ELECTRO RENT CORP, 10-K, 1996-08-28

ELECTRO RENT CORP
10-K, 1996-08-28
EQUIPMENT RENTAL & LEASING, NEC

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended May 31, 1996 Commission File No. 0-9061

ELECTRO RENT CORPORATION

A California corporation I.R.S. Employer
Identification No. 95-2412961

6060 Sepulveda Boulevard
Van Nuys, California 91411-2512
(Address of principal executive offices)

Registrant's telephone number, including area code: (818) 786-2525

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock without par value.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ].

The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant as of August 9, 1996 was $231,544,495.

Number of shares of Common Stock outstanding as of August 9, 1996:
11,927,846 shares (after giving effect to the three-for-two stock split declared
July 13, 1995 payable August 18, 1995 to shareholders of record July 31, 1995).

<PAGE> 2
ELECTRO RENT CORPORATION

FORM 10-K ANNUAL REPORT

DOCUMENTS INCORPORATED BY REFERENCE

1. Pages 3 and 19 to 28 of the Annual Report to Security Holders for the
fiscal year ended May 31, 1996 (the "1996 Annual Report") are incorporated by
reference in this Form 10-K Annual Report.

2. Proxy Statement for the Annual Meeting of Shareholders to be held on
October 3, 1996 (the "1996 Proxy Statement").

CROSS REFERENCE SHEET

Showing Location in 1996 Annual Report
and 1996 Proxy Statement of Information
Required by Items of Form 10-K

<TABLE>
<CAPTION>
Caption and Reference
Form 10-K Item in 1996 Annual Report ("AR")
Number and Caption or 1996 Proxy Statement ("PS")

PART II
<S> <C>
5. Market for the Registrant's
Common Equity and Related
Shareholders Matters AR page 29

6. Selected Financial Data AR page 3

7. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations AR pages 17 and 18

8. Financial Statements and
Supplementary Data AR pages 19 to 28

PART III

10. Directors and Executive
Officers of the Registrant PS pages 2 to 4

11. Executive Compensation PS pages 5 to 9

12. Security Ownership of
Certain Beneficial Owners
and Management PS pages 2 to 4

13. Certain Relationships and
Related Transactions PS page 5
</TABLE>

2
<PAGE> 3
PART I

Item 1. Business.

Electro Rent Corporation (the "Company" or "Electro Rent") was incorporated
in California in 1965. The Company became a publicly held corporation on March
31, 1980.

The Company primarily engages in the short-term rental of state-of-the-art
electronic equipment. Over 50% of the Company's equipment portfolio is composed
of general purpose test and measurement instruments and microprocessor
development systems purchased from leading manufacturers such as Hewlett
Packard, Sun Microsystems, Tektronix, Intel and Texas Instruments. The
remainder, and a growing portion of the equipment portfolio, comprises personal
computers and work-stations. Personal computer lines include those from IBM,
Compaq, Apple and AST; while workstations are purchased primarily from Sun
Microsystems, Hewlett Packard and Digital Equipment. A large part of its
equipment portfolio is rented or leased to Fortune 500 companies in the
aerospace, electronics and defense industries. Management believes that the
Company's equipment is primarily used in research and development activities and
that a significant amount of its equipment is used in connection with
government-generated projects. The Company also rents equipment to companies of
various sizes representing a cross-section of American industry. No customer
accounted for more than 10% of the Company's revenues for the fiscal year ended
May 31, 1996. No significant portion of the Company's revenues are currently
derived from direct United States Government contracts.

An important aspect of the Company's equipment portfolio management is the
resale of equipment from the portfolio, generally three to five years after
purchase, which, on the average, have been at prices above book value. Such
sales have historically provided a substantial portion of revenues and operating
cash flow.

The Company services its customers through a network of equipment,
calibration and service centers in the United States and Canada which are linked
by an on-line computer system. These centers also function as depots for the
sale of used equipment.

Data Rentals/Sales, Inc., formerly a wholly owned subsidiary of the
Company, has been merged into the Company and is operated as a division of the
Company.

3
<PAGE> 4
On December 12, 1985 the Company entered into a joint venture agreement
with Nas-Fritzke International Corp. to form Nippon Electro Rent Co., Ltd. for
the purpose of renting and selling test and measurement equipment and
microcomputers in Japan. The Company's original joint venture interest of 25%
was reduced to 15% in March 1991.

Electro Rent is one of the larger companies in the highly competitive
electronic equipment rental and lease business. Independent industry
publications have identified a number of major competitors, including United
States Instrument Rental, Inc., a division of A T & T; G.E. Rents and Ameridata,
divisions of General Electric Corporation; Telogy; and Continental Resources.
Since the larger of these firms are divisions of large corporations, these firms
have access to greater financial and other resources than does the Company.

Electro Rent's business is relatively non-seasonal except for the third
quarter months of December, January and February, when rental activity declines
because a number of customers close for extended Christmas-New Year vacation. In
addition, the shortness of February results in a reduced level of rental
billing.

Electro Rent purchases the majority of its equipment from leading suppliers
of electronic equipment. The research and development, manufacturing and
marketing trends and activities of the Company's major suppliers tend to shape
the nature of the rental and lease demand of the Company's customers and the
availability of equipment. As a result, Electro Rent's business is significantly
affected by the continued research and development, manufacturing and financial
condition of its major suppliers, particularly Hewlett-Packard.

Electro Rent believes that its relationships with its major suppliers are
good. Because of the volume of its purchases and its long-term purchase
commitments, the Company obtains favorable price discounts.

At May 31, 1996, Electro Rent and its subsidiary employed approximately 466
individuals. None of the employees is a member of a labor union. Electro Rent
considers its employee relations to be satisfactory and provides standard
employee benefits and pays certain of the costs of employee education.

4
<PAGE> 5
Item 2. Properties.

Electro Rent's corporate headquarters are located at 6060 Sepulveda
Boulevard, Van Nuys, California. The building contains approximately 84,500
square feet of office space. Approximately 37,000 square feet are currently
being leased, all of which will be available for future needs of the Company.
There is no additional space in the building available for leasing.

Electro Rent owns a facility in Wood Dale, Illinois containing
approximately 30,750 square feet. It houses the Company's Chicago operations.

In March 1994 Electro Rent purchased a building at 15385 Oxnard Street, Van
Nuys, California. The building contains approximately 68,200 square feet. A
portion of the building is being utilized to house the Company's California
warehouse and laboratory operations. Approximately 34,000 square feet of the
building are leased to others until needed by the Company.

As of May 31, 1996 Electro Rent had both sales offices and equipment,
calibration and service centers in the metropolitan areas of Boston, Chicago and
Los Angeles. Electro Rent also has sales offices in Atlanta, Cleveland, Dallas,
Denver, Detroit, Hartford, Houston, Minneapolis, Montreal, New York/Newark,
Ottawa, Phoenix, Portland (OR), Rochester, San Diego, San Francisco, Seattle,
Toronto and Washington/ Baltimore.

Electro Rent's facilities aggregate approximately 272,330 square feet.
Except for the corporate headquarters, the Chicago area facilities, and the
newly acquired Oxnard Street building, all of the facilities are rented pursuant
to leases for up to five years for aggregate annual rentals of approximately
$791,000 in fiscal 1996. No rented facility is considered essential to the
Company. The Company considers its facilities to be in good condition, well
maintained and adequate for its needs.

Item 3. Legal Proceedings.

Nothing to report.

Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of the security holders of the Company.

5
<PAGE> 6
PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.

The Company's common stock is listed by the National Association of
Securities Dealers and is quoted on the NATIONAL MARKET SYSTEM OF NASDAQ. The
symbol is ELRC. The quarterly market price ranges for the common stock for the
two fiscal years ended May 31, 1996 as quoted on NASDAQ, shareholder information
and dividend information are set forth on page 29 of the 1996 Annual Report and
are incorporated herein by reference.

None of the Company's preferred shares are issued and outstanding.

Item 6. Selected Financial Data.

The summary of the selected financial data referred to as Financial
Highlights, appearing on page 3 of the 1996 Annual Report, is hereby
incorporated by reference.

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.

Information appearing under the above caption on pages 17 and 18 of the
1996 Annual Report is hereby incorporated by reference.

Item 8. Financial Statements and Supplementary Data.

The Company's consolidated financial statements together with the report
thereon of Arthur Andersen LLP appearing on pages 19 to 29 of the 1996 Annual
Report are hereby incorporated by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.

Nothing to report.

6
<PAGE> 7
PART III

Item 10. Directors and Executive Officers of the Registrant.

Information appearing in the 1996 Proxy Statement under the captions
Election of Directors (pages 2 and 3), Executive Officers (pages 3 and 4),
Compliance With Section 16 of the Securities Exchange Act of 1934 (page 4), and
Transactions With Management (page 5), is hereby incorporated by reference.

Item 11. Executive Compensation.

Information appearing in the 1996 Proxy Statement under the caption
Executive Compensation (pages 5 to 9) is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and
Management.

Information concerning the ownership of the Company's securities by the
principal holders and by management is set forth in the 1996 Proxy Statement
(pages 2 and 3), and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

Information appearing in the 1996 Proxy Statement under the caption
Transactions With Management (page 5) is hereby incorporated by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.

(a) The following financial statements and financial statement schedule
covered by the Report of Independent Public Accountants are filed as a part of
this report and are included or incorporated herein by reference to the
following page or pages of the 1996 Annual Report.

7
<PAGE> 8
<TABLE>
<CAPTION>
Page Number
1996 Annual
Item Report Form 10-K
<S> <C> <C>
Consolidated Balance Sheets at
May 31, 1996 and 1995 20

Consolidated Statements of Income
for each of the three years in
the period ended May 31, 1996 19

Consolidated Statements of Shareholders'
Equity for each of the three years in
the period ended May 31, 1996 21

Consolidated Statements of Cash Flows
for each of the three years in the
period ended May 31, 1996 22

Notes to Consolidated Financial Statements 23 to 28

Report of Independent Public Accountants 29

Schedule for each of the three years in the
period ended May 31, 1996:

II - Valuation and qualifying accounts 12

Consent and Report of Independent Public
Accountants 14
</TABLE>

All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of a
schedule, or because the information required is included in the financial
statements or related notes.

(b) Reports on Form 8-K.

During the last quarter of the period covered by this Annual Report, Form
10-K, the Registrant did not file and was not required to file any Current
Reports on Form 8-K.

8
<PAGE> 9
(c) Exhibits listed by numbers corresponding to Exhibit Table of Item 601
of Regulation S-K.

(3) Articles of Incorporation (Restated) and bylaws are incorporated by
reference to Exhibits 1.2 and 6.1, respectively, of Registration Statement (Form
S-14), File No. 2-63532. A copy of the Restated Articles of Incorporation and
the Certificate of Amendment of Restated Articles of Incorporation filed October
24, 1988 are incorporated by reference to Exhibit (3) to the Annual Report (Form
10-K) for the fiscal year ended May 31, 1989. A copy of the amendment to the
bylaws adopted October 6, 1994 is incorporated by reference to the Annual Report
(Form 10-K) for the fiscal year ended May 31, 1995.

(10)(A) The ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP AND SAVINGS
PLAN, JUNE 1, 1985 RESTATEMENT, and the ELECTRO RENT CORPORATION EMPLOYEE STOCK
OWNERSHIP AND SAVINGS PLAN TRUST AGREEMENT, are incorporated by reference to
Exhibits 10(A)-(1) and 10(A)-(2) of the Registrant's Annual Report (Form 10-K)
for the fiscal year ended May 31, 1985. A copy of AMENDMENT NO. ONE to the
RESTATED ESOSP is incorporated by reference to Exhibit (10)(A) of Registrant's
Annual Report (Form 10-K) for the fiscal year ended May 31, 1987.

A copy of the ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP AND SAVINGS
PLAN, RESTATED AS OF JUNE 1, 1989 is incorporated by reference to Exhibit
(10)(A) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1989.

Copies of the following documents amending and supplementing the ESOSP and
ESOP as heretofore amended are incorporated by reference to Exhibit (10)(A)-(1)
to (7) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1995:

ADOPTION AGREEMENT FOR THE VANGUARD PROTOTYPE 401(k) SAVINGS PLAN dated
August 1, 1994.

ELECTRO RENT CORPORATION SAVINGS PLAN TRUST AGREEMENT dated September 1,
1994.

ELECTRO RENT SAVINGS PLAN SUPPLEMENT TO THE VANGUARD PROTOTYPE 401(k)
SAVINGS PLAN ADOPTION AGREEMENT dated September 24, 1994.

SECOND AMENDMENT TO ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP &
SAVINGS PLAN (RESTATED AS OF JUNE 1, 1989) dated as of June 1, 1991.

