Item 5.02. Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers.
On
March 10, 2008, the compensation committee of the board of directors (the
Committee) of United Rentals, Inc. (the Company) took the following
actions:
I. The Committee made the following
determinations for 2008 relating to the United Rentals, Inc. Annual Incentive
Compensation Plan (the Plan):
A.
The following executive officers of the Company (the Executive Officers) are
eligible to earn bonuses under the Plan during 2008: (i) Michael Kneeland,
interim chief executive officer; (ii) Martin Welch, executive vice
president and chief financial officer; (iii) Roger Schwed, executive vice
president and general counsel; and (iv) Kurt Barker, executive vice president
corporate services.
B.
The payment of bonuses under the Plan in respect of 2008 will be based on the
Companys achievement of objective performance goals measured by the following
business criteria: (i) earnings before interest, taxes, depreciation and
amortization (EBITDA) (45% weight); (ii) earnings per share (20% weight);
(iii) free cash flow (20% weight); and (iv) return on invested
capital (ROIC) (15% weight). All four goals are subject to the following
adjustments, as determined by the Committee in good faith, to the extent
applicable to the calculation of the measure: (a) any non-cash goodwill
writeoffs, (b) extraordinary gains and losses, (c) charges related to debt
refinancings, and (d) any item of nonrecurring gain or loss in excess of $2
million. In addition, the Committee can equitably adjust any measure to take
into account any change in control, change in accounting principles or other fundamental
change that renders the measure no longer comparable to the
original performance goal. The Company calculates EBITDA as the sum of income from
continuing operations before provision for income taxes, interest expense, net,
interest expense-subordinated convertible debentures, depreciation-rental
equipment and non-rental depreciation and amortization. The Company calculates
free cash flow as (x) net cash provided by operating activities continuing
operations less (y) purchases of rental and non-rental equipment plus (z)
proceeds from sales of rental and non-rental equipment and excess tax benefits
from share-based payment arrangements. The Company calculates ROIC as annual
operating income divided by the annual averages of stockholders equity, debt
and deferred taxes, net of average cash.
C.
In the case of the Company performance goals described above, the target payout
level has generally been set to correlate with either the top or mid-point,
depending on the measure, of the Companys public 2008 forecast ranges as of
the date of its most recent earnings call, February 29, 2008. Accordingly, (i)
the EBITDA target is $1.21 billion, the top of the Companys 2008 EBITDA public
forecast range of $1.17 billion to $1.21 billion; (ii) the earnings per share
target is $3.00, the top of the Companys 2008 earnings per share public
forecast range of $2.80 to $3.00; (iii) the free cash flow target is $350
million, the mid-point of the Companys 2008 free cash flow public forecast
range of $325 million to $375 million; and (iv) the ROIC target is 15.2%, which
correlates to an ROIC consistent with the top of the Companys 2008 EBITDA
public forecast range. Minimum thresholds have also been set for each Company
performance goal, below which no amounts will be paid under the Plan for 2008
with respect to such measure. These thresholds are respectively: (i) $1.17
billion for EBITDA; (ii) $2.80 for earnings per share; (iii) $310 million for
free cash flow; and (iv) 14.8% for ROIC. Maximum thresholds, at or above which
the maximum bonus amount will be paid, have also been set and respectively
are: (i) $1.25 billion for EBITDA; (ii)
$3.15 for earnings per share; (iii) $380 million for free cash flow; and (iv)
15.5% for ROIC. Achievements of performance goal levels between the minimum and
maximum thresholds will result in interpolated bonus amounts.
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D.
The target and maximum bonus amounts under the Plan for 2008 are as follows:
(i) for Mr. Kneeland, the target is 125% and the maximum is 150% of
$525,000 base salary; (ii) for Mr. Welch, the target is 90% and the
maximum is 125% of $562,500 base salary; (iii) for Mr. Schwed, the target
is 90% and the maximum is 125% of $425,000 base salary; and (iv) for Mr.
Barker, the target is 90% and the maximum is 125% of $375,000 base salary.
II. The
Committee determined not to change the base salaries for any of the Executive
Officers for 2008.
III. The
Committee determined the extent to which 2007 performance goals under the Plan
were met and, accordingly, the level of earned cash bonuses for 2007 for each
of the Executive Officers, as well as the Companys former chief executive
officer, Wayland Hicks (who retired during 2007). These amounts were
respectively: (i) $331,827 for Mr. Kneeland; (ii) $475,847 for Mr. Welch; (iii)
$345,164 for Mr. Schwed; and (iv) $239,565 for Mr. Hicks (reflecting a pro rata
amount of his earned bonus, based on his retirement date of June 4, 2007). The
Committee also approved Mr. Barkers 2007 cash bonus level of $303,380, which
was based on the interim chief executive officers evaluation of Mr. Barkers
performance against certain pre-determined goals and objectives, and not
determined under the Plan because Mr. Barker had not been eligible to
participate in the Plan in 2007. In addition, the Committee determined to award
supplemental discretionary cash bonuses to Mr. Kneeland, in the amount of
$318,173, and to Mr. Schwed, in the amount of $129,836. The Committee believed
these amounts were appropriate to account for the impact of the Companys
change in strategy in mid-2007 on previously established performance goals and
to maintain over-all equitable bonus levels among the Executive Officers.
