<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
McGrath Rentcorp
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[LOGO] MCGRATH RENTCORP
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
JUNE 5, 1998
Notice is hereby given that the 1998 Annual Meeting of Shareholders of
McGrath RentCorp, a California corporation, will be held at McGrath RentCorp's
Corporate Headquarters located at 5700 Las Positas Road, Livermore, California
94550, on Friday, June 5, 1998, at 2:00 p.m., local time, for the following
purposes:
1. To elect five directors to serve until the next annual meeting of
shareholders and until their respective successors are duly elected;
2. To approve the adoption of McGrath RentCorp's 1998 Stock Option Plan;
3. To approve the appointment of Arthur Andersen LLP as McGrath RentCorp's
independent public accountants for the year ending December 31, 1998;
and
4. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
Shareholders of record at the close of business on April 15, 1998 are
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
All shareholders are cordially invited to attend the Meeting in person. However,
to insure your representation at the Meeting, you are urged to mark, sign and
return the enclosed Proxy as promptly as possible in the accompanying
postage-prepaid envelope. Any shareholder attending the Meeting may vote in
person even if he or she has returned the Proxy.
BY ORDER OF THE BOARD OF DIRECTORS
April 27, 1998 DELIGHT SAXTON, SECRETARY
<PAGE> 3
MCGRATH RENTCORP
------------------------------------------------------
PROXY STATEMENT
------------------------------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
McGrath RentCorp (the "Company") to be voted at the 1998 Annual Meeting of
Shareholders to be held on Friday, June 5, 1998, at 2:00 p.m., local time, and
at any adjournment thereof, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at the
Company's Corporate Headquarters located at 5700 Las Positas Road, Livermore,
California 94550.
These proxy materials were mailed on or about April 28, 1998, to all
shareholders entitled to vote at the Meeting.
RECORD DATE AND OUTSTANDING SHARES
Shareholders of record at the close of business on April 15, 1998, are
entitled to notice of, and to vote at, the Meeting. At the record date,
14,144,730 shares of the Company's Common Stock were issued and outstanding. The
Company has no other class of voting securities issued or outstanding.
VOTING
In order to conduct business at the Meeting, a quorum must be established.
The presence in person or by proxy of shareholders entitled to vote a majority
of the Company's outstanding Common Stock will constitute a quorum for the
transaction of business at the Meeting.
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected (five) multiplied by the number of shares held, or
may distribute such shareholder's votes on the same principle among as many
candidates as the shareholder may select. However, no shareholder shall be
entitled to cumulate votes for any candidate unless the candidate's name has
been placed in nomination prior to the voting and the shareholder, or any other
shareholder, has given notice at the Meeting prior to the voting of the
intention to cumulate the shareholder's votes. The proxy holders are given
discretionary authority, under the terms of the Proxy, to cumulate votes
represented by shares for which they are named in the Proxy. In electing
directors, the candidates receiving the highest number of affirmative votes, up
to the number of directors to be elected (five) shall be elected.
Unless otherwise noted herein, each of the Company's proposals (other than
the election of directors) described in this Proxy Statement requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock represented and voting at the Meeting if a quorum is present.
Unless otherwise instructed, each valid returned Proxy not revoked will be voted
in the election of directors "FOR" the nominees of the Board of Directors and
"FOR" Proposals Nos. 2 and 3 described in this Proxy Statement, and at the proxy
holders' discretion, on such other matters, if any, which may come before the
Meeting (including any proposal to adjourn the Meeting).
<PAGE> 4
SOLICITATION
The cost of this solicitation will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the Meeting and voting in person.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
NOMINEES
Directors of the Company are elected annually by the shareholders. The
Board has nominated the five persons named in the table below for election as
directors to serve until the next annual meeting of shareholders and until their
respective successors are duly elected. Vacancies that may occur on the Board of
Directors prior to an annual meeting of shareholders may be filled by the
remaining Directors. Unless otherwise instructed, the proxy holders will vote
the Proxies received by them for the Company's nominees named below, all of whom
are presently directors of the Company. In the event any nominee is unable or
declines to serve as a director at the time of the Meeting, the Proxies will be
voted for any nominee who shall be designated by the present Board of Directors
to fill the vacancy. It is not expected any nominee will be unable, or will
decline, to serve as a director. In the event additional persons are nominated
for election as directors, the proxy holders intend to vote all Proxies received
by them in such a manner in accordance with cumulative voting as will assure the
election of as many of the nominees listed below as possible, and in such event,
the specific nominees to be voted for under the Proxies will be determined by
the proxy holders.
The names of the nominees and certain information about them are set forth
below.
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
<S> <C> <C> <C>
Bryant J. Brooks 71 Independent Financial Consultant 1989
Joan M. McGrath 61 Businesswoman 1982
Robert P. McGrath 64 Chairman of the Board and Chief Executive 1979
Officer of the Company
Delight Saxton 52 Senior Vice President, Chief Financial 1982
Officer and Secretary of the Company
Ronald H. Zech 54 Chairman of the Board, President and Chief 1989
Executive Officer of GATX Corporation
</TABLE>
DESCRIPTION OF NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
BRYANT J. BROOKS was elected a director of the Company in 1989, and he
serves on its Audit and Executive Compensation Committees. Since 1975, Mr.
