<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended May 31, 1995 Commission File No. 0-9061
ELECTRO RENT CORPORATION
A California corporation I.R.S. Employer
Identification No. 95-2412961
6060 Sepulveda Boulevard
Van Nuys, California 91411-2512
(Address of principal executive offices)
Registrant's telephone number, including area code: (818) 786-2525
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock without par value.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ].
The aggregate market value of the voting stock of the registrant held
by non-affiliates of the registrant as of August 11, 1995 was $204,488,717.
Number of shares of Common Stock outstanding as of August 11, 1995
11,797,426 shares (after giving effect to the three-for-two stock split
declared July 13, 1995 payable August 18, 1995 to shareholders of record July
31, 1995).
<PAGE> 2
ELECTRO RENT CORPORATION
FORM 10-K ANNUAL REPORT
DOCUMENTS INCORPORATED BY REFERENCE
1. Pages 1 and 16 to 27 of the Annual Report to Security Holders for the
fiscal year ended May 31, 1995 (the "1995 Annual Report") are incorporated by
reference in this Form 10-K Annual Report.
2. Proxy Statement for the Annual Meeting of Shareholders to be held on
October 5, 1995 (the "1995 Proxy Statement").
CROSS REFERENCE SHEET
Showing Location in 1995 Annual Report
and 1995 Proxy Statement of Information
Required by Items of Form 10-K
<TABLE>
<CAPTION>
Caption and Reference
Form 10-K Item in 1995 Annual Report ("AR")
Number and Caption or 1995 Proxy Statement ("PS")
------------------ ------------------------------
<S> <C>
PART II
5. Market for the Registrant's
Common Equity and Related
Shareholders Matters AR page 25
6. Selected Financial Data AR page 1
7. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations AR pages 14 and 15
8. Financial Statements and
Supplementary Data AR pages 16 to 24
PART III
10. Directors and Executive
Officers of the Registrant PS pages 2 to 4
11. Executive Compensation PS pages 5 to 8
12. Security Ownership of
Certain Beneficial Owners
and Management PS pages 2 and 3
13. Certain Relationships and
Related Transactions PS page 5
</TABLE>
2
<PAGE> 3
PART I
Item 1. Business.
Electro Rent Corporation (the "Company" or "Electro Rent") was
incorporated in California in 1965. The Company became a publicly held
corporation on March 31, 1980.
The Company primarily engages in the short-term rental of state-of-the-art
electronic equipment. Approximately 55% of the Company's equipment portfolio
is composed of general purpose test and measurement instruments and
microprocessor development systems purchased from leading manufacturers such
as Hewlett Packard, Sun Microsystems, Tektronix, Intel and Texas Instruments.
The remainder, and a growing portion of the equipment portfolio, comprises
personal computers and workstations. Personal computer lines include those
from IBM, Compaq, Apple and AST; while workstations are purchased primarily
from Sun Microsystems, Hewlett Packard and Digital Equipment. A large part of
its equipment portfolio is rented or leased to Fortune 500 companies in the
aerospace, electronics and defense industries. Management believes that the
Company's equipment is primarily used in research and development activities
and that a significant amount of its equipment is used in connection with
government-generated projects. The Company also rents equipment to companies
of various sizes representing a cross-section of American industry. No
customer accounted for more than 10% of the Company's revenues for the fiscal
year ended May 31, 1995. No significant portion of the Company's revenues are
currently derived from direct United States Government contracts.
An important aspect of the Company's equipment portfolio management is
the resale of equipment from the portfolio, generally three to five years after
purchase, which, on the average, have been at prices above book value. Such
sales have historically provided a substantial portion of revenues and
operating cash flow.
The Company services its customers through a network of equipment,
calibration and service centers in the United States and Canada which are
linked by an on-line computer system. These centers also function as depots
for the sale of used equipment.
Data Rentals/Sales, Inc., formerly a wholly owned subsidiary of the
Company, has been merged into the Company and is operated as a division of the
Company.
3
<PAGE> 4
On December 12, 1985 the Company entered into a joint venture agreement
with Nas-Fritzke International Corp. to form Nippon Electro Rent Co., Ltd. for
the purpose of renting and selling test and measurement equipment and
microcomputers in Japan. The Company's original joint venture interest of
25% was reduced to 15% in March 1991.
Electro Rent is one of the larger companies in the highly competitive
electronic equipment rental and lease business. Independent industry
publications have identified a number of major competitors, including United
States Instrument Rental, Inc., a division of A T & T; G.E. Rents, a division
of General Electric Corporation; Telogy; Ameridata; and Continental Resources.
Since the larger of these firms are divisions of large corporations, these
firms have access to greater financial and other resources than does the
Company.
Electro Rent's business is relatively non-seasonal except for the third
quarter months of December, January and February, when rental activity declines
because a number of customers close for extended Christmas-New Year vacation.
In addition, the shortness of February results in a reduced level of rental
billing.
Electro Rent purchases the majority of its equipment from leading
suppliers of electronic equipment. The research and development, manufacturing
and marketing trends and activities of the Company's major suppliers tend to
shape the nature of the rental and lease demand of the Company's customers
and the availability of equipment. As a result, Electro Rent's business is
significantly affected by the continued research and development, manufacturing
and financial condition of its major suppliers, particularly Hewlett-
Packard.
Electro Rent believes that its relationships with its major suppliers are
good. Because of the volume of its purchases and its long-term purchase
commitments, the Company obtains favorable price discounts.
At May 31, 1995, Electro Rent employed approximately 443 individuals.
None of the employees is a member of a labor union. Electro Rent considers its
employee relations to be satisfactory and provides standard employee benefits
and pays certain of the costs of employee education.
4
<PAGE> 5
Item 2. Properties.
Electro Rent's corporate headquarters are located at 6060 Sepulveda
Boulevard, Van Nuys, California. The building contains approximately 84,500
square feet of office space. Approximately 16,000 square feet are currently
being leased, and another 24,000 square feet will be leased in the near future,
all of which will be available for future needs of the Company.
Electro Rent owns a facility in Wood Dale, Illinois containing
approximately 30,750 square feet. It houses the Company's Chicago operations.
In March 1994 Electro Rent purchased a building at 15385 Oxnard Street,
Van Nuys, California. The building contains approximately 68,200 square feet.
A portion of the building is being utilized to house the Company's California
warehouse and laboratory operations. Approximately 34,000 square feet of the
building are leased to others until needed by the Company.
As of May 31, 1995 Electro Rent had both sales offices and equipment,
calibration and service centers in the metropolitan areas of Boston, Chicago
and Los Angeles. Electro Rent also has sales offices in Atlanta, Dallas,
Denver, Detroit, Hartford, Houston, Minneapolis, New York/Newark, Phoenix,
Portland (OR), Rochester, San Diego, San Francisco, Seattle and
Washington/Baltimore.
Electro Rent's facilities aggregate approximately 271,084 square feet.
Except for the corporate headquarters, the Chicago area facilities, and the
newly acquired Oxnard Street building, all of the facilities are rented
pursuant to leases for up to five years for aggregate annual rentals of
approximately $852,000 in fiscal 1995. No rented facility is considered
essential to the Company. The Company considers its facilities to be in good
condition, well maintained and adequate for its needs.
Item 3. Legal Proceedings.
Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of the security holders of the Company.
5
<PAGE> 6
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock is listed by the National Association of
Securities Dealers and is quoted on the NATIONAL MARKET SYSTEM OF NASDAQ. The
symbol is ELRC. The quarterly market price ranges for the common stock for the
two fiscal years ended May 31, 1995 as quoted on NASDAQ, shareholder
information and dividend information are set forth on page 25 of the 1995
Annual Report and are incorporated herein by reference.
None of the Company's preferred shares are issued and outstanding.
Item 6. Selected Financial Data.
The summary of the selected financial data referred to as Financial
Highlights, appearing on page 1 of the 1995 Annual Report, is hereby
incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Information appearing under the above caption on pages 14 and 15 of the
1995 Annual Report is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data.
The Company's consolidated financial statements together with the report
thereon of Arthur Andersen LLP appearing on pages 16 to 25 of the 1995 Annual
Report are hereby incorporated by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Nothing to report.
6
<PAGE> 7
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information appearing in the 1995 Proxy Statement under the captions
Election of Directors (pages 2 and 3), Executive Officers (page 4), Compliance
With Section 16 of the Securities Exchange Act of 1934 (page 4), and
Transactions With Management (page 5), is hereby incorporated by reference.
Item 11. Executive Compensation.
Information appearing in the 1995 Proxy Statement under the captions
Executive Compensation (pages 5 to 8) is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information concerning the ownership of the Company's securities by the
principal holders and by management is set forth in the 1995 Proxy Statement
(pages 2 and 3), and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information appearing in the 1995 Proxy Statement under the caption
Transactions With Management (page 5) is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) The following financial statements and financial statement schedule
covered by the Report of Independent Public Accountants are filed as a part of
this report and are included or incorporated herein by reference to the
following page or pages of the 1995 Annual Report.
7
<PAGE> 8
<TABLE>
<CAPTION>
Page Number
-----------
1995 Annual
Item Report Form 10-K
---- ----------- ---------
<S> <C> <C>
Consolidated Balance Sheets at
May 31, 1995 and 1994 17
Consolidated Statements of Income
for each of the three years in
the period ended May 31, 1995 16
Consolidated Statements of Shareholders'
Equity for each of the three years in
the period ended May 31, 1995 18
Consolidated Statements of Cash Flows
for each of the three years in the
period ended May 31, 1995 19
Notes to Consolidated Financial Statements 20 to 24
Report of Independent Public Accountants 25
Schedule for each of the three years in the
period ended May 31, 1995:
II - Valuation and qualifying accounts 12
Consent and Report of Independent Public
Accountants 14
</TABLE>
All other schedules have been omitted since the required information is
not present or is not present in amounts sufficient to require submission of a
schedule, or because the information required is included in the financial
statements or related notes.
(b) Reports on Form 8-K.
During the last quarter of the period covered by this Annual Report, Form
10-K, the Registrant did not file and was not required to file any Current
Reports on Form 8-K.
8
<PAGE> 9
(c) Exhibits listed by numbers corresponding to Exhibit Table
of Item 601 of Regulation S-K.
(3) Articles of Incorporation (Restated) and bylaws are incorporated by
reference to Exhibits 1.2 and 6.1, respectively, of Registration Statement
(Form S-14), File No. 2-63532. A copy of the Restated Articles of
Incorporation and the Certificate of Amendment of Restated Articles of
Incorporation filed October 24, 1988 are incorporated by reference to Exhibit
(3) to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1989. A
copy of the amendment to the bylaws adopted October 6, 1994 is filed as Exhibit
(3) to this Annual Report.
(10)(A) The ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP AND SAVINGS
PLAN, JUNE 1, 1985 RESTATEMENT, and the ELECTRO RENT CORPORATION EMPLOYEE STOCK
OWNERSHIP AND SAVINGS PLAN TRUST AGREEMENT, are incorporated by reference to
Exhibits 10(A)-(1) and 10(A)-(2) of the Registrant's Annual Report (Form 10-K)
for the fiscal year ended May 31, 1985. A copy of AMENDMENT NO. ONE to the
RESTATED ESOSP is incorporated by reference to Exhibit (10)(A) of Registrant's
Annual Report (Form 10-K) for the fiscal year ended May 31, 1987.
A copy of the ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP AND
SAVINGS PLAN, RESTATED AS OF JUNE 1, 1989 is incorporated by reference to
Exhibit (10)(A) of the Annual Report (Form 10-K) for the fiscal year ended May
31, 1989.
Copies of the following documents amending and supplementing the ESOSP and
ESOP as heretofore amended are filed as exhibits to this Annual Report:
ADOPTION AGREEMENT FOR THE VANGUARD PROTOTYPE 401(k) SAVINGS PLAN dated
August 1, 1994, Exhibit (10)(A)-(1).
ELECTRO RENT CORPORATION SAVINGS PLAN TRUST AGREEMENT dated September 1,
1994, Exhibit (10)(A)-(2).
ELECTRO RENT SAVINGS PLAN SUPPLEMENT TO THE VANGUARD PROTOTYPE 401(k)
SAVINGS PLAN ADOPTION AGREEMENT dated September 24, 1994, Exhibit
(10)(A)-(3).
SECOND AMENDMENT TO ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP &
SAVINGS PLAN (RESTATED AS OF JUNE 1, 1989) dated as of June 1, 1991, Exhibit
(10)(A)-(4).
9
<PAGE> 10
THIRD AMENDMENT TO ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP AND
SAVINGS PLAN (RESTATED AS OF JUNE 1, 1989) dated June 15, 1994, Exhibit
(10)(A)-(5).
FOURTH AMENDMENT TO ELECTRO RENT CORPORATION SAVINGS PLAN (RESTATED AS OF
JUNE 1, 1989) dated September 1, 1994, Exhibit (10)(A)-(6).
ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST AGREEMENT
dated September 1, 1994, Exhibit (10)(A)-(7).
(10)(B) The 1980 Stock Option Plan and form of Stock Option Agreement are
incorporated by reference to Exhibits 1.1 and 2, respectively, of Registration
Statement (Form S-8), File No. 2-70763.
The Incentive Stock Option Plan (as Amended and Restated to July 8, 1982)
and Amendment No. One to Stock Option Agreement are incorporated by reference to
Exhibit (10)(B) of the Annual Report (Form 10-K) for the fiscal year ended May
31, 1982. Amendment No. One to the Plan as Amended and Restated and the Stock
Option Agreement, Non-Qualified Stock Options are incorporated by reference to
Exhibit 10(B) of the Annual Report (Form 10-K) for the fiscal year ended May 31,
1984.
(10)(C) A copy of the ELECTRO RENT CORPORATION SUPPLEMENTAL RETIREMENT
PLAN is incorporated by reference to Exhibit (10)(C) of Registrant's Annual
Report (Form 10-K) for the fiscal year ended May 31, 1987.
(10)(D) The EXECUTIVE EMPLOYMENT AGREEMENT between the Company and Daniel
Greenberg, Chairman of the Board of Directors and Chief Executive Officer, and
between the Company and William Weitzman, President and Chief Operating Officer,
each originally entered into December 15, 1986 and amended November 22, 1988 by
AMENDMENT NO. ONE TO EXECUTIVE EMPLOYMENT AGREEMENT was each further amended and
restated as of July 15, 1992. A copy of each EXECUTIVE EMPLOYMENT AGREEMENT
(AMENDED AND RESTATED AS OF JULY 15, 1992) is incorporated by reference to
Exhibits (10)(D)-(1) and (10)(D)-(2) of Registrant's Annual Report (Form 10-K)
for the fiscal year ended May 31, 1993.
(10)(E) A copy of the Electro Rent Corporation 1990 Stock Option Plan, the
Electro Rent Corporation Stock Option Agreement (Incentive Stock Option) and the
Electro Rent Corporation Stock Option
10
<PAGE> 11
Agreement (Nonstatutory Option) are incorporated by reference to Exhibits
(10)(E)-(1), (10)(E)-(2) and (10)(E)-(3), respectively to the Annual Report
(Form 10-K) for the fiscal year ended May 31, 1990. A copy of AMENDMENT NUMBER
ONE TO ELECTRO RENT CORPORATION 1990 STOCK OPTION PLAN adopted October 3, 1991
is incorporated by reference to Exhibit (10)(E) of the Annual Report (Form
10-K) for the fiscal year ended May 31, 1992. A copy of AMENDMENT NUMBER TWO
TO ELECTRO RENT CORPORATION 1990 STOCK OPTION PLAN adopted April 11, 1995 is
filed as Exhibit (10)(E) to this Annual Report.
(11) Statement re computation of per share earnings is incorporated by
reference to the 1995 Annual Report, pages 16 and 20.
(13) 1995 Annual Report. Only those portions of the 1995 Annual Report to
security holders expressly incorporated hereby by reference are deemed "filed."
(21) Subsidiaries of the Registrant.
Genstar Rental Electronics, Inc., a Delaware corporation.
Electro Rent de Mexico S.A. de C.V., a Mexican corporation.
Data Rentals/Sales, Inc., the Registrant's formerly wholly owned
subsidiary, has been merged into the Registrant, its parent, by statutory
merger. Its functions are conducted by a division of Electro Rent.
Electro Rent Europe B.V., a Netherlands corporation, has been
terminated.
(22) Pages 1 and 14 to 25 of the Annual Report to Security Holders for the
fiscal year ended May 31, 1995 are appended hereto as Exhibit 22 hereof and are
being electronically filed with this Form 10-K Annual Report.
11
<PAGE> 12
(d) Schedule of Financial Statements Required by Regulation S-X
which is excluded from the 1995 Annual Report by Rule 14 a 3(b) (1):
ELECTRO RENT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended May 31, 1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
Balance
at Additions Balance
Beginning Charged to at End
Description of Year Income Deductions* of Year
----------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful
receivables
1995 $1,140 $244 $144 $1,240
1994 $1,027 $363 $250 $1,140
1993 $1,249 $338 $560 $1,027
</TABLE>
*Represents accounts written off against the allowance, net of recoveries.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Electro Rent Corporation
Dated: August 24, 1995. By /s/ DANIEL GREENBERG
----------------------------------
Daniel Greenberg, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ DANIEL GREENBERG Chairman of the Board
- ------------------------- and Chief Executive Officer August 24, 1995
Daniel Greenberg
/s/ WILLIAM WEITZMAN President, Chief Operating
- ------------------------- Officer and Director August 24, 1995
William Weitzman
/s/ CRAIG R. JONES Chief Financial Officer August 24, 1995
- -------------------------
Craig R. Jones
/s/ GERALD D. BARRONE Director August 24, 1995
- -------------------------
Gerald D. Barrone
/s/ NANCY Y. BEKAVAC Director August 24, 1995
- -------------------------
Nancy Y. Bekavac
/s/ JOSEPH J. KEARNS Director August 24, 1995
- -------------------------
Joseph J. Kearns
/s/ MICHAEL R. PEEVEY Director August 24, 1995
- -------------------------
Michael R. Peevey
/s/ WILL RICHESON, JR. Director August 24, 1995
- -------------------------
Will Richeson, Jr.
</TABLE>
13
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement No. 3-37692.
