UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

 

Filed by the Registrant x

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o    Preliminary Proxy Statement

 

o    Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x    Definitive Proxy Statement

 

o    Definitive Additional Materials

 

o    Soliciting Material Pursuant to § 240.14a-12

 

United Rentals, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNITED RENTALS, INC.
Five Greenwich Office Park
Greenwich, Connecticut 06831

 

March 31, 2010

 

Dear Fellow Stockholders:

 

You are cordially invited to attend this year’s annual meeting of stockholders, which will be held on Tuesday, May 11, 2010, at the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich, Connecticut. The meeting will start at 10:00 a.m., Eastern time.

 

Enclosed you will find a notice setting forth the business expected to come before the meeting, the proxy statement, a proxy card and a copy of our annual report to stockholders for the fiscal year ended December 31, 2009.

 

Your vote is important. Whether or not you intend to be present at the meeting, it is important that your shares be represented. Voting instructions are provided on your proxy card and in the accompanying proxy statement. We encourage you to submit your proxy and vote via the Internet, by telephone or by mail.

 

Thank you for your continued support.

 

Sincerely,
JENNE K. BRITELL		MICHAEL J. KNEELAND
Chairman		Chief Executive Officer

 

UNITED RENTALS, INC.
Five Greenwich Office Park
Greenwich, Connecticut 06831

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

TO OUR STOCKHOLDERS:

 

The annual meeting of stockholders of United Rentals, Inc. will be held at the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich, Connecticut, on Tuesday, May 11, 2010, at 10:00 a.m., Eastern time, for the following purposes:

 

 

The meeting may be adjourned or postponed from time to time. At any reconvened or rescheduled meeting, action with respect to the matters specified in this notice may be taken without further notice to stockholders, except as may be required by our by-laws. Stockholders of record at the close of business on March 15, 2010 are entitled to notice of, and to vote on, all matters at the meeting and any reconvened or rescheduled meeting following any adjournment or postponement.

 

March 31, 2010

 

By Order of the Board of Directors,

 

JONATHAN M. GOTTSEGEN
Corporate Secretary

 

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on Tuesday, May 11, 2010. The Notice of and Proxy Statement for the 2010 Annual Meeting of Stockholders and the Company’s 2009 Annual Report to Stockholders are available electronically at http://www.ur.com/index.php/investor/.

 

Table of Contents

 

UNITED RENTALS, INC.
Five Greenwich Office Park
Greenwich, Connecticut 06831

 

March 31, 2010

 

PROXY STATEMENT

 

We are providing this proxy statement in connection with the solicitation by the Board of Directors (the “Board”) of United Rentals, Inc. (the “Company”) of proxies to be voted at our 2010 annual meeting of stockholders to be held at the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich, Connecticut, on Tuesday, May 11, 2010, at 10:00 a.m., Eastern time, and at any reconvened or rescheduled meeting following any adjournment or postponement. This proxy statement and the accompanying form of proxy card, together with our 2009 annual report to stockholders, are first being mailed to stockholders on or about March 31, 2010.

 

This proxy statement contains important information for you to consider when deciding how to vote. Please read this information carefully.

 

Record Date

 

The record date for determining stockholders entitled to notice of, and to vote at, the annual meeting (and at any reconvened or rescheduled meeting following any adjournment or postponement) has been established as the close of business on March 15, 2010.

 

Voting Securities Outstanding on Record Date

 

As of the record date, there were 60,403,509 shares of our common stock outstanding and entitled to vote. From May 1 to May 10, 2010, a list of the stockholders entitled to vote at the annual meeting will be available for inspection during ordinary business hours at our principal executive offices located at Five Greenwich Office Park, Greenwich, Connecticut. The list will also be available at the annual meeting.

 

Right to Vote

 

With respect to each matter properly brought before the annual meeting, each holder of our common stock as of the record date will be entitled to one vote for each share held on the record date.

 

Voting

 

Voting Before the Annual Meeting

 

If you are a stockholder of record, meaning that you hold your shares in certificate form or through an account with our transfer agent, American Stock Transfer & Trust Company, you have three options to vote before the annual meeting:

 

 

 

If you hold your shares in “street name” through an account with a bank or broker, you will receive voting instructions from your bank or broker.

 

Voting at the Annual Meeting

 

If you are a stockholder of record, you may vote your shares at the annual meeting if you attend in person. If you intend to vote your shares at the annual meeting, you will need to bring with you valid picture identification. We will confirm that you were a stockholder of record on the record date and will provide you with a blank proxy card, which will serve as a ballot on which to record your vote.

 

If you hold your shares in “street name,” you must obtain a legal proxy from your bank or broker in order to vote at the annual meeting. A legal proxy is an authorization from your bank or broker to vote the shares it holds in its name. In addition to a legal proxy, you will need to bring with you valid picture identification and a recent account statement from your bank or broker, confirming your holdings on the record date. Based on these documents, we will confirm that you have proper authority to vote and will provide you with a blank proxy card to serve as a ballot.

 

Even if you plan to attend the annual meeting, we encourage you to vote your shares before the meeting via the Internet, by telephone or by mail.

 

Directions to the annual meeting are available by calling the Hyatt Regency Greenwich at 1-203-637-1234 or visiting its website at http://greenwich.hyatt.com/hyatt/hotels/services/maps/index.jsp.

 

Failure to Provide Specific Voting Instructions

 

If you are a stockholder of record and you properly sign, date and return a proxy card, but do not indicate how you wish to vote with respect to a particular nominee or proposal, then your shares will be voted FOR the election of such nominee or FOR the approval of such proposal. If you indicate a choice with respect to any matter to be acted upon when voting via the Internet (or by telephone or on your returned proxy card) and you do not validly revoke it, your shares will be voted in accordance with your instructions. If you do not vote via the Internet or by telephone, or sign, date and return a proxy card, you must attend the annual meeting in person in order to vote.

 

If you hold your shares through an account with a bank or broker, your shares may be voted by the bank or broker if you do not provide specific voting instructions. Banks and brokers have the authority under New York Stock Exchange rules to vote shares for which their customers do not provide voting instructions on routine matters. The proposal to ratify the appointment of our independent auditors is considered a “discretionary” item under NYSE rules. This means that banks and brokers may vote in their discretion on this matter on behalf of clients who have not furnished voting instructions at least ten days before the date of the annual meeting. However, some brokers will only vote uninstructed shares in the same proportion as all other shares are voted with respect to a proposal.

 

In a change from prior years, as a result of amendments to NYSE rules, the proposal to elect directors is a non-routine matter for which brokers do not have discretionary voting power and for which specific instructions from beneficial owners are required. Furthermore, the proposal to approve our 2010 Long Term Incentive Plan is a non-routine matter for which specific instructions from beneficial owners are required. As a result, brokers are not allowed to vote on the election of directors or the proposal to approve our 2010 Long Term Incentive Plan on behalf of beneficial owners if such owners do not return specific voting instructions.

 

Quorum

 

The presence at the annual meeting, in person or represented by proxy, of a majority of the outstanding shares entitled to vote will constitute a quorum for the transaction of business. If a share is deemed present at the annual meeting for any matter, it will be deemed present for all other matters. Abstentions are treated as present for quorum purposes.

Right to Revoke Proxies

 

If you are a stockholder of record (even if you voted via the Internet, by telephone or by mail), you retain the power to revoke your proxy or change your vote. You may revoke your proxy or change your vote at any time prior to its exercise by (i) sending a written notice of such revocation or change to United Rentals, Inc., Five Greenwich Office Park, Greenwich, Connecticut 06831, Attention: Corporate Secretary, which notice must be received by 5:00 p.m., Eastern time, on Monday, May 10, 2010, (ii) voting in person at the annual meeting, (iii) submitting a new proxy via the Internet or by telephone that is received by 11:59 p.m., Eastern time, on Monday, May 10, 2010, or (iv) executing and mailing a later-dated proxy card to American Stock Transfer & Trust Company, Operation Center, 6201 15th Avenue, Brooklyn, New York 11219, which proxy card must be received by 5:00 p.m., Eastern time, on Monday, May 10, 2010.

 

“Street name” stockholders who wish to revoke a proxy already returned on their behalf must direct the institution holding their shares to do so.

 

Method and Cost of Solicitation

 

In addition to solicitation by mail, our directors, officers and employees may solicit proxies by telephone, electronic communication or other means. We have also retained Innisfree M&A Incorporated, a proxy solicitation firm, to assist us in soliciting proxies, for an estimated fee of $15,000, plus reimbursement of reasonable out-of-pocket expenses and disbursements. Our directors, officers and employees receive no additional compensation for solicitation of proxies.

 

We will bear all costs associated with soliciting proxies for the annual meeting. We will, upon request, and in accordance with applicable regulations, reimburse banks, brokers, other institutions, nominees and fiduciaries for their reasonable expenses in forwarding solicitation materials to beneficial owners.

 

Matters to Be Acted upon

 

As discussed in more detail under “Proposal 1—Election of Directors,” each director is required to be elected by a majority of votes cast with respect to such director, i.e., the number of votes cast “for” must exceed the number of votes cast “against.” Abstentions and shares not represented at the meeting will have no effect on the election of directors. Brokers are not entitled to vote on director elections and thus broker non-votes are not treated as votes cast and will have no effect on the election of directors.

 

The matter described in “Proposal 2—Approval of 2010 Long Term Incentive Plan” is required to be approved by the affirmative vote of the majority of shares present in person or represented by proxy at the annual meeting and entitled to vote on the matter and, furthermore, the total votes cast with regard to Proposal 2 must represent over 50% of all shares of stock entitled to vote on Proposal 2. Abstentions will have the same effect as a vote against such matter, whereas shares not represented at the meeting will not be counted for purposes of determining whether such matter has been approved. Brokers are not entitled to vote on the proposal to approve our 2010 Long Term Incentive Plan and thus broker non-votes will have no effect on such matter.

 

The matter described in “Proposal 3—Ratification of Appointment of Independent Auditors” is required to be approved by the affirmative vote of the majority of shares present in person or represented by proxy at the annual meeting and entitled to vote on the matter. Abstentions will have the same effect as a vote against such matter, whereas shares not represented at the meeting will not be counted for purposes of determining whether such matter has been approved. Brokers may vote in their discretion on the proposal to ratify the appointment of our independent auditors on behalf of clients who have not furnished voting instructions. As a result, broker non-votes will not arise in connection with, and thus will have no effect on, such matter.

 

Our Board unanimously recommends that you vote FOR the election of each nominee and FOR the approval of each proposal.

 

General

 

Our Board is currently comprised of the following 11 members: Jenne K. Britell, José B. Alvarez, Howard L. Clark, Jr., Bobby J. Griffin, Michael J. Kneeland, Singleton B. McAllister, Brian D. McAuley, John S. McKinney, Jason D. Papastavrou, Filippo Passerini and Keith Wimbush. Until our 2008 annual meeting of stockholders, our Board was divided into three classes of directors, with each class being elected to serve a three-year term. As a result of an amendment to our restated certificate of incorporation that was proposed by the Board and approved by stockholders at our 2007 annual meeting, we have transitioned our Board from a classified board to a declassified board such that, beginning with our 2010 annual meeting, all directors will be elected annually for one-year terms. The Board, upon the recommendation of our Nominating and Corporate Governance Committee (the “Nominating Committee”), has nominated each of the aforementioned directors to stand for re-election.

 

Election of 11 Directors

 

The terms of Drs. Britell and Papastavrou, Ms. McAllister and Messrs. Alvarez, Clark, Griffin, Kneeland, McAuley, McKinney, Passerini and Wimbush will expire at the 2010 annual meeting. Upon the unanimous recommendation of the Nominating Committee, the Board has nominated each of Drs. Britell and Papastavrou, Ms. McAllister and Messrs. Alvarez, Clark, Griffin, Kneeland, McAuley, McKinney, Passerini and Wimbush to stand for re-election at the annual meeting.

 

Each director elected at the 2010 annual meeting will hold office until our 2011 annual meeting of stockholders and, subject to the resignation policy described below, until such director’s successor is elected and qualified.

 

Voting

 

Our by-laws require a director to be elected by a majority of votes cast with respect to such director in uncontested elections. The number of votes cast “for” a director must exceed the number of votes cast “against” that director. Abstentions and shares not represented at the meeting have no effect on the election of directors. Directors will continue to be elected by a plurality of votes cast in contested elections. A “contested election” takes place at any meeting in respect of which (i) our corporate secretary receives a notice pursuant to our by-laws that a stockholder intends to nominate a director or directors and (ii) such proposed nomination has not been withdrawn by such stockholder on or prior to the tenth day preceding the date on which the Company first mails its notice of meeting for such meeting to its stockholders.

 

If a nominee who is serving as a director is not elected at the annual meeting, under Delaware law, the director would continue to serve on the Board as a “holdover director” until his successor is elected and qualified. However, under our by-laws, any director who fails to be elected by majority vote must offer to tender his or her resignation to the Board on the date of the certification of the election results. The Nominating Committee will then consider the resignation offer and make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board will accept such resignation unless it determines that the best interests of the Company and its stockholders would not be served in doing so. The Board will act on the Nominating Committee’s recommendation within 90 days from the date of the certification of the election results, unless such action would cause the Company to fail to comply with any requirement of the NYSE or any rule or regulation under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in which event the Company will take action as promptly as is practicable while continuing to meet those requirements. The Board will promptly disclose its decision and the rationale behind it in a Form 8-K report furnished to the Securities and Exchange Commission (“SEC”). The

director who offers to tender his or her resignation will not participate in the Nominating Committee’s recommendation or in the Board’s decision.

 

If a nominee who is not already serving as a director is not elected at the annual meeting, under Delaware law, that nominee would not be a “holdover director” and the process described above would not apply.

 

All nominees for election at the 2010 annual meeting are currently serving on the Board. Each person nominated has agreed to continue to serve if elected. If any nominee becomes unavailable for any reason to serve as a director at the time of the annual meeting, then the shares represented by each proxy may be voted for such other person as may be determined by the holders of such proxy.

 

The Board unanimously recommends a vote FOR the election of each of Drs. Britell and Papastavrou, Ms. McAllister and Messrs. Alvarez, Clark, Griffin, Kneeland, McAuley, McKinney, Passerini and Wimbush to hold office until the 2011 annual meeting of stockholders (designated as Proposal 1 on the enclosed proxy card) and until such director’s successor is elected and qualified.

 

Information Concerning Directors and Executive Officers

 

The table below identifies, and provides certain information concerning, our current executive officers and directors.

 

 

Michael J. Kneeland has been our president and chief executive officer and a director of the Company since August 2008, having previously served as our interim chief executive officer since June 2007. Prior to that time, Mr. Kneeland served as our executive vice president and chief operating officer since March 2007 and as our executive vice president—operations since September 2003. Mr. Kneeland joined the Company as a district manager in 1998 upon our acquisition of Equipment Supply Co., and was subsequently named vice president—aerial operations and then vice president—southeast region. Mr. Kneeland’s more than 30 years of experience in the equipment rental industry includes a number of senior management positions with Free State Industries, Inc. and Equipment Supply Co.

 

William B. Plummer joined the Company as our executive vice president and chief financial officer in December 2008. Before joining the Company, Mr. Plummer served as chief financial officer of Dow

Jones & Company, Inc., a leading provider of global business news and information services, from September 2006 to December 2007. Prior to Dow Jones & Company, Mr. Plummer was vice president and treasurer of Alcoa Inc., one of the world’s leading producers of aluminum, since 2000. He also held similar executive positions at Mead Corporation and GE Capital, the financial services subsidiary of General Electric. Mr. Plummer is also a director of John Wiley & Sons, Inc.