Brooks has been an independent financial consultant in San Francisco,
California, specializing in valuation of securities of privately held companies.
He serves as a director of Fair, Isaac and Company, Incorporated, a public
corporation engaged in the development and sale of business decision-making
systems and software.
JOAN M. MCGRATH joined the Company in 1980 and has been a director since
1982. Ms. McGrath served as a Vice President of the Company from 1982 through
1994, at which time she resigned that position.
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<PAGE> 5
She continues to be an employee of the Company with responsibilities in training
sales, supervisory and management personnel and general management.
ROBERT P. MCGRATH is the founder of the Company. He has been a director and
its Chief Executive Officer since the Company's formation in 1979, and its
Chairman of the Board since 1988. He also served as the Company's President
through 1994 and as its Chief Financial Officer until 1993. He is a member of
the Executive Compensation Committee of the Company's Board of Directors.
DELIGHT SAXTON has been with the Company since its inception in 1979. She
has been a director and the Secretary of the Company since 1982, its Chief
Financial Officer since 1993, and a Senior Vice President since 1997. Ms. Saxton
also served as the Company's Treasurer from 1982 until 1989, and then as its
Vice President of Administration from 1989 until 1997. She is responsible for
all corporate compliance requirements, monitors the auditing function, and is
responsible for the Company's relationships with its bankers and auditors. Ms.
Saxton is a member of the Audit Committee of the Company's Board of Directors.
RONALD H. ZECH was elected a director of the Company in 1989, and he serves
on its Audit and Executive Compensation Committees. In 1994, Mr. Zech was
elected President and Chief Operating Officer of GATX Corporation, a New York
Stock Exchange listed company. In 1995, he was elected Chief Executive Officer
of that corporation, and in 1996 was elected its Chairman of the Board. GATX is
engaged in the business of providing transportation and distribution equipment
and related services. For the ten years prior to 1994, Mr. Zech had been the
President and Chief Executive Officer of GATX's wholly owned subsidiary, GATX
Capital Corporation. GATX Capital provided lease and loan financing for
aircraft, rail and other equipment.
BOARD MEETINGS
The Board of Directors of the Company held five meetings and took corporate
action by unanimous written consent another four times during the year ended
December 31, 1997.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a three-member Audit Committee consisting of
Directors Bryant J. Brooks, Delight Saxton and Ronald H. Zech. The Audit
Committee exercises the following powers: (1) nominates the independent auditors
of the Company to be approved by the Board of Directors; (2) meets with the
independent auditors to review the annual audit; (3) assists the full Board in
evaluating the auditors' performance; and (4) reviews internal control
procedures, related party transactions and, where appropriate, potential
conflict of interest situations. The Audit Committee met twice during 1997.
The Board of Directors also has a three-member Executive Compensation
Committee consisting of Directors Bryant J. Brooks, Robert P. McGrath and Ronald
H. Zech. The Executive Compensation Committee establishes the general
compensation policies of the Company for its executive officers and sets the
actual compensation plans and specific compensation levels for the individual
officers. The Executive Compensation Committee held one meeting during 1997, and
took action by unanimous written consent another time during the year.
The Board has a Long-Term Stock Bonus Plan Committee that administers the
Company's Long-Term Stock Bonus Plan. All members of the Board of Directors,
except a Director who was a participant in the Long-Term Stock Bonus Plan at any
time within the preceding twelve months, are automatically members of this
Committee. At the present time, all five directors of the Company are members of
the Long-Term Stock Bonus Plan Committee. The Long-Term Stock Bonus Plan
Committee held no meetings but took action by unanimous written consent one time
during 1997.
COMPENSATION OF DIRECTORS
Each director who is not also an officer or employee of the Company is
compensated for his or her services as a director at the rate of $11,000 per
annum plus an additional fee of $600 per meeting for attendance at the meetings
of the Board of Directors or one of its Committees (in the event a Committee
3
<PAGE> 6
meeting is held in conjunction with a Board meeting, only one $600 fee is paid
to the Director). Mr. Brooks and Mr. Zech each received $14,000 for their
services as directors of the Company during 1997. All directors, including those
who are officers or employees of the Company, are reimbursed for expenses
incurred in connection with attending Board or Committee meetings.
PROPOSAL NO. 2: 1998 STOCK OPTION PLAN
In December 1997, the Company's 1987 Incentive Stock Option Plan terminated
by its own terms, and the Company may not grant any further options under it. In
March 1998, the Board of Directors adopted the Company's 1998 Stock Option Plan
(the "1998 Plan"). The 1998 Plan permits the Company to grant options to
purchase an aggregate of 2,000,000 shares of its Common Stock to officers, key
employees, directors and other persons who provide valuable services to the
Company or to any of its subsidiaries; and the Board of Directors will, from
time to time, grant options to persons as it deems in the best interests of the
Company.
The Company considers this option plan to be a principal means by which it
attracts, retains and motivates key personnel.
The options which will be granted under the 1998 Plan may be either
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, or options which are not incentive stock options
("non-qualified options").
