offer must
disclose certain specified information to investors, and the offeror must
file such information with the SEC on a Schedule 14D-1. Pursuant to Section
14(d), the offeror must disclose all known material information regarding
financing for the tender offer.
29. In connection with the Offer, URI has violated Section 14(d)
because it has failed to adequately disclose all material information
regarding the financing for the Offer known to URI at the time of the
Offer.
30. The provisions of Section 14(d) of the Exchange Act were designed
to protect stockholders by ensuring that they have adequate and accurate
information on which to base their decisions to sell, tender or hold their
shares. URI's effort to conceal its financing condition and uncertainty is
depriving RSC, its stockholders and the investing public of the protections
of Section 14(d). URI's conduct has harmed RSC's and the public interest in
full disclosure in connection with tender offers and sound financial
markets.
31. Unless URI is ordered to make corrective disclosures and is
enjoined from such further actions, RSC and its stockholders will be forced
to make decisions with respect to the Offer based on inaccurate and
misleading information that does not comply with the federal regulatory
scheme. RSC has no adequate remedy at law.
THIRD COUNTERCLAIM FOR RELIEF
(VIOLATION OF SECTION 8 OF THE CLAYTON ACT, 15 U.S.C. SS.19)
32. RSC realleges and incorporates by reference each and every
allegation contained in paragraphs 1-20, inclusive, as though fully set
forth herein.
33. RSC is in the equipment rental industry and serves the needs of
industrial, manufacturing, construction, government and homeowner markets.
RSC rents equipment ranging from small items such as pumps and electric
hand tools to larger equipment such as backhoes and aerial manlifts. RSC
also sells maintenance, repair and operations supplies, small tools,
contractor supplies, parts and used rental equipment, and acts as a
distributor for new equipment on behalf of certain national equipment
manufacturers. RSC has 245 rental locations in 27 states and Canada.
34. RSC's shares are publicly traded on the New York Stock Exchange,
and its capital, surplus and undivided profits aggregate more than
$15,308,000 as adjusted pursuant to 15 U.S.C. ss.19(a)(5).
35. URI is the largest equipment rental company in North America and
serves customers that include construction industry participants,
industrial companies and homeowners. United Rentals, Inc. also sells used
rental equipment, acts as a dealer for many types of new equipment, and
sells related merchandise and parts. United Rentals, Inc. has 450 branch
locations in 39 states, Canada and Mexico.
36. URI's shares are publicly traded on the American Stock Exchange,
and its capital, surplus and undivided profits aggregate more than
$15,308,000 as adjusted pursuant to 15 U.S.C. ss.19(a)(5).
37. RSC and URI are engaged in commerce and, by virtue of their
business and locations of operations, are competitors, as defined in 15
U.S.C. ss.19, such that elimination of competition by agreement between
them would constitute a violation of the antitrust laws.
38. URI has announced its intention to nominate nine nominees to
replace the current eight member Board of Directors of RSC. Six of the
nominees are officers and/or directors of URI: counterdefendants Jacobs,
Heckmann, Hicks, Milne, Nolan and Tsai (collectively, the "Nominees").
39. The election of the Nominees to the Board of Directors of RSC
would result in a violation of Section 8 of the Clayton Act, 15 U.S.C.
ss.19, which prohibits interlocking directorates between competitors.
40. Unless enjoined from further attempts to create interlocking
directorates between URI and RSC, URI will cause RSC to be in violation of
the Clayton Act and subject to antitrust liability.
41. RSC does not have an adequate remedy at law to compensate it for
injuries inflicted and threatened by URI. RSC is entitled to bring this
action for injunctive relief against URI's conduct and threatened conduct
which, if not enjoined, will result in irreparable and immediate harm under
Section 16 of the Clayton Act, 15 U.S.C. ss.26.
42. In seeking injunctive relief against URI, RSC has been forced to
incur attorneys' fees and costs, which it is entitled to recover under
Section 16 of the Clayton Act, 15 U.S.C. ss.26.
FOURTH COUNTERCLAIM FOR RELIEF
(VIOLATION OF SECTION 8 OF THE CLAYTON ACT, 15 U.S.C. SS.18)
43. RSC realleges and incorporates by reference each and every
allegation contained in paragraphs 1-20 and 33-42, inclusive, of the Third
Counterclaim, as though fully set forth herein.
44. RSC contends that URI's attempt to elect the Nominees to RSC's
Board of Directors could cause RSC to be in violation of federal law, and
that RSC is therefore entitled to disregard URI's nomination of the six
individual counterdefendants and any consents in favor of the Nominees.