 

Jonathan M. Gottsegen joined the Company as our senior vice president, general counsel and corporate secretary in February 2009. Before joining the Company, Mr. Gottsegen directed the Corporate and Securities Practice Group at The Home Depot, Inc., the world’s largest home improvement retailer, from 2004 to 2009, where he led a team responsible for oversight of the company’s key legal matters. Prior to The Home Depot, Mr. Gottsegen served as securities counsel for Time Warner Inc., a leading media and entertainment company, from 2003 to 2004, responsible for corporate, securities and corporate governance matters. From 1999 to 2003, Mr. Gottsegen was an associate in the New York office of Kaye Scholer Fierman Hays & Handler in its corporate and securities transactional practice. From 1996 to 1999, Mr. Gottsegen was a senior staff attorney with the SEC in its Division of Corporation Finance.

 

Matthew J. Flannery was appointed senior vice president—operations in March 2010. Mr. Flannery has extensive experience in all areas of the Company’s operations, having previously served as senior vice president—operations East, and in two regional vice president roles in aerial operations. Mr. Flannery has also served as a district manager, direct sales manager and branch manager. He has almost two decades of sales, management and operations experience in the rental industry. Mr. Flannery joined the Company in 1998 as part of the Company’s acquisition of Connecticut-based McClinch Equipment.

 

John J. Fahey was appointed our vice president—controller in January 2008 and, in that role, continues to serve the Company as principal accounting officer, as he has since August 2006. Mr. Fahey joined the Company in September 2005 as vice president—assistant corporate controller. His prior experience includes senior positions as manager—corporate business development for Xerox Corporation, a leading document management technology and services company, from June 2003 to September 2005, and vice president and chief financial officer for Xerox Engineering Systems, Inc., a provider of solutions for technical documents, from January 2000 to June 2003. Mr. Fahey has also served as vice president—finance and controller for Faulding Pharmaceutical Company, an international health care company. Mr. Fahey is a licensed certified public accountant who previously served as a general practice manager in accounting and auditing for Deloitte & Touche LLP, one of the four largest international accounting and consulting firms.

 

Joseph A. Dixon joined the Company as vice president—sales in June 2008 and, in that role, bears responsibility for the strategic leadership of the Company’s sales and business development efforts. Before joining the Company, Mr. Dixon served as global vice president and general manager for JLG Industries, Inc., a worldwide aerial equipment manufacturer, from January 2006 to May 2008, with responsibility for aftermarket services. He held senior positions as vice president—pro business and tool rental for The Home Depot from May 2002 to December 2005, with sales and management responsibility for 1,450 North American locations. Mr. Dixon also previously held the position of division vice president—operations and field sales for Hertz Equipment Rental Corporation, with executive responsibility for the company’s equipment rental business.

 

Kenneth E. DeWitt joined the Company as vice president—chief information officer in May 2008. Mr. DeWitt has more than 15 years of executive experience leading information technology at several companies. During the period from July 2002 through March 2008, Mr. DeWitt held senior vice president—chief information officer positions with Brand Technology Services LLC (a DSW Company), Retail Ventures Services, Inc. and Value City Department Stores, Inc. Mr. DeWitt’s prior experience also includes senior information technology management positions with responsibility for planning and integration, corporate systems and credit systems for Sears, Roebuck and Company and vice

president—management information systems for Saks Fifth Avenue. He began his information technology career with Lerner Stores Corp.

 

Jenne K. Britell, Ph.D. became a director of the Company in December 2006 and Chairman of the Board in June 2008. In March 2010, she was named a Senior Managing Director of Brock Capital Group LLC, an advisory and investment banking firm. Dr. Britell was chairman and chief executive officer of Structured Ventures, Inc., advisors to U.S. and multinational companies, from 2001 to 2009. From 1996 to 2000, Dr. Britell was a senior executive of GE Capital. At GE Capital, she most recently served as the executive vice president of Global Consumer Finance and president of Global Commercial and Mortgage Banking. From January 1998 to July 1999, she was president and chief executive officer of GE Capital, Central and Eastern Europe, based in Vienna. Before joining GE Capital, she held significant management positions with Dime Bancorp, Inc., HomePower, Inc., Citicorp and Republic New York Corporation. Earlier, she was the founding chairman and chief executive officer of the Polish-American Mortgage Bank in Warsaw, Poland. Dr. Britell is also a director of Crown Holdings, Inc., Quest Diagnostics, Inc. and the U.S.-Russia Investment Fund. During the past five years, Dr. Britell has served as a member of the board of directors of West Pharmaceutical Services, Aames Investment Corp. and Lincoln National Corp.

 

José B. Alvarez became a director of the Company in January 2009. Mr. Alvarez has been on the faculty of the Harvard Business School since February 2009. Until December 2008, he was the executive vice president—global business development for Royal Ahold NV, one of the world’s largest grocery retailers. Mr. Alvarez joined Royal Ahold in 2001 and subsequently held several key senior management positions, including president and chief executive officer of the company’s Stop & Shop and Giant-Landover brands. Previously, he served in executive positions at Shaw’s Supermarket, Inc. and American Stores Company. Mr. Alvarez also serves as a director of The TJX Companies, Inc.

 

Howard L. Clark, Jr. became a director of the Company in April 2004. Mr. Clark has been vice chairman of Barclays Capital Inc., the investment banking division of Barclays Bank PLC, since September 2008. Prior to assuming his current position, Mr. Clark was vice chairman of Lehman Brothers Inc., an international investment bank, since 1993. From 1990 until 1993, Mr. Clark was chairman, president and chief executive officer of Shearson Lehman Brothers Holdings Inc. Mr. Clark was previously a senior executive at American Express Company from 1981 to 1990, and a managing director of Blyth Eastman Paine Webber Incorporated or predecessor firms from 1968 to 1981. While at American Express, his positions included five years as executive vice president and chief financial officer. Mr. Clark is also a director of Walter Energy, Inc. (formerly known as Walter Industries, Inc.), White Mountains Insurance Group, Ltd. and Mueller Water Products, Inc.

 

Bobby J. Griffin became a director of the Company in January 2009. From March 2005 to March 2007, he served as president—international operations for Ryder System, Inc., a global provider of transportation, logistics and supply chain management solutions. Beginning in 1986, Mr. Griffin served in various other management positions with Ryder, including as executive vice president—international operations from 2003 to March 2005 and executive vice president—global supply chain operations from 2001 to 2003. Prior to Ryder, Mr. Griffin was an executive at ATE Management and Service Company, Inc., which was acquired by Ryder in 1986. He also serves as a director of Hanesbrands Inc.

 

Singleton B. McAllister became a director of the Company in April 2004. Ms. McAllister is a partner in the law firm of LeClairRyan where she has worked since October 2007. Before joining LeClairRyan, Ms. McAllister had been a partner in the law firms of Mintz Levin Cohen Ferris Glovsky and Popeo since July 2005, Sonnenschein, Nath & Rosenthal LLP since 2003 and Patton Boggs LLP since 2001. Prior to entering private practice, Ms. McAllister served for five years as the general counsel for the United States Agency for International Development. Ms. McAllister is also a director of Alliant Energy Corporation, Interstate Power and Light Company and Wisconsin Power and Light Company.

 

Brian D. McAuley became a director of the Company in April 2004. Mr. McAuley has served as chairman of Pacific DataVision, Inc. (“PDV”) since August 2004. PDV is a privately held telecommunications software applications and hosting company. He has also been a partner at NH II,

LLC, a consulting firm that specializes in telecommunications businesses, since 2003. Mr. McAuley is a co-founder of Nextel Communications, Inc. and held senior executive positions at Nextel from the company’s inception in 1987 until 1996, including seven years as president and chief executive officer. Upon leaving Nextel, he joined Imagine Tile, Inc., a custom tile manufacturer, where he served as chairman and chief executive officer from 1996 to 1999 and continues to serve as chairman. He also served as president and chief executive officer of NeoWorld Communications, Inc., a wireless telecommunications company, from 1999 until the sale of that company to Nextel in 2003. Mr. McAuley is a certified public accountant and, prior to co-founding Nextel, his positions included chief financial officer of Millicom Incorporated, corporate controller at Norton Simon Inc. and manager at Deloitte & Touche LLP.

 

John S. McKinney became a director of the Company in September 1998 following the merger of the Company with U.S. Rentals, Inc. He also served as a vice president of the Company until the end of 2000. Mr. McKinney served as chief financial officer of U.S. Rentals from 1990 until the merger and as controller of U.S. Rentals Inc., and as a staff auditor and audit manager at the accounting firm of Arthur Andersen & Co. Mr. McKinney was assistant dean of the Ira A. Fulton College of Engineering and Technology at Brigham Young University from November 2006 to January 2008.

 

Jason D. Papastavrou, Ph.D. became a director of the Company in June 2005. Dr. Papastavrou has served as chief executive officer and chief investment officer of ARIS Capital Management, an investment management firm, since founding the company in January 2004. He previously held senior positions at Banc of America Capital Management, also an investment management firm, where he served as managing director—Fund of Hedge Funds strategies from 2001 to 2003, and at Deutsche Asset Management, where he served as director—alternative investments group from 1999 to 2001. Dr. Papastavrou, who holds a Ph.D. in electrical engineering and computer science from the Massachusetts Institute of Technology, taught at Purdue University’s School of Industrial Engineering from 1990 to 1999 and is the author of numerous academic publications.

 

Filippo Passerini became a director of the Company in January 2009. He is currently president of The Procter & Gamble Company’s global business services organization and chief information officer, positions he has held since February 2008 and July 2004, respectively. Mr. Passerini joined Procter & Gamble, a multinational manufacturer of consumer goods, in 1981 and has held executive positions in the United Kingdom, Greece, Italy, the United States, Latin America and Turkey. He is a native of Italy, with a degree from the University of Rome.

 

Keith Wimbush became a director of the Company in April 2006. From January 2003 until August 2005, Mr. Wimbush was with Korn/Ferry International, an executive search firm, where he served as a senior client partner in the firm’s Stamford, Connecticut office, and was also co-practice leader of the firm’s legal specialist group. From April 1997 until January 2003, Mr. Wimbush served as senior vice president and general counsel of Diageo North America, Inc. and predecessor companies. Mr. Wimbush, who holds a J.D. from Harvard Law School, has served as an adjunct professor of law at Thomas Cooley Law School during the fall of 2007 and 2008.

 

See “Corporate Governance Matters—Board Consideration of Director Qualifications” for additional information regarding the specific experience, qualifications, attributes and skills of the directors named herein that led the Board to conclude that each such director should serve as a director of the Company.

 

Declassification of Directors

 

Our Board is currently comprised of the following 11 members: Jenne K. Britell, José B. Alvarez, Howard L. Clark, Jr., Bobby J. Griffin, Michael J. Kneeland, Singleton B. McAllister, Brian D. McAuley, John S. McKinney, Jason D. Papastavrou, Filippo Passerini and Keith Wimbush. Until our 2008 annual meeting, our Board was divided into three classes of directors, with each class being elected to serve a three-year term. As a result of an amendment to our restated certificate of incorporation that was proposed by the Board and approved by stockholders at our 2007 annual meeting, we have transitioned our Board from a classified board to a declassified board such that, beginning with our 2010 annual meeting, all directors will be elected annually for one-year terms.

 

The Board, upon the recommendation of the Nominating Committee, has nominated each of the aforementioned directors to stand for re-election at the annual meeting.

 

Meetings of the Board and its Committees

 

During 2009, the Board met twelve times. During 2009, each current member of the Board attended in excess of 75% of the aggregate of (i) the total number of Board meetings held during the period for which he or she was a director and (ii) the total number of meetings of each committee of the Board on which the director served during the period for which he or she was on the committee.

 

Committees of the Board

 

During the first quarter of 2009, the Board had six standing committees: the Audit Committee, Compensation Committee, Nominating Committee, Special Committee, Transaction Committee and Litigation Committee. However, in February 2009, the Board dissolved three of these standing committees—the Special, Transaction and Litigation Committees—and established two new standing committees—the Finance and Strategy Committees. The following table summarizes the current composition of the five current standing committees of the Board: the Audit Committee, the Compensation Committee, the Nominating Committee, the Finance Committee and the Strategy Committee. Consistent with best practice, our chairman, Dr. Britell, is not a member of any of the Board’s standing committees. However, she regularly attends meetings of the Board’s committees, as all directors are invited to do.

 

 

Audit Committee

 

We have a separately-designated Audit Committee established in accordance with the Exchange Act. The Audit Committee operates pursuant to a written charter that complies with the corporate governance standards of the NYSE. You can access this document, and other committee charters, on

our website at http://www.ur.com under “Corporate Governance” in the Investor Relations section. The document, and each of the other committee charters, is also available in print to any stockholder upon written request to our corporate secretary at United Rentals, Inc., Five Greenwich Office Park, Greenwich, Connecticut 06831.

 

The general purposes of the Audit Committee are to:

 

 

The Audit Committee also has the sole authority to appoint or replace the independent auditor (subject, if applicable, to stockholder ratification) and to approve compensation arrangements for the independent auditor.

 

The current members of the Audit Committee are Messrs. McAuley, McKinney, Passerini and Wimbush and Dr. Papastavrou. Each member of the Audit Committee meets the general independence requirements of the NYSE and the additional independence requirements for audit committees specified by Rule 10A-3 under the Exchange Act. The Board has determined that each of Messrs. McAuley and McKinney and Dr. Papastavrou qualifies as an “audit committee financial expert” as defined by the SEC and has “accounting or related financial management expertise” within the meaning of the corporate governance standards of the NYSE, and that each member of the Audit Committee is financially literate within the meaning of the corporate governance standards of the NYSE.

 

In 2009, the Audit Committee met nine times.

 

Compensation Committee

 

The Compensation Committee operates pursuant to a written charter that complies with the corporate governance standards of the NYSE.

 

The general purpose of the Compensation Committee is to aid the Board in discharging its responsibilities relating to: (i) the oversight of executive officer and director compensation and (ii) the development of compensation policies that support the Company’s business goals and objectives. The Compensation Committee is also responsible for producing an annual report on executive compensation and assisting management in the preparation of a Compensation Discussion and Analysis. For additional information concerning the Compensation Committee, see “Executive Compensation—Compensation Discussion & Analysis.”

 

The current members of the Compensation Committee are Ms. McAllister and Messrs. Griffin and Wimbush. Each member of the Compensation Committee meets the independence requirements of the NYSE. In addition, each member qualifies as an “outside director” within the meaning of Internal Revenue Code Section 162(m) and as a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.

 

The Compensation Committee may select, retain and terminate outside compensation consultants to advise with respect to director, chief executive officer or executive officer compensation. The Compensation Committee also has the authority to obtain advice and assistance from internal or external legal, accounting and other advisors. Although the Company pays for any compensation consultant, the Compensation Committee, in its sole discretion, approves the fees to the compensation consultant and other terms related to the consultant’s engagement. The Compensation Committee’s use of compensation consultants is described below under “Executive Compensation—Compensation Discussion and Analysis.”

The Compensation Committee may delegate all or any portion of its duties and responsibilities to a subcommittee consisting of one or more members of the Compensation Committee.

 

In 2009, the Compensation Committee met nine times.

 

Nominating Committee

 

The Nominating Committee operates pursuant to a written charter that complies with the corporate governance standards of the NYSE.

 

The general responsibilities of the Nominating Committee include: (i) developing criteria for evaluating prospective candidates to the Board (or its committees) and identifying and recommending such candidates to the Board; (ii) taking a leadership role in shaping the corporate governance of the Company and developing the Company’s corporate governance guidelines; and (iii) coordinating and overseeing the evaluation processes for the Board and management which are required by the Company’s corporate governance guidelines. For additional information concerning this committee, see “Corporate Governance Matters—Director Nomination Process.”

 

The current members of the Nominating Committee are Messrs. Clark and Alvarez and Ms. McAllister. Each member of the Nominating Committee meets the independence requirements of the NYSE.

 

In 2009, the Nominating Committee met three times.

 

Finance Committee

 

In February 2009, we established the Finance Committee to oversee all policies, activities and transactions affecting the financial condition of the Company and not otherwise assigned to the Audit Committee.

 

The current members of the Finance Committee are Dr. Papastavrou and Messrs. Clark and McAuley.

