MCGRATH RENTCORP
10-Q, 1997-11-14
EQUIPMENT RENTAL & LEASING, NEC
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<PAGE>

                                   FORM 10-Q



                        SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549

                            _________________________


                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the quarter ended September 30, 1997
                        Commission File No.  0-13292


                               McGRATH RENTCORP

            (Exact name of registrant as specified in its Charter)

                 CALIFORNIA                        94-2579843

         (State or other jurisdiction          (I.R.S. Employer
       of incorporation or organization)     Identification No.)



                            5700 LAS POSITAS ROAD
                         LIVERMORE, CALIFORNIA 94550

                    (Address of principal executive offices)

                  Registrant's telephone number: (510) 606-9200


                          _________________________


     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
                         ______                    _______

At November 11, 1997, 15,021,918 shares of Registrant's Common Stock
were outstanding.

                         _________________________


<PAGE>


                                                              McGrath RentCorp
                                                  Third Quarter 1997 Form 10-Q
                                                                        Page 1


                       PART 1.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

<TABLE>
<CAPTION>

                      CONSOLIDATED STATEMENTS OF INCOME
                                (UNAUDITED)


                                              Three months ended               Nine months ended
                                                 September 30,                   September 30,
                                          ---------------------------     ----------------------------
                                             1997             1996            1997              1996     
                                          -----------     -----------     ------------     -----------
<S>                                       <C>             <C>             <C>              <C>
REVENUES:
 Rental operations-
   Rental                                 $16,067,741     $12,321,796     $ 45,138,552     $35,573,650
   Rental related services                  3,608,892       3,920,071        8,892,168       7,672,245
                                          -----------     -----------     ------------     -----------
                                           19,676,633      16,241,867       54,030,720      43,245,895
 Sales and related services                25,675,496       9,255,338       51,621,927      19,598,040
                                          -----------     -----------     ------------     -----------
      Total revenues                       45,352,129      25,497,205      105,652,647      62,843,935
                                          -----------     -----------     ------------     -----------
COSTS & EXPENSES:
 Direct costs of rental operations-
   Depreciation                             3,649,571       3,108,151       10,537,344       9,188,972
   Rental related services                  1,991,688       2,048,185        5,606,739       4,227,682
   Other direct rental costs                2,296,141       2,671,884        6,763,243       6,231,218
                                          -----------     -----------     ------------     -----------
                                            7,937,400       7,828,220       22,907,326      19,647,872
 Cost of sales and related services        17,878,601       6,064,184       35,533,649      13,257,615
                                          -----------     -----------     ------------     -----------
                                           25,816,001      13,892,404       58,440,975      32,905,487
                                          -----------     -----------     ------------     -----------
      Gross margin                         19,536,128      11,604,801       47,211,672      29,938,448

 Selling and administrative expenses        5,429,859       3,729,591       12,970,953       9,576,391
                                          -----------     -----------     ------------     -----------
      Income from operations               14,106,269       7,875,210       34,240,719      20,362,057

 Interest expense                           1,042,716         744,275        2,905,047       2,061,701
                                          -----------     -----------     ------------     -----------
      Income before provision
      for income taxes                     13,063,553       7,130,935       31,335,672      18,300,356
                                          -----------     -----------     ------------     -----------
 Provision for income taxes                 5,361,199       2,667,070       12,632,183       7,110,824
                                          -----------     -----------     ------------     -----------
 Net income                               $ 7,702,354     $ 4,463,865     $ 18,703,489     $11,189,532
                                          -----------     -----------     ------------     -----------
                                          -----------     -----------     ------------     -----------
 Net income per share                     $      0.51     $      0.29     $       1.23     $      0.73
                                          -----------     -----------     ------------     -----------
                                          -----------     -----------     ------------     -----------

</TABLE>

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

<PAGE>


                                                              McGrath RentCorp
                                                  Third Quarter 1997 Form 10-Q
                                                                        Page 2

<TABLE>
<CAPTION>

                           CONSOLIDATED BALANCE SHEETS
                                 (Unaudited)

                                              September 30,     December 31,
                                                  1997              1996
                                              ------------      ------------
<S>                                           <C>               <C>
ASSETS
Cash                                          $  1,341,998      $    686,333
Accounts receivable, less allowance for
  doubtful accounts of $650,000 in 1997
  and $605,000 in 1996                          25,849,843        19,919,954

Rental equipment, at cost:
  Relocatable modular offices                  179,968,456       158,376,950
  Electronic test instruments                   48,867,451        43,335,413
                                              ------------      ------------
                                               228,835,907       201,712,363
  Less - Accumulated depreciation              (70,142,706)      (64,419,888)
                                              ------------      ------------
                                               158,693,201       137,292,475

Land                                            20,167,647        20,167,647
Land improvements, furniture and equipment,
  at cost, less accumulated depreciation of
  $2,934,896 in 1997 and $3,376,803 in 1996     25,416,597        19,572,015
Prepaid expenses and other assets                6,494,117         2,396,935
                                              ------------      ------------
                                              $237,963,403      $200,035,359
                                              ------------      ------------
                                              ------------      ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
 Notes payable                                $ 65,800,000      $ 53,850,000
 Accounts payable and accrued liabilities       22,757,765        15,280,543
 Deferred income                                 7,313,239         5,226,803
 Deferred income taxes                          37,627,123        36,869,734
                                              ------------      ------------
       Total liabilities                       133,498,127       111,227,080
                                              ------------      ------------

