10-K

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

(Mark One)
[X]	ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2002
OR
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-9061

ELECTRO RENT CORPORATION

(Exact name of registrant as specified in its charter)

CALIFORNIA
(State or other jurisdiction
of incorporation or organization) 95-2412961
(I.R.S. Employer
Identification No.)

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

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 (§229.405 of this chapter) 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 amendment to this Form 10-K.   [   ]

The aggregate market value of the registrant’s Voting Stock, held by non-affiliates of the registrant, as of August 23, 2002, was $217,233,703.

Number of shares of Common Stock outstanding as of August 23, 2002: 24,802,860 shares.

TABLE OF CONTENTS

PART I
	Item 1. Business.
	Item 2. Properties.
	Item 3. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
PART II
	Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.
	Item 6. Selected Financial Data.
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 7A. Quantitative and Qualitative Disclosures About Market Risks.
	Item 8. Financial Statements and Supplementary Data.
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
PART III
	Item 10. Directors and Executive Officers of the Registrant.
	Item 11. Executive Compensation.
	Item 12. Security Ownership of Certain Beneficial Owners and Management.
	Item 13. Certain Relationships and Related Transactions.
PART IV
	Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Exhibit Index
SIGNATURES
EXHIBIT 10(D)(2)
EXHIBIT 10(E)(5)
EXHIBIT 13
EXHIBIT 22
EXHIBIT 23(A)
EXHIBIT 23(B)
EXHIBIT 99(A)
EXHIBIT 99(B)

DOCUMENTS INCORPORATED BY REFERENCE

1.	Inside front cover and pages 5-9 and 11-23 of the Annual Report to Security Holders for the fiscal year ended May 31, 2002 (the “2002 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 10, 2002 (the “2002 Proxy Statement”).

CROSS REFERENCE SHEET

Showing Location in 2002 Annual Report
and 2002 Proxy Statement of Information
Required by Items of Form 10-K

PART II

		Caption and Reference
	Form 10-K Item	in 2002 Annual Report
	Number and Caption	or 2002 Proxy Statement
5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	Annual Report page 23
6.	Selected Financial Data	Annual Report inside front cover
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Annual Report pages 5 to 9
8.	Financial Statements and Supplementary Data	Annual Report pages 11 to 23
PART III
10.	Directors and Executive Officers of the Registrant	Proxy Statement pages 5, 6 and 9
11.	Executive Compensation	Proxy Statement pages 6 to 15
12.	Security Ownership of Certain Beneficial Owners and Management	Proxy Statement pages 4 and 5
13.	Certain Relationships and Related Transactions	Proxy Statement page 9

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PART I

               EXCEPT FOR THE HISTORICAL STATEMENTS AND DISCUSSIONS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, STATEMENTS CONTAINED IN THIS FORM 10-K CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS REFLECT CURRENT VIEWS OF OUR MANAGEMENT WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. ALL PLANS, PROJECTIONS, AND FUTURE ESTIMATES ARE FORWARD-LOOKING STATEMENTS, WHICH IN SOME, BUT NOT ALL, CASES, ARE IDENTIFIED BY WORDS SUCH AS “ANTICIPATE,” “BELIEVES,” “EXPECTS,” “INTENDS,” “FUTURE,” AND OTHER SIMILAR EXPRESSIONS. PLEASE DO NOT PUT UNDUE RELIANCE ON FORWARD LOOKING STATEMENTS. FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, NOT ALL OF WHICH ARE DISCLOSED IN THIS FORM 10-K. ALTHOUGH WE BELIEVE OUR ASSUMPTIONS ARE REASONABLE, IT IS LIKELY THAT AT LEAST SOME OF THESE ASSUMPTIONS WILL NOT COME TRUE. ACCORDINGLY, OUR ACTUAL RESULTS WILL PROBABLY DIFFER FROM THE OUTCOMES CONTAINED IN ANY FORWARD-LOOKING STATEMENT, AND THOSE DIFFERENCES COULD BE MATERIAL. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE THE ONES DISCUSSED BELOW, AND IN THE “RISK FACTORS” ATTACHED AS EXHIBIT 99(A) TO THIS 10-K, AS WELL AS IN OUR ANNUAL REPORT TO OUR SHAREHOLDERS (ESPECIALLY IN THE SECTIONS ENTITLED “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” AND IN “QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT INTEREST RATES AND CURRENCY RATES”) AND OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. SHOULD ONE OR MORE OF THE RISKS DISCUSSED, OR ANY OTHER RISKS, MATERIALIZE, OR SHOULD ONE OR MORE OF OUR UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED, EXPECTED OR PROJECTED. IN LIGHT OF THE RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT ANY FORWARD-LOOKING INFORMATION WILL IN FACT PROVE TO BE CORRECT. WE DO NOT UNDERTAKE ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS.

               Unless otherwise noted (1) the terms “Electro Rent,” “we,” “us,” and “our,” refer to Electro Rent Corporation and its subsidiary, Genstar Rental Electronics, Inc., and (2) the terms “Common Stock” and “shareholder(s)” refer to Electro Rent’s common stock and the holders of that stock, respectively.

Item 1.   Business.

               Electro Rent was incorporated in California in 1965 and became a publicly held corporation on March 31, 1980.

               We primarily engage in the rental, lease and sale of state-of-the-art electronic equipment. About 70% of our equipment portfolio at acquisition cost is composed of general purpose test and measurement instruments purchased from leading manufacturers such as Agilent Technologies and Tektronix. The remainder of our equipment portfolio is comprised of personal computers and workstations. Personal computer lines include those from Compaq, Dell, IBM, Apple, and Toshiba; while workstations are purchased primarily from Sun Microsystems and Hewlett Packard. A large part of our equipment portfolio is rented or leased to Fortune 500 companies in the aerospace, defense, electronics and telecommunications industries. We believe that our test and measurement equipment is primarily used in research and development activities and that a significant amount of this equipment is used in connection with government-generated projects. We also rent equipment to companies of various sizes representing a cross-section of American industry. No customer accounted for more than 10% of our revenues for any of the three fiscal years ended May 31, 2002. No significant portion of our revenues are currently derived from direct United States Government contracts.

               An important aspect of our 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.

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                We service our 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.

               After acquiring the rental business of General Electric Capital Technology Management Services in November 1997, Electro Rent became one of the largest companies in the highly competitive electronic equipment rental and lease business. Independent industry publications have identified a number of major competitors, including Technology Rentals & Services, a division of CIT Group, Telogy, McGrath Rent Corp. and Continental Resources. Some of our competitors are divisions of larger organizations, and, therefore, have access to greater internal financial and other resources than we do.

               Our business is relatively non-seasonal except for the third quarter months of December, January and February, when rental activity declines due to extended holiday closings by a number of customers. In addition, because February is a short month, rental billing is reduced.

               We purchase the majority of our equipment from leading suppliers of electronic equipment. The research and development, manufacturing and marketing trends and activities of our major suppliers tend to shape the nature of the rental and lease demand of our customers and the availability of equipment. As a result, our business is significantly affected by the continued research and development, manufacturing and financial condition of its major suppliers, particularly Agilent Technologies.

               We believe that our relationships with our major suppliers are good. Because of the volume of our purchases and our long-term purchase arrangements, we often obtain favorable price discounts.

               At May 31, 2002, Electro Rent and its subsidiary, Genstar Rental Electronics, Inc. employed approximately 425 individuals. None of these employees is a member of a labor union. We consider our employee relations to be satisfactory and provide standard employee benefits and pay certain of the costs of employee education.

Item 2.   Properties.

               Electro Rent’s corporate headquarters and Los Angeles sales office are located at 6060 Sepulveda Boulevard, Van Nuys, California. The building contains approximately 84,500 square feet of office space. Approximately 24,800 square feet are currently being listed for lease to other subtenants. These subtenant arrangements provide for all of the subleased property to be available for our future needs. There is no additional space in the building available for leasing.

               We own a facility in Wood Dale, Illinois, containing approximately 30,750 square feet. This facility is currently unoccupied, and in fiscal 2003 the Company’s Illinois warehouse and service center will move to this facility from a leased facility in Aurora, Illinois.

               Our building at 15385 Oxnard Street, Van Nuys, California, contains approximately 68,200 square feet. We use all of this space, except for 4,500 square feet which is currently being leased to others. This building houses our California warehouse and equipment calibration center.

               As of May 31, 2002 Electro Rent had both sales offices and equipment calibration and service centers in the metropolitan areas of Atlanta and Los Angeles. We also have service centers in Boston, Chicago, Dallas, Denver, Detroit, Houston, Las Vegas, Montreal, New York/Newark, San Francisco, Seattle, Toronto and Washington/Baltimore.

               Electro Rent’s facilities aggregate approximately 435,000 square feet. Except for the corporate headquarters, the Chicago area facilities, and the Oxnard Street building, all of the facilities are rented pursuant to leases for up to five years for aggregate annual rentals of approximately $2,698,000 in fiscal 2002. We do not consider any rented facility essential to our operations. We consider our facilities to be in good condition, well maintained and adequate for our needs.

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Item 3.   Legal Proceedings.

               In the normal course of our business, we are involved in various claims and legal proceedings. We believe these matters will not have a material adverse effect on our business, financial condition or results of operations.

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 by our security holders.

PART II

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

               Electro Rent’s Common Stock is listed by the National Association of Securities Dealers and is quoted on the NATIONAL MARKET SYSTEM OF NASDAQ. Our symbol is “ELRC.” The quarterly market price ranges for our Common Stock for the two fiscal years ended May 31, 2002, as quoted on NASDAQ, shareholder information and dividend information are set forth on page 23 of the 2002 Annual Report and are incorporated herein by reference.

               None of our preferred shares are issued or outstanding.

Item 6.   Selected Financial Data.

               The summary of the selected financial data referred to as Financial Highlights, appearing on the inside front cover of the 2002 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 5 to 9 of the 2002 Annual Report is hereby incorporated by reference.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risks.

               The information appearing in the Risk Factors, filed with this 10-K as Exhibit 99(A), is hereby incorporated by reference.

Item 8.   Financial Statements and Supplementary Data.

               Our consolidated financial statements together with the report thereon of Deloitte & Touche LLP appearing on pages 11 to 23 of the 2002 Annual Report are hereby incorporated by reference.

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

               On April 30, 2002, we dismissed Arthur Andersen LLP (“Arthur Andersen”) as the Company’s independent auditors and engaged Deloitte & Touche LLP (“D&T”) as our new independent auditors. The decision to change our independent auditors was made by our Board of Directors.

               Arthur Andersen’s reports on the financial statements of the Company for the fiscal years ended May 31, 2001 and May 31, 2000 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

               During the two years ended May 31, 2001 and through the subsequent interim period preceding the decision to change independent auditors, there were no disagreements with Arthur Andersen on any matter of accounting principle or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Arthur Andersen, would have caused it to make reference thereto in its report on the financial statements for such years.

               During the two years ended May 31, 2001 and through the subsequent interim period preceding the decision to change independent auditors, there were no “reportable events” (as defined below) requiring disclosure pursuant to Item 304(a)(1)(v) of Regulation S-K, promulgated under the Securities Act of 1934, as amended. As used herein, the term “reportable events” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 304 of Regulation S-K.

               Effective April 30, 2002, we engaged D&T as our independent auditors. During the two years ended May 31, 2001 and through the subsequent interim period preceding the decision to change independent auditors, neither the Company nor anyone acting on its behalf consulted D&T regarding either the application of accounting principles as to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, nor has D&T provided to the Company a written report or oral advice regarding such principles or audit opinion.

PART III

Item 10.   Directors and Executive Officers of the Registrant.

               Information appearing in the 2002 Proxy Statement under the captions Election of Directors (pages 5 and 6), Executive Officers (page 6), Compliance With Section 16 of the Securities Exchange Act of 1934 (page 9), and Transactions With Management (page 9), is hereby incorporated by reference.

Item 11.   Executive Compensation.

               Information appearing in the 2002 Proxy Statement under the caption Executive Compensation (pages 6 to 15) is hereby incorporated by reference.

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

               Information concerning the ownership of Electro Rent’s securities by its principal holders and its management is set forth in the 2002 Proxy Statement (pages 4 and 5), and is incorporated herein by reference.

Item 13.   Certain Relationships and Related Transactions.

               Information appearing in the 2002 Proxy Statement under the caption Transactions With Management (page 9) is hereby incorporated by reference.

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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 Independent Auditors’ Report are filed as a part of this report and are included or incorporated herein by reference to the following page or pages of the 2002 Annual Report.

		2002 Annual Report		Form 10-K Page
Item		Page Number		Number
Consolidated Statements of Income for each of the three years in the period ended May 31, 2002			11
Consolidated Balance Sheets at May 31, 2002 and 2001			12
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended May 31, 2002			13
Consolidated Statements of Cash Flows for each of the three years in the period ended May 31, 2002			14
Notes to Consolidated Financial Statements			15-22
Independent Auditors’ Report			23
Schedule for each of the three years in the period ended May 31, 2002:
	II — Valuation and qualifying accounts				12
Independent Auditors’ Report				Exhibit 23(A)

               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 on Form 10-K, the Registrant did not file and was not required to file any Current Reports on Form 8-K.

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(c)  Exhibits listed by numbers corresponding to Exhibit Table of Item 601 of Regulation S-K.

Exhibit Index

(* Indicates compensation plan, contract or arrangement)

Exhibit
Number		Document Description
	(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 Certificate of Amendment of Restated Articles of Incorporation filed October 15, 1997 is filed as Exhibit (3) to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1999. 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. A copy of the amendment to the bylaws adopted November 15, 1996 is incorporated by reference to Exhibit (3) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1997.
	(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*
		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.*

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Exhibit
Number		Document Description
		A copy of the GE Rentals Supplement to the Vanguard Prototype 401(k) Savings Plan Adoption Agreement adopted October 10, 1997 is incorporated by reference to Exhibit 10(A) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1998.*
	(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, originally entered into December 15, 1986 and amended November 22, 1988 by Amendment No. One To Executive Employment Agreement, as further amended and restated as of July 15, 1992. A copy of the Executive Employment Agreement (Amended And Restated as of July 15, 1992) is incorporated by reference to Exhibit (10)(D)-(1) of Registrant’s Annual Report (Form 10-K) for the fiscal year ended May 31, 1993.*
	(10)(D)	The Executive Employment Agreement between the Company and William Weitzman, President and Chief Operating Officer, originally entered into December 15, 1986 and amended November 22, 1988 by Amendment No. One To Executive Employment Agreement, as further amended and restated as of July 15, 1992 and amended by Amendment No. 1 to the Amended and Restated Executive Employment Agreement, dated October 12, 2001. A copy of Executive Employment Agreement (Amended And Restated as of July 15, 1992, and as further amended as of October 2001) is incorporated by reference to Exhibit (10)(D)-(1) of Registrant’s Annual Report (Form 10-K) for the fiscal year ended May 31, 1993. A copy of Amendment No. 1 to the Amended and Restated Executive Employment Agreement, dated October 12, 2001 is attached hereto as Exhibit 10(D)(2).*
	(10)(E)(1)	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 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)(2)	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 incorporated by reference to Exhibits (10)(E)-(1), (2) and (3) respectively to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1996. A copy of Amendment Number One To Electro Rent Corporation 1996 Stock Option Plan adopted November 1, 1996 is incorporated by reference to Exhibit (10)(E) of the Annual Report (Form 10-K) for the fiscal year ended May 31, 1998.*
	(10)(E)(3)	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 incorporated by reference to Exhibits (10)(E)-(4) and (5) respectively to the Annual Report (Form 10-K) for the fiscal year ended May 31, 1996.
	(10)(E)(4)	Electro Rent Corporation 1996 Director Option Plan Amendment No. One. is incorporated

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Exhibit
Number		Document Description
		by reference to Exhibit (10)(E) to the Annual Report (Form 10-K) for the fiscal year ended May 31, 2001.
	10(E)(5)	A copy of the Electro Rent Corporation 2002 Employee Stock Option Plan, the Electro Rent Corporation Stock Option Agreement (Incentive Stock Options) and the Electro Rent Corporation Stock Option Agreement (Nonstatutory Stock Options)
	(11)	Statement re computation of per share earnings is incorporated by reference to the 2002 Annual Report, page 19.
	(13)	2002 Annual Report. Only those portions of the 2002 Annual Report expressly incorporated hereby by reference are deemed “filed.”
	(21)	Subsidiaries of the Registrant. • Genstar Rental Electronics, Inc., a Canadian corporation
	(22)	Inside front cover and pages 5-9 and 11-23 of the 2002 Annual Report are appended hereto as Exhibit 22 hereof and are being electronically filed with this Form 10-K Annual Report
	(23)(A)	Report of Deloitte & Touche LLP, the Company’s independent auditors
	23(B)	Report of Arthur Andersen LLP, the Company’s former independent auditors
	(99)(A)	Risk Factors
	(99)(B)	Statement Pursuant to Section 906 the Sarbanes-Oxley Act of 2002 by Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings, dated August 23, 2002.

(d)  Schedule of Financial Statements Required by Regulation S-X, which is excluded from the 2002 Annual Report by Rule 14 a 3(b) (1):

ELECTRO RENT CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years Ended May 31, 2002, 2001 and 2000
(in thousands)

	Balance at Beginning		Additions Charged to				Balance at End
Description	of Year		Income		Deductions*		of Year
Allowance for
doubtful
receivables
2002	$	1,840	$	2,930	$	2,309	$	2,461
2001	$	4,866	$	2,479	$	5,505	$	1,840
2000	$	5,834	$	1,610	$	2,578	$	4,866

* Represents accounts written off against the allowance, net of recoveries.

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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, 2002.	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.