45. URI contends that the election of the Nominees is legal and
proper, and that RSC is obligated under governing corporate law to
recognize URI's nominations and give effect to consents of the Nominees.
46. There now exists a controversy between RSC and URI as to the
legality of URI's attempts to elect the Nominees to RSC's Board, and as to
RSC's obligation to recognize those attempts under governing law.
47. A declaration of the parties' rights and responsibilities is
necessary to resolve this dispute.
JURY DEMAND
RSC hereby demands a jury trial as provided by Rule 38(a) of the
Federal Rules of Civil Procedure.
PRAYER FOR RELIEF
WHEREFORE, RSC prays for judgment against URI as follows:
1. Dismissing Plaintiffs' claims and granting judgment in favor of
RSC;
2. Declaring that URI has violated Sections 14(e) and 14(d) of the
Exchange Act and the rules promulgated thereunder;
3. Ordering URI to make all appropriate disclosures and to correct
all false or misleading statements and omissions of material fact regarding
its Offer;
4. Temporarily, preliminarily and permanently enjoining URI from
proceeding with its Offer or any future tender offer for the purchase of
RSC's outstanding shares, unless and until URI complies with all applicable
provisions of the federal securities laws and the effects of URI's unlawful
conduct have dissipated;
5. Preliminarily and permanently enjoining URI from voting shares or
soliciting consents or proxies to vote shares in favor of the Nominees or
any other director or officer of United Rentals, Inc.;
6. Preliminarily and permanently enjoining URI from nominating or
attempting to nominate the Nominees or any other director or officer of
United Rentals, Inc., or any person affiliated with URI, to the Board of
Directors of RSC;
7. Declaring that the election of the Nominees or any other director
or officer of United Rentals, Inc. is not a lawful exercise of RSC's
corporate powers and that the nomination of the Nominees is of no legal
effect;
8. Awarding RSC its costs and attorneys' fees incurred in this
action; and
9. Granting all further relief as the Court may deem just and
proper.
Dated: April 22, 1999
DEFENDANT AND COUNTERCLAIMANT
RENTAL SERVICE CORPORATION
By /s/ William H. Champlin III
-------------------------------------
William H. Champlin III
CT04202
Mark V. Connolly
OF COUNSEL CT05677
Marc W. Rappel TYLER COOPER & ALCORN, LLP
James J. Farrell CityPlace - 35th Floor
LATHAM & WATKINS Hartford, CT 06103-3488
633 W. 5th Street, Suite 4000 (860) 725-6200
Los Angeles, CA 90071 Fax: (860) 278-3802
(213) 485-1234 Its Attorneys
Fax: (213) 891-8763
CERTIFICATION
This is to certify that on April 22, 1999 I have served a copy of the
foregoing by hand delivery upon the following counsel:
Thomas J. Groark, Jr.
Richard M. Reynolds
Philip S. Wellman
Robin L. Smith
Day, Berry & Howard LLP
CityPlace I
Hartford, CT 06103
and served a copy via U.S. mail upon the following counsel and pro se
parties of record by causing it to be mailed on this 22nd day of April, 1999
postage prepaid and properly addressed to:
Joseph B. Frumkin
William Sipes
Sullivan & Cromwell
125 Broad St.
New York, NY 10004
Jay B. Kasner
Steven J. Kolleeny
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Robert A. Izard
Bradford S. Babbitt
Robinson & Cole
280 Trumbull Street
Hartford, CT 06103-3597
/s/ William H. Champlin III
-----------------------------------
William H. Champlin III
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
===================================== :
:
UR ACQUISITION CORPORATION :
and UNITED RENTALS, INC. : CIVIL ACTION NO.
: 399CV00625 (DJS)
Plaintiffs, :
:
V. :
:
JAMES L. KIRK, RENTAL SERVICE :
CORPORATION and NATIONSRENT, INC. : APRIL 22, 1999
:
Defendant. :
=====================================
MOTION FOR A PRELIMINARY INJUNCTION
Rental Service Corporation ("RSC") hereby moves the Court for a
preliminary injunction restraining counterdefendants from voting shares or
soliciting consents in favor of the six nominees who are directors and/or
officers of UR Acquisition Corporation or United Rentals, Inc.
