<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>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] 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 3, 1999
Notice is hereby given that the 1999 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 Thursday, June 3, 1999, 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 appointment of Arthur Andersen LLP as McGrath
RentCorp's independent public accountants for the year ending
December 31, 1999; and
3. 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, 1999 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 26, 1999 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 1999 Annual Meeting of
Shareholders to be held on Thursday, June 3, 1999, 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 29, 1999, 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, 1999, are
entitled to notice of, and to vote at, the Meeting. At the record date,
13,466,098 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" Proposal No. 2 described in this Proxy Statement. If any other matters
come before the Meeting of which the Company was not aware by March 14, 1999,
the proxy holders will vote on such matters in their discretion. The Company
does not anticipate, as of this date, that any matters other than as set forth
in this Proxy Statement will come before the Meeting.
SOLICITATION; REVOCABILITY OF PROXIES
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. Any proxy given pursuant
to this solicitation may be revoked by the person giving it at any time
<PAGE> 4
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>
William J. Dawson 44 Corporate Senior Vice President, Business 1998
Development of McKesson HBOC, Inc.
Joan M. McGrath 62 Businesswoman 1982
Robert P. McGrath 65 Chairman of the Board and Chief Executive 1979
Officer of the Company
Delight Saxton 53 Senior Vice President, Chief Financial Officer 1982
and Secretary of the Company
Ronald H. Zech 55 Chairman of the Board, President and Chief 1989
Executive Officer of GATX Corporation
</TABLE>
DESCRIPTION OF NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
In March 1999, Bryant J. Brooks, who had been a director of the Company
since 1989, passed away. The Board of Directors appreciates his significant
contribution over the past 10 years during the Company's rapid growth. His
wisdom and friendship will be greatly missed.
WILLIAM J. DAWSON was elected by the Board of Directors to fill a vacancy
on the Board in August 1998. Mr. Dawson serves on the Board's Audit and
Executive Compensation Committees. In 1993 through 1998, Mr. Dawson was a
Managing Director of Volpe Brown Whelan, LLC, an investment banking firm, where
he was responsible for corporate finance activities in the healthcare industry.
In August 1998, Mr. Dawson joined McKesson HBOC, Inc., a large healthcare
services company, as Corporate Senior Vice President, Business Development, with
responsibility for mergers & acquisitions and venture capital investments.
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. 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
2
<PAGE> 5
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 was a member of the Audit Committee of the Company's Board of Directors
until March 1999.
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. In 1998, Mr. Zech was elected to the Board of Directors of
The PMI Group, Inc., a New York Stock Exchange listed company engaged in the
business of providing private mortgage insurance.
BOARD MEETINGS
The Board of Directors of the Company held three meetings and took
corporate action by unanimous written consent another seven times during the
year ended December 31, 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee consisting of Directors
William J. Dawson 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 1998.
The Board of Directors also has a three-member Executive Compensation
Committee consisting of Directors William J. Dawson, 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 1998.
Until February 1999, the Board had a Long-Term Stock Bonus Plan Committee
to administer the Company's Long-Term Stock Bonus Plan. The Long-Term Stock
Bonus Plan Committee held one meeting during 1998. All members of the Board of
Directors, except any director who was a participant in the Long-Term Stock
Bonus Plan at any time within the preceding twelve months, were automatically
members of this Committee. Throughout its life, all directors of the Company
were members of the Long-Term Stock Bonus Plan Committee; thus to avoid
unnecessary redundancy, the Committee was abolished by the Board of Directors in
February 1999, and its duties were assumed directly by the Board.
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
meeting is held in conjunction with a Board meeting, only one $600 fee is paid
to the director). Mr. Zech and Mr. Brooks, who had been a director of the
Company until his death in March 1999, each received $12,800 for their services
as directors of the Company during 1998. Mr. Dawson, who became a director of
the Company during 1998, received $4,725 for his services as a director of the
Company during 1998. All directors, including
3
<PAGE> 6
those who are officers or employees of the Company, are reimbursed for expenses
incurred in connection with attending Board or Committee meetings.