SIGNATURE	TITLE	DATE
/s/    Daniel Greenberg Daniel Greenberg	Chairman of the Board and Chief Executive Officer	August 23, 2002
/s/    William Weitzman William Weitzman	President, Chief Operating Officer and Director	August 23, 2002
/s/    Craig R. Jones Craig R. Jones	Chief Financial Officer	August 23, 2002
/s/    Gerald D. Barrone Gerald D. Barrone	Director	August 23, 2002
/s/    Nancy Y. Bekavac Nancy Y. Bekavac	Director	August 23, 2002
/s/    Joseph J. Kearns Joseph J. Kearns	Director	August 23, 2002
/s/    S. Lee Kling S. Lee Kling	Director	August 23, 2002

11 EX-10.(D)(2) 3 v84092exv10wxdyx2y.txt EXHIBIT 10(D)(2) EXHIBIT 10(D)(2) AMENDMENT NO. 1 TO EXECUTIVE EMPLOYMENT AGREEMENT The Executive Employment Agreement, as amended and restated as of July 15, 1992 (the "AGREEMENT"), by and between Electro Rent Corporation (the "COMPANY") and William Weitzman (the "EXECUTIVE") is amended and supplemented by the terms of this Amendment No. 1 (this "AMENDMENT") as set forth below. Capitalized terms not otherwise defined herein are given the meanings ascribed to such terms in the Agreement. 1. SECTION 1.2(c). Section 1.2(c) shall be modified by adding the following sentence at the end of Section 1.2(c): "In addition, during the continuation of the Executive's employment hereunder, the Company shall maintain (by insurance policy or, if not available on commercially reasonable terms, self insurance) medical coverage, consistent with the standard of coverage currently available to the Executive, for the Executive, his spouse and his dependant children until each child reaches the age of 24, unless prior to that time the child has become disabled, in which case the medical coverage shall be maintained with respect to that child for as long as he/she shall live (the "FAMILY MEDICAL BENEFIT"). 2. NEW SECTION 2.4. A new Section 2.4 shall be added to the Agreement as follows: Section 2.4. Regardless of any termination of the employment relationship, at its expense, the Company shall continue to maintain (by insurance policy or, if not available on commercially reasonable terms, self insurance) the Family Medical Benefit for (i) the Executive and his spouse for as long as they live, and (ii) each of the Executive's children until that child reaches the age of 24, unless prior to that time the child has become disabled, in which case the Family Medical Benefit shall be maintained with respect to that child for as long as he/she shall live. 3. SECTION 2.2(b). Section 2.2(b) shall be revised to replace the words "during the Employment Term" on the eighth line of page 6 with the words "with respect to any fiscal year of the Company in which Executive was employed by the Company." 4. SECTION 2.3(a). The words "the Term" on the fourth line of Section 2.3(a) shall be replaced with the words "with respect to any fiscal year of the Company in which Executive was employed by the Company." 5. SECTION 2.3 (b). The words ", including the Family Medical Benefit" will be added following the words "Termination of Employment" in the third line of page 8. 6. GENERAL. Except as explicitly modified in this Amendment, the Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment on the 12 day of October 2001. ELECTRO RENT CORPORATION EXECUTIVE By: /s/ Daniel Greenberg By: /s/ William Weitzman Its: Chief Executive Officer William Weitzman Exhibit 10(D)(2) EX-10.(E)(5) 4 v84092exv10wxeyx5y.txt EXHIBIT 10(E)(5) EXHIBIT 10(E)(5) ELECTRO RENT CORPORATION 2002 STOCK OPTION PLAN This 2002 Stock Option Plan is hereby adopted by the Company (capitalized terms not otherwise defined are defined in the final section of this Plan). 1. PURPOSES OF THE PLAN. The purposes of this Plan are: - to attract and retain the best available personnel, - to provide additional incentive to Employees, Directors and Consultants, and - to promote the success of the Company's business. 2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10, options covering no more than ONE MILLION FIVE HUNDRED THOUSAND (1,500,000) shares of Common Stock, in addition to any additional shares available under the Company's 1996 Stock Option Plan at any time, may be granted under the Plan. The Shares may be authorized, but unissued, or reacquired Common Stock. Any unpurchased Shares subject to an Option which terminates or is surrendered pursuant to an Option Exchange Program shall become available for future Option grants unless the Plan has terminated. However, any Shares which the Company re-acquires after issuance pursuant to the exercise of an Option will not be available for future grant under the Plan. 3. TYPE OF OPTIONS; ELIGIBILITY. Under the Plan, employees of the Company may be granted either Incentive Stock Options or Nonstatutory Stock Options; Consultants may be granted Nonstatutory Stock Options, unless otherwise permitted under the Code; and Directors may be granted Director Election Options. At the time of grant, the Administrator shall designate whether an Option is an Incentive Stock Option or a Nonstatutory Stock Option. However, despite any such designation, any Options which cause the aggregate Fair Market Value of Shares under incentive stock options granted by the Company, or any Parent or Subsidiary to a single Optionee (under all plans of the Company and of any Parent or Subsidiary) to exceed $100,000 will be deemed Nonstatutory Stock Options. For purposes of this Section 3, the Fair Market Value of the Shares shall be determined as of the time of grant. Optionees may be granted more than one Option. 4. OPTION EXERCISE PRICE AND CONSIDERATION. When any Option is granted, the Administrator shall determine: 4.1. NUMBER OF SHARES. The number of Shares subject to the Option. 4.2. EXERCISE PRICE. The per share exercise price for the Optioned Shares, which may be more or less than the Fair Market Value, except no Incentive Stock may be granted with an exercise price per share less than 100% (110% in the case of an Option granted to a Significant Owner) of Fair Market Value, and no Nonstatutory Stock Option may be granted with an exercise price per share less than 85% of Fair Market Value. 4.3. WAITING PERIOD AND EXERCISE DATES. The period within which the Option may be exercised and any conditions which must be satisfied before the Option may be exercised. No Option may have an exercise period which extends more than ten years (five years in the case of any Incentive Stock Option granted to a Significant Owner) from the date of grant. 4.4. OTHER TERMS AND CONDITIONS. Other terms and conditions including, but not limited to, performance criteria, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the Shares. The Shares received on exercise of any Option may be made subject to a shareholder's agreement or other restriction or option. Exhibit 10(E)(5) - 1 5. EXERCISE OF OPTION. 5.1. PROCEDURE FOR EXERCISE. An Option shall be deemed exercised when the Company receives all of the following (which may be waived by the Administrator as permitted by Applicable Laws): (i) written notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, (ii) full payment for the Shares with respect to which the Option is exercised, and (iii) payment of any required withholding taxes. 5.2. NO FRACTIONAL SHARES. An Option may not be exercised for a fraction of a Share. 5.3. FORM OF CONSIDERATION. The Administrator shall determine the acceptable form of consideration and method of payment for exercise of an Option. (In the case of an Incentive Stock Option, the Administrator must determine the acceptable form of consideration at the time of grant.) To the extent permitted by the Administrator, consideration may consist of: - cash; - a promissory note made by the Optionee in favor of the Company; - other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; - any combination of the foregoing methods of payment; or - such other consideration to the extent permitted by Applicable Laws. 5.4. EFFECT ON OPTION. Exercise of an Option in any manner shall decrease the number of Shares thereafter available by the number of Shares as to which the Option is exercised, both for purposes of the Plan and for sale under the Option. 6. ISSUANCE OF SHARES. 6.1. NAME FOR REGISTRATION. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. 6.2. LEGAL COMPLIANCE. The Company is not obligated to issue any Shares pursuant to the exercise of an Option unless counsel for the Company is satisfied that the exercise of such Option and the issuance and delivery of such Shares complies with all relevant provisions of Applicable Law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, the requirements of any stock exchange or quotation system upon which the Shares may then be listed or quoted, and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. The inability of the Company to obtain authority from any regulatory body deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such Shares. 6.3. INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option, the Company may require that the person exercising such Option represent and warrant that the Shares are being purchased only for investment and without any present intention to sell, transfer or distribute such Shares. 6.4. RIGHTS AS SHAREHOLDER. Until the stock certificate evidencing Shares is actually issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), the Optionee will have no right to vote or receive dividends or any other rights as a shareholder with respect to the Optioned Stock, despite any exercise of the Option. Subject to this Section 6, the Company shall issue (or cause to be issued) Exhibit 10(E)(5) - 2 such stock certificate promptly after an Option is exercised. Except as provided in Section 10, no adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is actually issued. 7. WITHHOLDING TAXES. Upon (i) the disposition by an Optionee of Shares acquired pursuant to the exercise of an Incentive Stock Option within two years of the granting of such Incentive Stock Option or within one year after exercise of such Incentive Stock Option, or (ii) the exercise of a Nonstatutory Stock Option, the Company shall have the right to require the Optionee to pay the Company the amount of any taxes which the Company may be required to withhold with respect to such Shares. 8. NON-TRANSFERABILITY OF OPTIONS. 8.1. NO TRANSFER. No Option may be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution or may be exercised, during the lifetime of the Optionee, by anyone except the Optionee, except that the Administrator may, if it wishes to do so, allow the spouse of the Optionee to hold and/or exercise the Option pursuant to a qualified domestic relations order as defined by the Code or Title I of ERISA. 8.2. DESIGNATION OF BENEFICIARY. An Optionee may file a written designation of a beneficiary who is to receive any Options that remain unexercised in the event of the Optionee's death. If an Optionee is married and the designated beneficiary is not his or her spouse, spousal consent shall be required for such designation to be effective. The Optionee may change such designation of beneficiary at any time by written notice, subject to the above spousal consent conditions. 8.3. EFFECT OF NO DESIGNATION. If an Optionee dies and there is no living beneficiary validly designated under the Plan, the Option may be exercised on behalf of the Optionee to the extent permitted hereunder (i) by the executor or administrator of the estate of the Optionee, or (ii) if the Company does not know that an executor or administrator has been appointed, by the spouse or by any one or more dependents or relatives of the participant as determined by the Company, or (iii) if no spouse, dependent or relative is known to the Company, then by such other person as the Company may designate. 9. ACCELERATED TERMINATION OF OPTION TERM. 9.1. TERMINATION FOR CAUSE. Notwithstanding anything to the contrary contained in the Plan, no Optionee may exercise any Option (whether otherwise vested or not) at any time following a Termination Event with respect to such Optionee. 9.2. TERMINATION WITHOUT CAUSE. If an Optionee's Continuous Relationship terminates (other than as a result of a Termination Event), his or her Option may be exercised only to the extent that the Optionee was entitled to exercise it on the date of termination, and only within such period of time as is determined by the Administrator, and in no event later than the expiration of the term of such Option as set forth in the Option Agreement. In the case of an Incentive Stock Option, the Administrator shall determine such period of time (in no event to exceed ninety (90) days from the date of termination, except where the termination occurs as a result of death or disability, where the maximum period shall be twelve months) at the time that the Option is granted. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE. 10.1. CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, if the outstanding shares of Common Stock are increased, decreased, changed into or exchanged for a different number or kind of shares of securities of the Company through Exhibit 10(E)(5) - 3 reorganization, recapitalization, reclassification, stock combination, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares as to which Options may be granted under this Plan. A corresponding adjustment changing the number or kind of shares allocated to unexercised Options which have been granted prior to any such change, shall likewise be made. Any such adjustment in the outstanding Options shall be made without change in the aggregate purchase price applicable to the unexercised portion of the Options but with a corresponding adjustment in the price for each share or other unit of any security covered by the Option. Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. 10.2. DISSOLUTION OR LIQUIDATION. Any Option to the extent not previously exercised will terminate immediately prior to the consummation of any dissolution or liquidation of the Company. The Administrator may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Administrator and give each Optionee the right to exercise his or her Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. 10.3. MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, the Administrator, upon 30 days prior written notice to the Optionees, may, in its discretion, do one or more of the following: (i) shorten the period during which Options are exercisable (provided they remain exercisable for at least 30 days after the date the notice is given); (ii) accelerate any vesting schedule to which an Option is subject; (iii) arrange to have the surviving or successor entity grant replacement options with appropriate adjustments in the number and kind of securities and option prices; or (iv) cancel any Option upon payment to the Optionee of cash equal to the excess of the Fair Market Value of the number of Shares as to which the Option is then exercisable (at the effective time of the merger, reorganization, sale of other event including to the extent the exercise has been accelerated as contemplated in clause (ii) above) over the aggregate exercise price with respect to such Shares. The Administrator may also provide for one or more of the foregoing alternatives in any particular Option Agreement. 11. SHAREHOLDER APPROVAL. This Plan is subject to approval by the shareholders of the Company in compliance with Applicable Law within twelve (12) months after the date the Plan is adopted by the Board. Options may be granted but not exercised prior to shareholder approval of the Plan. If shareholder approval is not obtained within the applicable period, any Options granted shall terminate retroactively as of the date they were granted. 12. ADMINISTRATION OF THE PLAN. 12.1. PROCEDURE. 12.1.1. ADMINISTRATOR. The Plan shall be administered by (A) the Board or (B) a committee designated by the Board which is constituted to satisfy Applicable Laws. To the extent it is involved in such matters, any Committee must comply with any applicable requirements (i) of Rule 16b-3 for exempt acquisitions with respect to Option grants to Officers or Directors and (ii) for the Options to qualify as "performance-based compensation" under Section 162(m) with respect to Option grants "covered employees" within the meaning of Section 162(m). If permitted by the applicable rules, the Administrator may be different bodies with respect to Directors, Officers who are not Directors, and Employees who are neither Directors nor Officers. 12.1.2. REGULATION OF COMMITTEE. Once appointed, any Committee shall serve in its designated capacity until otherwise directed by the Board. The Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and substitute new members, fill vacancies (however caused), and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Exhibit 10(E)(5) - 4 Laws, and to the extent relevant, the rules for qualification as "performance-based compensation" under Section 162(m) and/or exempt acquisitions under Rule 16b-3. 12.2. POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion to take any action provided in this Plan, including without limitation: - to determine the Optionee, exercise price, number of shares of Common Stock to be covered by, and terms and conditions of each Option granted hereunder; - to approve forms of Option Agreement; - to modify or amend any Option (subject to Section 13), including reducing the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; - to authorize any person to execute any instrument required to effect the grant of an Option on behalf of the Company; - to institute an Option Exchange Program; - to construe and interpret the terms of the Plan; - to prescribe, amend and rescind rules and regulations relating to the Plan; and - to make all other determinations deemed necessary or advisable for administering the Plan. 12.3. EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options. 13. AMENDMENT AND TERMINATION OF THE PLAN. 13.1. AMENDMENT AND TERMINATION. This Plan shall become effective upon its adoption by the Board and continue in effect for a term of ten (10) years, except that the Board may at any time amend, alter or suspend or terminate the Plan. 13.2. SHAREHOLDER APPROVAL. The Company shall be required to obtain shareholder approval of any Plan amendment only to the extent necessary and desirable to comply with Rule 16b-3, with Section 422 or 162(m) of the Code or with any Applicable Laws, including the requirements of any exchange or quotation system on which the Common Stock is listed or quoted. Such shareholder approval, if required, shall be obtained in such a manner and to such a degree as is required by Applicable Law. If the Company purports to grant Options covering more than the number of Shares which may be issued under the Plan without additional shareholder approval, such Option shall be void (and the Optionee will have no right against the Company) with respect to such excess Optioned Stock, unless shareholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan is timely obtained in accordance with this Section 13.2. 13.3. EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of an Optionee, unless mutually agreed otherwise between the Optionee and the Administrator. Any such agreement must be in writing and signed by the Optionee and the Company. 14. RIGHTS OF PARTICIPANTS AND BENEFICIARIES. The Company shall pay all amounts payable hereunder only to the Optionee or beneficiaries entitled thereto pursuant to the Plan. The Company shall not be liable for the debts, contracts or engagements of any Optionee or his or her beneficiaries, and rights to Shares or cash payments under the Plan may not be taken in Exhibit 10(E)(5) - 5 execution by attachment or garnishment, or by any other legal or equitable proceeding, while in the hands of the Company. 15. RESERVATION OF SHARES. During the term of this Plan, the Company will reserve a sufficient number of Shares to satisfy the requirements of the Plan. 16. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's employment or consulting relationship with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such employment or consulting relationship at any time, with or without cause. 17. GOVERNING LAW. The Plan shall be governed by, and construed in accordance with the laws of the State of California (without giving effect to conflicts of law principles). 18. DEFINITIONS. As used herein, the following definitions shall apply: "ADMINISTRATOR" means the Board or any Committee administering the Plan in accordance with Section 12. "APPLICABLE LAWS" means the legal requirements relating to the administration of stock option plans under state corporate and securities laws and the Code. "BOARD" means the Board of Directors of the Company. "CODE" means the Internal Revenue Code of 1986 and related regulations, as amended. "COMMITTEE" means any Committee appointed by the Board in accordance with Section 12. "COMMON STOCK" means the Common Stock of the Company. "COMPANY" means Electro Rent Corporation. "CONSULTANT" means any person, including an advisor, engaged by the Company, a Parent or Subsidiary to render services and who is compensated for such services. "CONTINUOUS RELATIONSHIP" means that the employment or consulting relationship or directorship is not interrupted or terminated by the Company, any Parent or Subsidiary. Continuous Relationship shall not be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; provided, however, that for purposes of Incentive Stock Options, any such leave may not exceed ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract (including certain Company polices) or statute; or (ii) transfers between locations of the Company or between the Company, its Parent, its Subsidiaries or its successor. In the case of a consultant, the manner of determining the duration of the "Continuous Relationship" may be set out in the Option Agreement, which will then control. "DIRECTOR" means a member of the Board. "DIRECTOR ELECTION OPTION" means, in the case of newly elected non-employee Directors, 5,000 Nonstatutory Stock Options upon election to the Board, and, in the case of re-elected non-employee Directors, 2,000 Nonstatutory Stock Options upon re-election to the Board. Exhibit 10(E)(5) - 6 "DISABILITY" means total and permanent disability as defined in Section 22(e)(3) of the Code. "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation, the National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales are reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market thereof) or is regularly quoted by recognized securities dealers but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in the Wall Street journal or such other source as the Administrator deems reliable; In the absence of any established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. "OPTION" means a stock option granted pursuant to the Plan. "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Every Option Agreement is subject to the terms and conditions of the Plan. "OPTION EXCHANGE PROGRAM" means a plan under which outstanding options are surrendered in exchange for options with a lower exercise price. "OPTIONED STOCK" means the Common Stock subject to an Option. "OPTIONEE" means an Employee, Director or Consultant who holds an outstanding Option. Exhibit 10(E)(5) - 7 "PARENT" means a "parent corporation" of the Company, whether now or hereafter existing, as defined in Section 424(e) of the Code. "PLAN" means this 2002 Stock Option Plan. "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. "SECTION 162(m)" means Section 162(m) of the Code. "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. "SIGNIFICANT OWNER" means an Employee who, at the time an Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary. "SUBSIDIARY" means a "subsidiary corporation" of the Company, whether now or hereafter existing, as defined in Section 424(f) of the Code. "TERMINATION EVENT" means the determination of the Company that either of the following has occurred: (i) any use or disclosure by an Optionee of confidential information or trade secrets of the Company or any Parent or Subsidiary in violation of any confidentiality, non-competition or nondisclosure agreement by which the Optionee is bound, or (ii) the termination of Optionee's Continuous Relationship for cause as defined pursuant to applicable law, as a result of a breach of Optionee's employment or consulting agreement, theft, fraud or embezzlement, or any disclosure or use of confidential information or trade secrets described in part (i) of this paragraph. Exhibit 10(E)(5) - 8 GRANT OF INCENTIVE STOCK OPTION TO: [NAME OF OPTIONEE] ("OPTIONEE") FROM: ELECTRO RENT CORPORATION As you probably know, Electro Rent Corporation (our "COMPANY") has adopted the 2002 Stock Option Plan (the "PLAN") under which the Company can grant options to purchase shares of Company's Common Stock (the "COMMON STOCK"). We are pleased to inform you that the Stock Option Committee of our Board of Directors (the "COMMITTEE") has decided to grant you an option under the Plan (your "OPTION"). Your Option will be governed by the Plan, the attached Standard Terms and Conditions (the "TERMS") and the following specific provisions (which are subject to adjustment under the Plan and the Terms): The "DATE OF GRANT" for your Option is: ______________________ The "EXPIRATION DATE" of your Option is: ______________________ The "NUMBER OF SHARES" covered by your Option is: ______________________ The "EXERCISE PRICE" per share for your Option is: ______________________ VESTING. You will earn the right to exercise thirty three percent and one third (33 1/3%) of your Option after each year commencing after the Date of Grant and ending on an anniversary of the Date of Grant during which you are employed by the Company or its subsidiaries (a "QUALIFYING YEAR"). Your Option cannot be exercised until the first anniversary of the Date of Grant. As an example, at any time after the second anniversary of the Date of Grant, but before the third anniversary, the maximum number of shares you may purchase or have purchased under this Option is sixty six and two thirds (66 2/3%) of the Number of Shares; after the third anniversary of the Date of Grant, you may purchase all of the Number of Shares. Of course, you can never exercise the Option for more than the Number of Shares or after the Expiration Date (in each case as adjusted under the Terms and the Plan). Exhibit 10(E)(5) - 9 Please review the Plan and the Terms carefully, as they control your rights under your Option. Then sign (and if you are married, have your spouse sign) one copy of this letter and return it to Craig Jones. If you have any questions, please call Craig Jones. We appreciate your continuing efforts on behalf of the Company. Very truly yours, Electro Rent Corporation By: ------------------------------------- Its: ------------------------------------ I hereby accept this Option and have reviewed the Plan and the Terms. ---------------------------------------- "Optionee" I agree to be bound by all of the terms and conditions of the Option, including those set forth in the Plan and the Terms. Optionee's Spouse ---------------------------------------- ---------------------------------------- Print Name Exhibit 10(E)(5) - 10 STANDARD TERMS AND CONDITIONS Exhibit 10(E)(5) - 11 THESE STANDARD TERMS AND CONDITIONS ARE ATTACHED TO A LETTER (THE "OPTION LETTER") FROM ELECTRO RENT CORPORATION GRANTING AN OPTION TO YOU, AND ARE INTENDED TO GOVERN THAT OPTION. ALL CAPITALIZED TERMS NOT SPECIFICALLY DEFINED IN THESE STANDARD TERMS AND CONDITIONS HAVE THE MEANINGS SET FORTH IN THE OPTION LETTER OR IN THE COMPANY'S 2002 STOCK OPTION PLAN. 1. OPTION. You may exercise the Option for all or any part of any Number of Shares of Common Stock which is then exercisable at the Exercise Price per share until the Expiration Date. THIS OPTION IS INTENDED TO QUALIFY AS AN "INCENTIVE STOCK OPTION" UNDER SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). 2. MANNER OF EXERCISE. This Option may be exercised only (i) during your lifetime, by you; (ii) to the extent permitted by the Committee, by your spouse if your spouse obtained the Option pursuant to a qualified domestic relations order as defined by the Code or Title I of ERISA, or the rules thereunder ("QUALIFIED DOMESTIC RELATIONS Order"); and (iii) after your death, by your transferees by will or the laws of descent or distribution. To exercise this Option, you must provide the Company with (a) a written notice of exercise, specifying the number of shares to be purchased and (b) the full purchase price of the shares to be purchased solely (i) in cash or by check payable to the order of the Company or (ii) by delivery of shares of Common Stock of the Company previously purchased on the open market or acquired more than six months previously through exercise of a stock option, and in your possession, valued at fair market value. This Option may not be exercised for a fraction of a share and no partial exercise of this Option may be for less than (a) one hundred (100) shares or (b) the total number of shares then eligible for exercise, if less than one hundred (100) shares. 3. FAIR MARKET VALUE OF COMMON STOCK. The fair market value of a share of Common Stock shall be determined for purposes of this Option by reference to the closing price on the principal stock exchange on which such shares are then listed or, if the shares are not then listed on a stock exchange, by reference to the closing price (if approved for quotation on the Nasdaq National Market) or the mean between the bid and asked price (if other over-the-counter issue) of a share as supplied by the National Association of Securities Dealers, Inc. through Nasdaq (or its successor in function), in each case as reported by The Wall Street Journal, for the business day immediately preceding the date on which the option is exercised (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof). 4. TERMINATION OF SERVICE; DEATH OR PERMANENT DISABILITY. The Expiration Date is the earlier of (i) the date set out in the Option Letter or (ii) the expiration of a period following the date you cease (whether voluntarily or involuntarily) to be an employee of the Company or its subsidiaries, which period will be (a) three (3) months if you ceased to be an employee for any reason other than your death or "permanent disability" (within the meaning of Section 22(e)(3) of the Code), or (b) twelve (12) months if you die or become "permanently disabled" while you are an employee of the Company or one of its subsidiaries. Any options not exercisable on the date that you cease to be an employee (whether voluntarily or involuntarily) will be of no further force or effect. If you are not an employee of the Company or one of its subsidiaries at the time this Option is granted, the Expiration Date will be determined in a similar manner based on the time that you cease to be a regular consultant for or director of the Company and its subsidiaries. After the Expiration Date, the Option will expire and be void and of no further force or effect. 5. SHARES TO BE ISSUED IN COMPLIANCE WITH APPLICABLE LAWS AND EXCHANGE RULES. By accepting the Option, you represent and agree, for yourself and any person entitled to exercise this Option, that none of the shares purchased on exercise of the Option will be acquired with a view to any sale, transfer or distribution in violation of the Securities Act of 1933, as amended (the "SECURITIES ACT"), and the rules and regulations promulgated thereunder, any applicable state Exhibit 10(E)(5) - 12 "blue sky" laws or any applicable foreign laws. If required by the Committee at the time the Option is exercised, the person entitled to exercise the Option shall furnish evidence satisfactory to the Company to such effect (including a written representation and an indemnification of the Company in the event of any violation of any applicable laws). The Company does not have to issue any shares on the exercise of this Option if there has not been full compliance with all applicable requirements of the Securities Act (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of any national securities exchange on which shares of the same class are then listed and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance. 6. WITHHOLDING OF TAXES. Upon the exercise of this Option, the Company may require the person entitled to exercise it to pay the Company the amount of any taxes which the Company is required to withhold with respect to the exercise. 7. NO ASSIGNMENT. This Option and all other rights and privileges granted hereby shall not be transferred, either voluntarily or by operation of law except (i) by will or the laws of descent and distribution or (ii) pursuant to a Qualified Domestic Relations Order to the extent permitted by the Committee. If there is any other attempt to transfer this Option or any other right or privilege granted hereby, this Option and all rights and privileges granted hereby shall immediately become null and void and be of no further force or effect. 8. ADJUSTMENT FOR REORGANIZATIONS, STOCK SPLITS, ETC. If the outstanding shares of Common Stock of the Company (or any other class of shares or securities which shall have become issuable upon the exercise of this Option pursuant to this sentence) are increased or decreased or changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall be made in the Number of Shares, without change in the aggregate purchase price applicable to the unexercised portion of this Option, but with a corresponding adjustment in the price for each share or other unit of any security covered by this Option. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all the property or more than eighty percent (80%) of the then outstanding stock of the Company to another corporation, this Option shall terminate; provided, however, that notwithstanding the foregoing, the Committee shall provide in writing in connection with such transaction for the appropriate satisfaction of this Option by one or more of the following alternatives (separately or in combinations): (i) for the Option to become immediately exercisable notwithstanding the vesting provisions; (ii) for the assumption by the successor corporation of this Option or the substitution by such corporation therefor of a new option covering the stock of the successor corporation or its subsidiaries with appropriate adjustments as to the number and kind of shares and prices; (iii) for the continuance of the Plan by such successor corporation in which event the Plan and this Option shall continue in the manner and under the terms so provided; or (iv) for the payment in cash or stock in lieu of and in complete satisfaction of this Option. Adjustments under this Section 8 will be made by the Committee, and its determination as to what adjustments to make will be final, binding and conclusive. No fractional shares of stock shall be issued under this Option on any such adjustment. Exhibit 10(E)(5) - 13 9. PARTICIPATION IN OTHER COMPANY PLANS. The grant of this Option will not affect any right you might otherwise have to participate in and receive benefits under the then current provisions of any pension, insurance, or profit sharing program of the Company or of any subsidiary of the Company. 10. NOT AN EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Option is to be construed as an agreement, express or implied, by the Company or any of its subsidiaries to employ you or contract for your services, nor will it restrict the Company's or such subsidiary's right to discharge you or cease contracting for your services or to modify, extend or otherwise affect in any manner whatsoever, the terms of any employment agreement or contract for services which may exist between you and the Company or any of its subsidiaries. 11. NO RIGHTS AS A SHAREHOLDER UNTIL ISSUANCE OF STOCK CERTIFICATE. Neither you nor any other person legally entitled to exercise this Option will be entitled to any of the rights or privileges of a shareholder of the Company with respect to any shares issuable upon any exercise of this Option unless and until a certificate or certificates representing the shares shall have been actually issued and delivered. 12. AGREEMENT SUBJECT TO STOCK OPTION PLAN. This Option is subject to, and the Company and you agree to be bound by, all of the terms and conditions of the Plan, as it may be amended from time to time in accordance with its terms. No amendment to the Plan will adversely affect your rights under this Option in a material manner without your prior written consent. 13. GOVERNING LAW. The interpretation, performance and enforcement of this Agreement shall be governed by the internal substantive laws of the State of California, without regard to the conflict of laws provisions of that or any other State. The Option can only be amended in a writing executed by a member of the Committee. Exhibit 10(E)(5) - 14 ELECTRO RENT CORPORATION STOCK OPTION PLAN EXERCISE NOTICE As the holder of an option under the Electro Rent Corporation 2002 Stock Option Plan, I hereby exercise that option as follows: Stock Option Date of Grant: ___________________ Number of Shares Exercised: ___________________(1) Exercise Price per share: ___________________ Total Amount Paid: ___________________ ______________ My check in that amount is attached. I also attach a check for the amount of any withholding tax due. ______________ Shares of Common Stock of Electro Rent Corporation (I previously purchased these shares on the open market or I acquired these shares more than six months ago through exercise of a stock option). I understand that my ability to transfer these shares will be limited by applicable Company policy and that I will not be a shareholder until the Certificates are actually used. Please issue the shares in the following name (must be mine or mine and my spouse's) and deliver them to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Dated: Signed: ----------------------------- ---------------------------------------- - -------- (1) (MUST BE TOTAL SHARES YOU HAVE VESTED OR, IF LESS, A MULTIPLE OF 100 SHARES) Exhibit 10(E)(5) - 15 GRANT OF NONQUALIFIED STOCK OPTION TO: [NAME OF OPTIONEE] ("OPTIONEE") FROM: ELECTRO RENT CORPORATION As you probably know, Electro Rent Corporation (our "COMPANY") has adopted the 2002 Stock Option Plan (the "PLAN") under which the Company can grant options to purchase shares of Company's Common Stock (the "COMMON STOCK"). We are pleased to inform you that the Stock Option Committee of our Board of Directors (the "COMMITTEE") has decided to grant you an option under the Plan (your "OPTION"). Your Option will be governed by the Plan, the attached Standard Terms and Conditions (the "TERMS") and the following specific provisions (which are subject to adjustment under the Plan and the Terms): The "DATE OF GRANT" for your Option is: ______________________ The "EXPIRATION DATE" of your Option is: ______________________ The "NUMBER OF SHARES" covered by your Option is: ______________________ The "EXERCISE PRICE" per share for your Option is: ______________________ VESTING. You will earn the right to exercise thirty three percent and one third (33 1/3%) of your Option after each year commencing after the Date of Grant and ending on an anniversary of the Date of Grant during which you are employed by the Company or its subsidiaries (a "QUALIFYING YEAR"). Your Option cannot be exercised until the first anniversary of the Date of Grant. As an example, at any time after the second anniversary of the Date of Grant, but before the third anniversary, the maximum number of shares you may purchase or have purchased under this Option is sixty six and two thirds (66 2/3%) of the Number of Shares; after the third anniversary of the Date of Grant, you may purchase all of the Number of Shares. Of course, you can never exercise the Option for more than the Number of Shares or after the Expiration Date (in each case as adjusted under the Terms and the Plan). Exhibit 10(E)(5) - 16 Please review the Plan and the Terms carefully, as they control your rights under your Option. Then sign (and if you are married, have your spouse sign) one copy of this letter and return it to Craig Jones. If you have any questions, please call Craig Jones. We appreciate your continuing efforts on behalf of the Company. Very truly yours, Electro Rent Corporation By: ------------------------------------- Its: ------------------------------------ I hereby accept this Option and have reviewed the Plan and the Terms. ---------------------------------------- "Optionee" I agree to be bound by all of the terms and conditions of the Option, including those set forth in the Plan and the Terms. Optionee's Spouse ---------------------------------------- ---------------------------------------- Print Name Exhibit 10(E)(5) - 17 STANDARD TERMS AND CONDITIONS Exhibit 10(E)(5) - 18 THESE STANDARD TERMS AND CONDITIONS ARE ATTACHED TO A LETTER (THE "OPTION LETTER") FROM ELECTRO RENT CORPORATION GRANTING AN OPTION TO YOU, AND ARE INTENDED TO GOVERN THAT OPTION. ALL CAPITALIZED TERMS NOT SPECIFICALLY DEFINED IN THESE STANDARD TERMS AND CONDITIONS HAVE THE MEANINGS SET FORTH IN THE OPTION LETTER OR IN THE COMPANY'S 2002 STOCK OPTION PLAN. 14. OPTION. You may exercise the Option for all or any part of any Number of Shares of Common Stock which is then exercisable at the Exercise Price per share until the Expiration Date. THIS OPTION IS NOT INTENDED TO QUALIFY AS AN "INCENTIVE STOCK OPTION" UNDER SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). 15. MANNER OF EXERCISE. This Option may be exercised only (i) during your lifetime, by you; (ii) to the extent permitted by the Committee, by your spouse if your spouse obtained the Option pursuant to a qualified domestic relations order as defined by the Code or Title I of ERISA, or the rules thereunder ("QUALIFIED DOMESTIC RELATIONS Order"); and (iii) after your death, by your transferees by will or the laws of descent or distribution. To exercise this Option, you must provide the Company with (a) a written notice of exercise, specifying the number of shares to be purchased and (b) the full purchase price of the shares to be purchased solely (i) in cash or by check payable to the order of the Company or (ii) by delivery of shares of Common Stock of the Company previously purchased on the open market or acquired more than six months previously through exercise of a stock option, and in your possession, valued at fair market value. This Option may not be exercised for a fraction of a share and no partial exercise of this Option may be for less than (a) one hundred (100) shares or (b) the total number of shares then eligible for exercise, if less than one hundred (100) shares. 16. FAIR MARKET VALUE OF COMMON STOCK. The fair market value of a share of Common Stock shall be determined for purposes of this Option by reference to the closing price on the principal stock exchange on which such shares are then listed or, if the shares are not then listed on a stock exchange, by reference to the closing price (if approved for quotation on the Nasdaq National Market) or the mean between the bid and asked price (if other over-the-counter issue) of a share as supplied by the National Association of Securities Dealers, Inc. through Nasdaq (or its successor in function), in each case as reported by The Wall Street Journal, for the business day immediately preceding the date on which the option is exercised (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof). 17. TERMINATION OF SERVICE; DEATH OR PERMANENT DISABILITY. The Expiration Date is the earlier of (i) the date set out in the Option Letter or (ii) the expiration of a period following the date you cease (whether voluntarily or involuntarily) to be an employee, consultant or director of the Company or its subsidiaries, which period will be (a) three (3) months if you ceased to be an employee for any reason other than your death or "permanent disability" (within the meaning of Section 22(e)(3) of the Code), or (b) twelve (12) months if you die or become "permanently disabled" while you are an employee of the Company or one of its subsidiaries. Any options not exercisable on the date that you cease to be an employee (whether voluntarily or involuntarily) will be of no further force or effect. If you are not an employee of the Company or one of its subsidiaries at the time this Option is granted, the Expiration Date will be determined in a similar manner based on the time that you cease to be a regular consultant for or director of the Company and its subsidiaries. After the Expiration Date, the Option will expire and be void and of no further force or effect. 18. SHARES TO BE ISSUED IN COMPLIANCE WITH APPLICABLE LAWS AND EXCHANGE RULES. By accepting the Option, you represent and agree, for yourself and any person entitled to exercise this Option, that none of the shares purchased on exercise of the Option will be acquired with a view to any sale, transfer or distribution in violation of the Securities Act of 1933, as amended (the Exhibit 10(E)(5) - 19 "SECURITIES ACT"), and the rules and regulations promulgated thereunder, any applicable state "blue sky" laws or any applicable foreign laws. If required by the Committee at the time the Option is exercised, the person entitled to exercise the Option shall furnish evidence satisfactory to the Company to such effect (including a written representation and an indemnification of the Company in the event of any violation of any applicable laws). The Company does not have to issue any shares on the exercise of this Option if there has not been full compliance with all applicable requirements of the Securities Act (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of any national securities exchange on which shares of the same class are then listed and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance. 19. WITHHOLDING OF TAXES. Upon the exercise of this Option, the Company may require the person entitled to exercise it to pay the Company the amount of any taxes which the Company is required to withhold with respect to the exercise. 20. NO ASSIGNMENT. This Option and all other rights and privileges granted hereby shall not be transferred, either voluntarily or by operation of law except (i) by will or the laws of descent and distribution or (ii) pursuant to a Qualified Domestic Relations Order to the extent permitted by the Committee. If there is any other attempt to transfer this Option or any other right or privilege granted hereby, this Option and all rights and privileges granted hereby shall immediately become null and void and be of no further force or effect. 21. ADJUSTMENT FOR REORGANIZATIONS, STOCK SPLITS, ETC. If the outstanding shares of Common Stock of the Company (or any other class of shares or securities which shall have become issuable upon the exercise of this Option pursuant to this sentence) are increased or decreased or changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall be made in the Number of Shares, without change in the aggregate purchase price applicable to the unexercised portion of this Option, but with a corresponding adjustment in the price for each share or other unit of any security covered by this Option. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all the property or more than eighty percent (80%) of the then outstanding stock of the Company to another corporation, this Option shall terminate; provided, however, that notwithstanding the foregoing, the Committee shall provide in writing in connection with such transaction for the appropriate satisfaction of this Option by one or more of the following alternatives (separately or in combinations): (i) for the Option to become immediately exercisable notwithstanding the vesting provisions; (ii) for the assumption by the successor corporation of this Option or the substitution by such corporation therefor of a new option covering the stock of the successor corporation or its subsidiaries with appropriate adjustments as to the number and kind of shares and prices; (iii) for the continuance of the Plan by such successor corporation in which event the Plan and this Option shall continue in the manner and under the terms so provided; or (iv) for the payment in cash or stock in lieu of and in complete satisfaction of this Option. Adjustments under this Section 8 will be made by the Committee, and its determination as to what adjustments to make will be final, binding and conclusive. No fractional shares of stock shall be issued under this Option on any such adjustment. Exhibit 10(E)(5) - 20 22. PARTICIPATION IN OTHER COMPANY PLANS. The grant of this Option will not affect any right you might otherwise have to participate in and receive benefits under the then current provisions of any pension, insurance, or profit sharing program of the Company or of any subsidiary of the Company. 23. NOT AN EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Option is to be construed as an agreement, express or implied, by the Company or any of its subsidiaries to employ you or contract for your services, nor will it restrict the Company's or such subsidiary's right to discharge you or cease contracting for your services or to modify, extend or otherwise affect in any manner whatsoever, the terms of any employment agreement or contract for services which may exist between you and the Company or any of its subsidiaries. 24. NO RIGHTS AS A SHAREHOLDER UNTIL ISSUANCE OF STOCK CERTIFICATE. Neither you nor any other person legally entitled to exercise this Option will be entitled to any of the rights or privileges of a shareholder of the Company with respect to any shares issuable upon any exercise of this Option unless and until a certificate or certificates representing the shares shall have been actually issued and delivered. 25. AGREEMENT SUBJECT TO STOCK OPTION PLAN. This Option is subject to, and the Company and you agree to be bound by, all of the terms and conditions of the Plan, as it may be amended from time to time in accordance with its terms. No amendment to the Plan will adversely affect your rights under this Option in a material manner without your prior written consent. 26. GOVERNING LAW. The interpretation, performance and enforcement of this Agreement shall be governed by the internal substantive laws of the State of California, without regard to the conflict of laws provisions of that or any other State. The Option can only be amended in a writing executed by a member of the Committee. Exhibit 10(E)(5) - 21 ELECTRO RENT CORPORATION STOCK OPTION PLAN EXERCISE NOTICE As the holder of an option under the Electro Rent Corporation 2002 Stock Option Plan, I hereby exercise that option as follows: Stock Option Date of Grant: ___________________ Number of Shares Exercised: ___________________(1) Exercise Price per share: ___________________ Total Amount Paid: ___________________ My check in that amount is attached. I also attach a check for the amount of any withholding tax due. Shares of Common Stock of Electro Rent Corporation (I previously purchased these shares on the open market or I acquired these shares more than six months ago through exercise of a stock option). I understand that my ability to transfer these shares will be limited by applicable Company policy and that I will not be a shareholder until the Certificates are actually used. Please issue the shares in the following name (must be mine or mine and my spouse's) and deliver them to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Dated: Signed: -------------------------- ---------------------------------------- - -------- (1) (MUST BE TOTAL SHARES YOU HAVE VESTED OR, IF LESS, A MULTIPLE OF 100 SHARES) Exhibit 10(E)(5) - 22 EX-13 5 v84092exv13.htm EXHIBIT 13