Shareholders' equity:
  Common stock, no par value -
    Authorized - 4O,OOO,OOO shares
    Outstanding - 15,015,918 shares in 1997
                  and 14,797,918 in 1996         7,718,062         7,161,168
  Retained earnings                             96,747,214        81,647,111
                                              ------------      ------------
       Total shareholders' equity              104,465,276        88,808,279
                                              ------------      ------------
                                              $237,963,403      $200,035,359
                                              ------------      ------------
                                              ------------      ------------

</TABLE>

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

<PAGE>



                                                              McGrath RentCorp
                                                  Third Quarter 1997 Form 10-Q
                                                                        Page 3

<TABLE>
<CAPTION>

                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                Increase (decrease) in cash
                                        (Unaudited)


                                                              Nine months ended
                                                                 September 30,
                                                             1997              1996
                                                         ------------      ------------
<S>                                                      <C>               <C>
Cash flows from operating activities:
 Net income                                              $ 18,703,489      $ 11,189,532
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation                                             11,191,451         9,787,419
  Gain on sale of rental equipment                         (5,453,700)       (3,606,691)
  Change in:
   Accounts receivable                                     (5,929,889)       (5,380,276)
   Prepaids and other assets                               (4,097,182)         (428,495)
   Accounts payable and accrued liabilities                 7,313,283         3,931,629
   Deferred income                                          2,086,436          (341,885)
   Deferred income taxes                                      757,389         1,826,972
                                                         ------------      ------------
    Net cash provided by operating activities              24,571,277        16,978,205
                                                         ------------      ------------
Cash flows from investing activities:
 Purchase of rental equipment                             (41,240,592)      (17,598,298)
 Purchase of land                                             ---              (678,347)
 Purchase of land improvements, furniture
  and equipment                                            (6,498,689)       (4,277,225)
 Proceeds from sale of rental equipment                    14,756,222         9,511,633
                                                         ------------      ------------
    Net cash used in investing activities                 (32,983,059)      (13,042,237)
                                                         ------------      ------------
Cash flows from financing activities:
 Net borrowings                                            11,950,000         8,645,000
 Payment of dividends                                      (3,439,447)       (3,048,133)
 Repurchase of common stock                                   ---            (8,778,775)
 Net proceeds from the exercise of stock options              556,894            92,101
                                                         ------------      ------------
    Net cash provided (used) by financing activities        9,067,447        (3,089,807)
                                                         ------------      ------------
    Net increase (decrease) in cash                           655,665           846,161

Cash balance, beginning of period                             686,333           221,075
                                                         ------------      ------------
Cash balance, end of period                              $  1,341,998      $  1,067,236
                                                         ------------      ------------
                                                         ------------      ------------

Interest paid during period                              $  2,859,790      $  2,028,226
                                                         ------------      ------------
                                                         ------------      ------------
Income taxes paid during period                          $  8,274,674      $  5,256,506
                                                         ------------      ------------
Dividends declared but not yet paid                      $  1,201,753      $  1,035,854
                                                         ------------      ------------
                                                         ------------      ------------

</TABLE>

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

<PAGE>


                                                              McGrath RentCorp
                                                  Third Quarter 1997 Form 10-Q
                                                                        Page 4


                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 September 30, 1997
                      __________________________________________

1.   The consolidated financial information for the nine months ended
September 30, 1997 has not been audited, but in the opinion of management,
all adjustments (consisting only of normal recurring accruals,
consolidation and eliminating entries) necessary for the fair presentation
of the consolidated results of operations, financial position, and cash
flows of McGrath RentCorp (the "Company") have been made.  The consolidated
results of the nine months ended September 30, 1997 should not be
considered as necessarily indicative of the results for the entire year.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest Form 10-K.

2.   The number of outstanding shares and equivalent shares used in the
earnings per common share calculations were as follows:

<TABLE>
<CAPTION>
                                               Primary      Fully Diluted
                                              ----------    -------------
<S>                                           <C>             <C>
Three months ended: September 30, 1997        15,242,764      15,250,148
                    September 30, 1996        15,172,408      15,194,300

Nine months ended:  September 30, 1997        15,192,887      15,235,692
                    September 30, 1996        15,403,986      15,468,252

</TABLE>

3.  The Financial Accounting Standards Board issued Statement of Financial 
Accounting Standards (SFAS) No. 128, "Earnings per Share", which modifies the 
way in which earnings per share (EPS) is calculated and disclosed effective 
for periods ending after December 15, 1997. Primary EPS will be replaced by 
basic EPS which is computed by dividing reported net income by the weighted 
average number of shares of common stock outstanding during the period. Fully 
diluted EPS will be replaced with diluted EPS which is computed by dividing 
reported net income by the weighted average number of shares of common stock 
and dilutive common equivalent shares outstanding during the period. Common 
stock equivalents result from dilutive stock options computed using the 
treasury stock method with the average share price for the reported period. 
When implemented, the effect of this accounting change on previously reported 
EPS data is not significant.