(collectively, "URI"), and restraining counterdefendants from nominating or
attempting to nominate any nominees or any other director or officer of URI
to the Board of Directors of RSC. This injunction is sought on the ground
that counterdefendants' conduct, unless restrained, will result in
violations of Section 8 of the Clayton Act, 15 U.S.C. ss. 19.
In support of this Motion, Rental Service Corporation submits this
Memorandum of Points and Authorities in Support Thereof, the Declaration of
James J. Farrell and attached exhibits.
Dated: April 22, 1999
DEFENDANT AND COUNTERCLAIMANT
RENTAL SERVICE CORPORATION
By /s/ William H. Champlin III
------------------------------------
William H. Champlin III
CT04202
Mark V. Connolly
OF COUNSEL CT05677
Marc W. Rappel TYLER COOPER & ALCORN, LLP
James J. Farrell CityPlace - 35th Floor
LATHAM & WATKINS Hartford, CT 06103-3488
633 W. 5th Street, Suite 4000 (860) 725-6200
Los Angeles, CA 90071 Fax: (860) 278-3802
(213) 485-1234 Its Attorneys
Fax: (213) 891-8763
CERTIFICATION
This is to certify that on April 22, 1999 I have served a copy of the
foregoing by hand delivery upon the following counsel:
Thomas J. Groark, Jr.
Richard M. Reynolds
Philip S. Wellman
Robin L. Smith
Day, Berry & Howard, LLP
CityPlace I
Hartford, CT 06103
and served a copy via U.S. mail upon the following counsel and pro se
parties of record by causing it to be mailed on the 22nd day of April, 1999
postage prepaid and properly addressed to:
Joseph B. Frumkin
William Sipes
Sullivan & Cromwell
125 Broad St.
New York, NY 10004
Jay B. Kasner
Steven J. Kolleeny
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Robert A. Izard
Bradford S. Babbitt
Robinson & Cole
280 Trumbull Street
Hartford, CT 06103-3597
/s/ William H. Champlin III
----------------------------------
William H. Champlin III
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
========================================
UR ACQUISITION CORPORATION :
and UNITED RENTALS, INC. : CIVIL ACTION NO.
: 399CV00625 (DJS)
Plaintiffs, :
:
V. :
:
JAMES L. KIRK, RENTAL SERVICE :
CORPORATION and NATIONSRENT, INC. : APRIL 22, 1999
:
Defendant. :
========================================
MEMORANDUM OF POINTS AND AUTHORITIES IN
SUPPORT OF RENTAL SERVICE CORPORATION'S
MOTION FOR PRELIMINARY INJUNCTION
I. INTRODUCTION
United Rentals, Inc. and UR Acquisition Corporation (collectively
"URI") seek control of Rental Service Corporation's ("RSC") Board of
Directors in blatant violation of the federal antitrust laws. URI and RSC
are direct competitors in the equipment rental industry. Section 8 of the
Clayton Act clearly prohibits interlocking directorates of competing
corporations. Nonetheless, of the nine individuals nominated by URI to take
over RSC's Board, six of them are directors and/or officers of URI. If URI
succeeds in putting these six nominees on RSC's Board, it will cause RSC to
be in violation of the antitrust laws. A preliminary injunction is
necessary to restrain URI and the six nominees from violating the
prohibition of the Clayton Act against such interlocking directorates.
II. STATEMENT OF FACTS
RSC is a Delaware corporation with its principal executive offices in
Scottsdale, Arizona. RSC is in the business of renting construction and
industrial equipment. Declaration of James J. Farrell ("Farrell Decl."), P.
3. RSC serves the needs of a wide variety of industrial, manufacturing,
construction, government and homeowner markets through a network of 245
rental locations in 27 states and Canada. RSC rents equipment ranging from
small items such as pumps and electric hand tools to larger equipment such
as backhoes and aerial manlifts. RSC also sells maintenance, repair and
operations supplies, small tools, contractors supplies, parts and used
rental equipment, and acts as a distributor for new equipment on behalf of
certain national equipment manufacturers. RSC Form 10-K, Exh. A, p. 1.(1) RSC
is a publicly traded company listed on the New York Stock Exchange, and its
capital, surplus and undivided profits aggregate more than $16 million. Id.
at p. F-2; see footnote 5, infra.
RSC competes directly with URI for equipment rental customers and
purchasers of related merchandise and parts. According to its most recent
Form 10-K, URI is the largest equipment rental company in North America. It
has 453 branch locations and operates in 39 states, Canada and Mexico. URI
Form 10-K, Exh. B, p. 1. The equipment it rents and the related supplies it
sells are the same as those available from RSC. See Exh. B, p. 1. Both
companies operate in overlapping geographic areas. As set forth in its Form
10-K, URI also has capital, surplus and undivided profits aggregating well
over $16 million. Id. at p. 33.