Financial Highlights
 
02

(in thousands, except per share information)

			May 31,
			2002			2001			2000		1999		1998
Revenues			$	147,864		$	211,176		$	241,793	$	269,739	$	255,505
Costs of revenues and depreciation				81,678			99,724			131,125		139,338		122,080
Selling, administrative and general expenses				50,492			62,625			65,104		77,612		69,099
Interest (income) expense, net				(2,232	)		(708	)		5,465		11,999		9,506
Income before income taxes				17,926			49,535			40,099		40,790		54,820
Income taxes				4,804			18,822			15,237		16,725		22,476
Net income			$	13,122		$	30,713		$	24,862	$	24,065	$	32,344
Earnings per share:
	Basic		$	0.53		$	1.26		$	1.01	$	0.98	$	1.33
	Diluted		$	0.53		$	1.24		$	1.00	$	0.96	$	1.29
Shares used in per share calculation:
		Basic		24,602			24,416			24,571		24,443		24,305
		Diluted		24,837			24,753			24,972		25,004		25,141
Total assets			$	305,390		$	312,468		$	306,435	$	368,708	$	457,896
Bank borrowings			$	—		$	—		$	21,800	$	107,500	$	226,900
Shareholders’ equity			$	264,717		$	250,186		$	221,665	$	196,174	$	172,009
Shareholders’ equity per common share			$	10.68		$	10.21		$	9.00	$	8.01	$	7.04

Electro Rent 2002 Annual Report

Management’s Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the fiscal 2002 Consolidated Financial Statements and the notes thereto and the other financial and statistical information appearing elsewhere in this annual report.

