SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
AMENDMENT NO. 20
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
TELEPHONE: (212) 735-3000
FACSIMILE: (212) 735-2000
UR Acquisition Corporation, a Delaware corporation (the "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
"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
(collectively with the associated preferred stock purchase rights (the
"Rights") issued pursuant to the Rights Agreement, dated as of April 16,
1999 (the "Rights Agreement"), between Rental Service Corporation and
ChaseMellon Shareholder Services, L.L.C., 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 (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(f) of the Schedule 14D-1 is
hereby amended and supplemented by the following information:
On May 28, 1999, Parent filed a reply memorandum of law in support of
its motion to dismiss the amended counterclaims of the Company under
Section 14 of the Exchange Act (the "Reply Memorandum of Law") in the
pending litigation between Parent and the Company, among others, in the
United States District Court for the District of Connecticut (the
"Connecticut Court"). Parent also filed declarations (the "Declarations")
by each of the persons nominated by Parent to stand for election to the
Company Board of Directors (the "Nominees"). In the Declarations, each of
the Nominees declared, among other things, that he or she is neither an
officer nor a director of Parent. On June 2, 1999, the Company filed a
surreply memorandum of law (the "Company Surreply Memorandum") in
opposition to Parent's motion to dismiss the amended counterclaims, filed
on April 29, 1999, and a memorandum in response to the Nominee declarations
(the "Company Response Memorandum"). In addition, on June 2, 1999, the
Connecticut Court set June 11, 1999 as the date for the hearing concerning
Parent's motion to dismiss and related matters.
The foregoing is qualified in its entirety by reference to the
complete text of the Reply Memorandum of Law, the Company Surreply
Memorandum and the Company Response Memorandum, copies of which are filed
as Exhibits (g)(17), (g)(18) and (g)(19) hereto, respectively, and which
are incorporated by reference herein.
ITEM 11. MATERIALS TO BE FILED AS EXHIBITS.
(g)(17) Parent Reply Memorandum of Law in Support of the Motion
to Dismiss the Amended Counterclaims, dated May 28,
1999, filed by Parent in the United States District
Court for the District of Connecticut.
(g)(18) Company Surreply Memorandum of Law in Opposition to
Parent's Motion to Dismiss, dated June 2, 1999, filed
by the Company in the United States District Court for
the District of Connecticut.
(g)(19) Company Memorandum in Response to Parent's Nominee
Affidavits, dated June 2, 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: June 4, 1999
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------- -------
(g)(17) Parent Reply Memorandum of Law in Support of the Motion to
Dismiss the Amended Counterclaims, dated May 28, 1999, filed
by Parent in the United States District Court for the
District of Connecticut.
(g)(18) Company Surreply Memorandum of Law in Opposition to Parent's
Motion to Dismiss, dated June 2, 1999, filed by the Company
in the United States District Court for the District of
Connecticut.
(g)(19) Company Memorandum in Response to Parent's Nominee Affidavits,
dated June 2, 1999, filed by the Company in the United States
District Court for the District of Connecticut.
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
UR ACQUISITION CORPORATION and :
UNITED RENTALS, INC.,
:
Plaintiffs, CIVIL ACTION NO.
: 399CV00625(DJS)
-against-
:
JAMES L. KIRK, RENTAL SERVICE
CORPORATION, and NATIONSRENT, INC., :
May 28, 1999
Defendants. :
REPLY MEMORANDUM OF LAW IN SUPPORT OF
MOTION TO DISMISS AMENDED COUNTERCLAIMS
OF RENTAL SERVICE CORPORATION
TABLE OF CONTENTS
PAGE
----
TABLE OF AUTHORITIES........................................................ii
PRELIMINARY STATEMENT........................................................1
ARGUMENT.....................................................................2
I. WHETHER THE DISCLOSURES ARE VIEWED SEPARATELY OR
TOGETHER, RSC HAS FAILED TO ALLEGE ANY MATERIALLY
MISLEADING URI DISCLOSURES OR OMISSIONS................................2
A. URI Has Neither Misrepresented Nor Omitted Material Facts
Concerning Its Financing Arrangements...............................3
B. URI's Schedule 14D-1 Filing Fully and Fairly Disclosed The
Conditions To Its Cash Tender Offer.................................6
C. The Total Mix of URI's Tender Offer Disclosures Renders the
Alleged Misstatements and Omissions Immaterial......................7
II. URI'S PUBLIC DISCLOSURES ADEQUATELY ADDRESS RSC'S
PERCEIVED VIOLATIONS OF SECTION 14 OF THE EXCHANGE ACT.................9
CONCLUSION..................................................................10
TABLE OF AUTHORITIES
CASES PAGE(S)
- ----- -------
Abramson v. Nytronics, Inc., 312 F. Supp. 519 (S.D.N.Y. 1970) ...............9
Blanchette v. Providence & Worcester Co,, 428 F. Supp. 347 (D. Del. 1977) ...9
Burlington Industrial Inc., v. Edelman, 666 F. Supp. 799 (M.D.N.C. 1987),
aff'd mem., No. 87-1622(L), 1987 WL 91498 (4th Cir. June 22, 1987) ....9
CRTF Corp. v. Federated Dep't Stores, Inc., (Mar. 28, 1993) reprinted
in 1988 Transfer Binder Fed. Sec. L ...................................4
Chris-Craft Industrial, Inc. v. Piper Aircraft Corp., 480 F.2d 341
(2d Cir. 1972), rev'd on other grounds, 430 U.S. 1 (1977) .......2, 3, 5
Crouse-Hinds Co. v. InterNorth, Inc., 518 F. Supp. 416 (N.D.N.Y. 1980) ...5, 8
Electronic Specialty Co. v. International Controls Corp., 409 F.2d
937 (2d Cir. 1969) ....................................................1
Gould v. American Hawaiian, 331 F. Supp. 981 (D. Del. 1971) .................7
Greenapple v. Detroit Edison Co., 618 F.2d 198 (2d Cir. 1980) ...............6
In re Hunter Environmental Services Inc. Security Litig., 921 F.
Supp. 914 (D. Conn. 1996) ..........................................3, 8
I. Meyer Pincus & Associates P.C. v. Oppenheimer & Co., 936 F.2d 759
(2d Cir. 1991) ........................................................7
Kohn v. American Metal Climax, Inc., 458 F.2d 255 (3d Cir. 1972) ............7
Macfadden Holdings, Inc. v. JB Acquisition Corp., 802 F.2d 62 (2d Cir.