4.  In July 1997, the Company entered into a new credit agreement amending
and restating it's unsecured line of credit (the "Agreement") with its
banks which expires June 30, 1999 and permits it to borrow up to
$70,000,000. The Agreement requires the Company to pay interest at prime
or, at the Company's election, other rate options available under the
Agreement. In addition, the Company pays a commitment fee on the daily
average unused portion of the available line. Among other terms, the

<PAGE>


                                                              McGrath RentCorp
                                                  Third Quarter 1997 Form 10-Q
                                                                        Page 5

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                September 30, 1997
                     __________________________________________


Agreement requires (i) the Company to maintain shareholders' equity of not 
less than $77,800,000 plus 50% of all net income generated subsequent to June 
30, 1997, (ii) a debt-to-equity ratio (excluding deferred income taxes) of 
not more than 3 to 1, (iii) interest coverage (income from operations 
compared to interest expense) of not less than 2 to 1, and (iv) debt service 
coverage of not less than 1.15 to 1. If the Company does not amend or 
renegotiate this Agreement for an additional time period prior to its 
expiration date, the principal amount outstanding at that time will be 
converted to a two-year term loan with the principal due and payable in eight 
(8) quarterly installments. In addition to the $70,000,000 unsecured line of 
credit, the Company has a $3,000,000 committed line of credit related to its 
cash management services and has $10,000,000 of uncommitted optional advance 
facilities all of which expire June 30, 1998.

<PAGE>

                                                             McGrath RentCorp
                                                 Third Quarter 1997 Form 10-Q
                                                                       Page 6


ITEM 2.  MANAGEMENT  DISCUSSION AND  ANALYSIS OF  FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

Three and Nine Months Ended September 30, 1997 and 1996

     McGrath RentCorp (the "Company") is engaged in the business of renting 
and selling relocatable modular offices and classrooms under its trade name 
"Mobile Modular," and electronic test and measurement instruments under the 
names "McGrath RentCorp" and "Rentelco". Although the Company's primary 
emphasis is on rentals, both modulars and electronics are sold to direct-use 
customers. The Company also manufactures portable classrooms through its 
majority owned (73.2%) subsidiary, Enviroplex, Inc., for direct sale to 
school districts.

     Rental revenues for the three and nine months ended September 30, 1997 
increased $3,745,945 (30%) and $9,564,902 (27%), respectively, over the same 
periods in 1997. Modulars contributed 71.2% and 75.8% of the rental revenue 
increase in 1997 for the three and nine months ended September 30, 1997. 
Average utilization during the first nine months increased for Modulars, from 
70.5% to 80.0%, and slightly declined for Electronics, from 55.2% to 55.0% as 
compared to the same period in 1996. The increase in utilization for Modulars 
is primarily the result of rentals to implement the class size reduction 
program in California schools.

     Rental related service revenues for the three months ended September 30, 
1997 decreased $311,179 (8%) and for the nine months ended September 30, 1997 
increased $1,219,923 (16%), respectively, compared to the same periods in 
1996. The three month comparative revenue decline resulted from many schools 
opting in 1997 to include the normal upfront charges in the rental rate. The 
nine month comparative increase was primarily due to one commercial project 
with significant site work requirements which occurred in the first quarter 
of 1997. The gross margins for rental related services declined for the nine 
month comparative period from 45% in 1996 to 37% in 1997 partially as a 
result of the project noted above being performed at a lower gross margin.

     Sales and related services for the three and nine months ended September 
30, 1997 increased $16,420,158 (177%) and $32,023,887 (163%), respectively, 
over the same periods in 1996. The table below indicates the sales and 
related services contribution for Modulars, Enviroplex and Electronics for 
nine months ended September 30, 1997 compared with the nine months ended 
September 30, 1996.

                 Nine months ended September 30,
                 -------------------------------         Increase Over
                    1997                1996              Prior Period
                 -----------         -----------         -------------
Modulars         $29,156,007         $ 9,216,794           $19,939,213
Enviroplex        16,755,733           6,150,920            10,604,813
Electronics        5,710,187           4,230,326             1,479,861
                 -----------         -----------          ------------
                 $51,621,927         $19,598,040           $32,023,887
                 -----------         -----------          ------------
                 -----------         -----------          ------------

<PAGE>

                                                             McGrath RentCorp
                                                 Third Quarter 1997 Form 10-Q
                                                                       Page 7


The significant increase in sales and related services for Modulars and 
Enviroplex is directly related to the higher demand by school districts in 
conjunction with the class size reduction program in California. Sales and 
related service revenues from school districts comprised 77% and 33% of the 
Modulars sales and related services revenues for the nine months ended 
September 30, 1997 and 1996, respectively, while Enviroplex sells 
substantially all of its product to school districts. Future sales under the 
class size reduction program for the Company are subject to the state's 
funding of the program, the requirements of the various school districts and 
available supplies. Management believes the present sales and related 
services revenue levels for Modulars, and to a lesser degree Enviroplex, may 
not be sustainable in the future. Management continues to believe that sales 
and related services from quarter to quarter and year to year fluctuate based 
on customer requirements. Gross margins on sales and related services 
declined slightly for the nine month period from 32.4% in 1996 to 31.2% in 
1997.