Overview

The Company generates revenues through the rental, lease and sale of electronic equipment, including test and measurement equipment and data products (personal computers and workstations). In fiscal 2002, 62.6% of rental and lease revenues were derived from test and measurement equipment. This percentage has been increasing over the last four years as a result of a steady erosion of data products revenues related to the weak economy and declines in product purchase prices and rental and lease rates. Short-term rental revenues comprised 73.2% of fiscal 2002 rental and lease revenue, and this percentage also has been increasing over the last four years due to a significant decline in personal computer leasing activity.

The Company’s profitability is primarily a function of the volume and pricing of rental and lease transactions, and utilization of the equipment pool. Significant changes in the purchase or disposal price of equipment or interest rates can also have a significant effect on the Company’s profitability, depending on the ability of the Company to adjust pricing and rental and lease rates for these changes. The Company’s business requires significant expenditures for equipment and, consequently, requires substantial liquidity to finance such expenditures.

Critical Accounting Policies and 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 the 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. On a regular basis, management reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets including intangibles, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on management’s historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management believes, however, that the estimates, including those for the above-listed items, are reasonable.

Management believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s financial statements:

Asset lives and depreciation methods: The Company’s primary business involves the purchase and subsequent rental and leasing of long-lived electronic equipment. Management has chosen asset lives that it believes correspond to the economic life of the related asset. Management has chosen depreciation methods that it believes matches the benefit to the Company from the asset with the associated costs. These judgments have been made based on management’s expertise in each equipment type that the Company carries. The Company records an impairment when the future undiscounted cash flows are below net book value.

Impairment of long-lived assets: On a regular basis, management reviews the carrying value of its rental and leasing equipment and intangible assets to determine if the carrying value of the assets may not be recoverable due to current and forecasted economic conditions. This requires management to make estimates related to future undiscounted cash flows from the assets and to determine whether any deterioration is temporary or permanent. If these estimates or the related assumptions change in the future, management may be required to record additional impairment charges.

Allowance for doubtful accounts: The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make rental and leasing payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of customers to make the required payments. If the financial condition of the Company’s customers were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the customers were to improve or if legal remedies to collect past due amounts were more successful than expected, the allowance for doubtful accounts may need to be reduced and income would be increased.

5

Electro Rent 2002 Annual Report

Contingencies and litigation: The Company is subject to legal proceedings and business disputes involving ordinary and routine claims. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. Estimates for losses from litigation are made after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, the Company may be required to record either more or less litigation expense.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141 (“SFAS 141”), “Business Combinations.” SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. SFAS 141 also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill and those that are required to be included in goodwill. The Company adopted SFAS 141 in the first quarter of fiscal year 2002. Adoption of SFAS 141 did not have a significant impact on our financial statements.

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 142 requires, among other things, the discontinuance of goodwill amortization and the testing for impairment of goodwill at least annually. The Company adopted SFAS 142 in the first quarter of fiscal year 2002. The impact of SFAS 142 on the Company’s financial position and results of operations was primarily the elimination of annual goodwill amortization of $1.4 million.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which is effective for the fiscal years beginning after December 15, 2001. The Company will adopt SFAS No. 144 as required on June 1, 2002. This standard will not have a significant effect on the Company’s consolidated financial statements upon adoption.

Fiscal 2002 Compared with Fiscal 2001

Total revenues for fiscal 2002 decreased 30% to $147.9 million from $211.2 million for the prior year. Rental and leasing revenues decreased 34% to $115.3 million, primarily as a result of continued weakness in the business. Sales of equipment and other revenues decreased 14% to $32.6 million due to lower demand for test and measurement (T&M) and data products (DP) equipment. The T&M and DP businesses were negatively impacted by the weak economy in fiscal 2002. Additionally, rental and lease revenues declined significantly as a result of lower demand in the telecommunications sector for T&M equipment and in the consulting services sector for DP equipment.

In spite of progress in reducing our DP equipment pool and related depreciation, depreciation of equipment increased from 42% of rental and lease revenues in fiscal 2001 to 51% of rental and lease revenues in fiscal 2002. This expense ratio increased because the 19% decline in depreciation expense from the prior year period was exceeded by a 34% decline in rental and lease revenues. These changes also reflect the lower rates of equipment utilization and lower rental and lease yields in the current year, as compared to the prior year.

DP equipment utilization remained near its lowest historical level, while T&M equipment utilization continued a decline which began in the fourth quarter of fiscal 2001 and reached its lowest level since fiscal 1994. As discussed above, the weak economy and certain distressed market sectors reduced demand for rental and lease equipment, which in turn decreased overall equipment utilization. DP equipment utilization actually increased slightly to 60% at the end of fiscal 2002 from 58% at the end of fiscal 2001, while T&M equipment utilization declined to 52% from 59% for the respective dates.

6

Electro Rent 2002 Annual Report

Costs of revenues other than depreciation primarily includes the cost of equipment sales, which increased from 69% of equipment sales in fiscal 2001 to 70% of equipment sales in fiscal 2002. This cost ratio increase reflects the liquidation of used equipment which is cumulatively less depreciated in the current year, compared to the prior year.

Selling, general and administrative expenses totaled $50.5 million for fiscal 2002, or 34% of revenues, as compared to $62.6 million, or 30% of revenues, for fiscal 2001. Although SG&A expenses were reduced by 19%, reflecting a reduction in personnel, the closing of certain locations, resolution of the GE Capital Technology Management Services (TMS) arbitration, and the termination of goodwill amortization, total revenues declined at a faster rate of 30%.

As a result of the changes in revenues, operating costs and expenses discussed above, earnings before interest and taxes were $15.7 million or 11% of total revenues in fiscal 2002 compared to $48.8 million or 23% of total revenues in fiscal 2001.

Net interest income increased from $0.7 million in fiscal 2001 to $2.2 million in fiscal 2002. This change is due to the repayment of all bank borrowings during fiscal 2001, and subsequent investment of the Company’s net cash flow in money market instruments.

At fiscal year-end, the Company re-evaluated its accrued liability relating to state, federal, local and foreign income taxes and reduced income tax expense by approximately $2.0 million in the fourth quarter of fiscal 2002. As a result, the effective tax rate was 27% in fiscal 2002, as compared to 38% in fiscal 2001.

Fiscal 2001 Compared with Fiscal 2000

Total revenues for the year ended May 31, 2001 decreased 13% to $211.2 million from $241.8 million, primarily as a result of continuing attrition of the GE Capital Technology Management Services (TMS) business acquired by the Company in November 1997 and a generally weak personal computer market during the last 12 months, partially offset by increased rentals of test and measurement equipment in the Company’s telecommunications product line. Rental and lease revenues decreased 13% to $173.5 million in fiscal 2001, largely for the reasons noted above, and sales of equipment and other revenues decreased 12% to $37.7 million in fiscal 2001.

Depreciation of equipment decreased from 48% of rental and lease revenues in fiscal 2000 to 42% of rental and lease revenues in fiscal 2001. This decrease is primarily due to the fact that a large portion of computers acquired from TMS in fiscal 1998 became fully depreciated in the last half of fiscal 2000. This decrease also reflects the shift in the Company’s equipment portfolio from personal computers, having relatively shorter useful lives, to test and measurement equipment, having relatively longer useful lives.

Costs of revenues other than depreciation primarily includes the cost of equipment sales, which decreased from 82% of equipment sales in fiscal 2000 to 69% of equipment sales in fiscal 2001. This cost ratio decrease primarily results from the sale of equipment that is generally more depreciated than in the prior fiscal year and several non-recurring customer settlements.

Selling, general and administrative expenses totaled $62.6 million in fiscal 2001, or 30% of revenues, as compared to $65.1 million, or 27% of revenues, in fiscal 2000. This expense ratio increase reflects the 13% decline in total revenues, partially offset by a 4% decline in SG&A primarily resulting from a reduction in personnel and the closing of certain facilities.

As a result of the changes in revenues, operating costs and expenses discussed above, earnings before interest and taxes were $48.8 million, or 23% of total revenues in fiscal 2001, compared to $45.6 million, or 19% of total revenues in fiscal 2000.

Net interest income and expense changed from expense of $5.5 million in fiscal 2000 to income of $0.7 million in fiscal 2001. This change results from the Company’s repayment of all of its bank borrowings during the second quarter of fiscal 2001, and the Company’s subsequent investment of its cash in money market instruments.

7

Electro Rent 2002 Annual Report

Liquidity and Capital Resources

Electro Rent’s rental and lease equipment portfolio totaled $320.7 million, at acquisition cost, at May 31, 2002, decreasing $68.7 million from last year. During the three years ended May 31, 2002, the Company made payments for equipment purchases totaling $198 million, while recording a net decrease in its equipment portfolio at acquisition cost of $148 million resulting from the liquidation of used equipment. The Company has three principal sources of liquidity: cash flows provided by its operating activities, proceeds from the sale of equipment from its portfolio, and external funds that historically have been provided by bank borrowings.

During the years ended May 31, 2002 and 2001 net cash provided by operating activities was $74.7 million and $97.4 million, respectively. The decrease in fiscal 2002 results primarily from the decline in net income.

During the years ended May 31, 2002 and 2001 net cash used in investing activities was $21.6 million and $13.9 million, respectively. This change is primarily attributable to reduced purchases of rental and lease equipment, net of decreased proceeds from the sale of used equipment. Also contributing to this change is the receipt in the prior year of a $20.8 million purchase price reduction related to the GE TMS acquisition in fiscal 1998.

During fiscal 2002 net cash provided from financing activities was $1.4 million, compared to $24.0 million net cash used in financing activities in fiscal 2001. This change is largely the result of the repayments of all bank borrowings in the prior fiscal year. The total result of the cash flows from operating, investing and financing activities in fiscal 2002 was an increase in cash and cash equivalents of $54.5 million.

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 during the last three years.

(in thousands)

										Three Years Ended
	2000			2001			2002			May 31, 2002
Cash flows from operating activities(1)	$	127,771		$	97,434		$	74,660		$	299,865
Proceeds from sale of equipment		37,016			32,745			27,913			97,674
Total cash flows available for equipment purchases		164,787			130,179			102,573			397,539
Payments for equipment purchases		(81,802	)		(66,987	)		(49,408	)		(198,197	)
Net decrease in bank borrowings		(85,700	)		(21,800	)		0			(107,500	)
Net decrease in equipment portfolio at acquisition cost		(23,958	)		(55,048	)		(68,675	)		(147,681	)

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

As indicated by the table, cash flows from operating activities and proceeds from sale of equipment provided 201% of the funds required for equipment purchased during the three-year period ended May 31, 2002. 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. Management believes that cash and cash equivalents, cash flows from operating activities, proceeds from the sale of equipment and its borrowing capacity (see Note 3 of Notes to Consolidated Financial Statements) will be sufficient to fund the Company’s operations.

The market for personal computers and test equipment continued to weaken during fiscal 2002, and as a result, the Company’s expenditures for equipment decreased. The Company repaid its bank borrowings in full during the first half of fiscal 2001. Since then, the Company has invested its growing cash balance in short-term money market funds. The Company’s cash and cash equivalents are likely to continue to grow, unless the Company decides to buy back additional shares, finance an acquisition, or pursue other opportunities.

The Company has a $10.0 million revolving line of credit with a bank, subject to certain restrictions, to meet equipment acquisition needs as well as working capital and general corporate requirements. The Company had no borrowings outstanding at May 31, 2002. The Company has cash commitments under various facility operating leases which are due as follows: $1.5 million in fiscal 2003, $1.9 million in fiscal 2004 to 2006, and $.4 million in fiscal 2007.

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Electro Rent 2002 Annual Report

Inflation generally has favorably influenced the Company’s results of operations by enhancing the sale prices of its used equipment. However, lower inflation rates and the continued availability of newer, less expensive equipment with similar or better specifications could result, over a period of several years, in lower relative sale prices for used electronic equipment. If this should occur, the Company’s margins and earnings will be reduced. 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 margins and earnings.

Qualitative and Quantitative Disclosures About Interest Rates and Currency Rates

The Company’s primary market risk exposure historically has been risks related to interest rate fluctuations, primarily related to its previous borrowings under its unsecured revolving credit facility. However, interest rates do not necessarily impact the Company’s margins or earnings because the effects of higher or lower borrowing costs may be reflected in the financing rates on newly rented and leased assets. The Company may attempt to reduce this risk by utilizing derivative financial instruments, namely interest rate caps and swaps, pursuant to Company policies. The Company does not enter into derivative financial instruments for the purpose of trading. Although the Company has the ability to draw on its revolving credit line, the Company currently has no outstanding borrowings under its credit facility or interest rate protection agreements in place.

The Company is also subject to risks associated with foreign currency rate fluctuations to the extent of financing arrangements for rented and leased equipment denominated in Canadian dollars. The Company has determined that hedging of these assets is not cost effective and instead attempts to minimize its risks due to currency and exchange rate fluctuations through working capital management. The Company does not believe that any foreseeable change in currency rates would materially or adversely affect its financial position or results of operations.

Special Note About Forward-Looking Statements

Except for the historical statements and discussions contained in this Annual Report, statements contained in this Annual Report constitute forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934. These forward-looking statements reflect the current views of the Company’s management with respect to future events and financial performance. All plans, projections, and future estimates are forward-looking statements, which in some, but not all, cases, are identified by words such as “anticipate,” “believes,” “expects,” “intends,” “future,” and other similar expressions. Please do not put undue reliance on forward-looking statements. Forward-looking statements are subject to certain risks and uncertainties, not all of which are disclosed in this Annual Report. Although the Company believes its management’s assumptions are reasonable, it is likely that at least some of these assumptions will not come true. Accordingly, the Company’s actual results will probably differ from the outcomes contained in any forward-looking statement, and those differences could be material. Factors that could cause or contribute to these differences include, among others, those risks and uncertainties discussed under the sections contained in this Annual Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in “Quantitative and Qualitative Disclosure About Interest Rates and Currency Rates,” as well as in the Company’s Annual Report on Form 10-K for the year ended May 31, 2002, including the “Risk Factors” attached as Exhibit 99 to that document, the Company’s Proxy Statement for its 2002 Annual Meeting of Shareholders and the Company’s other filings with the Securities and Exchange Commission. Should one or more of the risks discussed, or any other risks, materialize, or should one or more of the Company’s underlying assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated, estimated, expected or projected. In light of the risks and uncertainties, there can be no assurance that any forward-looking information will in fact prove to be correct. We do not undertake any obligation to update forward-looking statements.

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Electro Rent 2002 Annual Report

Consolidated Statements of Income

(in thousands, except per share information)

			Year Ended May 31,
			2002			2001			2000
Revenues:
	Rentals and leases		$	115,310		$	173,495		$	199,022
	Sales of equipment and other revenues			32,554			37,681			42,771
		Total revenues		147,864			211,176			241,793
Costs and expenses:
	Depreciation of rental and lease equipment			58,639			72,753			95,769
	Costs of revenues other than depreciation			23,039			26,971			35,356
	Selling, administrative and general expenses			50,492			62,625			65,104
	Interest (income) expense, net			(2,232	)		(708	)		5,465
		Total costs and expenses		129,938			161,641			201,694
Income before income taxes				17,926			49,535			40,099
Income taxes				4,804			18,822			15,237
Net income			$	13,122		$	30,713		$	24,862
Earnings per share:
	Basic		$	0.53		$	1.26		$	1.01
	Diluted		$	0.53		$	1.24		$	1.00
Shares used in per share calculation:
	Basic			24,602			24,416			24,571
	Diluted			24,837			24,753			24,972

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

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Electro Rent 2002 Annual Report

Consolidated Balance Sheets

(in thousands, except share information)

			As of May 31,
			2002		2001
Assets
	Cash and cash equivalents		$	115,623	$	61,136
	Accounts receivable, net of allowance for doubtful accounts of $2,461 and $1,840			12,023		23,809
	Rental and lease equipment, net of accumulated depreciation of $201,063 and $221,892			119,675		167,521
	Other property, net of accumulated depreciation and amortization of $12,241 and $10,447			16,912		18,841
	Goodwill			35,703		35,703
	Intangibles, net of amortization of $4,942 and $4,816			1,558		1,684
	Other			3,896		3,774
			$	305,390	$	312,468
Liabilities and Shareholders’ Equity
Liabilities:
	Accounts payable			7,185		25,733
	Accrued expenses			17,671		19,606
	Deferred income taxes, net			15,817		16,943
		Total liabilities		40,673		62,282
Commitments and contingencies
Shareholders’ equity:
	Preferred stock, $1 par — shares authorized 1,000,000; none issued			—		—
	Common stock, no par — shares authorized 40,000,000; issued and outstanding 2002 — 24,774,734; 2001 — 24,502,879			13,246		11,782
	Retained earnings			251,471		238,404
		Total shareholders’ equity		264,717		250,186
			$	305,390	$	312,468

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

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Electro Rent 2002 Annual Report

Consolidated Statements of Shareholders’ Equity

(in thousands)

		Three years ended May 31, 2002
		Common Stock
		Number						Retained
		of Shares			Amount			Earnings
Balance, May 31, 1999			24,476		$	10,510		$	185,664
	Exercise of stock options, net, including related tax effect		159			629			—
	Net income for the year ended May 31, 2000		—			—			24,862
Balance, May 31, 2000			24,635			11,139			210,526
	Exercise of stock options, net, including related tax effect		186			789			—
	Repurchase of common stock		(318	)		(146	)		(2,835	)
	Net income for the year ended May 31, 2001		—			—			30,713
Balance, May 31, 2001			24,503			11,782			238,404
	Exercise of stock options, net, including related tax effect		276			1,467			—
	Repurchase of common stock		(4	)		(3	)		(55	)
	Net income for the year ended May 31, 2002		—			—			13,122
Balance, May 31, 2002			24,775		$	13,246		$	251,471

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

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Electro Rent 2002 Annual Report

Consolidated Statements of Cash Flows

(in thousands)

				Year Ended May 31,
				2002			2001			2000
Cash flows from operating activities:
	Net income			$	13,122		$	30,713		$	24,862
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			60,781			76,856			100,655
		Provision for losses on accounts receivable			2,930			2,479			1,265
		Gain on sale of rental and lease equipment			(8,294	)		(10,226	)		(6,767	)
		Change in operating assets and liabilities:
			Decrease in accounts receivable		8,856			3,574			14,747
			(Increase) decrease in other assets		(122	)		402			43
			Increase (decrease) in accounts payable		448			(2,578	)		(3,890	)
			Increase (decrease) in accrued expenses		(1,935	)		(5,315	)		(1,804	)
			Increase (decrease) in deferred income taxes		(1,126	)		1,529			(1,340	)
			Net cash provided by operating activities		74,660			97,434			127,771
Cash flows from investing activities:
	Proceeds from sale of rental and lease equipment				27,913			32,745			37,016
	Proceeds from purchase price settlement				—			20,800			—
	Payments for purchase of rental and lease equipment				(49,408	)		(66,987	)		(81,802	)
	Payments for purchase of other property				(87	)		(469	)		(348	)
			Net cash used in investing activities		(21,582	)		(13,911	)		(45,134	)
Cash flows from financing activities:
	Decrease in short-term bank borrowings				—			(21,800	)		(85,700	)
	Proceeds from issuance of common stock				1,467			789			629
	Payment for repurchase of common stock				(58	)		(2,981	)		—
			Net cash provided by (used in) financing activities		1,409			(23,992	)		(85,071	)
Net increase in cash and cash equivalents					54,487			59,531			(2,434	)
Cash and cash equivalents at beginning of year					61,136			1,605			4,039
Cash and cash equivalents at end of year				$	115,623		$	61,136		$	1,605

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

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Electro Rent 2002 Annual Report

Notes to Consolidated Financial Statements
For the years ended May 31, 2002, 2001 and 2000

(dollar amounts in thousands, except per share amounts)

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, personal computers and workstations 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 wholly owned subsidiary, Genstar Rental Electronics, Inc., acts as the Company’s agent in Canada for all of these business activities. The Company’s wholly owned subsidiary, Electro Rent de Mexico, S.A. de C.V., was liquidated in fiscal 2002.