1986) ..............................................................1, 8
Mills v. Electric Autolite Co., 403 F.2d 429 (7th Cir. 1968) ................7
New York City Employees Retirement System v. SEC, 45 F.3d 7 (2d Cir.
1995) .................................................................4
Norte & Co. v. Huffines, 304 F. Supp. 1096 (S.D.N.Y. 1968) aff'd in part,
remanded in part on other grounds, 416 F.2d 1189 (2d Cir. 1969) .......7
In re PHLCorp. Security Tender Offer Litigation, 700 F. Supp. 1265
(S.D.N.Y. 1988) .......................................................8
Revlon, Inc. v. Pantry Pride, Inc., 621 F. Supp. 804 (D. Del. 1985) .........9
Swanson v. American Consumer Industrial, Inc., 415 F.2d 1326 (7th Cir.
1969) .................................................................7
TSC Industrial, Inc. v. Northway, Inc., 426 U.S. 438 (1976) .................8
The First Boston Corp., SEC No-Action Letter, 1985 WL 54285 (Sept. 3,
1985) .................................................................4
STATUTES PAGE(S)
- -------- -------
Fed. R. Civ. P. 12(b)6 ......................................................2
15 U.S.C. ss. 78n(d), (e) ...................................................2
PRELIMINARY STATEMENT
On May 20, 1999, the day after the May 19th conference with
this Court, Rental Service Corp. ("RSC") and NationsRent, Inc.
("NationsRent") announced that they had mutually agreed to terminate their
January 20, 1999 merger and stock option agreements.(1) RSC also announced
that its board has requested a review and evaluation of its strategic
alternatives from its financial advisors. Pending completion of this
review, RSC continues to recommend that RSC shareholders reject United
Rentals, Inc.'s ("URI") Tender Offer, not tender their shares and not
consent to URI's proposals, which include the removal and replacement of
RSC's board.
RSC persists in misusing the Williams Act to attempt to thwart
URI's Tender Offer rather than letting RSC shareholders make their own
final determination.(2) The Second Circuit has cautioned against impeding the
informed choice of shareholders of a target company through use of the
Williams Act by incumbent management. While reversing an order granting
injunctive relief that would have nullified shareholder preference for a
tender offer, the Second Circuit also has cautioned that "just as Congress
intended the Williams Act to favor neither side in a takeover contest, so
too must the courts exercise care so as not to impede the informed choice
of the shareholders of a target company." Macfadden Holdings, Inc. v. JB
Acquisition Corp., 802 F.2d 62, 67 (2d Cir. 1986); Electronic Specialty Co.
v. Int'l Controls Corp., 409 F.2d 937, 947 (2d Cir. 1969) (Friendly, J.)
(in applying the Williams Act, "district judges must be vigilant against
resort to the courts on trumped-up or trivial grounds as a means for
delaying and thereby defeating legitimate tender offers").
- ---------------------
(1) In an interview with Bloomberg Forum on May 26, 1999, defendant
James Kirk, NationsRent's chief executive officer, said his company "viewed
that the courts which [it] had been involved in . . . were going to knock
down the [$40 million] break-up fee and the cross-option fee which they
didn't seem to like, so really we had very little upside."
(2) As the articles selected by RSC show, the financial community has
no doubts about the bona fides of URI's Offer and financing. See Kopin Tan,
United Rentals' Rival Offer Poses Challenge for NationsRent, Dow Jones News
Service, Apr. 5, 1999 (RSC Appendix, Ex. No. 1) (URI's Offer "packs enough
of a punch and premium to warrant a close look by shareholders and the
[RSC] board" and "[URI] has lined up a formidable arsenal in terms of
acquisition financing").
RSC's hollow complaint fails to allege any materially
misleading statements or omissions by URI in violation of Sections 14(a)
and (e) of the Securities Exchange Act of 1934 as amended (the "Exchange
Act"), 15 U.S.C. ss. 78n(d), (e). RSC's belated filing of an Appendix on
May 21, 1999, only after the Court directed it to do so, fails to remedy
this fatal defect. Rather, the RSC Appendix supports dismissal of RSC's
Exchange Act counterclaims pursuant to Fed. R. Civ. P. 12(b)6) by
underscoring the fact that URI has fully and fairly disclosed in its tender
offer materials the Goldman Sachs firm commitment to provide $2 billion of
funds to consummate the Tender Offer, refinance certain indebtedness and
for other corporate purposes, and the limited customary conditions
contained therein.
Moreover, after the statements appeared in the press about
which RSC complains in this action, URI filed Amendment No. 5 to its
Schedule 14D-1, which fully disclosed RSC's position about the financing
and contained as an exhibit the full text of RSC's counterclaims.
Consequently, all of RSC's claims relating to the allegedly omitted facts
have already been disclosed to RSC shareholders. Accordingly, dismissal of
RSC's First and Second Counterclaims with prejudice is warranted.
ARGUMENT
I. WHETHER THE DISCLOSURES ARE VIEWED SEPARATELY OR
TOGETHER, RSC HAS FAILED TO ALLEGE ANY MATERIALLY
MISLEADING URI DISCLOSURES OR OMISSIONS
In order to state a claim, RSC must allege, among other things,
that URI misrepresented or omitted to state material facts in connection
with its Tender Offer. Chris-Craft Indus., Inc. v. Piper Aircraft Corp.,
480 F.2d 341, 362 (2d Cir. 1972), rev'd on other grounds, 430 U.S. 1
(1977). Information is material only "'if there is a substantial likelihood
that a reasonable shareholder would consider it important to the investment
decision.'" In re Hunter Envtl. Servs. Inc. Sec. Litig., 921 F. Supp. 914,
920 (D. Conn. 1996) (Squatrito, J.) (citations omitted).
A. URI Has Neither Misrepresented Nor Omitted Material
Facts Concerning Its Financing Arrangements
RSC alleges that URI's April 5, 1999 press release is
misleading because it asserted that URI has a "firm commitment" from
Goldman Sachs to finance the Offer. See Amended Counterclaims and Jury
Demand, dated April 22, 1999 ("RSC Countercl.") P. 14. In fact, RSC
continues to ignore the firm commitment letter from Goldman Sachs, but has
provided no reason for the Court to do so. Moreover, URI's disclosures
relative to financing certainly are not materially misleading. URI's
financing arrangements, which have been fully disclosed repeatedly, are
subject to only customary conditions. See Offer to Purchase at 18-20,
Commitment Letter (RSC App. Ex. No. 3). As disclosed in the Offer,
conditions (3), (4) and (6) deal with material adverse events while the
remaining three conditions deal with routine matters relating to closing
the transaction. Accordingly, URI's disclosure that it has a "firm
commitment" for financing is not false or misleading.