Arthur Andersen LLP
Los Angeles, California
August 28, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Electro Rent Corporation's
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated August 4, 1995. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index above is the responsibility of the Company's
management, and is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Los Angeles, California
August 4, 1995
14
<PAGE> 1
Exhibit (3)
RESOLVED that pursuant to Section 2 of ARTICLE
VIII of the By-Laws of this corporation, Sec-
tion 8 of ARTICLE III of said By-Laws be and
the same hereby is amended to read as follows:
"Section 8. Special Meetings. Spe-
cial meetings of the board of directors
for any purpose or purposes shall be
called at any time by the chairman of
the board, the president, any vice
president, the secretary or by any two
directors.
"Notice of the time and place of spe-
cial meetings shall be delivered per-
sonally or by telephone or telecopier
to each director or sent by first-class
mail, courier, or telegram, charges
prepaid, addressed to each director at
that director's address as it is shown
on the records of the corporation. In
case the notice is mailed or sent by
courier, it shall be deposited in the
United States mail or with the courier
at least forty-eight (48) hours before
the time of the holding of the meeting.
In case the notice is delivered person-
ally, or by telephone, telecopier or
telegram, it shall be given personally
or by telephone or telecopier or de-
livered to the telegraph company at least
twenty-four (24) hours before the time of
the holding of the meeting. Any oral no-
tice given personally or by telephone may
be communicated either to the director or
to a person at the office of the director
who the person giving the notice has rea-
son to believe will promptly communicate
it to the director. The notice need not
specify the purpose of the meeting nor
the place if the meeting is to be held at
the principal executive office of the
corporation."
<PAGE> 1
Exhibit (10) (A)-(1)
Non-Standardized Safe Harbor Adoption Agreement (Short Version)
ADOPTION AGREEMENT FOR THE
VANGUARD PROTOTYPE 401(k) SAVINGS PLAN
Please complete the following:
<TABLE>
<S> <C>
EMPLOYER: ELECTR0 RENT CORPORATION
BUSINESS ADDRESS: 6060 Sepulveda Blvd.
Van Nuys, CA 91411-2501
TELEPHONE NUMBER: 818/787-2100
EMPLOYER TAX I.D. NUMBER: 95-2412961
EMPLOYER FISCAL YEAR: May 31
NAME OF PLAN: ELECTRO RENT CORPORATION SAVINGS PLAN
</TABLE>
Effective Date
( ) New Plan: If the Employer is adopting the Plan as a new plan for its
eligible Employees, the Effective Date of the Plan is
(X) Amended Plan: If the Employer is adopting the Plan as the amended and
restated version of an existing plan for its eligible Employees, the
Effective Date of the amendment is August 1, 1994
PLAN YEAR
The Plan Year shall be the 12-consecutive month period ending on the last day
of the calendar month of May. (If no designation is made, the Plan Year shall
be the Employer's fiscal year.)
PLAN ADMINISTRATOR
The following individual(s) or committee has been appointed by the Employer to
serve as Plan Administrator for the Plan (if no designation is made, the
Employer shall be considered the Plan Administrator):
(a) Specimen Signatures
Please provide the name(s), titles(s) and specimen signature(s) of the
individuals authorized to act as, or on behalf of, the Plan
Administrator:
<TABLE>
<S> <C> <C> <C>
(i) Daniel Greenberg Chairman + CEO /s/ Daniel Greenberg
Name Title Signature
(ii) William Weitzman President + COO /s/ William Weitzman
Name Title Signature
</TABLE>
-1-
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
(iii) Craig R. Jones Vice President + CFO /S/ CRAIG R. JONES
Name Title Signature
</TABLE>
(Use additional sheets, if necessary)
PLAN TRUSTEE
The following individual(s) or corporate fiduciary has been appointed
by the Employer to serve as Trustee for the Plan in accordance with the terms
and conditions of the Trust Agreement:
(i ) Vanguard Fiduciary Trust Co.
Name
P. 0. Box 2600 VM832, Valley Forge, PA 19482
Address
(ii)
Name
Address
(Use additional sheets, if necessary)
-2-
<PAGE> 3
SECTION I
PARTICIPATION REQUIREMENTS
(a) Eligible Employees
All Employees shall be eligible to participant in the Plan except the
following:
( ) No exclusions.
(X) Union Employees: Employees included in a unit of employees
covered by a collective bargaining agreement between the
Employer and employee representatives under which retirement
benefits were the subject of good faith bargaining. (For
purposes of this exclusion, the term "employee
representatives" does not include any organization more than
half of whose members are owners, officers, or executives of
the Employer.)
(X) Nonresident aliens: Employees who are nonresident aliens and
who receive no earned income from the Employer which
constitutes income from sources within the United States.
( ) Employees described below:
IMPORTANT: You may designate any categories of Employees to be
excluded from participation in the Plan (such as hourly-pay or
salary-pay Employees, employees of a separate unit or
division, Employees covered by a separate plan. etc.).
However, for tax qualification purposes, the Plan must satisfy
the minimum participation and coverage requirements of
Sections 401(a)(26) and 410(b) of the Code.
(b) Minimum Age and Service Conditions
An Employee who is eligible to participate in the Plan shall be
required to satisfy the following minimum age and service conditions
prior to the commencement of participation in the Plan:
( ) No minimum age or service conditions.
( ) Minimum age condition: Employees shall be required to have
attained age (may not exceed age 21).
(X) Minimum service condition: Employees shall be required to have
completed one Year of Service.
(c) Commencement of Participation
Employees who satisfy the participation requirements designated in (a)
and (b) above as of the Effective Date of the Plan shall commence participation
(or continue participation) in the Plan on the Effective Date. Employees who
satisfy the participation requirements designated above after the Effective
Date shall commence participation in the Plan on their Entry Dates. For these
purposes, an Employee's Entry Date shall be:
( ) Prospective Payroll Entry Dates: The first day of the
Employer's regular payroll period following the date the
Employee satisfies the participation requirements designated
above.
( ) Prospective Monthly Entry Dates: The first day of the calendar
month following the
-3-
<PAGE> 4
date the Employee satisfies the participation requirements
designated above.
(X) Prospective Quarterly Entry Dates: The first day of the
calendar quarter following the date the Employee satisfies the
participation requirements designated above.
( ) Prospective Semi-Annual Entry Dates: The earlier of (i) the
first day of the Plan Year or (ii) the first day of the
seventh calendar month of the Plan Year which coincides with
or next follows the date the Employee satisfies the
participation requirements designated above.
( ) Annual Entry Date: The first day of the Plan Year nearest to
the date that the Employee satisfies the participation
requirements designated above.
(d) Service With Predecessor Employers
If Employees shall be credited with Years of Service for both
eligibility and vesting purposes for service with any predecessor employer,
identify each such predecessor employer below:
SECTION 2
DEFINITION OF COMPENSATION
For purposes of the Plan, a Participant's Compensation shall be
defined as follows:
( ) Wages for federal tax withholding purposes: Compensation
shall mean all wages within the meaning of Section 3401(a) of
the Code for purposes of applying federal income tax
withholding at the source, determined without regard to rules
which limit the remuneration included in wages based on the
nature or location of employment or the services performed.
( ) Wages for W-2 purposes: Compensation shall mean all wages
within the meaning of Section 3401(a) of the Code and all
other payments of compensation in the course of the Employer's
trade or business for which the Employer is required to
furnish a written statement (Form W-2) under Sections 6041(d)
and 604l(a)(3) of the Code.
( ) Section 415 safe harbor compensation: Compensation shall mean
Compensation as defined in Article l l. l(b) of the Plan for
purposes of the limitations of Section 415 of the Code.
NOTE: Any one of the three "safe harbor" definitions of
Compensation set forth above will automatically satisfy the
nondiscrimination requirement of Section 414(s) of the Code.
See IRS Reg. Section 1.414(s)-l(c). You may designate an
alternative definition of Compensation below, provided that
the definition is reasonable, does not by design favor Highly
Compensated Employees, and satisfies the nondiscrimination
test set forth in IRS Reg. Section 1.414(s)-l(d).
(X) Exclusion of certain items: Compensation shall mean all wages
within the meaning of Section 3401(a) of the Code for purposes
of applying federal income tax withholding at the source,
determined without regard to rules which limit the
remuneration included in wages based on the nature or location
of employment or the services performed, but excluding the
following items:
( ) Commissions
( ) Bonuses
-4-
<PAGE> 5
( ) Overtime
(X) Other (specify): Severance Pay, Auto Allowance,
Medical Reimbursement, Carpool Reimbursement,
Employer Referral Bonus, Membership Dues,
Transportation or Housing Subsistence, Non-Cash
Compensation, Cash Gifts or Prizes, Imputed Income
for Group Term Life, Relocation Expenses or Imputed
Income for Company Cars or Non-Qualified Stock
Options
( ) Other definition of Compensation (specify):
IMPORTANT: For purposes of determining the amounts of
contributions by or on behalf of Participants to the Plan, a
Participant's Compensation (under the definition selected
above) is: (1) increased by the Participant's Employee Pre-Tax
Contributions to the Plan; and (2) limited as required by law
to an indexed $150,000 amount. See Article 2.5 of the Plan
SECTION 3
EMPLOYEE PRE-TAX CONTRIBUTIONS
(a) Employee Pre-Tax Basic Contributions
(X) If this option is selected, a Participant may elect to make
Employee Pre-Tax Basic Contributions to the Plan in an amount
up to five percent (fill in the percentage or amount) of the
Compensation otherwise payable to the Participant.
(b) Employee Pre-Tax Supplemental Contributions
(X) If this option is selected, a Participant who has elected to
make Employee Pre-Tax Basic Contributions in the maximum
amount permitted under (a) above, may also elect to make
Employee Pre-Tax Supplemental Contributions to the Plan in an
amount up to ten percent (fill in the percentage or amount) of
the Compensation otherwise payable to the Participant.
NOTE: This distinction between "Basic" and
"Supplemental" Contributions is appropriate for
Employers who wish to make Employer Matching
Contributions under Section 5 below based on Employee
Pre-Tax Basic Contributions, while also permitting
Participants to make "non-matched" Employee Pre-Tax
Supplemental Contributions.
(c) Employee Pre-Tax Bonus Contributions
( ) If this option is selected, a Participant may elect to make
Employee Pre-Tax Bonus Contributions to the Plan in an amount
up to (fill in the percentage or amount) of any bonus
otherwise payable to the Participant for the Plan Year.
NOTE: This option for Employee Pre-Tax Bonus
Contributions is appropriate for Employers who wish
to permit Participants to defer different percentages
or amounts of their bonuses than their regular pay or
who wish to permit Participants to defer their
bonuses on a different matching basis than regular
pay. Otherwise, bonuses will be eligible for
reduction as Employee
-5-
<PAGE> 6
Pre-Tax Basic and Supplemental Contributions (unless
you exclude bonuses from the definition of
Compensation under Section 2 above). See Article
4.2(h) of the Plan.
(d) Aggregate Limit on Employee Pre-Tax Contributions
( ) If this option is selected, the maximum amount of Employee
Pre-Tax Contributions (including Employee Pre-Tax Basic,
Supplemental and Bonus Contributions) which a Participant may
elect to make for any Plan Year shall not exceed (fill in the
percentage or amount) of the Participant's Compensation for
the Plan Year.
SECTION 4
EMPLOYEE AFTER-TAX CONTRIBUTIONS
( ) If this option is selected, a Participant may elect to
make Employee After-Tax Contributions to the Plan for a Plan
Year in an amount up to (fill in the percentage or amount) of
the Participant's Compensation for the Plan Year.
(_) Coordination with Employee Pre-Tax Contributions: If this
option is selected, the maximum amount of Employee Pre- Tax
Contributions and Employee After-Tax Contributions which a
Participant may elect to make to the Plan for any Plan Year
shall not exceed (fill in the percentage or amount) of the
Participant's Compensation for the Plan Year.
SECTION 5
EMPLOYER MATCHING CONTRIBUTIONS
(X) Fixed Formulas: If this option is selected, the Employer
shall make Employer Matching Contributions on behalf
of each Participant for a Plan Year equal to:
(1) Fifty percent (50%) (fill in the percentage or
amount) of the amount of Employee Pre-Tax Basic
Contributions on behalf of the Participant for the
Plan Year up to five percent (5%) (fill in the
percentage or amount, if applicable) of the
Participant's Compensation for the Plan Year;
(2) (fill in the percentage or amount) of the amount of
Employee Pre-Tax Bonus Contributions on behalf of the
Participant for the Plan Year up to (fill in the
percentage or amount, if applicable) of the
Participant's Compensation for the Plan Year; and,
(3) (fill in the percentage or amount) of the amount of
Employee After-Tax Contributions by the Participant
for the Plan Year up to (fill in the percentage or
amount, if applicable) of the Participant's
Compensation for the Plan Year.
( ) Discretionary Formula: If this option is selected, the
Employer shall make Employer Matching Contributions for each
Plan Year in an amount determined by the Employer in its sole
discretion by resolution duly adopted on or before the last
day for filing its federal income tax return, including
extensions for the taxable year with or within which such Plan
Year ends. Employer Matching Contributions shall be allocated
to the Employer Matching Contribution Accounts of Participants
in the proportion that each Participant's Employee Pre-Tax
Basic Contributions for the Plan Year bear to the total
Employee Pre-Tax Contributions of all Participants for the
Plan Year.
(X) Other Formula: If this option is selected the Employer shall
make Employer Matching Contributions for each Plan Year in an
amount determined as follows (describe the method
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<PAGE> 7
for making Employer Matching Contributions and allocating them to
Participants' Employer Matching Contribution Accounts below): The
Employer may make additional contributions for participants with at
least 3 years of service. The amount of such additional ontributions
shall be determined by the Employer in its discretion. Such
contributions shall be allocated either in proportion to the
Compensation of all such Participants for the Plan Year or as a
matching contribution based on the Employee Pre-Tax Supplemental
Contributions of such Participants, as the Employer shall specify.
SECTION 6
EMPLOYER NONELECTIVE CONTRIBUTIONS
(a) Fixed Formula Based on Compensation
( ) Standard Formula: If this option is selected, the Employer
shall make Employer Nonelective Contributions on behalf of
each Participant for a Plan Year in an amount equal to
% the Participants Compensation for the Plan year.
(b) Discretionary Formula
( ) If this option is selected, the Employer shall make Employer
Nonelective Contributions for each Plan Year in an amount
determined by the Employer in its sole discretion by
resolution duly adopted on or before the last day for filing
its federal income tax return,including extensions, for the
taxable year with or within which such Plan Year ends Employer
Nonelective Contributions shall be allocated to the Employer
Nonelective Contribution Accounts of Participants who
participated in the Plan at any time during the Plan Year in
the proportion that each such Participant's Compensation for
the Plan year bears to the total Compensation of all such
Participants for the Plan Year.
SECTION 7
DIRECTED INVESTMENTS BY PARTICIPANTS
(X) Total Investment Direction: If this option is selected, each
Participant shall be permitted to direct the investment of
all amounts allocated to the Participant's separate accounts
under the Plan.
( ) Limited Investment Direction: If this option is selected, a
Participant shall be permitted to direct the investment of
amounts allocated to the following of the Participant's
separate counts under the Plan (please complete the following
if your wish to limit investment direction by Participants to
certain amounts):
( ) Employee Pre-Tax Contribution Account
( ) Employee After-Tax Contribution Account
( ) Employer Matching Contribution Account
( ) Employer Nonelective Contribution Account
( ) Rollover Contribution Account
-7-
<PAGE> 8
( ) Named Fiduciary Direction: To the extent that Participants
do not direct investments, the Plan Administrator or the
person or entity designated by the Employer below shall be
responsible as the named fiduciary for directing and managing
Plan investments (see Article 6.5 of the Plan).
SECTION 8
DISTRIBUTION UPON RETIREMENT
A Participant (or the Participant's designated Beneficiary, in the
event of the Participant's death) shall be entitled to receive the entire
amounts credited to the Participant's separate accounts under the Plan upon the
Participant's retirement on or after Normal Retirement Age, Disability or
death. For purposes of the Plan, the Normal Retirement Age shall be:
(X) The date a Participant attains age 65 (not to exceed age 65).
( ) The later of the date a Participant attains age
(not to exceed age 65) or the 5th anniversary of the
first day of the first Plan Year in which the Participant
commenced participation in the Plan.
SECTION 9
VESTING SCHEDULE
A Participant who terminates employment prior to Normal Retirement Age
for reasons other than death or Disability shall be entitled to receive the
vested amounts credited to the Participant's Employer Matching Contribution
Account and Employer Nonelective Contribution Account. These amounts shall be
determined by the vesting schedules selected below:
(a) Vesting Schedule or Employer Matching Contribution Account
( ) 100% Immediate Vesting: A Participant shall be fully (100%)
vested upon commencement of participation in the Plan.
( ) Five-Year Cliff Vesting: A Participant shall be fully (100%)
vested upon completion of five Years of Service.
( ) Seven-Year Graded Vesting: A Participant shall become vested
according to the following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
<S> <C>
3 20%
4 40
5 60
6 80
7 or more 100
</TABLE>
(X) Other (complete the following if a different vesting schedule
is desired, with vested percentages for each Year of Service
that satisfy Section 411(a)(2) of the Code):
<TABLE>
<CAPTION>
Years of Service Vested Percentage
<S> <C>
1 0
2 20
3 30
4 40
5 60
</TABLE>
-8-
<PAGE> 9
<TABLE>
<S> <C>
6 80
7 100
</TABLE>
IMPORTANT: If a vesting schedule other than 100% immediate
vesting is selected, the Employer Matching Contributions will
not qualify as "Qualified Matching Contributions" (as defined
in Article 5.1(1) of the Plan) for purposes of the Plan's
nondiscrimination requirements (see Articles 5.4 and 5.6 of
the Plan).
(b) Vesting Schedule for Employer Nonelective Contribution Account
( ) 100% Immediate Vesting: A Participant shall be fully (100%)
vested upon commencement of participation in the Plan.
( ) Five-Year Cliff Vesting: A Participant shall be fully (100%)
vested upon completion of five Years of Service
( ) Seven-Year Graded Vesting: A Participant shall become vested
according to the following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
<S> <C>
3 20%
4 40
5 60
6 80
7 or more 100
</TABLE>
( ) Other (complete the following if a different vesting schedule
is desired, with vested percentages for each Year of Service
that satisfy Section 411(a)(2) of the Code):
<TABLE>
<CAPTION>
Years of Service Vested Percentage
<S> <C>
1
2
3
4
5
6
7
</TABLE>
IMPORTANT: If a vesting schedule other than 100% immediate
vesting is selected, he Employer Nonelective Contributions on
behalf of Participants will not qualify as "Qualified
Nonelective Contributions" (as defined in Article 5. 1(m) of
the Plan) for purposes of the Plan's nondiscrimination
requirements (see Articles 5.4 and 5.8 of the Plan).