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 2002, 2001 and 2000 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.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosures of contingent assets and liabilities as of the date of these financial statements. Management’s use of estimates also affects the reported amounts of revenues and expenses during the reporting period. On a regular basis, management reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets including intangibles, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on management’s historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management believes, however, that the estimates, including those for the above-listed items, are reasonable.

Revenue Recognition: Rental and lease revenues are recognized in the month they are due on the accrual basis of accounting. Other revenues consist of billings to customers for equipment sales, delivery, or repairs, which are recognized in the period in which the respective equipment is shipped and risk of loss is passed to the customer or the services are performed. Interest income on cash equivalents is recognized in the period earned.

Rental and Lease Equipment and Other Property: Assets are generally stated at cost, less accumulated depreciation. 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. Depreciation of rental and lease equipment and other property is computed using the straight-line and sum-of-the-years’-digits methods 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 to six years, depending on the type of equipment. Normal maintenance and repairs are expensed as incurred. At May 31, 2002, rental and lease equipment at net book value comprised $99,208 of test and measurement equipment and $20,467 of data products equipment.

Capital Leases: The Company has certain customer leases providing bargain purchase options, which are accounted for as sales-type leases. At May 31, 2002 and 2001 investment in sales-type leases of $1,321 and $1,334 net of deferred interest of $77 and $72, is included in other assets. Interest income is recognized over the life of the lease using the effective interest method.

Fair Value of Financial Instruments: The carrying amount of cash and cash equivalents and accounts receivable approximates fair value due to the short maturity of these instruments. Cash and short term investments with original maturities of 90 days or less are considered to be cash equivalents.

Impairment of Assets: The carrying value of equipment held for rental and lease is assessed quarterly and/or when factors indicating an impairment are present. The Company recognizes impairment losses on equipment held for rental and lease when the expected future undiscounted cash flows are less than the asset’s carrying value, in which case the asset is written down to its estimated fair value.

Goodwill and Intangibles: Until May 31, 2001, goodwill was amortized over a period of 40 years and intangibles were amortized on a straight-line basis over their estimated useful lives, to a residual of zero. On June 1, 2001, the

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Electro Rent 2002 Annual Report

Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets”, which provides that intangible assets with finite useful lives be amortized over that life and that goodwill and intangible assets with indefinite lives not be amortized, but will rather be tested at least annually for impairment.

Concentration of Credit Risk: Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable. The Company sells primarily on 30-day terms, performs credit evaluation procedures on each customer’s individual transactions and requires security deposits or personal guarantees from its customers when significant credit risks are identified. Typically, most customers are large, established firms. An allowance for potential credit losses is maintained.

The Company purchases rental and lease equipment from numerous vendors. During fiscal 2002, Agilent Technologies, Inc. was the only vendor that accounted for more than 10% of such purchases.

Derivative Financial Instruments: During 1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and for Hedging Activities,” which establishes new standards for reporting derivative and hedging information. The standard as amended in SFAS 138 is effective for periods beginning after June 15, 2000 and was adopted by the Company in fiscal 2002. The Company did not have any derivative financial instruments as of May 31, 2002 or 2001. The adoption of this standard did not have a significant impact on the consolidated financial statements.

Comprehensive Income: SFAS No. 130, “Reporting Comprehensive Income,” establishes standards to measure all changes in equity that result from transactions and other economic events other than transactions with shareholders. Comprehensive income is the total of net income and all other non-shareholder changes in equity. Other than net income, the Company has no comprehensive income.

Segment Reporting: The Company adopted SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information,” at May 31, 1999. SFAS No. 131 establishes annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. Under SFAS No. 131, the Company’s operations are treated as one operating segment because discrete financial information is not available for its product groups and the economic characteristics of the product groups are similar.

Net Income Per Common and Common Equivalent Share: Basic earnings per share (“EPS”) is computed as net income divided by the weighted average number of shares of common stock outstanding for the reported year, excluding the dilutive effects of stock options and other potentially dilutive securities. Diluted EPS is computed as net income divided by the weighted average number of shares outstanding of common stock and common stock equivalents for the reported year. Common stock equivalents result from the dilutive stock options computed using the treasury stock method.

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

	2002		2001		2000
Interest	$	9	$	271	$	4,545
Income taxes		4,666		19,095		17,030

Supplemental disclosure of non-cash investing and financing activities: The Company acquired equipment of $6,626, $25,623, and $19,947, at May 31, 2002, 2001 and 2000, respectively, which was paid for during the subsequent year.

Recent Pronouncements: In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which is effective for the fiscal years beginning after December 15, 2001. The Company will adopt SFAS No. 144 as required on June 1, 2002. This standard will not have a significant effect on the Company’s consolidated financial statements upon adoption.

Note 2  Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141 (“SFAS 141”), “Business Combinations.” SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. SFAS 141 also

15

Electro Rent 2002 Annual Report

specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill and those that are required to be included in goodwill. The Company adopted SFAS 141 in the first quarter of fiscal year 2002. Adoption of SFAS 141 did not have a significant impact on the financial statements.

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 142 requires, among other things, the discontinuance of goodwill amortization and the testing for impairment of goodwill at least annually. The Company adopted SFAS 142 in the first quarter of fiscal year 2002. The impact of SFAS 142 on the Company’s financial position and results of operations was primarily the elimination of annual goodwill amortization of $1.4 million.

In accordance with SFAS 142, the Company discontinued goodwill amortization and tested goodwill for impairment as of June 1, 2001; no such impairment was noted. The Company will continue to test goodwill for impairment at least annually. Other intangible assets, with finite lives, continue to be amortized over their useful life of twenty years.

Goodwill was $35.7 million as of May 31, 2002, and was unchanged for the year. The following sets forth the intangible assets by major asset class as of May 31, 2002:

		Gross
		Carrying		Accumulated
		Amount		Amortization
Asset class
Customer contracts and related relationships		$	4,500	$	(3,920	)
Trade name			2,000		(1,012	)
	Total intangibles	$	6,500	$	(4,942	)

Aggregate amortization expense on intangible assets was approximately $0.13 million for the year ended May 31, 2002. There was no impairment loss recorded during the year. Amortization expense is expected to be approximately $0.13 million in each of the next five fiscal years.

The following table presents net income on a comparable basis, after adjustment for goodwill amortization for the fiscal years ended May 31:

		2002		2001		2000
Reported net income		$	13,122	$	30,713	$	24,862
	Add back: goodwill amortization, net of tax effect		0		857		857
Adjusted net income		$	13,122	$	31,570	$	25,719
Basic earnings per share
	As reported	$	0.53	$	1.26	$	1.01
	As adjusted	$	0.53	$	1.29	$	1.05
Diluted earnings per share
	As reported	$	0.53	$	1.24	$	1.00
	As adjusted	$	0.53	$	1.28	$	1.03

Note 3  Borrowings

On November 29, 2001, the Company renewed its 364-day agreement with a bank to provide a revolving line of credit for a reduced amount of $10.0 million from $25.0 million, subject to certain restrictions, to meet potential equipment acquisition needs as well as working capital and general corporate requirements. The interest rate on the line of credit is based on the prime rate or LIBOR, and the Company had no borrowings outstanding during the fiscal year ended May 31, 2002.

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Electro Rent 2002 Annual Report

Derivative Positions — The Company entered into various interest rate protection agreements, which all expired during fiscal 2001. The Company’s exposure under these agreements was limited to the impact of variable interest rate fluctuations and the periodic settlement of amounts due under these agreements if the other parties failed to perform. There were no derivative financial instruments outstanding as of May 31, 2002 or 2001.

Note 4  Income Taxes

The provision for income taxes consists of the following for the fiscal years ended May 31:

		2002			2001		2000
Current
	Federal	$	4,939		$	15,131	$	14,505
	State		991			2,162		2,072
Deferred
	Federal		(985	)		1,338		(1,172	)
	State		(141	)		191		(168	)
		$	4,804		$	18,822	$	15,237

A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows for the fiscal years ended May 31:

	2002			2001			2000
Statutory federal rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		5.0			5.0			5.5
Change in tax estimates on existing local, state, federal and foreign tax liabilities		(11.2	)		—			—
Other — net		(2.0	)		(2.0	)		0.5
Effective tax rate		26.8	%		38.0	%		41.0	%

The tax effects of temporary differences that give rise to significant portions of the net deferred tax liabilities at May 31, 2002 and 2001 are as follows:

			2002			2001
Deferred tax assets:
	Allowance for doubtful accounts		$	984		$	736
	Net operating loss carryforwards			646			770
	Deferred compensation and benefits			781			625
	Other			68			1,073
				2,479			3,204
Deferred tax liabilities:
	Accumulated depreciation and amortization			(18,296	)		(16,919	)
	Deferred revenue			0			(2,388	)
	Other			0			(840	)
				(18,296	)		(20,147	)
		Net deferred tax liabilities	$	(15,817	)	$	(16,943	)

Net operating loss carryforwards for federal income tax reporting purposes approximate $1,845 at May 31, 2002 and are available for use against taxable income through 2006. The utilization of operating loss carryforwards is limited to $356 per year for federal income tax reporting purposes.

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Electro Rent 2002 Annual Report

Note 5  Computation of Earnings Per Share

Following is a reconciliation of the denominator used in the computation of basic and diluted EPS:

		2002		2001		2000
Denominator:
	Denominator for basic earnings per share — weighted average common shares outstanding		24,602		24,416		24,571
	Effect of dilutive securities— options		235		337		401
			24,837		24,753		24,972
Net income		$	13,122	$	30,713	$	24,862
Earnings per share:
	Basic	$	.53	$	1.26	$	1.01
	Diluted	$	.53	$	1.24	$	1.00

Certain options to purchase the Company’s common stock were not included in the computation of diluted earnings per share because to do so would have been antidilutive. The quantity of such options is 654,823, 387,661, and 507,137 at May 31, 2002, 2001, and 2000, respectively.

Note 6  Rentals and Leases

The Company rents equipment on a short-term basis and leases equipment for periods greater than 12 months. Such 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 maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make rental and lease payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of customers to make the required payments. If the financial condition of the Company’s customers were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the customers were to improve or if legal remedies to collect past due amounts were more successful than expected, the allowance for doubtful accounts may need to be reduced and income would be increased. A roll-forward of the allowance is as follows at May 31:

	2002
Beginning of year	$	1,840
Provision for doubtful accounts		2,930
Write-offs, net of recoveries		(2,309	)
End of year	$	2,461

The Company’s cost of equipment under operating leases at May 31, 2002, with remaining noncancellable lease terms of more than one year, is $20,078 before accumulated depreciation of $9,093, and the net book value is $10,985.

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, 2002 is as follows:

2003	$	10,051
2004		6,955
2005		1,717
	$	18,723

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Electro Rent 2002 Annual Report

Note 7  Other Property

Other property, at cost, consists of the following at May 31:

	2002			2001
Land	$	6,985		$	6,985
Buildings		13,682			13,682
Furniture and other equipment		6,992			6,957
Leasehold improvements		1,494			1,664
		29,153			29,288
Less — accumulated depreciation and amortization		(12,241	)		(10,447	)
	$	16,912		$	18,841

Note 8  Acquisition Purchase Price Settlement

On December 13, 2000, the Company entered into a settlement agreement to fully resolve its closing balance sheet and purchase price disagreements with GE Capital Technology Management Services (“TMS”), regarding the Company’s acquisition of the TMS computer and test and measurement equipment rental business. The Company received the related settlement payment of $20.8 million on December 14, 2000.

On November 14, 1997, the Company acquired the TMS business for a purchase price of approximately $240 million. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and assumed liabilities were recorded at their estimated fair value at the date of the acquisition. Before the settlement, the purchase price exceeded the fair market value of the tangible net assets acquired resulting in goodwill of approximately $60 million.

The TMS acquisition agreement included provisions for a reduction in the purchase price paid by the Company in the event there were objections to the TMS closing date balance sheet. The Company’s objections were subject to resolution as set forth in the TMS acquisition agreement and were the subject of on-going discussions between the parties. The settlement related to these objections has been used primarily to reduce the TMS goodwill originally recorded.

Note 9  Commitments and Contingencies

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 be renewed or replaced by other leases.

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

2003	$	1,491
2004		924
2005		574
2006		448
2007		388
	$	3,825

Rent expense was $2,698, $2,969, $3,630 in fiscal 2002, 2001, and 2000, respectively.

19

Electro Rent 2002 Annual Report

The Company is subject to legal proceedings and business disputes involving ordinary and routine claims. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. Estimates for losses from litigation are made after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, the Company may be required to record either more or less litigation expense. It is management’s opinion that none of the open matters at May 31, 2002 will have a material adverse effect on the Company’s financial condition or operations.

Note 10  Stock Option Plans

The Company has Stock Option Plans (the “Plans”) which authorize the Board of Directors to grant options for 2,167,500 shares of the Company’s common stock, of which 72,329 were available for future grants at May 31, 2002. The Plans provide for both incentive stock options, which may be granted only to employees, and non-statutory stock options, which may be granted to directors and consultants who are not employees. Pursuant to the Plans, options have been granted to directors, officers and key employees at prices not less than 100% of the fair market value on the day 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 percent stockholder. The Plans provide for a variety of vesting dates with the majority of the options vesting at a rate of 25 percent per year over a period of four years from the date of grant. All outstanding options expire at dates ranging from October 2002 to July 2010. The following table summarizes certain information relative to options for common stock.

		2002					2001					2000
					Weighted					Weighted					Weighted
					Average					Average					Average
		Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Options outstanding, beginning of year			1,068,794		$	10.35		1,100,847		$	9.19		1,305,771		$	8.54
	Granted		7,574			16.44		172,640			11.60		9,618			12.94
	Exercised		(276,361	)		5.31		(192,693	)		4.52		(167,664	)		2.92
	Forfeited		(16,738	)		12.13		(12,000	)		14.97		(46,878	)		14.47
Options outstanding, end of year			783,269		$	12.15		1,068,794		$	10.35		1,100,847		$	9.19
Options exercisable at end of year			667,429		$	12.25		799,494		$	9.56		866,597		$	7.83
Weighted-average fair value of options granted during year					$	6.81				$	6.62				$	6.44

The following summarizes information regarding stock options outstanding at May 31, 2002:

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Life		Price		Exercisable		Price
$  2.41 — $11.58		200,430		2.8	$	7.42		195,555	$	7.33
$11.59 — $13.86		199,333		7.1		11.73		88,368		11.87
$13.87 — $24.11		383,506		4.4		14.84		383,506		14.84
		783,269		4.7	$	12.15		667,429	$	12.25

Pro Forma Information: The Company applies the intrinsic-value-based method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” in accounting for employee stock options. Accordingly, compensation expense is recognized only when options are granted with a discounted exercise price. Any such compensation expense is recognized ratably over the associated service period, which is generally the option vesting term.

20

Electro Rent 2002 Annual Report

Pro forma net earnings and earnings per share information, as required by Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” has been determined as if the Company had accounted for employee stock options under SFAS 123’s fair value method. The fair value of these options was estimated at grant date using a Black-Scholes option pricing model with the following weighted-average assumptions for fiscal 2002, 2001, and 2000, respectively: risk-free interest rates of 4.8, 6.2, and 5.8 percent; dividend yield of 0 percent; expected option life of 4.2, 7.2, and 5.0, years; and volatility of 44.1, 44.4, and 47.8 percent.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the 4-year average vesting period of the options. The Company’s pro forma net earnings for 2002, 2001, and 2000 were $12,581, $29,783, and $23,994, and pro forma net earnings per share were $.51, $1.21, and $.97, respectively, on a diluted earnings per share basis.

Note 11  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 $441, $670, and $756 were made for 2002, 2001, and 2000, respectively.

The ESOP was established in 1975 and was frozen in 1994, at which time all participants became fully vested. Contributions to the ESOP were invested primarily in stock of the Company. The ESOP held 523,269 shares of the Company’s stock at May 31, 2002.

Note 12  Quarterly Information (Unaudited)

Quarterly information is as follows:

								Earnings per share
		Total		Income		Net
		Revenues		Before Taxes		Income		Basic		Diluted
Fiscal Year 2002
	First Quarter	$	42,956	$	6,441	$	3,994	$	0.16	$	0.16
	Second Quarter		39,081		5,164		3,202		0.13		0.13
	Third Quarter		31,993		2,913		1,807		0.07		0.07
	Fourth Quarter		33,834		3,408		4,119		0.17		0.17
		$	147,864	$	17,926	$	13,122	$	0.53	$	0.53
Fiscal Year 2001
	First Quarter	$	57,333	$	14,339	$	8,890	$	0.36	$	0.36
	Second Quarter		54,517		14,020		8,692		0.36		0.35
	Third Quarter		50,752		12,079		7,490		0.31		0.30
	Fourth Quarter		48,574		9,097		5,641		0.23		0.23
		$	211,176	$	49,535	$	30,713	$	1.26	$	1.24

21

Electro Rent 2002 Annual Report

Independent Auditors’ Report

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

We have audited the accompanying consolidated balance sheet of Electro Rent Corporation (a California Corporation) and subsidiaries (the “Company”) as of May 31, 2002, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended. 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 audit. The financial statements of the Company as of May 31, 2001 and for the years ended May 31, 2001 and 2000 were audited by other auditors whose report, dated August 6, 2001, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion.

In our opinion, such 2002 financial statements present fairly, in all material respects, the financial position of Electro Rent Corporation and subsidiaries as of May 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, in the fiscal year ended May 31, 2002, the Company changed its method of accounting for goodwill and other intangibles to conform to Statement of Financial Accounting Standards No. 142, resulting in the discontinuation of amortization of goodwill during the fiscal year ended May 31, 2002.

Los Angeles, California
August 5, 2002

Capital Stock, Shareholders and Cash Dividend Information (Unaudited)

The common stock of the Company is quoted on NASDAQ under the symbol ELRC. There were approximately 464 shareholders of record at August 5, 2002. The Company has not, and does not expect in the future, to pay regular cash or non-cash distributions or dividends to its shareholders. 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.