9
<PAGE> 10
THIRD AMENDMENT TO ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP AND
SAVINGS PLAN (RESTATED AS OF JUNE 1, 1989) dated June 15, 1994.

FOURTH AMENDMENT TO ELECTRO RENT CORPORATION SAVINGS PLAN (RESTATED AS OF
JUNE 1, 1989) dated September 1, 1994.

ELECTRO RENT CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN TRUST AGREEMENT
dated September 1, 1994.

(10)(B) The 1980 Stock Option Plan and form of Stock Option Agreement are
incorporated by reference to Exhibits 1.1 and 2, respectively, of Registration
Statement (Form S-8), File No. 2-70763.

The Incentive Stock Option Plan (as Amended and Restated to July 8, 1982)
and Amendment No. One to Stock Option Agreement are incorporated by reference to
Exhibit (10)(B) of the Annual Report (Form 10-K) for the fiscal year ended May
31, 1982. Amendment No. One to the Plan as Amended and Restated and the Stock
Option Agreement, Non- Qualified Stock Options are incorporated by reference to
Exhibit 10(B) of the Annual Report (Form 10-K) for the fiscal year ended May 31,
1984.

(10)(C) A copy of the ELECTRO RENT CORPORATION SUPPLEMENTAL
RETIREMENT PLAN is incorporated by reference to Exhibit (10)(C) of Registrant's
Annual Report (Form 10-K) for the fiscal year ended May 31, 1987.

(10)(D) The EXECUTIVE EMPLOYMENT AGREEMENT between the Company
and Daniel Greenberg, Chairman of the Board of Directors and Chief Executive
Officer, and between the Company and William Weitzman, President and Chief
Operating Officer, each originally entered into December 15, 1986 and amended
November 22, 1988 by AMENDMENT NO. ONE TO EXECUTIVE EMPLOYMENT AGREEMENT was
each further amended and restated as of July 15, 1992. A copy of each EXECUTIVE
EMPLOYMENT AGREEMENT (AMENDED AND RESTATED AS OF JULY 15, 1992) is incorporated
by reference to Exhibits (10)(D)-(1) and (10)(D)-(2) of Registrant's Annual
Report (Form 10-K) for the fiscal year ended May 31, 1993.

(10)(E) A copy of the Electro Rent Corporation 1990 Stock Option
Plan, the Electro Rent Corporation Stock Option Agreement (Incentive Stock
Option) and the Electro Rent Corporation Stock Option Agreement (Nonstatutory
Option) are incorporated by reference to Exhibits (10)(E)-(1), (10)(E)-(2) and
(10)(E)-(3), respectively to

10
<PAGE> 11
the Annual Report (Form 10-K) for the fiscal year ended May 31, 1990. A copy of
AMENDMENT NUMBER ONE TO ELECTRO RENT CORPORATION 1990 STOCK OPTION PLAN adopted
October 3, 1991 is incorporated by reference to Exhibit (10)(E) of the Annual
Report (Form 10-K) for the fiscal year ended May 31, 1992. A copy of AMENDMENT
NUMBER TWO TO ELECTRO RENT CORPORATION 1990 STOCK OPTION PLAN adopted April 11,
1995 is incorporated by reference to Exhibit (10)(E) of the Annual Report (Form
10-K) for the fiscal year ended May 31, 1995.

(10)(E) A copy of the Electro Rent Corporation 1996 Stock Option
Plan, the Electro Rent Corporation Stock Option Agreement (Incentive Stock
Options) and the Electro Rent Corporation Stock Option Agreement (Nonstatutory
Stock Options) are filed as Exhibits (10)(E)- (1), (2) and (3) respectively to
this Annual Report.

(10)(E) A copy of the Electro Rent Corporation 1996 Director
Option Plan and the Electro Rent Corporation Stock Option Agreement for the 1996
Director Option Plan are filed as Exhibits (10)(E)-(4) and (5) respectively to
this Annual Report.

(11) Statement re computation of per share earnings is
incorporated by reference to the 1996 Annual Report, pages 19 and 23.

(13) 1996 Annual Report. Only those portions of the 1996 An-
nual Report to security holders expressly incorporated hereby by re-
ference are deemed "filed."

(21) Subsidiaries of the Registrant.

Genstar Rental Electronics, Inc., a Delaware corporation.

Electro Rent de Mexico S.A. de C.V., a Mexican corporation.

Data Rentals/Sales, Inc., the Registrant's formerly
wholly owned subsidiary, has been merged into the Registrant, its parent, by
statutory merger. Its functions are conducted by a division of Electro Rent.

Electro Rent Europe B.V., a Netherlands corporation, has
been terminated.

(22) Pages 3 and 19 to 28 of the Annual Report to Security
Holders for the fiscal year ended May 31, 1996 are appended hereto as Exhibit 22
hereof and are being electronically filed with this Form 10-K Annual Report.

11
<PAGE> 12
(d) Schedule of Financial Statements Required by
Regulation S-X which is excluded from the 1996 Annual
Report by Rule 14 a 3(b) (1):

ELECTRO RENT CORPORATION

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Years Ended May 31, 1996, 1995 and 1994
(in thousands)

<TABLE>
<CAPTION>
Balance
at Additions Balance
Beginning Charged to at End
Description of Year Income Deductions* of Year
----------- --------- ---------- ----------- -------
Allowance for doubtful
receivables
<S> <C> <C> <C> <C>
1996 $1,240 $682 $458 $1,464

1995 $1,140 $244 $144 $1,240

1994 $1,027 $363 $250 $1,140
</TABLE>

*Represents accounts written off against the allowance, net of
recoveries.
12
<PAGE> 13
SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities

Exchange Act of 1934, the Registrant has duly caused this report to be

signed on its behalf by the undersigned, thereunto duly authorized.

Electro Rent Corporation

Dated: August 23, 1996. By /s/ Daniel Greenberg
-----------------------------
Daniel Greenberg, Chief
Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934,

this report has been signed below by the following persons on behalf of the

Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Daniel Greenberg Chairman of the Board August 23, 1996
- ------------------------- and Chief Executive Officer
Daniel Greenberg

/s/ William Weitzman President, Chief Operating August 23, 1996
- ------------------------- Officer and Director
William Weitzman

/s/ Craig R. Jones
- ------------------------- Chief Financial Officer August 23, 1996
Craig R. Jones

/s/ Gerald D. Barrone Director August 23, 1996
- -------------------------
Gerald D. Barrone

/s/ Nancy Y. Bekavac Director August 23, 1996
- -------------------------
Nancy Y. Bekavac

/s/ Joseph J. Kearns Director August 23, 1996
- -------------------------
Joseph J. Kearns

/s/ Michael R. Peevey Director August 23, 1996
- -------------------------
Michael R. Peevey

/s/ Will Richeson, Jr. Director August 23, 1996
- -------------------------
Will Richeson, Jr.
</TABLE>

13
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the
incorporation of our reports incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statement No. 3-37692.

Arthur Andersen LLP
Los Angeles, California
August 28, 1996

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Electro Rent
Corporation's annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated July 31, 1996. Our audit was
made for the purpose of forming an opinion on those statements taken as a whole.
The schedule listed in the index above is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

Arthur Andersen LLP
Los Angeles, California
July 31, 1996

<PAGE> 1
EXHIBIT (10)(E)-(1)

ELECTRO RENT CORPORATION

1996 STOCK OPTION PLAN

1. PURPOSE.

The Plan is intended to provide incentive to key employees and
directors of the Corporation and its Subsidiaries and to key consultants, to
encourage proprietary interest in the Corporation, to encourage such key
employees to remain in the employ of the Corporation and its Subsidiaries and
to attract new employees with outstanding qualifications.

2. DEFINITIONS.

(a) "Board" shall mean the Board of Directors of the
Corporation.

(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.

(d) "Common Stock" shall mean the Common Stock of the
Corporation without par value.

(e) "Corporation" shall mean Electro Rent Corporation, a
California corporation.

(f) "Disability" shall mean the condition of an Employee who is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The determination of Disability shall be by
a doctor or doctors acceptable to the Corporation.

(g) "Employee" shall mean an individual who is employed (within
the meaning of Code Section 3401 and the regulations there under) by the
Corporation or a Subsidiary.

(h) "Exercise Price" shall mean the price per Share of Common
Stock, determined by the Committee, at which an Option may be exercised.

(i) "Fair Market Value" shall mean the value of one (1) Share of
Common Stock, determined as follows:

1
<PAGE> 2
(1) If the Shares are traded on an exchange, the price at
which Shares traded at the close of business on the date of valuation;

(2) If the Shares are traded over-the-counter on the
NASDAQ System, the mean between the bid and asked prices on said System at the
close of business on the date of valuation; and

(3) If neither (1) nor (2) applies, the fair market value
as determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.

(j) "Incentive Stock Option" shall mean an option described in
Section 422 of the Code.

(k) "Nonstatutory Stock Option" shall mean an option not
described in Section 422 of the Code.

(l) "Option" shall mean any stock option granted pursuant to the
Plan.

(m) "Optionee" shall mean an Employee or other person who has
received an Option.

(n) "Plan" shall mean this Electro Rent Corporation 1996 Stock
Option Plan, as it may be amended from time to time.

(o) "Purchase Price" shall mean the Exercise Price times the
number of Shares with respect to which an Option is exercised.

(p) "Retirement" shall mean the voluntary termination of
employment by an Employee on or after the attainment of age sixty-five (65) and
the completion of not less than twenty (20) years of service with the
Corporation or a Subsidiary.

(q) "Share" shall mean one (1) share of Common Stock, adjusted
in accordance with Section 10 of the Plan (if applicable).

(r) "Subsidiary" shall mean any corporation at least fifty
percent (50%) of the total combined voting power of which is owned by the
Corporation or by another Subsidiary.

3. EFFECTIVE DATE.

The Plan was adopted by the Board effective April 18, 1996,
subject to the approval of the Corporation's shareholders pursuant to Section
14 hereof.

2
<PAGE> 3
4. ADMINISTRATION.

The Plan shall be administered by the Committee. The Committee
shall be appointed by the Board and shall consist of not less than three (3)
members of the Board. The Board may from time to time remove members from, or
add members to, the Committee. Vacancies on the Committee, however caused,
shall be filled by the Board. The Board shall appoint one of the members of
the Committee as Chairman. The Committee shall hold meetings at such times and
places as it may determine. Acts of a majority of the Committee at which a
quorum is present, or acts reduced to or approved in writing by a majority of
the members of the Committee, shall be the valid acts of the Committee.

The Committee shall from time to time at its discretion select the
Employees, directors and consultants who are to be granted Options, determine
the number of Shares to be optioned to each Optionee and designate such Options
as Incentive Stock Options or Non statutory Stock Options, except that no
Incentive Stock Option may be granted to a non-Employee director or a
non-Employee consultant. A Committee member shall in no event participate in
any determination relating to Options held by or to be granted to such
Committee member. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted thereunder shall be final. No
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted thereunder.

5. PARTICIPATION.

(a) Eligibility.

The Optionees shall be such persons as the Committee may select
from among the following classes of persons, subject to the terms and
conditions of (b) below:

(i) Employees (who may be officers, whether or not they
are directors);

(ii) Directors of the Corporation or of a Subsidiary;
and

(iii) Consultants engaged by the Corporation or a
Subsidiary.

For purposes of this Plan, an Optionee who is a director or a
consultant shall be deemed to be an Employee, and service as a director or
consultant shall be deemed to be employment, except that no

3
<PAGE> 4
Incentive Stock Option may be granted to a non-Employee director or
non-Employee consultant.

(b) Ten-Percent Shareholders.

An Employee who owns more than ten percent (10%) of the total
combined voting power of all classes of outstanding stock of the Corporation,
its parent or any of its Subsidiaries shall not be eligible to receive an
Incentive Stock Option unless (i) the Exercise Price of the Shares subject to
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of such Shares on the date of grant and (ii) such Option by its terms is not
exercisable after the expiration of five (5) years from the date of grant.

For purposes of (b) above, in determining stock ownership, an
Employee shall be considered as owning the stock owned, directly or indirectly,
by or for his or her brothers and sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being owned proportionately
by or for its shareholders, partners or beneficiaries. Stock with respect to
which such Employee holds an Option shall not be counted.

(d) Outstanding Stock.

For purposes of (b) above, "outstanding stock" shall include all
stock actually issued and outstanding immediately after the grant of the Option
to the Optionee. "Outstanding stock" shall not include shares authorized for
issue under outstanding Options held by the Optionee or by any other person.