Under present federal income tax law, neither the grant of an incentive
stock option to an optionee, nor the exercise of such an option by the optionee,
will result in taxable income to the optionee. (However, upon exercise, the
spread between the fair market value of the stock on the date of exercise and
the exercise price paid is considered an item of tax preference, potentially
subject to the alternative minimum tax.) Upon the sale of the stock acquired,
the optionee will be entitled to treat any profit realized as long-term capital
gain provided the applicable holding period requirements are met. If the holding
period requirements are not met (i.e., a "disqualifying disposition" occurs),
the optionee will be required to treat some or all of the profit realized as
ordinary compensation income, but not in excess of the spread between the fair
market value of the stock on the date of exercise of the option and the exercise
price paid.
In general, neither the grant nor exercise of an incentive stock option,
nor the sale of stock acquired on exercise of such option will entitle the
Company to a compensation deduction. However, in the event of a disqualifying
disposition by the optionee, the Company will be entitled to a compensation
deduction in an amount equal to the ordinary income recognized by the optionee.
Incentive stock options may be granted only to employees of the Company or
its subsidiaries. Under the 1998 Plan, the Board of Directors may grant
non-qualified options to any persons who provide valuable services to the
Company or its subsidiaries, including persons who may not be employees, such as
directors, advisors or consultants. While the grant of a non-qualified option
does not result in taxable income to the optionee under present federal income
tax law, the exercise of that option will result in the optionee realizing the
excess of the fair market value of the stock on the date of exercise over the
exercise price paid as ordinary compensation income; and upon such exercise, the
Company will be entitled to a compensation deduction in an amount equal to the
ordinary income recognized by the optionee.
The Company's Board of Directors can amend or terminate the 1998 Plan at
any time; however, the Board will seek shareholder approval for any increase in
the number of shares reserved under the 1998 Plan, and may also seek shareholder
approval for other amendments to the 1998 Plan.
At the Annual Meeting of Shareholders, the Company's shareholders will be
asked to approve the terms and conditions of the 1998 Plan. Any shareholder who
desires to review the text of the 1998 Plan can obtain a copy by writing the
Company's Secretary.
The Board of Directors recommends the shareholders vote "FOR" approval of
the 1998 Stock Option Plan.
4
<PAGE> 7
PROPOSAL NO. 3: RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company, with the approval of its Audit
Committee, has appointed Arthur Andersen LLP to audit the books and records of
the Company for year ending December 31, 1998. A resolution will be offered at
the Meeting to approve the appointment of Arthur Andersen LLP as the Company's
independent public accountants.
Representatives of the accounting firm are expected to be present at the
Meeting with the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
The Board of Directors recommends a vote "FOR" such proposal. In the event
of a negative vote on such ratification, the Board of Directors will reconsider
its selection.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting. If
any other matters properly come before the Meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
5
<PAGE> 8
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the Company's stock price since December 31,
1992 against (1) the S&P 500 Index and (2) the composite prices of the companies
listed by Value Line, Inc. in its Industrial/Business Services Industries Group
("Peer Group").
<TABLE>
<CAPTION>
NAME 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
MCGRATH RENTCORP 100.00 129.94 156.67 180.07 250.27 483.80
Standard & Poors 500 100.00 110.09 111.85 153.80 189.56 252.82
Industrial Services 100.00 118.21 123.32 187.45 278.03 400.06
</TABLE>
The graph assumes an investment of $100 on December 31, 1992 and monthly
reinvestment of dividends thereafter, and is based upon information provided to
the Company by Value Line, Inc.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position Held with the Company
---- --- ------------------------------
<S> <C> <C>
Robert P. McGrath 64 Chairman of the Board and Chief
Executive Officer
Dennis C. Kakures 41 President and Chief Operating Officer
Delight Saxton 52 Senior Vice President, Chief
Financial Officer and Secretary
Thomas J. Sauer 41 Vice President and Treasurer
Scott A. Alexander 37 Vice President
Thomas L. Sanders 54 Vice President
Randle F. Rose 40 Vice President of Administration
</TABLE>
Robert P. McGrath and Delight Saxton are also directors of the Company and
descriptions of them appear under "Proposal No. 1: Election of
Directors -- Description of Nominees for Election to the Board of Directors"
above.
DENNIS C. KAKURES joined the Company in 1982 as Sales and Operations
Manager of the Company's Northern California office. He became a Vice President
of the Company in 1987, Chief Operating Officer in 1989, Executive Vice
President in 1993, and President in 1995.
THOMAS J. SAUER joined the Company in 1983 as its Accounting Manager,
became its Controller in 1987, Treasurer in 1989, and a Vice-President in 1995.
Mr. Sauer is responsible for accounting, financial reporting and corporate
taxes. Mr. Sauer is a Certified Public Accountant.
6
<PAGE> 9
SCOTT A. ALEXANDER joined the Company in 1982 as a sales representative,
became a Branch Manager in 1989, and a Vice President in 1997. Mr. Alexander is
responsible for the Northern California branch facility and for sales and
marketing of the Mobile Modular Division.
