<PAGE> 1
ELECTRO RENT CORPORATION
6060 SEPULVEDA BOULEVARD
VAN NUYS, CALIFORNIA 91411-2512
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of ELECTRO RENT CORPORATION, a
California corporation, will be held on Thursday, October 3, 1996, at 10:00
o'clock A.M., local time, at the principal office of the corporation, 6060
Sepulveda Boulevard, Van Nuys, California 91411-2512. At this meeting or any
adjournment or adjournments thereof, the Shareholders will:
1. Elect a Board of seven directors. The names of nominees intended to
be presented by management for election are set forth in the Proxy
Statement.
2. Vote to approve the Electro Rent Corporation 1996 Stock Option
Plan.
3. Vote to approve the Electro Rent Corporation 1996 Director Option
Plan.
4. Vote to approve the selection of Arthur Andersen LLP as the
Company's independent public accountants.
5. Act upon such other business as may lawfully come before said
meeting.
The Board of Directors has fixed August 9, 1996 as the record date for the
determination of shareholders entitled to notice of and to vote at said Annual
Meeting, or any adjournment or adjournments thereof. All shareholders are urged
to attend the meeting. In order to assure the presence of a quorum, whether you
expect to be present personally or not, please sign and mail immediately the
enclosed proxy. You have full power to revoke it at any time before it is
exercised by giving written notice to the Company.
Steven Markheim, Secretary
DATED: August 23, 1996
IMPORTANT
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES THAT YOU HOLD. IN ORDER TO AVOID THE ADDITIONAL EXPENSE TO
THE COMPANY OF FURTHER SOLICITATION, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD IMMEDIATELY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE
MEETING. IF YOU ARE PRESENT AND VOTE AT THE MEETING YOUR SHARES WILL NOT BE
VOTED BY THE PROXY.
<PAGE> 2
ELECTRO RENT CORPORATION
6060 SEPULVEDA BOULEVARD
VAN NUYS, CALIFORNIA 91411-2512
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXY
The enclosed proxy IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ELECTRO RENT CORPORATION (the "Company") in connection with the Annual Meeting
of Shareholders to be held on Thursday, October 3, 1996 as stated in the
foregoing notice. The cost of solicitation of proxies will be borne by the
Company. Proxies will be solicited by mail. The person giving the proxy has the
power to revoke it before it is exercised by giving written notice of revocation
to the Company.
VOTING SECURITIES
The Board of Directors of the Company (the "Board") has fixed August 9,
1996 as the Record Date for the determination of shareholders entitled to vote
at the Annual Meeting or any adjournment or adjournments thereof. The Company
has issued and outstanding on the Record Date, 11,927,846(1) shares of Common
Stock without par value. Holders of Common Stock have full voting rights, one
vote for each share held of record. In the election of directors, shareholders
are entitled to cumulate their votes provided the name of the candidate or
candidates for whom such votes would be cast has been placed in nomination prior
to the voting and any shareholder has given notice at the meeting prior to the
voting of such shareholder's intention to cumulate his votes.
If voting for directors is conducted by cumulative voting, the proxy
holders will have discretionary authority to cumulate votes among the nominees
with respect to whom authority was not withheld or if the proxy was not marked
or was marked for all nominees. In any event, the proxies may be voted for less
than the entire number of nominees if, in the opinion of the proxy holders, such
action is necessary or desirable.
The candidates receiving the highest number of votes of shares entitled to
be voted for them, up to the number of directors to be elected, shall be
elected.
- ---------------
(1) The number of shares here and throughout the Proxy Statement is adjusted to
reflect the three-for-two stock split effected in the form of a 50% stock
dividend declared July 13, 1995 payable August 18, 1995 to Shareholders of
record July 31, 1995.
<PAGE> 3
PRINCIPAL SHAREHOLDERS
The following table sets forth as of the Record Date the holdings of each
person who was known to the Company to own of record and beneficially 5% or more
of the Company's outstanding Common Stock and by all directors and officers as a
group:
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF
NAME AND ADDRESS(1) OWNED CLASS (3)
--------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Daniel Greenberg............................................... 1,557,260(2) 13.98%
Phillip Greenberg.............................................. 1,188,413 9.96%
T. Rowe Price Associates, Inc.................................. 1,122,250 9.41%
100 East Pratt Street
Baltimore, Maryland 21202
Private Capital Management..................................... 1,109,150 9.30%
3003 Tamiami Trail North
Naples, Florida 33940
Daniel Greenberg and Harold Easton,............................ 692,815 5.81%
Trustees Under the Will of
Mayer Greenberg, Deceased
Dimensional Fund Advisors...................................... 604,306 5.07%
1299 Ocean Avenue, Suite 650
Santa Monica, California 90401
Officers and Directors as a
Group (14 Persons)........................................... 1,750,066(4) 18.41%
</TABLE>
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(1) The address of each shareholder is 6060 Sepulveda Boulevard, Van Nuys,
California 91411-2512, unless otherwise set forth.
(2) The 1,557,260 shares do not include (a) 692,815 shares in the Mayer
Greenberg Trust which Daniel Greenberg has the right to vote as co-trustee
of the Trust; (b) 128,174 shares underlying options currently exercisable by
Mr. Greenberg; (c) 102,089 shares held by the Electro Rent Corporation
Employee Stock Ownership Plan (ESOP); and (d) 30,748 shares held by The
Mayer Greenberg Foundation which Daniel Greenberg has the right to vote.
(3) Any shares which are available under options which are currently exercisable
or which will become exercisable by October 3, 1996 have been deemed to be
outstanding for the purpose of computing the percentage of outstanding
shares owned by such person, but are not deemed outstanding for the purpose
of computing the percentage of shares owned by any other person.