SECTION I 0
INSTALLMENT PAYMENT OPTION
( ) If this option is selected, a Participant who terminates
employment with a total vested amount in excess of $3,500
shall be permitted to receive such amount in monthly,
quarterly or annual
-9-
<PAGE> 10
installment payments (as an alternative to a single-sum payment)
under Article 8.3(b) of the Plan. If applicable, this option
shall apply to:
( ) All such Participants who separate from service with the
Employer.
( ) Only such Participants who separate from service with the
Employer on or after Normal Retirement Age or upon Disability.
SECTION 11
WITHDRAWALS
(a) Withdrawals On or After Age 59 1/2
(X) If this option is selected. a Participant shall be permitted
to make in-service withdrawals under Article 9.2 of the Plan
upon attaining age 59 1/2.
(b) Hardship Withdrawals
(X) If this option is selected, a Participant shall be permitted
to make in-service withdrawals under Article 9.3 of the Plan
upon establishing financial hardship.
SECTION 12
LOANS
(X) If this option is selected, the Plan Administrator shall be
permitted to direct the Trustee to make loans to Participants
from their separate accounts under the Plan in accordance
with the provisions of Article 10 of the Plan.
NOTE: The Plan may not permit loans to Owner-Employees if the
Employer is a partnership or sole proprietorship or to
shareholder-employees if the Employer is an S corporation.
SECTION 13
LIMITATIONS ON ALLOCATIONS
NOTE: You must complete this Section 13 only if the Employer
maintains or has ever maintained another qualified plan in
which any Participant in this Plan is or was a participant or
could possibly become a participant.
(a) Employers Who Also Maintain a Qualified Defined Contribution Plan
Other Than a Master Or Prototype Plan (See Article 11.4 of the Plan)
If a Participant in this Plan is covered under another qualified
defined contribution plan maintained by the Employer which is not a Master or
Prototype Plan, the provisions of Article 11.3 of the Plan will automatically
apply as if the other plan was a Master or Prototype Plan unless the Employer
hereby designates another method of limiting Annual Additions to the Maximum
Permissible Amount (in a manner that precludes Employer discretion) by
describing such method below:
(b) Employers Who Also Maintain a Qualified Defined Benefit Plan (See
Article 11.5 of the
-10-
<PAGE> 11
Plan)
If a Participant in this Plan is or has been covered under a qualified
defined benefit plan maintained by the Employer, the sum of the Defined Benefit
Plan and Defined Contribution Plan Fractions (as defined in Article 11.1 of the
Plan) may not exceed 1.0. The method under which the Employer will satisfy
this 1.0 limitation is described below:
(c) Limitation Year
For purposes of Article 11 of the Plan, the Limitation Year shall be
the Plan Year unless another 12-consecutive month period is designated as the
Limitation Year below:
SECTION 14
TOP-HEAVY PLAN PROVISIONS
(a) Minimum Vesting Schedules
For any Plan Year in which the Plan is a Top-Heavy Plan (as defined in
Article 12.2(b) of the Plan), a Participant's vested percentage in his or her
Employer Matching Contribution Account and Employer Nonelective Contribution
Account shall be determined by the vesting schedules selected below (rather
than the vesting schedules selected in Section 9 of this Adoption Agreement):
(i) Employer Matching Contribution Account
( ) Three-Year Cliff Vesting: A Participant shall be
fully (100%) vested upon completion of (may not
exceed 3) Years of Service.
(x) Six-Year Graded Vesting
<TABLE>
<CAPTION>
Years of Service Vested Percentage
<S> <C>
2 20% (not less than 20%)
3 40% (not less than 40%)
4 60% (not less than 60%)
5 80% (not less than 80%)
6 or more 100%
</TABLE>
(ii) Employer Nonelective Contribution Account
( ) Three-Year Cliff Vesting: A Participant shall be
fully (100%) vested upon completion of (may not
exceed 3) Years of Service.
(X) Six-Year Graded Vesting
<TABLE>
<CAPTION>
Years of Service Vested Percentage
<S> <C>
2 20% (not less than 0%)
3 40% (not less than 40%)
4 60% (not less than 60%)
5 80% (not less than 80%)
6 or more 100%
</TABLE>
NOTE: If the Plan's vesting schedules shift in or out
of the schedules selected above because of changes to
or from Top-Heavy Plan status,
-11-
<PAGE> 12
such shifts shall constitute amendments to the Plan's
vesting schedules and the elections provided for in
Article 14.1(c)(ii) of the Plan shall be applicable.
(b) Minimum Benefits
For any Plan Year in which the Plan is a Top-Heavy Plan, the minimum
benefit requirements of Section 416(c) of the Code shall be satisfied as
follows (please select one of the following):
(X) Minimum contributions under this Plan: Employer contributions
under this Plan shall be made on behalf of every Participant
who is not a Key Employee in accordance with Article 12.3(a)
of the Plan. To the extent this requirement is not already
satisfied by the Employer contributions provided under this
Adoption Agreement (other than Employee Pre-Tax Contributions
and Employer Matching Contributions), the Employer shall
(select one, if applicable):
(X) make additional Employer contributions on behalf of
Participants who are not Key Employees for the Plan
Year in the minimum amount necessary; or
( ) make additional Employer contributions on behalf of
all Participant for the Plan Year in an amount equal
to a uniform percentage of each Participant's
Compensation, which percentage shall be determined by
the Employer by resolution duly adopted on or before
the last day for filing its federal income tax
return, including extensions for the taxable year
with or within which such Plan Year ends.
( ) Minimum benefits under other qualified plan(s): The minimum
benefit requirements of Section 416(c) of the Code shall be
satisfied through one or more other qualified plans maintained
by the Employer that are identified below:
Name of plan(s)
(c) Present Value Determination
This subsection (c) applies only if the Employer maintains or has
maintained a defined benefit plan which has covered or could cover a
Participant in this Plan. If this subsection (c) applies, the following
interest rate, mortality table and valuation date shall apply for purposes of
determining the present value of accrued benefits under the defined benefit
plan (see Article 12.2(c) (g) and (h) of the Plan):
<TABLE>
<S> <C>
Interest Rate: % Mortality Table:
Valuation Date: of each year
</TABLE>
SECTION 15
EXECUTION OF PLAN AND TRUST AGREEMENT
IMPORTANT:
(1) Failure to properly complete this Adoption Agreement may
result in disqualification of
-12-
<PAGE> 13
the Plan.
(2) The Sponsor will inform the Employer of any amendments made to
the Plan or the discontinuance or abandonment of the Plan
(3) The name, address and telephone number of the Sponsor are as
follows:
Vanguard Fiduciary Trust Company
P.O. Box 2600
Vanguard Financial Center
Valley Forge, PA 19482
1 -800-523-1036
(4) If the Employer has ever maintained or later adopts any plan
(including a welfare benefit fund, as defined in Section
419A(e) of the Code. which provides post-retirement medical
benefits allocated to separate accounts for key employees, as
defined in Section 419A(d)(3) of the Code, or an individual
medical account, as defined in Section 415(1)(2) of the Code)
in addition to this Plan, the employer may to rely on an
opinion letter issued by the National Office of the Internal
Revenue Service to the Sponsor as evidence that the Plan as
adopted by the Employer is qualified under Section 401 of the
Internal Revenue Code. If the Employer who adopts or maintains
multiple plans wishes to obtain reliance with respect to the
qualification of this Plan, the Employer should apply to the
appropriate Key District Office of the Internal Revenue
Service for a determination letter.
(5) This Adoption Agreement may be used only in conjunction with
the Vanguard Prototype 401(k) Savings Plan.
(a) EXECUTION BY EMPLOYER
IN WITNESS WHEREOF, and intending to be legally bound, the Employer
named above hereby adopts the Vanguard Prototype 401(k) Savings Plan by causing
this Adoption Agreement to be executed as of the date set forth below.
EMPLOYER: ELECTRO RENT CORPORATION
<TABLE>
<S> <C> <C>
By: Craig R. Jones Vice President and CFO
Name Title
</TABLE>
Signature: /s/ Craig R. Jones
Date: June 27, 1995
(b) EXECUTION BY TRUSTEE(S)
IN WITNESS WHEREOF, and intending to be legally bound. the Trustee(s)
named above hereby accepts its appointment as Trustee for the Plan, and hereby
agrees to the terms and conditions of the Trust Agreement for the Plan.
TRUSTEE:
<TABLE>
<S> <C> <C>
By:
Name Title
</TABLE>
-13-
<PAGE> 14
Signature:
Date:
TRUSTEE:
By:
Name Title
Signature:
Date:
SUPPLEMENT TO THE VANGUARD PROTOTYPE
401(K) SAVINGS PLAN
As Adopted by Electro Rent Corporation
This Supplement to the Vanguard Prototype 401(k) Savings Plan (the "Prototype")
amends the Prototype as adopted by Electro Rent Corporation to add Article 16,
which changes the method of counting service for eligibility and vesting
purposes from "hour of service" to "elapsed time." Accordingly, the Electro
Rent Savings Plan (the "Plan") is an individually-designed plan and not a
prototype plan, consisting of the allowing documents:
(a) the Prototype,
(b) the Adoption Agreement For The Vanguard Prototype
401(k) Savings Plan (the "Adoption Agreement"),
(c) this Supplement (the "Supplement"), and
(d) any Trust Agreement for the Plan.
ARTICLE 16
YEARS OF SERVICE
(a) Years Of Service
An Employee's Years of Service shall be determined in accordance with
this Article 16.
(b) Provisions Of Prototype Replaced By This Article 16 Because an
Employee's Years of Service shall be determined pursuant to this Article 16,
the following provisions of the Prototype are deleted:
(1) Article 2.3 (defining "Break in Service);
(2) the next to the last full paragraph of Article 2.26 (relating
to crediting Hours of Service for purposes of determining
whether a "Break in Service" has occurred);
(3) Article 2.42 (defining "Year of Service");
(4) Article 3.4 (relating to Years of Service for eligibility
purposes);
(5) Article 3.5 (relating to eligibility computation periods);
(6) Article 3.6 (relating to crediting Years of Service for
eligibility purposes after a "Break in Service");
-14-
<PAGE> 15
(7) the words "Article 7.3" in Article 7.2(a);
(8) Article 7.3(a) (relating to computation of Years of Service
for vesting purposes);
(9) Article 7.4 (relating to crediting Years of Service for
vesting purposes after a "Break in Service"); and
(10) Article 8.5 (relating to forfeitures upon termination of
employment).
(c) Definitions For Purposes Of This Article 16
When capitalized, the following terms shall have the respective
meanings set forth below for purposes of determining an Employee's Years of
Service under the Plan.
(1) "Employment Commencement Date" means the first date as of
which an Employee is entitled to be credited with an Hour of
Service.
(2) "Maternity or Paternity Absence" means that the Employee is
absent from work on account of:
(A) the Employee's pregnancy,
(B) the birth of a child of the Employee,
(C) the placement of a child with the Employee in
connection with the adoption of the child by the
Employee, or
(D) caring for a child of the Employee immediately
following the child's birth or placement with the
Employee.
(3) "One Year Break in Service" means a continuous 365-day period
during which the Employee is not entitled to credit for any
Hours of Service and which begins on the Employee's Severance
date or any anniversary of the Employee's Severance date.
(4) "Reemployment Commencement Date" means, in the case of an
Employee who has a Severance and subsequently again becomes an
Employee, the first day following the date of the Severance as
of which the Employee is entitled to be credited with an Hour
of Service.
(5) "Severance" means the earliest of the following dates:
(A) The date on which the Employee terminates employment
by reason of his or her retirement, quit, discharge,
death or otherwise;
(B) Except as provided in paragraph (C) below, if the
Employee has not terminated employment, the first
anniversary of the first day of a period during which
the Employee is continuously absent (with or without
pay) from active service with the Employer for any
reason such as vacation, sickness, layoff or a leave
of absence; or
(C) In the case of an Employee who is continuously absent
(with or without pay) from active service on account
of a Maternity or Paternity Absence, the earlier of
the second anniversary of the date on which the
absence from active service began or the date the
Employee's Maternity or Paternity Absence ends. The
period between the first and second anniversaries of
the date on which the Employee was first absent from
active service shall neither be included in the
Employee's Years of Service nor shall it be a One
Year Break in Service.
-15-
<PAGE> 16
(6) "Years of Service" means the service credited to an Employee
pursuant to this Article.
(d) An Employee shall be credited with one Year of Service for each 365
consecutive days in his or her period or periods of employment with the
Employer. In determining an Employee's Years of Service, all periods of
employment with the Employer shall be aggregated, but any resulting partial
Year of Service (i.e., less than 365 days) shall be ignored. A period of
employment with the Employer shall begin on the Employee's Employment
Commencement Date (or Reemployment Commencement Date) and end on the Employee's
subsequent date of Severance. If an Employee has a Severance and is reemployed
by the Employer within 365 days of the Severance date, the Employee's period of
employment shall also include the period between his or her Severance date and
his or her Reemployment Commencement Date.
(e) Employment with an entity before it becomes an Employer shall be
recognized to the extent provided in a schedule to this Plan or in relevant
acquisition agreements or corporate resolutions. Unless such schedule,
agreements or resolutions specifically provide for recognition of such
employment in accordance with specified seniority crediting rules of the
acquired entity, the amount of such employment recognized under the Plan shall
be determined in accordance with this Article.
(f) If a Participant who has no vested interest in his or her accounts
(other than a Direct Rollover Account) terminates employment with the Employer
and then has at least five (5) consecutive One Year Breaks in Service, the
Participant's Years of Service before the first such one Year Break in Service
(disregarding any Years of Service not taken into account because of prior
consecutive One Year Breaks in Service) shall be completely disregarded for
vesting purposes.
(g) The non-vested portion of the Employer Matching Contribution Account
of a Participant who terminates employment with the Employer shall be forfeited
on the date selected by the Plan Administrator after the first to occur of the
following:
(1) upon termination of employment with the Employer, but only if
the Participant has no vested interest in his or her accounts
(other than a Direct Rollover Account), in which case the
Participant shall be deemed to have received a distribution of
his or her entire accounts as of the date employment
terminates;
(2) upon complete distribution of the vested portion of his or her
accounts; or
(3) upon the Participant's completion of five consecutive One Year
Breaks in Servicefollowing termination of employment.
However, the Plan Administrator may choose to forfeit the non-vested portion of
the Participant's Employer Matching Contribution account as of any earlier date
following termination of employment, in which case the forfeiture shall only
be provisional. If the Participant returns to employment with the Employer
before incurring five consecutive One Year Breaks in Service, the amount
forfeited shall be restored, without any repayment of the distributed amounts
being required or permitted (and without interest on the restored amount for
the period between the date it was forfeited and the date it is restored).
(h) The Plan Administrator shall restore forfeited amounts to a
Participant's accounts:
(1) first out of forfeitures available for allocation for the Plan
Year in which the restoration is made, and
(2) if available forfeitures are insufficient, then by a
contribution of the Employer.
Forfeitures with respect to a Plan Year shall be used first to restore amounts
previously forfeited from Employer Matching Contribution Accounts to the extent
those forfeitures are to be restored pursuant to this paragraph(h). Any
remaining forfeitures shall be used to reduce Employer Matching Contributions
to the Plan.
-16-
<PAGE> 17
(i) If a distribution is made from a Participant's Employer Matching
Contribution Account before it is fully vested, the Participant's vested
interest in his or her Employer Matching Contribution Account thereafter and
prior to either full vesting or permanent forfeiture shall equal (A) minus(B),
where:
(A) is the product of his or her vested percentage (as determined
under Article 7.2 of the Prototype at any relevant time prior
to full vesting or permanent forfeiture) times the sum of his
or her Employer Matching Contribution Account and the amount
of the distribution; and
(B) is the amount of the distribution.
-17-
<PAGE> 1
Exhibit (10) (A)-(2)
TRUST AGREEMENT
THIS AGREEMENT OF TRUST (the "Agreement") effective the 1st day of September,
1994, by and between ELECTRO RENT CORPORATION, a California corporation (the
"Employer"), and VANGUARD FIDUCIARY TRUST COMPANY, a trust company incorporated
under Chapter 10 of the Pennsylvania Banking Code (the "Trustee"),
WITNESSETH
WHEREAS, the Employer has adopted and is maintaining the ELECTRO RENT
CORPORATION SAVINGS PLAN (the "Plan") for the exclusive benefit of its
Employees; and
WHEREAS, the Plan Administrator is the fiduciary named in the Plan as having
the authority to control and manage the operation and administration of the
Plan;
WHEREAS, the Employer and the Trustee deem it necessary and desirable to enter
into a written agreement of trust;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto, intending to be legally bound, hereby agree and declare as
follows:
ARTICLE I
ESTABLISHMENT OF THE TRUST
Section 1.1. The Employer and the Trustee hereby agree to the
establishment of a trust consisting of such sums as shall from time to time be
paid to the Trustee under the Plan and such earnings, income and appreciation
as may accrue thereon, which, less payments made by the Trustee to carry out
the purposes of the Plan, are referred to herein as the "Fund." The Trustee
shall carry out the duties and responsibilities herein specified, but shall be
under no duty to determine whether the amount of any contribution by the
Employer or any Participant is in accordance with the terms of the Plan nor
shall the Trustee be responsible for the collection of any contributions
required under the Plan.
Section 1.2. The Fund shall be held, invested, reinvested and
administered by the Trustee in accordance with the terms of the Plan and this
Agreement solely in the interest of Participants and
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their Beneficiaries and for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and defraying easonable expenses of
administering the Plan. Except as provided in Section 4.2, no assets of the
Plan shall inure to the benefit of the Employer.
Section 1.3. The Trustee shall pay benefits and expenses from the Fund
only upon the written direction of the Plan Administrator. The Trustee shall be
fully entitled to rely on such directions furnished by the Plan Administrator,
and shall be under no duty to ascertain whether the directions are in
accordance with the provisions of the Plan.