In light of the customary financing conditions, RSC's reliance
on Chris-Craft is totally misplaced. See Opposition to Motion to Dismiss
Amended Counterclaim, dated May 17, 1999 ("RSC Opp.") at 7. In Chris-Craft,
Piper, in a desperate attempt to prevent consummation of plaintiff's cash
tender offer, agreed to sell unissued shares to a third party with the
"intention" thereafter "to explore the desirability of a merger." 480 F.2d
at 351. Pursuant to the agreement, the third party was given the option
after six months to put the shares back to Piper at cost plus interest from
the closing date. Id. Both Piper's letter to its shareholders and press
release, the only documents distributed by Piper to its shareholders
describing the agreement, failed to make any mention of the unusual put
option. See id. at 351-52. The Second Circuit held that this was a material
omission portraying the agreement as completed and favorable, when in fact
the agreement was merely "a preliminary and conditional overture directed
toward a possible merger." Id. at 365. Therefore, Chris-Craft has no
relevance here.
RSC's allegations that URI's public assertion that its Offer is
"fully financed" is misleading (RSC Countercl. P. 23) also miss the mark;
URI's assertion is reasonable. In the same SEC letter to the Honorable
Leonard B. Sand of the Southern District of New York cited by RSC (see RSC
Opp. at 13), the SEC acknowledged that once the offeror has received "firm
financing commitments" for all of the money needed to complete the tender
offer, the offer is "fully financed." CRTF Corp. v. Federated Dep't Stores,
Inc., (Mar. 28, 1993) reprinted in 1988 Transfer Binder Fed. Sec. L. Rep.
(CCH) P. 84,224, at 89,024.(3) Here, Goldman Sachs has given its "firm
commitment" to provide $2 billion in financing for a Tender Offer, which,
with the debt refinancing, is estimated to cost approximately $1.26
billion. See Offer to Purchase at 18 (RSC App. Ex. No. 3). Moreover, in
Amendment No. 5 to its Schedule 14D-1, URI disclosed that the Tender Offer
is "fully financed" because, given the Goldman Sachs firm $2 billion
commitment, no other source of financing will be necessary to effect the
transaction. Accordingly, the assertion that the Offer is "fully financed"
is not a material misstatement.
- ------------------------
(3) See also The First Boston Corp., SEC No-Action Letter, 1985 WL
54285, at *3 (Sept. 3, 1985) (acknowledging that "market out clauses" are
standard aspects of "firm commitment underwriting" agreements and are
appropriate when the "market out provision" can be exercised "upon the
occurrence of a material, adverse event" since this does not permit
abrogation of the obligation). Courts may treat SEC no-action letters as
persuasive authority. New York City Employees Retirement Sys. v. SEC, 45
F.3d 7, 13 (2d Cir. 1995).
In light of the foregoing, URI's assertions in its press
release and interviews that its Offer is "all cash" and provides
"certainty" are also not materially misleading, especially where RSC was
asking its shareholders to approve the RSC/NationsRent merger with its
attendant fluctuating value.(4) Furthermore, these assertions were made in
conjunction with URI's 14D-1 filing, which fully and fairly disclosed URI's
financing arrangements. See I.B. and I.C infra.
Finally, RSC contends that URI's April 5, 1999 Summary
Advertisement and Press Release, by including an expressly non-exhaustive
list of conditions to the Offer, contained material omissions concerning
the details of URI's financing arrangements. RSC Countercl. P. P. 14, 15.
RSC's reliance on Chris-Craft for support is again misplaced. See RSC Opp.
at 7, 10. In Chris-Craft, the published list of conditions, which omitted
the uncommon put option, "gave the appearance of being exclusive." 480 F.2d
at 365. In contrast, URI's conditions were expressly not exclusive. See RSC
App. Ex. No. 3. Moreover, the mere inclusion in such summary documents of
certain conditions, such as those pertaining to the then-proposed coercive
RSC/NationsRent merger, is permissible, and including every condition of an
offer in such summary documents is simply not required. Cf. Crouse-Hinds
Co. v. InterNorth, Inc., 518 F. Supp. 416, 454, 456-57 (N.D.N.Y. 1980).(5)
----------------------
(4) See RSC App. Ex. No. 3 (noting that in January 1999, RSC and
NationsRent agreed to a "stock swap then priced at $356 million").
(5) Confronted with a summary advertisement which listed termination of
the target's proposed merger with a third party as a condition of the
proposed tender offer but omitted the other conditions to the offer, the
Crouse-Hinds court remarked:
In devising its summary advertisement, InterNorth was confronted
with the problem of quickly relating to the marketplace its
position on whether it was unconditionally tendering for shares of
Crouse-Hinds, in view of Crouse-Hinds' stated intention to merge
with Belden. . . . [T]he marketplace was bound to wonder whether
InterNorth was tendering for Crouse-Hinds alone, or Course-
Hinds/Belden.
Crouse-Hinds, 518 F. Supp. at 456. "[I]f InterNorth had not added the
'Belden condition' to its summary advertisement, it is conceivable that
Crouse-Hinds could have objected, and reasonably so, that the summary
advertisement would have been inaccurate and misleading." Id. at 457.
B. URI's Schedule 14D-1 Filing Fully and Fairly Disclosed The
Conditions To Its Cash Tender Offer
URI neither buried nor failed to emphasize adequately the
conditions to its Offer, including the financing conditions. URI satisfied
its disclosure obligations by "steer[ing] a middle course, neither
submerging a material fact in a flood of collateral data, nor slighting its
importance through seemingly cavalier treatment." Greenapple v. Detroit
Edison Co., 618 F.2d 198, 210 (2d Cir. 1980). RSC's claims of
circumlocution, burial or scattering of material facts regarding the
Offer's conditions in URI's Schedule 14D-1 filing simply cannot withstand
scrutiny. See RSC Opp. at 7-11.