(4) Does not include 545,865 shares underlying currently exercisable options
held by officers and directors or 217,674 shares held by the ESOP for such
officers and directors. Excludes 479,635 shares held by the Trusts under the
Will of Louis W. Corwin of which Mr. Weitzman is a trustee, 18,813 shares
held by Mr. Weitzman as trustee for two of his adult children, and 9,409
shares held by one of his adult children as custodian for one of his minor
children.
ELECTION OF DIRECTORS
The Board has nominated for election as directors the following seven
persons to serve until the next annual meeting of shareholders and until their
respective successors are elected and qualify. The proxies will be voted in
favor of these nominees unless the contrary is indicated on the proxy. Each of
the nominees is now a director of the Company. None of the nominees is related
by blood, marriage or adoption to any other nominee or any executive officer of
the Company.
Each of the incumbent directors was elected by the shareholders at the
annual meeting of shareholders held on October 5, 1995.
The schedule below sets forth with respect to each nominee for election as
a director his or her age, the date when he or she first became a director, the
number of shares of Common Stock of the Company he or she
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<PAGE> 4
owned beneficially as of the Record Date, his or her principal occupation and
his or her business experience during the past five years.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL DIRECTOR COMMON SHARES
OCCUPATION AGE SINCE OWNED
------------------------------------------------------ --- -------- -------------
<S> <C> <C> <C>
GERALD D. BARRONE(1).................................. 65 1987 1,500
Director of Coast Federal Bank
NANCY Y. BEKAVAC(2)................................... 48 1992 200
President, Scripps College
DANIEL GREENBERG...................................... 55 1976 1,557,260(3)
Chief Executive Officer and Chairman of the Board of
Directors of the Company for more than five years
JOSEPH J. KEARNS...................................... 54 1988 883
Vice President and Chief Financial Officer of the J.
Paul Getty Trust for more than five years
MICHAEL R. PEEVEY(4).................................. 58 Jan. -0-
President, New Energy Ventures, Inc. 1995
WILL RICHESON, JR.(5)................................. 72 1989 2,000
Consultant
WILLIAM WEITZMAN...................................... 57 1974 147,180(6)
President and Chief Operating Officer of the Company
for more than five years
</TABLE>
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(1) From March 1987 to December 1991 Mr. Barrone was president, chief operating
officer and a director of Coast Federal Bank. Prior to January 1987, he was
president, chief executive officer and a director of Fidelity Federal
Savings and Loan Association and Citadel Holding Corporation.
(2) Ms. Bekavac has been president of Scripps College since 1990. From 1988 to
1990 she was counselor to the president of Dartmouth College.
(3) See "Principal Shareholders."
(4) From 1986 to 1990 Mr. Peevey was executive vice president, Southern
California Edison Company. From 1990 to 1993 he was president and a
director, SCEcorp and Southern California Edison Company. From 1993 to 1995
he was a consultant with Winner/Wagner & Associates, and a consultant for
Southern California Edison Company. He is a director of Dames and Moore and
Amerigon, Inc.
(5) From 1985 to 1988 Mr. Richeson was a partner of Riordan, Freeman & Spogli,
an investment banking firm. From 1977 to 1985 he was chairman, president and
chief executive officer of the corporate finance subsidiary of Security
Pacific Corporation.
(6) These shares are held in a revocable family trust and do not include 96,829
shares held by the ESOP.
EXECUTIVE OFFICERS
The schedule below sets forth the name, age and office or offices of each
executive officer of the Company. In each instance the officer holds office at
the will of the Board. No executive officer is related by
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<PAGE> 5
blood, marriage or adoption to any other executive officer, director or nominee
for director. Each executive officer other than Dennis M. Clark has been
employed by the Company for more than five years.
<TABLE>
<CAPTION>
HELD OFFICE OR
NAME AGE OFFICE OR OFFICES OFFICES SINCE
- --------------------- ---- -------------------------------------------------- --------------
<S> <C> <C> <C>
Daniel Greenberg 55 Chairman of the Board of Directors and Chief 1979
Executive Officer
William Weitzman 57 President and Chief Operating Officer 1982
Gary B. Phillips 44 Senior Vice President 1983
Steven Markheim 43 Vice President, Administration and Secretary 1987
Raymond A. Fisk 47 Vice President, Field Operations 1987
Craig R. Jones 50 Vice President and Chief Financial Officer 1990
Richard E. Bernosky 40 Vice President, Product Management 1993
Dennis M. Clark (1) 42 Vice President, Sales -- Western Region 1994
Thomas A. Curtin 43 Vice President, Sales -- Eastern Region 1994
</TABLE>
- ---------------
(1) Mr. Clark has been employed by the Company since August 1992. From 1979 to
1989 and from 1990 to 1992 he was Vice President, Sales for Data Preference,
Inc. From 1989 to 1990 he was Vice President, Sales and Marketing for
Unisync, Inc.
BOARD OF DIRECTORS AND COMMITTEES
The Board meets quarterly and also takes action as required by unanimous
written consent.
The Board has three standing committees: Audit Committee, Compensation
Committee and Stock Option Committee. The members of the three committees are
all non-employee directors. The Company does not have a nominating committee.
Audit Committee. The Audit Committee is responsible for recommending to the
Board the engagement of independent public accountants for the Company and
reviewing with the independent public accountants the plan and results of the
auditing engagement. The Committee also reviews with management and with the
Board the scope of the internal audit and any action taken in response to the
recommendations of the independent public accountants. The members of the Audit
Committee were: Joseph J. Kearns, Chairman, Gerald D. Barrone, Nancy Y. Bekavac,
Michael R. Peevey and Will Richeson, Jr. The Audit Committee met two times
during the past fiscal year.