ARTICLE II
INVESTMENT OF THE FUND
Section 2.1. The Employer shall have the exclusive authority and
discretion to select the investment funds ("Investment Funds") available for
investment under the Plan. In making such selection, the Employer shall use the
care, skill, prudence and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with like
aims. The available investments under the Plan shall be sufficiently
diversified so as to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so. The Employer shall notify the
Trustee in writing of the selection of the Investment Funds currently available
for investment under the Plan, and any changes thereto.
Section 2.2. Each Participant shall have the exclusive right, in
accordance with the provisions of the Plan, to direct the investment by the
Trustee of all amounts allocated to the separate accounts of the Participant
under the Plan among any one or more of the available Investment Funds. All
investment directions by Participants shall be timely furnished to the Trustee
by the Plan Administrator, except to the extent such directions are transmitted
telephonically or otherwise by Participants directly to the Trustee or its
delegate in accordance with rules and procedures established and approved by
the Plan Administrator and communicated to the Trustee. In making any
investment of the assets of the Fund, the Trustee shall be fully entitled to
rely on such directions furnished to it by the Plan Administrator or by
Participants in accordance with the Plan Administrator's approved rules and
procedures, and shall be under no duty to make any inquiry or investigation
with respect thereto. If the Trustee receives any contribution under the Plan
that is not accompanied by instructions directing its investment, the Trustee
shall immediately notify the Plan Administrator of that fact, and the Trustee
may, in its discretion, hold or return all or a portion of the contribution
uninvested without liability for loss of income or appreciation pending receipt
of proper investment directions. Otherwise, it is specifically intended under
the Plan and this Agreement that the Trustee shall have no discretionary
authority to determine the investment of the assets of the Fund.
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Section 2.3. Subject to the provisions of Sections 2.1 and 2.2, the
Trustee shall have the authority, in addition to any authority given by law, to
exercise the following powers in the administration of the Trust:
(a) to invest and reinvest all or a part of the Fund in accordance
with Participants' investment directions in any available Investment
Fund selected by the Employer without restriction to investments
authorized for fiduciaries, including, without limitation on the
amount that may be invested therein, any common, collective or
commingled trust fund maintained by the Trustee. Any investment in,
and any terms and conditions of, any common, collective or commingled
trust fund available only to employee trusts which meets the
requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), or corresponding provisions of subsequent income tax laws of
the United States, shall constitute an integral part of this Agreement
and the Plan;
(b) to dispose of all or any part of the investments, securities,
or other property which may from time to time or at any time
constitute the Fund in accordance with the investment directions by
Participants furnished to it pursuant to Section 2.2 or the written
directions by the Plan Administrator furnished to it pursuant to
Section 1.3, and to make, execute and deliver to the purchasers
thereof good and sufficient deeds of conveyance therefor, and all
assignments, transfers and other legal instruments, either necessary
or convenient for passing the title and ownership thereto, free and
discharged of all trusts and without liability on the part of such
purchasers to see to the application of the purchase money;
(c) to hold cash uninvested to the extent necessary to pay
benefits or expenses of the Plan:
(d) to cause any investment of the Fund to be registered in the
name of the Trustee or the name of its nominee or nominees or to
retain such investment unregistered or in a form permitting transfer
by delivery; provided that the books and records of the Trustee shall
at all times show that all such investments are part of the Fund;
(e) to vote in person or by proxy with respect to all shares of
the mutual funds offered by The Vanguard Group, Inc. (the "Vanguard
Funds") which are held by the Plan solely in accordance with
directions furnished to it by the Employer, and to vote in person or
by proxy with respect to all other securities credited to a
Participant's separate accounts under the Plan solely in accordance
with directions furnished to it by the Participant;
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(f) upon the written direction of the Plan Administrator, to apply
for, purchase, hold or transfer any life insurance, retirement income,
endowment or annuity contract;
(g) to consult and employ any suitable agent to act on behalf of
the Trustee and to contract for legal, accounting, clerical and other
services deemed necessary by the Trustee to manage and administer the
Fund according to the terms of the Plan and this Agreement;
(h) upon the written direction of the Plan Administrator, to make
loans from the Fund to Participants in amounts and on terms approved
by the Plan Administrator in accordance with the provisions of the
Plan; provided that the Plan Administrator shall have the
responsibility for collecting all loan repayments required to be made
under the Plan and for furnishing the Trustee with copies of all
promissory notes evidencing such loans; and
(i) to pay from the Fund all taxes imposed or levied with respect
to the Fund or any part thereof under existing or future laws, and to
contest the validity or amount of any tax, assessment, claim or demand
respecting the Fund or any part thereof.
Section 2.4. Except as may be authorized by regulations promulgated by
the Secretary of Labor, the Trustee shall not maintain the indicia of ownership
in any assets of the Fund outside of the jurisdiction of the district courts of
the United States.
ARTICLE III
DUTIES AND RESPONSIBILITIES
Section 3.1. The Trustee, the Employer and the Plan Administrator
shall each discharge their assigned duties and responsibilities under this
Agreement and the Plan solely in the interest of Participants and their
Beneficiaries in the following manner:
(a) for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and defraying reasonable expenses
of administering the Plan;
(b) with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims;
(c) by diversifying the available investments under the Plan so as
to minimize the risk of large losses, unless under the circumstances
it is clearly prudent not to do so; and
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(d) in accordance with the provisions of the Plan and this Trust
Agreement insofar as they are consistent with the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Section 3.2. The Trustee shall keep full and accurate accounts of all
receipts, investments, disbursements and other transactions hereunder,
including such specific records as may be agreed on in writing between the
Employer and the Trustee. All such accounts, books and records shall be open
to inspection and audit at all reasonable times by any authorized
representative of the Employer or the Plan Administrator. A Participant may
examine only those individual account records pertaining directly to him.
Section 3.3. Within 120 days after the end of each Plan Year or within
120 days after its removal or resignation, the Trustee shall file with the Plan
Administrator a written account of the administration of the Fund showing all
transactions effected by the Trustee subsequent to the period covered by the
last preceding account to the end of such Plan Year or date of removal or
resignation and all property held at its fair market value at the end of the
accounting period. Upon approval of such accounting by the Plan Administrator,
neither the Employer nor the Plan Administrator shall be entitled to any
further accounting by the Trustee with respect to the period covered by the
accounting. The Plan Administrator may approve such accounting by written
notice of approval delivered to the Trustee or by failure to express objection
to such accounting in writing delivered to the Trustee within 120 days from the
date on which the accounting is delivered to the Plan Administrator.
Section 3.4. In accordance with the terms of the Plan, the Trustee
shall open and maintain separate accounts in the name of each Participant in
order to record all contributions by or on behalf of the Participant under the
Plan and any earnings, losses and expenses attributable thereto. The Plan
Administrator shall furnish the Trustee with written instructions enabling the
Trustee to allocate properly all contributions and other amounts under the Plan
to the separate accounts of Participants. In making such allocation, the
Trustee shall be fully entitled to rely on the instructions furnished by the
Plan Administrator and shall be under no duty to make any inquiry or
investigation with respect thereto.
Section 3.5. The Trustee shall furnish each Participant with
statements at least annually, or more frequently as may be agreed upon with the
Employer, reflecting the current fair market value of the Participant's
separate accounts under the Plan.
Section 3.6. The Trustee shall not be required to determine the facts
concerning the eligibility of any Participant to participate in the Plan, the
amount of benefits payable to any Participant or Beneficiary
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under the Plan, or the date or method of payment or disbursement. The Trustee
shall be fully entitled to rely solely upon the written advice and directions
of the Plan Administrator as to any such question of fact.
Section 3.7. Unless resulting from the Trustee's negligence, willful
misconduct, lack of good faith, or breach of its fiduciary duties under this
Agreement or ERISA, the Employer shall indemnify and save harmless the Trustee
from, against, for and in respect of any and all damages, losses, obligations,
liabilities, liens, deficiencies, costs and expenses, including without
limitation, reasonable attorney's fees incident to any suit, action,
investigation, claim or proceedings suffered, sustained, incurred or required
to be paid by the Trustee in connection with the Plan or this Agreement.
ARTICLE IV
PROHIBITION OF DIVERSION
Section 4.1. Except as provided in Section 4.2 of this Article, at no
time prior to the satisfaction of all liabilities with respect to Participants
and their Beneficiaries under the Plan shall any part of the corpus or income
of the Fund be used for, or diverted to, purposes other than for the exclusive
benefit of Participants or their Beneficiaries, or for defraying reasonable
expenses of administering the Plan.
Section 4.2. The provisions of Section 4.1 notwithstanding,
contributions made by the Employer under the Plan may be returned to the
Employer under the following conditions:
(a) If a contribution is made by mistake of fact, such
contribution may be returned to the Employer within one year of the
payment of such contribution;
(b) Contributions to the Plan are specifically conditioned upon
their deductibility under the Code. To the extent a deduction is
disallowed for any such contribution, it may be returned to the
Employer within one year after the disallowance of the deduction.
Contributions which are not deductible in the taxable year in which
made but are deductible in subsequent taxable years shall not be
considered to be disallowed for purposes of this subsection; and
(c) The contributions of the Employer to the Trust for all Plan
Years, with the gains and losses thereon, shall be returned by the
Trustee to the Employer within one year in the event that the
Commissioner of the Internal Revenue Service fails to rule that the
Plan and Trust, when first adopted by the Employer, were qualified and
tax-exempt (within the meaning of Sections 401 and 501 of the Code).
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ARTICLE V
COMMUNICATION WITH PLAN ADMINISTRATOR AND EMPLOYER
Section 5.1. Whenever the Trustee is permitted or required to act upon
the directions or instructions of the Plan Administrator, the Trustee shall be
entitled to act upon any written communication signed by any person or agent
designated to act as or on behalf of the Plan Administrator. Such person or
agent shall be so designated either under the provisions of the Plan or in
writing by the Employer and their authority shall continue until revoked in
writing. The Trustee shall incur no liability for failure to act on such
person's or agent's instructions or orders without written communication, and
the Trustee shall be fully protected in all actions taken in good faith in
reliance upon any instructions, directions, certifications and communications
believed to be genuine and to have been signed or communicated by the proper
person.
Section 5.2. The Employer shall notify the Trustee in writing as to
the appointment, removal or resignation of any person designated to act as or
on behalf of the Plan Administrator. After such notification, the Trustee
shall be fully protected in acting upon the directions of, or dealing with, any
person designated to act as or on behalf of the Plan Administrator until it
receives notice to the contrary. The Trustee shall have no duty to inquire into
the qualifications of any person designated to act as or on behalf of the Plan
Administrator.
ARTICLE VI
TRUSTEE'S COMPENSATION
Section 6.1. The Trustee shall be entitled to reasonable compensation
for its services as is agreed upon with the Employer. If approved by the Plan
Administrator, the Trustee shall also be entitled to reimbursement for all
direct expenses properly and actually incurred on behalf of the Plan. Such
compensation or reimbursement shall be paid to the Trustee out of the Fund
unless paid directly by the Employer.
ARTICLE VII
RESIGNATION AND REMOVAL OF TRUSTEE
Section 7.1. The Trustee may resign at any time by written notice to
the Employer which shall be effective 30 days after delivery unless prior
thereto a successor Trustee shall have been appointed.
Section 7.2. The Trustee may be removed by the Employer at any time
upon 30 days written notice to the Trustee; such notice, however, may be waived
by the Trustee.
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Section 7.3. The appointment of a successor Trustee hereunder shall be
accomplished by and shall take effect upon the delivery to the resigning or
removed Trustee, as the case may be, of written notice of the Employer
appointing such successor Trustee, and an acceptance in writing of the office
of successor Trustee hereunder executed by the successor so appointed. Any
successor Trustee may be either a corporation authorized and empowered to
exercise trust powers or one or more individuals. All of the provisions set
forth herein with respect to the Trustee shall relate to each successor Trustee
so appointed with the same force and effect as if such successor Trustee had
been originally named herein as the Trustee hereunder. If within 30 days after
notice of resignation shall have been given under the provisions of this
article a successor Trustee shall not have been appointed, the resigning
Trustee or the Employer may apply to any court of competent jurisdiction for
the appointment of a successor Trustee.
Section 7.4. Upon the appointment of a successor Trustee, the
resigning or removed Trustee shall transfer and deliver the Fund to such
successor Trustee, after reserving such reasonable amount as it shall deem
necessary to provide for its expenses in the settlement of its account, the
amount of any compensation due to it and any sums chargeable against the Fund
for which it may be liable. If the sums so reserved are not sufficient for such
purposes, the resigning or removed Trustee shall be entitled to reimbursement
for any deficiency from the successor Trustee and the Employer who shall be
jointly and severally liable therefor.
ARTICLE VIII
INSURANCE COMPANIES
Section 8.1. If any contract issued by an insurance company shall form
a part of the Trust assets, the insurance company shall not be deemed a party
to this Agreement. A certification in writing by the Trustee as to the
occurrence of any event contemplated by this Agreement or the Plan shall be
conclusive evidence thereof and the insurance company shall be protected in
relying upon such certification and shall incur no liability for so doing. With
respect to any action under any such contract, the insurance company may deal
with the Trustee as the sole owner thereof and need not see that any action of
the Trustee is authorized by this Agreement or the Plan. Any change made or
action taken by an insurance company upon the direction of the Trustee shall
fully discharge the insurance company from all liability with respect thereto,
and it need not see to the distribution or further application of any moneys
paid by it to the Trustee or paid in accordance with the direction of the
Trustee.
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ARTICLE IX
AMENDMENT AND TERMINATION OF THE TRUST AND PLAN
Section 9.1. The Employer may, by delivery to the Trustee of an
instrument in writing, amend, terminate or partially terminate this Agreement
at any time; provided, however, that no amendment shall increase the duties or
liabilities of the Trustee without the Trustee's consent; and, provided
further, that no amendment shall divert any part of the Fund to any purpose
other than providing benefits to Participants and their Beneficiaries or
defraying reasonable expenses of administering the Plan.
Section 9.2. If the Plan is terminated in whole or in part, or if the
Employer permanently discontinues its contributions to the Plan, the Trustee
shall distribute the Fund or any part thereof in such manner and at such times
as the Plan Administrator shall direct in writing. In the absence of receipt of
such written directions within 90 days after the effective date of such
termination, the Trustee shall distribute the Fund in accordance with the
provisions of the Plan.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Unless the context of this Agreement clearly indicates
otherwise, the terms defined in the Plan shall, when used herein, have the same
meaning as in the Plan.
Section 10.2. Except as otherwise required in the case of any
qualified domestic relations order within the meaning of Section 414(p) of the
Code, the benefits or proceeds of any allocated or unallocated portion of the
assets of the Fund and any interest of any Participant or Beneficiary arising
out of or created by the Plan either before or after the Participant's
retirement shall not be subject to execution, attachment, garnishment or other
legal or judicial process whatsoever by any person, whether creditor or
otherwise, claiming against such Participant or Beneficiary. No Participant or
Beneficiary shall have the right to alienate, encumber or assign any of the
payments or proceeds or any other interest arising out of or created by the
Plan and any action purporting to do so shall be void. The provisions of this
Section shall apply to all Participants and Beneficiaries, regardless of their
citizenship or place of residence.
Section 10.3. Nothing contained in this Agreement or in the Plan shall
require the Employer to retain any Employee in its service.
Section 10.4. Any person dealing with the Trustee may rely upon a copy
of this Agreement and any amendments thereto certified to be true and correct
by the Trustee.
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Section 10.5. The Trustee hereby acknowledges receipt of a copy of the
Plan. The Employer will cause a copy of any amendment to the Plan to be
delivered to the Trustee.
Section 10.6. The construction, validity and administration of this
Agreement and the Plan shall be governed by the laws of the Commonwealth of
Pennsylvania, except to the extent that such laws have been specifically
superseded by ERISA.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
Attest: ELECTRO RENT CORPORATION
By /S/ WILLIAM WEITZMAN
President
Attest VANGUARD FIDUCIARY TRUST CO.
By /S/ R. BARTON
Vice President
Igl:894
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Exhibit (10) (A)-(3)
ELECTRO RENT CORPORATION SAVINGS PLAN
SUPPLEMENT TO THE
VANGUARD PROTOTYPE 401(K) SAVINGS PLAN ADOPTION AGREEMENT
This Supplement to the Vanguard Prototype 401(k) Savings Plan Adoption
Agreement (the "Adoption Agreement") for the Electro Rent Savings Plan (the
"Plan") amends the Adoption Agreement effective January 1, 1995 to allow
eligible employees of Genstar Rental Electronics, Inc. ("Genstar"), a Delaware
company that has been acquired by Electro Rent Corporation, to become
participants in the Plan on other than the Plan's normal entry dates, and to
include service with Genstar as service with Electro Rent Corporation for
eligibility and vesting purposes. Accordingly, the Plan will remain an
individually-designed plan consisting of the following documents:
(a) the Vanguard Prototype 401(k) Savings Plan
(the "Prototype") as modified by a Supplement,
(b) the Adoption Agreement as modified by this
Supplement, and
(c) any Trust Agreement for the Plan.
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AMENDMENT OF ADOPTION AGREEMENT
Section 1(c) Commencement of Participation
Notwithstanding anything in the Adoption Agreement or the Prototype to
the contrary, the Entry Date of a person who is an employee of Genstar
on December 31, 1994 and who becomes an Employee of Electro Rent
Corporation on January 1, 1995 shall be January 1, 1995 if he or she
meets the participation requirements of Sections 1(a) and (b) of the
Adoption Agreement on that date, taking into account Section 1(d)
below. If such a person does not then meet those participation
requirements, his or her Entry Date shall be determined in accordance
with the normal provisions of the Adoption Agreement and the
Prototype, as modified below.
Section 1(d) Service with Predecessor Employers
Genstar shall be treated as a predecessor employer to Electro Rent
Corporation. Accordingly, service with Genstar shall be treated as
service with Electro Rent Corporation for both eligibility and vesting
purposes. The Years of Service credited to an Employee for his or her
service with Genstar shall be calculated under the elapsed time
service crediting rules of Article 16 of the Prototype (see the
Supplement to the Prototype).