IV. In
recognition of the fact that neither executive had received an equity grant in
2007, the Committee determined to award 80,000 restricted stock units (RSUs)
to Mr. Kneeland and 42,000 RSUs to Mr. Schwed under the Companys 2001
Comprehensive Stock Plan (the 2001 Plan). Thirty thousand of the RSUs granted
to Mr. Kneeland will vest on March 10, 2009, and the remaining 50,000 will vest
ratably in two equal installments on March 10 of each of 2010 and 2011. The RSUs granted to Mr.
Schwed will vest ratably in three equal installments on March 10 of each of
2009, 2010 and 2011. In addition, each
RSU grant agreement will provide that upon the executives death, Disability,
termination without Cause or
resignation for Good Reason (as such terms are defined in the
executives respective employment agreements), a pro rata number of the RSUs
scheduled to vest on the following March 10 will become vested. Also, upon a
Change in Control (which, as defined in the grant agreement, includes any
going-private transaction and other mergers and business combinations involving
the Company, but not one in which the voting securities of the Company
outstanding immediately beforehand continue to represent at least 50% of the
total voting power of the surviving entity) all of the RSUs that have not yet
vested will become vested. In recognition of the fact that Mr. Barker, when he
was promoted to executive vice president corporate services in 2007, received
a grant of 50,000 RSUs, he was not considered for an additional RSU grant in
2008. Similarly, because Mr. Welch, when he became permanent chief financial
officer in 2006, received a grant of 190,000 RSUs intended to cover all
long-term incentive compensation for a three-year period, he was not considered
for an additional RSU grant in 2008 (or a grant of the Units described below).
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V. The Committee
determined to award 105,000 long-term incentive units (Units) under the 2001
Plan to Mr. Kneeland, 58,000 Units to Mr. Schwed and 75,000 Units to Mr.
Barker. The Units, which are cash-settled, will cliff vest on December 31,
2010, with a value per Unit primarily based upon the extent to which the
Company has achieved or surpassed a target level of $3.648 billion in
cumulative EBITDA over the three-year period beginning January 1, 2008 and
ending December 31, 2010. The Unit value is then further adjusted depending
upon whether average EBITDA margin over the same three-year period falls below,
within or above a target range of between 34% and 35% (inclusive). The target
levels for cumulative EBITDA and average EBITDA margin have been set to be
consistent with the Companys announced goal of achieving an incremental $500
million in annual EBITDA within 5 years. Payment with respect to the Units will
be made in the first quarter of 2011 once the Committee certifies results.
At
the target level of cumulative EBITDA and within the target range of average
EBITDA margin, the value of each Unit at vesting will be $20.00. If, however,
the average EBITDA margin is below 34%, then the Unit value will be reduced by
multiplying it by .80. If, however, the average EBITDA margin is above 35%,
then the Unit value will be increased by multiplying it by 1.20. For each Unit,
a minimum threshold, of 5% less than the target cumulative EBITDA, has been set
below which the value of each Unit will be reduced to zero. A maximum
threshold, of 10% more than the target cumulative EBITDA, has also been set, at
or above which a multiplier will be applied to the target value of the Unit,
depending upon the average EBITDA margin. At average EBITDA margins below 34%,
between 34% and 35% (inclusive) and above 35%, the multipliers will be
respectively 1.33, 1.67 and 2.00. Achievements of cumulative EBITDA levels
between these minimum and maximum thresholds will result, for each of the three
possible average EBITDA margin outcomes (i.e., below the range, within the
range, or above the range) in interpolated amounts of Unit values, with the
maximum possible Unit value being $40.00 (at cumulative EBITDA above $4.013
billion and average EBITDA margin above 35%). In addition, each Unit award
agreement will provide that upon a termination without Cause or a resignation
for Good Reason (as such terms are defined in the executives respective
employment agreements) that occurs on or after 50% of the three-year
performance period has been completed (but not otherwise), then the Unit will
be settled at the end of the full performance period, but have the value
reduced proportionately to reflect the percentage of the performance period in
which the executive was employed. In the event of death or Disability of the
executive (but not retirement), the Unit will again be settled at the end of
the full performance period and have the value reduced proportionately to
reflect the percentage of the performance period completed prior to the death
or Disability, but without any requirement that at least 50% of the performance
period has been completed. In addition, each Unit award agreement will provide
that in the event of a Change in Control (as defined in the award agreement) at
any time during the performance period, each Unit will be settled immediately
upon such Change in Control and paid at the target Unit value of $20.00, but
reduced proportionately to reflect the percentage of the performance period
completed prior to such Change in Control.
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VI. The
Committee approved an amendment to Mr. Kneelands existing employment
agreement, which was then executed. The amendment provides that if Mr.
Kneelands employment is terminated either by the Company without Cause or by
Mr. Kneeland for Good Reason (as such terms are defined in the employment
agreement), then Mr. Kneelands post-employment non-competition period is
reduced from two years to one year, unless the Company provides him with
written notice, within 90 days following such termination, that the duration is
to remain at two years. During any such period, the amendment clarifies that
Mr. Kneeland, in addition to receiving his base salary, shall receive a bonus
amount equal to his target bonus allocation under the Plan as in effect at the
time of such termination. Finally, the amendment clarifies that Good Reason
shall not exist for Mr. Kneeland simply if he does not obtain the Companys
permanent chief executive officer position that is the subject of a previously
announced executive search process (or does not retain duties or
responsibilities assigned to him during his tenure as interim chief executive
officer).
The
foregoing summary of the amendment is qualified in its entirety by the full
text of the amendment, which is attached hereto as Exhibit 10.1 and
incorporated herein by reference.