     Depreciation on rental equipment for the three and nine months ended 
September 30, 1997 increased $541,420 (17%) and $1,348,372 (15%), 
respectively, over the same periods in 1996 due to the additions of both 
modular and electronic rental equipment.

     Selling and administrative expenses for the three and nine months ended 
September 30, 1997 increased $1,700,268 (46%) and $3,394,562 (35%), 
respectively, over the same periods in 1996. The increased business activity 
in the modular business for class size reduction has also translated into 
higher personnel costs for the nine months ended September 30, 1997 over the 
same nine month period in 1996. Personnel costs increased $1,580,152 over the 
same period in 1996 and include additional staff for sales and support, 
increased temporary contract labor, and increased sales and performance 
bonuses.  Additionally, selling and administrative expenses for Enviroplex 
increased $908,894 during the nine month comparative period due to increased 
sales activity and includes the reduction of net income by the portion of 
earnings of Enviroplex related to the minority shareholder's interest.

     Interest expense for the three and nine months ended September 30, 1997 
increased $298,441 (40%) and $843,346 (41%), respectively, over the same 
periods in 1996 as a result of 47% higher average borrowing levels during the 
comparative period.

     Income before provision for income taxes for the three and nine months 
ended September 30, 1997 increased $5,932,618 (83%) and $13,878,662 (68%), 
respectively, over the same periods in 1996. Net income increased $3,238,489 
(73%) for the three month period and $7,513,957 (67%) for the nine month 
period over the same periods in 1996. Earnings per share for the three and 
nine months ended September 30, 1997 increased 76%, from $0.29 to $0.51, and 
68%, from $0.73 to $1.23.

<PAGE>

                                                             McGrath RentCorp
                                                 Third Quarter 1997 Form 10-Q
                                                                       Page 8

Liquidity and Capital Resources.

     The debt (notes payable) to equity ratio was 0.63 to 1 at September 30, 
1997 compared to 0.61 to 1 at December 31, 1996. The debt (total liabilities) 
to equity ratio at the end of the current period was 1.28 to 1 as compared to 
1.25 to 1 as of December 31, 1996.

     The Company has made purchases of shares of its common stock from time 
to time in the over-the-counter market (NASDQ) and/or through privately 
negotiated, large block transactions under an authorization of the Board of 
Directors. Shares repurchased by the Company will be cancelled and returned 
to the status of authorized but unissued stock. The Company has not 
repurchased any of its common stock during 1997 and currently is authorized 
to purchase up to 1,000,000 shares.

     The Company's primary use of funds is to purchase rental equipment and 
sales inventory, and funds will continue to be used for this purpose in the 
future. The Company also pays quarterly dividends, which will constitute an 
additional use of cash in 1997.

<PAGE>

                                                             McGrath RentCorp
                                                 Third Quarter 1997 Form 10-Q
                                                                       Page 9

                          PART II.  OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

     In September 1997, the Company declared a quarterly dividend on its 
Common Stock; the dividend was $0.08 per share. Subject to its continued 
profitability and favorable cash flow, the Company intends to continue the 
payment of quarterly dividends.

ITEM  6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS.

    Index to exhibits filed herewith as part of this report:

    Exhibit  
    Number   Title

    4.1      $3,000,000 Committed Credit Facility dated July 29, 1997
             between the Company and Union Bank of California, N.A.

    4.2      $5,000,000 Optional Advance Facility Extension dated July
             29, 1997 between the Company and Union Bank of California,
             N.A.

    4.3      $5,000,000 Optional Advance Facility Extension dated
             August 13, 1997 between the Company and Fleet Bank, N.A.

(b) REPORTS ON FORM 8-K.  No reports on form 8-K have been filed during the
quarter for which this report is filed.

<PAGE>

                                                             McGrath RentCorp
                                                 Third Quarter 1997 Form 10-Q
                                                                      Page 10


                                  SIGNATURES

     Pursuant to the requirements 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.

Date: November 11, 1997                      McGRATH RENTCORP

                                             By:/s/ Delight Saxton
                                             ----------------------------------
                                             Delight Saxton, Chief Financial
                                             Officer and Senior Vice President





<PAGE>




                                  EXHIBIT  4.1





<PAGE>

                                  [LETTERHEAD]



July 24, 1997

(415) 765-2614

Ms. Delight Saxton
Chief Financial Officer and
Vice President of Administration
McGrath RentCorp
2500 Grant Avenue
San Lorenzo, CA 94580

Re:  $3,000,000.00 Committed Credit Facility

Dear Ms. Saxton:

Union Bank of California, N.A. ("Bank") is pleased to offer McGrath RentCorp, 
a California corporation ("Borrower") a committed credit facility 
("Facility") under which the Bank will make advances to the Borrower from 
time to time up to and including June 30, 1998, not to exceed at any time the 
maximum principal amount of Three Million Dollars ($3,000,000), to be 
governed by the terms of the enclosed Credit Line Note ("Credit Line Note") 
in favor of Bank, and subject to the conditions and agreements set forth 
below.