THOMAS L. SANDERS joined the Company in 1990 as a Branch Manager, and
became a Vice President in 1997. Mr. Sanders is responsible for the Southern
California branch facility and for the inventory center operations of the Mobile
Modular Division.
RANDLE F. ROSE joined the Company in 1997 as its Vice President of
Administration. Mr. Rose is responsible for administration of human resources,
risk management, real estate and facilities. For the three years prior to
joining the Company, Mr. Rose was Vice President, Finance of Ardenbrook, Inc., a
real estate company; and for the three years prior to that, he was Vice
President of Mike Farley Company, a residential development and construction
company.
Each executive officer of the Company serves at the pleasure of the Board
of Directors.
7
<PAGE> 10
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's other four most highly compensated
executive officers for services rendered in all capacities to the Company for
each of the last three years.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Name and ------------------- ------------------------ All Other
Principal Position Year Salary Bonus Awards(1) Payout(2) Compensation(3)
------------------ ---- -------- -------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. McGrath............... 1997 $352,800 $246,960 -- -- $14,063
Chairman and Chief 1996 336,000 201,449 -- -- 12,571
Executive Officer 1995 336,000 87,494 -- -- 13,018
Dennis C. Kakures............... 1997 201,600 141,120 $112,137 $80,974 14,063
President and Chief 1996 192,000 115,114 42,900 38,094 14,732
Operating Officer 1995 192,000 50,938 24,681 30,803 15,138
Delight Saxton.................. 1997 148,176 82,979 -- -- 14,063
Senior Vice 1996 141,120 65,149 -- -- 14,732
President, Chief Financial
Officer and Secretary 1995 134,400 35,656 -- -- 15,138
Thomas J. Sauer................. 1997 131,565 73,676 68,404 55,653 14,063
Vice President and 1996 125,297 58,595 29,201 26,452 14,732
Treasurer 1995 117,100 31,067 16,796 19,671 15,138
Scott A. Alexander.............. 1997 120,625 57,266 -- -- 14,063
Vice President 1996 107,500 43,704 -- -- 14,143
1995 100,000 33,482 -- -- 11,202
</TABLE>
- ------------------------------------
(1) Upon an award of stock bonus shares under the Company's Long Term Stock
Bonus Plan, 20% of such shares are vested in the participant and the
remaining 80% vest over the next four years contingent upon the
participant remaining in the employ of the Company. See "Long Term Stock
Bonus Plan" below. The figures shown in the column designated "Awards"
are the values of the vested 20% shares of the Company's Common Stock
earned by the executive officers under the Plan, calculated based on the
market value of the Common Stock as of the end of the respective years.
Dividends are paid to the officer with respect to shares earned by him,
whether or not vested. As the unvested shares subsequently vest, their
values are shown in the column designated "Payout."
(2) The figures shown in the column designated "Payout" are the values of the
shares of the Company's Common Stock previously earned by the executive
officers under the Company's Long-Term Stock Bonus Plan in a prior year
which vested during the year shown. The values are calculated based on
the market value of the Common Stock as of the end of the year in which
it was originally earned.
(3) The figures shown in the column designated "All Other Compensation"
represent the executive officer's share of the allocation of the
Company's contribution to the Company's Employee Stock Ownership Plan for
1997, and his or her share of any re-allocations of forfeited benefits in
1997 (see "Employee Stock Ownership Plan" below). The figures shown do
not include the value realized by Messrs. Sauer and Alexander upon
exercise of stock options by them during 1997 (see "1987 Incentive Stock
Option Plan" below).
EMPLOYEE STOCK OWNERSHIP PLAN
The Company's Employee Stock Ownership Plan ("ESOP") is intended to qualify
as an employee stock ownership plan as defined in Section 4975(e)(7) of the
Internal Revenue Code, and as a stock bonus plan under Section 401(a) of the
Internal Revenue Code. A trust was created by the Company under the ESOP to hold
plan assets, with Union Bank of California, N.A. acting as trustee. The Company
may amend or terminate the ESOP at any time. All assets acquired by the trust
are administered by a Plan Committee composed of Nanci Clifton, Edward Diaz,
Brian Jensen, Thomas Sauer, Delight Saxton and Sandy Waggoner (all Company
employees) for the exclusive benefit of employees who are participants in the
ESOP and their designated beneficiaries.
Employees, who are 21 years or older, are entitled to participate in the
ESOP when they have completed one year of service to the Company by June 30 of
any year. As of December 31, 1997, 175 employees of the Company were
participants in the ESOP. Allocations to each eligible participant's trust
account are made each year from Company contributions, trust income or loss and
re-allocations of forfeited ESOP benefits if
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<PAGE> 11
the participant remains employed throughout the year and has worked a minimum
number of hours or his employment has terminated due to death or retirement (as
that term is defined in the ESOP) during that year. Allocations are made based
upon each participant's compensation from the Company and time employed by the
Company. As provided by law, a participant's interest in the ESOP becomes 20%
vested after three years of service and will continue to vest at 20% per year
thereafter until it is fully vested after the seventh year or upon death or
total disability. The vesting schedule will be accelerated and the Company's
contributions and ESOP allocations will be modified if the ESOP becomes a "top
heavy plan" under federal tax laws.