 

In 2009, the Finance Committee met ten times.

 

Strategy Committee

 

In February 2009, we established the Strategy Committee to assist the Board in overseeing and facilitating the development and implementation of the Company’s corporate strategy, including long- and short-term strategic plans and related operational decision-making.

 

The current members of the Strategy Committee are Mr. McKinney and Messrs. Alvarez, Griffin, Kneeland and Passerini.

 

In 2009, the Strategy Committee met seven times.

 

Risk Oversight

 

Pursuant to its charter, the Audit Committee is primarily responsible for overseeing the Company’s risk management processes on behalf of the Board. The Audit Committee (and/or the Board) receives reports from management regarding the Company’s assessment of risks and members of the Audit Committee (as well as other Board members) participate in meetings held by the Company’s enterprise risk management committee. The Audit Committee and the full Board focus on the most significant risks facing the Company and the Company’s general risk management strategy.

 

Although the Audit Committee oversees the Company’s risk management, Company management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our Company.

 

Director Attendance at Previous Annual Meeting

 

We encourage our directors to attend annual meetings of stockholders, and we typically schedule Board and committee meetings to coincide with the annual meeting. All directors attended the 2009 annual meeting of stockholders.

 

Corporate Governance Guidelines

 

We have adopted corporate governance guidelines to promote the effective functioning of the Board. The guidelines address, among other things, criteria for selecting directors and director duties and responsibilities. We have also adopted categorical independence standards (in addition to the requirements of the NYSE) by which we assess the independence of our directors. You can access these documents on our website at http://www.ur.com under “Corporate Governance” in the Investor Relations section. The documents are also available in print to any stockholder upon written request to our corporate secretary at United Rentals, Inc., Five Greenwich Office Park, Greenwich, Connecticut 06831.

 

Code of Business Conduct

 

We have adopted a code of business conduct for our employees, officers and directors. You can access this document on our website at http://www.ur.com under “Corporate Governance” in the Investor Relations section. This document is also available in print to any stockholder upon written request to our corporate secretary at United Rentals, Inc., Five Greenwich Office Park, Greenwich, Connecticut 06831. This code constitutes a “code of ethics” as defined by the rules of the SEC.

 

Board Leadership Structure

 

Our Board has separated the roles of Chairman of the Board and Chief Executive Officer. The current Chairman, Dr. Jenne Britell, is an independent director. We believe that an independent Chairman is better able to provide oversight and guidance to management, especially in relation to the Board’s essential role in risk management oversight, and to ensure the efficient use and accountability of resources. The separation of the Chairman and Chief Executive Officer roles, together with our other comprehensive corporate governance practices, are designed to establish and preserve management accountability, provide a structure that allows the Board to set objectives and monitor performance, and enhance stockholder value.

 

Director Independence

 

In assessing director independence, we follow the criteria of the NYSE. In addition, and without limiting the NYSE independence requirements, we apply our own categorical independence standards. Under these standards, we do not consider a director to be independent if he or she is, or in the past three years has been:

 

 

 

A substantial majority of our directors must be independent under our corporate governance guidelines, which are more stringent than NYSE rules in this regard. Ten of our eleven directors have been determined by the Board to be independent under those criteria: Jenne K. Britell; José B. Alvarez; Howard L. Clark, Jr.; Bobby J. Griffin; Singleton B. McAllister; Brian D. McAuley; John S. McKinney; Jason D. Papastavrou; Filippo Passerini; and Keith Wimbush. In addition, the Board has determined that each of these directors also meets the categorical independence standards described above. Michael J. Kneeland, our chief executive officer, is not considered independent because he is an employee of the Company.

 

In accordance with SEC regulations, with respect to the directors that we have identified as being independent under NYSE rules, we discuss below certain relationships considered by the Board in making its independence determinations. Each of these relationships was determined by the Board to be an “immaterial relationship” that would not disqualify the particular director from being classified as an independent director.

 

José B. Alvarez became a director of the Company in January 2009. Until December 2008, he was the executive vice president—global business development for Royal Ahold NV, one of the world’s largest grocery retailers. Mr. Alvarez joined Royal Ahold in 2001 and subsequently held several key senior management positions, including president and chief executive officer of the company’s Stop & Shop and Giant-Landover brands. Stop & Shop obtained certain equipment and services from the Company for which the Company received monetary compensation in 2009. Mr. Alvarez was not involved in the decision by Stop & Shop to use the Company’s services. The Board determined that the foregoing relationship was an immaterial relationship given that Mr. Alvarez is not employed by, and had no involvement in the procurement decision of, Stop & Shop and the amounts paid by Shop & Shop to the Company represent less than 1% of Stop & Shop’s annual revenues and less than 1% of the Company’s annual revenues.

 

Howard L. Clark, Jr. became a director of the Company in April 2004. He has been vice chairman of Barclays Capital Inc., the investment banking division of Barclays PLC, since September 2008. During 2009, the Company engaged Barclays Capital to provide investment banking services to the Company which resulted in Barclays Capital receiving compensation in the form of underwriting discounts and/or commissions. The Board determined that the foregoing relationship was an immaterial relationship given that Mr. Clark had no involvement in the decision by the Company to engage Barclays Capital and the amounts paid by the Company to Barclays Capital represent less than 1% of Barclays Capital’s annual revenues.

 

Filippo Passerini became a director of the Company in January 2009. He is currently president of Procter & Gamble’s global business services organization and chief information officer. Procter & Gamble rents equipment from the Company for which the Company received monetary compensation in 2009. Mr. Passerini was not involved in the decision by Procter & Gamble to use the Company’s services. The Board determined that the foregoing relationship was an immaterial relationship given that Mr. Passerini had no involvement in the procurement decision of Procter & Gamble and the amounts paid by Procter & Gamble to the Company represent less than 1% of Procter & Gamble’s annual revenues and less than 1% of the Company’s annual revenues.

 

Board Consideration of Director Qualifications

 

In addition to the independence matters described above, the Board considered the specific experience, qualifications, attributes and skills of the directors named herein and concluded that based on the aforementioned factors, and including each director’s integrity and collegiality, such directors should serve as directors of the Company. Although each director offers a multitude of unique and valuable skills and attributes, the Board identified the following specific experience,

qualifications, attributes and skills that led the Board to conclude that such persons should serve as directors.

 

Mr. Alvarez has held several key management positions with Royal Ahold NV, one of the world’s largest grocery retailers, providing him with business leadership experience in the retail industry. He also serves as a director of The TJX Companies, Inc. and has taught marketing and retailing as a current member of the faculty of the Harvard Business School.

 

Dr. Britell has served in senior management positions with both public and private companies and has significant experience with public company directorships, which provides her with leadership and consensus-building skills to guide the Board, as well as exposure to a broad array of best practices.

 

Mr. Clark’s current and past experience serving in senior management positions in the finance industry and his public company directorships provide him with a practical and informed perspective on matters relating to corporate governance, investment banking and finance.

 

Mr. Griffin has notable business experience in the areas of transportation, logistics and supply chain management, including extensive international experience, due to his past senior leadership positions with Ryder System, Inc. He serves as a director of Hanesbrands Inc. and other public companies. Such service can provide a valuable perspective for the Board and the Company.

 

Mr. Kneeland has served in a variety of positions in the equipment rental industry for over 30 years. He has extensive experience and knowledge of the competitive environment in which the Company operates. Further, he has demonstrated strategic and operational acumen that the Board believes has been of significant value to the Company.

 

Ms. McAllister, who has served as the general counsel of the United States Agency for International Development and currently helps lead the federal government relations practice of the law firm of LeClairRyan, serves as an important resource to the Board with regard to legal and regulatory matters. Like other Board members, Ms. McAllister’s service on other public company boards serves as an important benefit by providing the Company a broad perspective at the Board level.

 

Mr. McAuley brings business leadership skills from his career in the telecommunications and manufacturing industries and has exhibited valuable entrepreneurial abilities. He also has extensive financial and accounting experience as a result of his past positions as chief financial officer and controller at public and private companies and as a manager at the accounting firm Deloitte & Touche LLP.

 

Mr. McKinney has significant accounting and finance experience unique to the Company and its industry as a result of his past positions as vice president—finance of the Company, chief financial officer and controller of U.S. Rentals Inc., and as a staff auditor and audit manager at the accounting firm Arthur Andersen & Co.

 

Dr. Papastavrou currently serves as the chief executive officer and chief investment officer of ARIS Capital Management, and has held senior positions at other investment management firms, which allows him to contribute a valuable perspective on finance-related matters.

 

Mr. Passerini has gained significant business and leadership experience in the consumer goods industry through his various senior level positions with Procter & Gamble during the past 25 years. Mr. Passerini has particular strength with international operations.

 

Mr. Wimbush has gained significant legal experience through his formal legal training, as well as his subsequent positions in the legal department of Diageo North America, Inc. and as an adjunct professor of law at Thomas Cooley Law School. He complements his legal experience with experience gained through his position as the senior client partner with Korn/Ferry International.

Executive Sessions of the Board

 

Our corporate governance guidelines provide that our non-management directors should meet, at least twice a year, in executive sessions without the presence of management. Non-management directors who do not qualify as “independent” may participate in these meetings. However, the corporate governance guidelines provide that, at least once a year, the independent directors should meet in executive session without the presence of either management or any non-independent directors. The purpose of executive session meetings is to facilitate free and open discussion among the participants. The chairman of the Board (or, in the absence of the chairman, the chairman of the Audit Committee or such other independent director as may be selected by the Board) should preside over executive sessions and, as required, provide feedback to the chief executive officer, and to such other directors as is appropriate, based upon the matters discussed at such meetings.

 

Director Nomination Process

 

General

 

The Board has established the Nominating Committee, as described above. The responsibilities of this committee include, among other things: (i) developing criteria for evaluating prospective candidates to the Board or its committees; (ii) identifying individuals qualified to become members of the Board or its committees; and (iii) recommending to the Board those individuals that should be nominees for election or re-election to the Board or otherwise appointed to the Board or its committees (with authority for final approval remaining with the Board).

 

Process for Identifying and Evaluating Candidates

 

The Nominating Committee may identify potential Board candidates from a variety of sources, including recommendations from current directors or management, recommendations of security holders or any other source the Nominating Committee deems appropriate. The Nominating Committee may also engage a search firm to assist in identifying director candidates. The Nominating Committee has been given sole authority to select, retain and terminate any such search firm and to approve its fees and other retention terms.

 

In considering candidates for the Board, the Nominating Committee evaluates the entirety of each candidate’s credentials. In accordance with our corporate governance guidelines, the Nominating Committee considers, among other things: (i) business or other relevant experience; (ii) expertise, skills and knowledge; (iii) contacts in the communities in which the Company does business and in the Company’s industry or other industries relevant to the Company’s business; (iv) personal qualities and characteristics, accomplishments, integrity and reputation in the business community; (v) the extent to which the candidate will enhance the objective of having directors with diverse viewpoints, backgrounds, experience, expertise, skills and other demographics; (vi) willingness and ability to commit sufficient time to Board and committee duties and responsibilities; and (vii) qualification to serve on specialized Board committees of the Board, such as the Audit Committee or the Compensation Committee. The Nominating Committee recommends candidates based on its consideration of each individual’s specific skills and experience and its annual assessment of the composition and needs of the Board as a whole, including with respect to diversity. Consideration of diversity as one of many attributes relevant to a nomination to the Board is implemented through the Nominating Committee’s standard evaluation process. In particular, the Nominating Committee obtains and reviews questionnaires, interviews candidates as appropriate and engages in thorough discussions at Committee meetings in an effort to identify the best candidates and to populate an effective Board. The effectiveness of the Board’s diverse mix of viewpoints, backgrounds, experience, expertise, skills and other demographics is considered as part of the Nominating Committee’s assessment.

 

The 11 nominees for election as directors at the 2010 annual meeting are: Jenne K. Britell, who has been a director since December 2006; José B. Alvarez, who has been a director since January

2009; Howard L. Clark, Jr., who has been a director since April 2004; Bobby J. Griffin, who has been a director since January 2009; Michael J. Kneeland, who has been a director since August 2008; Singleton B. McAllister, who has been a director since April 2004; Brian D. McAuley, who has been a director since April 2004; John S. McKinney, who has been a director since September 1998; Jason D. Papastavrou, who has been a director since June 2005; Filippo Passerini, who has been a director since January 2009; and Keith Wimbush, who has been a director since April 2006. Each of these directors is standing for re-election. In making its recommendation to the Board, the Nominating Committee reviewed and evaluated, in addition to each nominee’s background and experience and other criteria set forth in the Company’s corporate governance guidelines, each director’s performance during his or her recent tenure with the Board and whether each was likely to continue to contribute positively to the Board.

 

Procedure for Submission of Recommendations by Security Holders

 

Our security holders may recommend potential director candidates by following the procedure described below. The Nominating Committee will evaluate recommendations from security holders in the same manner that it evaluates recommendations from other sources.

 

If you wish to recommend a potential director candidate for consideration by the Nominating Committee, please send your recommendation to United Rentals, Inc., Five Greenwich Office Park, Greenwich, Connecticut 06831, Attention: Corporate Secretary. Any notice relating to candidates for election at the 2011 annual meeting must be received by December 31, 2010. You should use first class, certified mail in order to ensure the receipt of your recommendation.

 

Any recommendation must include (i) your name and address and a list of the securities of the Company that you own; (ii) the name, age, business address and residence address of the proposed candidate; (iii) the principal occupation or employment of the proposed candidate over the preceding ten years and the person’s educational background; (iv) a statement as to why you believe such person should be considered a potential candidate; (v) a description of any affiliation between you and the person you are recommending; and (vi) the consent of the proposed candidate to your submitting him or her as a potential candidate. You should note that the foregoing process relates only to bringing potential candidates to the attention of the Nominating Committee. Following this process will not give you the right to directly propose a nominee at any meeting of stockholders. See “Other Matters—Stockholder Proposals for the 2011 Annual Meeting.”

 

Direct Communications with Directors

 

We have adopted procedures to enable our security holders and other interested parties to communicate with our Board or with any individual director or directors. If you wish to send a communication, you should do so in writing. Security holders and other interested parties may send communications to the Board or the particular director or directors, as the case may be, in the manner described in the Company’s written policy available on its website at http://www.ur.com under “Corporate Governance” in the Investor Relations section.

 

The Compensation Committee (which we refer to as the “Committee” in this Compensation Discussion and Analysis) of the Board is responsible for establishing, implementing and continually monitoring adherence to the Company’s compensation philosophy. The Committee seeks to ensure that the total compensation paid to our chief executive officer, our chief financial officer and our other executive officers is fair, reasonable and competitive.

 

The Committee’s specific responsibilities are set forth in its charter, which may be found on the Company’s website at http://www.ur.com under “Corporate Governance” in the Investor Relations section. Among other things, the Committee is required to: (i) determine and approve the compensation of the chief executive officer; (ii) review and approve the compensation of the Company’s other executive officers; (iii) review and approve any incentive compensation plan or equity-based plan for the benefit of executive officers; and (iv) review and approve any employment agreement, severance arrangement or change-in-control arrangement for the benefit of executive officers.

 

Throughout this proxy statement, the individuals who served as the Company’s chief executive officer and chief financial officer during the fiscal year 2009, as well as the other individuals included in the Summary Compensation Table (which include, pursuant to SEC regulations, our former executive vice president and general counsel), are referred to as “named executive officers.” This Compensation Discussion and Analysis explains our executive compensation philosophy and objectives and each element of our executive compensation program for our named executive officers in 2009 (and decisions with respect thereto), as well as certain significant developments in 2010. In addition, the compensation and benefits provided to our named executive officers in 2009 are set forth in detail in the Summary Compensation Table (which, if required by SEC regulations, also details compensation and benefits provided in 2008 and 2007) and other tables that follow this analysis, and in the footnotes and narrative material that accompany those tables.