6. STOCK.

The stock subject to Options granted under the Plan shall be
Shares of the Corporation's authorized but unissued or reacquired Common Stock.
The aggregate number of Shares which may be issued upon exercise of Options
under the Plan shall not exceed Three Hundred Twenty-five Thousand (325,000).
The number of Shares subject to Options outstanding at any time shall not
exceed the number of Shares remaining available for issuance under the Plan.
In the event that any outstanding Option for any reason expires or is
terminated, the Shares allocable to the unexercised portion of such Option may
again be made subject to an Option. The limitations established by this
Section 6 shall be subject to adjustment in the manner provided in Section 10
hereof upon the occurrence of an event specified therein.

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<PAGE> 5
7. TERMS AND CONDITIONS OF OPTIONS.

(a) Stock Option Agreements.

Options shall be evidenced by written stock option agreements in
such form as the Committee shall from time to time determine. Such agreements
shall comply with and be subject to the terms and conditions set forth below.

(b) Optionee's Undertaking.

Each Optionee shall agree to remain in the employ of the
Corporation or a Subsidiary and to render services for a period of two (2)
years from the date of the granting of the Option, but such agreement shall not
impose upon the Corporation or its Subsidiaries any obligation to retain the
Optionee in their employ for any period.

Each Option shall state the number of Shares to which it pertains
and shall provide for the adjustment thereof in accordance with the provisions
of Section 10 hereof.

(d) Exercise Price.

Each Option shall state the Exercise Price. The Exercise Price in
the case of any Incentive Stock Option shall not be less than the Fair Market
Value on the date of grant and, in the case of an Incentive Stock Option
granted to an Optionee described in Section 5(b) hereof, shall not be less
than one hundred ten percent (110%) of the Fair Market Value on the date of
grant. The Exercise Price in the case of any Nonstatutory Stock Option shall
not be less than 85% of the Fair Market Value on the date of grant.

(e) Medium and Time of Payment.

The Purchase Price shall be payable in full in United States
dollars upon the exercise of the Option; provided, however, that if the
applicable Option Agreement so provides the Purchase Price may be paid (i) by
the surrender of Shares in good form for transfer, owned by the person
exercising the Option and having a Fair Market Value on the date of exercise
equal to the Purchase Price, or in any combination of cash and Shares, as long
as the sum of the cash so paid and the Fair Market Value of the Shares so
surrendered equals the Purchase Price, or (ii) with a full recourse promissory
note executed by the Optionee. The interest rate and other terms and
conditions of such note shall be determined by the Committee; provided,
however, that such note shall have a term of not more than five (5) years and

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<PAGE> 6
shall bear interest at a rate of not less than eight percent (8%) per annum.
The Committee may require that the Optionee pledge his or her Shares to the
Corporation for the purpose of securing the payment of such note, and the
Corporation may retain possession of the stock certificate(s) representing such
Shares in order to perfect its security interest.

In the event the Corporation determines that it is required to
withhold state or Federal income tax as a result of the exercise of an Option,
as a condition to the exercise thereof, an Employee may be required to make
arrangements satisfactory to the Corporation to enable it to satisfy such
withholding requirements.

(f) Term and Nontransferability of Options.

Each Option shall state the time or times when all or part thereof
becomes exercisable. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted, and no Incentive Stock Option
granted to an Optionee described in Section 5(b) hereof shall be exercisable
after the expiration of five (5) years from the date it was granted. During
the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable. In the event of the Op-
tionee's death, the Option shall not be transferable by the Optionee other than
by will or the laws of descent and distribution.

(g) Termination of Employment (Except by Death, Disability or
Retirement).

If an Optionee ceases to be an Employee for any reason other than
his or her death, Disability or Retirement, such Optionee shall have the right,
subject to the restrictions of (f) above, to exercise the Option at any time
within three (3) months after termination of employment, but only to the extent
that, at the date of termination of employment, the Optionee's right to
exercise such Option had accrued pursuant to the terms of the applicable
option agreement and had not previously been exercised; provided, however, that
if the Optionee was terminated for cause (as defined in the applicable option
agreement) any Option not exercised in full prior to such termination shall be
cancelled.

For this purpose, the employment relationship shall be treated as
continuing intact while the Optionee is on military leave, sick leave or other
bona fide leave of absence (to be determined in the sole discretion of the
Committee). The foregoing notwithstanding, in the case of an Incentive Stock
Option, employment shall not be deemed to continue beyond the ninetieth (90th)
day after the Optionee ceased active employment, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.

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<PAGE> 7
(h) Death of Optionee.

If an Optionee dies while an Employee, or after ceasing to be an
Employee but during the period while he or she could have exercised the Option
under this Section 7, and has not fully exercised the Option, then the Option
may be exercised in full, subject to the restrictions of (f) above, at any time
within twelve (12) months after the Optionee's death by the executors or
administrators of his or her estate or by any person or persons who have
acquired the Option directly from the Optionee by bequest or inheritance, but
only to the extent that, at the date of death, the Optionee's right to exercise
such Option had accrued and had not been forfeited pursuant to the terms of the
applicable Option Agreement and had not previously been exercised.

(i) Disability of Optionee.

If an Optionee ceases to be an Employee by reason of Disability,
such Optionee shall have the right, subject to the restrictions of (f) above,
to exercise the Option at any time within twelve (12) months after termination
of employment, but only to the extent that, at the date of termination of
employment, the Optionee's right to exercise such Option had accrued pursuant
to the terms of the applicable option agreement and had not previously been
exercised.

(j) Retirement of Optionee.

If an Optionee ceases to be an Employee by reason of Retirement,
such Optionee shall have the right, subject to the restrictions of (f) above,
to exercise the Option at any time within three (3) months after termination of
employment, but only to the extent that, at the date of termination of
employment, the Optionee's right to exercise such Option had accrued pursuant
to the terms of the applicable Option Agreement and had not previously been
exercised.

(k) Rights as a Stockholder.

An Optionee, or a transferee of an Optionee, shall have no rights
as a stockholder with respect to any Shares covered by his or her Option until
the date of the issuance of a stock certificate for such Shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Section 10 hereof.

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<PAGE> 8
(l) Modification, Extension and Renewal of Options.

Within the limitations of the Plan, the Committee may modify,
extend or renew outstanding Options or accept the cancellation of outstanding
Options (to the extent not previously exercised) for the granting of new
Options in substitution therefor. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair any rights or obligations under any Option previously granted.

(m) Sequential Exercise.

Unless required by law or by the particular stock option
agreement, Options may be exercisable with respect to all or any part of the
Shares subject thereto without regard to the sequence in which Options were
granted to the Optionee (under this Plan or otherwise) to purchase any stock in
the Corporation, in a parent or subsidiary of the Corporation, or in any
predecessor corporation.

(n) Other Provisions.

The stock option agreements authorized under the Plan may contain
such other provisions not inconsistent with the terms of the Plan (including,
without limitation, restrictions upon the exercise of the Option) as the
Committee shall deem advisable.

(o) Formula For Award of Options to Non-Employee Directors.

Each non-employee director shall receive Options for 10,125 Shares
the first year of his or her incumbency as a director of the Corporation, and
shall receive Options for 6,750 Shares the second year of his or her incumbency
as a Director of the Corporation; provided, however, that no such director
shall receive Options for more than 16,875 Shares, and all such directors in
the aggregate shall not receive Options for more than 84,375 Shares. Such
Options shall be granted automatically on the day of the annual meeting of
shareholders of the Corporation commencing with the annual meeting of
shareholders being held on October 3, 1996. The Exercise Price of each Option
so granted shall be the Fair Market Value on the date of grant. The provisions
of this subsection may not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act, or the rules thereunder.

8
<PAGE> 9
8. $100,000 PER YEAR LIMITATION.

To the extent that the aggregate Fair Market Value (determined as
of the time the Option with respect to such Stock is granted) of Stock with
respect to which Incentive Stock Options (determined without regard to this
Section) are exercisable for the first time by the Optionee during any calendar
year under this Plan and all other plans maintained by the Corporation, its
parent or its Subsidiaries exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options. Unless at the time of exercise the Optionee
specifies otherwise in writing, the Optionee shall be deemed first to have
exercised Incentive Stock Options to the fullest extent permitted by law.

9. TERM OF PLAN.

Options may be granted pursuant to the Plan until the expiration
of the Plan on April 17, 2006.

10. RECAPITALIZATIONS.

Subject to any required action by stockholders, the number of
Shares covered by the Plan as provided in Section 6 hereof, the number of
Shares covered by each outstanding Option and the Exercise Price thereof shall
be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a subdivision or consolidation of Shares or the
payment of a stock dividend (but only of Common Stock) or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Corporation.

Subject to any required action by stockholders, if the Corporation
is the surviving corporation in any merger or consolidation, each outstanding
Option shall pertain and apply to the securities to which a holder of the
number of Shares subject to the Option would have been entitled. A dissolution
or liquidation of the Corporation or a merger or consolidation in which the
Corporation is not the surviving corporation shall cause each outstanding
Option to terminate, unless the agreement of merger or consolidation otherwise
provides.

To the extent that the foregoing adjustments relate to securities
of the Corporation, such adjustments shall be made by the Committee, whose
determination shall be conclusive and binding on all persons.

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<PAGE> 10
Except as expressly provided in this Section 10, the Optionee
shall have no rights by reason of any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of assets or
stock of another corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or Exercise Price of Shares subject to an Option.

The grant of an Option pursuant to the Plan shall not affect in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.

11. SECURITIES LAW REQUIREMENTS.

(a) Legality of Issuance.

No Shares shall be issued upon the exercise of any Option unless
and until the Corporation has determined that:

(i) it and the Optionee have taken all actions required
to register the Shares under the Securities Act of 1933, as amended (the
"Act"), or to perfect an exemption from the registration requirements thereof;

(ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and

(iii) any other applicable provision of state or Federal
law has been satisfied.

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<PAGE> 11
the Plan is not registered under the Act but an exemption is available which
requires an investment representation or other representation, each Optionee
shall be required to represent that such Shares are being acquired for
investment, and not with a view to the sale or distribution thereof, and to
make such other representations as are deemed necessary or appropriate by the
Corporation and its counsel. Stock certificates evidencing Shares acquired
under the Plan pursuant to an unregistered transaction shall bear the following
restrictive legend and such other restrictive legends as are required or deemed
advisable under the provisions of any applicable law:

"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ('ACT'). ANY
TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH
REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO
COMPLY WITH THE ACT."

Any determination by the Corporation and its counsel in connection
with any of the matters set forth in this Section 11 shall be conclusive and
binding on all persons.

The Corporation may, but shall not be obligated to, register or
qualify the sale of Shares under the Act or any other applicable law. The
Corporation shall not be obligated to take any affirmative action in order to
cause the sale of Shares under the Plan to comply with any law.

(d) Exchange of Certificates.

If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing shares sold under the Plan is no
longer required, the holder of such certificate shall be entitled to exchange
such certificate for a certificate representing the same number of Shares but
lacking such legend.

12. AMENDMENT OF THE PLAN.

The Board may from time to time, with respect to any Shares at the
time not subject to Options, suspend or discontinue the Plan or revise or amend
it in any respect whatsoever except that, without

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<PAGE> 12
the approval of the Corporation's stockholders, no such revision or amendment
shall:

(a) Increase the number of Shares subject to the Plan;

(b) Change the designation in Section 5 hereof with
respect to the classes of persons eligible to receive Options; or

13. APPLICATION OF FUNDS.

The proceeds received by the Corporation from the sale of Common
Stock pursuant to the exercise of an Option will be used for general corporate
purposes.

14. APPROVAL OF STOCKHOLDERS.

The Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the outstanding Shares present and entitled to
vote at the first annual meeting of stockholders of the Corporation following
the adoption of the Plan, and in no event later than December 31, 1996. Prior
to such approval, Options may be granted but shall not be exercisable. Any
amendment described in Section 12 shall also be subject to approval by the
Corporation's stockholders.

15. EXECUTION.

To record the adoption of the Plan by the Board on April 18, 1996,
the Corporation has caused its authorized officers to affix the corporate name
and seal hereto.

ELECTRO RENT CORPORATION

By
--------------------------------
President

By
--------------------------------
Secretary

[Seal]

<PAGE> 1

EXHIBIT (10)(E)-(2)

ELECTRO RENT CORPORATION
STOCK OPTION AGREEMENT
(INCENTIVE STOCK OPTION)
(1996 PLAN)

THIS AGREEMENT, entered into this ______ day of ______________, 199__,
between ELECTRO RENT CORPORATION, a California corporation (the "Company"), and
_________________________________________ (the "Optionee").

R E C I T A L S

A. The Board of Directors of the Company (the "Board") has
established the Electro Rent Corporation 1996 Stock Option Plan (the "Plan") in
order to provide key employees, directors and consultants of the Company with
a favorable opportunity to acquire shares of the Company's common stock
("Stock").