	Fiscal Year 2002				Fiscal Year 2001
	High		Low		High		Low
First Quarter	$	17.39	$	14.15	$	12.75	$	9.50
Second Quarter		15.90		12.40		13.69		11.25
Third Quarter		14.30		12.56		18.00		11.06
Fourth Quarter		14.32		12.50		16.30		13.00

22 EX-22 6 v84092exv22.txt EXHIBIT 22 EXHIBIT 22 The inside front cover and pages 5-9 and 11-23 of the Annual Report to Security Holders for the fiscal year ended May 31, 2002 are appended hereto as Exhibit 22 hereof and are being electronically filed with this Form 10-K Annual Report. Exhibit 22 EX-23.(A) 7 v84092exv23wxay.txt EXHIBIT 23(A) EXHIBIT 23(A) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-37692) and the Registration Statement on Form S-8 and S-3 (No. 333-17295) of Electro Rent Corporation of our report dated August 5, 2002, appearing in this Annual Report on Form 10-K of Electro Rent Corporation for the year ended May 31, 2002. /s/ Deloitte & Touche LLP Los Angeles, California August 28, 2002 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE Our audit was conducted for the purpose of forming an opinion on the basic 2002 financial statements taken as a whole. The supplemental schedule of Valuation and Qualifying Accounts on page 10 of the Form 10-K is presented for the purpose of additional analysis and is not a required part of the basic 2002 financial statements. This supplemental schedule is the responsibility of the Company's management. Such 2002 schedule has been subjected to the auditing procedures applied in our audit of the basic 2002 financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic 2002 financial statements taken as a whole. The 2001 and 2000 schedule of Valuation and Qualifying Accounts was subjected to auditing procedures by other auditors whose report dated August 6, 2001, stated that such information is fairly stated in all material respects when considered in relation to the basic 2001 and 2000 financial statements taken as a whole. /s/ DELOITTE & TOUCHE LLP Los Angeles, California August 5, 2002 Exhibit 23(A) EX-23.(B) 8 v84092exv23wxby.txt EXHIBIT 23(B) EXHIBIT 23(B) THE FOLLOWING REPORTS ARE COPIES OF PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORTS AND HAVE NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. REPORTS OF INDEPENDENT AUDITORS 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, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 2001. 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 auditing standards generally accepted in the United States. 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 its subsidiaries as of May 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP Arthur Andersen LLP Los Angeles, California August 6, 2001 To the Shareholders and Board of Directors of Electro Rent Corporation: We have audited, in accordance with auditing standards generally accepted in the United States, the financial statements of Electro Rent Corporation included in this Form 10-K, and have issued our report thereon dated August 6, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements, taken as a whole. The schedule of valuation and qualifying accounts is the responsibility of the Company's management, is presented for the purpose of complying with the Securities and Exchange Commission's rules, and is not part of the basic financial statements included in this Form 10-K. 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. /s/ Arthur Andersen LLP Arthur Andersen LLP Los Angeles, California August 6, 2001 Exhibit 23(B) EX-99.(A) 9 v84092exv99wxay.txt EXHIBIT 99(A) EXHIBIT 99(A) RISK FACTORS You should carefully consider the following discussion of various risks and uncertainties, keeping in mind that they are not the only ones that affect us. Additional risks which we do not presently consider material, or of which we are not currently aware, may also have an adverse impact on us. Unless otherwise noted (1) the terms "Electro Rent," "we," "us," and "our," refer to Electro Rent Corporation and its subsidiary, Genstar Rental Electronics, Inc., and (2) the terms "Common Stock" and "shareholder(s)" refer to Electro Rent's common stock and the holders of that stock, respectively. Except for the historical statements and discussions contained in these Risk Factors, statements contained in these Risk Factors constitute forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934. These forward-looking statements reflect the current views of our management with respect to future events and financial performance. All plans, projections, and future estimates are forward-looking statements, which in some, but not all, cases, are identified by words such as "anticipates," "believes," "expects," "intends," "future," and other similar expressions. Please do not put undue reliance on forward looking statements. Forward looking statements are subject to certain risks and uncertainties, not all of which are disclosed in the following Risk Factors. Although we believe our assumptions are reasonable, it is likely that at least some of these assumptions will not come true. Accordingly, our actual results will probably differ from the outcomes contained in any forward-looking statement, and those differences could be material. Factors that could cause or contribute to those differences include the ones discussed below, as well as those discussed elsewhere in our Annual Report on Form 10-K for the fiscal year ended May 31, 2002, our Annual Report to Shareholders (especially in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in "Quantitative and Qualitative Disclosure About Interest Rates and Currency Rates,") and our other filings with the Securities and Exchange Commission. Should one or more of the risks discussed, or any other risks, materialize, or should one or more of our underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, expected or projected. In light of the risks and uncertainties, there can be no assurance that any forward-looking information will in fact prove to be correct. We do not undertake any obligation to update forward-looking statements. COMMON STOCK PRICE FLUCTUATIONS Our Common Stock price has fluctuated significantly and may continue to do so in the future. General Factors. We believe some of the reasons for past fluctuations in the price of our stock have included: - announcements of developments related to our business; - announcements concerning new products or enhancements in the equipment that we rent; - developments in our relationships with our customers; - variations in our revenues, gross margins, earnings or other financial results from investors' expectations; and - fluctuations in results of our operations and general conditions in the economy, our market, and the markets served by our customers. In addition, prices in the stock market have been volatile in recent years. In many cases, the fluctuations have been unrelated to the operating performance of the affected companies. As a result, the price of our Common Stock could fluctuate in the future without regard to our operating performance. Future Sales of Electro Rent Common Stock. Sales of Electro Rent's Common Stock by our officers, directors and employees could adversely and unpredictably affect the price of our shares. Additionally, the price could be affected even by the potential for sales by these persons. In addition to the approximately 24,774,734 shares outstanding as of May 31, 2002, we are authorized to issue up to 2,167,500 shares of Common Stock upon exercise of stock options issued under our Stock Option Plans. We cannot predict the Exhibit 99(A) - 1 effect that any future sales of our Common Stock, or the potential for those sales, will have on our share price. FLUCTUATIONS IN OPERATING RESULTS Historically, Electro Rent's operating results have fluctuated, and we expect that fluctuations could continue in the future. The fluctuations in our past results have resulted from many factors, some of which are beyond our control. In the future, these or other factors could have a material adverse impact on our operating results and cause our stock price to decrease. Timing of Equipment Purchases, and Sales and Marketing Expenditures. We try to base expenditures for equipment purchases, sales and marketing and other items on our expectations of future customer demand. If our assumptions prove to be wrong, and our revenues fall short of our expectations, we may not be able to adjust our expenditures quickly enough to compensate for a lower revenue base. This could compound the impact of any revenue shortfall and further affect our operating results and the price of our stock. Seasonal and Quarterly Fluctuations. December and January typically reflect lower rental activity. In addition, because February is a short month, revenue billing in that month is reduced. We cannot predict whether these seasonal factors or their effects will change in the future. The seasonal spending patterns of our customers are affected by factors such as: - weather, holiday and vacation considerations; and - budgetary considerations. Additionally, our operating results are subject to quarterly fluctuations resulting from a variety of factors, including remarketing activities, product announcements by manufacturers, economic conditions and variations in the financial mix of new rentals and leases. The financial mix of new rentals and leases is a result of a combination of factors such as: - changes in customer demands and/or requirements; - new product announcements; - price changes; - changes in delivery dates; - changes in maintenance policies and the pricing policies of equipment manufacturers; and - price competition from other rental, leasing and finance companies. Other Factors. Other factors that may affect our operating results include: - competitive forces within our current and anticipated future markets; - changes in interest rates; - our ability to attract customers and meet their expectations; - currency fluctuations and other risks of international operations; - general economic conditions; and - differences in the timing of our spending on acquiring equipment, renting or leasing that equipment and receiving revenues from our customers. All or any of these and similar factors could result in our operating results differing substantially from the expectations of public market analysts and investors, which would likely have a material adverse impact on our stock price. Exhibit 99(A) - 2 RISKS ASSOCIATED WITH TECHNOLOGY CHANGES If we do not adequately anticipate or respond to changes in technology, it could have a material adverse effect on our operating results and stock price. Technological Advancements. We must anticipate and keep pace with the introduction of new hardware, software and networking technologies and acquire equipment that will be marketable to our current and prospective customers. The equipment we rent can be the subject of rapid technological developments, evolving customer demands and frequent new product announcements and enhancements. If we fail to adequately anticipate or adapt to new technological developments or to recognize changing market conditions, our operating results and stock price could be materially and adversely affected. Expenses Resulting from Technological Advancements. As a result of technology developments, we may have to make substantial and unanticipated expenditures to acquire new equipment or invest in further staff education on operating and servicing the equipment we deliver to our customers. Further, we may not adequately anticipate or respond successfully to technological changes for many reasons, including misjudging the impact of technological changes as well as financial, technological or other constraints. If we do not adequately anticipate or respond to changes in technological advancements or customer preferences, it would likely have a material adverse impact on our operating results and stock price. Introducing New Products and Services. The markets in which we operate are characterized by rapidly changing technology, evolving industry standards and declining prices of personal computers. Our operating results will depend to a significant extent on our ability to continue to introduce new services and to control and/or reduce costs on existing services. Whether we succeed in our new offerings depends on several factors such as: - including proper identification of customer needs; - our costs; - timely completion and introduction of products and services as compared to our competitors; - our ability to differentiate our equipment and services from our competitors; and - market acceptance of our business. RISKS ASSOCIATED WITH THE INTERNET AND THE COMMUNICATIONS INDUSTRIES If we do not collect on contracts with customers, it could have a material adverse effect on our operating results and stock price. The emergence of Internet consulting services and facilities-based broadband communications companies, internet service providers and other telecommunications carriers, referred to as the "communications industry" and the growth of broadband networks has provided us with customers who often find it more attractive to rent or lease electronic equipment than to own that equipment. However, many of our customers in these industries have accumulated net deficits and have liquidity issues. To the extent that these companies are unable to meet their business plans or unable to obtain funding at reasonable rates to complete their business plans, our credit losses would increase above historical levels. If this should occur, our results of operations and stock price may be materially and adversely affected. COMPETITION If we do not effectively compete in our market, our operating results and stock price will be materially and adversely affect. Our industry is characterized by intense competition from several large competitors, some of which have access to greater financial and other resources than we do. Although no single competitor holds a dominant market share, we face intensifying competition from both established entities and new entries in the market. Our primary competitors have been identified by independent industry publications to include: Exhibit 99(A) - 3 - Technology Rentals & Services, a division of CIT Group; - McGrath Rent Corp.; - Telogy; and - Continental Resources. Some of our competitors may offer similar equipment for lease, rental or sale at lower prices and may offer more extensive servicing options. RISKS ASSOCIATED WITH CHANGING ECONOMIC CONDITIONS General domestic and international economic conditions could have a material adverse effect on our operating results and stock price. Domestic and/or International Economic Downturns. Historically, our customers have reduced their expenditures for electronic equipment during economic downturns. When the domestic and/or international economy weakens, demand for our services may decline. This could have a material adverse effect on our operating results and stock price. Industry-Specific Slowdowns. A large part of our equipment portfolio is rented or leased to customers in the aerospace, defense, electronics and telecommunications industries. If one or more of these industries experiences a slowdown, it could have a material adverse effect on our operating results and stock price. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS If we do not adequately anticipate and respond to the risks inherent in international operations, it could have a material adverse effect on our operating results and stock price. We generate a meaningful portion of our revenues from contracts with Canadian parties. These contacts are generally priced in Canadian dollars. Our consolidated financial statements are prepared in U.S. dollars. Consequently, changes in exchange rates can unpredictably and adversely affect our consolidated operating results, and could result in exchange losses. We do not hedge against the risks associated with fluctuations in exchange rates. Although we may use hedging techniques in the future, we may not be able to eliminate or reduce the effects of currency fluctuations. Thus, exchange rate fluctuations could have a material adverse impact on our operating results and stock price. Other Risks Associated with International Operations. Additionally, our financial results may be adversely affected by other international risks, such as: - international political and economic conditions; - changes in government regulation in various countries; - trade barriers; - difficulty in staffing our foreign sales and services centers, and in training and retaining foreign employees; - adverse tax consequences; and - costs associated with expansion into new territories. We expect to continue our international operations and that the revenues we derive from these activities will continue to be a meaningful portion of our total revenues. If we do not anticipate and respond to the risks associated with international operations, it could have a material adverse effect on our operating results and stock price. RISKS ASSOCIATED WITH OUR MANUFACTURERS AND SUPPLIERS If we are not able to obtain equipment at favorable rates, it could have a material adverse effect on our operating results and stock price. Exhibit 99(A) - 4 About 70% of our equipment portfolio at acquisition cost is composed of general purpose test and measurement instruments purchased from leading manufacturers such as Agilent Technologies and Tektronix. The remainder of our equipment portfolio is comprised of personal computers and workstations which include personal computers from Compaq, Dell, IBM, Apple, and Toshiba and workstations primarily from Sun Microsystems and Hewlett Packard. We depend on these manufacturers and suppliers to contract for our equipment. If, in the future, we are not able in to purchase necessary equipment from one or more of these suppliers on favorable terms, our business and stock price may be materially and adversely affected. Additionally, if this should occur, we can make no assurance that we will be able to secure necessary equipment from an alternative source on acceptable terms. DEPENDENCE ON KEY PERSONNEL If we are unable to recruit and retain qualified personnel, it could have a material adverse effect on our operating results and stock price. Our success depends in large part on the continued services of our executive officers, our senior managers and other key personnel, including, among others, our Chief Executive Officer, Daniel Greenberg, our President, William Weitzman, our Senior Vice President of Sales, Gary Phillips, our Chief Financial Officer, Craig Jones, and our Vice President and Secretary, Steven Markheim. The loss of these people, especially without advance notice, could materially and adversely impact our results of operations. It is also very important that we attract and retain highly skilled personnel to accommodate growth and to replace personnel who leave. Competition for qualified personnel is intense, especially in technology industries, and there are a limited number of people with the requisite knowledge and experience to market, sell and service our equipment. Under these conditions, we could be unable to recruit, train, and retain employees. If we cannot attract and retain qualified personnel, it could have a material adverse impact on our operating results and stock price. CONTROL BY MANAGEMENT Senior management has significant influence over Electro Rent's policies and affairs and may be in a position to determine the outcome of corporate actions. Our executive officers and directors collectively own approximately 18% of our Common Stock. Mr. Greenberg, Electro Rent's Chairman and Chief Executive Officer, beneficially owns approximately 17% of Electro Rent's outstanding shares of Common Stock. Consequently, our officers and directors, and Mr. Greenberg in particular, may have significant influence over Electro Rent's policies and affairs and may be in a position to determine the outcome of corporate actions requiring stockholder approval. These may include, for example, the election of directors, the adoption of amendments to our corporate documents and the approval of mergers and sales of our assets. RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS AND NEW BUSINESS VENTURES If we cannot successfully implement any future acquisitions or new business ventures, it could have a material adverse effect on our operating results and stock price. On occasion we evaluate business opportunities that appear to fit within our overall business strategy. We could decide to pursue one or more of these opportunities by acquisition or internal development. Acquisitions and new business ventures involve many risks, including: - the difficulty of integrating acquired operations and personnel with our existing operations; - the difficulty of developing and marketing new products and services; - the diversion of our management's attention as a result of evaluating, negotiating and integrating acquisitions or new business ventures; - our exposure to unforeseen liabilities of acquired companies; and - the loss of key employees of an acquired operation. Exhibit 99(A) - 5 In addition, an acquisition or new business venture could adversely impact cash flows and/or operating results, and dilute shareholder interests, for many reasons, including: - charges to our income to reflect the impairment of acquired intangible assets, including goodwill; - interest costs and debt service requirements for any debt incurred in connection with an acquisition or new business venture; and - any issuance of securities in connection with an acquisition or new business venture which dilutes or lessens the rights of our current shareholders. We have had only one significant experience in executing and implementing an acquisition, which was our acquisition of General Electric Capital Technology Management Services' test and measurement operations in November 1997. As a result of this 1997 acquisition Electro Rent was a party to an arbitration proceeding in connection with the purchase price that settled in 2001. Although we have implemented new business ventures, those ventures have not always been successful, and we may not succeed in the future. The risks associated with acquisitions and new business ventures could have a material adverse impact on our operating results and stock price. RISKS ASSOCIATED WITH FLUCTUATING INTEREST RATES Interest Rate Fluctuations could have a material adverse effect on our operating results and stock price. Historically, our primary market risk exposure has been risks related to interest rate fluctuations, primarily related to our previous borrowings under our unsecured revolving credit facility. However, while we currently have the ability to draw on our revolving credit line, we currently have outstanding no borrowings under this credit facility. In the past we have attempted to reduce this risk by utilizing derivative financial instruments, namely interest rate caps and swaps, pursuant to past practices, and we may enter into derivative financial instruments in the future to hedge our exposure to interest rate fluctuations. ANTI-TAKEOVER PROVISIONS The anti-takeover provisions contained in our Charter Documents could materially and adversely impact the value of our Common Stock. Certain provisions of Electro Rent's Articles of Incorporation, our Bylaws and California law could, together or separately, discourage, delay or prevent a third party from acquiring Electro Rent, even if doing so might benefit our shareholders. This may adversely impact the interests of our shareholders with respect to a potential acquisition and may also affect the price investors would receive for their shares of Common Stock. Some examples of these provisions in our Articles of Incorporation and Bylaws are: - the right of our board of directors to issue preferred stock with rights and privileges which are senior to the Common Stock, without prior stockholder approval; and - certain limitations of the rights of stockholders to call a special meeting of stockholders. Exhibit 99(A) - 6 EX-99.(B) 10 v84092exv99wxby.txt EXHIBIT 99(B) EXHIBIT 99(B) STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002 BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS Dated August 23, 2002 We, Daniel Greenberg and Craig R. Jones, certify that the periodic report, to which this Statement is attached, fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, and the information contained in the periodic report to which this Statement is attached, fairly present, in all material respects, the financial condition and results of operations of the registrant. IN WITNESS WHEREOF, the undersigned have executed this Statement as of the date first written above. ---------------------------------------- Daniel Greenberg Chief Executive Officer ---------------------------------------- Craig R. 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EX-10.(D)(2)

                                                                EXHIBIT 10(D)(2)

                               AMENDMENT NO. 1 TO
                         EXECUTIVE EMPLOYMENT AGREEMENT

        The Executive Employment Agreement, as amended and restated as of July
15, 1992 (the "AGREEMENT"), by and between Electro Rent Corporation (the
"COMPANY") and William Weitzman (the "EXECUTIVE") is amended and supplemented by
the terms of this Amendment No. 1 (this "AMENDMENT") as set forth below.
Capitalized terms not otherwise defined herein are given the meanings ascribed
to such terms in the Agreement.

1.      SECTION 1.2(c). Section 1.2(c) shall be modified by adding the following
        sentence at the end of Section 1.2(c):

        "In addition, during the continuation of the Executive's employment
        hereunder, the Company shall maintain (by insurance policy or, if not
        available on commercially reasonable terms, self insurance) medical
        coverage, consistent with the standard of coverage currently available
        to the Executive, for the Executive, his spouse and his dependant
        children until each child reaches the age of 24, unless prior to that
        time the child has become disabled, in which case the medical coverage
        shall be maintained with respect to that child for as long as he/she
        shall live (the "FAMILY MEDICAL BENEFIT").

        2. NEW SECTION 2.4. A new Section 2.4 shall be added to the Agreement as
        follows: Section 2.4. Regardless of any termination of the employment
        relationship, at its expense, the Company shall continue to maintain (by
        insurance policy or, if not available on commercially reasonable terms,
        self insurance) the Family Medical Benefit for (i) the Executive and his
        spouse for as long as they live, and (ii) each of the Executive's
        children until that child reaches the age of 24, unless prior to that
        time the child has become disabled, in which case the Family Medical
        Benefit shall be maintained with respect to that child for as long as
        he/she shall live.