 

Executive Compensation Philosophy

 

Our overall compensation program seeks to align executive compensation with the achievement of the Company’s business objectives and with individual performance towards these objectives. It also seeks to enable the Company to attract, retain and reward executive officers and other key employees who contribute to our success and to incentivize them to enhance long-term stockholder value. In reviewing the components of compensation for each executive officer, the Committee emphasizes pay for performance on both an annual basis and over the long term.

 

To implement this philosophy, the total compensation program is designed to be competitive with the programs of other companies with which the Company competes for executives, and to be fair and equitable to both the Company and the executives. Consideration is given to each executive’s overall responsibilities, professional qualifications, business experience, job performance, technical expertise and career potential, and the combined value of these factors to the Company’s long-term performance and growth.

 

 

 

Objectives of Executive Compensation

 

The objectives of our executive compensation program are to:

 

 

The Committee strives to meet these objectives while maintaining market-competitive pay levels and ensuring that we make efficient use of equity compensation and have predictable expense recognition.

 

The Committee seeks to properly compensate executive officers for their services to the Company and to create incentives to focus on the specific goals identified as significant to the Company. The Committee identifies and considers a wide range of measures for Company performance and, as appropriate, also considers measures tied to individual performance or share price appreciation. With the assistance of its advisors, the Committee then selects the measures it believes most closely align with the Company’s business and/or financial objectives (or other measures of performance, if applicable), or are otherwise most likely to support those objectives, and defines specific performance goals based on those measures. In addition, the Committee endeavors to preserve the Company’s tax deduction for all compensation paid, which can be accomplished primarily by conditioning compensation on the achievement of certain performance goals, as further discussed below. The Committee also includes so-called “clawback” provisions in most of our employment and award agreements, which generally require reimbursement of received or vested amounts if their receipt or vesting resulted from financial results that have subsequently been the subject of certain mandatory restatements.

 

With the assistance of its compensation and legal advisors, the Committee regularly reviews governance best practices with respect to the Company’s executive compensation program. In October 2009, Towers Perrin (now known as “Towers Watson” as a result of a merger with Watson Wyatt on January 1, 2010), the Committee’s compensation consultant, led an in-depth review of recent trends in corporate governance best practices with respect to executive compensation. One of the key outcomes of this review was the Committee’s adoption, in February 2010, of stock ownership guidelines for senior management, which are described in detail below.

 

Role of the Compensation Consultant

 

While the Committee has overall responsibility for establishing the elements, level and administration of our executive compensation programs, our chief executive officer and members of the Company’s human resources department routinely participate in this process. The Committee also utilizes outside compensation experts. As it had during the second half of 2008, the Committee continued to engage Towers Perrin throughout 2009 to provide consulting services with respect to the Company’s compensation practices.

 

The compensation consultant generally reviews, analyzes and provides advice about the Company’s executive compensation programs for senior executives in relation to the objectives of those programs, including comparisons to designated peer group companies and comparisons to

“best practices,” and provides information and advice on competitive compensation practices and trends, along with specific views on the Company’s compensation programs. The compensation consultant responds on a regular basis to questions from the Committee and the Committee’s other advisors, providing them with their opinions with respect to the design and implementation of current or proposed compensation programs. The compensation consultant reports directly to the Committee and, as directed by the Committee, works with management and the chairman of the Committee, and also regularly attends Committee meetings. Towers Perrin also provided services to the Company on various matters unrelated to the executive compensation consulting services provided to the Committee. In 2009, these unrelated services on behalf of the Company were for an aggregate fee of less than $120,000. The Committee considered the nature and extent of the services provided by Towers Perrin to the Company, other than at the Committee’s discretion, prior to engaging Towers Perrin. None of these other services had a role in determining the amount or form of executive compensation for our executive officers (other than as described under “Performance-Based Compensation—Long Term Performance-Based Cash Incentives”) and the Committee believes that Towers Perrin took adequate steps to ensure its impartiality.

 

Benchmarking of Compensation Levels

 

In making compensation decisions, the Committee compares each component of the total compensation package of the chief executive officer, chief financial officer and, when compensation information for a sufficient number of comparable executive positions is publicly available, the other named executive officers against the compensation components of comparable executive positions of a peer group of publicly traded companies. While the Committee does not use a specific formula to determine the allocation between performance-based and fixed compensation, it does review the total compensation and competitive benchmarking when determining the allocation.

 

The Committee, based on input from its outside compensation consultant, reviews the makeup of its peer group annually and makes adjustments to the composition of the group as it deems appropriate. In December 2008, Towers Perrin reviewed the then-current peer group and recommended that the Committee replace the existing 15-company peer group with a 17-company peer group composed entirely of companies in the construction and distribution industries, including RSC Holdings Inc., which is a direct competitor of the Company, and Hertz Global Holdings, Inc., which is often considered a competitor of the Company in light of its large equipment rental division. In 2009, the following 17 companies comprised the peer group used to evaluate the total compensation package of the chief executive officer and the chief financial officer:

 

AECOM Technology Corporation		Quanta Services, Inc.
Applied Industrial Technologies, Inc.		Perini Corporation
BlueLinx Holdings Inc.		RSC Holdings Inc.
EMCOR Group, Inc.		Rush Enterprises, Inc.
Fastenal Company		The Shaw Group Inc.
Foster Wheeler AG (formerly Foster Wheeler Ltd.)		URS Corporation
Granite Construction Incorporated		WESCO International, Inc.
Hertz Global Holdings, Inc.		W.W. Grainger, Inc.
Jacobs Engineering Group Inc.

 

In December 2009, Towers Perrin once again reviewed the current peer group and recommended to the Committee that the Company continue to use a peer group of comparably sized companies in the construction and distribution industries. However, for 2010, Towers Perrin recommended that three companies (Hertz, Jacobs Engineering, and URS) be removed from the peer group due to the fact that they had become approximately 2.5 to 3 times as large as the Company when measured by annual revenue. The new peer group did not have any impact on compensation paid for 2009.

 

For other named executive officers, the Company utilized general industry executive compensation benchmarking data from Towers Perrin’s compensation data bank, adjusted for better

comparability to the Company’s most recent fiscal year-end revenue levels through a regression analysis (a commonly accepted statistical method for rendering companies of different sizes more comparable) since compensation information for a sufficient number of comparable executive positions in the peer group was not publicly available. For benchmarking in 2009, the sample from Towers Perrin’s compensation data bank consisted of 416 representative non-energy, non-financial services companies and in 2010, it consisted of 428 representative non-energy, non-financial services companies.

 

In February 2009, Towers Perrin reviewed the compensation of the Company’s named executive officers (other than Mr. Schwed who had stepped down from his position by that time) compared to competitive benchmarks. Based on this review, the current level of total target compensation for the named executive officers covered in the review (including base salary, annual incentives and long-term incentives) ranged from 18% below to 21% above the projected competitive 50th percentile of the comparison group for 2009. Towers Perrin advised the Committee that the current level of total target compensation for the named executive officers covered in the review was generally within a reasonable range of competitive norms, and the Committee considered these findings when determining base salaries, target incentives and long-term incentive grants for 2009. An analysis of actual compensation, replacing the target bonus payments with actual bonus paid, was not done in February 2009 for any of the named executive officers because such named executive officers were either not employed with the Company or were holding different positions during the time period for which competitive data on actual bonuses were available.

 

In February 2010, Towers Watson (formerly known as Towers Perrin) again reviewed the compensation of the Company’s named executive officers compared to competitive benchmarks. Based on this review, the current level of total target compensation for the named executive officers covered in the review (including base salary, annual incentives and long-term incentives) ranged from 18% below to 23% above the projected competitive 50th percentile of the comparison group for 2010. Towers Watson advised the Committee that the current level of total target compensation for the named executive officers covered in the review is generally within a reasonable range of competitive norms, and the Committee considered these findings when determining base salaries, target incentives and long-term incentive grants for 2010.

 

Executive Compensation Components

 

The principal components of compensation for the Company’s named executive officers in 2009 were:

 

 

 

 

We believe that the use of relatively few straightforward compensation components promotes the effectiveness and transparency of our executive compensation program.

Base Salary

 

The Company provides named executive officers and other employees with a base salary to compensate them for services rendered during the fiscal year. Base salaries provide stable compensation to executives, allow us to attract competent executive talent, maintain a stable management team and, through periodic merit increases, provide a basis upon which executives may be rewarded for individual performance.

 

The base salary levels of continuing executives are reviewed annually. The Committee’s outside compensation consultant recommends a salary for the chief executive officer, and the chief executive officer, in consultation with the chief financial officer, recommends a salary for the other named executive officers. In considering whether to adopt these suggestions, the Committee considers the Company’s performance; the executive’s individual performance; the executive’s experience, career potential and length of tenure with the Company; the applicable terms, if any, of the executive’s employment agreement; the salary levels of similarly situated officers at peer group companies, as collected and presented by the consultant; and the salary levels of the Company’s other officers.

 

When an executive is initially hired, the Committee considers the same factors, as well as the executive’s salary in his or her previous employment and the compensation of other Company executives with similar responsibilities.

 

During the first quarter of each year, based on this process and a review conducted by Towers Perrin of the compensation of the named executive officers, the Committee considers merit increases to the base salaries of the Company’s named executive officers. In March 2009, the Committee determined, consistent with senior management’s recommendation, not to increase any base salaries in 2009 for any of its named executive officers. This decision reflected the deepening economic recession and the Company’s continued focus on controlling its costs.

 

At the beginning of 2009, Mr. Kneeland suggested (and the Committee agreed) to a reduction of his annual base salary by 20% to $600,000 for 2009 (although this reduction does not affect ancillary benefits, such as incentive targets and severance pay, which, to the extent any had become applicable in 2009, would have been based on an annual base salary of $750,000). Mr. Kneeland believed this reduction was an important leadership step to take, given the cutbacks and other sacrifices being asked of the Company’s other employees. On January 1, 2010, Mr. Kneeland’s annual base salary reverted back to its previous annual rate of $750,000, consistent with the Committee’s actions in 2009.

 

In March 2010, the Committee again considered merit increases to the base salaries of the Company’s named executive officers. Based on management’s recommendation, the Committee determined not to increase any named executive officer’s base salary for 2010. This decision reflected the continued challenges in the Company’s end markets and the ongoing focus on cost control. Although the Committee did not exercise its discretion to increase base salaries based on any named executive officer’s individual performance in 2009 or 2010, it reserves its discretion to do so in subsequent years.

 

Performance-Based Compensation

 

Performance-based compensation primarily serves two functions. First, it creates an incentive to focus on and achieve the objectives we identify as significant. Historically, the performance goals have varied depending on the individual executive’s functions in the Company. The Committee works with its compensation consultant and with senior management, including the named executive officers, to identify the specific areas to be addressed by performance goals and decide on appropriate targets.

 

Second, performance-based compensation provides a mechanism by which named executive officers’ compensation fluctuates with the performance of the Company, thus helping to align named executive officers’ interests with those of stockholders. This is accomplished with comprehensive performance measures, such as earnings before interest, taxes, depreciation and amortization

(“EBITDA”), EBITDA as a percentage of revenue (“EBITDA Margin”), free cash flow and reduction in SG&A expense, which focus more on the Company’s profitability or cash flows than the achievement of a specific goal. In addition, performance-based awards that are equity-based fluctuate in value with the stock price, directly aligning executives’ interests with those of stockholders.

 

For Messrs. Kneeland and Plummer, the Committee decided that performance measures for 2009 should primarily be tied to specific objective Company performance criteria and applied with equal weight to each executive. In making this determination, the Committee determined that the achievement of the 2009 performance criteria be subject to an additional objective threshold funding formula tied to the achievement of EBITDA. The performance goals selected for 2009 related to specific objective Company performance criteria, and the Company criteria themselves were ones highly correlated to enhancing stockholder value: EBITDA, EBITDA Margin, free cash flow, and reduction in SG&A expense. In addition, given the role of management in the important strategic initiatives underway at the Company, the Committee also established a discretionary performance objective tied to growth in the Company’s national accounts rental revenue as a percentage of total Company rental revenue and to the implementation of certain key technology programs focused on pricing and logistics. The discretionary performance objective was also tied to the threshold EBITDA funding formula described above.

 

For 2009, the Company’s performance compensation program for named executive officers was comprised of three components: (i) an annual cash incentive, (ii) restricted stock units that vest based upon continued employment with the Company, and (iii) stock options that reward executives for improvement in the Company’s stock price. Performance-based awards typically are granted simultaneously to all employees in connection with a Committee meeting held in March of each year. The date of the meeting is set several months in advance of the meeting, which usually occurs after the announcement of the Company’s results for the previous fiscal year and before the end of the first fiscal quarter.

 

The decision to award stock options in 2009 was reflective of the deepening recession and the increasing difficulty of forecasting results, principally in lieu of a cash-based long-term incentive award (which requires forecasts as to three-year cumulative EBITDA) and performance-based restricted stock unit grants (which, depending on the performance measure and award design, require one- to three-year forecasts). In 2010, the Committee decided to once again grant stock options as a performance-based award due to the continuing economic uncertainty and difficulty in forecasting three-year results.

 

Annual Performance-Based Cash Incentives

 

In 2009, the Company maintained the 2009 Annual Incentive Compensation Plan (the “Executive Plan”) to provide annual cash compensation to its executives upon the achievement of pre-established performance goals. The Executive Plan is important for creating incentives that will focus certain executives on, and reward them for, increasing stockholder value as well as improving the Company’s overall performance. The Committee determines the specific performance goals under the Executive Plan, while the Executive Plan itself sets general parameters for the performance goals. The Executive Plan defines these parameters in order to qualify payments made under this plan as performance-based for purposes of Internal Revenue Code Section 162(m). By setting the performance goals annually, the Committee is able to design compensation that is appropriate for the specific year, encouraging and rewarding attention to the specific areas that are significant to the Company in that year. Consequently, the specific performance goals and the extent to which they differ among executives may vary from year to year. In 2009, Messrs. Kneeland and Plummer were the only named executive officers to participate in the Executive Plan since they were the only named executive officers (Mr. Plummer only if he qualified as a named executive officer and was not our chief financial officer) with compensation that, in certain circumstances, could have approached the limit on deductibility under Internal Revenue Code Section 162(m); the other named executive officers participated in the Company’s corporate incentive program which is described below.

The Executive Plan permits awards up to $5 million per year. In 2009, the Committee established a target incentive for Mr. Kneeland of 125% of base salary and limited his maximum award benefit to 150% of base salary, which was consistent with the incentive targets specified in Mr. Kneeland’s employment agreement. The Committee also established a target incentive of 80% of base salary for Mr. Plummer and provided for a maximum award benefit of 125% of base salary, which was consistent with the incentive targets specified in Mr. Plummer’s employment agreement.

 

In 2009, awards under the Executive Plan were designed so that achievement of EBITDA targets (0.2% for Mr. Kneeland and 0.1% for Mr. Plummer) would establish the maximum award level for each of Messrs. Kneeland and Plummer, with actual award levels determined by formulas based on additional performance criteria and the exercise of negative discretion by the Committee. The additional performance criteria for 2009 were based on the achievement of specific objective Company goals, with their selection intended to support the Company’s strategic plan focused on EBITDA, EBITDA margin, the generation of significant free cash flow in a challenging economic environment, and a continued focus on reducing SG&A expense. In addition, the additional performance criteria for 2009 included a key component of the Company’s evolving strategy, a discretionary objective tied to growth in national accounts rental revenue as a percentage of total Company rental revenue. The Committee determined to apply each of the aforementioned performance criteria equally to Messrs. Kneeland and Plummer. While the Company ceased providing earnings guidance in 2009, the bonus target payout levels based on EBITDA and EBITDA margin were set to goals significantly higher than the internal operating plan approved by the Board. And, in the case of free cash flow and SG&A expense reduction, the bonus target payout levels were set at or higher than the public guidance. In setting target measures for these goals, the Committee believed that correlating them to achievement well in excess of the internal operating plan was appropriate as an alignment of Messrs. Kneeland and Plummer and stockholder interests. If the internal operating plan was achieved for each of these metrics at their top end, the target incentive amounts would be paid and if the actual internal operating plan was achieved, reduced incentives would be paid. And, finally, if the certain thresholds below the internal operating plan were not achieved, then no incentives would be paid. At the time they are set, achievement of the performance goals established by the Committee is substantially uncertain. The threshold-level goals can be characterized as “stretch but attainable” goals, meaning that, based on historical performance, although attainment of this performance level is uncertain, it can reasonably be anticipated that the threshold level of performance may be achieved, while the target and maximum goals represent increasingly challenging and aggressive levels of performance.