B. The Board has included in the Plan certain provisions to provide
for the grant of incentive stock options.

C. The Board regards the Optionee as a key employee as contemplated by
the Plan and has determined that it would be in the best interests of the
Company and its shareholders to grant the option described in this Agreement to
the Optionee as compensation, as an inducement to remain in the service of the
Company, and as an incentive for increasing efforts during such service.

NOW, THEREFORE, it is agreed as follows:

1. Definitions and Incorporation. The terms used in this Agreement
shall have the meanings given to such terms in the Plan. The Plan is hereby
incorporated in and made a part of this Agreement as if fully set forth herein.
The Optionee hereby acknowledges that he or she has received a copy of the
Plan.

2. Grant of Option. Pursuant to the Plan, the Company hereby grants
to the Optionee as of the date thereof the option to purchase all or any part
of an aggregate of __________ shares of Stock (the "Option"), subject to
adjustment in accordance with Section 10 of the Plan. The Option is intended
to qualify as an incentive stock option ("ISO") under Section 422 of the
Internal Revenue Code of 1986, as amended.

3. Option Price. The price to be paid for Stock upon exercise of the
Option or any part thereof shall be $__________ per share, which is equal to
the fair market value of one share of Stock as of the date hereof.

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<PAGE> 2

4. Right to Exercise. Subject to the conditions set forth in this
Agreement, the right to exercise the Option shall accrue in accordance with
Schedule 1 attached hereto and hereby made a part hereof.

5. Early Termination of Service. Any other provision of this
Agreement notwithstanding, if the Optionee's service with the Company terminates
within one year after the date hereof for any reason, including death, permanent
disability or retirement, the Optionee's right to exercise the Option or any
part thereof shall be forfeited permanently.

6. Securities Law Requirements. No part of the Option shall be
exercised if counsel to the Company determines that any applicable registration
requirement under the Securities Act of 1933 or any other applicable
requirement of Federal or state law has not been met.

7. Term of Option. The Option shall terminate in any event on the
earliest of (a) the ______ day of _______________, 20____, at 11:59 P.M., (b)
the expiration of the period described in paragraph 8 below, (c) the expiration
of the period described in paragraph 9 below, or (d) the expiration of the
period described in paragraph 10 below.

8. Exercise Following Termination of Service. If the Optionee's
service with the Company terminates for any reason other than death, disability
or retirement, the Option (to the extent it has not previously been exercised
and is then exercisable) may be exercised within three (3) consecutive months
after the date of such termination. The foregoing notwithstanding, the Option
shall cease to be exercisable on the date of such termination if such
termination is for cause or if the Optionee upon termination becomes an
employee, director or consultant of a person who is in direct competition with
the Company. For this purpose, "cause" shall mean conviction of a felony,
misappropriation of the assets of the Company or any subsidiary, continued or
repeated insobriety, continued or repeated absence from service during the
usual working hours of the Optionee's position for reasons other than
disability or sickness, or refusal to carry out the reasonable directions of
the Board.

9. Exercise Following Death or Disability. If the Optionee's service
with the Company terminates by reason of the Optionee's death or disability (as
defined in the Plan), or if the Optionee dies after termination of service but
while the Option would have been exercised hereunder, the Option (to the extent
it has not previously been exercised and is then exercisable) may be exercised
within one year after the date of the Optionee's death or termination by reason
of disability. In the case of death, the exercise may be made by his or her
representative or by the person entitled thereto under the Optionee's will or
the laws of descent and distribution; provided that such

2
<PAGE> 3
representative or such person consents in writing to abide by and be subject to
the terms of the Plan and this Agreement and such writing is delivered to the
President of the Company.

10. Exercise Following Retirement. If the Optionee's service with
the Company terminates by reason of retirement (the voluntary termination of
employment on or after the attainment of 65 years of age and completion of 20
years of service) the Option (to the extent it has not previously been exercised
and is then exercisable) may be exercised three (3) months after the date of the
Optionee's retirement.

11. Time of Termination of Service. For the purposes of this
Agreement, the Optionee's service shall be deemed to have terminated on the
earlier of (a) the date when the Optionee's service in fact terminated, or (b)
the date when the Optionee gave or received written notice that his or her
service is to terminate.

12. Nontransferability. The Option shall be exercisable during the
Optionee's lifetime only by the Optionee and shall be nontransferable, except
that the Optionee may transfer all or any part of the Option by will or by the
laws of descent and distribution. Except as otherwise provided herein, any
attempted alienation, assignment, pledge, hypothecation, attachment, execution
or similar process, whether voluntary or involuntary, with respect to all or any
part of the Option or any right thereunder, shall be null and void and, at the
Company's option, shall cause all of the Optionee's rights under this Agreement
to terminate.

13. Effect of Exercise. Upon exercise of all or any part of the
Option, the number of shares of Stock subject to option under this Agreement
shall be reduced by the number of shares with respect to which such exercise is
made.

14. Exercise of Option. The Option may be exercised by delivering to
the Company (a) a written notice of exercise in substantially the form
prescribed from time to time by the Board and (b) full payment of the option
price for each share of Stock purchased under the Option. Such notice shall
specify the number of shares of Stock with respect to which the Option is
exercised and shall be signed by the person exercising the Option. If the
Option is exercised by a person other than the Optionee, such notice shall be
accompanied by proof, satisfactory to the Company, of such person's right to
exercise the Option. The Option Price shall be payable in full in United
States Dollars upon the exercise of the Option; or the Option Price may be paid
by the surrender of Stock in good form for transfer, owned by the person
exercising the Option and having a Fair Market Value on the date of exercise
equal to the Option Price, or in any combination of cash and Stock, as long as
the sum of cash so paid and the Fair Market Value of the Stock so surrendered
equals the Option Price.

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<PAGE> 4

15. Withholding Taxes. If the Optionee is an employee or former
employee of the Company when all or part of the Option is exercised, the
Company may require the Optionee to deliver payment of any withholding taxes
(in addition to the option price) in cash with respect to the difference
between the option price and the fair market value of the Stock acquired upon
exercise.

16. Issuance of Shares. Subject to the foregoing conditions, the
Company, as soon as reasonably practicable after receipt of a proper notice of
exercise and without transfer or issue tax or other incidental expense to the
person exercising the Option, shall deliver to such person at the principal
office of the Company, or such other location as may be acceptable to the
Company and such person, one or more certificates for the shares of Stock with
respect to which the Option is exercised. Such shares shall be fully paid and
nonassessable and shall be issued in the name of such person. However, at the
request of the Optionee, such shares may be issued in the names of the Optionee
and his or her spouse (a) as joint tenants with right of survivorship, (b) as
community property, or (c) as tenants in common without right of survivorship.

17. Rights as a Shareholder. Neither the Optionee nor any other
person entitled to exercise the Option shall have any rights as a shareholder
of the Company with respect to the shares subject to the Option until a
certificate for such shares has been issued to him or her upon exercise of the
Option.

18. Rights as an Employee. The Optionee agrees to remain in the
employ of the Company for a period of two (2) years from the date of the
granting of the Option; provided, however, nothing in this Agreement shall be
construed to give any person the right to remain in the employ of the Company
or any subsidiary or to affect the right of the Company and any subsidiaries to
terminate such person's employment at any time with or without cause.

19. Notices. Any notice to the Company contemplated by this
Agreement shall be addressed to it in care of its President, and any notice to
the Optionee shall be addressed to him or her at the address on file with the
Company on the date hereof or at such other address as he or she may hereafter
designate in writing.

20. Interpretation. The interpretation, construction, performance
and enforcement of this Agreement and of the Plan shall lie within the sole
discretion of the Board, and the Board's determinations shall be conclusive and
binding on all interested persons.

21. Choice of Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.

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<PAGE> 5

IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.

ELECTRO RENT CORPORATION

- ---------------------------------- By
Optionee --------------------------------

- ----------------------------------
(Please print
Optionee's name)

- ----------------------------------
Optionee's Spouse*

- ----------------------------------
(Please print spouse's name)

- ----------------------------------

*Include Signature and name of Optionee's spouse, if Optionee
is married.

5
<PAGE> 6

SCHEDULE 1

RIGHT TO EXERCISE

Subject to the conditions set forth in this Agreement, the right to
exercise the Option shall accrue as follows:

(a) Commencing one year after the date of this Agreement, the
Option may be exercised to the extent of one-fourth of the shares
subject to the Option.

(b) Commencing two years after the date of this Agreement,
the Option may be exercised to the extent of one-fourth of the shares
subject to the Option, plus any shares with respect to which the
Option has previously become exercisable but has not been exercised.

(c) Commencing three years after the date of this Agreement,
the Option may be exercised to the extent of one-fourth of the shares
subject to the Option, plus any shares with respect to which the
Option has previously become exercisable but has not been exercised.

(d) Commencing four years after the date of this Agreement,
the entire Option may be exercised to the extent it has not previously
been exercised.

<PAGE> 1
EXHIBIT (10)(E)-(3)

ELECTRO RENT CORPORATION
STOCK OPTION AGREEMENT
(NONSTATUTORY OPTION)
(1996 PLAN)

R E C I T A L S

A. The Board of Directors of the Company (the "Board") has
established the Electro Rent Corporation 1996 Stock Option Plan (the "Plan") in
order to provide key employees, directors and consultants of the Company with a
favorable opportunity to acquire shares of the Company's common stock
("Stock").

B. The Board regards the Optionee as a key employee, director or
consultant as contemplated by the Plan and has determined that it would be in
the best interests of the Company and its shareholders to grant the option
described in this Agreement to the Optionee as compensation, as an inducement
to remain in the service of the Company, and as an incentive for increasing
efforts during such service.

NOW, THEREFORE, it is agreed as follows:

2. Grant of Option. Pursuant to the Plan, the Company hereby grants
to the Optionee as of the date thereof the option to purchase all or any part
of an aggregate of __________ shares of Stock (the "Option"), subject to
adjustment in accordance with Section 10 of the Plan. The Option is not
intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended.

3. Option Price. The price to be paid for Stock upon exercise of the
Option or any part thereof shall be $__________ per share.

4. Right to Exercise. Subject to the conditions set forth in this
Agreement, the right to exercise the Option shall accrue in accordance with
Schedule 1 attached hereto and hereby made a part hereof.

1
<PAGE> 2
5. Early Termination of Service. Any other provision of this
Agreement notwithstanding, if the Optionee's service with the Company
terminates within one year after the date hereof for any reason, including
death, permanent disability or retirement, the Optionee's right to exercise the
Option or any part thereof shall be forfeited permanently.

2
<PAGE> 3
10. Exercise Following Retirement. If the Optionee's service with
the Company terminates by reason of retirement (the voluntary termination of
employment on or after the attainment of 65 years of age and completion of 20
years of service) the Option (to the extent it has not previously been
exercised and is then exercisable) may be exercised three (3) months after the
date of the Optionee's retirement.

12. Nontransferability. The Option shall be exercisable during the
Optionee's lifetime only by the Optionee and shall be nontransferable, except
that the Optionee may transfer all or any part of the Option by will or by the
laws of descent and distribution. Except as otherwise provided herein, any
attempted alienation, assignment, pledge, hypothecation, attachment, execution
or similar process, whether voluntary or involuntary, with respect to all or
any part of the Option or any right thereunder, shall be null and void and, at
the Company's option, shall cause all of the Optionee's rights under this
Agreement to terminate.

14. Exercise of Option. The Option may be exercised by delivering to
the Company (a) a written notice of exericse in substantially the form
prescribed from time to time by the Board and (b) full payment of the option
price for each share of Stock purchased under the Option. Such notice shall
specify the number of shares of Stock with respect to which the Option is
exercised and shall be signed by the person exercising the Option. If the
Option is exercised by a person other than the Optionee, such notice shall be
accompanied by proof, satisfactory to the Company, of such person's right to
exercise the Option. The Option Price shall be payable in full in United
States Dollars upon the exercise of the Option; or the Option Price may be paid
by the surrender of Stock in good form for transfer, owned by the person
exercising the Option and having a Fair Market Value on the date of exercise
equal to the Option Price, or in any combination of cash and Stock, as long as
the sum of cash so paid and the Fair Market Value of the Stock so surrendered
equals the Option Price.

15. Withholding Taxes. If the Optionee is an employee or former
employee of the Company when all or part of the Option is exercised,

3
<PAGE> 4
the Company may require the Optionee to deliver payment of any withholding
taxes (in addition to the option price) in cash with respect to the difference
between the option price and the fair market value of the Stock acquired upon
exercise.