Date Adopted: 9/24/94 ELECTRO RENT CORPORATION
-------------
By /S/ CRAIG JONES
-----------------------------------
Vice President &
Chief Financial
Officer
Title
---------------------------------
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Exhibit (10) (A)-(4)
SECOND AMENDMENT TO ELECTRO RENT CORPORATION
EMPLOYEE STOCK OWNERSHIP & SAVINGS PLAN
RESTATED AS OF JUNE 1, 1989
The Electro Rent Corporation Employee Stock Ownership &
Savings Plan is hereby amended effective June 1, 1991 as follows:
1. The following sentence is added to the end of Section 8.1:
In lieu of receiving whole shares of Employer Securities, a
Participant may elect to receive the value of the Employer
securities in cash. The cash distributed shall be based on
the value of the Employer securities as defined in Section
6.10(a).
2. The last sentence of Section 6.10(a) shall be replaced
with the following:
To the extent that Employer securities in a Stock Account are
to be distributed or withdrawn in cash, or converted to cash
when forfeited, their value shall
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be determined in accordance with Section 6.2(b) by the Plan
Administrator as of the date the Employer securities are
converted to cash.
3. The first sentence in Section 3.1(a) shall be replaced
with the following:
The first day of the first, fourth, seventh and tenth month of
each Plan Year shall be an entry date.
By: /S/ DANIEL GREENBERG
-------------------------------
Plan Administrator for
Electro Rent Corporation
Employee Stock Ownership
& Savings Plan
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Exhibit (10) (A)-(5)
THIRD AMENDMENT TO ELECTRO RENT CORPORATION
EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN
RESTATED AS OF JUNE 1, 1989
The Board of Directors of Electro Rent Corporation has adopted
the following resolutions and amendments regarding the Electro Rent Corporation
Employee Stock Ownership and Savings Plan ("Plan").
WHEREAS, Electro Rent Corporation ("Company") desires to
change the manner in which Plan assets are invested so as to simplify
administration of the Plan and to eliminate the investment of Plan assets in
Company stock;
WHEREAS, the Company desires to give Plan participants whose
Plan accounts are invested in Company stock the opportunity to receive an
in-service distribution of those accounts;
NOW, THEREFORE, BE IT RESOLVED, that effective August 1, 1994,
the Employee Stock Ownership portion of the Plan (which currently is a
profit-sharing plan and consists of all ESOP Accounts and PAYSOP Accounts now
in the Plan) shall be spun off from the Plan and shall thereafter constitute a
separate profit-sharing plan which shall be effective August 1, 1994, shall be
named the "Electro Rent Corporation Employee Stock Ownership Plan" ("ESOP"),
and shall be assigned plan identification number 005.
RESOLVED FURTHER, that the ESOP shall be a frozen plan under
which all participants' ESOP Accounts and PAYSOP Accounts shall be fully vested
at all times. The current Plan document (as hereinafter amended) shall also
constitute the ESOP plan document, except for those provisions which apply
solely to Deferred Income Accounts or Matching Contribution Accounts under the
Plan.
RESOLVED FURTHER, that any ESOP participant who has reached
the fifth anniversary of the date he or she first became a Plan participant
shall be permitted to request an in-service withdrawal of his or her entire
interest in the ESOP, at any time on or after August 1, 1994 and before his or
her employment with the Company
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terminates. Any such withdrawal shall be made in accordance with the regular
distribution provisions of the ESOP (which shall be identical to those of the
current Plan document as hereinafter amended) as if the participant had
terminated employment with the Company, except that distribution shall only be
made in shares of Company stock plus cash for any fractional shares.
RESOLVED FURTHER, that the Plan shall continue in existence on
and after August 1, 1994 as a profit-sharing plan with a cash or deferred
arrangement and shall be renamed the "Electro Rent Corporation Savings Plan."
The assets of the Savings Plan as of August 1, 1994 shall consist of all
Deferred Income Accounts and Matching Contributions Accounts then in the Plan.
The current Plan document (as hereinafter amended) shall continue to constitute
the Plan, except for those provisions which apply solely to ESOP Accounts or
PAYSOP Accounts.
RESOLVED FURTHER, that to carry out the foregoing resolutions,
the Plan is hereby amended as follows.
1. The following is added to the end of Section 6.7(a):
Effective July 31, 1994, the Plan ceased permitting
the investment of Plan assets in Employer securities. Accordingly, no Employer
contributions made after that date will be invested in the Employer Stock Fund.
All Participant Accounts invested in the Employer Stock Fund as of August 1,
1994 (which Accounts consist solely of ESOP Accounts and PAYSOP Accounts) shall
be spun off from the Plan and transferred to the Electro Rent Corporation
Employee Stock Ownership Plan. Thereafter, the Employer Stock Fund shall cease
to exist.
2. The following is added to the end of Section 7.3:
Effective July 31, 1994, the unvested portion of each
ESOP Account then in the Plan shall become fully Vested.
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3. The following subsection (c) is added to Section 8.7:
(c) Effective July 31, 1994, the Plan ceased
permitting the investment of Plan assets in Employer securities and all PAYSOP
Accounts in the Plan as of August 1, 1994 were spun off from the Plan and
transferred to the Electro Rent Corporation Employee Stock Ownership Plan.
Thereafter, PAYSOP Accounts shall be held and administered under the Employee
Stock Ownership Plan, the terms of which are identical to those of this Plan
with regard to PAYSOP Accounts.
4. The following Section 8.8 is added to Article VIII:
8.8 Spinoff and Payment of ESOP Accounts and PAYSOP
Accounts
(a) Effective July 31, 1994, the Plan ceased
permitting the investment of Plan assets in Employer securities. All ESOP
Accounts and PAYSOP Accounts in the Plan as of August 1, 1994 were spun off
from the Plan and transferred to the Electro Rent Employee Stock Ownership
Plan. All such Accounts shall be held and administered under the Employee
Stock Ownership Plan, the terms of which are identical to those of this Plan
with regard to ESOP Accounts and PAYSOP Accounts, including the in- service
distribution provision described in this Section.
(b) Each Participant with an ESOP Account or PAYSOP
Account whose Employment has not terminated and who has reached the fifth
anniversary of the date he or she first became a Participant in the Plan may
elect to receive an in-service distribution of the entire balance of his or her
ESOP Account and PAYSOP Account in accordance with this Section. Such an
election shall be made in writing on a form provided by the Plan Administrator,
and may be made at any time after July 31, 1994 and before the Participant's
Employment terminates. (Such an election is permissible because (1) it is only
available to a Participant who has reached the fifth anniversary of the date he
or she first became a Participant in the Plan, and (2) all Employer
contributions credited to PAYSOP Accounts have been held in the Plan for at
least eighty-four months.)
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(c) Distribution pursuant to this Section shall be
made under the normal distribution provisions of the Plan applicable to
distributions upon termination of Employment (including distribution in the
form of a "Direct Rollover" as described in Section 12.19), except that
distribution shall only be made in whole shares of Employer securities plus
cash for any fractional shares. Distribution shall be made as soon as
administratively feasible following completion of the valuation of Plan
Accounts for the valuation date next following the date the Participant's
distribution election is received by the Plan Administrator.
(d) The ESOP Account or PAYSOP Account of any
Participant who does not properly elect a distribution under this Section shall
remain in the Plan, shall be administered and invested as provided in the Plan,
and shall be payable at the time and in the manner otherwise specified in the
Plan.
RESOLVED FURTHER, that in order to conform the Plan to recent
changes in applicable law, the Plan is hereby amended as follows, effective as
of the dates set forth herein.
1. The second to the last sentence of Section 2.7 is amended
to read as follows:
For all purposes (other than applying the limits of Code
Section 415 as described in Section 5.5), an Employee's Compensation in Plan
Years beginning before 1994 in excess of $200,000, or in Plan Years beginning
after 1993 in excess of $150,000 (or such other amount prescribed under Code
Section 401(a)(17)), shall be ignored in accordance with methods allowable
under that Code section which the Plan Administrator in its discretion
establishes. This subsection is applicable for Plan Years commencing after
December 31, 1988.
2. Section 12.19 is added to Article XII, effective for
distributions made after December 31, 1992:
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<PAGE> 5
12.19 Rollovers to Other Plans
(a) Notwithstanding any contrary provision of the
Plan, a Distributee may elect, at the time and in the manner prescribed by the
Plan Administrator, to have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the Distributee in a
Direct Rollover.
(b) The special capitalized terms used only in this
Section shall have the meanings specified below:
(i) "Eligible Rollover Distribution"
means any distribution of all or any portion of the
balance to the credit of the Distributee, except that
an Eligible Rollover Distribution does not include:
a any distribution that is one of a
series of substantially equal periodic
payments (not less frequently than annually)
made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life
expectancies) of the Distributee and the
Distributee's designated beneficiary, or for
a specified period of ten years or more;
b any distribution to the extent such
distribution is required under Section
401(a)(9) of the Code; and
c the portion of any distribution that
is not includible in gross income (determined
without regard to the exclusion for net
unrealized appreciation with respect to
employer securities).
(ii) "Eligible Retirement Plan" means an
individual retirement account described in Section
408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity
plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the
Code, that accepts the Distributee's Eligible
Rollover Distribution. However, in the case of an
Eligible Rollover Distribution to a surviving Spouse,
only an individual retirement account or individual
retirement annuity shall be an Eligible Retirement
Plan.
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<PAGE> 6
(iii) "Distributee" means an Employee or
former Employee. In addition, the Employee's or
former Employee's surviving Spouse and the Employee's
or former Employee's Spouse or former Spouse who is
the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the
Code, are Distributees with regard to the interest of
the Spouse or former Spouse.
(iv) "Direct Rollover" means a payment by
the Plan to the Eligible Retirement Plan specified by
the Distributee.
(c) The provisions of this Section shall apply only
to distributions made after December 31, 1992 and only to the
extent required by the plan qualification rules of Section
401(a) of the Code.
Date Adopted: June 15, 1994 ELECTRO RENT CORPORATION
By: /S/ WILLIAM WEITZMAN
--------------------------------
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<PAGE> 1
Exhibit (10) (A)-(6)
FOURTH AMENDMENT TO ELECTRO RENT CORPORATION
SAVINGS PLAN (RESTATED AS OF JUNE 1, 1989)
The undersigned is the Plan Administrator of the Electro Rent
Corporation Savings Plan ("Plan") and is authorized to amend the Plan in
certain respects by Section 11.1(b) of the Plan, which authority includes
amendment of the related trust agreement ("Trust") that constitutes part of the
Plan pursuant to Plan Section 2.26.
To carry out the desire of Electro Rent Corporation to change
the manner in which Plan assets are invested so as to simplify administration
of the Plan, I hereby amend the Plan and the Trust as set forth below,
effective September 1, 1994.
1. The Plan is hereby amended and restated in its
entirety by substituting for the current Plan document the Vanguard Prototype
401(k) Savings Plan, the Adoption Agreement for the Vanguard Prototype 401(k)
Savings Plan, and the Supplement to the Vanguard Prototype 401(k) Savings Plan,
in the form of the documents attached hereto and by this reference made a part
hereof, all of which documents shall constitute the Electro Rent Corporation
Savings Plan on and after September 1, 1994.
Although the Vanguard documents constitute a
prototype plan the form of which currently has outstanding a favorable opinion
letter from the Internal Revenue Service ("IRS"), the Plan as amended and
restated by adoption of those documents shall continue to be an individually
designed plan by virtue of the Supplement, which amends the Vanguard documents
to change the service crediting method thereunder from "hour of service" to
"elapsed time."
2. The Trust is hereby amended and restated in its
entirety by substituting for the current Trust document the Trust Agreement
attached hereto and by this reference made a part hereof, under which Vanguard
Fiduciary Trust Company is hereby appointed to serve as successor trustee.
Date Adopted: 09/01/94 By: /S/ WILLIAM WEITZMAN
---------- ----------------------------
Plan Administrator
-1-
<PAGE> 1
Exhibit (10) (A)-(7)
ELECTRO RENT CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
TRUST AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE
AND
SECTION PROVISIONS PAGE
- ------- ---------- ----
<S> <C> <C>
I. Relationship of Trust to Plan 3
II. Investment Responsibilities 4
2.01 Investment Responsibility of
Trustee 4
2.02 Delegation of Investment
Responsibilities to Other
Fiduciaries 4
2.03 Delegation of Investment
Responsibility to an Insurance
Company or Group Trust 7
2.04 Loans to Participants 8
III. Investment Powers 10
3.01 Specific Investment Powers 10
3.02 General Investment Powers 13
IV. Responsibilities of the Trustee 14
4.01 General Administrative
Responsibilities and Powers 14
4.02 Accounts of the Trustee 16
V. Fiduciary Responsibilities and
Liabilities 18
5.01 General 18
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE
AND
SECTION PROVISIONS PAGE
- ------- ---------- ----
<S> <C> <C>
5.02 Trustee Responsibilities with
Respect to Assets Subject to
Investment by Other Persons 19
5.03 Other Limitations on Trustee
Responsibility 21
5.04 Indemnification of the Trustee 22
VI. Payments and Expenses 25
6.01 Payment by Trustee 25
6.02 Trustee Compensation and Expenses 25
6.03 Taxes 26
6.04 Other Expenses 26
VII. Replacement of the Trustee 27
7.01 Resignation and Removal 27
7.02 Successor Trustee 27
7.03 Non-Corporate Trustees 28
VIII. Amendment and Termination 30
8.01 Amendments 30
8.02 Termination 30
IX. Miscellaneous 31
9.01 Contributions Not Recoverable 31
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE
AND
SECTION PROVISIONS PAGE
- ------- ---------- ----
<S> <C> <C>
9.02 Successor Employers; Additional
Employers 32
9.03 Merger of Trustee 32
9.04 Governing Law 33
9.05 Severability 33
9.06 References 33
9.07 Headings 34
</TABLE>
-iii-
<PAGE> 5
ELECTRO RENT CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
TRUST AGREEMENT
THIS TRUST AGREEMENT is made as of the first day of September,
1994, by and between Electro Rent Corporation (hereinafter referred to as the
"Employer"), and Daniel Greenberg, William Weitzman and Craig R. Jones
(hereinafter referred to as the "Trustee").
Electro Rent Corporation previously adopted the Electro Rent
Corporation Employee Stock Ownership Plan (the "Plan") and entered into a trust
agreement. This Agreement amends and restates the current trust agreement in
its entirety, and removes the trustee under the current trust agreement and
appoints in its place as successor trustee the individuals named above,
effective September 1, 1994.
This Agreement shall constitute a part of the Plan. The
Employer intends that the Plan shall qualify and that the Trust shall be
tax-exempt under Sections 401 and 501(a) of the Internal Revenue Code and
applicable state law. The Plan may hold some of its assets under other trust
agreements. The Plan and Trust have been or may be adopted
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<PAGE> 6
by other companies. The term "Employer" refers to any company or all
companies maintaining the Plan, as the context requires, except that the
term shall only refer to Electro Rent Corporation in contexts in which
actions are permitted or required to be taken or notice is to be given.
Electro Rent Corporation, acting through its chief executive officer or
such officer's delegate (such as an administrative committee or an
investment committee described in Article X of the Plan), is the
"Plan Administrator."
The Trustee agrees to hold in trust all amounts transferred to
it pursuant to this Agreement, together with the gains and losses thereon (such
fund is referred to herein as the "Trust Fund" or "Trust"). The Trustee agrees
to hold and administer the Trust Fund for the uses and purposes and on the
terms and conditions set forth in this Agreement.
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<PAGE> 7
ARTICLE I
RELATIONSHIP OF TRUST TO PLAN
Capitalized terms in this Agreement are defined in the Plan.
All words and phrases used in this Agreement shall have the same meaning as in
the Plan. The Plan and this Agreement shall be read and construed together.
To the extent provided for by the Plan or directed by the Plan Administrator,
the Trustee shall maintain separate funds within the Trust Fund for accounting
or investment purposes. The terms of the Plan shall prevail over the terms of
this Agreement in cases of conflict, except that the terms of this Agreement
shall prevail in matters relating to the rights and duties of the Trustee.
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<PAGE> 8
ARTICLE II
INVESTMENT RESPONSIBILITIES
2.01 Investment Responsibility of Trustee
The Trustee shall have complete investment management
responsibility with respect to all assets of the Trust Fund except to the
extent such responsibilities are transferred to others under this Article.
2.02 Delegation of Investment Responsibilities to Other
Fiduciaries
The Plan Administrator may delegate to an investment
manager or an investment committee the authority to exercise investment
management responsibilities with respect to the Trust Fund. The Plan
Administrator may also delegate to itself the authority to exercise investment
management responsibilities. All delegations of investment management
responsibilities shall be made in accordance with the following rules:
(a) An investment manager must be a bank, an
insurance company or a registered investment advisor (as these terms are
defined by Section 3(38) of ERISA), which has acknowledged in writing that it
is a fiduciary with respect to the Plan. An investment committee shall be a
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<PAGE> 9
body of one or more persons serving at the Plan Administrator's pleasure and
acting by majority vote.
(b) The delegation shall not become effective, and
the Trustee shall retain investment management responsibilities, until the
Trustee receives written notice from the Plan Administrator of the delegation.
Unless the written notice specifies otherwise, the person delegated investment
responsibilities shall have all powers specified in Article III, except those
specified in Sections 3.01(f) through (h).
(c) The Plan Administrator may revoke or amend any
delegation under this Section at any time, effective as of the time the Trustee
receives written notice of the revocation or amendment.
(d) Upon a revocation under subsection (c) becoming
effective, the Trustee shall have full investment management responsibilities
as soon as it may practicably assume them until another delegation of
responsibilities is made under subsection (b).
(e) Investment responsibilities may be delegated as
to the entire Trust Fund or with respect to discrete portions of the Trust
Fund. If the delegation pertains to less than the entire Trust Fund, the Plan
Administrator shall direct the Trustee to establish separate
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<PAGE> 10
investment accounts for each fiduciary (including the Trustee) with investment
management responsibilities. Each fiduciary's investment account shall consist
of the assets of the Trust Fund over which it exercises such responsibilities
and, unless the Plan Administrator otherwise directs, the gains and losses
thereon. Each investment account shall consist of the Trust assets designated
by the Plan Administrator. Such a designation shall be made solely for the
purpose of establishing the investment account and shall not constitute an act
of investment management.