 

The Committee established the following threshold, target and maximum payout amounts as a percentage of base salary under the Executive Plan.

 

 

Throughout 2009, as the economy continued its downturn, the Company’s operating results were negatively affected. As a result, only two of the four objective performance measures set for 2009 under the Executive Plan, free cash flow and reduction in SG&A expense, were achieved above their threshold level. Neither of the remaining objective performance measures set for 2009, EBITDA and EBIDTA Margin, were met even at their threshold level under the Executive Plan. The table below

summarizes the threshold-, target- and maximum-level goals established by the Committee and the actual performance of the Company.

 

 

 

 

Based on the pre-established bonus formula under the Executive Plan, Mr. Kneeland was entitled to a bonus of $538,200 and Mr. Plummer was entitled to a bonus of $268,660. While the formula under the Executive Plan would have generated a higher bonus funding, Messrs. Kneeland and Plummer requested that the Committee set their annual bonus funding to the discretionary pool determined under the Company’s corporate incentive program to ensure that they were receiving the same consideration as other corporate employees. While the Committee believed that both Messrs. Kneeland and Plummer had put forth their best efforts under very difficult circumstances in 2009, and through their leadership had helped to steer the Company during the downturn, the Committee agreed with the fairness of their request. As a result, the Committee determined to use its discretion to reduce the incentive payments to Messrs. Kneeland and Plummer to be consistent with the funding formula used under the Company’s corporate incentive program at the maximum level. As a result, for 2009, Mr. Kneeland received a bonus of $202,500 and Mr. Plummer received a bonus of $82,080.

 

In 2009, the Company did not implement any annual incentive formulas or entitlements for Messrs. Gottsegen, Dixon and DeWitt. Instead, annual incentive compensation for these executives was entirely discretionary. We believe this provided us the flexibility we needed to support our success during these difficult times and to respond to changing market conditions. Fiscal 2009 was a volatile year for us and the Company and the Committee took these factors into account as well as performance reviews provided by Messrs. Kneeland and Plummer when determining annual incentive compensation for Messrs. Gottsegen, Dixon and DeWitt. The Company and the Committee also considered Mr. Gottsegen’s partial year of service in 2009 when determining his annual incentive compensation.

 

In determining the amount of bonuses to pay for 2009, the Company considered achievement of the performance goals used under the Executive Plan and the executive’s pre-established target bonus. Due primarily to the significant year-over-year decline in the Company’s EBITDA, the incentive funding reflected the Company’s achievements in generating free cash flow and cost reduction efforts. Such funding was the lowest in the Company’s history and reflects the Company’s performance in 2009. As a result, Messrs. Gottsegen, Dixon and DeWitt received payments of $36,000 (reflecting partial year of service), $40,000 and $42,000, respectively.

 

Equity Compensation

 

The Committee believes that equity compensation is an important component of performance-based compensation in its ability to directly align the interests of the named executive officers with those of stockholders. The Committee recognizes that different types of equity compensation afford different benefits to the Company and the recipients. In the past, the Company utilized stock options and restricted shares as the primary equity compensation vehicles for named executive officers.

Beginning in 2006 and continuing through 2008, the Company utilized restricted stock units (“RSUs”), both RSUs that vested based on achievement of certain performance goals (“performance-vested” awards) and RSUs that vested based simply on continued employment (“time-vested” awards), as the primary means of equity compensation. As noted above and described below, for 2009 and 2010, the Committee decided to use stock options as the performance-based component of long-term equity incentive compensation, in conjunction with time-vested RSUs. This move away from granting performance-based RSUs is in large part due to the continued difficulty of forecasting long-term performance in the current economic environment.

 

Stock-settled RSUs are “full value grants,” meaning that, upon vesting, the recipient is awarded the full share. As a result, while the value executives realize in connection with an award of RSUs does depend on our stock price, time-vested RSUs generally have some value even if the Company’s stock price significantly decreases following their grant (unlike performance-based RSUs that do not vest unless the performance level is achieved). As a result, time-vested RSUs help to secure and retain executives and instill an ownership mentality, regardless of whether the Company’s stock price increases or decreases. In contrast, stock options aim to align the executives’ interest with that of stockholder interests by providing the opportunity for executives to realize value only when the Company’s stock price increases relative to the exercise price following their grant. Accordingly, stock options may end up having no value if, subsequent to the date of grant, the Company’s common stock price declines below the exercise price and does not recover before the expiration of the stock option. Furthermore, if the stock price does increase relative to the exercise price, the vesting period helps to retain executives. Because the expense to the Company is less for each stock option than for each RSU, the Committee can award an executive significantly more stock options than RSUs when attempting to provide a specified value—which means that stock options potentially provide more upside potential and, therefore, greater incentive to increase stockholder value through an appreciated share price. Historically, neither the Company’s RSUs nor its stock options earned any dividend equivalents.

 

In determining the size of each equity award granted, the Committee considers a variety of factors, including benchmarking data on competitive long-term incentive values, the percentage of long-term incentive value to be allocated to time-vested RSUs as opposed to performance-vested RSUs and stock options, the strategic importance of the executive’s position within the Company as a whole and, in the case of new hires, the compensation such executive received from his or her prior employer. In terms of the actual allocation between time-vested RSUs as opposed to stock options, we allocate 60% of the total equity awards to stock options because, as discussed above, we believe stock options aim to align the executives’ interest with that of stockholder interests by providing the opportunity for executives to realize value only when the Company’s stock price increases relative to the exercise price following their grant. In prior years, once the dollar value of the size of the equity award had been determined (using the factors described above), the actual number of RSUs or options to be granted would be calculated by dividing the dollar value of the proposed award by the share price of the Company’s stock on the equity award grant date. However, for the equity awards granted in March 2009, the Committee deviated from this methodology because it believed that the Company’s stock price did not reflect its implied value based on a variety of key performance factors. As a result, the Committee used an assumed stock price of $8 to determine the number of RSUs or stock options (but not the exercise price) to be granted in 2009 versus the actual price of $3.375 on the date the awards were approved by the Committee. This more conservative approach to determining the amount of RSUs and stock options to be granted resulted in a lower number of overall shares granted from the equity pool in 2009 than would have been granted under the previous methodology since the assumed stock price exceeded the actual stock price on the grant date.

 

In “Proposal 2—Approval of 2010 Long Term Incentive Plan,” the Company is soliciting stockholder approval of the 2010 Long Term Incentive Plan, which was adopted by the Committee in March 2010. If approved, the 2010 Long Term Incentive Plan will replace our existing equity compensation plans and become the vehicle for future equity compensation.

Time-Vested RSUs.  In 2009, the Committee awarded time-vested RSUs to each of Messrs. Gottsegen, Dixon, and DeWitt. Messrs. Kneeland and Plummer did not receive an award of time-vested RSUs in 2009 as Mr. Kneeland had received a grant of 80,000 time-vested RSUs in 2008 in recognition of the fact that he did not receive an equity grant in 2007 and Mr. Plummer received an award of 40,000 time-vested RSUs in connection with his initial hire in December 2008.

 

In determining the size and terms of the RSU awards, the Committee reviewed benchmark data on competitive long-term incentive values, existing equity awards and vesting schedules. As a result, the Committee awarded Mr. Gottsegen 17,000 RSUs (in connection with his 2009 employment), Mr. Dixon 10,000 RSUs and Mr. DeWitt 10,000 RSUs (each with vesting for one-third of the shares on each anniversary of the grant date, with full vesting occurring after three years).

 

Stock Options.  Recognizing that longer-term forecasts were becoming increasingly difficult in the current environment, the Committee decided to grant stock options in 2009 as the Company’s performance-based long-term incentive awards.

 

Mr. Plummer’s December 2008 hire and related employment agreement required the Company to grant him during 2009 a performance-based long-term incentive award with an anticipated target value of $450,000, based on the valuation method used by the Company with respect to other awards to senior executives, but without specifying the form of award. The target value of $450,000 reflected the value of his incentive awards at his prior employer and benchmarking data on competitive long-term incentive values. Based on the considerations outlined above, the Committee determined to fulfill this obligation in March 2009 by awarding him a stock option to purchase 100,000 shares of the Company’s common stock, with equal annual installments vesting over a three-year period. The award, as is the case with all the Company’s stock option awards, was granted at an exercise price equal to the average of high and low trading prices of the Company’s common stock on the date of grant.

 

Reflecting similar considerations, the Committee, in March 2009, authorized a stock option award to Mr. Kneeland to purchase 160,000 shares of the Company’s common stock (with the same vesting terms as Mr. Plummer’s grant), in lieu of the 45,000 performance-based RSUs (assuming target performance) required under the terms of his employment agreement. The performance-based RSUs had a target value of $720,000, reflecting benchmarking data for competitive long-term incentive values, and the contemplated RSU award was converted into a stock option award of equivalent value based on the same estimated value per option that was used to determine the size of option grants to other executives.

 

In connection with his commencing employment in 2009, Mr. Gottsegen received a stock option award to purchase 40,000 shares of the Company’s common stock. Also in 2009, Mr. Dixon received a stock option award to purchase 35,000 shares of the Company’s common stock and Mr. DeWitt received a stock option award to purchase 30,000 shares of the Company’s common stock. The size and terms of the stock option awards were determined by the Committee based on a review of benchmark data on competitive long-term incentive values and existing equity awards.

 

Long-Term Performance-Based Cash Incentives

 

In 2008, the Committee engaged Towers Perrin to assist in redesigning its long-term cash incentive plan for non-executive employees. The Committee ultimately decided to adopt the performance measures in the new plan for purposes of establishing the performance goals for its 2008 grants of performance-based long-term incentive units (“Units”) to its executives because it felt that it was desirable to have the Company’s executives strive for and focus on achieving performance goals more directly comparable to the goals asked of non-executive employees. Mr. Kneeland is the only current named executive officer who received such a grant in the amount of 105,000 Units, reflecting the fact that neither Messrs. Plummer, Gottsegen, DeWitt, nor Dixon had been hired until after such grants had been made and did not receive formal grants. For 2008, the grants of Units replaced awards of performance-based RSUs.

In considering the grants of Units for 2008, the Committee, as it had with setting 2008 goals under the Executive Plan, desired to align executive incentives more precisely with objective Company performance criteria and, more specifically, with the Company-wide performance objective of achieving profitable, long-term EBITDA growth. As a result, the Units have a single performance goal, focused on EBITDA growth and margin and measured solely at the end of the three-year performance period (December 31, 2010). Depending upon the extent to which the performance goal is achieved or surpassed, the Units will achieve a cash-settled formulaic per-unit value. The Committee believed that these features were appropriate to re-align our long-term incentive grants with the Company’s revised 2008 strategic plan.

 

Accordingly, the Units, which will vest on December 31, 2010, have a per-unit value that will be based primarily upon the extent to which the Company achieves or surpasses 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 per-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).

 

It is presently anticipated based on the Company’s performance in 2008 and 2009 (the first two years of the three year performance period), that the performance targets will not be met, even at the threshold level. As a result, it is anticipated that Mr. Kneeland will forfeit all Units awarded to him under this plan on December 31, 2010.

 

Severance and Change in Control Benefits

 

The Committee believes that agreeing to provide reasonable severance benefits is common among similar companies and is essential to recruiting and retaining key executives, which is a fundamental objective of our executive compensation program. Accordingly, the employment agreements with the named executive officers generally provide for varying levels of severance in the event that the Company terminates the executive without “cause” or the executive terminates for “good reason” (each as defined in the employment agreement with the executive, as set forth in more detail under “Benefits upon Termination of Employment”). Mr. Kneeland would receive 450% of his base salary prior to the voluntary reduction in 2009 paid over a two-year period. Mr. Plummer would receive 180% of his base salary paid over one year. Mr. Gottsegen would receive 160% of his base salary paid over one year. Mr. DeWitt would receive a severance payment equal to 100% of his base salary paid over one year and Mr. Dixon would receive a severance payment equal to 100% of his base salary paid over one year plus the pro-rata portion of his target annual cash bonus.

 

In addition, the Company’s time-vested RSU grants to Messrs. Kneeland, Plummer, Dixon and DeWitt in 2008 and to Mr. Gottsegen in 2009, as well as the 2009 awards of stock options granted to Messrs. Kneeland, Plummer and Gottsegen, provide that, if the Company terminates the executive without “cause” or the executive terminates for “good reason,” a pro-rata portion of such RSUs or stock options scheduled to vest during the year of termination will vest on the date of termination. However, the Company does not currently expect that its future equity awards will provide for pro-rata vesting upon termination of employment. The Company’s time-vested RSU grants to Messrs. Dixon and DeWitt in 2009, as well as their 2009 awards of stock options, provide that, if the Company terminates the executive without “cause,” all unvested RSUs or stock options will be cancelled, unless such termination occurs within twelve months following a change in control, in which case all such unvested RSUs and stock options will immediately vest. The Company also typically provides its executives with COBRA continuation coverage for a period coterminous with the duration of their severance benefit, although variations exist.

 

The prospect of a change in control of the Company can cause significant distraction and uncertainty for executive officers and, accordingly, the Committee believes that appropriate change in control provisions in employment agreements and/or equity awards are important tools for aligning executives’ interests in change in control scenarios with those of stockholders by allowing our

executive officers to focus on strategic transactions that may be in the best interest of our stockholders without undue concern regarding the effect of such transactions on their continued employment. In addition, changes to the Company following a change in control may affect the ability to achieve previously set performance measures. Consequently, 2009 RSU and stock option awards to the named executive officers include the following provisions:

 

 

A “change in control” for this purpose is defined in the employment agreement with the executive or in the applicable award agreement, as set forth in more detail under “Benefits upon a Change in Control.”

 

Older RSU awards for executives, both time-based and performance-based, generally include comparable, if not substantially identical, provisions (although some awards had full vesting of time-based RSUs solely upon the occurrence of a change in control). While we believe that the Company’s severance and change in control benefits are in line with the most prevalent practices of comparably-sized companies, we believe that the current requirement of a “double trigger” for full vesting of time-based RSUs, which is less common, is more appropriate in the current economic environment.

 

The existence of arrangements providing for severance and change in control benefits did not affect decisions that the Committee made regarding other compensation elements.

 

The Internal Revenue Code imposes an excise tax on the value of certain payments that are contingent upon a change in control, referred to as parachute payments, which exceed a safe harbor amount. The Company does not provide any executive with a gross-up for any excise tax that may be triggered. Mr. Kneeland’s employment agreement provides that, if he receives payments that would result in the imposition of the excise tax, such payments will be reduced to the safe harbor amount so that no excise tax is triggered if the net after-tax benefit to him is greater than the net after-tax benefit that he would receive if no reduction occurred.

 

The severance and change in control provisions of our named executive officers’ employment agreements and other arrangements are described in detail in the sections “Benefits upon Termination of Employment” and “Benefits upon a Change in Control,” respectively.

 

Retirement Benefits

 

The Committee believes that providing a cost-effective retirement benefit for the Company’s executives is an important recruitment and retention tool. Accordingly, the Company maintains a 401(k) plan for all employees, and provides discretionary employer-matching contributions (subject to certain limitations including for 2009, an annual limit of $500) based on an employee’s contributions.