The table of contents for the Offer to Purchase includes
sections titled "Introduction," "Source and Amount of Funds" and
"Conditions to the Offer." See Offer to Purchase (RSC App. Ex. No. 3). The
Introduction provides a summary overview of the Offer. It includes only one
subsection -- "Certain Conditions to the Offer" -- which alerts the reader
to the fact that the conditions to the Offer include "receipt of financing
pursuant to the Commitment Letter . . . as described in Section 14
[Conditions to the Offer]." Id. at 6. The Source and Amount of Funds
section also directs the reader to Section 14, but only after again
alerting the reader that while URI expects that financing will be
available, "there can be no assurance that the Facilities will be
consummated." Id. at 20-21. In addition, the customary conditions included
in the Goldman Sachs Commitment Letter are clearly enumerated in a separate
paragraph in this section.(6) Id.
Finally, Section 14 -- Conditions to the Offer -- lists, in
separate paragraphs, the events which trigger URI's right to terminate the
Offer. Id. at 27-31. These listed conditions are typical, including the one
relating to financing, which permits termination if URI does not receive
financing for the Offer pursuant to the Commitment Letter. Id. at 30.
- -------------------------
(6) A copy of the Commitment Letter is also attached to the Schedule 14D-1.
Thus, there is simply no merit to RSC's allegations that URI is
attempting to deceive RSC shareholders. See I. Meyer Pincus & Assocs. P.C.
v. Oppenheimer & Co., 936 F.2d 759, 763 (2d Cir. 1991) (material not buried
where relevant material appeared on page 25, was explicitly referenced on
page 5, and was listed in the Table of Contents and where summary stated
that it was qualified by the more detailed material included in the
document).
The cases from which RSC tries to glean support for its
frivolous claim that URI buried the Offer's conditions are inapposite and,
in the case of Kohn, plainly contradictory. In its haste to quote from the
portion of the District Court opinion dealing with buried disclosures (see
RSC Opp. at 8), RSC failed to point out that the Third Circuit reversed the
District Court's finding that the board's conflict of interest was buried.
See Kohn v. American Metal Climax, Inc., 458 F.2d 255, 267 (3d Cir. 1972)
("The fact, relied upon by the district court, that the RST Board
recommendation appears in boldfaced type whereas only part of the
disclosures of conflicting interests so appears does not in our view,
violate the equal prominence rule.") (Emphasis added).(7)
- --------------------------
(7) The other cases cited by RSC also fail to provide it with any
support because they are totally inapposite. See Gould v. American
Hawaiian, 331 F. Supp. 981, 995-96 (D. Del. 1971) (conflict of interest
buried where facts underlying conflict were interspersed throughout cover
letter and proxy statement); Norte & Co. v. Huffines, 304 F. Supp. 1096,
1106 (S.D.N.Y. 1968) (fact was buried in unrelated section at the end of
the proxy statement) aff'd in part, remanded in part on other grounds, 416
F.2d 1189 (2d Cir. 1969); Mills v. Electric Autolite Co., 403 F.2d 429, 434
(7th Cir. 1968) ("Had the proxy statement simply reported approval, without
emphasis and along with the other facts, we might have a different
situation." Instead, board approval was on pages 2 and 3 in bold while
facts disclosing conflict were not emphasized and relegated to the end of
the document.); Swanson v. American Consumer Indus., Inc., 415 F.2d 1326,
1330-1331 (7th Cir. 1969) (no issue of buried facts, but rather misleading
and deceptive omissions).
C. The Total Mix of URI's Tender Offer Disclosures Render the
Alleged Misstatements and Omissions Immaterial
RSC shareholders have all material information to assess
Goldman Sachs' $2 billion commitment. As this Court previously held, "if
the documents portray a picture substantially different from that painted
by the plaintiff in the complaint, the court will base its decision on the
scenario supported by the complete exhibits." Hunter Envtl., 921 F. Supp.
at 918 (Squatrito, J.). Following the Court's request, RSC has finally
provided the exhibits to this Court. They reveal no misleading statement or
omitted fact the disclosure of which "would have been viewed by the
reasonable investor as having significantly altered the 'total mix' of
information made available." TSC Indus., Inc. v. Northway, Inc., 426 U.S.
438, 449 (1976). Accordingly, RSC has failed to state a claim against URI.
Even assuming arguendo that URI's public statements were
misleading -- and they were not -- RSC still fails to state a claim,
since the facts underlying these statements are fully disclosed in URI's
Schedule 14D-1 filing. See Macfadden Holdings, 802 F.2d at 71 (meaning of
tender offer disclosures concerning condition was clear and Court repeated
that it was '"not inclined to subject every tender offer to a nit-picking
judicial scrutiny which will in the long run injure shareholders by
preventing them from taking advantage of favorable offers."') (quoting
DataProbe Acquisition Corp. v. Datatab, Inc., 722 F.2d 1, 5 (2d Cir. 1983)
cert. denied, 465 U.S. 1052 (1984)); In re PHLCorp. Sec. Tender Offer
Litig., 700 F. Supp. 1265, 1269 (S.D.N.Y. 1988) (arguably false statement
in press release was not material where Offer to Purchase contained clear
representations of pertinent facts).
Similarly, RSC's claim that URI's press release and summary
advertisement materially omitted conditions of the Tender Offer is
baseless. See Hunter Envtl., 921 F. Supp. at 922 (Squatrito, J.) (failure
to disclose uncertainty of process to get permit was immaterial as a matter
of law since the information was credibly available from other sources);
Crouse-Hinds, 518 F. Supp. at 457 (any potential for confusion from the
necessarily selective disclosure required by summary publications is
obviated by the tender offering materials).
II. URI'S PUBLIC DISCLOSURES ADEQUATELY ADDRESS RSC'S
PERCEIVED VIOLATIONS OF SECTION 14 OF THE EXCHANGE ACT
RSC continues to ignore the fact that Amendment No. 5 to URI's
Schedule 14D-1 renders RSC's Exchange Act counterclaims moot by fully
disclosing RSC's and URI's positions concerning the financing, and
attaching RSC's counterclaims. "Where there is a genuine and vigorous
dispute as to the fact that illegal conduct occurred, only a good faith
disclosure of the issue and the possible liability of the offeror is
required by the Williams Act." Revlon, Inc. v. Pantry Pride, Inc., 621 F.
Supp. 804, 812 (D. Del. 1985) (disclosure of allegations of complaint in
tender offer was adequate) (citing Avnet, Inc. v. Scope Indus., 499 F.