Compensation Committee. The Compensation Committee reviews the compensation
of officers and key employees and recommends to the Board amounts of or changes
in compensation including bonuses, stock options and other management
incentives. All recommendations of the Compensation Committee are subject to
approval and action by the Board. The members of the Compensation Committee
were: Will Richeson, Jr., Chairman, Gerald D. Barrone, Nancy Y. Bekavac, Joseph
J. Kearns and Michael R. Peevey. The Compensation Committee met twice during the
past fiscal year.
Stock Option Committee. The Stock Option Committee currently grants options
under the Company's 1990 Stock Option Plan. It formerly granted options under
the Company's 1980 Stock Option Plan. The members of the Stock Option Committee
were: Gerald D. Barrone, Chairman, Nancy Y. Bekavac and Joseph J. Kearns. The
Stock Option Committee met twice during the past fiscal year.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934.
The Company reports that based solely upon a review of prescribed forms
furnished to it, no director, officer or 10 percent shareholder of the Company
has failed to file on a timely basis the filings called for by Section 16(a) of
the Securities Exchange Act of 1934, except that Nancy Y. Bekavac was late in
filing one report covering the purchase of 200 shares of Company stock.
4
<PAGE> 6
TRANSACTIONS WITH MANAGEMENT
Daniel Greenberg, chairman of the board and chief executive officer of the
Company, individually and through a corporation which he controls, rents
approximately 3,750 square feet of space in the Company's building at rates
comparable to those paid by other third party tenants.
As an inducement to the Company to enter into an equipment lease with
Advanced Media Systems, LLC, Mr. Greenberg personally guaranteed the lease
obligations. He has a membership interest in the limited liability company.
EXECUTIVE COMPENSATION AND RELATED MATTERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning annual and long-term
compensation paid by the Company to its chief executive officer and to each of
the other four most highly compensated executive officers (the Named Executive
Officers) for their services to the Company and its subsidiaries in all
capacities for the fiscal years ended May 31, 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------------------- PAYOUTS
OTHER ANNUAL RESTRICTED ---------- ALL OTHER
NAME AND COMPENSATION STOCK LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARD(S)($) OPTIONS(#) PAYOUTS($) ($)(2)
- ---------------------------- ---- -------- -------- ------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel Greenberg 1996 $330,000 $300,000 0 0 0 0 $22,499
Chairman of the Board 1995 320,000 205,000 0 0 0 0 17,119
and Chief Executive 1994 310,000 160,000 0 0 0 0 16,295
Officer
William Weitzman 1996 $280,000 $275,000 0 0 0 0 $20,664
President and 1995 270,000 185,000 0 0 0 0 16,493
Chief Operating Officer 1994 260,000 140,000 0 0 0 0 15,100
Gary B. Phillips 1996 $173,500 $150,000 0 0 30,000 0 $10,319
Senior Vice President 1995 165,000 100,000 0 0 0 0 9,238
1994 157,500 80,000 0 0 0 0 7,779
Steven Markheim 1996 $145,000 $ 90,000 0 0 20,000 0 $ 9,107
Vice President 1995 135,000 55,000 0 0 0 0 7,922
and Secretary 1994 125,000 40,000 0 0 0 0 6,618
Craig R. Jones 1996 $125,000 $ 35,000 0 0 0 0 $ 9,042
Vice President and 1995 120,000 25,000 0 0 0 0 6,697
Chief Financial Officer 1994 116,500 10,000 0 0 0 0 6,021
</TABLE>
- ---------------
(1) The value of perquisites and other personal benefits has not been included
for the fiscal years 1996, 1995 and 1994, since the value of such benefits
did not exceed the lesser of either $50,000 or 10% of the total annual
salary and bonus reported for any individual named.
(2) All Other Compensation for fiscal year 1996 includes the following for
Messrs. Greenberg, Weitzman, Phillips, Markheim and Jones, (i) Company
matching contributions to the 401(k) Savings Plan of $8,084; $8,084; $7,165;
$6,130 and $8,084 for each Named Executive Officer, respectively, (ii)
Company contributions to the Supplemental Executive Retirement Plan of
$9,612; $8,132; $2,583; $2,422 and $113 on behalf of each of the Named
Executive Officers, respectively, to match a portion of 1996 pretax elective
deferral contributions (included under salary) made by each person to such
plan, and (iii) Company payments of term life insurance premiums of $4,803;
$4,448; $571; $555 and $845 on behalf of each of the Named Executive
Officers, respectively.
OPTION GRANTS IN LAST FISCAL YEAR.