1.  This Facility is made available only in connection with Borrower's use of 
the Bank's sweep service for management of its checking account balances 
("Sweep Service"). Therefore, this Facility shall commence on the date 
("Effective Date") Borrower becomes a Sweep Service customer and this 
Facility shall terminate, if not earlier terminated, on the date Borrower 
ceases to continue as a Sweep Service customer. Upon such termination Bank 
shall have no further obligation to fund advances under this Facility, and 
all amounts owing under the Credit Line Note shall become immediately due and 
payable.

2.  As provided in the Credit Line Note, the occurrence of an Event of 
Default under the Multibank Agreement shall be a default under this Facility. 
The term "Multibank Agreement" as used herein means that certain Credit 
Agreement dated as of July 10, 1997, by and among Borrower, Bank, Fleet Bank, 
N.A. and Bank of America, National Trust & Savings Association, and shall 
include any amendments thereto as are consented to by Bank as set forth 
herein. Each capitalized term not otherwise defined herein shall have the 
meaning set forth in the Multibank Agreement.

3.  Borrower shall comply with, and repeats as if fully set forth herein as 
of the date hereof, all of the representations, covenants and obligations of 
Borrower set forth under Articles 6, 7, 8, and 11 (and including any 
definitions and related provisions) of the Multibank Agreement. In the event 
the Multibank Agreement terminates or expires prior to the termination or 
expiration of this Facility the foregoing representations, covenants and 
obligations of Borrower shall nevertheless survive as between Borrower and 
Bank with respect to this Facility and shall continue in effect until this 
Facility terminates or expires. No amendment or waiver of any provision of 
the Multibank Agreement after the date hereof shall be effective with respect 
to this Facility unless the Bank consents thereto in writing.

4.  Borrower acknowledges that any amount outstanding under the Credit Line 
Note is included within the definition of "Debt" and "Outside Debt" under 
the Agreement.

5.  Borrower shall pay to Bank a non-refundable commitment fee for this 
Facility for the period of time during which this Facility is available. Such 
fee shall be payable in arrears in quarterly installments on the last day of 
each March, June, September, and December, and on the last day this Facility 
is

<PAGE>

Ms. Delight Saxton
July 24, 1997
Page 2

available, to be computed at the rate per annum equal to 0.125% on the 
average unused amount of the Facility during such period.

6.  This Facility letter will be governed by the laws of the State of 
California.

Enclosed is the original Credit Line Note and a copy of the this Facility 
letter together with an Authorization to Pay Proceeds of Note and Loan 
Disbursement Instructions, and any other contract, instrument or document Bank 
requires to be executed and delivered in connection with this Facility (each 
a "Loan Document"). The Borrower's executing the Loan Documents and returning 
them to Bank together with an appropriate corporate resolution and incumbency 
certificate acceptable to Bank constitutes its agreement to the terms and 
conditions of this Facility.

BORROWER AND BANK HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, 
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS FACILITY LETTER, THE 
CREDIT LINE NOTE OR ANY OTHER LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR 
RELATED OR INCIDENTAL HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR 
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND 
ANY SUCH CLAIM, DEMAND ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT 
TRIAL WITHOUT A JURY. BORROWER OR BANK MAY FILE AN ORIGINAL COUNTERPART OR A 
COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THIS CONSENT OF 
BORROWER AND BANK TO WAIVE THEIR RIGHT TO TRIAL BY JURY.

This offer expires on August 8, 1997, unless the executed Loan Documents and 
the corporate resolution and incumbency certificate are returned to the Bank 
by then. If the Effective Date has not occurred by October 30, 1997, this 
Facility letter and the Credit Line Note shall terminate and be of no further 
force and effect on such date.

We look forward to serving you.

Yours truly, 

Union Bank of California, N. A.


By: /s/ Robert John Vernagallo
   ------------------------------
      Robert John Vernagallo,
      Vice President


ACCEPTED AND AGREED:

MCGRATH RENTCORP, a 
California Corporation

By: /s/ Delight Saxton
   ------------------------------

Title: VICE PRESIDENT OF ADMIN
   ------------------------------

By: /s/ Thomas J. Sauer
   ------------------------------

Title: VICE PRESIDENT
   ------------------------------

Date:  July 29, 1997
   -----------


RV/da/11095


<PAGE>

                              CREDIT LINE NOTE

- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Borrower Name
McGrath RentCorp, a California corporation
- ---------------------------------------------------------------------------

Borrower Address                        Office               Loan Number

2500 Grant Avenue                       ------------         --------------
San Lorenzo, California 94580           Maturity Date        Amount
                                        June 30, 1998        $3,000,000
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------

Date July 24, 1997                                               $3,000,000

FOR VALUE RECEIVED, on June 30, 1998, the undersigned ("Debtor") promises to 
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank") as indicated 
below, the principal sum of THREE MILLION DOLLARS ($3,000,000), or so much 
thereof as is disbursed, together with interest on the balance of such 
principal sum from time to time outstanding, at a per annum rate equal to the 
Reference Rate, such per annum rate to change as and when the Reference Rate 
shall change. Debtor may borrow, repay and reborrow under this note.