- -----------------------
(1) RSC requests the Court to take judicial notice of certain of its and
URI's most recent filings with the Securities and Exchange Commission,
copies of which are attached hereto as Exhibits A-C and G.
On March 30, 1999, United Rentals (North America), Inc., a direct
wholly owned subsidiary of United Rentals, purchased 100 shares of RSC
stock. URI Schedule 14A, Exh. C, p. 18. On April 5, 1999, URI notified RSC
of its commencement of a tender offer to acquire all of RSC's outstanding
shares of stock. Exh. D. On the same date, URI commenced litigation against
RSC, its Board members, and NationsRent (a proposed merger partner of RSC)
in Delaware. On April 7, URI commenced the instant action. By letter dated
April 13, URI informed RSC that it was nominating nine directors to take
the place of RSC's current Board members.(2) Exh. E. According to the
preliminary proxy materials filed by URI with the SEC on April 13, six of
the nine nominees are directors and/or officers of URI (collectively the
"Nominees").(3) Specifically, Bradley S. Jacobs is the Chairman, Chief
Executive Officer and a director of United Rentals. Richard J. Heckmann is
a director of United Rentals. Wayland R. Hicks is Chief Operating Officer
of United Rentals and a director. John N. Milne is Vice Chairman, Chief
Acquisition Officer and a director of United Rentals. Michael J. Nolan is
Chief Financial Officer of United Rentals. Gerald Tsai, Jr. is a director
of United Rentals. Exh. C, pp. 11-14.
- ------------------------
(2) RSC has eight members on its Board. Under Section 3.02 of its Bylaws,
the number of directors comprising RSC's Board is to be no less than
four and no more than sixteen. Farrell Decl. P. 4. URI is proposing a
nine member Board. Exh. C, p. 10.
(3) RSC does not presently know what connection the remaining three
nominees have to URI. RSC reserves the right to join these nominees on
its claims in the event they are agents of and have an employment or
business relationship with URI. See Square D Co. v. Schneider, 760 F.
Supp. 362, 367 (S.D.N.Y. 1991).
On April 19, URI apparently recognized that the majority of its
proposed slate could not serve as RSC directors, presumably for the reasons
described in this motion. Instead of withdrawing the tainted officer and/or
director nominees, however, URI purported to nominate six "replacement"
candidates who will serve if any of the original nominees "are unable or
unwilling to serve, or are otherwise disqualified from serving, as
directors of Rental Service for any reason." Exh. F.(4)
If URI is permitted to place six of its own officers or directors on
RSC's Board, URI will cause RSC to be in clear violation of Section 8 of
the Clayton Act. RSC therefore seeks a preliminary injunction restraining
URI and the Nominees from continuing their efforts to place United Rentals'
own directors and officers on RSC's Board.
- -----------------------
(4) URI's April 19 letter (which was delivered April 20) does not include
any information about these individuals. Even if these alternate
nominees do not give rise to an interlocking directorate in violation
of Section 8 of the Clayton Act, the Clayton Act violation posed by
the present slate of proposed directors is not rendered moot by the
possible nomination of other individuals. See United States v. W.T.
Grant Co., 345 U.S. 629, 633 (1953); SCM Corp. v. Federal Trade
Commission, 565 F.2d 807, 811 (2d Cir. 1977).
III. ARGUMENT
A. URI AND THE NOMINEES MUST BE ENJOINED FROM ATTEMPTING TO PLACE
URI'S OWN DIRECTORS AND OFFICERS ON RSC'S BOARD
1. THE STANDARD FOR PRELIMINARY INJUNCTIVE RELIEF
In the Second Circuit, "a court may issue a preliminary
injunction only upon a 'showing of (a) irreparable harm and (b) either (1)
likelihood of success on the merits or (2) sufficiently serious questions
going to the merits to make them a fair ground for litigation and a balance
of the hardships tipping decidedly toward the party requesting the
preliminary relief.'" Consolidated Gold Fields PLC v. Minorco, 871 F.2d
252, 256 (2d Cir. 1989) (quoting Jackson Dairy, Inc. v. H.P. Hood & Sons,
Inc., 596 F.2d 70, 72 (2d cir. 1979)). RSC can easily establish the
likelihood of success on the merits and the irreparable harm it will
suffer. Issuance of a preliminary injunction is therefore appropriate.