In general, Company contributions are immediately tax deductible by the
Company, but participants do not recognize income for tax purposes until
distributions are made to them. The amount of Company contributions to the ESOP
in cash, Company stock or other property is determined by the Company's Board of
Directors each year with consideration for federal tax laws. The Company's Board
of Directors has authorized a $750,000 cash contribution to the ESOP for the
1997 plan year, and the Company had made an aggregate of $2,725,000 cash
contributions for the five prior years. Employees may not make contributions to
the ESOP. Contributions in cash are used to purchase Company stock; however,
other investments may be made and loans may be incurred by the ESOP for the
purchase of Company stock.
The Plan Committee has determined that cash dividends paid by the Company
on shares of the Company's Common Stock held by the ESOP shall be paid out to
the participants. The Plan Committee has the right to revoke this decision at
any time.
1987 INCENTIVE STOCK OPTION PLAN
The Company has a 1987 Incentive Stock Option Plan (the "1987 Plan") under
which options have been granted to key employees of the Company for the purchase
of its Common Stock. Options granted under the 1987 Plan are intended to qualify
as incentive stock options as that term is defined in Section 422A of the
Internal Revenue Code of 1986, as amended. The 1987 Plan authorized the issuance
of an aggregate of 2,000,000 shares of the Company's Common Stock under options.
As of April 15, 1998, options for an aggregate of 852,000 shares had been
granted to 28 key employees at exercise prices ranging between $3.06 and $10.75
per share; and of such options granted, options have been exercised for the
purchase of 487,298 shares, options for 32,120 shares have been terminated, and
options for 332,582 shares remain outstanding.
No options were granted under the 1987 Plan during 1997 to any of the
Company's executive officers listed in the "Summary Compensation Table" above.
The following table sets forth information concerning options exercised during
1997, and options held at the end of 1997, by such executive officers.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Acquired Options at Year End at Year End
Name on Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Thomas J. Sauer........... 150,000 $1,742,738 0/0 0/0
Scott A. Alexander........ 9,500 $ 104,274 0/0 0/0
</TABLE>
The 1987 Plan is now terminated by its terms, and no further options will
be granted under it; however, the options held by key employees for 332,582
shares still outstanding remain exercisable in accordance with the terms of
those options.
9
<PAGE> 12
1998 STOCK OPTION PLAN
In March 1998, the Company's Board of Directors adopted, subject to
obtaining shareholder approval, the 1998 Stock Option Plan (the "1998 Plan").
The 1998 Plan authorizes the issuance of an aggregate of 2,000,000 shares of the
Company's Common Stock under options. See "Proposal No. 2: 1998 Stock Option
Plan" above. Options for an aggregate of 212,000 shares were granted in March
1998 to 31 key employees at an exercise price of $20.81 per share, including a
20,000 share option granted to Randle F. Rose, an executive officer of the
Company. None of the options have been exercised, and they all remain
outstanding.
LONG-TERM STOCK BONUS PLAN
The Company's Long-Term Stock Bonus Plan reserved 400,000 shares of the
Company's Common Stock for bonuses to be granted to officers and other key
employees to provide incentives for high levels of performance and unusual
efforts to improve the financial performance of the Company. Long-Term Stock
Bonus Agreements have been entered into with Dennis C. Kakures, the Company's
President and Chief Operating Officer, and Thomas J. Sauer, the Company's Vice
President and Treasurer. To date, Messrs. Kakures and Sauer are the only persons
who have received Long-Term Stock Bonus Agreements under the Plan. Each
Agreement provided for a stock bonus to the officer dependent upon the return on
equity realized for the Company's shareholders over a three-year period, with
the right to receive any stock bonus earned being subject to vesting over a
four-year period contingent upon the officer remaining in the employ of the
Company. Messrs. Kakures and Sauer were awarded stock bonus based upon the
Company's performance over the three-year period ended December 31, 1997. The
following table sets forth certain information with respect to the stock bonuses
awarded based upon the three-year performance ended December 31, 1997. The
"Values" in the table are calculated based on the market value of the shares of
Common Stock as of December 31, 1997.
<TABLE>
<CAPTION>
As of 12/31/97 Will Vest at December 31,
------------------- -----------------------------------------
Name Earned Vested 1998 1999 2000 2001
---- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dennis C. Kakures
Shares................... 22,884 4,577 4,577 4,577 4,577 4,576
Value.................... $560,658 $112,137 $112,137 $112,137 $112,137 $112,112
Thomas J. Sauer
Shares................... 13,956 2,792 2,791 2,791 2,791 2,791
Value.................... $341,922 $ 68,404 $ 68,380 $ 68,380 $ 68,380 $ 68,380
</TABLE>
The Company has entered into further Long-Term Stock Bonus Agreements with
both Mr. Kakures and Mr. Sauer, under which additional stock bonuses could be
awarded if the Company's performance goals over the successive three-year
periods ending December 31, 1998 and 1999 are met.
REPORT BY THE EXECUTIVE COMPENSATION COMMITTEE
The Company has a three-member Executive Compensation Committee, consisting
of its two outside directors, Bryant J. Brooks and Ronald H. Zech, as well as
its Chairman of the Board and Chief Executive Officer, Robert P. McGrath. The
Committee establishes the general compensation policies of the Company for its
executive officers and sets the actual compensation plans and specific
compensation levels for the individual officers.