As used herein, the term "Reference Rate" shall mean the rate announced by 
Bank from time to time at its corporate headquarters as its "Reference Rate." 
The Reference Rate is an index rate determined by Bank from time to time as a 
means of pricing certain extensions of credit and is neither directly tied to 
any external rate of interest or index nor necessarily the lowest rate of 
interest charged by Bank at any given time. All computations of interest 
under this note shall be made on the basis of a year of 360 days, for actual 
days elapsed.

1.  PAYMENTS.

    1.1  INTEREST PAYMENTS.  Debtor shall pay interest on the last day of each 
month commencing July, 1997. Should interest not be so paid, it shall become 
a part of the principal and thereafter bear interest as herein provided.

    1.2  PRINCIPAL PAYMENTS.  All principal outstanding on this note is due 
and payable on the earlier of June 30, 1998 or any accelerated maturity date.

Debtor shall pay all amounts due under this note in lawful money of the 
United States at Bank's San Francisco Office or such other office as may be 
designated by Bank from time to time.

2.  INTEREST RATE FOLLOWING DEFAULT.  In the event of default, at the option 
of Bank, and, to the extent permitted by law, interest shall be payable on 
the outstanding principal under this note at a per annum rate equal to two 
percent (2%) in excess of the interest rate specified in the initial 
paragraph of this note, calculated from the date of default until all amounts 
payable under this note are paid in full.

                                                                        Page 1

<PAGE>

3.  DEFAULT AND ACCELERATION OF TIME FOR PAYMENT.  Default shall include, but 
not be limited to, any of the following: (a) the failure of Debtor to make 
any payment required under this note when due; (b) any breach 
misrepresentation or other default by Debtor, any guarantor, co-maker 
endorser, or any person or entity other than Debtor providing security for 
this note (hereinafter individually and collectively referred to as the 
"Obligor") under any security agreement, guaranty or other agreement between 
Bank and any Obligor; (c) the insolvency of any Obligor or the failure of any 
Obligor generally to pay such Obligor's debts as such debts become due; (d) 
the commencement as to any Obligor of any voluntary or involuntary proceeding 
under any laws relating to bankruptcy, insolvency, reorganization, 
arrangement, debt adjustment or debtor relief; (e) the assignment by any 
Obligor for the benefit of such Obligor's creditors; (f), the appointment, or 
commencement of any proceedings for the appointment, of a receiver, trustee, 
custodian or similar official for all or substantially all of any Obligor's 
property; (g) the commencement of any proceeding for the dissolution or 
liquidation of any Obligor; (h) the termination of existence or death of any 
Obligor; (i) the failure of any Obligor to comply with any order, judgment, 
injunction, decree, writ or demand of any court or other public authority; 
(j) the filing or recording against any Obligor, or the property of any 
Obligor of any notice of levy, notice to withhold, or other legal process for 
taxes other than property taxes; (k) the default by any Obligor liable for 
amounts owed hereunder on any obligation concerning the borrowing of money; 
(i) the issuance against any Obligor or the property of any Obligor, of any 
writ of attachment, execution or other; judicial lien; (m) the deterioration 
of the financial condition of any Obligor which results in Bank deeming 
itself, in good faith, insecure, (n) Debtor's failure to comply with any 
provision of the Multibank Agreement (as defined in the facility letter 
between Debtor and Bank executed in connection herewith), or (o) Debtor's 
failure to comply with any provision of the facility letter between Debtor 
and Bank executed in connection herewith. Upon the occurrence of any such 
default, Bank, in its discretion, may cease to advance funds hereunder and 
may declare all obligations under this note immediately due and payable; 
however, upon the occurrence of an event of default under d, e, f, g, or n 
all principal and interest shall automatically become immediately due and 
payable.

4.  ADDITIONAL AGREEMENTS OF DEBTOR.  If any amounts owing under this note 
are not paid when due, Debtor promises to pay all costs and expenses, 
including reasonable attorney's fees, incurred by Bank in the collection or 
enforcement of this note. Debtor and any endorsers of this note, for the 
maximum period of time and the full extent permitted by law (a) waive 
diligence, presentment, demand notice of nonpayment, protest, notice of 
protest, and notice of every kind; (b) waive the right to assert the defense 
of any statute of limitations to any debt or obligation hereunder; and (c) 
consent to renewals and extensions of time for the payment of any amounts due 
under this note. If this note is signed by more than one party, the term 
'Debtor" includes each of the undersigned and any successors in interest 
thereof; all of whose liability shall be joint and several. The receipt of 
any check or other item of payment by Bank, at its option, shall not be 
considered a payment on account until such check or

                                                                        Page 2

<PAGE>

other item of payment is honored when presented for payment at the drawee 
bank. Bank may delay the credit of such payment based upon Bank's schedule of 
funds availability, and interest under this note shall accrue until the 
funds are deemed collected. In any action brought under or arising out of 
this note, Debtor and any endorser of this note, including their successors 
and assigns, hereby consents to the jurisdiction of any competent court 
within the State of California, except as provided in any alternative dispute 
resolution agreement executed between Debtor and Bank, and consents to 
service of process by any means authorized by said state law. The term "Bank" 
includes, without limitation, any holder of this note. This note shall be 
construed in accordance with and governed by the laws of the State of 
California. This note is subject to the terms of the facility letter between 
Debtor and Bank executed in connection herewith but in the event of any 
conflict between the terms of such facility letter and this note the terms of 
this note shall prevail.