18. Rights for Continued Service. The Optionee agrees to remain in
the service of the Company for a period of two (2) years from the date of the
granting of the Option; provided, however, nothing in this Agreement shall be
construed to give any person the right to remain in the service of the Company
or any subsidiary or to affect the right of the Company and any subsidiaries to
terminate such person's service at any time with or without cause.

19. Notices. Any notice to the Company contemplated by this
Agreement shall be addressed to it in care of its President; and any notice to
the Optionee shall be addressed to him or her at the address on file with the
Company on the date hereof or at such other address as he or she may hereafter
designate in writing.

21. Choice of Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.

4
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.

ELECTRO RENT CORPORATION

- ---------------------------------- By
Optionee --------------------------------

- ----------------------------------
(Please print
Optionee's name)

- ----------------------------------
Optionee's Spouse*

- ----------------------------------
(Please print spouse's name)

- ----------------------------------

*Include Signature and name of Optionee's spouse, if Optionee is
married.

5
<PAGE> 6
SCHEDULE 1

RIGHT TO EXERCISE

Subject to the conditions set forth in this Agreement, the right to
exercise the Option shall accrue as follows:

(a) Commencing one year after the date of this Agreement, the
Option may be exercised to the extent of one-fourth of the shares
subject to the Option.

(d) Commencing four years after the date of this Agreement,
the entire Option may be exercised to the extent it has not previously
been exercised.

<PAGE> 1
EXHIBIT (10)(E)-(4)

ELECTRO RENT CORPORATION

1996 DIRECTOR OPTION PLAN

1. PURPOSE.

The purpose of this 1996 Director Option Plan (the "Plan") of the
Corporation is to encourage ownership in the Corporation by outside directors
whose continued services are considered essential to the Corporation's
continuing progress, and thus to provide the directors with a further incentive
to continue as directors of the Corporation.

2. DEFINITIONS.

(a) "Annual Retainer" shall mean the amount to which the Eligible
Director will be entitled to receive for serving as a director of the
Corporation in the relevant Plan Year; but shall not include fees for attending
meetings of the Board or of any committee of the Board.

(b) "Board" shall mean the Board of Directors of the Corporation.

(c) "Change of Control" shall mean and shall be deemed to have
occurred if (a) any person or entity (other than the current chief executive
officer of the Corporation), including a "group" (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934), is or becomes the beneficial
owner, directly or indirectly, of Shares having 20% or more of the total number
of votes that may be cast for the election of members of the Board; or (b) as a
result of or in connection with, any cash tender or exchange offer, merger or
other business combination, sale of assets or contested election, or any
combination of the foregoing transactions (a "Transaction"), the persons who
were members of the Board immediately prior to the Transaction cease to
constitute a majority of the members of the Board or of the board of directors
of any successor to the Corporation.

(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended to date and as may be amended hereafter from time to time.

(e) "Committee" shall mean the committee of the Board provided
for in Section 4 of the Plan.

(f) "Common Stock" shall mean the Common Stock of the Corporation
without par value.

(g) "Corporation" shall mean Electro Rent Corporation, a
California corporation.

1
<PAGE> 2
(h) "Disability" shall mean the condition of an Eligible Director
who is unable to perform his duties by reason of any medically determinable
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
twelve months. The determination of Disability shall be by a doctor or doctors
acceptable to the Corporation.

(i) "Eligible Director" shall mean a director of the
Corporation who is not an employee of the Corporation or any subsidiary of the
Corporation.

(j) "Exercise Price" shall mean the price per Share of
Common Stock at which an Option may be exercised.

(k) "Fair Market Value" shall mean the value of one Share of
Common Stock, determined as follows:

(1) If the Shares are traded on an exchange, the price at
which Shares traded at the close of business on the date of valuation;

(2) If the Shares are traded over-the-counter on the
NASDAQ System, the mean between the bid and asked prices on said System at the
close of business on the date of valuation; and

(3) If neither (1) nor (2) applies, the fair market value
as determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.

(l) "Nonstatutory Stock Option" shall mean an option not
described in Section 422 of the Code.

(m) "Option" shall mean any Nonstatutory Stock Option granted
pursuant to the Plan.

(n) "Plan" shall mean this Electro Rent Corporation 1996 Director
Stock Option Plan, as it may be amended from time to time.

(o) "Plan Year" shall mean the period from June 1 of each
calendar year to and including May 31 of the ensuing calendar year, commencing
with June 1, 1996.

(p) "Purchase Price" shall mean the Exercise Price times
the number of Shares with respect to which an Option is exercised.

(q) "Share" shall mean one share of Common Stock, adjusted in
accordance with Section 8 of the Plan, as applicable.

2
<PAGE> 3
(r) "Subsidiary" shall mean any corporation at least fifty
percent (50%) of the total combined voting power of which is owned by the
Corporation or by another Subsidiary.

3. EFFECTIVE DATE AND EXPIRATION.

The Plan was adopted by the Board effective June 1, 1996, subject
to the approval of the Corporation's shareholders pursuant to Section 12 of the
Plan. Options may be granted pursuant to the Plan until the expiration of the
Plan, to wit: ten years from the date of its actual adoption by the Board.

4. ADMINISTRATION.

The Plan shall be administered by the Committee. The Committee
shall consist of the directors of the Corporation who are not Eligible
Directors. The Board shall appoint one of the members of the Committee as
Chairman. The Committee shall hold meetings at such times and places as it may
determine. Acts of a majority of the Committee at which a quorum is present,
or acts reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. The interpretation and
construction by the Committee of any provisions of the Plan or of any Option
granted thereunder shall be final. No member of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option granted thereunder.

5. ELIGIBILITY AND PARTICIPATION.

The only persons eligible to participate in the Plan are Eligible
Directors.

6. STOCK SUBJECT TO THE PLAN.

The Stock subject to the Options granted under the Plan shall be
Shares of the Corporation's authorized but unissued or reacquired Common Stock.
The aggregate number of Shares which may be issued upon exercise of Options
under the Plan shall not exceed Twenty-five Thousand (25,000). The number of
Shares subject to Options outstanding at any time shall not exceed the number
of Shares remaining available for issuance under the Plan. In the event that
any outstanding Option for any reason expires or is terminated, the Shares
allocable to the unexercised portion of such Option may again be made subject
to an Option. The limitations established by this Section 6 shall be subject
to adjustment in the manner provided in Section 8 hereof upon the occurrence of
an event specified therein.

3
<PAGE> 4
7. PROCEDURES AND TERMS OF OPTIONS.

(a) Election to Defer Annual Retainer.

On or before the first business day of each Plan Year,
each Eligible Director shall notify the Secretary of the Corporation in writing
that he or she has elected irrevocably to defer the payment of one-third,
two-thirds, or all of his or her Annual Retainer for the Plan Year. If no such
notice is given and received, the Eligible Director shall be deemed to have
waived the right to defer any part of his or her Annual Retainer for the Plan
Year.

(b) Grant of Options.

Each Eligible Director who has elected to defer all or
part of his or her Annual Retainer shall automatically receive Nonstatutory
Options as of the first business day of the Plan Year equal to the nearest
number of whole shares determined in accordance with the following formula:

Dollar Amount of Annual Retainer Deferred
Number of
----------------------------------------- = Shares
75% of Fair Market Value on Date of Grant

Options granted under the Plan are not transferable by the
Optionee otherwise than by will or by the laws of descent and distribution.
During the lifetime of the Optionee they may be exercised only by the Optionee.
No Option or interest therein may be transferred, assigned, pledged or
hypothecated by the Optionee during his or her lifetime, whether by operation
of law or otherwise, or be made subject to execution, attachment or similar
process.

(d) Period of Option.

No Option may be exercised before the first anniversary of
the date upon which it was granted; provided, however, that any Option shall
become exercisable upon retirement of the Optionee because of age or total and
permanent disability, or upon his or her death. No Option shall be exercisable
after the expiration of five years from the date upon which it was granted.

(e) Exercise of Options.

Options may be exercised only by written notice to the
Corporation at its head office accompanied by payment in cash of the full
consideration for the Shares as to which they are exercised.

4
<PAGE> 5
(f) Exercise Price.

The Option price per Share of each Option being exercised is
twenty-five percent (25%) of the Fair Market Value per Share on the date the
Option was granted.

(g) Exercise by Representative Following Death of Director.

If an Optionee dies when he or she could have exercised
Options and has not fully exercised the Options, then the Options may be
exercised in full at any time within 12 months after the Optionee's death by
the executors or administrators of his or her estate or by any person or
persons who have acquired the Option directly from the Optionee by bequest or
inheritance, but only to the extent that, at the date of death, the Optionee's
right to exercise such Option had accrued and had not been forfeited pursuant
to the terms of the applicable Option Agreement and had not previously been
exercised.

(h) Disability of Optionee.

If an Optionee ceases to be an Eligible Director by reason of
Disability, such Optionee shall have the right to exercise the Options at any
time within 12 months after ceasing to be an Eligible Director, but only to
the extent that, at the date of termination, the Optionee's right to exercise
such Options had accrued pursuant to the terms of the applicable Option
Agreement and had not previously been exercised.

(i) Retirement or Termination of Optionee or Change of Control.

If an Optionee ceases to be an Eligible Director by reason of
retirement or termination for any reason other than death or Disability, or in
the event of a Change of Control, the Optionee shall have the right to exercise
the Options at any time within three months after termination or after the
Change of Control, but only to the extent that, at the date of termination or
after the Change of Control, the Optionee's right to exercise such Options had
accrued pursuant to the terms of the applicable Option Agreement and had not
previously been exercised.

(j) When Right Accrues.

For the purpose of Subsections (g), (h) and (i) of this
Section 7, the right to exercise Options granted as of the first day of the
particular Plan Year shall be deemed to accrue quarterly in advance on the
first days of June, September, December and March during that Plan Year.

5
<PAGE> 6
(k) Rights as a Shareholder.

An Optionee, or a transferee of an Optionee, shall have no
rights as a shareholder with respect to any Shares covered by his or her Option
until the date of the issuance of a stock certificate for such Shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except
as provided in Section 8 hereof.

(l) Modification, Extension and Renewal of Options.

(m) Sequential Exercise.

Unless required by law or by the particular Option Agreement,
Options may be exercisable with respect to all or any part of the Shares
subject thereto without regard to the sequence in which Options were granted to
the Optionee (under this Plan or otherwise) to purchase any stock in the
Corporation, in a parent or subsidiary of the Corporation, or in any
predecessor corporation.

(n) Stock Option Agreements.

Options granted under this Plan shall be evidenced by written
Option Agreements consistent with and subject to the terms and conditions in
this Plan, and in such form as the Committee shall from time to time determine.
The Option Agreements may contain such other provisions not inconsistent with
the terms of the Plan as the Committee shall deem advisable.

8. RECAPITALIZATIONS.

Subject to any required action by shareholders, the number of
Shares covered by the Plan as provided in Section 6 hereof, the number of
Shares covered by each outstanding Option and the Exercise Price thereof shall
be proportionately adjusted for any increase or

6
<PAGE> 7
decrease in the number of issued Shares resulting from a subdivision or
consolidation of Shares or the payment of a stock dividend (but only of Common
Stock) or any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Corporation.

Subject to any required action by shareholders, if the Corporation
is the surviving corporation in any merger or consolidation, each outstanding
Option shall pertain and apply to the securities to which a holder of the
number of Shares subject to the Option would have been entitled. A dissolution
or liquidation of the Corporation or a merger or consolidation in which the
Corporation is not the surviving corporation shall cause each outstanding
Option to terminate, unless the agreement of merger or consolidation otherwise
provides.

Except as expressly provided in this Section 8, the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class, the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of assets or
stock of another corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or Exercise Price of Shares subject to an Option.

9. SECURITIES LAW REQUIREMENTS.

(a) Legality of Issuance.

No Shares shall be issued upon the exercise of any Option unless
and until the Corporation has determined that:

7
<PAGE> 8
(i) it and the Optionee have taken all actions
required to register the Shares under the Securities Act of 1933, as amended
(the "Act"), or to perfect an exemption from the registration requirements
thereof;

(ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and

(iii) any other applicable provision of state or Federal
law has been satisfied.

Regardless of whether the offering and sale of Shares under the
Plan has been registered under the Act or has been registered or qualified
under the securities laws of any state, the Corporation may impose restrictions
upon the sale, pledge or other transfer of such Shares (including the placement
of appropriate legends on stock certificates) if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable in
order to achieve compliance with the provisions of the Act, the securities laws
of any state or any other law. In the event that the sale of Shares under the
Plan is not registered under the Act but an exemption is available which
requires an investment representation or other representation, each Optionee
shall be required to represent that such Shares are being acquired for
investment, and not with a view to the sale or distribution thereof, and to
make such other representations as are deemed necessary or appropriate by the
Corporation and its counsel. Stock certificates evidencing Shares acquired
under the Plan pursuant to an unregistered transaction shall bear the following
restrictive legend and such other restrictive legends as are required or deemed
advisable under the provisions of any applicable law:

Any determination by the Corporation and its counsel in connection
with any of the matters set forth in this Section 9 shall be conclusive and
binding on all persons.