The table below shows information regarding grants of stock options made to
the Named Executive Officers under the Company's 1990 Stock Option Plan during
the fiscal year ended May 31, 1996. The amounts shown for each of the Named
Executive Officers as potential realizable values are based on
5
<PAGE> 7
arbitrarily assumed annualized rates of stock price appreciation of 5% and 10%
over the full five or ten year term of the options. The amounts of potential
realizable values for all shareholders for the corresponding increases in the
market value of 11,922,000 outstanding shares of the Company's stock held by all
shareholders as of August 9, 1996, at the 5% and 10% assumed annualized rates
over a term of 10 years would total approximately $128.4 million and $325.4
million, respectively. No gain for optionees is possible without an increase in
stock price which will benefit all shareholders proportionately. These potential
realizable values are based solely on arbitrarily assumed rates of appreciation
required by applicable SEC regulations. Actual gains, if any, on option
exercises and Company stockholdings are dependent on the future performance of
the Company's stock and overall stock market conditions. There can be no
assurance that the potential realizable values shown in this table will be
achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------------- POTENTIAL
PERCENT REALIZABLE VALUE AT
OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS STOCK APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN OR BASE EXPIRATION ------------------------
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
- ------------------------- ---------- ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Daniel Greenberg......... None
William Weitzman......... None
Gary B. Phillips......... 30,000 42.86% $ 17.125 10/04/05 $ 323,095 $ 818,785
Steven Markheim.......... 20,000 28.57% $ 17.125 10/04/05 $ 215,396 $ 545,857
Craig R. Jones........... None
</TABLE>
- ---------------
(1) Except for Mr. Greenberg, all stock options are awarded at the fair market
value of shares of the Company's stock at the date of award, have a term of
ten years, and become exercisable as follows: 25 percent after one year, 50
percent after two years, 75 percent after three years, and 100 percent after
four years. Because Mr. Greenberg is a 10% shareholder of the Company, his
options are required to be granted at 110% of the fair market value, and the
options granted to him may not be exercisable after five years from the date
of grant.
6
<PAGE> 8
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES.
The following table summarizes for each of the Named Executive Officers the
number of stock options exercised during the fiscal year ended May 31, 1996, and
the aggregate dollar value realized upon exercise, the total number of
unexercised options held at May 31, 1996, and the aggregate dollar value of
in-the-money, unexercised options held at May 31, 1996. Value realized upon
exercise is the difference between the fair market value of the underlying stock
on the exercise date and the exercise or base price of the option. Value of
unexercised, in-the-money options at fiscal yearend is the difference between
its exercise or base price and the fair market value of the underlying stock on
May 31, 1996, which was $24.75 per share. These values, unlike the amounts set
forth in the column headed "Value Realized," have not been, and may never be,
realized. The underlying options have not been, and may not be, exercised;
actual gains, if any, on exercise will depend on the value of the Company's
stock on the date of exercise. There can be no assurance that these values will
be realized.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
SHARES END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel Greenberg............. 79,015 $ 1,235,814 128,174 14,063 $ 2,539,655 $ 246,210
William Weitzman............. 5,500 $ 85,502 199,438 14,063 $ 3,930,763 $ 255,469
Gary B. Phillips............. 16,500 $ 235,111 59,438 38,438 $ 1,123,702 $ 382,032
Steven Markheim.............. 5,000 $ 85,394 45,625 25,625 $ 865,857 $ 254,688
Craig R. Jones............... 10,125 $ 96,937 25,313 2,813 $ 481,563 $ 51,094
</TABLE>
- ---------------
(1) In-the-Money Options are those where the fair market value of the underlying
securities exceeds the exercise or base price of the option.
7
<PAGE> 9
FIVE YEAR STOCK PERFORMANCE GRAPH.
The graph below reflects a comparison of the cumulative total shareholder
return on the Company's common stock with the NASDAQ(US) and the S & P High
Technology-Composite indices, respectively, for the five year period commencing
May 31, 1991 through May 31, 1996. The graph assumes that the value of the
investment in the Company's common stock and in each index was $100 at May 31,
1991 and all dividends were reinvested. The comparisons in this table are
required by the SEC and, therefore, are not intended to forecast or be
necessarily indicative of actual future returns on the Company's common stock.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
VALUE OF $100 INVESTED ON MAY 31, 1991
FISCAL YEARS ENDED MAY 31
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ELECTRO RENT COR- S & P HIGH TECH NASDAQ STOCK
(FISCAL YEAR COVERED) PORATION COMPOSITE MARKET - US
<S> <C> <C> <C>
1991 100 100 100
1992 160 101 117
1993 138 116 141
1994 192 130 149
1995 305 188 177
1996 514 249 257
</TABLE>
CEO COMPENSATION.
Daniel Greenberg, CEO of the Company, is employed pursuant to an Executive
Employment Agreement with the Company originally entered into in 1986, amended
in 1988 and further amended and restated in July 1992. In its present form the
Agreement provides for a rolling three year term at a base salary of not less
than $300,000 subject to being adjusted annually based upon the consumer price
index and may be increased at any time by the Board or its Compensation
Committee. It provides that the CEO shall be entitled to receive bonuses and
incentive compensation each year in addition to his base salary. In determining
the amount of the bonus and incentive compensation the Agreement provides that
the Board shall consider all pertinent factors including those specifically
enumerated in the Agreement. The Agreement provides that the CEO shall receive
employee benefits comparable to those provided to the Company's senior
executives, and to certain payments and benefits in the event of the CEO's
involuntary termination including such termination following a change of
control.
For the fiscal year ended May 31, 1996 the CEO was paid base salary of
$330,000 plus a bonus of $300,000. He received fringe benefits comparable to
those received by salaried employees generally, and perquisites which in the
aggregate did not exceed 10% of his base compensation and bonus.
8
<PAGE> 10
On December 29, 1995, January 9, 1996, and January 11, 1996 the CEO
exercised 3,000, 65,659 and 10,356 stock options, respectively, previously
granted to him under the Company's 1990 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The following members of the Board served as members of the Compensation
Committee during the last completed fiscal year: Will Richeson, Jr., Chairman,
Gerald D. Barrone, Nancy Y. Bekavac, Joseph J. Kearns and Michael R. Peevey.
No member of the Compensation Committee is or was an officer or employee of
the Company or any of its subsidiaries or divisions.
No member of the Compensation Committee is related to any other member of
the Committee, of any member of the Board, or any executive officer of the
Company by blood, marriage or adoption.
COMPENSATION OF DIRECTORS.