In addition to cash compensation, the three outside directors of the
Company during 1998 (Messrs. Brooks, Dawson and Zech) each received a
non-qualified stock option under the Company's 1998 Stock Option Plan for the
purchase of 10,000 shares of the Company's common stock at exercise prices
ranging between $20.25 to $21.69 per share. See "Executive Officers of the
Company -- 1998 Stock Option Plan" below.
PROPOSAL NO. 2
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, 1999. 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.
4
<PAGE> 7
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the Company's stock price since December 31,
1993 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"), and (3) the Russell 2000 Index. Since the Company is listed in
the Russell 2000 Index, it has been added for a relevant comparison.
<TABLE>
<CAPTION>
MCGRATH RENTCORP S & P 500 RUSSELL 2000 INDUSTRIAL SERVICES
---------------- --------- ------------ -------------------
<S> <C> <C> <C> <C>
'1993' 100.00 100.00 100.00 100.00
'1994' 120.57 101.60 98.02 104.32
'1995' 138.58 139.71 125.89 158.57
'1996' 192.60 172.18 146.59 235.20
'1997' 372.33 229.65 179.13 338.43
'1998' 340.80 294.87 174.23 265.51
</TABLE>
The graph assumes an investment of $100 on December 31, 1993 and monthly
reinvestment of dividends thereafter, and is based upon information provided to
the Company by Value Line, Inc.
5
<PAGE> 8
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 65 Chairman of the Board and Chief Executive Officer
Dennis C. Kakures 42 President and Chief Operating Officer
Delight Saxton 53 Senior Vice President, Chief Financial Officer
and Secretary
Thomas J. Sauer 42 Vice President and Treasurer
Scott A. Alexander 38 Vice President
Thomas L. Sanders 55 Vice President
Randle F. Rose 41 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,
served as its Controller from 1987 to March 1999, became 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.
SCOTT A. ALEXANDER joined the Company in 1982 as a sales representative,
became a Branch Manager in 1990, 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.
6
<PAGE> 9
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>
LONG-TERM
ANNUAL COMPENSATION 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................. 1998 $370,440 $130,225 $ -- $ -- $13,274
Chairman and Chief 1997 352,800 246,960 -- -- 14,063
Executive Officer 1996 336,000 201,449 -- -- 12,571
Dennis C. Kakures................. 1998 221,760 72,598 89,166 193,111 13,274
President and Chief 1997 201,600 141,120 112,137 80,974 14,063
Operating Officer 1996 192,000 115,114 42,900 38,094 14,732
Delight Saxton.................... 1998 148,176 44,745 -- -- 13,274
Senior Vice President, 1997 148,176 82,979 -- -- 14,063
Chief Financial Officer and 1996 141,120 65,149 -- -- 14,732
Secretary
Thomas J. Sauer................... 1998 144,718 38,130 58,190 124,013 13,274
Vice President and 1997 131,565 73,676 68,404 55,653 14,063
Treasurer 1996 125,297 58,595 29,201 26,452 14,732
Scott A. Alexander................ 1998 125,000 48,061 -- -- 13,274
Vice President 1997 120,625 57,266 -- -- 14,063
1996 107,500 43,704 -- -- 14,143
</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 the officer, 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 1998, and
his or her share of any re-allocations of forfeited benefits in 1998 (see
"Employee Stock Ownership 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 J. 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, 1998, 190 employees of the Company were
participants in the ESOP. Allocations to each eligible participant's trust
account are made
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<PAGE> 10
each year from Company contributions, trust income or loss and re-allocations of
forfeited ESOP benefits if 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
1998 plan year, and the Company had made an aggregate of $3,250,000 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 422 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, 1999, 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 495,680 shares, options for 54,198 shares have been terminated, and
options for 302,122 shares remain outstanding. No options were granted under the
1987 Plan during 1998 to any of the Company's executive officers listed in the
"Summary Compensation Table" above; and none of those officers exercised an
option during 1998, or held an option at the end of 1998, under the 1987 Plan.