8
<PAGE> 9
(c) Registration or Qualification of Securities.

(d) Exchange of Certificates.

10. AMENDMENT OF THE PLAN.

The Board may from time to time, with respect to any Shares at the
time not subject to Options, suspend or discontinue the Plan or revise or amend
it in any respect whatsoever except that, without the approval of the
Corporation's shareholders, no such revision or amendment shall:

(a) Increase the number of Shares subject to the Plan;

(b) Change the designation in Section 5 hereof with
respect to the persons eligible to receive Options; or

11. APPLICATION OF FUNDS.

The proceeds received by the Corporation from the sale of Common
Stock pursuant to the exercise of an Option will be used for general corporate
purposes.

12. APPROVAL OF SHAREHOLDERS.

The Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the outstanding Shares present and entitled to
vote at the first annual meeting of shareholders of the Corporation following
the adoption of the Plan, and in no event later than December 31, 1996. Prior
to such approval, Options may be

9
<PAGE> 10
granted but shall not be exercisable. Any amendment described in Section 10
shall also be subject to approval by the Corporation's shareholders.

13. EXECUTION.

To record the adoption of the Plan by the Board on July 11, 1996,
the Corporation has caused its authorized officers to affix the corporate name
and seal hereto.

ELECTRO RENT CORPORATION

By
---------------------------------
President

By
---------------------------------
Secretary

[Seal]

<PAGE> 1
EXHIBIT (10)(E)-(5)

ELECTRO RENT CORPORATION
STOCK OPTION AGREEMENT
(NONSTATUTORY OPTION)
(1996 DIRECTOR OPTION PLAN)

R E C I T A L S

A. The Board of Directors of the Company (the "Board") has
established the Electro Rent Corporation 1996 Director Option Plan (the "Plan")
in order to provide outside directors of the Company with a favorable
opportunity to acquire shares of the Company's common stock ("Stock").

B. The Board has determined that it would be in the best interests of
the Company and its shareholders to grant the Option described in this
Agreement to the Optionee as an inducement to remain as a director of the
Company, and as an incentive for increasing efforts during such service.

NOW, THEREFORE, it is agreed as follows:

2. Grant of Option. Pursuant to the Plan, the Company hereby grants
to the Optionee as of the date thereof the option to purchase all or any part
of an aggregate of __________ shares of Stock (the "Option"), subject to
adjustment in accordance with Section 8 of the Plan. The Option is not
intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended.

3. Option Price. The price to be paid for Stock upon exercise of the
Option or any part thereof shall be $__________ per share.

4. Right to Exercise. Subject to the conditions set forth in this
Agreement, the right to exercise the Option shall accrue quarterly from date of
grant and shall be exercisable one year from the date of

1
<PAGE> 2
this grant except as otherwise herein provided. No Option shall be exercisable
after the expiration of five years from the date upon which it was granted.

5. Securities Law Requirements. No part of the Option shall be
exercised if counsel to the Company determines that any applicable registration
requirement under the Securities Act of 1933 or any other applicable
requirement of Federal or state law has not been met.

6. Exercise by Representative Following Death of Director. If an
Optionee dies when he or she could have exercised Options and has not fully
exercised the Options, then the Options may be exercised in full at any time
within 12 months after the Optionee's death by the executors or administrators
of his or her estate or by any person or persons who have acquired the Option
directly from the Optionee by bequest or inheritance, but only to the extent
that, at the date of death, the Optionee's right to exercise such Option had
accrued and had not been forfeited pursuant to the terms of this Option
Agreement and had not previously been exercised.

7. Disability of Optionee. If an Optionee ceases to be an Eligible
Director by reason of Disability, such Optionee shall have the right to
exercise the Options at any time within 12 months after ceasing to be an
Eligible Director, but only to the extent that, at the date of termination, the
Optionee's right to exercise such Options had accrued pursuant to the terms of
this Option Agreement and had not previously been exercised.

8. Retirement or Termination of Optionee or Change of Control. If an
Optionee ceases to be an Eligible Director by reason of retirement or
termination for any reason other than death or Disability, or in the event of a
Change of Control, the Optionee shall have the right to exercise the Options at
any time within three months after termination or after the Change of Control,
but only to the extent that, at the date of termination or after the Change of
Control, the Optionee's right to exercise such Options had accrued pursuant to
the terms of this Option Agreement and had not previously been exercised.

9. Nontransferability. The Option shall be exercisable during the
Optionee's lifetime only by the Optionee and shall be nontransferable, except
that the Optionee may transfer all or any part of the Option by will or by the
laws of descent and distribution. Except as otherwise provided herein, any
attempted alienation, assignment, pledge, hypothecation, attachment, execution
or similar process, whether voluntary or involuntary, with respect to all or
any part of the Option or any right thereunder, shall be null and void and, at
the Company's option, shall cause all of the Optionee's rights under this
Agreement to terminate.

2
<PAGE> 3
10. Effect of Exercise. Upon exercise of all or any part of the
Option, the number of shares of Stock subject to option under this Agreement
shall be reduced by the number of shares with respect to which such exercise is
made.

11. Exercise of Option. The Option may be exercised by delivering to
the Company (a) a written notice of exercise in substantially the form
prescribed from time to time by the Committee and (b) full payment of the
option price for each share of Stock purchased under the Option. Such notice
shall specify the number of shares of Stock with respect to which the Option is
exercised and shall be signed by the person exercising the Option. If the
Option is exercised by a person other than the Optionee, such notice shall be
accompanied by proof, satisfactory to the Company, of such person's right to
exercise the Option. The Option Price shall be payable in full in United
States Dollars upon the exercise of the Option.

12. Issuance of Shares. Subject to the foregoing conditions, the
Company, as soon as reasonably practicable after receipt of a proper notice of
exercise and without transfer or issue tax or other incidental expense to the
person exercising the Option, shall deliver to such person at the principal
office of the Company, or such other location as may be acceptable to the
Company and such person, one or more certificates for the shares of Stock with
respect to which the Option is exercised. Such shares shall be fully paid and
nonassessable and shall be issued in the name of such person.

13. Rights as a Shareholder. Neither the Optionee nor any other
person entitled to exercise the Option shall have any rights as a shareholder
of the Company with respect to the shares subject to the Option until a
certificate for such shares has been issued to him or her upon exercise of the
Option.

14. Notices. Any notice to the Company contemplated by this
Agreement shall be addressed to it in care of its President; and any notice to
the Optionee shall be addressed to him or her at the address on file with the
Company on the date hereof or at such other address as he or she may hereafter
designate in writing.

15. Interpretation. The interpretation, construction, performance
and enforcement of this Agreement and of the Plan shall lie within the sole
discretion of the Committee, and the Committee's determinations shall be
conclusive and binding on all interested persons.

16. Choice of Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.

3
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.

ELECTRO RENT CORPORATION

- ---------------------------------- By
Optionee --------------------------------

- ----------------------------------
(Please print
Optionee's name)

- ----------------------------------
Optionee's Spouse*

- ----------------------------------
(Please print spouse's name)

- ----------------------------------

*Include Signature and name of Optionee's spouse, if Optionee is
married.

4
<PAGE> 5
SCHEDULE 1

RIGHT TO EXERCISE

Subject to the conditions set forth in this Agreement, the right to
exercise the Option shall accrue as follows:

(a) Commencing one year after the date of this Agreement, the
Option may be exercised to the extent of one-fourth of the shares
subject to the Option.

(d) Commencing four years after the date of this Agreement,
the entire Option may be exercised to the extent it has not previously
been exercised.

<PAGE> 1

FINANCIAL HIGHLIGHTS 1996

<TABLE>
<CAPTION>
MAY 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Revenues............................ $141,137 $121,354 $111,458 $102,656 $102,022
Costs of revenues and
depreciation...................... 64,600 57,759 56,190 53,595 54,093
Selling, administrative and general
expenses.......................... 37,792 36,907 33,902 34,439 30,568
Interest............................ 2,230 2,457 1,870 2,136 3,075
-------- -------- -------- -------- --------
Income before taxes................. 36,515 24,231 19,496 12,486 14,286
Income taxes........................ 14,872 9,667 7,896 4,994 5,714
-------- -------- -------- -------- --------
Income before cumulative effect of
accounting change................. 21,643 14,564 11,600 7,492 8,572
Cumulative effect of change in
accounting for income taxes....... -- -- -- 2,591 --
-------- -------- -------- -------- --------
Net income.......................... $ 21,643 14,564 $ 11,600 $ 10,083 $ 8,572
======== ======== ======== ======== ========
Earnings per common and common
equivalent share:
Income before cumulative effect of
accounting change............... $ 1.75 $ 1.20 $ 0.97 $ 0.57 $ 0.61
Cumulative effect of change in
accounting for income taxes..... -- -- -- 0.19 --
-------- -------- -------- -------- --------
Net income........................ $ 1.75 $ 1.20 $ 0.97 $ 0.76 $ 0.61
======== ======== ======== ======== ========
Average common and common equivalent
shares outstanding................ 12,350 12,157 12,008 13,259 13,980
Total assets........................ $171,428 $162,909 $135,048 $142,076 $144,441
Bank borrowings..................... $ 16,800 $ 36,100 $ 25,900 $ 38,900 $ 31,100
10% subordinated debentures......... -- -- -- $ 5,192 $ 5,710
Shareholders' equity................ $114,623 $ 92,188 $ 77,532 $ 65,822 $ 68,101
Shareholders' equity per common
share............................. $ 9.61 $ 7.83 $ 6.59 $ 5.61 $ 5.00
</TABLE>

<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

The Company's business is capital intensive, with substantial capital
expenditures required to maintain the equipment pool. Electro Rent's rental and
lease equipment portfolio totaled $241,432,000, at acquisition cost, at May 31,
1996 as compared with $227,816,000 at May 31, 1995. The increase in rental and
lease equipment primarily resulted from the high level of purchases, partially
offset by sales and the retirement of fully depreciated and obsolete equipment.
The Company was able to increase purchases of computers and test equipment while
at the same time improving equipment management, resulting in increased
equipment utilization. During the three years ended May 31, 1996, the Company
made payments for equipment purchases totaling $144,138,000, resulting in a net
increase in the equipment portfolio at acquisition cost of $18,610,000 for the
three-year period. The Company has three principal sources of liquidity: cash
flows provided by operating activities, proceeds from the sale of equipment from
its portfolio, and external funds, historically provided by bank borrowings. As
the following table illustrates, cash flows from operating activities and
proceeds from the sale of equipment have been more than sufficient to fund the
Company's operations.

<TABLE>
<CAPTION>
Three
years ended
(in thousands) 1994 1995 1996 May 31, 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities(1) $ 34,452 $ 46,746 $ 58,104 $139,302
Proceeds from sale of equipment 24,702 18,622 18,543 61,867
Payments for equipment purchases (36,437) (54,053) (53,648) (144,138)
Net decrease in bank borrowings(2) (13,000) (4,653) (19,300) (36,953)
Net increase (decrease) in equipment portfolio at acquisition cost (22,308) 27,302 13,616 18,610
</TABLE>

(1) For the components of cash flows from operating activities, see the
Consolidated Statements of Cash Flows.

(2) Excludes Genstar debt assumed at acquisition.

As indicated by the table, cash flows from operating activities and proceeds
from sale of equipment provided 140% of the funds required for equipment
purchased during the three-year period. Rental and lease revenues have been
significantly supplemented as a source of cash flow by proceeds from the sale of
equipment from Electro Rent's portfolio. Historically, when Electro Rent has
experienced a higher rate of rental growth, its dependence on external sources
of capital has increased. Conversely, when its growth has slowed, it has become
less dependent on such sources. The last three fiscal years mark a significant
change from the traditional pattern as rental growth occurred with a decrease in
bank borrowings. Successful equipment management techniques have allowed greater
utilization of equipment and enabled the Company to increase rentals without a
proportional increase in the equipment pool. Management believes that cash flows
from operating activities, proceeds from the sale of equipment and its borrowing
capacity (see Note 2 of Notes to Consolidated Financial Statements) will be
sufficient to fund the Company's operations for the foreseeable future.
Additionally, the Company believes that it currently has low leverage ratios for
a firm in the rental and leasing business and, if necessary, additional credit
could be obtained to finance growth.