Each non-employee director of the Company is compensated for his or her
services as a director at the rate of $14,000 per year plus $800 for each board
meeting which he or she attends and for each meeting of the Compensation and
Audit Committee which he or she attends as a member of either or both of said
committees.
Directors who are employees receive no additional compensation for their
services as directors.
REPORT OF THE COMPENSATION COMMITTEE
AND THE STOCK OPTION COMMITTEE
The Compensation Committee makes recommendations to the Board respecting
compensation for the Company's executives including the Chief Executive Officer
and the President. It also makes recommendations to the Stock Option Committee
respecting the grant of stock options to the executives.
COMPENSATION PHILOSOPHY.
In designing its compensation programs, the Company follows its belief that
compensation should reflect the value created for shareholders while supporting
the Company's strategic goals. In doing so, the compensation programs reflect
the following principles:
- Compensation should be meaningfully related to the value created for
shareholders.
- Compensation programs should support the short- and long-term strategic
goals and objectives of the Company.
- Compensation programs should reflect and promote the Company's values,
and reward individuals for outstanding contributions to the Company's
success.
- Short- and long-term compensation play a critical role in attracting and
retaining well-qualified executives.
Executive compensation has consisted of three parts: base compensation,
bonuses and stock options.
In recommending base compensation the Compensation Committee has
periodically called upon compensation consultants to submit compensation data
from comparable companies. The Committee has recommended bonus awards on an
annual basis taking into consideration all relevant factors including the
performance of the particular executive and the success of management generally
in carrying out the objectives of the Company. For example, during the past
fiscal year the Company increased net income by 49% and achieved a 17% return on
equity, resulting in a 69% share price increase. The Committee regarded this as
a creditable performance on the part of management justifying appropriate
bonuses.
9
<PAGE> 11
COMPENSATION PROCEDURE.
In the first quarter of each fiscal year the Compensation Committee meets
to review executive compensation and to make recommendations for executive
bonuses for the fiscal year ended the preceding May 31st and base compensation
for the then current fiscal year.
The Chief Executive Officer and the President give the Compensation
Committee a report and recommendation respecting each of the executives other
than themselves. They also supply the Compensation Committee with whatever
information the Compensation Committee requests concerning their own performance
and any other aspects of the Company's operations which might be relevant in
fixing or recommending compensation for the Chief Executive Officer and the
President. Those two officers absent themselves from the meeting in which their
compensation is being fixed or recommended by the Compensation Committee.
The Compensation Committee makes its recommendations to the Board. The
Board fixes the compensation by appropriate resolutions. In most instances the
Board follows the recommendations of the Compensation Committee. The Chief
Executive Officer and the President, both of whom are members of the Board, do
not participate in the Board's consideration of their compensation and absent
themselves when their compensation is being considered and voted upon.
THE CHIEF EXECUTIVE OFFICER AND THE PRESIDENT.
In 1986 the Company entered into written Executive Employment Agreements
with Daniel Greenberg, the Chief Executive Officer, and with William Weitzman,
the President. The Agreements were amended in November 1988 and were further
amended and restated in July 1992.
In their present form the Agreements provide for a three year rolling term
at a base salary of not less than $300,000 for the Chief Executive Officer and
not less than $250,000 for the President. Base salary is adjusted annually based
upon the consumer price index and may be increased at any time by the Board or
its Compensation Committee.
The Agreements provide that the Executive shall be entitled to receive
bonuses and incentive compensation each year in addition to his base salary. In
determining the amount of such bonus and incentive compensation, consideration
is to be given to all pertinent factors including, but not limited to, the
following:
". . . historic policies and practices, business revenues, business
profits, the quality of the Executive's performance and the value of his
contributions to the Company, the prevailing compensation levels for
comparable executive officers in businesses of size, complexity and/or
character similar to those of the Company."
The Executives are also entitled to receive employee benefits comparable to
those provided to its senior executives; and to certain payments and benefits in
case of the Executive's involuntary termination including such termination
following a change of control.
No other executive officer of the Company is employed pursuant to a formal
written employment agreement.
STOCK OPTION PLANS.
The Company has two stock option plans: the 1980 Stock Option Plan and the
1990 Stock Option Plan. Options under the 1980 Plan can no longer be granted
since the ten year life of the Plan expired. However, options granted under the
1980 Plan which have not expired or been forfeited, are valid and exercisable
according to the terms of the respective option grants.
The 1990 Plan provides for Incentive Stock Options which may only be
granted to employees, and for Nonstatutory Stock Options which may be granted to
non-employee directors and consultants.
The Stock Option Committee grants Incentive Stock Options to key employees
of the Company, including Company Executives, to encourage proprietary interest
in the Company, to encourage such key
10
<PAGE> 12
employees to remain in the employ of the Company and to attract new employees
with outstanding qualifications.
In granting stock options, the Stock Option Committee confers with senior
management and with the Compensation Committee.
During the fiscal year ended May 31, 1996, no stock options were granted to
the Chief Executive Officer. Stock options were granted to two of the five
highest paid executives as follows: Gary B. Phillips, 30,000 options; Steven
Markheim, 20,000 options.
Directors are granted Nonstatutory Stock Options based upon amendments to
the 1990 Plan adopted October 3, 1991 and April 11, 1995 setting forth a formula
pursuant to Rule 16b-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934 whereby each non-employee director receives 10,125 options
the first year of service and 6,750 options the second year of service.
The members of the Compensation Committee and the Stock Option Committee
are not and have not been employees of the Company and are not related to each
other or to any executive officer of the Company by blood, marriage or adoption.