(f) Any person authorized to exercise investment
management responsibilities (other than an insurance company referred to in
Section 2.03) shall exercise its powers and duties by directing the Trustee in
writing (or orally with the consent of the Trustee); however, any such person
may issue orders for the purchase or sale of securities directly to a broker-
dealer. When such a direct order is placed, the person shall require the
broker-dealer to confirm the execution of the order to the Trustee. Upon
receiving confirmation of that purchase or sale of securities from a
broker-dealer, the Trustee shall pay for the securities purchased or deliver
securities sold against payment therefor. Upon request by a person delegated
investment management responsibilities, the Trustee shall
-6-
<PAGE> 11
execute and deliver appropriate trading authorizations to any broker-dealer.
Alternatively, with the consent of the Plan Administrator, a person authorized
under this subsection to exercise investment management responsibilities may
establish an account with a broker-dealer in the name of the Plan. The
broker-dealer may hold in this account any investments purchased by the account
and shall not be required to deliver these investments to the Trustee, as
permitted by 29 C.F.R. Section 2550.403a-1(b)(1)(ii).
2.03 Delegation of Investment Responsibility to an Insurance
Company or Group Trust
If, upon the direction of a named fiduciary, an
insurance contract is purchased with assets of the Trust Fund and assets of the
insurer are or may be considered assets of the Trust, the purchase shall
constitute the appointment of the insurer as the investment manager (within the
meaning of Section 3(38) of ERISA) with respect to the assets held under the
insurance contract and the insurer shall acknowledge that it is a Plan
fiduciary. Similarly, if assets of the Trust are invested in a collective,
common or group trust (other than one trusteed by the Trustee) or in a
partnership or corporation and the assets of such other trust, partnership or
corporation are or may be considered
-7-
<PAGE> 12
assets of this Trust, the entity or person with investment management
responsibility with respect to such other trust, partnership or corporation
shall be a "named fiduciary" with respect to the investment management of such
other trust, partnership or corporation, or if the person or entity qualifies
under Section 3(38) of ERISA, such person or entity shall be the investment
manager of such trust, partnership or corporation. In either case, however,
such persons or entities shall exercise their investment management
responsibilities with respect to such assets in accordance with the terms of
the insurance contract, trust, partnership or corporation and without any
notice to the Trustee. The insurance contract or interest in the trust,
partnership or corporation itself shall, nevertheless, be an asset of the
Trust. Any decisions concerning the purchase, retention, modification or
termination of the contract or interest in the trust, partnership or
corporation shall be made by the person with investment responsibilities with
respect to the asset in question.
2.04 Loans to Participants
The Plan Administrator shall have the investment
management discretion to direct the Trustee to loan
-8-
<PAGE> 13
money to Participants in accordance with Article VI of the Plan.
-9-
<PAGE> 14
ARTICLE III
INVESTMENT POWERS
3.01 Specific Investment Powers
The Trustee or other person authorized to exercise
investment management responsibilities shall have the following powers, except
as otherwise limited in accordance with Article II and subject to any
restrictions set forth in the Plan with respect to investments in stock of the
Employer:
(a) To purchase, hold, sell, invest and reinvest
Trust assets, together with the income therefrom, in any security (including,
but not limited to, common stock, preferred stock, convertible preferred stock,
REIT and investment company shares, partnership and limited partnership
interests, bonds, debentures, convertible debentures, mortgages, notes, trust
deeds, time certificates of deposit, commercial paper and other evidences of
indebtedness), any property (personal, real or mixed, and tangible or
intangible) or any options to buy or sell any securities or property;
(b) To hold, manage, improve, repair and control all
property, real or personal, at any time forming part of the Trust assets; to
sell, convey, transfer,
-10-
<PAGE> 15
exchange, partition, lease for any term, even extending beyond the duration of
this Trust, and otherwise dispose of the same from time to time in such manner;
to vote any corporate stock, either in person or by proxy, with or without
power of substitution, for any purpose; to settle, compromise or abandon all
claims and demands in favor of or against the Trust assets;
(c) To exercise any option, conversion privilege or
subscription right given to the Trustee as the owner of any security forming
part of the Trust assets; to consent to or oppose any reorganization,
consolidation, merger, readjustment of the financial structure, sale, lease or
other disposition of the assets of any corporation or other organization, the
securities of which may be an asset of the Trust, and to take any action in
connection therewith and receive and retain any securities resulting therefrom;
(d) To borrow money from any source and in connection
therewith to execute promissory notes, mortgages or other obligations and to
pledge or mortgage any Trust assets as security;
(e) To make "deposits," within the meaning of
Section 408(b)(4) of ERISA, with any bank or savings and loan institution
(including any such facility of the Trustee
-11-
<PAGE> 16
or its affiliates provided that at least a reasonable rate of interest is paid
on the deposit);
(f) To invest and reinvest the Trust Fund, or any
parts thereof, in any one or more investment trust funds (including funds
investing in real estate) maintained by any person, including funds regularly
maintained by the Trustee or its affiliates for the common or collective
investment of trust funds, the declaration of trust therefor being hereby made
a part of this Trust Agreement; to commingle said investments with assets
invested by trusts similar hereto by investing the same as a part of one or
more of such investment trust funds in accordance with said declarations of
trust;
(g) To enter into, modify, renew and terminate
annuity contracts of deposit administration or immediate participation or other
group or individual type, or (to the extent provided for in the Plan) life
insurance contracts, with one or more insurance companies; to pay or deposit
all or any part of the Trust Fund under such contracts; to provide in any such
contract for the investment in separate accounts of all or any part of funds so
deposited with the insurance company; to the extent provided for in the Plan,
to purchase annuities for retired Participants, including variable annuities;
to exercise and
-12-
<PAGE> 17
claim all rights and benefits granted to the contract holder by any such
contracts;
(h) To invest, reinvest or hold "qualifying employer
securities" and "qualifying employer real property," as such terms are defined
in Section 407(d) of ERISA to the fullest extent permissible under ERISA with
respect to the Plan.
3.02 General Investment Powers
Except as limited in Article II, in addition to the
powers granted under Section 3.01, the Trustee or other person exercising
investment management responsibilities shall have the power to exercise all the
further rights, powers, options and privileges granted, provided for, or vested
in trustees generally under applicable federal or state laws, it being intended
that the powers conferred hereunder shall not be construed as being in
limitation of any authority conferred by law, but shall be construed as in
addition thereto.
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<PAGE> 18
ARTICLE IV
RESPONSIBILITIES OF THE TRUSTEE
4.01 General Administrative Responsibilities and Powers
The Trustee is authorized and empowered to take any
action set forth below with respect to any asset of the Trust Fund (including
any asset the investment of which is managed by a person other than the
Trustee, but excluding any such asset referred to in Section 2.03):
(a) Except as otherwise instructed by the Plan
Administrator, to invest funds pending other investment directions in (1) any
short term investment fund described in Section 3.01(f) or (2) any type of
interest-bearing "deposit," within the meaning of Section 408(b)(4) of ERISA,
with any bank or savings and loan association (including any such facility of
the Trustee or its affiliates provided that at least a reasonable rate of
interest is paid on the deposit);
(b) To serve as sole custodian with respect to the
Trust assets (except to the extent custodial duties are delegated to another
person or entity under Section 2.02(f) or by the Plan Administrator's written
instruction to the Trustee);
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<PAGE> 19
(c) To cause any property of the Trust to be issued,
held or registered in the individual name of the Trustee, in the name of its
nominee, in a securities depository, in Federal Reserve book-entry and bearer
form or in such form that title will pass by delivery (however, the records of
the Trustee shall indicate the true ownership of such property);
(d) To employ such agents and counsel as the Plan
Administrator determines to be reasonably necessary in managing and protecting
the Trust assets and to pay them reasonable compensation;
(e) To transfer assets to, or receive assets from,
other trusts or insurance arrangements maintained to fund the Plan, as directed
by the Plan Administrator;
(f) To serve as "payor" and be solely responsible
for the withholding of income taxes on distributions from this Trust, to the
extent withholding is required by law; and
(g) To do all other acts necessary or desirable for
the proper administration of the Trust assets (other than investment acts
authorized under Article III).
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<PAGE> 20
4.02 Accounts of the Trustee
(a) Records. The Trustee shall maintain accurate
records and accounts of all Trust transactions. These records shall be
available at all reasonable times for inspection by any person designated by
Plan Administrator.
(b) Reports. If the Plan Administrator so directs,
the Trustee shall submit such interim evaluations, reports and other
information to the Plan Administrator as it may reasonably require. Within
ninety days following the close of each Plan Year and within ninety days
following the effective date of the removal or resignation of the Trustee, the
Trustee shall file with the Plan Administrator a written account setting forth
all transactions effected by it subsequent to the end of the period covered by
its last previous account and listing the assets of the Trust. Except as
otherwise directed by the Plan Administrator, this account shall show the
carrying and market values of all Trust assets at the close of the period
covered by the account. The Trustee shall certify to the accuracy of the
account.
(c) Value of Trust Assets. For purposes of this
Article, the fair market value of assets in the Trust shall be determined in
accordance with Article VI of the
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<PAGE> 21
Plan by the Plan Administrator or, if the Plan Administrator so directs, by the
Trustee.
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<PAGE> 22
ARTICLE V
FIDUCIARY RESPONSIBILITIES AND LIABILITIES
5.01 General
(a) The Trustee and all other fiduciaries under the
Plan and this Trust Agreement intend that each fiduciary shall be solely
responsible for its own acts or omissions. A fiduciary shall be liable for its
acts or omissions or the acts or omissions of other persons only to the extent
required by federal law.
(b) The Plan Administrator shall be the "named
fiduciary" (within the meaning of Section 402(a) of ERISA) with respect to the
administration and management of the Plan. The Plan Administrator and any
investment committee shall be the named fiduciaries with respect to the
investment, management and control of the Plan's assets, except as otherwise
provided in Section 2.03 or in subsection (c) below.
(c) The Employer shall be the named fiduciary with
investment management responsibility for managing the investments of
Participant Accounts to the same extent that Participants have also been given
that right. If the Employer determines that Section 404(c) of ERISA applies to
a given investment direction of a Participant,
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<PAGE> 23
the Employer shall follow that instruction and shall have no fiduciary
responsibility with respect to it. The Trustee shall assume that all
Participant directions have been made pursuant to Section 404(c) of ERISA,
except to the extent the Employer has advised the Trustee in advance to the
contrary. The Employer shall indemnify and hold the Trustee harmless from all
liabilities and legal expenses, including attorney fees, the Trustee incurs by
reason of (1) following Participant directions to which the Trustee reasonably
or properly assumes that Section 404(c) of ERISA applies, (2) questioning or
verifying the applicability of Section 404(c) of ERISA (if the Trustee elects
to do so even though it has no such obligation), or (3) refusing to follow
Participant directions to which the Trustee is unsure that Section 404(c) of
ERISA will apply.
5.02 Trustee Responsibilities with Respect to Assets
Subject to Investment by Other Persons
The Trustee shall not be under any obligation or duty
to question any directions of any person to whom investment management
responsibilities have been delegated, nor to review any securities or other
property of the Trust constituting assets thereof with respect to which another
person possesses investment management responsibility, nor
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<PAGE> 24
to make any suggestions to any person in connection therewith. The Trustee has
no obligations or duties with respect to the acquisition, retention or
disposition of any securities or other property of the Trust with respect to
which another person has investment management responsibility (without regard
to whether the Trustee, if it possessed investment responsibility, would
acquire, retain or dispose of the particular security or class of securities or
other property or whether acquisition, retention or disposition is legally
permissible). Except as otherwise provided by federal law, the Trustee shall
not be liable, in any manner or for any reason, for the making or retention of
any investment pursuant to investment directions of a person authorized to make
such directions. The Trustee shall not be liable for its failure to invest any
or all of the assets of the Trust in the absence of such directions, except as
otherwise provided in Article II. The Trustee, to the extent it is subject to
direction by another person, shall not be liable for any failure to exercise
conversion, redemption, exchange, subscription or other rights with respect to
Trust assets subject to such person's investment direction unless such person
notifies the Trustee of the existence of the right and instructs it to exercise
such
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<PAGE> 25
right within a reasonable time prior to the expiration of such right.
5.03 Other Limitations on Trustee Responsibility
(a) The Trustee shall have no powers, duties or
responsibilities with regard to the administration of the Plan nor shall it
have any power, duty or responsibility to determine the rights or benefits of
any person having or claiming an interest under the Plan or this Trust
Agreement.
(b) The Trustee shall have no liability for the
adequacy of contributions to the Plan and no responsibility to enforce the
payment of such contributions.
(c) The Trustee shall not be liable for any loss to
the Trust which results solely from the Plan Administrator's failure to notify
the Trustee of any obvious error in an accounting report prepared by the
Trustee within one year from the date such report is received by the Plan
Administrator, if such error could have readily been discovered by the Plan
Administrator upon its review of such report in a reasonably thorough manner.
(c) Unless the Plan Administrator files written
objections to all or any part of an accounting prepared by the Trustee within
sixty days after the Plan Administrator receives the accounting, the Employer
and the
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<PAGE> 26
Plan Administrator will be deemed to have approved the accounting and the
Trustee will be discharged from all liability with respect to all matters
reported in the accounting that are not covered by written objections.
5.04 Indemnification of the Trustee
The Employer shall indemnify the Trustee and hold it
harmless from certain expenses and liabilities to which it may be subjected, in
accordance with the following provisions:
(a) The Employer hereby agrees to indemnify the
Trustee and hold it harmless from all liabilities, losses, claims, demands,
damages, costs, and expenses, including reasonable attorneys' fees, arising
from (1) any act taken or omitted by the Trustee in good faith in accordance
with, or due to the absence of, directions of any person authorized to direct
the Trustee with respect to the matter, (2) any action taken by the Trustee
pursuant to a notification of an order to purchase or sell securities issued
directly to a broker or dealer by any person authorized to direct the Trustee
with respect to the matter, or (3) any act taken or omitted by a fiduciary
other than the Trustee in breach of the fiduciary's responsibilities under the
Plan or this Trust Agreement.
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<PAGE> 27
(b) If the Trustee is for any reason named as a
defendant in any lawsuit or other proceeding involving the Plan or the Trust
Fund, the Employer hereby agrees to indemnify the Trustee and hold it harmless
from all liabilities, losses, claims, demands, damages, costs and expenses,
including reasonable attorneys' fees and the expenses attributable to the use
of in-house counsel (hereinafter "liability"), incurred by the Trustee unless
the final judgment entered in the lawsuit or proceeding holds that the
liability was caused by or resulted from the Trustee's gross negligence or
willful misconduct. Pending the final judgment, the Employer shall advance the
Trustee's legal expenses and costs in defending the suit. If the final
judgment holds the Trustee guilty of gross negligence or willful misconduct,
the Trustee shall reimburse the Employer for such expenses and costs advanced.
(c) The Employer shall have the right, but not
the obligation, to conduct the defense of the Trustee in any legal proceeding
covered by this Section. However, any legal counsel selected to defend the
Trustee must be acceptable to the Trustee and the Trustee may elect to choose
counsel, including in-house counsel, other than that selected by the Employer.
The Employer may satisfy all or any part of its obligations under this Section
through
-23-
<PAGE> 28
insurance arrangements acceptable to the Trustee. The Trustee shall be
entitled to indemnity under this Section only from the Employer and shall not
be entitled to any indemnity payment under subsection (b) directly or
indirectly from the Trust Fund.
(d) Notwithstanding any other provision of this
Trust Agreement, the Trustee shall, without prior approval of the Employer or
the Plan Administrator, have the right to retain lawyers, accountants,
actuaries or other advisors or experts to assist it in the performance of its
duties under this Trust Agreement and to pay their fees and expenses out of the
Trust Fund. In addition, the Trustee shall have the right to charge additional
fees for any special services it provides which are not covered by any fee
agreement it may have with respect to this Trust.
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<PAGE> 29
ARTICLE VI
PAYMENTS AND EXPENSES
6.01 Payment by Trustee
(a) All payments from the Trust shall be made by the
Trustee to such persons, in such manner, at such times and in such amounts as
the Plan Administrator shall in writing direct. The Trustee shall be under no
duty to make inquiry as to whether any distribution directed by the Plan
Administrator is made pursuant to the provisions of the Plan.
(b) In the event any controversy arises as to the
person or persons to whom any distribution or payment is to be made by the
Trustee, or as to any other matter arising in the administration of the Plan,
the Trustee may retain the amount in controversy pending resolution of the
controversy and no interest on such amount shall be paid to any person claiming
the benefit. Pending resolution, the amount shall be invested in accordance
with the otherwise applicable provisions of this Agreement.
6.02 Trustee Compensation and Expenses
A corporate fiduciary serving as Trustee shall be
paid such reasonable compensation for its services
-25-
<PAGE> 30
as shall be agreed upon from time to time by the Plan Administrator and the
Trustee. The Trustee shall be reimbursed for its expenses to the extent they
are reasonably necessary and incident to its administration of the Trust. All
such compensation and expenses shall be billed to the Plan Administrator but
paid from the Trust Fund, unless paid by the Employer.
6.03 Taxes
The Trustee is authorized, with or without direction
from the Plan Administrator, to pay from the Trust assets all real and personal
property taxes, income taxes and other taxes of any kind levied or assessed
under existing or future laws against the Trust Fund, unless paid by the
Employer. The Trustee shall not be personally liable for any such taxes.
6.04 Other Expenses
Any expenses or fees incurred by the Plan
Administrator or the Employer in the administration of the Plan, including
legal, accounting and other such expenses, shall be billed to the Plan
Administrator but paid from the Trust Fund, unless paid by the Employer.
-26-
<PAGE> 31
ARTICLE VII
REPLACEMENT OF THE TRUSTEE
7.01 Resignation and Removal
(a) The Trustee may resign at any time by delivering
to the Employer a written notice of resignation, to take effect at a date
specified therein, which shall not be less than sixty days after delivery of
the notice to the Employer. The Employer may waive this notice requirement.
(b) The Employer may remove the Trustee by delivery
of a written notice of removal, to take effect at a date specified therein,
which shall not be less than sixty days after the delivery of the notice to the
Trustee. The Trustee may waive this notice requirement.
7.02 Successor Trustee
(a) If the Trustee resigns or is removed, the
Employer shall appoint a successor Trustee. If a successor is not appointed by
the Employer, a successor Trustee may be appointed by a court of competent
jurisdiction.
(b) The Trustee shall deliver to the successor
Trustee all property of this Trust, together with all records needed by the
successor Trustee to administer
-27-
<PAGE> 32
the Trust properly. The resigning or removed Trustee is authorized, however,
to reserve such amount as may be necessary for the payment of its fees and
expenses incurred prior to its transfer of Trust assets and records to the
successor Trustee. If any amounts are reserved, within six months after the
successor Trustee takes office, the former Trustee shall account to the
successor Trustee for all disbursements from the reserve and shall transfer any
remaining Trust assets to the successor Trustee.