3.      SECTION 2.2(b). Section 2.2(b) shall be revised to replace the words
        "during the Employment Term" on the eighth line of page 6 with the words
        "with respect to any fiscal year of the Company in which Executive was
        employed by the Company." 4. SECTION 2.3(a). The words "the Term" on the
        fourth line of Section 2.3(a) shall be replaced with the words "with
        respect to any fiscal year of the Company in which Executive was
        employed by the Company."

5.      SECTION 2.3 (b). The words ", including the Family Medical Benefit" will
        be added following the words "Termination of Employment" in the third
        line of page 8.

6.      GENERAL. Except as explicitly modified in this Amendment, the Agreement
        shall continue in full force and effect. IN WITNESS WHEREOF, the parties
        hereto have duly executed this Amendment on the 12 day of October 2001.


ELECTRO RENT CORPORATION                EXECUTIVE

By:   /s/ Daniel Greenberg              By: /s/ William Weitzman
Its:  Chief Executive Officer                   William Weitzman



                                Exhibit 10(D)(2)

EX-10.(E)(5)

                                                                EXHIBIT 10(E)(5)

                            ELECTRO RENT CORPORATION
                             2002 STOCK OPTION PLAN

        This 2002 Stock Option Plan is hereby adopted by the Company
(capitalized terms not otherwise defined are defined in the final section of
this Plan).

1. PURPOSES OF THE PLAN. The purposes of this Plan are:

        -       to attract and retain the best available personnel,

        -       to provide additional incentive to Employees, Directors and
                Consultants, and

        -       to promote the success of the Company's business.

2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10, options
covering no more than ONE MILLION FIVE HUNDRED THOUSAND (1,500,000) shares of
Common Stock, in addition to any additional shares available under the Company's
1996 Stock Option Plan at any time, may be granted under the Plan. The Shares
may be authorized, but unissued, or reacquired Common Stock. Any unpurchased
Shares subject to an Option which terminates or is surrendered pursuant to an
Option Exchange Program shall become available for future Option grants unless
the Plan has terminated. However, any Shares which the Company re-acquires after
issuance pursuant to the exercise of an Option will not be available for future
grant under the Plan.

3. TYPE OF OPTIONS; ELIGIBILITY. Under the Plan, employees of the Company may be
granted either Incentive Stock Options or Nonstatutory Stock Options;
Consultants may be granted Nonstatutory Stock Options, unless otherwise
permitted under the Code; and Directors may be granted Director Election
Options. At the time of grant, the Administrator shall designate whether an
Option is an Incentive Stock Option or a Nonstatutory Stock Option. However,
despite any such designation, any Options which cause the aggregate Fair Market
Value of Shares under incentive stock options granted by the Company, or any
Parent or Subsidiary to a single Optionee (under all plans of the Company and of
any Parent or Subsidiary) to exceed $100,000 will be deemed Nonstatutory Stock
Options. For purposes of this Section 3, the Fair Market Value of the Shares
shall be determined as of the time of grant. Optionees may be granted more than
one Option.

4. OPTION EXERCISE PRICE AND CONSIDERATION. When any Option is granted, the
Administrator shall determine:

        4.1. NUMBER OF SHARES. The number of Shares subject to the Option.

        4.2. EXERCISE PRICE. The per share exercise price for the Optioned
Shares, which may be more or less than the Fair Market Value, except no
Incentive Stock may be granted with an exercise price per share less than 100%
(110% in the case of an Option granted to a Significant Owner) of Fair Market
Value, and no Nonstatutory Stock Option may be granted with an exercise price
per share less than 85% of Fair Market Value.

        4.3. WAITING PERIOD AND EXERCISE DATES. The period within which the
Option may be exercised and any conditions which must be satisfied before the
Option may be exercised. No Option may have an exercise period which extends
more than ten years (five years in the case of any Incentive Stock Option
granted to a Significant Owner) from the date of grant.

        4.4. OTHER TERMS AND CONDITIONS. Other terms and conditions including,
but not limited to, performance criteria, any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or the Shares. The Shares received on exercise of any Option may be made subject
to a shareholder's agreement or other restriction or option.



                              Exhibit 10(E)(5) - 1


5. EXERCISE OF OPTION.

        5.1. PROCEDURE FOR EXERCISE. An Option shall be deemed exercised when
the Company receives all of the following (which may be waived by the
Administrator as permitted by Applicable Laws): (i) written notice of exercise
(in accordance with the Option Agreement) from the person entitled to exercise
the Option, (ii) full payment for the Shares with respect to which the Option is
exercised, and (iii) payment of any required withholding taxes.

        5.2. NO FRACTIONAL SHARES. An Option may not be exercised for a fraction
of a Share.

        5.3. FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration and method of payment for exercise of an
Option. (In the case of an Incentive Stock Option, the Administrator must
determine the acceptable form of consideration at the time of grant.) To the
extent permitted by the Administrator, consideration may consist of:

        -       cash;

        -       a promissory note made by the Optionee in favor of the Company;

        -       other Shares which (A) in the case of Shares acquired upon
                exercise of an option, have been owned by the Optionee for more
                than six months on the date of surrender, and (B) have a Fair
                Market Value on the date of surrender equal to the aggregate
                exercise price of the Shares as to which said Option shall be
                exercised;

        -       any combination of the foregoing methods of payment; or

        -       such other consideration to the extent permitted by Applicable
                Laws.

                5.4. EFFECT ON OPTION. Exercise of an Option in any manner shall
decrease the number of Shares thereafter available by the number of Shares as to
which the Option is exercised, both for purposes of the Plan and for sale under
the Option.

6. ISSUANCE OF SHARES.

        6.1. NAME FOR REGISTRATION. Shares issued upon exercise of an Option
shall be issued in the name of the Optionee or, if requested by the Optionee, in
the name of the Optionee and his or her spouse.

        6.2. LEGAL COMPLIANCE. The Company is not obligated to issue any Shares
pursuant to the exercise of an Option unless counsel for the Company is
satisfied that the exercise of such Option and the issuance and delivery of such
Shares complies with all relevant provisions of Applicable Law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, the requirements of any stock
exchange or quotation system upon which the Shares may then be listed or quoted,
and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery. The inability of the Company to
obtain authority from any regulatory body deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares.

        6.3. INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Company may require that the person exercising such Option represent
and warrant that the Shares are being purchased only for investment and without
any present intention to sell, transfer or distribute such Shares.

        6.4. RIGHTS AS SHAREHOLDER. Until the stock certificate evidencing
Shares is actually issued (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company), the Optionee
will have no right to vote or receive dividends or any other rights as a
shareholder with respect to the Optioned Stock, despite any exercise of the
Option. Subject to this Section 6, the Company shall issue (or cause to be
issued)



                              Exhibit 10(E)(5) - 2


such stock certificate promptly after an Option is exercised. Except as provided
in Section 10, no adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is actually
issued.

7. WITHHOLDING TAXES. Upon (i) the disposition by an Optionee of Shares acquired
pursuant to the exercise of an Incentive Stock Option within two years of the
granting of such Incentive Stock Option or within one year after exercise of
such Incentive Stock Option, or (ii) the exercise of a Nonstatutory Stock
Option, the Company shall have the right to require the Optionee to pay the
Company the amount of any taxes which the Company may be required to withhold
with respect to such Shares.

8. NON-TRANSFERABILITY OF OPTIONS.

        8.1. NO TRANSFER. No Option may be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution or may be exercised, during the lifetime of
the Optionee, by anyone except the Optionee, except that the Administrator may,
if it wishes to do so, allow the spouse of the Optionee to hold and/or exercise
the Option pursuant to a qualified domestic relations order as defined by the
Code or Title I of ERISA.

        8.2. DESIGNATION OF BENEFICIARY. An Optionee may file a written
designation of a beneficiary who is to receive any Options that remain
unexercised in the event of the Optionee's death. If an Optionee is married and
the designated beneficiary is not his or her spouse, spousal consent shall be
required for such designation to be effective. The Optionee may change such
designation of beneficiary at any time by written notice, subject to the above
spousal consent conditions.

        8.3. EFFECT OF NO DESIGNATION. If an Optionee dies and there is no
living beneficiary validly designated under the Plan, the Option may be
exercised on behalf of the Optionee to the extent permitted hereunder (i) by the
executor or administrator of the estate of the Optionee, or (ii) if the Company
does not know that an executor or administrator has been appointed, by the
spouse or by any one or more dependents or relatives of the participant as
determined by the Company, or (iii) if no spouse, dependent or relative is known
to the Company, then by such other person as the Company may designate.

9. ACCELERATED TERMINATION OF OPTION TERM.

        9.1. TERMINATION FOR CAUSE. Notwithstanding anything to the contrary
contained in the Plan, no Optionee may exercise any Option (whether otherwise
vested or not) at any time following a Termination Event with respect to such
Optionee.

        9.2. TERMINATION WITHOUT CAUSE. If an Optionee's Continuous Relationship
terminates (other than as a result of a Termination Event), his or her Option
may be exercised only to the extent that the Optionee was entitled to exercise
it on the date of termination, and only within such period of time as is
determined by the Administrator, and in no event later than the expiration of
the term of such Option as set forth in the Option Agreement. In the case of an
Incentive Stock Option, the Administrator shall determine such period of time
(in no event to exceed ninety (90) days from the date of termination, except
where the termination occurs as a result of death or disability, where the
maximum period shall be twelve months) at the time that the Option is granted.

10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE.

        10.1. CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, if the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares of securities of the Company through



                              Exhibit 10(E)(5) - 3


reorganization, recapitalization, reclassification, stock combination, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares as to which Options may be granted under this Plan. A
corresponding adjustment changing the number or kind of shares allocated to
unexercised Options which have been granted prior to any such change, shall
likewise be made. Any such adjustment in the outstanding Options shall be made
without change in the aggregate purchase price applicable to the unexercised
portion of the Options but with a corresponding adjustment in the price for each
share or other unit of any security covered by the Option. Such adjustment shall
be made by the Administrator, whose determination in that respect shall be
final, binding and conclusive.

        10.2. DISSOLUTION OR LIQUIDATION. Any Option to the extent not
previously exercised will terminate immediately prior to the consummation of any
dissolution or liquidation of the Company. The Administrator may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Administrator and give each Optionee the
right to exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.

        10.3. MERGER OR ASSET SALE. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, the Administrator, upon 30 days prior written notice to the
Optionees, may, in its discretion, do one or more of the following: (i) shorten
the period during which Options are exercisable (provided they remain
exercisable for at least 30 days after the date the notice is given); (ii)
accelerate any vesting schedule to which an Option is subject; (iii) arrange to
have the surviving or successor entity grant replacement options with
appropriate adjustments in the number and kind of securities and option prices;
or (iv) cancel any Option upon payment to the Optionee of cash equal to the
excess of the Fair Market Value of the number of Shares as to which the Option
is then exercisable (at the effective time of the merger, reorganization, sale
of other event including to the extent the exercise has been accelerated as
contemplated in clause (ii) above) over the aggregate exercise price with
respect to such Shares. The Administrator may also provide for one or more of
the foregoing alternatives in any particular Option Agreement.

11. SHAREHOLDER APPROVAL. This Plan is subject to approval by the shareholders
of the Company in compliance with Applicable Law within twelve (12) months after
the date the Plan is adopted by the Board. Options may be granted but not
exercised prior to shareholder approval of the Plan. If shareholder approval is
not obtained within the applicable period, any Options granted shall terminate
retroactively as of the date they were granted.

12. ADMINISTRATION OF THE PLAN.

        12.1. PROCEDURE.

                12.1.1. ADMINISTRATOR. The Plan shall be administered by (A) the
Board or (B) a committee designated by the Board which is constituted to satisfy
Applicable Laws. To the extent it is involved in such matters, any Committee
must comply with any applicable requirements (i) of Rule 16b-3 for exempt
acquisitions with respect to Option grants to Officers or Directors and (ii) for
the Options to qualify as "performance-based compensation" under Section 162(m)
with respect to Option grants "covered employees" within the meaning of Section
162(m). If permitted by the applicable rules, the Administrator may be different
bodies with respect to Directors, Officers who are not Directors, and Employees
who are neither Directors nor Officers.

                12.1.2. REGULATION OF COMMITTEE. Once appointed, any Committee
shall serve in its designated capacity until otherwise directed by the Board.
The Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Applicable



                              Exhibit 10(E)(5) - 4


Laws, and to the extent relevant, the rules for qualification as
"performance-based compensation" under Section 162(m) and/or exempt acquisitions
under Rule 16b-3.

        12.2. POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and, in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion to take any action provided in this Plan, including without
limitation:

        -       to determine the Optionee, exercise price, number of shares of
                Common Stock to be covered by, and terms and conditions of each
                Option granted hereunder;

        -       to approve forms of Option Agreement;

        -       to modify or amend any Option (subject to Section 13), including
                reducing the exercise price of any Option to the then current
                Fair Market Value if the Fair Market Value of the Common Stock
                covered by such Option shall have declined since the date the
                Option was granted;

        -       to authorize any person to execute any instrument required to
                effect the grant of an Option on behalf of the Company;

        -       to institute an Option Exchange Program;

        -       to construe and interpret the terms of the Plan;

        -       to prescribe, amend and rescind rules and regulations relating
                to the Plan; and

        -       to make all other determinations deemed necessary or advisable
                for administering the Plan.

                12.3. EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.

13. AMENDMENT AND TERMINATION OF THE PLAN.

                13.1. AMENDMENT AND TERMINATION. This Plan shall become
effective upon its adoption by the Board and continue in effect for a term of
ten (10) years, except that the Board may at any time amend, alter or suspend or
terminate the Plan.

                13.2. SHAREHOLDER APPROVAL. The Company shall be required to
obtain shareholder approval of any Plan amendment only to the extent necessary
and desirable to comply with Rule 16b-3, with Section 422 or 162(m) of the Code
or with any Applicable Laws, including the requirements of any exchange or
quotation system on which the Common Stock is listed or quoted. Such shareholder
approval, if required, shall be obtained in such a manner and to such a degree
as is required by Applicable Law. If the Company purports to grant Options
covering more than the number of Shares which may be issued under the Plan
without additional shareholder approval, such Option shall be void (and the
Optionee will have no right against the Company) with respect to such excess
Optioned Stock, unless shareholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely obtained in
accordance with this Section 13.2.

                13.3. EFFECT OF AMENDMENT OR TERMINATION. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of an
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator. Any such agreement must be in writing and signed by the Optionee
and the Company.

14. RIGHTS OF PARTICIPANTS AND BENEFICIARIES. The Company shall pay all amounts
payable hereunder only to the Optionee or beneficiaries entitled thereto
pursuant to the Plan. The Company shall not be liable for the debts, contracts
or engagements of any Optionee or his or her beneficiaries, and rights to Shares
or cash payments under the Plan may not be taken in



                              Exhibit 10(E)(5) - 5


execution by attachment or garnishment, or by any other legal or equitable
proceeding, while in the hands of the Company.

15. RESERVATION OF SHARES. During the term of this Plan, the Company will
reserve a sufficient number of Shares to satisfy the requirements of the Plan.

16. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Option shall
confer upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
employment or consulting relationship at any time, with or without cause.

17. GOVERNING LAW. The Plan shall be governed by, and construed in accordance
with the laws of the State of California (without giving effect to conflicts of
law principles).

18. DEFINITIONS. As used herein, the following definitions shall apply:

        "ADMINISTRATOR" means the Board or any Committee administering the Plan
        in accordance with Section 12.

        "APPLICABLE LAWS" means the legal requirements relating to the
        administration of stock option plans under state corporate and
        securities laws and the Code.

        "BOARD" means the Board of Directors of the Company.

        "CODE" means the Internal Revenue Code of 1986 and related regulations,
        as amended.

        "COMMITTEE" means any Committee appointed by the Board in accordance
        with Section 12.

        "COMMON STOCK" means the Common Stock of the Company.

        "COMPANY" means Electro Rent Corporation.

        "CONSULTANT" means any person, including an advisor, engaged by the
        Company, a Parent or Subsidiary to render services and who is
        compensated for such services.

        "CONTINUOUS RELATIONSHIP" means that the employment or consulting
        relationship or directorship is not interrupted or terminated by the
        Company, any Parent or Subsidiary. Continuous Relationship shall not be
        considered interrupted in the case of: (i) any leave of absence approved
        by the Board, including sick leave, military leave, or any other
        personal leave; provided, however, that for purposes of Incentive Stock
        Options, any such leave may not exceed ninety (90) days, unless
        reemployment upon the expiration of such leave is guaranteed by contract
        (including certain Company polices) or statute; or (ii) transfers
        between locations of the Company or between the Company, its Parent, its
        Subsidiaries or its successor. In the case of a consultant, the manner
        of determining the duration of the "Continuous Relationship" may be set
        out in the Option Agreement, which will then control.

        "DIRECTOR" means a member of the Board.

        "DIRECTOR ELECTION OPTION" means, in the case of newly elected
        non-employee Directors, 5,000 Nonstatutory Stock Options upon election
        to the Board, and, in the case of re-elected non-employee Directors,
        2,000 Nonstatutory Stock Options upon re-election to the Board.



                              Exhibit 10(E)(5) - 6


        "DISABILITY" means total and permanent disability as defined in Section
        22(e)(3) of the Code.

        "EMPLOYEE" means any person, including Officers and Directors, employed
        by the Company or any Parent or Subsidiary. Neither service as a
        Director nor payment of a director's fee by the Company shall be
        sufficient to constitute "employment" by the Company.

        "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

        "FAIR MARKET VALUE" means, as of any date, the value of Common Stock
        determined as follows:

                (i) If the Common Stock is listed on any established stock
                exchange or a national market system, including without
                limitation, the National Market of the National Association of
                Securities Dealers, Inc. Automated Quotation ("NASDAQ") System,
                the Fair Market Value of a Share of Common Stock shall be the
                closing sales price for such stock (or the closing bid, if no
                sales are reported) as quoted on such system or exchange (or the
                exchange with the greatest volume of trading in Common Stock) on
                the last market trading day prior to the day of determination,
                as reported in the Wall Street Journal or such other source as
                the Administrator deems reliable;

                (ii) If the Common Stock is quoted on the NASDAQ System (but not
                on the National Market thereof) or is regularly quoted by
                recognized securities dealers but selling prices are not
                reported, the Fair Market Value of a Share of Common Stock shall
                be the mean between the high bid and low asked prices for the
                Common Stock on the last market trading day prior to the day of
                determination, as reported in the Wall Street journal or such
                other source as the Administrator deems reliable;

        In the absence of any established market for the Common Stock, the Fair
        Market Value shall be determined in good faith by the Administrator.

        "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
        incentive stock option within the meaning of Section 422 of the Code.

        "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
        an Incentive Stock Option.

        "OFFICER" means a person who is an officer of the Company within the
        meaning of Section 16 of the Exchange Act and the rules and regulations
        promulgated thereunder.

        "OPTION" means a stock option granted pursuant to the Plan.

        "OPTION AGREEMENT" means a written agreement between the Company and an
        Optionee evidencing the terms and conditions of an individual Option
        grant. Every Option Agreement is subject to the terms and conditions of
        the Plan.

        "OPTION EXCHANGE PROGRAM" means a plan under which outstanding options
        are surrendered in exchange for options with a lower exercise price.

        "OPTIONED STOCK" means the Common Stock subject to an Option.

        "OPTIONEE" means an Employee, Director or Consultant who holds an
        outstanding Option.



                              Exhibit 10(E)(5) - 7


        "PARENT" means a "parent corporation" of the Company, whether now or
        hereafter existing, as defined in Section 424(e) of the Code.

        "PLAN" means this 2002 Stock Option Plan.

        "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
        Rule 16b-3, as in effect when discretion is being exercised with respect
        to the Plan.

        "SECTION 162(m)" means Section 162(m) of the Code.