The market for traditional test and measurement equipment which had declined for
several years increased modestly in the last three fiscal years. Market
improvement and consolidation in the rental industry have enabled the Company to
increase both total volume and market share. As a result, expenditures for this
type of equipment are expected to increase. With the anticipated growth in
rentals of personal computers and workstations, the Company also is projecting
purchases of this equipment to increase. As a result, future expenditures for
rental equipment are likely to exceed the high levels set in fiscal 1996 and
1995. In spite of increased purchasing projections, bank borrowings are likely
to decline.

In connection with its 15% interest in the Nippon Electro Rent (NER) joint
venture, the Company has guaranteed bank debt of NER. Because of declining
economic conditions and competitive pressures in Japan, NER experienced losses
through the first half of fiscal 1994. In response, NER implemented significant
revenue enhancement and cost containment programs, and has placed greater
emphasis on equipment sales. As a result, NER operated profitably in fiscal 1996
and 1995. In accordance with a negotiated schedule, the Company's loan guarantee
was reduced from 300 million yen to 200 million yen on July 1, 1996, and a
further reduction to 100 million yen will take place on July 1, 1997.

17
<PAGE> 3
Inflation generally has favorably influenced the Company's results of operations
by enhancing the sale prices of its used equipment. Lower inflation rates and
newer, less expensive equipment with similar or better specifications could
result, over a period of several years, in lower relative prices for used
electronic equipment with a negative impact on margins and earnings. Prices of
new and used electronic test equipment have not consistently followed the
overall inflation rate. Prices of new and used personal computers and
workstations have consistently declined for the past three years. Because
management is unable to predict the advances in technology and the rate of
inflation for the next several years, it is not possible to estimate the impact
of these factors on the Company's earnings.

Fiscal 1996 Compared with Fiscal 1995

Total revenues for the year ended May 31, 1996 increased by 16% from
$121,354,000 to $141,137,000, reflecting continued improvement in rentals and
leases and stabilization of equipment sales at the prior year level. Rental
revenues increased by 15% to $104,286,000 in fiscal 1996 as a result of business
expansion in personal computers, workstations and test and measurement
equipment, the full year effect of the Genstar acquisition which was included in
operating results for eight months in fiscal 1995, and the acquisition of LDI
Computer Rentals on March 29, 1996. Lease revenues increased by 52% to
$15,209,000 in fiscal 1996 primarily due to continued demand for personal
computer operating leases which provide large companies flexibility in
responding to obsolescence risk. Although sales of used equipment of $18,543,000
in fiscal 1996 were at about the same level as the prior year, it was due to
higher personal computer sales being offset by lower sales of test and
measurement equipment which experienced increased rental utilization.

Depreciation increased by 17% to $43,510,000 in fiscal 1996 primarily due to the
full year inclusion of Genstar, higher equipment levels and a continuing shift
in the equipment pool to personal computers which have shorter depreciable
lives. Costs of revenues other than depreciation increased by 3% to $21,090,000
in fiscal 1996 primarily due to higher maintenance and repair expenses
associated with the personal computer business. Selling, administrative and
general expenses increased by 2% to $37,792,000 in fiscal 1996 to support the
higher business activity. Interest expense decreased by 9% to $2,230,000 in
fiscal 1996 as a result of a decline in bank borrowings made possible by
increased cash flows from operating activities. As a result of the above, net
income increased to $21,643,000 for fiscal 1996 from $14,564,000 in the prior
year, a 49% increase.

Fiscal 1995 Compared with Fiscal 1994

Total revenues for the year ended May 31, 1995 increased by 9% from $111,458,000
to $121,354,000 with improvements in rentals and leases partially offset by a
decline in sales. Rental revenues increased by 19% as a result of the Genstar
acquisition on September 30, 1994, continued expansion of personal computer and
workstation rentals and modest increases in traditional test and measurement
equipment rentals. The winding down of a major leasing program created unusually
high sales activity in fiscal 1994, which, when combined with a current strategy
of keeping equipment longer in the rental pool, resulted in a 25% decrease in
sales revenues from fiscal 1994. Test and measurement equipment has generally
held its value in the used equipment market much more than personal computers
and workstations. Lease revenues increased by 21% as compared to last year
primarily due to increased personal computer operating leases with large
companies desiring flexibility in responding to obsolescence risk.

Depreciation increased by 16% primarily as a result of the Genstar acquisition.
Costs of revenues other than depreciation decreased by 15% as a result of the
decreased sales volume. Selling, administrative and general expenses increased
by 9% primarily due to the Genstar acquisition. Interest expense increased by
31% due to the increase in bank borrowings related to the Genstar acquisition
and an increase in short-term interest rates. As a result of the foregoing, net
income increased by 26%.

Excluding the effects of Genstar, improvements in rental revenues were primarily
due to increased demand for personal computers and workstations. As a result,
management has placed greater emphasis and has made increased investment in
these product segments. The Company's financial strength provides a solid basis
to take advantage of other growth opportunities as they arise.

18
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME Electro Rent Corporation
Year Ended May 31,
(in thousands, except per share information) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Rentals and leases $ 119,495 $ 100,467 $ 84,751
Sales of equipment and other revenues 21,642 20,887 26,707
------------------------------------------
Total revenues 141,137 121,354 111,458
------------------------------------------
Costs and expenses:
Depreciation of equipment 43,510 37,228 32,149
Costs of revenues other than depreciation 21,090 20,531 24,041
Selling, administrative and general expenses 37,792 36,907 33,902
Interest 2,230 2,457 1,870
------------------------------------------
Total costs and expenses 104,622 97,123 91,962
------------------------------------------

Income before income taxes 36,515 24,231 19,496
Income taxes 14,872 9,667 7,896
------------------------------------------
Net income $ 21,643 $ 14,564 $ 11,600
==========================================
Net income per common and common equivalent share $ 1.75 $ 1.20 $ 0.97
==========================================
</TABLE>

The accompanying notes are an integral
part of these consolidated financial statements.

19
<PAGE> 5
CONSOLIDATED BALANCE SHEETS Electro Rent Corporation

<TABLE>
<CAPTION>
May 31,

(in thousands, except share information) 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 1,394 $ 432
Accounts receivable, net of allowance for doubtful accounts of $1,464 and $1,240 20,598 17,600
Rental and lease equipment, net of accumulated depreciation of $119,226 and $109,624 122,206 118,192
Other property, net of accumulated depreciation and amortization of $5,774 and $5,121 19,323 18,703
Other 7,907 7,982
------------------
$171,428 $162,909
==================

Liabilities and Shareholders' Equity
Liabilities:
Bank borrowings $ 16,800 $ 36,100
Accounts payable 16,433 12,302
Accrued expenses 11,876 10,342
Deferred income taxes 11,696 11,977
------------------
Total liabilities 56,805 70,721
==================
Commitments and contingencies
Shareholders' equity
Preferred stock, $1 par -- shares authorized 1,000,000; none issued -- --
Common stock, no par -- shares authorized 20,000,000; issued and outstanding:
1996-- 11,921,576; 1995-- 11,773,801 9,441 8,597
Retained earnings 105,182 83,543
Cumulative translation adjustment -- 48
------------------
Total shareholders' equity 114,623 92,188
------------------
$171,428 $162,909
==================
</TABLE>

The accompanying notes are an integral
part of these consolidated financial statements.

20
<PAGE> 6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Electro Rent Corporation

<TABLE>
<CAPTION>
Three years ended May 31, 1996

Common Stock
------------------------- Cumulative
Number Retained Translation
(in thousands) of Shares Amount Earnings Adjustment
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, May 31, 1993 11,742 $ 8,437 $ 57,385 $ --
Exercise of stock options 22 117 -- --
Repurchase of common stock (1) (1) (6) --
Net income for the year ended May 31, 1994 -- -- 11,600 --
-----------------------------------------------------
Balance, May 31, 1994 11,763 8,553 68,979 --
Exercise of stock options 11 44 -- --
Net income for the year ended May 31, 1995 -- -- 14,564 --
Translation adjustment -- -- -- 48
----------------------------------------------------
Balance, May 31, 1995 11,774 8,597 83,543 48
Exercise of stock options 148 844 -- --
Repurchase of common stock -- -- (4) --
Net income for the year ended May 31, 1996 -- -- 21,643 --
Translation adjustment -- -- -- (48)
----------------------------------------------------
Balance, May 31, 1996 11,922 $ 9,441 $ 105,182 $ --
====================================================
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

21
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS Electro Rent Corporation

<TABLE>
<CAPTION>
Year Ended May 31,

(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 21,643 $ 14,564 $ 11,600
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 44,891 38,740 33,424
Provision for losses on accounts receivable 682 244 363
Gain on sale of equipment (5,526) (5,373) (6,315)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,935) 1,169 (1,919)
(Increase) decrease in other assets 122 (431) 125
Increase (decrease) in accounts payable (1,558) (1,845) 540
Increase (decrease) in accrued expenses 1,066 688 (417)
Decrease in deferred income taxes (281) (1,010) (2,949)
------------------------------
Net cash provided by operating activities 58,104 46,746 34,452
------------------------------
Cash flows from investing activities:
Proceeds from sale of equipment 18,543 18,622 24,702
Payments for acquisitions of businesses, net of cash acquired (1,881) (7,145) --
Payments for purchase of rental and lease equipment (53,648) (54,053) (36,437)
Payments for purchase of other property (1,648) (790) (4,143)
------------------------------
Net cash used in investing activities (38,634) (43,366) (15,878)
------------------------------
Cash flows from financing activities:
Decrease in bank borrowings (19,300) (4,653) (13,000)
Payments for retirement of subordinated debentures -- -- (5,192)
Proceeds from issuance of common stock 844 44 117
Payments for repurchase of common stock (4) -- (7)
------------------------------
Net cash used in financing activities (18,460) (4,609) (18,082)
------------------------------
Effect of exchange rate on cash (48) 48 --
------------------------------
Net increase (decrease) in cash 962 (1,181) 492
Cash at beginning of year 432 1,613 1,121
------------------------------
Cash at end of year $ 1,394 $ 432 $ 1,613
==============================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.

22
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Electro Rent Corporation
- -------------------------------------------------------------------------------
Note 1: Summary of Significant Accounting Policies

Business and Organization:
Electro Rent Corporation primarily engages in the short-term rental and the
lease of state-of-the-art electronic equipment. The Company maintains an
equipment portfolio composed primarily of general purpose test and measurement
instruments, workstations, personal computers and data communication equipment
purchased from leading manufacturers. Another aspect of the Company's business
is the sale of equipment after its utilization for rental or lease. The
Company's customers are primarily located in the United States and operate in
various industry segments including aerospace and defense, telecommunications,
consulting and computer technology. During fiscal 1996, 1995 and 1994 no
customer accounted for more than 10% of total revenues.

Basis of Presentation:
The consolidated financial statements include Electro Rent Corporation and its
wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated. Certain reclassifications have been made to make information
comparable between years.

Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Rental and Lease Equipment and Other Property:
Assets are stated at cost. Upon retirement or disposal of assets, the cost and
the related allowance for depreciation are eliminated from the accounts and any
gain or loss is recognized. In March 1995 the Financial Accounting Standards
Board ("FASB") issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of ." The Company adopted
Statement No. 121 in 1996 which had no impact on the Company's financial
position and results of operations.

Capital Leases:
The Company has certain customer leases providing bargain purchase options,
which are accounted for as sales-type leases. At May 31, 1996 and 1995
investment in sales-type leases of $1,150,000 and $1,176,000 net of deferred
interest of $73,000 and $77,000 is included in other assets. Interest income is
recognized over the life of the lease using the interest method.

Depreciation:
Depreciation of rental and lease equipment and other property is computed by the
straight-line method over the estimated useful lives of the respective
equipment. New rental and lease equipment is depreciated over three to seven
years, and used equipment, over two and one-half to six years depending on the
type of equipment.

Net Income Per Common and Common Equivalent Share:
Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding of 12,349,543 in 1996, 12,156,857 in
1995 and 12,007,950 in 1994. Prior years' average shares have been restated to
give effect to the three-for-two stock split effected in the form of a 50% stock
dividend payable on August 18, 1995 to shareholders of record on July 31, 1995.

Cash Flow:
Supplemental disclosures of cash paid during the year for:

<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $ 2,275 $ 2,364 $ 1,985
Income taxes 13,640 9,786 12,163
</TABLE>

Supplemental schedule of non-cash investing and financing activities: The
Company acquired equipment of $15,832,000, $10,143,000, and $9,763,000 at May
31, 1996, 1995 and 1994, respectively, which was paid for during the subsequent
year.