Supp. 1121, 1124-1126 (S.D.N.Y. 1980)); see Abramson v. Nytronics, Inc.,
312 F. Supp. 519, 524-26 (S.D.N.Y. 1970) ("[r]egardless of the accuracy or
completeness of the original proxy statement," disclosure requirements were
met by letter quoting verbatim allegations of complaint).(8)
RSC finds no support from Blanchette v. Providence & Worcester
Co,, 428 F. Supp. 347 (D. Del. 1977). See RSC Opp. at 14. The court there
required express disavowal in a subsequent letter to shareholders because
the earlier Prospectus was found to have contained a statement that "was
untrue." 428 F. Supp. at 353-354 (emphasis added). Here, RSC, at best, has
merely alleged misleading statements or omissions.
- --------------------------
(8) See Burlington Indus. Inc., v. Edelman, 666 F. Supp. 799, 808
(M.D.N.C. 1987) (attaching copy of complaint alleging insider trading to
amended filings adequately disclosed receipt of inside information), aff'd
mem., No. 87-1622(L), 1987 WL 91498 (4th Cir. June 22, 1987).
Finally, RSC argues in vain that URI's Amendment No. 5 failed
to cure any alleged misrepresentations or omissions because it was filed
two weeks after the Offer to Purchase, during which time shares may have
been tendered. RSC Opp. at 15. As is clear from the Offer to Purchase,
tendered shares could and still can be withdrawn. Offer to Purchase at 12
(RSC App. Ex. No. 3).
CONCLUSION
For the foregoing reasons and the reasons set forth in
plaintiffs'-counter defendants' opening memorandum, this Court should
dismiss RSC's amended counterclaims, with prejudice.
PLAINTIFFS-COUNTER DEFENDANTS UR ACQUISITION
CORPORATION and UNITED RENTALS, INC. and COUNTER-
DEFENDANTS BRADLEY JACOBS, RICHARD HECKMANN,
WAYLAND HICKS, JOHN MILNE, MICHAEL NOLAN AND
GERALD TSAI, JR.
By: /s/ Robin L. Smith
---------------------------------------
Thomas J. Groark, Jr. (ct04245)
Rihard M. Reynolds (ct06124)
Phlip S. Wellman (ct09636)
Robin L. Smith (ct13345)
DAY, BERRY & HOWARD LLP
City Place I
Hartford, Connecticut 06103
(860) 275-0100
OF COUNSEL:
Jay B. Kasner
Clifford H. Aronson
Steven J. Kolleeny
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- - - - - - - - - - - - - - - - - - - -x
UR ACQUISITION CORPORATION : CIVIL ACTION NO.
and UNITED RENTALS, INC. 399CV00625 (DJS)
:
Plaintiffs,
:
V.
:
JAMES L. KIRK, RENTAL SERVICE JUNE 2, 1999
CORPORATION and NATIONSRENT, INC. :
Defendant. :
- - - - - - - - - - - - - - - - - - - -x
RSC'S SURREPLY IN OPPOSITION TO URI'S MOTION TO DISMISS
TABLE OF CONTENTS
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
II. URI OMITTED AND MISSTATED THE CONDITIONAL NATURE OF ITS
OFFER AND FINANCING IN VIOLATION OF SECTION 14 . . . . . . . . . . . 3
III. URI BURIES THE CONDITIONAL NATURE OF ITS FINANCING AND OFFER . . . . 7
IV. URI'S MISSTATEMENTS AND OMISSIONS ARE MATERIAL . . . . . . . . . . 10
V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
I.
INTRODUCTION
URI's argument in support of its motion to dismiss boils down to
"nothing is perfect." URI asks the Court not to carefully scrutinize its
statements made in connection with the Offer. URI also argues that if its
initial statements were not entirely forthcoming, there is still no harm
because URI's fifth amendment to the Offer provided the requisite
disclosures. This is hardly a compelling defense.
RSC's counterclaim and supporting exhibits present a clear violation
of Section 14. First, URI announced its Offer through various press
releases, public statements and advertisements that are designed to reach
the largest number of investors. In these announcements, URI promoted its
Offer based on the fact that it is "all cash," "fully financed" and offers
"certainty" with "no lingering doubt." Although some conditions to the
Offer were discussed in these announcements, financing was not. In fact,
URI's Summary Advertisement in the Wall Street Journal provided a seemingly
comprehensive list of seven key conditions of the Offer, but financing was
not one of them. URI knew that these were the documents and disclosures
that the investing public would actually read, and that it was unlikely
that even a fraction of RSC stockholders would read URI's Tender Offer from
cover to cover.
While promoting its "all cash" Offer based on its "certainty," URI
buried its cursory disclosures that the financing and the Offer generally
were so conditional that URI had virtually unfettered discretion to proceed
or not. URI's Offer to Purchase listed the same key conditions from the
Summary Advertisement on the first page (plus an additional condition),
further confirming that these were the fundamental conditions to the Offer.
The Introduction further discussed these same conditions of the Offer in
greater detail. There was no discussion about the financing condition
there. Instead, investors were referred to Section 14, which contains a
single sentence concerning financing in its last section. This single
sentence did not clearly state that financing was conditional.
If they knew what they were looking for at the start, investors might
have had the persistence and fortitude to jump from the Introduction to
Section 14, to the Exhibits, and back to Section 10, and they might have
pieced together the conditional nature of URI's financing. Simply put,
this type of fragmentation and circumlocution is not appropriate given the
emphasis that URI placed on the financing and certainty of the Offer in its
promotions. RSC had adequately alleged URI's conduct and has stated a
viable claim. URI has offered no reason for this Court to terminate RSC's
claim as a matter of law.
II.
URI OMITTED AND MISSTATED THE CONDITIONAL NATURE OF ITS
OFFER AND FINANCING IN VIOLATION OF SECTION 14
Recognizing its obvious application here, URI strains to distinguish
Chris-Craft Industries v. Piper Aircraft Corp., 480 F.2d 341, 365 (2d Cir.
1973) by arguing that the "put" option in Chris-Craft was "unusual" and a
"desperate" act, while the conditions to URI's Tender Offer and its
financing are "customary." (Reply, p. 3) At the outset, it should be
noted that this type of self-serving assertion of fact cannot support a
motion to dismiss; rather, all factual presumptions must be made in favor
of RSC's counterclaim.
More fundamentally, URI's argument is contrary to the holding in
Chris-Craft:
"We agree with the district court's conclusion that the
agreement was not a 'sham' and that the 'put' was a
rational and logical part of the agreement. But
Piper's failure to describe the put in its press
release, or in its subsequent letter to shareholders,
constituted a material omission in violation of section
14(e)."