COMPENSATION PHILOSOPHY -- The Company's executive compensation philosophy
is to pay for performance. The Executive Compensation Committee believes
executive compensation should be reflective of the executive's, as well as the
Company's, current and long-term performance, and any management compensation
program should be structured to attract, motivate and retain qualified personnel
by providing attractive compensation incentives consistent with Company
performance. The executive compensation program is intended to provide an
overall level of compensation opportunity that the Committee believes, based
upon its own judgment and experience and upon periodic studies by independent
executive compensation consultants, is competitive with other, comparable
companies. The Committee also believes management should have
10
<PAGE> 13
significant equity participation through the ownership of Common Stock of the
Company so as to align the interests of executives with those of the Company's
other shareholders in an effort to achieve long-term shareholder returns.
COMPONENTS OF EXECUTIVE COMPENSATION -- In addition to the return
executives receive along with other shareholders through their individual
ownership of shares of the Company's Common Stock, there are currently three
components of executive compensation: base salary, annual cash incentive bonus
and long-term stock ownership incentives.
Base Salaries -- The Executive Compensation Committee establishes the base
salaries of each of the Company's executive officers after considering a variety
of factors including the executive's level of responsibility and individual
performance, the executive's contributions to the success of the Company,
internal equities among the salaries of other officers and key personnel of the
Company, the salaries of executive officers in similar positions in comparable
companies, and the Company's financial performance.
Annual Cash Incentive Bonus -- The Executive Compensation Committee had
adopted a formula for calculating a cash incentive bonus for the Company's Chief
Executive Officer for 1997 based solely upon the Company achieving certain
levels of pre-tax profit for the year, and for calculating cash incentive
bonuses for certain executive officers of the Company based upon a combination
of the level of the Company's pre-tax profit for the year (75%) and the extent
to which each executive officer achieves his or her own individual performance
goals as determined by the Chief Executive Officer (25%). The executive officers
of the Company who participated in this program were Mr. McGrath, Mr. Kakures,
Ms. Saxton and Mr. Sauer. Mr. McGrath and Mr. Kakures were eligible to receive
bonuses ranging from zero up to a maximum of 70% of their base salaries. Ms.
Saxton and Mr. Sauer were eligible to receive bonuses ranging from zero up to a
maximum of 56% of their base salaries. The aggregate cash incentive bonuses
earned by these four executive officers of the Company under this program for
1997 was 65% of their base salaries.
Long-Term Stock Ownership Incentives -- The Company has two long-term stock
ownership incentive programs for its executives and other key personnel: The
Long-Term Stock Bonus Plan and the 1998 Stock Option Plan.
By the terms of the Company's Long-Term Stock Bonus Plan, the grant of
stock bonuses is determined by the Company's Long-Term Stock Bonus Plan
Committee (see "Long-Term Stock Bonus Plan" above). The Executive Compensation
Committee may make recommendations to the Long-Term Stock Bonus Plan Committee
with respect to the granting of stock bonuses under the Plan to executive
officers. The Long-Term Stock Bonus Plan has been used to reward the achievement
of pre-set, long-term financial goals; and the bonuses of stock have been
awarded for achieving pre-set goals with respect to the return on equity
realized by the Company over successive three-year periods.
By the terms of the Company's 1998 Stock Option Plan, which plan is subject
to approval by the shareholders, the grant of stock options is determined by the
Company's Board of Directors (see "Proposal No. 2: 1998 Stock Option Plan"
above). The Executive Compensation Committee may make recommendations to the
Board of Directors with respect to the granting of stock options under the 1998
Plan to executive officers. The Board has granted stock options from time to
time to executive officers and other key personnel of the Company under earlier
option plans because the Board believed such grants would be an effective part
of the particular executive officer's overall compensation package and that an
increase in his or her equity participation in the Company would be appropriate.
CHIEF EXECUTIVE OFFICER'S COMPENSATION -- Throughout 1997, Robert P.
McGrath was the Chief Executive Officer of the Company, as well as the Chairman
of its Board of Directors. Mr. McGrath was the founder of the Company, and he
still owns a significant percentage of its Common Stock (see "Security Ownership
of Management and Principal Shareholders" below).
Base Salary -- After a review in early 1997 of Mr. McGrath's level of
responsibility, performance and contributions to the Company's success, the
Executive Compensation Committee raised Mr. McGrath's base salary to $352,800.
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<PAGE> 14
Annual Cash Incentive Bonus -- Mr. McGrath earned a cash incentive bonus of
$246,960 for 1997 (70% of his base salary). This bonus was calculated as a
function of the extent to which the Company achieved its goal for pre-tax
profits in 1997 in accordance with the formula which had been established by the
Executive Compensation Committee early in that year.
Long-Term Stock Ownership Incentives -- Mr. McGrath did not participate in
any of the various long-term stock ownership incentive plans offered by the
Company to its officers and employees (except that, as an employee, he has
participated in the Company's Employee Stock Ownership Plan ("ESOP") on the same
basis as other employees).