23
<PAGE> 9
- -------------------------------------------------------------------------------
Note 2: Borrowings

The Company's financing agreement provides for a $40,000,000 unsecured line of
credit. Unless renewed, the line of credit converts to a term loan on November
15, 1996, payable in 18 quarterly installments including interest, commencing
February 15, 1997. The outstanding balance under the line of credit is
$1,300,000 at May 31, 1996. The agreement provides for commitment fees, which
totalled $159,000 in 1996 and $159,000 in 1995, based on the unused balance. The
agreement also includes requirements regarding the financial position of the
Company, including minimum tangible net worth, debt coverage ratios, limitations
on the payment of dividends and debt-to-equity ratios. The Company was in
compliance with these covenants at May 31, 1996.

The Company has established additional unsecured borrowing arrangements with
various banks totalling $83,000,000. These uncommitted arrangements can be
withdrawn by the lenders at any time, at their option. There was $15,500,000
outstanding under these arrangements at May 31, 1996, with maturities ranging
from 1 to 27 days and at varying interest rates depending on the bank and term.
Weighted average interest rates under these unsecured lines were 5.62% at May
31, 1996 and 6.57% at May 31, 1995. Weighted average borrowings for the years
ended May 31, 1996 and 1995 were $26,867,000 and $36,899,000 with average
interest rates of 6.2% and 6.7%, respectively.

Debentures:
Subordinated debentures totaling $5,192,000, and bearing interest at 10%,
matured on April 1, 1994. Funds for the retirement were provided from
uncommitted short-term bank borrowings.
- -------------------------------------------------------------------------------
Note 3: Income Taxes

The Company accounts for income taxes in accordance with FASB Statement No. 109.
The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal $12,017 $ 8,602 $ 8,895
State 3,304 2,075 1,950
Deferred
Federal (281) (1,000) (2,689)
State (168) (10) (260)
------------------------------------
$14,872 $9,667 $ 7,896
====================================
</TABLE>

A reconciliation of the statutory federal income tax rate to the effective tax
rate is as follows:

<TABLE>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 5.5 5.5 5.5
Other--net 0.2 (0.5) --
--------------------------------------
Effective tax rate 40.7% 40.0% 40.5%
======================================
</TABLE>

24
<PAGE> 10
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liabilities at May 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 601 $ 508
Net operating loss carryforwards 1,316 1,432
Finance lease income 345 369
Other 182 149
----------------------
Total 2,444 2,458
----------------------
Deferred tax liabilities:
Accumulated depreciation (11,372) (12,709)
Deferred revenue (677) (156)
Other (2,091) (1,570)
----------------------
Total (14,140) (14,435)
----------------------
Net deferred tax liabilities ($11,696) ($11,977)
======================
</TABLE>

Net operating loss carryforwards for federal income tax reporting purposes
approximate $3,760,000 at May 31, 1996 and are available for use against Genstar
taxable income through 2006. The utilization of operating loss carryforwards is
limited to $344,000 per year for federal income tax reporting purposes.

- -------------------------------------------------------------------------------

Note 4: Rentals Under Noncancellable Operating Leases

In addition to short-term rentals, equipment is leased to customers under
various operating leases that expire over the next three years. These leases
provide the lessee with the option of renewing the agreement for periods of up
to twelve months or purchasing the equipment at fair market value at the end of
the initial or renewal term.

The Company's cost of equipment under operating leases at May 31, 1996, with
remaining noncancellable lease terms of more than one year, is $16,680,000
before accumulated depreciation of $4,082,000 for a net book value of
$12,598,000.

A schedule of minimum future rentals to be received on noncancellable operating
leases with remaining lease terms of more than one year as of May 31, 1996 is as
follows:

<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------------------------------
<S> <C>
1997 $ 8,211
1998 5,884
1999 1,517
-------
$15,612
=======
</TABLE>

25
<PAGE> 11
- -------------------------------------------------------------------------------
Note 5: Other Property

Other property, at cost, consists of the following:

<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Land $ 6,017 $ 6,017
Building 14,121 13,987
Furniture and other equipment 4,632 3,533
Leasehold improvements 327 287
----------------------
25,097 23,824
Less-- accumulated depreciation and amortization (5,774) (5,121)
----------------------
$19,323 $18,703
======================
</TABLE>
- -------------------------------------------------------------------------------
Note 6: Acquisitions

On March 29, 1996, the Company purchased the assets of LDI Computer Rentals,
Inc., a wholly-owned subsidiary of LDI Corporation engaged in the business of
renting and selling personal computers. The purchase price, based on the book
value of assets purchased at March 29, 1996, was approximately $2.3 million,
payable in cash and financed with short term bank borrowings. The excess of the
purchase price over the estimated fair value of the net assets acquired
(goodwill) of $180,000 is being amortized on a straight-line basis over 15
years. The acquisition has been accounted for by the purchase method and,
accordingly, the results of operations of LDI Computer Rentals have been
included with those of the Company from the date of acquisition.

On September 30, 1994, the Company purchased all of the outstanding stock of
Genstar Rental Electronics, Inc. (Genstar), a privately-held company engaged in
the business of renting, leasing and selling computers, workstations, and
general purpose test and measurement equipment. The cash purchase price, based
on Genstar's audited net worth at September 30, 1994, was $23.2 million, which
included assumed debt of $14.9 million. Financing for the transaction was
achieved through additional short-term borrowings under Electro Rent's existing
line of credit. The acquisition has been accounted for by the purchase method
and, accordingly, the results of operations of Genstar have been included with
those of the Company since the date of acquisition. The purchase price resulted
in an excess of acquisition costs over net worth of $97,000. Such excess and
acquired intangibles of $4.3 million are being amortized on a straight-line
basis over twenty years.

26
<PAGE> 12
- -------------------------------------------------------------------------------
Note 7: Commitments

The Company leases certain facilities under various operating leases. Most of
the lease agreements provide the Company with the option of renewing its lease
at the end of the initial lease term, at the fair rental value, for periods of
up to five years. In most cases, management expects that in the normal course of
business facility leases will renewed or replaced by other leases.

Minimum payments under these leases, exclusive of property taxes and insurance,
are as follows:

<TABLE>
<CAPTION>
(in thousands)
- -------------------------------------------------------------
<S> <C>
1997 $ 529
1998 282
1999 190
2000 26
2001 3
------
$1,030
======
</TABLE>

Rent expense was $1,037,000, $1,108,000, and $992,000 in 1996, 1995, and 1994,
respectively.

The Company holds a 15% interest in Nippon Electro Rent (NER) which is accounted
for using the cost method. In connection with this joint venture, the Company
guaranteed up to 300 million yen at May 31, 1996, with scheduled reductions in
the guarantee to 200 million yen and 100 million yen at July 1, 1996 and 1997,
respectively. The Company's guarantee of NER bank debt at July 1, 1996, May 31,
1996 and May 31, 1995 was $1,872,000, $2,775,000 and $5,322,000, respectively,
at the exchange rate in effect on those dates.

- -------------------------------------------------------------------------------

Note 8: Stock Option Plan

The Electro Rent Corporation 1990 Stock Option Plan authorizes the Board of
Directors to grant options for not more than 708,750 shares of the Company's
common stock. The plan provides for both incentive stock options, which may be
granted only to employees, and nonstatutory stock options, which may be granted
to directors and consultants who are not employees. Pursuant to the Company's
1990 Stock Option Plan, options have been granted to directors, officers and key
employees at prices not less than 100% of the fair market value at the date of
grant. Options are exercisable at various dates over a ten-year period from the
date of grant or a five-year period in the case of an employee who is also a 10%
stockholder. The following table summarizes certain information relative to
options for common stock after adjustment for stock splits.

<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, beginning of year 774,658 811,125 818,382
Granted 80,115 -- 31,500
Exercised (145,775) (10,593) (21,882)
Forfeited (1,688) (25,874) (16,875)
-----------------------------------------
Options outstanding, end of year 707,310 774,658 811,125
=========================================
At the end of year:
Prices of outstanding options $3.85-$17.13 $3.85-$8.72 $3.85-$8.72
Exercisable options 556,882 551,908 416,813
</TABLE>

27
<PAGE> 13
In October 1995, the FASB issued Statement No. 123 "Accounting for Stock-Based
Compensation." The Company is required to adopt the new statement for fiscal
1997. The Company expects that the adoption of the new statement will not have
an effect on its results of operations or financial position.

- -------------------------------------------------------------------------------

Note 9: Savings Plan and Employee Stock Ownership Plan

The Company maintains a Savings Plan (401[k]) and a frozen Employee Stock
Ownership Plan (ESOP). Employees become eligible to participate in the 401(k)
after one year of employment. The Company has the option to match contributions
of participants at a rate management determines each year. For participants with
three or more years of service, the Company also may elect to make additional
discretionary matching contributions in excess of the rate elected for
participants with less than three years of service.

The Board of Directors determines the amount to be contributed annually to the
401(k) in cash, provided that such contributions shall not exceed the amount
deductible for federal income tax purposes. Cash contributions to the 401(k) of
$495,000, $368,000, and $386,000 were made for 1996, 1995 and 1994,
respectively.

- -------------------------------------------------------------------------------

Note 10: Quarterly Information (Unaudited)

Quarterly information is as follows:

<TABLE>
<CAPTION>
Total Income Net Income
(in thousands, except per share information) Revenues Before Tax Income Per Share
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year 1996
First Quarter $ 34,361 $ 8,905 $ 5,254 $0.43
Second Quarter 34,563 9,169 5,410 0.44
Third Quarter 33,911 8,262 4,933 0.40
Fourth Quarter 38,302 10,179 6,046 0.48
----------------------------------------------------
$141,137 $36,515 $21,643 $1.75
====================================================

Fiscal Year 1995
First Quarter $ 27,788 $ 6,017 $ 3,550 $0.29
Second Quarter 30,751 6,183 3,648 0.30
Third Quarter 30,253 5,256 3,100 0.26
Fourth Quarter 32,562 6,775 4,266 0.35
----------------------------------------------------
$121,354 $24,231 $14,564 $1.20
====================================================
</TABLE>

28
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Electro Rent Corporation:

We have audited the accompanying consolidated balance sheets of Electro Rent
Corporation (a California corporation) and subsidiaries as of May 31, 1996 and
1995, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended May 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Electro Rent Corporation and
subsidiaries as of May 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1996 in conformity with generally accepted accounting principles.

Arthur Andersen LLP
Los Angeles, California
July 31, 1996

- -------------------------------------------------------------------------------

Capital Stock, Shareholders and Cash Dividend Information

The common stock of the Company is quoted on NASDAQ under the symbol ELRC. There
were approximately 718 shareholders of record at August 9, 1996. The following
table sets forth, for the period shown the high and low closing sale prices in
the NASDAQ National Market System as reported by NASDAQ. Prices have been
restated to reflect the three-for-two stock split distributed in August, 1995.

<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1995
--------------------- ---------------------
High Low High Low
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $18 1/4 $14 1/6 $10 3/8 $ 8 5/8
Second Quarter 21 1/2 16 3/4 11 5/8 9 1/2
Third Quarter 22 3/4 19 3/4 13 10 7/8
Fourth Quarter 25 21 1/4 14 7/8 12
</TABLE>

29
<PAGE> 15

<TABLE>
<CAPTION>
CORPORATE INFORMATION

Board of Directors Corporate Officers

<S> <C> <C>
Daniel Greenberg Daniel Greenberg Corporate Offices
Chairman of the Board and Chairman of the Board and 6060 Sepulveda Boulevard
Chief Executive Officer Chief Executive Officer Van Nuys, California 91411-2512
Phone (818) 786-2525
William Weitzman William Weitzman FAX (818) 786-4354
President and President and
Chief Operating Officer Chief Operating Officer Data Rentals/Sales Division
Division Officer
*+ Gerald D. Barrone Gary B. Phillips Steven Markheim
Retired, former President and Senior Vice President Vice President
Chief Operating Officer
Coast Federal Bank Craig R. Jones
Vice President and
*+ Nancy Y. Bekavac Chief Financial Officer
President Transfer Agent & Registrar
Scripps College Steven Markheim U.S. Stock Transfer Corporation
Vice President and Secretary Glendale, California
*+ Joseph J. Kearns
Vice President and Richard E. Bernosky NASDAQ Listing
Chief Financial Officer Vice President Common Stock-
J. Paul Getty Trust OTC Symbol: "ELRC"
Dennis M. Clark
*+ Michael R. Peevey Vice President General Counsel
President Easton & Schiff
New Energy Ventures, Inc. Thomas A. Curtin Los Angeles, California
Vice President
*+ Will Richeson, Jr. Independent Public Accountants
Consultant Raymond A. Fisk Arthur Andersen LLP
Vice President Los Angeles, California

</TABLE>

*Audit Committee
+Compensation Committee

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