 

The Company affords the named executive officers an opportunity to defer a portion of their compensation in excess of the amounts that are legally permitted to be deferred under the Company’s 401(k) plan and to defer the receipt of the shares of the Company’s common stock that ordinarily would be received upon the vesting of RSUs. Any deferred compensation is credited with earnings based on the investment performance of investments selected by the executive. No such earnings would be considered above market or preferential. The deferred RSUs are not credited with earnings, but changes in the value of our common stock similarly change the value of the deferred RSUs. The deferred compensation, which may be of significant benefit to the executives and entails a minimal administrative expense for the Company, is a common benefit provided to senior executives of

similarly situated companies. Consequently, the Committee believes that it is appropriate to provide such deferred compensation.

 

Perquisites and Other Personal Benefits

 

We also maintain employee benefit programs for our executives and other employees. Our named executive officers generally participate in our employee health and welfare benefits on the same basis as all employees.

 

The Company does not have a formal perquisite policy, although the Committee periodically reviews perquisites for our named executive officers. Rather, there are certain specific perquisites and benefits with which the Company has agreed to compensate particular executives based on their specific situations. Among these are relocation costs, including temporary housing and living expenses, and use of Company vehicles.

 

Recoupment Policy

 

Beginning with Mr. Kneeland’s new employment agreement entered into in August 2008, and continuing with Mr. Plummer’s December 2008 employment agreement and Mr. Gottsegen’s February 2009 employment agreement, the Committee has included “clawback” provisions in its agreements that generally require reimbursement of amounts paid under performance provisions (in the case of cash incentives and performance-based RSUs) if amounts were paid or shares vested based on financial results that subsequently become subject to certain “mandatory restatements” (as defined in the applicable employment agreement) that would have led to lower payments or forfeiture of all or a portion of shares subject to an award. More generally, for all 2009 RSU and stock option awards, including RSUs with time-based vesting, the award forms now include an “injurious conduct” provision that requires forfeiture of the award or, to the extent the award has vested or been exercised within six months prior to the occurrence of the relevant conduct, mandates reimbursement of shares or amounts realized. The injurious conduct concept is generally focused on actions that would constitute “cause” under an employment agreement, which are in material competition with the Company or breach the executive’s duty of loyalty to the Company.

 

Stock Ownership Guidelines

 

The Committee believes stock ownership guidelines are a key vehicle for aligning the interests of management and the Company’s stockholders. Moreover, a meaningful direct ownership stake by our officers demonstrates to our investors a strong commitment to the Company’s success. Accordingly, in February 2010, the Committee adopted stock ownership guidelines for our named executive officers and approximately 30 other officers with a title of vice president and above. Under the stock ownership guidelines, the Company’s chief executive officer is required to hold five times his base salary in the Company’s common stock, the chief financial officer is required to hold three times his base salary in the Company’s common stock, and all other officers are required to hold one times their base salary in the Company’s common stock. The following shares count towards meetings these ownership guidelines: shares that are directly owned by the executive; shares that are beneficially owned by the executive, such as shares held in “street name” through a broker or shares held in trust; amounts credited to the executive’s deferred compensation or 401(k) accounts that are invested or deemed invested in the Company’s common stock; unvested restricted stock or restricted stock units that vest based on continued service; and the value of the spread (the difference between the exercise price and the full market value of the Company’s common stock) of fully vested stock options. The named executive officers and the other officers are required to be in compliance with such guidelines within five years of their effective date in February 2010. The Committee will periodically monitor progress towards meeting the stock ownership guidelines.

 

In addition, to further align our executives with the interests of the Company’s stockholders, the Company’s insider trading policy and the 2010 Long Term Incentive Plan for which we are soliciting

stockholder approval in “Proposal 2—Approval of 2010 Long Term Incentive Plan,” prohibit transactions designed to limit or eliminate economic risks to our executives from owning the Company’s common stock, such as transactions involving options, puts, calls or other derivative securities tied to the Company’s common stock.

 

Tax and Accounting Implications

 

When it reviews compensation matters, the Committee considers the anticipated tax and accounting treatment of various payments and benefits to the Company and, when relevant, to the executive. Internal Revenue Code Section 162(m) limits to $1 million the annual tax deduction for compensation paid to each of the chief executive officer and the three other highest paid executive officers employed at the end of the year (other than the chief financial officer). However, compensation that does not exceed $1 million during any fiscal year or that qualifies as “performance-based compensation” (as defined in Internal Revenue Code Section 162(m)) is deductible. The Committee considers these requirements when designing compensation programs for named executive officers. Although the Company has plans that permit the award of deductible compensation under Internal Revenue Code Section 162(m), the Committee does not necessarily limit executive compensation to the amount deductible under that provision. Rather, it considers the available alternatives and acts to preserve the deductibility of compensation to the extent reasonably practicable and consistent with its other compensation objectives. As a result, most of the Company’s compensation programs (including annual performance-based cash incentives, long-term performance-based cash incentives, stock options and performance-based RSUs) are designed to qualify for deductibility under Section 162(m). However, in certain situations, the Committee may approve compensation that will not meet these requirements in order to ensure competitive levels of total compensation for the named executive officers or for other reasons.

 

New employment or similar agreements and employee benefit plans are prepared with the assistance of outside counsel and will be designed to comply with Section 409A and the applicable regulations, a tax law enacted in 2004 that governs “nonqualified deferred compensation.”

 

The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”), which requires the Company to recognize a compensation expense relating to share-based payments (including stock options and other forms of equity compensation). ASC 718 is taken into account by the Committee in determining which types of equity awards should be granted.

 

The Compensation Committee has reviewed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and discussed that analysis with management and with the Compensation Committee’s independent compensation consultant. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

THE COMPENSATION COMMITTEE*

 

Singleton B. McAllister, Chairman
Bobby J. Griffin
L. Keith Wimbush

 

 

* In connection with a realignment of Board committees on October 28, 2009, Messrs. Alvarez and McAuley relinquished their roles as members of the Compensation Committee. As such, they did not participate in the review, discussions and recommendation with respect to the Compensation Discussion and Analysis included in this proxy statement.

 

The table below summarizes the total compensation paid or earned by each of the named executive officers for the fiscal years ended December 31, 2009, 2008 and 2007.

 

 

 

 

 

Many of the components of the compensation for the named executive officers are based on their employment agreements with us. The following discussion explains the material terms of the employment agreements and also explains other compensation components not included in such agreements. The rights of the named executive officers to receive certain benefits upon termination of employment or a change in control of the Company are described below under “Benefits upon Termination of Employment” and “Benefits upon a Change in Control,” respectively.

 

Mr. Kneeland

 

Base Salary. Mr. Kneeland suggested and the Committee agreed to a reduction of his annual base salary by 20% to $600,000 for 2009. On January 1, 2010, Mr. Kneeland’s annual base salary reverted back to its previous annual rate of $750,000, consistent with the Committee’s actions in 2009. The Committee determined not to change Mr. Kneeland’s base salary for 2010 (other than restoring it to pre-2009 levels).

 

2009 Annual Incentive Compensation Plan. Mr. Kneeland is eligible to participate in the plan each year and, in 2009, as required by his employment agreement, Mr. Kneeland’s target incentive was 125% of base salary and his maximum incentive was 150% of base salary. The maximum incentive established by the Committee was 0.2% of EBITDA, subject to the limits included in Mr. Kneeland’s employment agreement and the Committee’s exercise of discretion to reduce the amount of Mr. Kneeland’s incentive payment. Mr. Kneeland received his performance-based cash incentive for 2009 in the amount of $202,500.

 

Restricted Stock Units. Mr. Kneeland did not receive a restricted stock unit award in 2009.

 

Stock Options. Mr. Kneeland was granted a stock option to purchase 160,000 shares of the Company’s common stock on March 13, 2009, in lieu of the 45,000 performance-based RSUs (assuming target performance) required under the terms of his employment agreement.

 

Mr. Plummer

 

Base Salary. Mr. Plummer’s annual base salary in 2009 was $475,000. The Committee determined not to change Mr. Plummer’s base salary for 2010.

 

2009 Annual Incentive Compensation Plan. Mr. Plummer is eligible to participate in the plan each year and, in 2009, as required by his employment agreement, Mr. Plummer’s target incentive was 80% of base salary and his maximum incentive was 125% base salary. The maximum incentive

established by the Committee was 0.1% of EBITDA, subject to limits included in Mr. Plummer’s employment agreement and the Committee’s exercise of discretion to reduce the amount of Mr. Plummer’s incentive payment. Mr. Plummer received his performance-based cash incentive for 2009 in the amount of $82,080.

 

Restricted Stock Units. Mr. Plummer did not receive a restricted stock unit award in 2009.

 

Stock Options. Mr. Plummer was granted a stock option to purchase 100,000 shares of the Company’s common stock on March 13, 2009.

 

Mr. Gottsegen

 

Base Salary. Mr. Gottsegen’s annual base salary in 2009 was $350,000. The Committee determined not to change Mr. Gottsegen’s base salary for 2010.

 

Annual Cash Incentive. Mr. Gottsegen received a discretionary bonus payment of $36,000 for 2009. The calculation of this payment is described in “Compensation Discussion and Analysis—Performance-Based Compensation.”

 

Restricted Stock Units. The Committee granted Mr. Gottsegen 17,000 time-vested RSUs on March 13, 2009. The terms of this grant are described in “Compensation Discussion and Analysis—Performance-Based Compensation.”

 

Stock Options. The Committee granted to Mr. Gottsegen a stock option to purchase 40,000 shares of the Company’s common stock on March 13, 2009.

 

Relocation Expense. In connection with his February 2009 hire, Mr. Gottsegen received benefits in an aggregate amount of $138,732 in connection with his relocation.

 

Mr. DeWitt

 

Base Salary. Mr. DeWitt’s annual base salary in 2009 was $310,000. The Committee determined not to change Mr. DeWitt’s base salary for 2010.

 

Annual Cash Incentive. Mr. DeWitt received a discretionary bonus payment of $42,000 for 2009. The calculation of this payment is described in “Compensation Discussion and Analysis—Performance-Based Compensation.”

 

Restricted Stock Units. The Committee granted Mr. DeWitt 10,000 time-vested RSUs on March 13, 2009. The terms of this grant are described in “Compensation Discussion and Analysis—Performance-Based Compensation.”

 

Stock Options. The Committee granted to Mr. DeWitt a stock option to purchase 30,000 shares of the Company’s common stock on March 13, 2009.

 

Relocation Expense. In connection with his May 2008 hire, Mr. DeWitt received benefits in an aggregate amount of $28,989 in connection with his relocation.

 

Mr. Dixon

 

Base Salary. Mr. Dixon’s annual base salary in 2009 was $300,000. The Committee determined not to change Mr. Dixon’s base salary for 2010.

 

Annual Cash Incentive. Mr. Dixon received a discretionary bonus payment of $40,000 for 2009. The calculation of this payment is described in “Compensation Discussion and Analysis—Performance-Based Compensation.”

 

Restricted Stock Units. The Committee granted Mr. Dixon 10,000 time-vested RSUs on March 13, 2009. The terms of this grant are described in “Compensation Discussion and Analysis—Performance-Based Compensation.”

Stock Options. The Committee granted to Mr. Dixon a stock option to purchase 35,000 shares of the Company’s common stock on March 13, 2009.

 

Relocation Expense. In connection with his June 2008 hire, Mr. Dixon received benefits in an aggregate amount of $37,322 in connection with his relocation.

 

Mr. Schwed

 

Mr. Schwed relinquished his position as executive vice president, general counsel and corporate secretary, effective February 18, 2009. The Company and Mr. Schwed entered into a separation agreement pursuant to which Mr. Schwed agreed to stay on for a transition period until March 31, 2009.

 

Base Salary. Mr. Schwed’s annual base salary in 2009 (until the end of the transition period on March 31, 2009) was $425,000.

 

Annual Incentive Compensation Plan. Mr. Schwed was eligible to participate in the plan each year and, as required by his employment agreement, in 2008, Mr. Schwed’s target incentive was 90% of his base salary and his maximum incentive was 125% of his base salary. Pursuant to the separation agreement between the Company and Mr. Schwed, which was entered into when Mr. Schwed relinquished his position, he received a lump-sum amount of $180,000 in lieu of any cash incentive for 2008 and 2009.

 

Restricted Stock Units. Mr. Schwed did not receive a restricted stock unit award in 2009.

 

Stock Options. Mr. Schwed did not receive a stock option to purchase shares in 2009.

 

Severance Benefits. Mr. Schwed received the severance benefits to which he was entitled under his employment agreement, including 190% of his base salary paid over a one-year period, as further described under “Benefits upon Termination of Employment.”

 

Benefits

 

The employment agreements of the named executive officers generally provide that they are entitled to participate in, to the extent otherwise eligible under the terms thereof, the benefit plans and programs, and receive the benefits and perquisites, generally provided by us to our executives, including family medical insurance (subject to applicable employee contributions).

 

Indemnification

 

We have entered into indemnification agreements with Messrs. Kneeland, Plummer and Gottsegen and former named executive officer, Mr. Schwed. Each of these agreements provides, among other things, for us to indemnify and advance expenses to each such officer against certain specified claims and liabilities that may arise in connection with such officer’s services to the Company.

 

The table below summarizes the equity and non-equity awards granted to the named executive officers in 2009.

 

 

 

 

The table below summarizes the amount of unexercised and unvested stock options, unvested shares of restricted stock, unvested RSUs and RSUs with performance conditions not yet satisfied for each named executive officer as of December 31, 2009. The vesting schedule for each grant can be found in the footnotes to this table, based on the grant date. For additional information about equity awards, see “Compensation Discussion and Analysis—Performance-Based Compensation.”

 

 

 

 

The table below summarizes, for each named executive officer, the number of shares acquired upon the exercise of stock options and the vesting of stock awards (with the value realized, based on the closing price per share of our common stock on the date of vesting).

 

 

The Company does not maintain any defined benefit pension plans.

 

The deferrals reflected in the table below were made under two plans: the United Rentals, Inc. Restricted Stock Unit Deferral Plan (the “RSU Deferral Plan”) and the United Rentals, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”). Both plans are unfunded plans and the participants in the plans are unsecured general creditors of the Company. The Company did not make any contributions to either plan in 2009.

 

The RSU Deferral Plan permits executives to elect to defer receipt of shares of our common stock when RSUs vest. Ordinarily, when an RSU vests, the recipient of the RSU receives a share of our common stock in payment of the RSU. Under the RSU Deferral Plan, receipt of that share may be deferred to a date selected by the individual, consistent with the plan and applicable Internal Revenue Service regulations. The value of the deferred RSUs will fluctuate corresponding to changes in the value of our common stock; no other income is credited to the deferred RSUs.

 

The Deferred Compensation Plan permits executives to defer all or part of the individual’s base salary, annual cash incentive award or restricted stock awards. Consistent with the plan and applicable Internal Revenue Service regulations, the individual selects the date that payment of the deferred amounts will begin and the payment schedule, which may be a lump sum or up to 15 annual installments. Deferred amounts are credited with earnings (or losses) based on the investment experience of measurement indices selected by the participant from among the choices offered by the plan.

 

 

 

 

We summarize below the benefits in effect as of December 31, 2009, which the named executive officers would receive upon a termination of employment (other than Mr. Schwed, who is no longer an employee).

 

If the employment of any of the named executive officers is terminated by us without “cause” or by the executive (other than Mr. DeWitt and Mr. Dixon) for “good reason,” the executives would be entitled to the following benefits:

 

 

 

 

If the employment of any of the named executive officers is terminated due to death or disability, the executive (or his spouse or estate) would be entitled to the following benefits:

 

 

The table below summarizes the compensation that the named executive officers would have received had they been terminated as of December 31, 2009.

 

 

 

 

For each of Messrs. Kneeland, Plummer, Gottsegen, DeWitt and Dixon, “cause” generally includes, among other things, and subject to compliance with specified procedures: his willful misappropriation or destruction of our property; his conviction of a felony or other crime that materially impairs his ability to perform his duties or that causes material harm to us; his engagement in willful

conduct that constitutes a breach of fiduciary duty to us and results in material harm to us; and his material failure to perform his duties. For each of Messrs. Kneeland, Plummer and Gottsegen, “good reason” includes, among other things: demotion from the position set forth in the executive’s employment agreement; a decrease in compensation provided for under such agreement; a material diminution of the executive’s duties and responsibilities; or required relocation to another facility that is based more than 50 miles from Greenwich, Connecticut.