Executive Compensation Committee:
Bryant J. Brooks
Robert P. McGrath
Ronald H. Zech
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
No member of the Company's Executive Compensation Committee has a
compensation committee interlocking relationship (as defined by the Securities
and Exchange Commission). One member of the Committee, Robert P. McGrath, is an
employee and officer of the Company, and he has participated in deliberations of
the Committee concerning executive officer compensation; and as noted below, he
has also participated in investor-owned relocatable modular office programs with
the Company.
There were 40 investor-owners who had purchased relocatable modular offices
and placed them in the Company's rental fleet for management by it, including
three limited partnerships formed in 1980 and 1981 of which Robert P. McGrath is
the general partner (with an aggregate of 24 limited partners) and three limited
partnerships formed in 1984 of which the Company is the general partner (with an
aggregate of 9 limited partners). The units still in the Company's rental fleet
during 1997 which were owned by the three limited partnerships of which Mr.
McGrath is the general partner had an original aggregate purchase price of
$1,406,569. Mr. McGrath had a 1% profits interest and a 14% contingent,
subordinated profits interest in the three limited partnerships. Mr. McGrath was
allocated an aggregate of $324,950 of profits from these three limited
partnerships during 1997, most of which were profits deferred in earlier year by
the terms of Mr. McGrath's contingent, subordinated interest. Mr. McGrath was
also entitled to receive an annual partnership management fee equal to 2% of the
original cost of the units purchased. Mr. McGrath in turn engaged the Company to
perform these management services for the identical fee. In addition, Mr.
McGrath in his individual capacity purchased relocatable modular offices prior
to 1983 directly from the Company and placed those units under the Company's
management in its rental fleet on the same terms and conditions as units placed
in the fleet by other investor-owners. The units still in the Company's rental
fleet during 1997 which were owned by Mr. McGrath individually had an original
cost to the Company of $139,625. His share of rental revenues from these units
for the year ended December 31, 1997 was $37,576, and his share of operating
expenses, management fees and incentive fees paid to the Company for the year
was $19,121. On December 31, 1997, the Company repurchased all relocatable
modular offices owned by investor-owners still in its rental fleet. The units
owned by the three limited partnerships of which Mr. McGrath is the general
partner were purchased for an aggregate purchase price of $490,365, and the
units owned by Mr. McGrath in his individual capacity were purchased for
$52,359.
12
<PAGE> 15
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding each person
who is known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of the Company, each of the directors, the chief
executive officer and the other four most highly compensated officers of the
Company, and all officers and directors as a group as of April 15, 1998. The
table is presented in accordance with the rules of the Securities and Exchange
Commission and, accordingly, in several instances beneficial ownership of the
same shares is attributed to more than one person.
<TABLE>
<CAPTION>
Beneficial Ownership
------------------------
Percentage
Number of of
Name Address Shares Outstanding
---- ------- --------- -----------
<S> <C> <C> <C>
Robert P. McGrath(1,2,3).............. McGrath RentCorp 2,290,998 16.20%
and Joan M. McGrath(1,2,3)............ 5700 Las Positas Road
Livermore, CA 94550
T. Rowe Price Associates, Inc.(4)..... 100 E. Pratt Street 1,929,600 13.64%
Baltimore, MD 21202
Dennis C. Kakures(3,5)................ McGrath RentCorp 341,083 2.41%
5700 Las Positas Road
Livermore, CA 94550
Delight Saxton(1,3)................... McGrath RentCorp 339,809 2.40%
5700 Las Positas Road
Livermore, CA 94550
Thomas J. Sauer(3,5).................. McGrath RentCorp 268,342 1.90%
5700 Las Positas Road
Livermore, CA 94550
Scott A. Alexander(3)................. McGrath RentCorp 205,838 1.46%
5700 Las Positas Road
Livermore, CA 94550
Ronald H. Zech(1)..................... GATX Corporation 3,000 0.02%
500 West Monroe
Chicago, IL 60661
Sansome Street
Bryant J. Brooks(1)................... Appraisers 2,000 0.01%
114 Sansome Street
San Francisco, CA
94104
All Executive Officers and Directors
as a group (10 persons)(2,3,5,6).... 3,529,068 24.83%
</TABLE>
- ------------------------------------
(1) Currently a director of the Company.
(2) Includes 399,006 shares held by two organizations controlled by Mr. and
Mrs. McGrath; however, they disclaim any beneficial interest in such
shares.
(3) Includes the shares held by the McGrath RentCorp Employee Stock Ownership
Plan for benefit of the named individual. The number of shares included
are 52,723 shares for Mr. McGrath, 30,519 shares for Ms. McGrath, 39,809
shares for Ms. Saxton, 45,499 shares for Mr. Kakures, 33,558 shares for
Mr. Sauer, 37,836 shares for Mr. Alexander, and 247,422 shares for all
executive officers and directors as a group. These shares are included
because beneficiaries under the Plan hold sole voting power over the
shares (whether or not rights to the shares have vested).