MCGRATH RENTCORP, a
California corporation

By: /s/ Delight Saxton
   ------------------------------

Title: Vice President of Admin.
      ---------------------------


                                                                         Page 3



<PAGE>

                                  EXHIBIT 4.2

<PAGE>

                                 [LETTERHEAD]



July 24, 1997


(415) 765-2614


Ms. Delight Saxton
Chief Financial Officer and 
Vice President of Administration
McGrath RentCorp
2500 Grant Avenue
San Lorenzo, CA 94580

Re:  Credit available (at Bank's discretion) pursuant to that certain 
$5,000,000.00 Optional Advance Facility Letter ("Facility Letter") from Union 
Bank of California, N.A., formerly The Bank of California, N.A. ("Bank") to 
McGrath RentCorp, a California corporation ("Borrower") dated October 16, 
1996, as extended by an extension letter dated June 27, 1997, and further 
evidenced by that certain Optional Advance Note dated October 16, 1996, 
executed by Borrower to the order of Bank, as extended by an extension letter 
dated June 27, 1997 ("Optional Advance Note").

Dear Ms. Saxton:

Pursuant to the Facility Letter the Bank expressed its general willingness to 
extend credit to the Borrower. Capitalized terms used herein shall have the 
meanings given them in the Facility Letter and Optional Advance Note.

Bank and Borrower mutually desire to amend the Facility Letter and the 
Optional Advance Note in certain respects, and hereby agree as follows:

     The date "June 30, 1997" which appears in the first unnumbered paragraph 
     of the Facility Letter, in the first unnumbered paragraph of the 
     Optional Advance Note, and in paragraph 2.b. of the Optional Advance 
     Note (as extended by the extension letter described above) is hereby 
     amended to "June 30, 1998".

     The second sentence of the first unnumbered paragraph of the Facility 
     Letter is hereby amended to read as follows: "The term 'Agreement' as 
     used herein shall mean the Credit Agreement dated as of July 10, 1997, 
     between Borrower, Bank, Bank of America, National Trust & Savings
     Association, and Fleet Bank, N.A., and shall include any amendments 
     thereto as are agreed to by Bank as set forth below."

     The following phrase in the first sentence of section (iii) of the 
     Facility Letter: "under Articles 6, 7, and 8 of the Agreement is 
     hereby deleted and replaced with the following: under Articles 6, 7, 8 
     and 11 of the Agreement (and including any definitions and related 
     provisions) of the Agreement."

<PAGE>

Ms. Delight Saxton
7/24/97
Page 2

     The second and third sentences of section (iii) of the Facility Letter 
     are deleted and replaced with the following: "Delivery to Bank of the 
     financial statements and other documents pursuant to Section 7.3 of the 
     Agreement shall be deemed delivery thereof to Bank for the purposes of 
     this Facility."

     Section (b) of the first sentence of paragraph 5 of the Optional Advance 
     Note is amended to read as follows: "(b) the occurrence of an Event of 
     Default as defined in the Agreement, or."

     The following sentence is added at the end of paragraph 6 of the 
     Optional Advance Note: "The capitalized terms used but not defined in 
     this note shall have the meanings given them in such facility letter."

     The following sentence is deleted from paragraph 6 of the Optional 
     Advance Note: "This note incorporates any alternative dispute resolution 
     agreement previously, concurrently or hereafter executed between Debtor 
     and Bank". The following is added as a new final paragraph to the 
     Facility Letter:

          BORROWER AND BANK HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY 
          CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS FACILITY
          LETTER, THE NOTE OR ANY OTHER LOAN DOCUMENT OR IN ANY WAY CONNECTED 
          WITH OR RELATED OR INCIDENTAL HERETO OR THERETO, IN EACH CASE WHETHER
          NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT 
          OR TORT OR OTHERWISE; AND ANY SUCH CLAIM, DEMAND ACTION OR CAUSE OF 
          ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY. BORROWER OR 
          BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS PARAGRAPH 
          WITH ANY COURT AS WRITTEN EVIDENCE OF THIS CONSENT OF BORROWER AND 
          BANK TO WAIVE THEIR RIGHT TO TRIAL BY JURY.

Except as specifically provided herein, all terms and conditions of the 
Facility Letter and Optional Advance Note remain in full force and effect, 
without waiver or modification. Borrower hereby confirms all terms and 
conditions contained in the Facility Letter. Further, Borrower certifies 
that, as of the date of this letter, there exists neither (i) any material 
adverse change to Borrower, its business, the property, or to any guarantor, 
nor (ii) any material misrepresentation or omission in any of the information 
or materials submitted by Borrower to Bank in connection with the Facility, 
nor (iii) any condition, act or event which with the giving of notice or the 
passage of time or both would constitute a material adverse change, 
misrepresentation or omission.

BORROWER ACKNOWLEDGES THAT THE FACILITY IS NOT A COMMITTED FACILITY. IN ITS 
SOLE DISCRETION, FOR ANY REASON OR FOR NO REASON AND WITH OR WITHOUT NOTICE, 
BANK MAY DECLINE TO MAKE ANY OR ALL REQUESTED

<PAGE>

Ms. Delight Saxton
7/24/97
Page 3

ADVANCES UNDER THE FACILITY, MAY DECLINE TO CONTINUE OR FURTHER RENEW THE 
FACILITY, AND MAY TERMINATE THE FACILITY AT ANY TIME.