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 302,122 shares
still outstanding remain exercisable in accordance with the terms of those
options.
1998 STOCK OPTION PLAN
In March 1998, the Company adopted its 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 to officers, key employees,
directors and other persons who provide valuable services to the Company or its
subsidiaries. Options 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"). Options for an aggregate of 212,000 shares were granted in 1998 to 31
key employees at an exercise price of $20.81 per share; and of such options
granted, no options have been exercised, options for 35,000 have been
terminated, and options for 177,000 shares remain outstanding. Options for an
aggregate of 30,000 shares were granted in 1998 to three outside directors of
the Company, Mr. Zech, Mr. Dawson, and Mr. Brooks (recently deceased), at
exercise prices ranging between $20.25 and $21.69 per share; and of such options
granted, no options have been exercised, options for 4,500 shares have been
terminated, and options for 25,500 remain outstanding. No options were granted
under the 1998 Plan to any of the Company's executive officers listed in the
"Summary Compensation Table" above.
8
<PAGE> 11
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, 1998. The
following table sets forth certain information with respect to the stock bonuses
awarded based upon the three-year performance ended December 31, 1998. The
"Values" in the table are calculated based on the market value of the shares of
Common Stock as of December 31, 1998.
<TABLE>
<CAPTION>
AS OF 12/31/98 WILL VEST AT DECEMBER 31,
------------------- ----------------------------------------
NAME EARNED VESTED 1998 1999 2000 2001
---- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Dennis C. Kakures Shares 20,262 4,053 4,053 4,052 4,052 4,052
Value $445,764 $89,166 $89,166 $89,144 $89,144 $89,144
Thomas J. Sauer Shares 13,224 2,645 2,645 2,645 2,645 2,644
Value $290,928 $58,190 $58,190 $58,190 $58,190 $58,168
</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, 1999 and 2000 are met. The agreements for the three-
year period ending December 31, 2000 have an additional performance goal based
upon the Company's earnings before interest, taxes, depreciation and
amortization ("EBITDA").
REPORT BY THE EXECUTIVE COMPENSATION COMMITTEE
The Company has a three-member Executive Compensation Committee, consisting
of its two outside directors, William J. Dawson 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 reflect 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 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.
9
<PAGE> 12
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 has
divided the executive officers into three groups for purposes of providing cash
incentive bonuses: the Chief Executive Officer, the next three highest
compensated officers, and the remainder of the Company's executive officers.
The Executive Compensation Committee adopted a formula in early 1998
for calculating a cash incentive bonus for the Company's Chief Executive Officer
for 1998 based solely upon the Company achieving certain levels of pre-tax
profit for the year, with him being eligible to receive a bonus ranging from
zero up to a maximum of 70% of his base salary. See "Chief Executive Officer's
Compensation" below.
At the same time, the Executive Compensation Committee adopted a
formula for calculating cash incentive bonuses for the next three highest
compensated executive officers of the Company (Mr. Kakures, Ms. Saxton and Mr.
Sauer) 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%). Mr. Kakures was eligible to receive a bonus ranging from zero up
to a maximum of 70% of his base salary, while 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 three
executive officers of the Company under this program for 1998 was 30.2% of their
aggregate base salaries.
The Executive Compensation Committee had also directed Mr. McGrath,
the Chief Executive Officer and Mr. Kakures, the President and Chief Operating
Officer of the Company, to determine jointly at the end of 1998 the amount of
incentive bonuses which should be paid for that year to each of the three other
executive officers of the corporation (Messrs. Alexander, Sanders and Rose). The
aggregate cash incentive bonuses awarded to these three executive officers was
34.5% of their aggregate 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.
Until early this year, the grant of stock bonuses under the Company's
Long-Term Stock Bonus Plan had been determined by the Company's Long-Term Stock
Bonus Plan Committee. In February 1999, the Long-Term Stock Bonus Plan Committee
was abolished and its functions taken over by the Board of Directors itself. The
Executive Compensation Committee may make recommendations 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. See "Long-Term Stock Bonus Plan" above.