Id. at 365. Here, URI not only omitted the required disclosure (or buried
it in the back of its lengthy filing), but affirmatively represented in
press interviews that its offer was "fully financed" and "all cash,"
offering greater "certainty" to RSC's stockholders.
URI's conclusory assertion that the conditions to its Tender Offer are
customary is also illogical. Far from "routine" as URI claims, the
conditions of the Tender Offer are so extreme that the Offer is essentially
illusory. For example, both URI's Tender Offer and its financing are
conditioned on the absence of any litigation that might materially impact
URI or RSC. Section 14(a) states that the Offer is conditioned upon the
absence of any actual or threatened litigation that might challenge or
impede URI's Offer. Apparently, this very case (as well as the action in
Delaware state court) could trigger this condition and nullify the Offer.
Of course, that is exclusively URI's decision. The Offer states that
whether a such a litigation exists (or a host of other conditions) is
determined by URI, in its sole discretion. In fact, URI's own conduct may
give rise to one of the conditions that would nullify the Offer:
"[URI may rescind the Offer] in the sole judgment of
[URI] in any such case, and regardless of the
circumstances (including any action or inaction by
[URI]), giving rise to any such condition, makes it
inadvisable to proceed with the Offer and or with such
acceptance for payment or payment."
(RSC Exh. 3, p. 30.)
Concurrent with the announcement of its Offer, URI filed an action in
Delaware, and two days later it filed this action; both of these actions
relate to the Offer and virtually guaranteed that RSC or NationsRent would
at least threaten a responsive action that would nullify the Offer. As a
result, the Offer was essentially conditional from minute one. That is not
customary.
URI apparently thinks that "customary" and "standard" conditions are
never actually satisfied. The first deadline for the Offer (April 30)
occurred nearly one month ago, and the conditions for the Offer and its
financing have still not been satisfied. URI's silence on this point
speaks volumes.
Next, URI tries to distinguish Chris-Craft's disapproval of Piper's
press release because the list of conditions contained in it gave an
appearance of exclusivity, but did not reveal the put option. Id. at 365.
URI argues that its list of conditions was expressly not exclusive, so
Chris-Craft does not apply. (Reply, p. 5.) Again, URI ignores the express
language of Chris-Craft:
"The [press] release did reveal that the agreement was
subject to the approval of the Piper and Grumman boards
as well as other conditions. The published list of
conditions [in Piper's press release] gave the
appearance of being exclusive, thus solidifying the
impression that the sale was all but formally
completed."
Id.
URI's Summary Advertisement and Tender Offer are even worse than the
press release struck down in Chris-Craft. Here, URI displayed its list of
conditions twice, in two separate documents, thereby giving an even
stronger impression that that list was the exclusive list of conditions.
URI also claims that its failure to include the financing condition in
the list was justifiable because not every condition needs to be disclosed
in summary materials. This argument is specious. First, including one
more sentence in the Summary Advertisement or the first page of the Offer
would not impose an onerous burden on URI. More importantly, URI's
decision not include the financing condition illustrates its intent to
create an illusory offer that is at the very heart of RSC's claims. URI
promoted its Offer based on the fact that it was "all cash," "fully
financed" and provided "certainty." But when it is time to disclose the
conditions of the Offer, financing is not important enough to make it on
the list. This classic "bait and switch" scheme is misleading investors.
III.
URI BURIES THE CONDITIONAL NATURE OF ITS
FINANCING AND OFFER
URI concedes that the Second Circuit has adopted the Buried Facts and
Similar Emphasis Doctrines (Reply, p. 6), but nevertheless claims that it
has not violated these restrictions. The cases cited by URI do not support
its argument. Rather, they further establish that it is a violation of the
securities laws to give important items "cavalier treatment." Greenapple
v. Detroit Edison Co., 616 F.2d 198, 210 (2d Cir. 1980). URI's reliance on
Greenapple is misplaced. There, the Second Circuit addressed a motion for
summary judgment (not a motion to dismiss) attacking plaintiff's Section 11
claim (plaintiff conceded there was no scienter) based on plaintiff's
allegation that defendant's adherence to a government mandated accounting
technique was misleading. Plaintiff argued that Edison's listing of a
balancing accounting entry (the AFDC) as "other income" was misleading.
The court held:
"In preparation of the prospectus, Detroit Edison
adhered to a government mandated accounting system,
whose principles have long been recognized as
appropriate to regulated industries. It made a fair
disclosure of unsurpassed depth. It received the
assistance of both the SEC and FPC and its discussion
of AFDC was approved by those agencies. Under all the
circumstances, we find that the prospectus was not
materially misleading. . . ."
Id. at 211 (emphasis added).
Although the Second Circuit held that Edison's use of the government
mandated accounting technique was not misleading, the court also stated
that:
"[T]he intended audience will be extremely broad,
encompassing both sophisticated financial analysts and
untutored lay persons. As the principal goal of the
Securities Act is disclosure, close questions will
generally be resolved in favor of the inclusion of
information. . . . The import of the information
conveyed must be neither oversubtle nor overplayed, its
meaning accurate, yet accessible."
Id. at 210 (citations omitted). (1)
URI's reply brief merely confirms that its earlier statements did not
satisfy this standard. While URI's Chairman and CEO touted its Offer as
"all cash" and "fully financed," URI's 14D-1 buried the conditional nature
of its financing and its Offer. URI's reply brief tries to describe its
disclosures in the best light possible, but in doing so it underscores the
fragmented and circuitous nature of the inadequate disclosures. (Reply, p.
6.) For example, URI claims that the Introduction to the Offer adequately
disclosed the financing condition. (Id.) But the opposite is true. The
Summary Advertisement listed seven key conditions to the Offer. Those
seven (plus an additional one) are repeated in bold print on the first page
of the Offer. Then, the Introduction describes each of these eight
conditions, again in bold print, in a six-page section describing the
conditions of the Offer.
-----------------------------
(1) URI's reliance on I. Meyer Pincus & Assoc. v.
Oppenheimer & Co., 936 F.2d 759 (2d Cir. 1991) is
also misplaced. There, the plaintiff alleged that
defendant's statement that closed-end stocks fre-
quently trade at a "discount or a premium" to their
value was misleading because it suggested that the
stock traded at a premium. The court rejected
plaintiff's claim, finding the statement to be
accurate and cautious. Id. at 763. That case is
clearly distinguishable from the present case. RSC
is not alleging that a statement which clearly
includes both positive and negative statements is
merely disclosing the positive components and "buy-
ing" the negative components. Unlike I. Meyer, URI
initially promoted its Offer based on the fact that
it was "all cash," "fully financed" and provided
"certainty" and did not place equal emphasis on the
conditions to those statements. If the defendant in
I. Meyer had first promoted its stock as likely to
achieve a premium through repeated public state-
ments, the court would no doubt have reached a
different conclusion.