Please indicate acceptance of the terms of this letter amendment by executing 
the enclosed copy and returning it to me no later than the Bank's close of 
business on July 25, 1997, at which time, unless the executed copy is 
received, the amendments contained herein shall expire.

Yours truly,

Union Bank of California, N.A.

By:  /s/ Robert John Vernagallo
   -------------------------------
       Robert John Vernagallo,
       Vice President


ACCEPTED AND AGREED:

MCGRATH RENTCORP, a
California corporation


By: /s/ Delight Saxton
   ---------------------------------

Title:  Vice President of Admin
      ------------------------------

By:  /s/ Thomas J. Sauer
   ---------------------------------

Title:  Vice President
      ------------------------------

Date:        July 29          , 1997
     -------------------------



<PAGE>







                                 EXHIBIT 4.3







<PAGE>

                                [LETTERHEAD]



July 23, 1997



Ms. Delight Saxton, CFO
McGrath RentCorp
2500 Grant Avenue
San Lorenzo, CA 94580

Re: Requests for Loans

Dear Delight:

We are pleased to advise you that Fleet Bank, National Association (the 
"Bank") hereby agrees to consider requests from McGrath RentCorp (the 
"Company") for short-term loans from time to time. Please be advised that any 
extension of credit will be available at the sole discretion of the Bank 
subject to the following terms and conditions:

LOAN REQUESTS: Each request for a loan will be, at the Bank's option, 
reviewed by the Bank and an independent credit option, reviewed by the Bank 
and an independent credit analysis and assessment will be made each time a 
request is received. HOWEVER, THE BANK SHALL BE UNDER NO OBLIGATION 
WHATSOEVER TO MAKE ANY LOAN OR OTHERWISE EXTEND CREDIT TO THE COMPANY. The 
Bank may respond to any request for a loan for stated amount with a loan for 
a different amount, date or maturity, or may decline to respond entirely. 
Please call Joanne Koska at 212-819-6355 with your request.

MAXIMUM AMOUNT OF LOANS: In no event shall the Company have more than 
$5,000,000 of indebtedness outstanding at any one time.

INTEREST RATE: Loans shall bear interest at an agreed or negotiated rate for 
the designated term of each loan. Interest rates on any loan will be 
determined by the Bank if such loan is provided to the Company.

EXPIRATION AND MATURITY DATE: No loan shall mature later than June 30, 1998.

OTHER CONDITIONS; DOCUMENTATION: Each request for a loan will be subject to 
the execution of a promissory note and such other documentation satisfactory 
to the Bank and to such other terms and conditions as may be required in the 
sole discretion of the Bank including, without limitation, satisfactory 
collateral, further due diligence, and the Bank's satisfaction as to all 
credit and legal matters.

<PAGE>


If the terms of this letter are acceptable to you, please indicate your 
acceptance by signing and returning the enclosed copy of this letter to the 
Bank on or before the date of your first request.

Please contact me, at the above number, or Bill Derasmo at 212-819-6647, if 
you have any questions or concerns.

                                       Very truly yours,

                                       FLEET BANK N.A.

                                       By: /s/ Anthony C. Nocera, VP
                                           -------------------------

Accepted and Agreed:

McGRATH RENTCORP

By: /s/ Delight Saxton
    ------------------
           8/13/97



cc: Bill Derasmo
    Joanne Koska







<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCGRATH
RENTCORP'S QUARTERLY REPORT (10Q) FOR QUARTER ENDING SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             JAN-01-1997
<PERIOD-END>                               SEP-30-1997
<CASH>                                           1,342
<SECURITIES>                                         0
<RECEIVABLES>                                   26,499
<ALLOWANCES>                                     (650)
<INVENTORY>                                          0
<CURRENT-ASSETS>                                     0
<PP&E>                                         277,353<F1>
<DEPRECIATION>                                (73,076)<F2>
<TOTAL-ASSETS>                                 237,963
<CURRENT-LIABILITIES>                                0
<BONDS>                                              0
                                0
                                          0
<COMMON>                                         7,718
<OTHER-SE>                                      96,747
<TOTAL-LIABILITY-AND-EQUITY>                   237,963
<SALES>                                        105,653
<TOTAL-REVENUES>                               105,653
<CGS>                                           58,441
<TOTAL-COSTS>                                   58,441
<OTHER-EXPENSES>                                12,971
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               2,905
<INCOME-PRETAX>                                 31,336
<INCOME-TAX>                                    12,632
<INCOME-CONTINUING>                             18,703
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    18,703
<EPS-PRIMARY>                                     1.23
<EPS-DILUTED>                                        0
<FN>
<F1>INCLUDES RENTAL EQUIPMENT, LAND, LAND IMPROVEMENT, FURNITURE & EQUIPMENT.
<F2>ACCUMULATED DEPRECIATION RELATED TO FOOTNOTE 16 ABOVE.
</FN>
        

</TABLE>


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