By the terms of the Company's 1998 Stock Option Plan, the grant of
stock options is determined by the Company's Board of Directors. 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 the 1998 Plan and 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.
10
<PAGE> 13
CHIEF EXECUTIVE OFFICER'S COMPENSATION -- Throughout 1998, 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 1998 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 $370,440.
Annual Cash Incentive Bonus -- Mr. McGrath earned a cash incentive bonus
of $130,225 for 1998 (35.2% 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 1998 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:
William J. Dawson
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.
11
<PAGE> 14
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, 1999. 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 2,291,802 17.02%
and Joan M. McGrath(1, 2, 3) 5700 Las Positas Road
Livermore, CA 94550
T. Rowe Price Associates, Inc.(4) 100 E. Pratt Street 2,053,800 15.25%
Baltimore, MD 21202
Dennis C. Kakures(3, 5) McGrath RentCorp 362,073 2.69%
5700 Las Positas Road
Livermore, CA 94550
Delight Saxton(1, 3) McGrath RentCorp 339,537 2.52%
5700 Las Positas Road
Livermore, CA 94550
Thomas J. Sauer (3, 5) McGrath RentCorp 282,294 2.10%
5700 Las Positas Road
Livermore, CA 94550
Scott A. Alexander(3) McGrath RentCorp 206,550 1.53%
5700 Las Positas Road
Livermore, CA 94550
Ronald H. Zech(1) GATX Corporation 7,000 0.05%
500 West Monroe
Chicago, IL 60661
William J. Dawson(1) McKesson HBOC, Inc. 2,000 0.01%
1 Post Street
San Francisco, CA 94104
All Executive Officers and 3,585,904 26.46%
Directors as a group (10
persons)(2, 3, 5, 6)
</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
53,427 shares for Mr. McGrath, 30,619 shares for Ms. McGrath, 46,227 shares
for Mr. Kakures, 40,537 shares for Ms. Saxton, 34,286 shares for Mr. Sauer,
38,548 shares for Mr. Alexander, and 251,792 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.
12
<PAGE> 15
(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
39,199 shares for Mr. Kakures, 25,254 shares for Mr. Sauer, and 64,453
shares for all executive officers as a group.
(6) Includes 85,000 shares which are the portions of outstanding stock options
held by two officers which will be exercisable over the next 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPLIANCE WITH SEC.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 1998, 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 1998, the Company believes
that all reporting requirements under sec.16(a) for 1998 and prior years were
met in a timely manner by its directors, executive officers and greater than 10%
shareholders.
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 or her 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.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
at the Company's 2000 Annual Meeting must be received by the Company no later
than December 29, 1999, in order that they may be included in the proxy
statement and form of proxy relating to that meeting.
Dated: April 26, 1999 THE BOARD OF DIRECTORS
13
<PAGE> 16
MCGRATH RENTCORP
PROXY
THE BOARD OF DIRECTORS SOLICITS THIS PROXY FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON THURSDAY, JUNE 3, 1999 AT 2:00 P.M., LOCAL TIME, AT
THE MCGRATH RENTCORP CORPORATE HEADQUARTERS LOCATED AT 5700 LAS POSITAS ROAD,
LIVERMORE, CALIFORNIA 94550.
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.
PROPOSAL NO. 1: Election of Directors:
<TABLE>
<S> <C> <C>
[ ] FOR the election of William J. Dawson, 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.
</TABLE>
PROPOSAL NO. 2:Approval of the appointment of Arthur Andersen LLP as McGrath
RentCorp's independent public accountants for the year ending
December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 17
The Board of Directors recommends a vote FOR the nominees named above and FOR
Proposal No. 2. 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 PROPOSAL. 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 1998 Annual Report to Shareholders
furnished with this Proxy.
Dated: ____________ , 1999 -------------------------
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