Financing is not one of the conditions, nor its it described in bold
print like the others. Rather, at the very end, between two bold printed
statements, there is a sentence that says the Offer is subject to other
conditions described in Section 14, including financing. It also says that
these conditions may be waived by URI. This a perfect example of a
violation of the Buried Fact and similar Emphasis Doctrines.
It does not end there. Section 14 of the Offer describes ten more
conditions to the Offer in a densely worded four page section. At the very
end, there is one sentence:
"(j) Borrower shall not have received the financing
for the Offer and the Proposed Merger pursuant to the
Commitment Letter;"
(RSC Exh. 3, p. 30.) This sentence does not sufficiently emphasize this
condition in proportion to the emphasis that URI gave in promoting the
Offer as "all cash" and "fully financed." Indeed, this single sentence
does not reveal the conditional nature of the financing at all. Instead, a
more reasonable interpretation of this sentence in context is that this is
merely a hypothetical possibility that might nullify the Offer. URI does
not reveal the truly conditional nature of the financing through this
single cryptic sentence. The Offer requires investors to jump from section
to section and infer volumes of important information from cursory
references. This is precisely the type of fragmentation and circumlocution
that courts have repeatedly struck down. URI does not offer any reason to
dismiss this claim as a matter of law.
IV.
URI'S MISSTATEMENTS AND OMISSIONS ARE MATERIAL
URI ultimately argues that if it made omissions and misstatements
concerning the conditional nature of its financing and Offer, that such
wrongful acts were not material and therefore are not actionable. (Reply,
p. 8.) URI's argument that the financing and conditional nature of the
Offer are not material is incorrect. Indeed, this argument is contrary to
URI's own promotion of its Offer, which centered on the alleged financing
and certainty of the Offer.
The cases cited by URI do not support its argument. In both MacFadden
Holdings, Inc. v. JB Acquisition Corp., 802 F.2d 62 (2d Cir. 1986) and In
re PHLCORP Sec. Litig., 700 F. Supp. 1265 (S.D.N.Y. 1988), the courts held
that clear, prominent disclosures prohibited any reasonable investor from
being misled. In PHLCORP, the court dismissed plaintiffs' claim based on
the directors' conflict of interest because "defendants prominently
disclosed the conflicts of interest." However, the court upheld
plaintiffs' Section 14 claim based on defendant's failure to include
appraisal information. Even though the SEC historically did not require
such information, the court held that:
"In general, reliable information going to the
financial condition of a company must be disclosed
especially if the same material or equally valuable
material is not otherwise available."
Id. at 1272. See also In re Hunter Environmental Services, Inc. Sec.
Litig., 921 F. Supp. 914, 922 (D. Conn. 1996) (applying the higher standard
of scrutiny under the Reform Act, the court held that the defendant made
repeated disclosures in June, November and December 1992 which prevented
any omission in an October 1992 press release from being material).
In MacFadden, the court found that the defendant "consistently
represented that the offer and withdrawal period would expire at a fixed
time on a specific date." Id. at 71. In fact, defendant provided that
information:
"from the very inception of [the] offer. . . . The
statement . . . was printed on the cover of the June
5th Offer in bold-faced, capital letters. . . . [I]t
again informed the shareholders . . . by printing the
exact time and date . . . on the cover of the June 19th
Supplement in bold-faced capital letters. Similarly,
the press release referred only to a specific time and
date."
Id.
In our case, URI did just the opposite. URI's press releases and
Summary Advertisement did not disclose the financing condition at all, and
its later disclosures did not disclose the financing condition along with
the other conditions, in bold-faced capital letters, but buried this
condition through repeated short cross-references. The information
regarding URI's financing for the Offer was exclusively in URI's possession
and would clearly affect a reasonable investor's decision concerning the
Offer. There was no alternative source or earlier disclosure for such
information as in Hunter or PHLCORP. Thus, URI's suggestion that its
misstatements and omissions were not material is without merit.
URI's argument that its fifth amendment to the Schedule 14D-1 corrects
the false impression is also incorrect and illogical. URI's fifth
amendment does nothing more than attach the pleadings from this action that
suggest the parties have a dispute. URI does not provide any definitive
information regarding the conditionality of its Offer or its financing.
Not surprisingly, the cases cited by URI do not support its absurd
assertion that it can omit and misstate material facts, but correct such
omissions and misstatements by merely filing the parties' pleadings. In
Revlon, Inc. v. Pantry Pride, Inc., 621 F. Supp. 804, 812 (D. Del. 1985),
Revlon claimed that Pantry Pride's July prospectus was unlawful and created
potential liability for the company that should have been disclosed in
Pantry Pride's later tender offer for Revlon. The court held that Pantry
Pride's disclosure of the dispute regarding its July prospectus was
adequate, and an admission of guilt was not required where the underlying
charge was disputed. Id. at 812-813.
Revlon supports the very rule stated in RSC's opposition. If there is
an underlying disputed claim, then the offeror need only disclose the
existence of the claim. But Revlon does not support URI's position that it
can remedy its defective Offer to Purchase, omitting and misstating
material facts, by merely acknowledging a dispute. Such a disclosure does
not give the investor any useful information. See also Abramson v.
Nytronics, Inc., 312 F. Supp. 519, 524 (S.D.N.Y. 1970) (addressing a target
corporation's duty to respond to a tender offer through a 14D-9, holding
that the corporation's recommendations need not present "an exhaustive,
dispassionate, and evenly balanced presentation of conflicting
interpretations of the facts").
As in Blanchette v. Providence & Worchester Co., 428 F. Supp. 347, 354
(D. Del. 1977), URI's supplemental statement cannot correct an earlier
inadequate disclosure unless it clearly identifies and "disavows" the
misleading statement. Any other rule would create an unworkable result
where a tender offeror could conceal material facts, then after it is sued
for issuing an unlawful offer, it could merely disclose the litigation.
This type of disclosure is clearly contrary to the purpose of the
securities laws to ensure reliable information that can assist the
investor's decision.