(4) These securities are owned by various individual and institutional
investors, including T. Rowe Price Small Cap Value Fund, Inc. which owns
1,298,000 shares, for which T. Rowe Price Associates, Inc. ("Price
Associates") serves as investment adviser with power to direct
investments and/or sole power to vote the securities. For purposes of the
reporting requirements of the Securities Exchange Act of 1934, Price
Associates is deemed to be a beneficial owner of such securities;
however, Price Associates expressly disclaims that it is, in fact, the
beneficial owner of such securities.
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<PAGE> 16
(5) Includes unvested shares issued to the named individual under the McGrath
RentCorp Long-Term Stock Bonus Plan, which shares are subject to return
to the Company under certain circumstances. The number of shares included
are 35,073 shares for Mr. Kakures, 22,636 shares for Mr. Sauer, and
57,709 shares for all executive officers as a group.
(6) Includes 69,000 shares which are the portion of outstanding stock options
held by an officer which will be exercisable over the next 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the
Company, and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of sec.16(a) of the Securities
Exchange Act of 1934 which require them to file reports with respect to their
ownership of the Company's Common Stock and their transactions in such Common
Stock. Based upon (i) the copies of the sec.16(a) reports the Company received
from such persons during or with respect to 1997, and (ii) written
representations received from all such persons that no annual Form 5 reports
were required to be filed by them with respect to 1997, the Company believes
that all reporting requirements under sec. 16(a) for 1997 and prior years were
met in a timely manner by its directors, executive officers and greater than 10%
shareholders.
PARTICIPATION IN INVESTOR-OWNED RELOCATABLE MODULAR OFFICE PROGRAMS
Please refer to the material appearing under "Compensation Committee
Interlocks and Insider Participation in Compensation Decisions" above for a
description of Robert P. McGrath's involvement in the Company's investor-owned
relocatable modular office programs.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with each of its
directors and executive officers. These Agreements require the Company to
indemnify its officers or directors against expenses and, in certain cases,
judgment, settlement or other payments incurred by the officer or director in
suits brought by the Company, derivative actions brought by shareholders and
suits brought by other third parties. Indemnification has been granted under
these Agreements to the fullest extent permitted under California law in
situations where the officer or director is made, or threatened to be made, a
party to the legal proceeding because of his service to the Company.
CONTROL
By virtue of their positions in the Company and ownership of the Company's
Common Stock, Robert P. McGrath and Joan M. McGrath may be deemed "control
persons" of the Company as that term is defined under the Securities Act of
1933, as amended.
FAMILY RELATIONSHIPS
There are no family relationships between any director or executive officer
of the Company except that Robert P. McGrath and Joan M. McGrath are husband and
wife.
14
<PAGE> 17
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
at the Company's 1999 Annual Meeting must be received by the Company no later
than December 29, 1998, in order that they may be included in the proxy
statement and form of proxy relating to that meeting.
THE BOARD OF DIRECTORS
Dated: April 24, 1998
15
<PAGE> 18
McGRATH RENTCORP
PROXY
THE BOARD OF DIRECTORS SOLICITS THIS PROXY FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON FRIDAY, JUNE 5, 1998 AT 2:00 P.M., LOCAL
TIME, AT THE McGRATH RENTCORP CORPORATE HEADQUARTERS LOCATED AT 5700
LAS POSITAS ROAD, LIVERMORE, CALIFORNIA 94580.
The undersigned hereby constitutes and appoints Robert P. McGrath and Delight
Saxton, or each of them, with full power of substitution and revocation,
attorneys and proxies of the undersigned at the Annual Meeting of Shareholders
of McGrath RentCorp or any adjournments thereof, and to vote, including the
right to cumulate votes (if cumulative voting is required), the shares of
Common Stock of McGrath RentCorp registered in the name of the undersigned on
the record date for the Meeting.
[ ] FOR the election of Bryant J. Brooks, Joan M. McGrath, Robert P.
McGrath, Delight Saxton and Ronald H. Zech as directors (TO WITHHOLD
AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME):
or
[ ] TO WITHHOLD AUTHORITY to vote for any of the nominees for director
listed above.
PROPOSAL NO. 2: Approval of the adoption of McGrath RentCorp's 1998 Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL NO. 3: Approval of the appointment of Arthur Andersen LLP as
McGrath RentCorp's independent public accountants for the year ending
December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR the nominees named above and FOR
Proposals Nos. 2 and 3. The shares represented by this Proxy will be voted as
directed above: IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR SAID
NOMINEES AND PROPOSALS. The proxies are authorized to vote in their discretion
upon such other business as may properly come before the Meeting to the extent
authorized by Rule 14a-4(c) promulgated by the Securities and Exchange
Commission.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders, the Proxy Statement and the 1997 Annual Report to Shareholders
furnished with this Proxy.
Dated: ______________, 1998
_______________________________________________
Signature
_______________________________________________
Signature
Signature should agree with name printed hereon.
If stock is held in the name of more than one
person, EACH joint owner should sign. Executors,
administrators, trustees, guardians, and
attorneys should indicate the capacity in which
they sign. Attorneys should submit powers of
attorney.
PLEASE RETURN THIS SIGNED AND DATED PROXY
IN THE ACCOMPANYING ADDRESSED ENVELOPE