 

The definitions summarized above vary in some respects among the named executive officers’ agreements and are described in greater detail in such agreements, which have previously been or will be filed as exhibits to our periodic reports with the SEC.

 

Mr. Schwed is not included in the above table because Mr. Schwed relinquished his role as executive vice president and general counsel, effective February 18, 2009. Pursuant to the separation agreement between Mr. Schwed and the Company, Mr. Schwed continued to receive his regular salary during a transition period ending on March 31, 2009. Mr. Schwed also is entitled to receive (i) $807,500, representing 190% of his annual base salary ($425,000), paid over a one-year period, (ii) COBRA payments for up to the 12-month period contemplated in his employment agreement in the aggregate amount of $17,170, (iii) pro-rata vesting of 10,107 outstanding time-vested RSUs, with a value of $98,341 (based on the closing price per share of the Company’s common stock of $9.73 on October 1, 2009), and (iv) $14,200 representing the Kelley Blue Book trade in value for the automobile transferred to the executive on an “as is” basis for incremental consulting services, with the automobile’s fair market value being taxable to the executive. As discussed above, Mr. Schwed received a lump-sum amount of $180,000 in lieu of any cash incentive for 2008 and 2009 performance.

 

Separately, the Company also entered into a six-month consulting agreement with Mr. Schwed pursuant to which he received, among other things, $147,901 and COBRA continuation coverage (subject to his continuing to pay the employee contribution portion).

 

We summarize below the benefits in effect as of December 31, 2009, which the named executive officers would receive upon a change in control (other than Mr. Schwed, who is no longer an employee).

 

Pursuant to the applicable award agreement, in the event of a change of control of the Company, Mr. Kneeland would receive vesting of RSUs that would have vested based on continued employment with the Company and pro-rata vesting of Units that would have vested based on the actual achievement of performance goals as determined at the end of the performance period.

 

In addition, if we terminate Mr. Kneeland’s employment without “cause” or he resigns for “good reason” within 12 months following a change in control of the Company, Mr. Kneeland would receive the following benefits:

 

 

Pursuant to his award agreement, in the event of a change of control of the Company, Mr. Plummer would receive vesting of RSUs, that would have vested based on continued employment with the Company.

 

Pursuant to the applicable award agreement, each of Messrs. Gottsegen, DeWitt and Dixon would receive vesting of all RSUs and stock options and each of Messrs. Kneeland and Plummer

would receive vesting of all stock options that would have vested based on continued employment with the Company:

 

 

The table below summarizes the compensation that the named executive officers would have received in the event of a change in control of the Company as of December 31, 2009. Because the calculations in the table are based upon SEC disclosure rules and made as of a specific date, there can be no assurance that an actual change in control, if one were to occur, would result in the same or similar compensation being paid.

 

 

 

For purposes of the named executive officers’ grants, a “change in control” generally includes a person or entity acquiring more than 50% of the total voting power of the Company’s outstanding voting securities, as well as any merger, sale or disposition by the Company of all or substantially all of its assets or business combination involving the Company (other than a merger or business combination that leaves the voting securities of the Company outstanding immediately prior thereto continuing to represent—either by remaining outstanding or by being converted into voting securities of the surviving entity—more than 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or business combination). This definition varies in some respects among the named executive officers’ agreements and is described in greater detail in such agreements. In particular, earlier award agreements may contain different definitions.

 

The Company’s management reviews the Company’s compensation policies and practices, with a focus on incentive programs, to ensure they appropriately balance short and long-term goals and risks and rewards. Specifically, this review includes the annual cash incentive program and the long-term cash incentive plans that cover all senior management and a broad employee population, and equity compensation. These plans are designed to focus senior management and employees on increasing stockholder value and enhancing financial results. Based on this comprehensive review, we concluded that our compensation program does not encourage excessive-risk taking for the following reasons:

 

 

 

We are confident that our program is aligned with the interests of our stockholders and rewards for performance.

 

Director Fees

 

Directors who are executive officers of the Company are not paid additional compensation for serving as directors.

 

Our non-executive chairman receives total annual compensation of $351,000, with (i) one-half paid in cash, in arrears, quarterly at the same time that other non-management directors receive the cash component of their pay (described below), and (ii) one-half paid in fully vested RSUs, granted on the date of the Company’s annual meeting and, subject to acceleration in certain circumstances, settled three years after the date of grant. For any partial year, a pro-rata portion of such compensation is paid. Such compensation is in lieu of any other director’s pay (e.g., annual retainer fees, meeting attendance fees and RSU grants).

 

The compensation program for the other non-management directors is as set forth below. We believe our compensation arrangements for non-management directors are comparable to the compensation levels for non-management directors at the majority of our peer companies.

 

The current compensation arrangements are as follows:

 

 

The Board has adopted stock ownership guidelines for non-management directors. These guidelines state that, within four years after joining the Board (or May 1, 2006 in the case of existing members), non-management members of the Board should achieve and maintain a target minimum level of stock ownership of three times the annual cash retainer paid to each member.

 

We also maintain a medical benefits program, comparable to that offered to our employees, in which our directors are eligible to participate at their own cost. See “Director Compensation for Fiscal Year 2009” for additional information on directors’ compensation in 2009.

 

Deferred Compensation Plan for Directors

 

We maintain the United Rentals, Inc. Deferred Compensation Plan for Directors, under which our non-management directors may elect to defer receipt of the fees that would otherwise be payable to them. Deferred fees are credited to a book-keeping account and are deemed invested, at the director’s option, in either a money market fund or shares of our common stock. In such event, the director’s account either is credited with shares in the money market fund or shares of our common stock equal to the deferred amount, and the account is fully vested at all times.

 

The table below summarizes the compensation paid by the Company to non-management directors for the fiscal year ended December 31, 2009.

 

 

 

 

The table below and the notes thereto set forth, as of March 16, 2010 (unless otherwise indicated in the footnotes), certain information concerning the beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of our common stock by (i) each director and named executive officer of the Company, (ii) all executive officers and directors of the Company as a group and (iii) each person known to us to be the owner of more than 5% of our common stock.

 

 

 

 

 

None of the current members of the Compensation Committee has ever been an officer or employee of the Company or its subsidiaries or had any relationship with the Company requiring disclosure as a related party transaction under applicable rules of the SEC. During fiscal year 2009, none of our executive officers served as a member of the compensation committee of another entity, one of whose executive officers served on our Compensation Committee; none of our executive officers served as a director of another entity, one of whose executive officers served on our Compensation Committee; and none of our executive officers served as a member of the compensation committee of another entity, one of whose executive officers served as a member of our Board.

 

The Board has adopted a written policy for the review and approval of any “related party transaction,” which is defined under the policy as any relationship, arrangement, transaction or series of similar transactions between the Company and one of our executive officers, directors, director nominees (or their respective immediate family members), 5% stockholders or an entity in which any of the foregoing has a direct or indirect material interest, including transactions requiring disclosure under Item 404(a) of Regulation S-K under the Exchange Act, other than the following:

 

 

Any proposed related party transaction will be reviewed and, if deemed appropriate, approved by the Audit Committee. When practicable, the review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the Audit Committee will review, and, if deemed appropriate, ratify the transaction. In either case, the Audit Committee will take into account, among other factors deemed appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. The Board has also delegated to the chairman of the Audit Committee the authority to approve or ratify related party transactions in which the aggregate amount involved is reasonably expected to be less than $1 million, subject to reporting at the next Audit Committee meeting any such approval or ratification.

 

The Audit Committee operates pursuant to a written charter, which complies with the corporate governance standards of the NYSE. The Audit Committee reviews and reassesses its charter annually, and recommends any proposed changes to the full Board for approval. The Audit Committee charter was most recently reviewed and amended in April 2009. A copy of the current charter is available on our website at http://www.ur.com under “Corporate Governance” in the Investor Relations section.

 

Pursuant to its charter, the Audit Committee assists the Board in monitoring, among other things, the integrity of the Company’s financial statements and the performance of the Company’s internal audit function and independent auditors. Management is responsible for the Company’s financial reporting process, the system of internal controls, including internal control over financial reporting, and procedures designed to ensure compliance with accounting standards and applicable laws and regulations. The Company’s independent registered public accounting firm, Ernst & Young LLP (“E&Y”), is responsible for the integrated audit of the consolidated financial statements and internal control over financial reporting.

 

In the discharge of its responsibilities, the Audit Committee has reviewed and discussed with management and E&Y the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2009.

 

The Audit Committee has also discussed and reviewed with E&Y all communications required under the standards of the Public Company Accounting Oversight Board (the “PCAOB”), including the matters required to be discussed by E&Y with the Audit Committee under Statement on Auditing Standards No. 61, as amended (Communication with Audit Committees).

 

In addition, E&Y provided to the Audit Committee a formal written statement describing all relationships between E&Y and the Company that might bear on E&Y’s independence as required by the applicable requirements of the PCAOB regarding independent auditors’ communications with the audit committee concerning independence. The Audit Committee reviewed and discussed with E&Y any relationships that may impact E&Y’s objectivity and independence from the Company and management, including the provision of non-audit services to the Company, and satisfied itself as to E&Y’s objectivity and independence.

 

The Audit Committee also has discussed and reviewed with the Company’s vice president—internal audit (“VP-IA”) and E&Y, with and without management present, the Company’s work in complying with the requirements of Section 404 under the Sarbanes-Oxley Act of 2002 regarding internal control over financial reporting. In connection therewith, the Audit Committee also discussed with the VP-IA, with and without management present, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2009 and, with management and E&Y, E&Y’s audit report on internal control over financial reporting as of December 31, 2009.

 

Based upon the reviews and discussions outlined above, the Audit Committee recommended to the Board that the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2009 be included in the Company’s annual report on Form 10-K for such fiscal year for filing with the SEC.

 

THE AUDIT COMMITTEE

 

Brian D. McAuley, Chairman

John S. McKinney

Jason D. Papastavrou

Filippo Passerini

Keith Wimbush

 

General

 

At the annual meeting, stockholders will be asked to approve the United Rentals, Inc. 2010 Long Term Incentive Plan, or the 2010 Plan. On March 11, 2010, our Compensation Committee (which we refer to as the “Committee” in this Proposal 2) approved the adoption of the 2010 Plan, subject to approval by our stockholders at the 2010 annual meeting. The 2010 Plan will be effective as of the date of the annual meeting if approved by our stockholders. The 2010 Plan is intended to replace our 2001 Comprehensive Stock Plan (formerly the 2001 Senior Stock Plan), our 2001 Stock Plan and our 1998-2 Stock Option Plan, collectively, the predecessor plans. If the 2010 Plan is approved by our stockholders, no additional awards will be made under the predecessor plans but the terms and conditions of any outstanding awards granted under the predecessor plans will not be affected. If the 2010 Plan is not approved by stockholders, the plan will be null and void, but the predecessor plans will remain in full force and effect in accordance with their terms and conditions.

 

We operate in a challenging marketplace in which our success depends to a great extent on our ability to attract and retain employees of the highest caliber. One of the tools the Committee regards as essential in addressing these human resource challenges is a competitive long-term incentive program. The 2010 Plan will continue an employee long-term incentive program that we believe is very important for retention and motivation of our employees, and the 2010 Plan will provide us with a range of incentive tools and sufficient flexibility to permit the Committee to implement them in ways that will make the most effective use of the shares our stockholders authorize for incentive purposes.

 

The 2010 Plan authorizes the grant to employees (including prospective employees), directors and consultants of stock options, stock appreciation rights, shares of restricted stock, restricted stock unit awards and other stock-based or cash-based awards. Under the 2010 Plan, we will be authorized to issue up to 2,649,742 shares (which includes 249,742 shares of common stock available for grant under the predecessor plans as of the record date), increased by not more than 5,068,883 shares comprised of the number of shares subject to that portion of any option or other award outstanding pursuant to a predecessor plan which expires or is forfeited, terminated or cancelled for any reason without having been exercised or settled in full on or after the effective date of the 2010 Plan. As of the record date, a total of 3,601,040 shares were subject to outstanding stock option awards under the predecessor plans which had a weighted average exercise price of $13.74 per share and a weighted average remaining term of 6.58 years. There were also 1,467,843 shares subject to outstanding stock awards under the predecessor plans in the form of restricted stock units. The additional 2,400,000 shares of common stock the Committee has reserved for issuance under the 2010 Plan (i.e., shares not already available for grant under the predecessor plans) represent less than 4.0% of our outstanding common shares and less than 3.7% of our fully diluted common shares.

 

We continue to actively manage our use of shares of common stock available for equity-based compensation each year to maintain an acceptable burn rate, and our average annual burn rate over the three-year period ending December 31, 2009 was 1.47%. The following table sets forth information regarding the number of shares of common stock subject to stock options and restricted stock units grants in each of 2007, 2008 and 2009:

 

In order to facilitate approval of this proposal, in designing the 2010 Plan, we have taken into account our stockholders’ interests by including many features that are consistent with the guidelines established by proxy advisory firms and institutional shareholders and other compensation and governance best practices, including:

 

 

The Committee believes that the 2010 Plan will serve a critical role in attracting and retaining the high caliber employees, directors and consultants essential to our success and in motivating these individuals to strive to enhance our growth and profitability. The Committee also believes that stock ownership by employees provides performance incentives and fosters long-term commitment to our benefit and to the benefit of our stockholders. Therefore, the Board urges you to vote to approve the adoption of the 2010 Plan.

Summary of the 2010 Plan

 

The following summary of the material terms of the 2010 Plan is qualified in its entirety by reference to the complete text of the 2010 Plan, which is attached hereto as Appendix A.

 

Overview

 

The purpose of the 2010 Plan is to attract, retain and motivate employees (including prospective employees), directors and consultants and others who may perform services for the Company and its subsidiaries, to compensate them for their contributions to the long-term growth and profits of the Company, and to encourage them to acquire a proprietary interest in the Company’s success.

 

Administration

 

The Committee will administer the 2010 Plan unless a different committee is appointed by the Board. Among other things, the Committee will determine the persons who will receive awards under the 2010 Plan, when awards will be granted, the terms of the awards and the number of shares of the Company’s common stock subject to the awards. To the extent permitted by applicable law, the Committee may allocate among its members and/or delegate to any person who is not a member of the Committee or to any administrative group within the Company, any of its powers, responsibilities or duties, subject to the provisions of the 2010 Plan and guidelines established by the Committee. Our Board, in its sole discretion, also may grant awards or administer the 2010 Plan.

 

The Committee will have discretion to make all determinations in respect of the 2010 Plan (including, for example, the ability to determine whether individual awards may be settled in cash, shares of common stock, other awards or other property), and all such determinations will be final, binding and conclusive on all persons having an interest in the 2010 Plan or any award. The 2010 Plan provides, subject to certain limitations, for indemnification by the Company of any director or employee against all expenses, including attorneys’ fees, incurred in connection with any legal action arising from such person’s action or failure to act in administering the 2010 Plan.

 

Eligibility

 

Awards may be made to employees, directors and consultants and other individuals who may perform services for the Company and its subsidiaries. As of the record date, approximately 150 employees, including 7 executive officers, and 10 directors would have been eligible to receive awards under the 2010 Plan. The Committee reserves the right to determine which employees and directors will receive awards under the 2010 Plan and reserves the right to grant no awards in any particular year.

 

Common Stock Available for Awards under the Plan

 

Subject to adjustment as described below, the maximum aggregate number of shares of the Company’s common stock subject to awards granted under the 2010 Plan is 2,649,742 shares (which includes 249,742 shares available under the predecessor plans as of the record date), which may be increased by not more than 5,068,883 shares comprised of the number of shares subject to that portion of any option or other award outstanding pursuant to a predecessor plan which expires or is forfeited, terminated or canceled for any reason after the adoption of the 2010 Plan. Any shares subject to a “full value” award (i.e., an award settled in stock, other than an option, stock appreciation right or other award that requires the grantee to pay the grant date intrinsic value) will count against this limit as 1.26 shares for every share granted.