Far from "disavowing" its earlier misleading statements and correcting
the deficiencies described in RSC's pleadings, URI's fifth amendment states
that URI vigorously disputes the allegations in RSC's counterclaim. Thus,
an investor reading URI's fifth amendment is not any better informed about
the conditional state of URI's financing and Offer.
V.
CONCLUSION
For the foregoing reasons, URI's motion to dismiss should be denied.
DEFENDANT AND COUNTERCLAIMANT
RENTAL SERVICE CORPORATION
By: /s/ Mark V. Connolly
----------------------------------------
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, (860) 725-6200
Suite 4000 Fax: (860) 278-3802
Los Angeles, CA 90071 Its Attorneys
(213) 485-1234
CERTIFICATION
This is to certify that on June 2, 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 2nd day of June, 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/ Mark V. Connolly
-------------------------------
Mark V. Connolly
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- - - - - - - - - - - - - - - - - - - -x
UR ACQUISITION CORPORATION : CIVIL ACTION NO.
and UNITED RENTALS, INC. 399CV00625 (DJS)
:
Plaintiffs,
:
-against-
:
JAMES L. KIRK, RENTAL SERVICE JUNE 2, 1999
CORPORATION and NATIONSRENT, INC. :
Defendants. x
- - - - - - - - - - - - - - - - - - - -
RSC'S MEMORANDUM IN RESPONSE TO
URI'S NOMINEE AFFIDAVITS
On April 19, 1999, URI filed a preliminary consent solicitation with
the SEC, seeking to nominate its own board members to the board of
directors for its competitor, RSC. This was a clear violation of Section 8
of the Clayton Act, 15 U.S.C. section 19, which prohibits interlocking
directorates of competing companies. On April 22, RSC filed a counterclaim
and motion for preliminary injunction against URI.
In response, URI declared that its original nominees were appropriate
but it nevertheless proposed new nominees who were hand picked by URI, had
already agreed to support URI's tender offer for RSC, and would be paid
$25,000 merely for agreeing to stand for election. The only thing that URI
disclosed about the new nominees was that they are not presently officers
or directors of URI, so the new nominees may still violate the Clayton Act
if they have a business relationship with URI. See Square D Co. v.
Schneider S.A., 760 F. Supp. 362, 366 (S.D.N.Y. 1991) (holding that
defendants cannot "evade section8 liability simply by calling its agents on
the competitor's board something other than either officers or
directors."); Treves v. Servel, Inc., 244 F. Supp. 773, 776 (S.D.N.Y. 1965)
(refusing to dismiss Section 8 claim on the merely because interlocking
directors resigned on the ground that defendant had not satisfied its heavy
burden of proving action would not be repeated).
On May 19, 1999, this Court ordered URI to produce affidavits on May
28, 1999, from each of its newly proposed nominees, describing any business
relationship between the nominees (or any of their close family members)
and URI or any of URI's officers or directors. Rather than issue a written
order, the Court relied on URI's good judgment to produce thorough
affidavits that would address the issues raised in RSC's counterclaim and
motion for preliminary injunction. The Court stated:
"Because I'm not going to write an order to that
effect, you should get a copy of the record here, and
I'm going to rely on your good judgment to be overly
careful on what you provide, rather than parsimonious.
The more you supply and the more I feel satisfied that
these are clean as the pure driven snow, the less
problem we're going to have. It will prevent everybody
from going to the next stage on this one issue."
(May 19, 1999 Court Transcript, p. 34, 1.3 - 10) (emphasis added).
Unfortunately, the URI nominee affidavits do not provide the necessary
information. The affidavits state in conclusory form that there is no
current employment relationship between URI and the nominees, without
revealing any factual basis for such conclusions. Even more troubling, the
affidavits are all written in the present tense, and fail to disclose if
there is any historic relationship between URI (or any its predecessors,
affiliates, directors or officers and any of the nominees). A historic
business relationship that was terminated just prior to the candidates'
nomination is precisely the type of relationship that the affidavits were
intended to disclose, but do not.
For example, as drafted, the affidavits do not disclose that David A.
Bonner's law firm (Katten Muchin & Zavis) performed an extensive amount of
work for URI's Chairman and CEO Bradley Jacobs and his predecessor company,
United Waste. RSC is informed and believes that such a long standing
business relationship exists, but the affidavit does not disclose it.
Indeed, none of the affidavits address a former or current relationship
between the nominees and United Waste, even though this issue was expressly
raised at the May 19, 1999 hearing:
MR. RAPPEL: I wanted to include a predecessor which
was managed by United Rentals' chairman up until a
couple of years ago, a company called United Wastes
Systems, Inc.
***
THE COURT: I'm trying to define business relationship
as any kind of a legal or beneficial relationship in
any entity, other than just being a stockholder in the
same corporation that's a public corporation that
neither of them control or are officers or directors
of. For example, they both own shares of stock in
General Motors. That's not enough, unless they're on
the board of General Motors or a significant holder,
like maybe Mr. Perot was.
(Court Transcript, p. 32, 1.3 - 6, p. 33, 1.5 - 13.)
Another deficiency throughout the affidavits is that they "protest too
much" because they deny any relationship at all, implying that the nominees
were selected virtually at random. These nominees were not selected at
random, so there is some undisclosed relationship. The affidavit of
Raymond Troubh provides a good example. Mr. Troubh declares that he is a
director of Triarc Companies, Inc. and that Gerald Tsai, a director of URI,
is also on the Triarc board. Incredibly, Mr. Troubh declares that he never
discussed URI with Mr. Tsai. Moreover, the declaration is silent on
whether Messrs. Troubh and Tsai have ever discussed RSC. This type of
conclusory, selective disclosure is the very definition of parsimonious.
In short, the nominee affidavits do not make the requisite disclosures
and further evidence the need for RSC to take limited expedited discovery
on this issue in order to definitively resolve this portion of the case.
URI has squandered the opportunity to resolve this matter on an expedited
basis with its affidavits. To prevent a potential violation of the Clayton
Act, RSC should be authorized to proceed with short (one half day)
depositions of the nominees immediately.
DEFENDANT AND COUNTERCLAIMANT
RENTAL SERVICE CORPORATION
By: /s/ Mark V. Connolly
----------------------------------
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, (860) 725-6200
Suite 4000 Fax: (860) 278-3802
Los Angeles, CA 90071 Its Attorneys
(213) 485-1234
CERTIFICATION
This is to certify that on June 2, 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 2nd day of June, 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/ Mark V. Connolly
--------------------------------------
Mark V. Connolly