(c) The former Trustee shall execute, acknowledge
and deliver all documents and written instruments which are necessary to
transfer the right, title and interest in the Trust assets, and all related
rights and privileges, to the successor Trustee. Upon transfer of assets to
the successor Trustee, all right, title and interest of the former Trustee in
the assets of the Trust and all rights and privileges under the Plan and this
Trust theretofore vested in the former Trustee shall vest in the successor
Trustee.
7.03 Non-Corporate Trustees
The Employer has appointed three individuals to serve
jointly as Trustee. The term "Trustee," as used in the Plan and Trust
Agreement, shall refer collectively to
-28-
<PAGE> 33
all such persons serving as Trustee. During the time that more than one person
is serving as Trustee, such persons shall act as follows: If there are three
or more persons then serving as Trustee, such persons shall act by majority
vote; if there are two persons serving as Trustee, such persons shall act by
unanimous vote. Each person acting as Trustee shall be subject separately to
the removal, resignation and replacement provisions of this Article. If fewer
than all persons serving as Trustee resign or are removed, the "successor
Trustee" referred to in Section 7.02 shall be the remaining person or persons
serving as Trustee.
-29-
<PAGE> 34
ARTICLE VIII
AMENDMENT AND TERMINATION
8.01 Amendments
The Trustee and the Plan Administrator may amend this
Trust Agreement at any time. Amendments shall be made in writing and shall be
signed by both the Trustee and the Plan Administrator. The Employer hereby
authorizes the Plan Administrator to adopt such amendments without obtaining
any further authorization from the Employer. Any amendment shall be effective
in the manner and at the time therein set forth.
8.02 Termination
Although the Trust is hereby declared to be
irrevocable, the Employer may partially or completely terminate the Plan at any
time and shall give the Trustee written notice thereof. The Trustee shall
thereafter liquidate the Trust's assets and distribute them as the Plan
Administrator may direct.
-30-
<PAGE> 35
ARTICLE IX
MISCELLANEOUS
9.01 Contributions Not Recoverable
Under no circumstances shall any part of the Trust
Fund be recoverable by the Employer or be used other than for the exclusive
purposes of providing benefits to Participants and their Beneficiaries and
paying proper expenses of the Plan; provided, however, that
(a) the contribution of the Employer for any Plan
Year is hereby conditioned upon it being deductible by such Employer for its
fiscal year in which (or for which) such contribution was made and, to the
extent disallowed as a deduction under Internal Revenue Code Section 404, such
contribution shall, if the Employer so requests, be returned by the Trustee to
the Employer within one year after the final disallowance of the deduction by
the Internal Revenue Service or the courts;
(b) a contribution by the Employer made by mistake
of fact shall be returned to the Employer within one year after the
contribution;
(c) the contributions of the Employer to the Trust
for all Plan Years, with the gains and losses thereon, shall be returned by the
Trustee to the Employer within one
-31-
<PAGE> 36
year in the event that the Commissioner of Internal Revenue fails to rule that
the Plan and Trust, when first adopted by the Employer, were qualified and
tax-exempt (within the meaning of Sections 401 and 501 of the Internal Revenue
Code); and
(d) any amounts contributed to the Plan by the
Employer which cannot then be allocated to Participants because of Section 415
of the Internal Revenue Code shall, upon termination of the Plan, revert to the
Employer.
9.02 Successor Employers; Additional Employers
(a) If any successor to the Employer continues the
Plan, it shall concurrently become a successor party to this Trust Agreement by
giving written notice of its adoption of the Plan and this Trust Agreement to
the Trustee.
(b) If any other company adopts the Plan in
accordance with the provisions therein, it shall become an additional Employer
and shall automatically become a party to this Trust Agreement.
9.03 Merger of Trustee
In the event that any corporate Trustee hereunder
shall at any time merge or consolidate with, or
-32-
<PAGE> 37
shall sell or transfer substantially all of its assets and business to, another
corporation, the corporation resulting from such merger or consolidation or the
corporation into which it is converted or to which such sale or transfer shall
be made, shall thereupon become the Trustee under this Trust with the same
effect as though originally so named.
9.04 Governing Law
The Plan and this Trust Agreement shall be construed,
administered, and governed in all respects under applicable federal law and, to
the extent that federal law is inapplicable, under the laws of the State of
California.
9.05 Severability
If any provisions of this Trust Agreement shall be
held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions of this Agreement shall continue to be fully effective.
9.06 References
Unless the context clearly indicates to the contrary,
a reference to a statute, regulation, document or provision shall be construed
as referring to any subsequently enacted, adopted or executed counterpart.
-33-
<PAGE> 38
9.07 Headings
Headings and subheadings in this Trust Agreement are
inserted for convenience of reference only and are not to be considered in the
construction of its provisions.
IN WITNESS WHEREOF, the Employer and the Trustee have caused
this Agreement to be executed as of September 1, 1994.
ELECTRO RENT CORPORATION
By /S/ CRAIG R. JONES
-------------------------
By -------------------------
"Employer"
TRUSTEE
/S/ DANIEL GREENBERG
-----------------------------
Daniel Greenberg
/S/ WILLIAM WEITZMAN
-----------------------------
William Weitzman
/S/ CRAIG R. JONES
-----------------------------
Craig R. Jones
-34-
<PAGE> 1
Exhibit (10) (E)
AMENDMENT NUMBER TWO
TO
ELECTRO RENT CORPORATION
1990 STOCK OPTION PLAN
Pursuant to resolution of the board of directors of Electro Rent
Corporation adopted on April 11, 1995, Subsection "(o)" of Section 7 of the
Electro Rent Corporation 1990 Stock Option Plan (the "Plan") is hereby amended
to read as follows:
"(o) Formula For Award of Options to Non-
Employee Directors.
"Each non-employee director shall receive Options for
6,750 Shares the first year of his or her incumbency as a director of
the Corporation, and shall receive Options for 4,500 Shares the second
year of his or her incumbency as a Director of the Corporation;
provided, however, that no such director shall receive Options for
more than 11,250 Shares, and all such directors in the aggregate shall
not receive Options for more than 78,750 Shares. Such Options shall
be granted automatically on the day of the annual meeting of
shareholders of the Corporation commencing with the annual meeting of
shareholders being held on October 3, 1991. The Exercise Price of
each Option so granted shall be the Fair Market Value on the date of
grant. The provisions of this subsection may not be amended more than
once every six months, other than to comport with changes in the Code,
the Employee Retirement Income Security Act, or the rules thereunder."
To record the adoption of this Amendment Number Two to the Plan by the
board of directors on April 11, 1995, the Corporation has caused its authorized
officers to affix the corporate name and seal hereto.
ELECTRO RENT CORPORATION
By /S/ WILLIAM WEITZMAN
--------------------------------
President
By /S/ STEVEN MARKHEIM
--------------------------------
Secretary
<PAGE> 1
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
May 31,
--------------------------------------------------------------------------
(in thousands, except per share information) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $121,354 $111,458 $102,656 $102,022 $102,388
Costs of revenues and depreciation 57,759 56,190 53,595 54,093 54,584
Selling, administrative and general expenses 36,907 33,902 34,439 30,568 30,054
Interest 2,457 1,870 2,136 3,075 5,435
--------------------------------------------------------------------------
Income before income taxes 24,231 19,496 12,486 14,286 12,315
Income taxes 9,667 7,896 4,994 5,714 4,926
--------------------------------------------------------------------------
Income before cumulative effect of accounting change 14,564 11,600 7,492 8,572 7,389
Cumulative effect of change in accounting for
income taxes -- -- 2,591 -- --
--------------------------------------------------------------------------
Net income $ 14,564 $ 11,600 $ 10,083 $ 8,572 $ 7,389
--------------------------------------------------------------------------
Earnings per common and common equivalent share:
Income before cumulative effect of accounting change $ 1.20 $ 0.97 $ 0.57 $ 0.61 $ 0.52
Cumulative effect of change in accounting for
income taxes -- -- 0.19 -- --
--------------------------------------------------------------------------
Net income $ 1.20 $ 0.97 $ 0.76 $ 0.61 $ 0.52
--------------------------------------------------------------------------
Average common and common equivalent
shares outstanding 12,157 12,008 13,259 13,980 14,170
--------------------------------------------------------------------------
Total assets $162,909 $135,048 $142,076 $144,441 $150,783
--------------------------------------------------------------------------
Bank borrowings $ 36,100 $ 25,900 $ 38,900 $ 31,100 $ 42,900
--------------------------------------------------------------------------
10% subordinated debentures -- -- $ 5,192 $ 5,710 $ 6,007
--------------------------------------------------------------------------
Shareholders' equity $ 92,188 $ 77,532 $ 65,822 $ 68,101 $ 61,993
--------------------------------------------------------------------------
Shareholders' equity per common and common
equivalent share $ 7.52 $ 6.41 $ 5.54 $ 4.91 $ 4.40
==========================================================================
</TABLE>
1
<PAGE> 2
Electro Rent Corporation
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Company's business is capital intensive, with substantial capital
expenditures required to maintain the equipment pool. Electro Rent's rental and
lease equipment portfolio totaled $227,816,000, at acquisition cost, at May 31,
1995 as compared with $200,514,000 at May 31, 1994. The increase in rental and
lease equipment primarily resulted from the purchase of Genstar Rental
Electronics, Inc. on September 30, 1994, and increased purchases, offset by the
retirement of fully depreciated and obsolete equipment totalling $11,300,000
during fiscal 1995 as compared with retirements of $16,700,000 in the prior
year. The Company was able to increase purchases of computers and test equipment
while at the same time improving equipment management, resulting in increased
equipment utilization. During the three years ended May 31, 1995, the Company
purchased $139,579,000 and disposed of $136,411,000 of equipment at original
cost, resulting in a net increase of $3,168,000 for the three-year period. The
Company has three principal sources of liquidity: cash flows provided by
operating activities, proceeds from the sale of equipment from its portfolio,
and external funds, historically provided by bank borrowings. As the following
table illustrates, cash flows from operating activities and proceeds from the
sale of equipment have been more than sufficient to fund the Company's
operations.
<TABLE>
<CAPTION>
Three years ended
(in thousands) 1993 1994 1995 May 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities(1) $35,283 $34,452 $46,746 $116,481
Proceeds from sale of equipment 19,219 24,702 18,622 62,543
Equipment purchases (49,089) (36,437) (54,053) (139,579)
Net increase (decrease) in bank borrowings(2) 7,800 (13,000) (4,653) (9,853)
Net increase (decrease) in equipment portfolio at acquisition cost (1,826) (22,308) 27,302 3,168
</TABLE>
(1)For the components of cash flows from operating activities, see the
Consolidated Statements of Cash Flows.
(2)Excludes Genstar debt assumed at acquisition.
As indicated by the table, cash flows from operating activities and proceeds
from sale of equipment provided 128% of the funds required for equipment
purchased during the three-year period. Rental and lease revenues have been
significantly supplemented as a source of cash flow by proceeds from the sale of
equipment from Electro Rent's portfolio. Historically, when Electro Rent has
experienced a higher rate of rental growth, its dependence on external sources
of capital has increased. Conversely, when its growth has slowed, it has become
less dependent on such sources. Fiscal years 1995 and 1994 mark a significant
change from the traditional pattern as rental growth occurred with a decrease in
bank borrowings. Successful equipment management techniques have allowed greater
utilization of equipment and enabled the Company to increase rentals without a
proportional increase in the equipment pool. Management believes that cash flows
from operating activities, proceeds from the sale of equipment and its borrowing
capacity (see Note 2 of Notes to Consolidated Financial Statements) will be
sufficient to fund the Company's operations for the foreseeable future.
Additionally, the Company believes that it currently has low leverage ratios for
a firm in the rental and leasing business and, if necessary, additional credit
could be obtained to finance growth. For example, the Genstar acquisition price
of $23.2 million, including assumed debt of $14.9 million, was financed from
available short-term borrowings.
The market for traditional test and measurement equipment which had declined for
several years increased modestly in fiscal 1995 and 1994. Market improvement and
consolidation in the rental industry have enabled the Company to increase both
total volume and market share. As a result, expenditures for this type of
equipment are expected to increase. With the anticipated continued growth in
rentals of personal computers and workstations, the Company is projecting
purchases of this equipment to increase. As a result, total expenditures for
rental equipment are likely to continue at the high level set in fiscal 1995. In
spite of increased purchasing projections, bank borrowings are likely to
decline.
In connection with its 15% interest in the Nippon Electro Rent (NER) joint
venture, the Company has guaranteed bank debt of NER. Because of declining
economic conditions and competitive pressures in Japan, NER experienced
operating losses through the first half of fiscal 1994.
14
<PAGE> 3
In response, NER implemented significant revenue enhancement, cost containment
and debt reduction programs, and has placed greater emphasis on equipment sales.
As a result, NER operated profitably in the last half of fiscal 1994 and in
fiscal 1995. In accordance with a negotiated schedule, the Company's loan
guarantee was reduced from 450 million yen to 300 million yen on July 1, 1995,
and further reductions to 200 million yen and 100 million yen will take place on
July 1, 1996 and July 1, 1997, respectively.
Inflation generally has favorably influenced the Company's results of operations
by enhancing the sale prices of its used equipment. Lower inflation rates and
newer, less expensive equipment with similar or better specifications could
result, over a period of several years, in lower relative prices for used
electronic equipment, with a negative impact on margins and earnings. Prices of
new and used electronic test equipment have not consistently followed the
overall inflation rate. Prices of new and used personal computers and
workstations have consistently declined for the past three years. Because
management is unable to predict the advances in technology and the rate of
inflation for the next several years, it is not possible to estimate the impact
of these factors on the Company's earnings.
Fiscal 1995 Compared with Fiscal 1994
Total revenues for the year ended May 31, 1995 increased by 9% from $111,458,000
to $121,354,000 with improvements in rentals and leases partially offset by a
decline in sales. Rental revenues increased by 19% as a result of the Genstar
acquisition on September 30, 1994, continued expansion of personal computer and
workstation rentals and modest increases in traditional test and measurement
equipment rentals. The winding down of a major leasing program created unusually
high sales activity in fiscal 1994, which, when combined with a current strategy
of keeping equipment longer in the rental pool, resulted in a 25% decrease in
sales revenues from fiscal 1994. Test and measurement equipment has generally
held its value in the used equipment market much more than personal computers
and workstations. Lease revenues increased by 21% as compared to last year
primarily due to increased personal computer operating leases with large
companies desiring flexibility in responding to obsolescence risk.
Depreciation increased by 16% primarily as a result of the Genstar acquisition.
Costs of revenues other than depreciation decreased by 15% as a result of the
decreased sales volume. Selling, administrative and general expenses increased
by 9% primarily due to the Genstar acquisition. Interest expense increased by
31% due to the increase in bank borrowings related to the Genstar acquisition
and an increase in short-term interest rates. As a result of the foregoing, net
income increased by 26%.
Excluding the effects of Genstar, improvements in rental revenues were primarily
due to increased demand for personal computers and workstations. As a result,
management has placed greater emphasis and has made increased investment in
these product segments. The Company's financial strength provides a solid basis
to take advantage of other growth opportunities as they arise.
Fiscal 1994 Compared with Fiscal 1993
Total revenues for the year ended May 31, 1994 increased by 8.6% from
$102,656,000 to $111,458,000 with improvements in rentals and sales offset by a
decline in leases. Rental revenues increased by 12% with the continued expansion
of personal computer and workstation rentals and modest increases in traditional
test and measurement equipment rentals. Resolution of a dispute with TRW and
improvements in test and measurement equipment sales, including sale-type
leases, resulted in a 29% increase in sales revenues from fiscal 1993. Test and
measurement equipment has generally held its value in the used equipment market
much more than personal computers and workstations. Lease revenues declined by
29% as compared to last year primarily due to decreased equipment requirements
at TRW. However, this decline was partially offset by increased lease business
with other customers. Depreciation decreased by 4% as a result of the decline in
the equipment pool. Costs of revenues other than depreciation increased by 21%
as a result of the increased sales volume and parts expense related to the
purchase of computer memory products. Selling, administrative and general
expenses, excluding one-time charges of $1,894,000 recorded in the prior year,
increased by 4% primarily due to incentive compensation and freight expenses
related to the 8.6% increase in revenues. Interest expense declined by 12% due
to the decrease in bank borrowings, partially offset by an increase in
short-term interest rates. As a result of the foregoing, net income increased by
15%.