 

If any award granted under the 2010 Plan is forfeited, expires, terminates or otherwise lapses without delivery of the Company’s common stock free and clear of any restrictions or conditions that are part of such award, then the shares of the Company’s common stock underlying any such award will again become available for grant under the 2010 Plan on a one-for-one basis for each share subject to such award that is not a “full value” award and on a 1.26-for-one basis for each share subject to an award that is a “full value” award. Shares of the Company’s common stock

will not be treated as having been issued under the 2010 Plan and will therefore not reduce the number of shares available for issuance to the extent an award is settled in cash. Shares withheld by the Company in satisfaction of a tax withholding obligation will not again become available under the 2010 Plan. The number of shares available under the 2010 Plan will be reduced upon the exercise of a stock option or a stock appreciation right by the gross number of shares for which the award is exercised even if the option is exercised by means of a net-settlement exercise procedure. Shares of the Company’s common stock issued or assumed under the 2010 Plan in connection with any merger, consolidation, acquisition of property or stock, reorganization or similar transaction will not count against the number of shares that may be granted under the 2010 Plan.

 

Shares issued under the 2010 Plan may be authorized but unissued shares of the Company’s common stock or authorized and previously issued shares of the Company’s common stock reacquired by the Company. On the record date, the closing price of our common stock on the New York Stock Exchange was $8.25 per share.

 

Individual Award Limitations

 

To enable compensation provided in connection with certain types of awards to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Internal Revenue Code, the 2010 Plan establishes a limit on the maximum aggregate number of shares for which any performance-based award may be granted to an employee in any 12-month period of 2,649,742 shares. The maximum aggregate dollar value for which any performance-based award denominated in dollars may be granted to a grantee in any 12-month period is $15,000,000 for each 12-month period contained in the performance period for such award. These limits may be adjusted upward or downward as applicable, on a pro-rata basis for each full or partial 12-month period in the applicable performance period.

 

Adjustments for Capital Structure Changes

 

The Committee will adjust the terms of any outstanding award, the number and kind of shares of the Company’s common stock issuable under the 2010 Plan, the aggregate number of shares of common stock authorized from issuance under the predecessor plans that may become authorized for issuance under the 2010 Plan, the number of shares of common stock that can be issued through stock options intended to be “incentive stock options” under Section 422 of the Internal Revenue Code and the individual limits on the number of shares subject to awards in any one fiscal year, in such manner as it deems appropriate (including, without limitation, by payment of cash) in order to prevent the enlargement or dilution of rights as a result of any increase or decrease in the number of issued shares of the Company’s common stock resulting from a recapitalization, stock split, reverse stock split, stock dividend, spinoff, splitup, combination, reclassification or exchange of shares of the Company’s common stock, merger, consolidation, rights offering, separation, reorganization, liquidation, or any other change in the corporate structure or shares of the Company’s common stock, including any extraordinary cash dividend or extraordinary distribution.

 

Types of Awards

 

The 2010 Plan provides for grants of stock options (both stock options intended to be incentive stock options under Section 422 of the Internal Revenue Code and non-qualified stock options), stock appreciation rights, restricted shares, restricted stock units, dividend equivalent rights and other stock-based or cash-based awards (including the grant or offer for sale of unrestricted shares of common stock, performance share awards and performance units settled in cash and performance-based awards intended to comply with the exception for performance-based compensation under Section 162(m) of the Internal Revenue Code) pursuant to which the Company’s common stock, cash or other property may be delivered. Each award granted under the 2010 Plan will be evidenced by a written or electronic award agreement, which will govern that award’s terms and conditions.

Stock Options

 

A stock option entitles the recipient to purchase shares of the Company’s common stock at a fixed exercise price. The exercise price per share will be determined by the Committee but will not be less than 100% of the fair market value of the Company’s common stock on the date of grant and for incentive stock options granted to 10% stockholders, 110% of the fair market value. Fair market value will be the closing price of the Company’s common stock on the New York Stock Exchange on the date of grant. Stock options must be exercised within 10 years from the date of grant or 5 years for incentive stock options granted to 10% stockholders. Any reduction in the exercise price will require the approval of stockholders of the Company, except pursuant to the adjustment provisions or in other limited circumstances described above. No more than 2,649,742 shares of the Company’s common stock (subject to adjustment as described above) may be issued upon the exercise of incentive stock options granted under the 2010 Plan.

 

Stock Appreciation Rights

 

A stock appreciation right entitles the recipient to receive shares of the Company’s common stock, cash or other property equal in value to the appreciation of the Company’s common stock over the stated exercise price. The exercise price per share will be determined by the Committee, but will not be less than 100% of the fair market value of the Company’s common stock on the date of grant. Fair market value will be the closing price of the Company’s common stock on the New York Stock Exchange on the date of grant. Stock appreciation rights must be exercised within 10 years from the date of grant. Any reduction in the exercise price will require the approval of stockholders of the Company, except pursuant to the adjustment provisions described above.

 

Restricted Stock

 

Restricted stock is shares of the Company’s common stock that are registered in the recipient’s name, but that are subject to transfer and/or forfeiture restrictions for a period of time. The Committee may grant or offer for sale restricted shares of the Company’s common stock in such amounts, and subject to such terms and conditions, as the Committee may determine. The Committee may also grant restricted shares of the Company’s common stock in a manner which is intended to be deductible by the Company under Section 162(m) of the Internal Revenue Code, as discussed below. Subject to such limits as the Committee may determine from time to time, the recipient will have the same voting and dividend rights as any other stockholder of the Company.

 

Restricted Stock Units

 

A restricted stock unit is an unfunded, unsecured right to receive a share of the Company’s common stock, cash or other property at a future date. The Committee may grant restricted stock units in such amounts, and subject to such terms and conditions, as the Committee may determine. The Committee may also grant restricted stock units in a manner which is intended to be deductible by the Company under Section 162(m) of the Internal Revenue Code, as discussed below. The recipient will have only the rights of a general unsecured creditor of the Company and no rights as a stockholder of the Company until the Company’s common stock underlying the restricted stock units, if any, is delivered.

 

Dividend Equivalent Rights

 

The Committee may, in its discretion, include in the award agreement (other than for a stock option or a stock appreciation grant) a dividend equivalent right entitling the recipient to receive an amount equal to all or any portion of the regular cash dividends that would be paid on the shares of the Company’s common stock covered by such award as if such shares had been delivered. Dividend equivalent rights may be payable in cash, shares of the Company’s common stock or other property as determined by the Committee. Notwithstanding the foregoing, unless otherwise specified in an

award agreement, a grantee’s right to dividend equivalent payments in the case of an award that is subject to vesting conditions will be treated as unvested so long as such award remains unvested, and any such dividend equivalent payments that would otherwise have been paid during the vesting period will instead be accumulated (and, if paid in cash, reinvested in additional shares of common stock based on the fair market value or the date of reinvestment) and paid within 30 days following the date on which such award is determined by the Company to have vested.

 

Other Stock-Based or Cash-Based Awards

 

The Committee may grant other types of equity-based or cash-based awards, including the grant or offer for sale of unrestricted shares of the Company’s common stock, performance share awards and performance units settled in cash, in such amounts, and subject to such terms and conditions, as the Committee may determine. The Committee may also grant other awards in a manner which is intended to be deductible by the Company under Section 162(m) of the Internal Revenue Code, as discussed below.

 

Other stock-based or cash-based awards (and awards of restricted stock and restricted stock units) may, at the discretion of the Committee, be granted in a manner which is intended to be deductible by the Company under Section 162(m) of the Internal Revenue Code. For such awards, each performance period, the Committee will establish the performance goals, which must be objective, and will prescribe a formula to determine the amount of the incentive that may be payable based upon the level of attainment of the performance goals during the performance period.

 

The performance goals will be based on one or more of the following business criteria (either separately or in combination) with regard to the Company (or a subsidiary, division, other operational unit or administrative department of the Company):

 

 

The business criteria may also be combined with cost of capital, assets, invested capital and stockholder equity to form an appropriate measure of performance.

 

In addition, performance goals may be based upon the attainment of specified levels of the Company’s or its affiliates’ performance (or that of any subsidiary, division, other operational unit or administrative department of the Company) under one or more of the measures described above relative to the performance of other corporations or the historic performance of the Company. To the extent permitted under Section 162(m) of the Internal Revenue Code, the Committee may (i) designate additional business criteria on which the performance goals may be based, or (ii) adjust, modify or amend the aforementioned business criteria.

 

The business criteria for performance goals under the 2010 Plan must be re-approved by the stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which stockholders previously approved the business criteria for performance goals in order for awards to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Internal Revenue Code.

 

Vesting

 

The Committee will determine the time or times at which awards become vested, unrestricted or may be exercised, subject to the following limitations. Subject to accelerated vesting in the event of a change in control or a grantee’s retirement, disability or death (i) awards of stock options and stock appreciation rights will be subject to a minimum one-year vesting period, (ii) time-based vesting awards of “full value” awards will be subject to a minimum three-year vesting period and (iii) performance-based vesting awards of “full value” awards will have a minimum 12-month performance period. Notwithstanding the foregoing, a maximum of 10% of the maximum aggregate number of shares of common stock reserved for issuance under the plan can be subject to “full value” awards without regard to the minimum vesting limits in the preceding sentence.

 

Change in Control

 

Unless otherwise provided in an award agreement, the 2010 Plan provides that, if a change in control occurs and (i) the common stock of the Company (or of any direct or indirect parent entity) is publicly traded and (ii) outstanding awards will be honored or assumed, or substantially equivalent awards substituted therefor, if a grantee’s employment is involuntarily terminated within 12 months after such change in control, (x) time-based vesting awards will become fully vested and exercisable as of the date such grantee’s employment is terminated and (y) performance-based vesting awards will be deemed earned at the target level (or if no target level is specified, the maximum level) with respect to all open performance periods, as of the date such grantee’s employment is terminated. However, if our common stock (or the stock of any direct or indirect parent entity) is not publicly traded, or awards are not honored or assumed, or substantially equivalent awards substituted therefor, the awards will vest as of the date of such change in control.

 

For purposes of the 2010 Plan, a “change in control” generally includes a person or entity acquiring more than 50% of the total voting power of the Company’s outstanding voting securities, as well as any merger, sale or disposition by the Company of all or substantially all of its assets or business combination involving the Company (other than a merger or business combination that leaves the voting securities of the Company outstanding immediately prior thereto continuing to represent—either by remaining outstanding or by being converted into voting securities of the surviving entity—more than 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or business combination), unless otherwise specified by the Committee. In no event will stockholder approval of a transaction be sufficient to constitute a “change in control”.

 

In addition, in the event of a change in control, the Committee may cancel awards for fair value (as determined in the sole discretion of the Committee), provide for the issuance of substitute awards

or provide that for a period of at least 20 days prior to the change in control, stock options or stock appreciation rights that would not otherwise become exercisable prior to a change in control will be exercisable as to all shares of common stock subject thereto and that any stock options or stock appreciation rights not exercised prior to the consummation of the change in control will terminate and be of no further force or effect as of the consummation of the change in control.

 

Federal Income Tax Implications of Stock Options and Stock Appreciation Rights

 

The following is a brief description of the U.S. federal income tax consequences generally arising with respect to the grant of stock options and stock appreciation rights. This summary is not intended to constitute tax advice and is not intended to be exhaustive and, among other things, does not describe state, local or foreign tax consequences.

 

Incentive Stock Options

 

The recipient of an incentive stock option will not be required to recognize income for federal income tax purposes on the grant or exercise of such option, and the Company and its subsidiaries will not be entitled to a deduction. However, the excess of the fair market value of the Company’s common stock received on the date of exercise over the exercise price paid will be included in the recipient’s alternative minimum taxable income. The recipient’s basis in shares of the Company’s common stock received on exercise will be equal to the exercise price, and the recipient’s holding period in such shares will begin on the day following the date of exercise.

 

If an optionee does not dispose of the Company’s common stock acquired upon exercise within either the one-year period beginning on the date of exercise or the two-year period beginning on the date of grant of the incentive stock option, then any gain or loss realized by the optionee upon the subsequent disposition of such shares will be taxed as long-term capital gain or loss. In such event, no deduction will be allowed to the Company or any of its subsidiaries. If the optionee disposes of the Company’s common stock within the one-year or two-year periods referred to above (a “disqualifying disposition”), the optionee will recognize ordinary income at the time of disposition in an amount equal to the excess of the fair market value of the Company’s common stock on the date of exercise over the exercise price (or, if less, the net proceeds of the disposition), and the Company or one of its subsidiaries will generally be entitled to a corresponding deduction. Any excess of the amount realized on the disqualifying disposition over the fair market value of the shares on the date of exercise will be taxable as capital gain. If the amount realized is less than the exercise price, and the loss sustained on the disqualifying disposition would otherwise be recognized, the optionee will not recognize any ordinary income from the disposition and instead will recognize a capital loss.

 

Non-Qualified Stock Options and Stock Appreciation Rights

 

The recipient of a stock option or a stock appreciation right will not be required to recognize income for federal income tax purposes upon the grant of such award, and the Company and its subsidiaries will not be entitled to a deduction. Upon the exercise of an option or a stock appreciation right, the recipient will recognize ordinary income in the amount by which the fair market value of the Company’s common stock at the time of exercise exceeds the exercise price, and the Company or one of its subsidiaries will be entitled to a corresponding deduction. The recipient’s basis in the Company’s common stock received will equal the fair market value of the shares on the exercise date, and the recipient’s holding period will begin on the day following the exercise date.

 

Section 162(m)

 

Any entitlement to a tax deduction on the part of the Company or its subsidiaries is subject to the applicable tax rules, including, without limitation, Section 162(m) of the Internal Revenue Code. In general, Section 162(m) of the Internal Revenue Code denies a publicly held corporation a deduction for federal income tax purposes for compensation in excess of $1 million per year per person to its

“covered employees,” subject to certain exceptions. The 2010 Plan is intended to satisfy the “performance-based compensation” exception under Section 162(m) of the Internal Revenue Code with respect to stock options, stock appreciation rights and certain grants of restricted stock, restricted stock units and other stock-based or cash-based awards.

 

Transfer Restrictions

 

Except to the extent otherwise provided in any award agreement, no award (or any rights or obligations thereunder) granted to any person under the 2010 Plan may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of or hedged (including through the use of any cash-settled instrument), other than by will or by the laws of descent and distribution. No award may be transferred for value or consideration. All awards (and any rights thereunder) will be exercisable during the life of the recipient only by the recipient or by the recipient’s legal representative.

 

Amendment and Termination

 

Generally, our Board may from time to time suspend, discontinue, revise or amend the 2010 Plan. The 2010 Plan provides that our Board may, but is not required to, seek stockholder approval of amendments to the 2010 Plan, except that no amendment can be made without stockholder approval that would increase the maximum aggregate number of shares of Common Stock that may be issued under the Plan, materially modify the requirements for participation in the Plan, increase in the benefits accrued to grantees under the Plan or result in a repricing of stock options or stock appreciation rights. Our Board must also submit amendments to the 2010 Plan to stockholders if required by applicable law, regulation or rules, including the rules of a securities exchange or self-regulatory agency.

 

Unless previously terminated by our Board, the 2010 Plan will terminate on January 31, 2020, but any outstanding award will remain in effect until the underlying shares are delivered or the award lapses.

 

New Plan Benefits

 

No awards will be granted under the 2010 Plan prior to its approval by our stockholders. Awards under the 2010 Plan will be granted at the discretion of the Committee. As a result, it is not possible to determine the number or type of awards that will be granted to any person under the 2010 Plan.

 

Equity Compensation Plan Information