2. RSC WILL SUCCEED ON THE MERITS
By attempting to elect interlocking directors, URI and
the Nominees are violating the Clayton Act. Section 8 of the Clayton Act,
15 U.S.C. ss. 19, was enacted to give effect to the Sherman Act's
prohibitions on anti-competitive conduct. United States v. Sears, Roebuck &
Co., 111 F. Supp. 614, 616 (S.D.N.Y. 1953) (stating "Interlocking
directorships on rival corporations had been the instrumentality of
defeating the purpose of the antitrust laws.") "Section 8 was but one of a
series of measures which finally emerged as the Clayton Act, all intended
to strengthen the Sherman Act, which, through the years had not proved
entirely effective." Id.
"The continued potential threat to the competitive system
resulting from these conflicting directorships was the evil aimed at." Id.
"The emphasis upon the importance of the prohibition against the sharing of
common directors by large competing corporations is understandable." United
States v. Crocker Nat'l Corp., 656 F.2d 428, 437 (9th cir. 1981), reversed
on other grounds, 103 S. Ct. 2266 (1983). Id. Common directors perform the
function of maintaining uniform polices among the corporations they serve,
and the elimination function of maintaining uniform polices among the
corporations they serve, and the elimination of competition between those
corporations was to be presumed from the very existence of common
directors. Id. at 437-38 (citing Judiciary Committee Findings, H.R. Rep.
No. 627 at 19-20.) Interlocking arrangements between competing corporations
threaten the basic purpose of the Sherman Act and are therefore treated as
illegal per se. TRW, Inc. v. FTC, 647 F.2d 942, 947 (9th Cir. 1981).
This per se illegality is codified in Section 8 of the Clayton Act,
15 U.S.C. ss. 19. That portion of the Clayton Act provides:
No person shall, at the same time, serve as a director or
officer in any two corporations (other than banks, banking
associations, and trust companies) that are --
(A) engaged in whole or in part in commerce; and
(B) by virtue of their business and location of operation,
competitors, so that the elimination of competition by
agreement between them would constitute a violation of any
of the antitrust laws; if each of the corporations has
capital, surplus, and undivided profits aggregating more
than $10,000,000 as adjusted pursuant to paragraph (5) of
this subsection.
15 U.S.C. ss. 19(a)(1).(5)
The Second Circuit has expanded Section 8's prohibition against
interlocking directorates to apply not only to individuals, but to
corporations as well. SCM Corp. v. Federal Trade Comm'n, 565 F.2d 807, 811
(2nd Cir. 1977) (stating Section 8's "prophylactic purpose was 'to nip in
the bud incipient violations of the antitrust laws by removing the
opportunity or temptation to such violations through interlocking
directorates.'" (quoting Sears, 111 F. Supp. at 616)). Reasoning that
public policy dictated a broad reading of Section 8, the Second Circuit
noted that "a corporation without fear of sanction could have the
concededly prohibited interlocking directorate and, if detected, simply
replace the ousted director with another interlocking board member." Id. By
attempting to elect United Rentals' own directors and officers to the Board
of RSC, a directly competing equipment rental company, URI and the Nominees
are blatantly violating this clear prohibition against interlocking
directorates.
First, there can be no dispute that both RSC and URI are engaged in
commerce. They both operate major equipment rental companies throughout the
United States and beyond. Next, their companies compete directly against
each other in numerous geographic markets. URI itself states in its tender
offer materials that its "preliminary look at the company leads [it] to
believe that 25 locations could be consolidated . . ." URI Schedule 14D-1,
Amendment No. 4, Exh. G, P. 5. The products they rent are substantially the
same as are the related services they provide. Moreover, it would certainly
violate Section 1 of the Sherman Act if RSC and URI were to agree on a
minimum price for renting equipment or purchasing related supplies or enter
some other horizontal arrangement which would lessen competition. Thus, it
is indisputable that RSC and United Rentals are "competitors" within the
meaning of the Clayton Act.
- ----------------------
(5) The $10,000,000 threshold amount is adjusted yearly according to
changes in the gross national product. 15 U.S.C. ss. 19(a)(5). For the
year 1999, this amount is $15,308,000. 64 Fed. Reg. 1628 (1999).
Finally, each corporation has capital, surplus, and undivided profits
aggregating well over $10,000,000, even after adjustment for increases in
the gross national product since 1990 pursuant to 15 U.S.C. ss. 19(a)(1).