<TABLE>
<CAPTION>
Compensation Committee Stock Option Committee
<S> <C>
Will Richeson, Jr., Chairman Gerald D. Barrone, Chairman
Gerald D. Barrone Nancy Y. Bekavac
Nancy Y. Bekavac Joseph J. Kearns
Joseph J. Kearns
Michael R. Peevey
</TABLE>
APPROVAL OF THE ELECTRO RENT CORPORATION
1996 STOCK OPTION PLAN (THE "1996 PLAN")
STOCK OPTION HISTORY
The 1980 Stock Option Plan expired by the passage of time. However, options
granted under the 1980 Plan prior to its expiration remain in effect and may be
exercised according to the terms of the respective grants.
As of May 31, 1996 a total of 153,500 options were outstanding under the
1980 Plan.
In 1990 the Company adopted the Electro Rent Corporation 1990 Stock Option
Plan (the "1990 Plan") which provides for incentive stock options and
nonstatutory stock options. The 1990 Plan provided for a total of 708,750
options (the number being adjusted to reflect subsequent stock splits).
As of May 31, 1996 a total of 553,810 options were outstanding and a total
of 5,094 options were available to be granted under the 1990 Plan.
The Electro Rent Corporation 1996 Stock Option Plan (the "1996 Plan") was
adopted by the Board on April 18, 1996 to enable the Company to grant options
after the expiration of the 1990 Plan.
The Board ordered that the 1996 Plan shall be presented to the vote of the
shareholders at the next annual meeting with a recommendation that the
shareholders approve the 1996 Plan.
DESCRIPTION OF THE 1996 PLAN
INTRODUCTION
The 1996 Plan provides for the granting of options for not to exceed
325,000 shares of the Company's common stock without par value.
The options are of two types: Incentive Stock Options and Nonstatutory
Stock Options.
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<PAGE> 13
The purpose of the 1996 Plan is to enable the Company to provide incentives
to key employees, directors and consultants of the corporation and its
subsidiaries to remain in the employ of the Company, and to attract new
employees with outstanding qualifications.
ELIGIBILITY
Incentive Stock Options may be granted only to employees who may also be
officers and directors.
Directors and consultants who are not employees may only be granted
Nonstatutory Stock Options.
Each optionee is required to enter into a stock option agreement which will
specify the rate at which options may be exercised. No option is exercisable
after the expiration of ten years from the date it was granted, or after five
years from the date it was granted in the case of an employee who owns more than
ten percent of the Company's outstanding stock.
To the extent that any optionee holds options under all plans of the
Company exercisable during any calendar year the fair market value of which
exceeds $100,000 as of the time of the grant, the excess of such options are
treated as Nonstatutory Stock Options.
Options may not be granted under the 1996 Plan after April 17, 2006.
ADMINISTRATION
The 1996 Plan is administered by a committee of three members appointed by
the Board.
The Board has appointed the following board members to serve as the
committee:
Gerald D. Barrone, Chairman
Nancy Y. Bekavac, Secretary
Joseph J. Kearns
OPTION PRICE AND PAYMENT
The exercise price of an Incentive Stock Option is not less than the fair
market value of the stock on the date of grant, or not less than 110% of the
fair market value of the stock in the case of an employee who owns more than ten
percent of the Company's outstanding stock.
The exercise price of a Nonstatutory Stock Option is not less than 85% of
the fair market value of the stock on the date of grant.
The purchase price is payable upon exercise of the options. If the option
agreement so provides, the purchase price may be paid in whole or in part by the
surrender of shares of the Company or by a promissory note bearing interest at
not less than eight percent per annum and with a maturity of not more than five
years.
TERMINATION OF EMPLOYMENT
If the optionee's employment by the Company terminates other than by death
or disability, options exercisable at termination may be exercised within three
months after termination or retirement.
If the optionee's employment by the Company terminates because of death or
disability, options exercisable at death or disability may be exercised within
12 months after termination of employment.
Except in the event of death, options are not transferable.
RECAPITALIZATION AND ADJUSTMENTS
The number of shares covered by outstanding options and the exercise price
are proportionately adjusted for any increase or decrease in the number of
outstanding shares resulting from a subdivision or consolidation of shares, the
payment of a stock dividend or other increase or decrease in the number of
outstanding shares effected without receipt of consideration by the Company.
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<PAGE> 14
If the Company is the surviving corporation in a merger or consolidation,
the committee is authorized to make appropriate adjustments.
AMENDMENT AND TERMINATION
The 1996 Plan may be revised, suspended or discontinued by action of the
Board; provided, however, that shareholder approval is required for any
amendment which increases the number of shares subject to the Plan, or changes
the designation of the classes of persons eligible to receive options under the
Plan.
FEDERAL INCOME TAX CONSEQUENCES
Under present law the federal income tax treatment of stock incentives
under the 1996 Plan is generally as follows:
A participant who is granted a stock option will not be subject to federal
income tax at the time of grant, and the Company will not be entitled to a tax
deduction by reason of such grant. Upon exercise of a Nonstatutory Option, the
excess of the share's fair market value on the exercise date over the option
price will be considered ordinary income. The Company is entitled to a tax
deduction at the same time and in the same amount, provided that the Company
complies with the applicable withholding requirements. Upon exercise of an
Incentive Stock Option, no taxable income will be recognized by the participant
and the Company is not entitled to a tax deduction by reason of such exercise.