15
<PAGE> 4
Electro Rent Corporation
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------
(in thousands, except per share information) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Rentals and leases $100,467 $ 84,751 $ 79,930
Sales of equipment and other revenues 20,887 26,707 22,726
----------------------------------
Total revenues 121,354 111,458 102,656
----------------------------------
Costs and expenses:
Depreciation of equipment 37,228 32,149 33,660
Costs of revenues other than depreciation 20,531 24,041 19,935
Selling, administrative and general expenses 36,907 33,902 34,439
Interest 2,457 1,870 2,136
----------------------------------
Total costs and expenses 97,123 91,962 90,170
----------------------------------
Income before income taxes 24,231 19,496 12,486
Income taxes 9,667 7,896 4,994
----------------------------------
Income before cumulative effect of accounting change 14,564 11,600 7,492
Cumulative effect of change in accounting for income taxes -- -- 2,591
----------------------------------
Net income $ 14,564 $ 11,600 $ 10,083
==================================
Earnings per common and common equivalent share:
Income before cumulative effect of accounting change $ 1.20 $ 0.97 $ 0.57
Cumulative effect of change in accounting for income taxes -- -- 0.19
----------------------------------
Net income $ 1.20 $ 0.97 $ 0.76
==================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 5
Electro Rent Corporation
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
---------------------
(in thousands, except share information) 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 432 $ 1,613
Accounts receivable, net of allowance for doubtful accounts of $1,240 and $1,140 17,600 15,338
Rental and lease equipment, net of accumulated depreciation of $109,624 and $104,536 118,192 95,978
Other property, net of accumulated depreciation of $5,121 and $5,119 18,703 18,649
Other 7,982 3,470
---------------------
$162,909 $135,048
=====================
Liabilities and Shareholders' Equity
Liabilities:
Bank borrowings $ 36,100 $ 25,900
Accounts payable 12,302 11,703
Accrued expenses 10,342 6,986
Deferred income taxes 11,977 12,927
---------------------
Total liabilities 70,721 57,516
---------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par-- shares authorized 1,000,000; none issued -- --
Common stock, no par -- shares authorized 20,000,000; issued and outstanding:
1995-- 11,773,801; 1994-- 11,763,208 8,597 8,553
Retained earnings 83,543 68,979
Cumulative translation adjustment 48 --
---------------------
Total shareholders' equity 92,188 77,532
---------------------
$162,909 $135,048
=====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 6
Electro Rent Corporation
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three years ended May 31, 1995
------------------------------------------------
Common Stock
-------------------- Cumulative
Number Retained Translation
(in thousands) of Shares Amount Earnings Adjustment
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, May 31, 1992 13,630 $ 9,450 $ 58,651 $--
Exercise of stock options 88 392 -- --
Repurchase of common stock (1,976) (1,405) (11,349) --
Net income for the year ended May 31, 1993 -- -- 10,083 --
------------------------------------------
Balance, May 31, 1993 11,742 8,437 57,385 --
Exercise of stock options 22 117 -- --
Repurchase of common stock (1) (1) (6) --
Net income for the year ended May 31, 1994 -- -- 11,600 --
------------------------------------------
Balance, May 31, 1994 11,763 8,553 68,979 --
Exercise of stock options 11 44 -- --
Net income for the year ended May 31, 1995 -- -- 14,564 --
Translation adjustment -- -- -- 48
------------------------------------------
Balance, May 31, 1995 11,774 $ 8,597 $ 83,543 $48
==========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 7
Electro Rent Corporation
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------------------
(in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 14,564 $ 11,600 $ 10,083
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 38,740 33,424 35,106
Loss on abandonment of other property -- -- 502
Provision for losses on accounts receivable 244 363 338
Gain on sale of equipment (5,373) (6,315) (4,113)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,169 (1,919) (1,196)
(Increase) decrease in other assets (431) 125 (209)
Increase (decrease) in accounts payable (1,845) 540 (565)
Decrease in deferred income taxes (1,010) (2,949) (4,456)
Increase (decrease) in accrued expenses 688 (417) (207)
------------------------------------
Net cash provided by operating activities 46,746 34,452 35,283
------------------------------------
Cash flows from investing activities:
Proceeds from sale of equipment 18,622 24,702 19,219
Payments for purchase of rental and lease equipment (54,053) (36,437) (49,089)
Payments for purchase of Genstar, net of cash acquired (7,145) -- --
Payments for purchase of other property (790) (4,143) (403)
------------------------------------
Net cash used in investing activities (43,366) (15,878) (30,273)
------------------------------------
Cash flows from financing activities:
Increase (decrease) in bank borrowings (4,653) (13,000) 7,800
Payments for retirement of subordinated debentures -- (5,192) (518)
Proceeds from issuance of common stock 44 117 392
Payments for repurchase of common stock -- (7) (12,754)
------------------------------------
Net cash used in financing activities (4,609) (18,082) (5,080)
------------------------------------
Effect of exchange rate on cash 48 -- --
------------------------------------
Net increase (decrease) in cash (1,181) 492 (70)
Cash at beginning of year 1,613 1,121 1,191
------------------------------------
Cash at end of year $ 432 $ 1,613 $ 1,121
====================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 8
Electro Rent Corporation
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Business and Organization:
Electro Rent Corporation primarily engages in the short-term rental and the
lease of state-of-the-art electronic equipment. The Company maintains an
equipment portfolio composed primarily of general purpose test and measurement
instruments, workstations, personal computers and data communication equipment
purchased from leading manufacturers. Another aspect of the Company's business
is the sale of equipment after its utilization for rental or lease. The
Company's customers are primarily located in the United States and operate in
various industry segments with a significant portion of its business conducted
with companies that operate in the space and defense industries. During fiscal
1995 and 1994 no customer accounted for more than 10% of total revenues, while
in 1993 one customer accounted for 14% total revenues.
Basis of Presentation:
The consolidated financial statements include Electro Rent Corporation and its
wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated. Certain reclassifications have been made to make information
comparable between years.
Rental and Lease Equipment and Other Property:
Assets are stated at cost. Upon retirement or disposal of assets, the cost and
the related allowance for depreciation are eliminated from the accounts and any
gain or loss is recognized. During the fourth quarter of fiscal 1993, the
Company converted its operations from Prime Inc. computers to Sun Microsystems
Inc. workstations. Losses of $502,000 were recognized in abandoning the Prime
computers.
Software Development Costs:
Software development costs are capitalized and amortized over five years,
beginning on the date of software implementation. In fiscal 1993 the Company
recognized additional expenses of $423,000 in connection with abandoning
elements of its developed software. Capitalized software development costs of
$62,000 and $344,000 are included in other assets net of accumulated
amortization of $1,346,000 and $1,064,000 at May 31, 1995 and 1994,
respectively.
Capital Leases:
The Company has certain customer leases providing bargain purchase options,
which are accounted for as sale-type leases. At May 31, 1995 and 1994 investment
in sale-type leases of $1,176,000 and $1,376,000 net of deferred interest of
$77,000 and $93,000 is included in other assets. Interest income is recognized
over the life of the lease using the interest method.
Depreciation:
Depreciation of rental and lease equipment and other property is computed by the
straight-line method over the estimated useful lives of the respective
equipment. New rental and lease equipment is depreciated over three to seven
years, and used equipment, over three to six years depending on the type of
equipment.
Net Income Per Common and Common Equivalent Share:
Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding of 12,156,857 in 1995, 12,007,950 in
1994 and 13,259,216 in 1993. Prior years' average shares have been restated to
give effect to the three-for-two stock split effected in the form of a 50% stock
dividend payable on August 18, 1995 to shareholders of record on July 31, 1995.
Cash Flow:
Supplemental disclosures of cash paid during the year for:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $2,364 $ 1,985 $2,149
Income taxes 9,786 12,163 7,964
</TABLE>
20
<PAGE> 9
Supplemental schedule of non-cash investing and financing activities:
The Company acquired equipment of $10,143,000, $9,763,000 and $7,483,000 at May
31, 1995, 1994 and 1993, respectively, which was paid for during the subsequent
year.
Note 2: Borrowings
The Company's financing agreement provides for a $54,000,000 unsecured line of
credit. Unless renewed, the line of credit converts to a term loan on November
15, 1995, payable in 18 quarterly installments including interest, commencing
February 15, 1996. There were no outstanding balances under this committed
facility at May 31, 1995 and May 31, 1994. The agreement provides for commitment
fees, which totalled $159,000 in 1995 and $150,000 in 1994, based on the unused
balance. The agreement also includes requirements regarding the financial
position of the Company, including minimum tangible net worth, debt coverage
ratios, limitations on the payment of dividends and debt-to-equity ratios. The
Company was in compliance with these covenants at May 31, 1995.
The Company has established additional unsecured borrowing arrangements with
various banks totalling $62,000,000. These uncommitted arrangements can be
withdrawn by the lenders at any time, at their option. There was $36,100,000
outstanding under these arrangements at May 31, 1995, with maturities ranging
from 1 to 27 days and at varying interest rates depending on the bank and term.
Weighted average interest rates under these unsecured lines were 6.57% at May
31, 1995 and 4.4% at May 31, 1994. Weighted average borrowings for the years
ended May 31, 1995 and 1994 were $36,899,000 and $30,326,000 with average
interest rates of 6.7% and 3.6%, respectively.
Debentures:
Subordinated debentures totalling $5,192,000, and bearing interest at 10%,
matured on April 1, 1994. Funds for the retirement were provided from
uncommitted short-term bank borrowings.
Note 3: Income Taxes
Income taxes consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal $ 8,602 $ 8,895 $ 5,610
State 2,075 1,950 1,249
Deferred
Federal (1,000) (2,689) (1,677)
State (10) (260) (188)
-----------------------------------------
$ 9,667 $ 7,896 $ 4,994
=========================================
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective tax
rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal rate 35.0% 35.0% 34.0%
State taxes, net of federal benefit 5.5 5.5 5.6
Other-- net (.5) -- 0.4
-----------------------------
Effective tax rate 40.0% 40.5% 40.0%
=============================
</TABLE>
21
<PAGE> 10
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liabilities at May 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets: Allowance for doubtful accounts $ 508 $ 467
Net operating loss carryforwards 1,432 --
Finance lease income 369 234
Other 149 118
-----------------------------
Total 2,458 819
-----------------------------
Deferred tax liabilities: Accumulated depreciation (12,709) (12,276)
Other (1,726) (1,470)
-----------------------------
Total (14,435) (13,746)
-----------------------------
Net deferred tax liabilities $(11,977) $(12,927)
=============================
</TABLE>
Net operating loss carryforwards for federal income tax reporting purposes
approximate $4,090,000 at May 31, 1995 and are available for use against Genstar
taxable income through 2006. Due to the restructuring of Genstar in December
1991, utilization of operating loss carryforwards is limited to $344,000 per
year for federal income tax reporting purposes.
Effective June 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The cumulative effect of this
accounting change on years prior to 1993 was a $2,591,000 reduction in the
Company's deferred income tax liability as of May 31, 1992. The reduction
resulted in an increase in net income of $2,591,000 or $ .19 per share for the
year ended May 31, 1993.
Note 4: Rentals Under Noncancellable Operating Leases
In addition to short-term rentals, equipment is leased to customers under
various operating leases that expire over the next three years. These leases
provide the lessee with the option of renewing the agreement for periods of up
to twelve months or purchasing the equipment at fair market value at the end of
the initial or renewal term.
The Company's cost of equipment under operating leases at May 31, 1995, with
remaining noncancellable lease terms of more than one year, is $12,510,000
before accumulated depreciation of $3,202,000 for a net book value of
$9,308,000.
A schedule of minimum future rentals to be received on noncancellable operating
leases with remaining lease terms of more than one year as of May 31, 1995 is as
follows:
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------
<S> <C>
1996 $ 5,884
1997 3,642
1998 509
-------
$10,035
=======
</TABLE>
Note 5: Other Property
Other property, at cost, consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 6,017 $ 6,017
Building 13,987 13,328
Furniture and other equipment 3,533 4,169
Leasehold improvements 287 254
----------------------
23,824 23,768
Less-- accumulated depreciation and amortization (5,121) (5,119)
----------------------
$ 18,703 $ 18,649
======================
</TABLE>
22
<PAGE> 11
Note 6: Acquisition
On September 30, 1994, the Company purchased all of the outstanding stock of
Genstar Rental Electronics, Inc. (Genstar), a privately-held company engaged in
the business of renting, leasing and selling computers, workstations, and
general purpose test and measurement equipment. The cash purchase price, based
on Genstar's audited net worth at September 30, 1994, was $23.2 million, which
included assumed debt of $14.9 million. Financing for the transaction was
achieved through additional short-term borrowings under Electro Rent's existing
line of credit.
The acquisition has been accounted for by the purchase method and, accordingly,
the results of operations of Genstar have been included with those of the
Company since the date of acquisition. The purchase price resulted in an excess
of acquisition costs over net worth of $97,000. Such excess and acquired
intangibles of $4.3 million are being amortized on a straight-line basis over
twenty years. The following unaudited pro forma summary for the fiscal years
ended May 31, 1995 and 1994, combines the consolidated results of operations of
the respective fiscal years after giving effect to certain adjustments,
including amortization of goodwill, depreciation charges, estimated changes in
interest expense due to debt retirement and acquisition debt, and related income
tax effects. The pro forma results have been prepared for comparative purposes
only and do not purport to indicate the results of operations which would
actually have occurred had the combination been in effect on the dates
indicated, or which may occur in the future.
<TABLE>
<CAPTION>
(in thousands, except per share data) (unaudited) 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C>
Revenues $129,039 $134,611
Net income $ 14,177 $ 12,598
Earnings per common and common equivalent share $ 1.17 $ 1.05
Average common and common equivalent shares outstanding 12,157 12,008
</TABLE>
Note 7: Commitments
The Company leases certain equipment and facilities under various operating
leases. Most of the lease agreements for facilities provide the Company with the
option of renewing its lease at the end of the initial lease term, at the then
fair rental value, for periods of up to five years. In most cases, management
expects that in the normal course of business facility leases will be renewed or
replaced by other leases.
Minimum payments under these leases, exclusive of property taxes and insurance,
are as follows:
<TABLE>
<CAPTION>
(in thousands) Equipment Facilities Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 $ 184 $ 522 $ 706
1997 143 289 432
1998 100 187 287
1999 24 157 181
2000 -- 21 21
------------------------------------------
$ 451 $1,176 $1,627
==========================================
</TABLE>
Rent expense was $1,108,000, $992,000 and $950,000 in 1995, 1994 and 1993,
respectively.
The Company holds a 15% interest in Nippon Electro Rent (NER) which is accounted
for using the cost method. In connection with this joint venture, the Company
guaranteed up to 450 million yen at May 31, 1995, with scheduled reductions in
the guarantee to 300 million yen, 200 million yen and 100 million yen at July 1,
1995, 1996 and 1997, respectively. The Company's guarantee of NER bank debt at
May 31, 1995 and July 1, 1995 was $5,322,000 and $3,541,000 at the exchange
rate in effect on those dates.
23
<PAGE> 12
Note 8: Stock Option Plan
The Electro Rent Corporation 1990 Stock Option Plan authorizes the Board of
Directors to grant options for not more than 708,750 shares of the Company's
common stock. The plan provides for both incentive stock options, which may be
granted only to employees, and nonstatutory stock options, which may be granted
to directors and consultants who are not employees. Pursuant to the Company's
1990 Stock Option Plan, options have been granted to directors, officers and key
employees at prices not less than 100% of the fair market value at the date of
grant. Options are exercisable at various dates over a ten-year period from the
date of grant or five years in the case of an employee who is also a 10%
stockholder. The following table summarizes certain information relative to
options for common stock after adjustment for stock splits.
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, beginning of year 811,125 818,382 663,692
Granted -- 31,500 254,250
Exercised (10,593) (21,882) (86,904)
Forfeited (25,874) (16,875) (12,656)
---------------------------------------
Options outstanding, end of year 774,658 811,125 818,382
=======================================
At the end of year:
Prices of outstanding options $3.85-$8.72 $3.85-$8.72 $3.85-$7.24
Exercisable options 551,908 416,813 278,100
</TABLE>
Note 9: Savings Plan and Employee Stock Ownership Plan
The Company maintains a Savings Plan (401(k)) and a frozen Employee Stock
Ownership Plan (ESOP). Employees become eligible to participate in the 401(k)
after one year of employment. The Company has the option to match contributions
of participants at a rate management determines each year. For participants with
three or more years of service, the Company also may elect to make additional
discretionary matching contributions in excess of the rate elected for
participants with less than three years of service.
The Board of Directors determines the amount to be contributed annually to the
401(k) in cash, provided that such contributions shall not exceed the amount
deductible for federal income tax purposes. Cash contributions to the 401(k) of
$368,000, $386,000 and $343,000 were made for 1995, 1994 and 1993, respectively.
Note 10: Stock Repurchases
In October, 1990 the Board of Directors authorized the repurchase of 1,687,500
shares of the Company's common stock. In January, 1993 this authorization was
superseded by a new authorization to repurchase 1,687,500 shares. The Company
repurchased 547 shares in 1994 and 1,975,864 shares in 1993. As of May 31,
1995, 743,148 shares were available for repurchase.
Note 11: Quarterly Information (Unaudited)
Quarterly information is as follows:
<TABLE>
<CAPTION>
Total Income Net Income
(in thousands, except per share information) Revenues Before Taxes Income per share
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal Year 1995 First Quarter $ 27,788 $ 6,017 $ 3,550 $ 0.29
Second Quarter 30,751 6,183 3,648 0.30
Third Quarter 30,253 5,256 3,100 0.26
Fourth Quarter 32,562 6,775 4,266 0.35
---------------------------------------------
$121,354 $ 24,231 $14,564 $ 1.20
=============================================
Fiscal Year 1994 First Quarter $ 27,507 $ 4,447 $ 2,646 $ 0.22
Second Quarter 27,538 4,858 2,890 0.24
Third Quarter 27,790 4,830 2,884 0.24
Fourth Quarter 28,623 5,361 3,180 0.27
---------------------------------------------
$111,458 $ 19,496 $11,600 $ 0.97
=============================================
</TABLE>
24
<PAGE> 13
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Electro Rent Corporation:
We have audited the accompanying consolidated balance sheets of Electro Rent
Corporation (a California corporation) and subsidiaries as of May 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended May 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Electro Rent Corporation and
subsidiaries as of May 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1995 in conformity with generally accepted accounting principles.
As explained in Note 3 to the financial statements, effective June 1, 1992 the
Company changed its method of accounting for income taxes.
Arthur Andersen LLP
Los Angeles, California
August 4, 1995
Capital Stock, Shareholders and Cash Dividend Information
The common stock of the Company is quoted on NASDAQ under the symbol ELRC. There
were approximately 772 shareholders of record at August 11, 1995. The following
table sets forth, for the period shown the high and low closing sale prices in
the NASDAQ National Market System as reported by NASDAQ. Prices have been
restated to reflect the three-for-two stock split distributed in February, 1994
and the three-for-two stock split to be distributed in August, 1995.
<TABLE>
<CAPTION>
Fiscal Year 1995 Fiscal Year 1994
------------------ -------------------
High Low High Low
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $10-3/8 $ 8-5/8 $ 7 $6-3/8
Second Quarter 11-5/8 9-1/2 9 6-3/8
Third Quarter 13 10-7/8 10 8-3/8
Fourth Quarter 14-7/8 12 9-7/8 7-3/8
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 432
<SECURITIES> 0
<RECEIVABLES> 18,840
<ALLOWANCES> 1,240
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 251,640
<DEPRECIATION> 114,745
<TOTAL-ASSETS> 162,909
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 8,597
0
0
<OTHER-SE> 83,543
<TOTAL-LIABILITY-AND-EQUITY> 162,909
<SALES> 20,887
<TOTAL-REVENUES> 121,354
<CGS> 20,531
<TOTAL-COSTS> 74,135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,457
<INCOME-PRETAX> 24,231
<INCOME-TAX> 9,667
<INCOME-CONTINUING> 14,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,564
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