According to the most recently filed 10K reports, both RSC and URI have
over the required $15,380,000 in capital, surplus, and undivided profit.
Exh. A, p. F-2, Exh. B, p. 33.
Procedurally, RSC is entitled to an injunction restraining
counterdefendants from violating the Clayton Act and from causing RSC to be
in violation of the Clayton Act by having interlocking directorates with a
competitor. See Consolidated Gold Fields PLC, 871 F.2d at 256 (holding that
target companies have standing to seek preliminary injunctions and stating
"if we fail to recognize target standing, we would substantially impair
enforcement of the antitrust laws to protect against anticompetitive
takeovers"); Square D Co. v. Schneider, 760 F. Supp. 362, 364-65 (S.D.N.Y.
1991) (target of takeover effort has standing). Section 16 of the Clayton
Act, 15 U.S.C. ss. 26, authorizes a private party facing prospective injury
under the antitrust laws to bring an action for injunctive relief to
restrain any such violation. The Supreme Court has made clear that a
private litigant may obtain all manner of injunctive relief for a violation
of these sections of the Clayton Act. California v. American Stores Co.,
495 U.S. 271, 295-6 (1990) (private litigant may obtain order of
divestiture for violation of Section 7 pursuant to Section 16 of the
Clayton Act).(6)
For all of these reasons, RSC has established an overwhelming
likelihood that it will succeed on the merits of its claims against URI and
the Nominees.
- ---------------------
(6) Section 16 of the Clayton Act also authorizes a prevailing party to
recover attorney's fees and cost of suit, which RSC will seek upon
termination of this action.
3. RSC WILL SUFFER IRREPARABLE HARM
If URI is allowed to place interlocking directors on
RSC's Board of Directors, RSC will suffer irreparable harm. Irreparable
harm exists where a target "would cease to be a viable competitor[] in the
market." Consolidated Gold Fields PLC, 871 F.2d at 261. "'Doubts as to
whether a [preliminary] injunction . . . is necessary to safeguard [the
target group] . . . should be resolved in favor of granting the
injunction.'" Id. (quoting Gulf & Western Indus. v. Great Atlantic &
Pacific Tea Co., 476 F.2d 687, 699 (2d Cir. 1973) (alterations in
original)).
In the present case, if URI is permitted to place its own
officers and directors on RSC's Board, it will have the effect of lessening
competition between URI and RSC. RSC will also suffer irreparable harm
because it will squarely be in violation of the antitrust laws.
Accordingly, the issuance of a preliminary injunction is critical to
prevent such irreparable harm to RSC.
IV. CONCLUSION
The facts and the law giving rise to this motion are simple and
straightforward. The actions taken by URI and the Nominees designed to
create interlocking directorates are in flagrant disregard of the Clayton
Act. RSC respectfully requests the Court to issue a preliminary injunction
to halt this wrongful conduct now.
DEFENDANT AND COUNTERCLAIMANT
RENTAL SERVICE CORPORATION
By /s/William H. Champlin III
---------------------------------
William H. Champlin III
CT04202
Mark V. Connolly
OF COUNSEL CT05677
Marc W. Rappel TYLER COOPER & ALCORN, LLP
James J. Farrell CityPlace - 35th Floor
LATHAM & WATKINS Hartford, CT 06103-3488
633 W. 5th Street, Suite 4000 (860) 725-6200
Los Angeles, CA 90071 Fax: (860) 278-3802
(213) 485-1234 Its Attorneys
Fax (213) 891-8763
CERTIFICATION
This is to certify that on April 22, 1999 I have served a copy of the
foregoing by hand delivery upon the following counsel:
Thomas J. Groark, Jr.
Richard M. Reynolds
Philip S. Wellman
Robin L. Smith
Day, Berry & Howard, LLP
CityPlace I
Hartford, CT 06103
and served a copy via U.S. mail upon the following counsel and pro se
parties of record by causing it to be mailed on this 22nd day of April,
1999 postage prepaid and properly addressed to:
Joseph B. Frumkin
William Sipes
Sullivan & Cromwell
125 Broad St.
New York, NY 10004
Jay B. Kasner
Steven J. Kolleeny
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Robert A. Izard
Bradford S. Babbitt
Robinson & Cole
280 Trumbull Street
Hartford, CT 06103-3597
/s/ William H. Champlin III
----------------------------------
William H. Champlin III