However, if shares purchased pursuant to the exercise of an Incentive Stock
Option are sold within two years from the date of grant or within one year after
the transfer of such shares to the participant, then generally the difference
between the fair market value of the shares at the date of exercise and the
option price will be considered ordinary income, and the Company will be
entitled to a tax deduction at the same time and in the same amount. In the
event of a sale of shares purchased upon exercise of a Nonstatutory Option, any
appreciation above or depreciation below the fair market value at the date of
exercise will generally qualify as capital gain or loss. In the event of a sale
of shares purchased upon exercise of an Incentive Stock Option, subject to the
qualifications stated above, any appreciation above or depreciation below the
exercise price will generally qualify as capital gain or loss. If shares
purchased upon the exercise of a Nonstatutory Option are transferred to the
participant subject to restrictions, then, depending upon the nature of the
restrictions, the income realized by the participant and the Company's tax
deduction may be deferred and measured by the excess of the fair market value of
the shares over the option price at the time the restrictions lapse.
Individual states and local tax authorities may also tax stock incentives
awarded under the 1996 Plan.
The Company recommends that each optionee obtain professional advice
regarding the application of federal, state and local tax laws and regulations.
AVAILABILITY OF 1996 PLAN
The foregoing description of the 1996 Plan is a resume and does not set
forth all of the provisions of the Plan. Any shareholder desiring to receive a
complete copy of the 1996 Plan should address a request to that effect to Steven
Markheim, Company Secretary, at the office of the Company.
SHAREHOLDER APPROVAL
The affirmative vote of the holders of a majority of the total voting power
present in person or by proxy and entitled to vote at the annual meeting will be
required to approve the 1996 Plan. Proxies solicited by the Board will be voted
in favor of the 1996 Plan unless a different vote is specified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH PROPOSAL AND YOUR PROXY
WILL BE SO VOTED UNLESS OTHERWISE SPECIFIED.
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<PAGE> 15
APPROVAL OF THE ELECTRO RENT CORPORATION
1996 DIRECTOR OPTION PLAN
The Electro Rent Corporation 1996 Director Option Plan (the "1996 Director
Plan") was adopted by the Board on July 11, 1996.
The Board ordered that the 1996 Director Plan shall be presented to the
vote of the shareholders at the next annual meeting with a recommendation that
the shareholders approve the 1996 Director Plan.
DESCRIPTION OF THE PLAN
The purpose of the 1996 Director Plan is to encourage outside directors of
the Company to increase their ownership in the Company by electing to defer all
or part of their annual retainer in exchange for receiving Nonstatutory Stock
Options.
The 1996 Director Plan provides for the granting of options for not to
exceed 25,000 shares of the Company's common stock without par value.
ELIGIBILITY
Only non-employee directors of the Company are eligible to participate in
the 1996 Director Plan.
Each optionee is required to enter into a stock option agreement which will
specify the time and manner in which options may be exercised.
No option may be exercised before the first anniversary of the date upon
which it was granted; provided, however, that any option becomes exercisable
upon retirement of the optionee because of age or total and permanent
disability, or upon his or her death. No option is exercisable after the
expiration of five years from the date upon which it was granted.
Options granted under the 1996 Director Plan are in addition to and
separate from options granted to outside directors under the Electro Rent
Corporation 1990 Stock Option Plan.
Options may not be granted under the 1996 Director Plan after July 10,
2006, ten years from the date of its adoption.
ADMINISTRATION
The 1996 Director Plan is administered by a committee composed of directors
of the Company who are ineligible to participate in the 1996 Director Plan. The
following two people are the only members of the Board eligible to serve on the
committee, and the Board has appointed them to so serve:
Daniel Greenberg
William Weitzman
PROCEDURE FOR GRANTING OPTIONS
The Plan Year is the period from June 1 of each calendar year to and
including May 31 of the ensuing calendar year.
On or before the first business day of each Plan Year, each eligible
director may notify the Company secretary in writing that he or she has elected
irrevocably to defer the payment of one-third, two-thirds or all of his or her
annual retainer fee for the Plan Year (currently $14,000). If no such notice is
given, the eligible director is deemed to have waived the right to defer any
part of his or her annual retainer for the Plan Year.
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<PAGE> 16
Each eligible director who has elected to defer all or part of his or her
annual retainer automatically receives nonqualified options as of the first
business day of the Plan Year equal to the nearest number of whole shares
determined in accordance with the following formula:
<TABLE>
<C> <C> <S>
Dollar Amount of Annual Retainer Deferred
- -------------------------------------------
= Number of
75% of Fair Market Value on Date of Grant Shares
</TABLE>
In the event of the death, disability or retirement of the optionee or in
the event of a change of control, the options granted as of the first day of the
Plan Year are deemed to accrue quarterly in advance on the first days of June,
September, December and March during the Plan Year.
OPTION PRICE AND PAYMENT
The exercise price per share for each option being exercised is twenty-five
percent of the fair market value per share on the date the option was granted,
payable in cash at the time of exercise.
OPTIONS NON-TRANSFERABLE
Except in the event of the optionee's death, options are non-transferable
and may be exercised only by the optionee.
In the event of the optionee's death or disability, options which had
accrued as of the date of death or disability may be exercised within 12 months
after the optionee's death or disability.
In the event of the Optionee's retirement or termination for any reason
other than death or disability, or in the event of a change of control, options
which had accrued as of the date of such events may be exercised within three
months after the event occurred.
RECAPITALIZATION AND ADJUSTMENTS
The number of shares covered by outstanding options and the exercise price
are proportionately adjusted for any increase or decrease in the number of
outstanding shares resulting from a subdivision or consolidation of shares, the
payment of a stock dividend or other increase or decrease in the number of
outstanding shares effected without receipt of consideration by the Company.
If the Company is the surviving corporation in a merger or consolidation,
the committee is authorized to make appropriate adjustments.
AMENDMENT AND TERMINATION
The 1996 Director Plan may be revised, suspended or discontinued by action
of the Board; provided, however, that shareholder approval is required for any
amendment which increases the number of shares subject to the 1996 Director
Plan, or changes the designation of the class of persons eligible to receive
options under the Plan.
FEDERAL INCOME TAX CONSEQUENCES
Under present law the federal income tax treatment of stock incentives
under the 1996 Director Plan is generally as follows:
A participant who is granted a nonstatutory stock option will not be
subject to federal income tax at the time of grant, and the Company will not be
entitled to a tax deduction by reason of such grant. Upon exercise of a
nonstatutory option, the excess of the share's fair market value on the exercise
date over the option price will be considered ordinary income. The Company is
entitled to a tax deduction at the same time and in the same amount, provided
that the Company complies with the applicable withholding requirements. In the
event of a sale of shares purchased upon exercise of a nonstatutory option, any
appreciation above or depreciation below the fair market value at the date of
exercise will generally qualify as capital gain or loss.
15
<PAGE> 17
Individual states and local tax authorities may also tax stock incentives
awarded under the 1996 Director Plan.
The Company recommends that each optionee obtain professional advice
regarding the application of federal, state and local tax laws and regulations.
AVAILABILITY OF 1996 DIRECTOR PLAN
The foregoing description of the 1996 Director Plan is a resume and does
not set forth all of the provisions of the Plan. Any shareholder desiring to
receive a complete copy of the 1996 Director Plan should address a request to
that effect to Steven Markheim, Company Secretary, at the office of the Company.
SHAREHOLDER APPROVAL
The affirmative vote of the holders of a majority of the total voting power
present in person or by proxy and entitled to vote at the annual meeting will be
required to approve the 1996 Director Plan. Proxies solicited by the Board will
be voted in favor of the 1996 Director Plan unless a different vote is
specified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH PROPOSAL AND YOUR PROXY
WILL BE SO VOTED UNLESS OTHERWISE SPECIFIED.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board on the recommendation of the Audit Committee has appointed Arthur
Andersen LLP to audit the books and records of the Company for the fiscal year
beginning June 1, 1996.
Representatives of the firm are expected to be at the meeting to respond to
appropriate questions and to make a statement if they wish.
Notwithstanding the ratification by the shareholders of the appointment of
Arthur Andersen LLP, the Board or the Audit Committee may, if the circumstances
warrant, appoint other independent public accountants.
A resolution will be offered at the annual meeting to approve the
appointment of Arthur Andersen LLP as the independent public accountants of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH PROPOSAL AND YOUR PROXY
WILL BE SO VOTED UNLESS OTHERWISE SPECIFIED.
DATE FOR RECEIPT OF SHAREHOLDER
PROPOSALS FOR PRESENTATION AT
1997 ANNUAL MEETING
Any proposal which a shareholder wishes to have presented for consideration
at the 1997 annual meeting must be received at the Company's principal office,
attention: Steven Markheim, Secretary, no later than May 31, 1997.
OTHER MATTERS
As of the date of this proxy statement the Board does not intend to
present, and has not been informed that any other person intends to present, any
other matter for action at this meeting. If any other matter properly comes
before the meeting, the holders of the proxies will act in each instance in
accordance with their best judgment.
In addition to the solicitation of proxies by mail, certain employees of
the Company, without extra remuneration, may solicit proxies. The Company also
will request brokerage houses, nominees, custodians and
16
<PAGE> 18
fiduciaries to forward soliciting material to the beneficial owners of stock
held of record and will reimburse such persons for the cost of forwarding the
material. The cost of solicitation will be borne by the Company.
Copies of the 1996 annual report of the Company are being mailed to
shareholders. Additional copies and additional information, including the annual
report (Form 10-K) filed with the Securities and Exchange Commission may be
obtained by any shareholder without charge. Requests should be addressed to the
Company's principal office, attention: Steven Markheim, Secretary.
By order of the Board of Directors
Steven Markheim
Secretary
Van Nuys, California
August 23, 1996
17
<PAGE> 19
<TABLE>
<S> <C> <C>
ELECTRO PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
RENT OF DIRECTORS.
CORPORATION The undersigned hereby appoints Daniel
6060 SEPULVEDA BOULEVARD Greenberg, William Weitzman and Joseph J.
VAN NUYS, CALIFORNIA 91411-2512 Kearns as Proxies, each with the power to
appoint his substitute, and hereby authorizes
them to represent and to vote, as designated
below, all the shares of common stock of Electro
Rent Corporation held of record by the
undersigned on August 9, 1996 at the annual
meeting of shareholders to be held on October 3,
1996, or any adjournment thereof.
- -------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the (to vote for all nominees listed
contrary below) / / below) / /
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name on the list below.)
G. D. Barrone, N. Y. Bekavac, D. Greenberg,
J. J. Kearns, M. R. Peevey, W. Richeson, Jr., W. Weitzman
2. Proposal to approve the Electro Rent Corporation 1996 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to approve the Electro Rent Corporation 1996 Director Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve the appointment of Arthur Andersen LLP as the independent
public accountants of the corporation.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE> 20
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted for the seven nominees for directors and for proposals 2, 3 and 4.
PLEASE SIGN EXACTLY AS NAME APPEARS OF RECORD ON YOUR STOCK CERTIFICATES.
WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN.
DATED:............, 1996
------------------------
Signature
------------------------
Signature, if held
jointly
When signing as
attorney, as executor,
administrator, trustee,
or guardian, please give
full title as such. If a
corporation, please sign
in full corporate name,
by President or other
authorized officer. If a
partnership, please sign
in partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