        "SHARE" means a share of the Common Stock, as adjusted in accordance
        with Section 10 of the Plan.

        "SIGNIFICANT OWNER" means an Employee who, at the time an Incentive
        Stock Option is granted, owns stock representing more than ten percent
        (10%) of the voting power of all classes of stock of the Company or any
        Parent or Subsidiary.

        "SUBSIDIARY" means a "subsidiary corporation" of the Company, whether
        now or hereafter existing, as defined in Section 424(f) of the Code.

        "TERMINATION EVENT" means the determination of the Company that either
        of the following has occurred: (i) any use or disclosure by an Optionee
        of confidential information or trade secrets of the Company or any
        Parent or Subsidiary in violation of any confidentiality,
        non-competition or nondisclosure agreement by which the Optionee is
        bound, or (ii) the termination of Optionee's Continuous Relationship for
        cause as defined pursuant to applicable law, as a result of a breach of
        Optionee's employment or consulting agreement, theft, fraud or
        embezzlement, or any disclosure or use of confidential information or
        trade secrets described in part (i) of this paragraph.




                              Exhibit 10(E)(5) - 8


                         GRANT OF INCENTIVE STOCK OPTION

TO: [NAME OF OPTIONEE] ("OPTIONEE")

FROM: ELECTRO RENT CORPORATION

        As you probably know, Electro Rent Corporation (our "COMPANY") has
adopted the 2002 Stock Option Plan (the "PLAN") under which the Company can
grant options to purchase shares of Company's Common Stock (the "COMMON STOCK").
We are pleased to inform you that the Stock Option Committee of our Board of
Directors (the "COMMITTEE") has decided to grant you an option under the Plan
(your "OPTION").

        Your Option will be governed by the Plan, the attached Standard Terms
and Conditions (the "TERMS") and the following specific provisions (which are
subject to adjustment under the Plan and the Terms):

    The "DATE OF GRANT" for your Option is:            ______________________

    The "EXPIRATION DATE" of your Option is:           ______________________

    The "NUMBER OF SHARES" covered by your Option is:  ______________________

    The "EXERCISE PRICE" per share for your Option is: ______________________

        VESTING. You will earn the right to exercise thirty three percent and
one third (33 1/3%) of your Option after each year commencing after the Date of
Grant and ending on an anniversary of the Date of Grant during which you are
employed by the Company or its subsidiaries (a "QUALIFYING YEAR"). Your Option
cannot be exercised until the first anniversary of the Date of Grant. As an
example, at any time after the second anniversary of the Date of Grant, but
before the third anniversary, the maximum number of shares you may purchase or
have purchased under this Option is sixty six and two thirds (66 2/3%) of the
Number of Shares; after the third anniversary of the Date of Grant, you may
purchase all of the Number of Shares. Of course, you can never exercise the
Option for more than the Number of Shares or after the Expiration Date (in each
case as adjusted under the Terms and the Plan).



                              Exhibit 10(E)(5) - 9


        Please review the Plan and the Terms carefully, as they control your
rights under your Option. Then sign (and if you are married, have your spouse
sign) one copy of this letter and return it to Craig Jones. If you have any
questions, please call Craig Jones.

        We appreciate your continuing efforts on behalf of the Company.

                                        Very truly yours,

                                        Electro Rent Corporation

                                        By:
                                           -------------------------------------

                                        Its:
                                            ------------------------------------



I hereby accept this Option and have reviewed the Plan and the Terms.

                                        ----------------------------------------
                                        "Optionee"

I agree to be bound by all of the terms and conditions of the Option, including
those set forth in the Plan and the Terms.

                                        Optionee's Spouse

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

                                        ----------------------------------------
                                        Print Name



                             Exhibit 10(E)(5) - 10


                          STANDARD TERMS AND CONDITIONS



                             Exhibit 10(E)(5) - 11



THESE STANDARD TERMS AND CONDITIONS ARE ATTACHED TO A LETTER (THE "OPTION
LETTER") FROM ELECTRO RENT CORPORATION GRANTING AN OPTION TO YOU, AND ARE
INTENDED TO GOVERN THAT OPTION. ALL CAPITALIZED TERMS NOT SPECIFICALLY DEFINED
IN THESE STANDARD TERMS AND CONDITIONS HAVE THE MEANINGS SET FORTH IN THE OPTION
LETTER OR IN THE COMPANY'S 2002 STOCK OPTION PLAN.

1. OPTION. You may exercise the Option for all or any part of any Number of
Shares of Common Stock which is then exercisable at the Exercise Price per share
until the Expiration Date. THIS OPTION IS INTENDED TO QUALIFY AS AN "INCENTIVE
STOCK OPTION" UNDER SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE").

2. MANNER OF EXERCISE. This Option may be exercised only (i) during your
lifetime, by you; (ii) to the extent permitted by the Committee, by your spouse
if your spouse obtained the Option pursuant to a qualified domestic relations
order as defined by the Code or Title I of ERISA, or the rules thereunder
("QUALIFIED DOMESTIC RELATIONS Order"); and (iii) after your death, by your
transferees by will or the laws of descent or distribution. To exercise this
Option, you must provide the Company with (a) a written notice of exercise,
specifying the number of shares to be purchased and (b) the full purchase price
of the shares to be purchased solely (i) in cash or by check payable to the
order of the Company or (ii) by delivery of shares of Common Stock of the
Company previously purchased on the open market or acquired more than six months
previously through exercise of a stock option, and in your possession, valued at
fair market value. This Option may not be exercised for a fraction of a share
and no partial exercise of this Option may be for less than (a) one hundred
(100) shares or (b) the total number of shares then eligible for exercise, if
less than one hundred (100) shares.

3. FAIR MARKET VALUE OF COMMON STOCK. The fair market value of a share of Common
Stock shall be determined for purposes of this Option by reference to the
closing price on the principal stock exchange on which such shares are then
listed or, if the shares are not then listed on a stock exchange, by reference
to the closing price (if approved for quotation on the Nasdaq National Market)
or the mean between the bid and asked price (if other over-the-counter issue) of
a share as supplied by the National Association of Securities Dealers, Inc.
through Nasdaq (or its successor in function), in each case as reported by The
Wall Street Journal, for the business day immediately preceding the date on
which the option is exercised (or, if for any reason no such price is available,
in such other manner as the Committee may deem appropriate to reflect the then
fair market value thereof).

4. TERMINATION OF SERVICE; DEATH OR PERMANENT DISABILITY. The Expiration Date is
the earlier of (i) the date set out in the Option Letter or (ii) the expiration
of a period following the date you cease (whether voluntarily or involuntarily)
to be an employee of the Company or its subsidiaries, which period will be (a)
three (3) months if you ceased to be an employee for any reason other than your
death or "permanent disability" (within the meaning of Section 22(e)(3) of the
Code), or (b) twelve (12) months if you die or become "permanently disabled"
while you are an employee of the Company or one of its subsidiaries. Any options
not exercisable on the date that you cease to be an employee (whether
voluntarily or involuntarily) will be of no further force or effect. If you are
not an employee of the Company or one of its subsidiaries at the time this
Option is granted, the Expiration Date will be determined in a similar manner
based on the time that you cease to be a regular consultant for or director of
the Company and its subsidiaries. After the Expiration Date, the Option will
expire and be void and of no further force or effect.

5. SHARES TO BE ISSUED IN COMPLIANCE WITH APPLICABLE LAWS AND EXCHANGE RULES. By
accepting the Option, you represent and agree, for yourself and any person
entitled to exercise this Option, that none of the shares purchased on exercise
of the Option will be acquired with a view to any sale, transfer or distribution
in violation of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
and the rules and regulations promulgated thereunder, any applicable state



                             Exhibit 10(E)(5) - 12


"blue sky" laws or any applicable foreign laws. If required by the Committee at
the time the Option is exercised, the person entitled to exercise the Option
shall furnish evidence satisfactory to the Company to such effect (including a
written representation and an indemnification of the Company in the event of any
violation of any applicable laws). The Company does not have to issue any shares
on the exercise of this Option if there has not been full compliance with all
applicable requirements of the Securities Act (whether by registration or
satisfaction of exemption conditions), all applicable listing requirements of
any national securities exchange on which shares of the same class are then
listed and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance.

6. WITHHOLDING OF TAXES. Upon the exercise of this Option, the Company may
require the person entitled to exercise it to pay the Company the amount of any
taxes which the Company is required to withhold with respect to the exercise.

7. NO ASSIGNMENT. This Option and all other rights and privileges granted hereby
shall not be transferred, either voluntarily or by operation of law except (i)
by will or the laws of descent and distribution or (ii) pursuant to a Qualified
Domestic Relations Order to the extent permitted by the Committee. If there is
any other attempt to transfer this Option or any other right or privilege
granted hereby, this Option and all rights and privileges granted hereby shall
immediately become null and void and be of no further force or effect.

8. ADJUSTMENT FOR REORGANIZATIONS, STOCK SPLITS, ETC. If the outstanding shares
of Common Stock of the Company (or any other class of shares or securities which
shall have become issuable upon the exercise of this Option pursuant to this
sentence) are increased or decreased or changed into or exchanged for a
different number or kind of shares or securities of the Company through
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, an appropriate and
proportionate adjustment shall be made in the Number of Shares, without change
in the aggregate purchase price applicable to the unexercised portion of this
Option, but with a corresponding adjustment in the price for each share or other
unit of any security covered by this Option.

        Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all the property or more than eighty percent
(80%) of the then outstanding stock of the Company to another corporation, this
Option shall terminate; provided, however, that notwithstanding the foregoing,
the Committee shall provide in writing in connection with such transaction for
the appropriate satisfaction of this Option by one or more of the following
alternatives (separately or in combinations): (i) for the Option to become
immediately exercisable notwithstanding the vesting provisions; (ii) for the
assumption by the successor corporation of this Option or the substitution by
such corporation therefor of a new option covering the stock of the successor
corporation or its subsidiaries with appropriate adjustments as to the number
and kind of shares and prices; (iii) for the continuance of the Plan by such
successor corporation in which event the Plan and this Option shall continue in
the manner and under the terms so provided; or (iv) for the payment in cash or
stock in lieu of and in complete satisfaction of this Option.

        Adjustments under this Section 8 will be made by the Committee, and its
determination as to what adjustments to make will be final, binding and
conclusive. No fractional shares of stock shall be issued under this Option on
any such adjustment.



                             Exhibit 10(E)(5) - 13


9. PARTICIPATION IN OTHER COMPANY PLANS. The grant of this Option will not
affect any right you might otherwise have to participate in and receive benefits
under the then current provisions of any pension, insurance, or profit sharing
program of the Company or of any subsidiary of the Company.

10. NOT AN EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Option is to be
construed as an agreement, express or implied, by the Company or any of its
subsidiaries to employ you or contract for your services, nor will it restrict
the Company's or such subsidiary's right to discharge you or cease contracting
for your services or to modify, extend or otherwise affect in any manner
whatsoever, the terms of any employment agreement or contract for services which
may exist between you and the Company or any of its subsidiaries.

11. NO RIGHTS AS A SHAREHOLDER UNTIL ISSUANCE OF STOCK CERTIFICATE. Neither you
nor any other person legally entitled to exercise this Option will be entitled
to any of the rights or privileges of a shareholder of the Company with respect
to any shares issuable upon any exercise of this Option unless and until a
certificate or certificates representing the shares shall have been actually
issued and delivered.

12. AGREEMENT SUBJECT TO STOCK OPTION PLAN. This Option is subject to, and the
Company and you agree to be bound by, all of the terms and conditions of the
Plan, as it may be amended from time to time in accordance with its terms. No
amendment to the Plan will adversely affect your rights under this Option in a
material manner without your prior written consent.

13. GOVERNING LAW. The interpretation, performance and enforcement of this
Agreement shall be governed by the internal substantive laws of the State of
California, without regard to the conflict of laws provisions of that or any
other State. The Option can only be amended in a writing executed by a member of
the Committee.



                             Exhibit 10(E)(5) - 14


                   ELECTRO RENT CORPORATION STOCK OPTION PLAN
                                 EXERCISE NOTICE

        As the holder of an option under the Electro Rent Corporation 2002 Stock
Option Plan, I hereby exercise that option as follows:

Stock Option Date of Grant:                 ___________________

Number of Shares Exercised:                 ___________________(1)

Exercise Price per share:                   ___________________

Total Amount Paid:                          ___________________


______________ My check in that amount is attached. I also attach a check for
the amount of any withholding tax due.

______________ Shares of Common Stock of Electro Rent Corporation (I previously
purchased these shares on the open market or I acquired these shares more than
six months ago through exercise of a stock option).

        I understand that my ability to transfer these shares will be limited by
applicable Company policy and that I will not be a shareholder until the
Certificates are actually used.

        Please issue the shares in the following name (must be mine or mine and
my spouse's) and deliver them to:


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

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

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


Dated:                                  Signed:
      -----------------------------

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



- --------

(1)     (MUST BE TOTAL SHARES YOU HAVE VESTED OR, IF LESS, A MULTIPLE OF 100
        SHARES)



                             Exhibit 10(E)(5) - 15


                       GRANT OF NONQUALIFIED STOCK OPTION

TO: [NAME OF OPTIONEE] ("OPTIONEE")

FROM: ELECTRO RENT CORPORATION

        As you probably know, Electro Rent Corporation (our "COMPANY") has
adopted the 2002 Stock Option Plan (the "PLAN") under which the Company can
grant options to purchase shares of Company's Common Stock (the "COMMON STOCK").
We are pleased to inform you that the Stock Option Committee of our Board of
Directors (the "COMMITTEE") has decided to grant you an option under the Plan
(your "OPTION").

        Your Option will be governed by the Plan, the attached Standard Terms
and Conditions (the "TERMS") and the following specific provisions (which are
subject to adjustment under the Plan and the Terms):

    The "DATE OF GRANT" for your Option is:            ______________________

    The "EXPIRATION DATE" of your Option is:           ______________________

    The "NUMBER OF SHARES" covered by your Option is:  ______________________

    The "EXERCISE PRICE" per share for your Option is: ______________________

        VESTING. You will earn the right to exercise thirty three percent and
one third (33 1/3%) of your Option after each year commencing after the Date of
Grant and ending on an anniversary of the Date of Grant during which you are
employed by the Company or its subsidiaries (a "QUALIFYING YEAR"). Your Option
cannot be exercised until the first anniversary of the Date of Grant. As an
example, at any time after the second anniversary of the Date of Grant, but
before the third anniversary, the maximum number of shares you may purchase or
have purchased under this Option is sixty six and two thirds (66 2/3%) of the
Number of Shares; after the third anniversary of the Date of Grant, you may
purchase all of the Number of Shares. Of course, you can never exercise the
Option for more than the Number of Shares or after the Expiration Date (in each
case as adjusted under the Terms and the Plan).



                             Exhibit 10(E)(5) - 16


        Please review the Plan and the Terms carefully, as they control your
rights under your Option. Then sign (and if you are married, have your spouse
sign) one copy of this letter and return it to Craig Jones. If you have any
questions, please call Craig Jones.

        We appreciate your continuing efforts on behalf of the Company.


                                        Very truly yours,

                                        Electro Rent Corporation

                                        By:
                                           -------------------------------------

                                        Its:
                                            ------------------------------------

I hereby accept this Option and have reviewed the Plan and the Terms.


                                        ----------------------------------------
                                        "Optionee"

I agree to be bound by all of the terms and conditions of the Option, including
those set forth in the Plan and the Terms.

                                        Optionee's Spouse

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

                                        ----------------------------------------
                                        Print Name



                             Exhibit 10(E)(5) - 17


                          STANDARD TERMS AND CONDITIONS


                             Exhibit 10(E)(5) - 18


THESE STANDARD TERMS AND CONDITIONS ARE ATTACHED TO A LETTER (THE "OPTION
LETTER") FROM ELECTRO RENT CORPORATION GRANTING AN OPTION TO YOU, AND ARE
INTENDED TO GOVERN THAT OPTION. ALL CAPITALIZED TERMS NOT SPECIFICALLY DEFINED
IN THESE STANDARD TERMS AND CONDITIONS HAVE THE MEANINGS SET FORTH IN THE OPTION
LETTER OR IN THE COMPANY'S 2002 STOCK OPTION PLAN.

14. OPTION. You may exercise the Option for all or any part of any Number of
Shares of Common Stock which is then exercisable at the Exercise Price per share
until the Expiration Date. THIS OPTION IS NOT INTENDED TO QUALIFY AS AN
"INCENTIVE STOCK OPTION" UNDER SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE").

15. MANNER OF EXERCISE. This Option may be exercised only (i) during your
lifetime, by you; (ii) to the extent permitted by the Committee, by your spouse
if your spouse obtained the Option pursuant to a qualified domestic relations
order as defined by the Code or Title I of ERISA, or the rules thereunder
("QUALIFIED DOMESTIC RELATIONS Order"); and (iii) after your death, by your
transferees by will or the laws of descent or distribution. To exercise this
Option, you must provide the Company with (a) a written notice of exercise,
specifying the number of shares to be purchased and (b) the full purchase price
of the shares to be purchased solely (i) in cash or by check payable to the
order of the Company or (ii) by delivery of shares of Common Stock of the
Company previously purchased on the open market or acquired more than six months
previously through exercise of a stock option, and in your possession, valued at
fair market value. This Option may not be exercised for a fraction of a share
and no partial exercise of this Option may be for less than (a) one hundred
(100) shares or (b) the total number of shares then eligible for exercise, if
less than one hundred (100) shares.

16. FAIR MARKET VALUE OF COMMON STOCK. The fair market value of a share of
Common Stock shall be determined for purposes of this Option by reference to the
closing price on the principal stock exchange on which such shares are then
listed or, if the shares are not then listed on a stock exchange, by reference
to the closing price (if approved for quotation on the Nasdaq National Market)
or the mean between the bid and asked price (if other over-the-counter issue) of
a share as supplied by the National Association of Securities Dealers, Inc.
through Nasdaq (or its successor in function), in each case as reported by The
Wall Street Journal, for the business day immediately preceding the date on
which the option is exercised (or, if for any reason no such price is available,
in such other manner as the Committee may deem appropriate to reflect the then
fair market value thereof).

17. TERMINATION OF SERVICE; DEATH OR PERMANENT DISABILITY. The Expiration Date
is the earlier of (i) the date set out in the Option Letter or (ii) the
expiration of a period following the date you cease (whether voluntarily or
involuntarily) to be an employee, consultant or director of the Company or its
subsidiaries, which period will be (a) three (3) months if you ceased to be an
employee for any reason other than your death or "permanent disability" (within
the meaning of Section 22(e)(3) of the Code), or (b) twelve (12) months if you
die or become "permanently disabled" while you are an employee of the Company or
one of its subsidiaries. Any options not exercisable on the date that you cease
to be an employee (whether voluntarily or involuntarily) will be of no further
force or effect. If you are not an employee of the Company or one of its
subsidiaries at the time this Option is granted, the Expiration Date will be
determined in a similar manner based on the time that you cease to be a regular
consultant for or director of the Company and its subsidiaries. After the
Expiration Date, the Option will expire and be void and of no further force or
effect.

18. SHARES TO BE ISSUED IN COMPLIANCE WITH APPLICABLE LAWS AND EXCHANGE RULES.
By accepting the Option, you represent and agree, for yourself and any person
entitled to exercise this Option, that none of the shares purchased on exercise
of the Option will be acquired with a view to any sale, transfer or distribution
in violation of the Securities Act of 1933, as amended (the



                             Exhibit 10(E)(5) - 19


"SECURITIES ACT"), and the rules and regulations promulgated thereunder, any
applicable state "blue sky" laws or any applicable foreign laws. If required by
the Committee at the time the Option is exercised, the person entitled to
exercise the Option shall furnish evidence satisfactory to the Company to such
effect (including a written representation and an indemnification of the Company
in the event of any violation of any applicable laws). The Company does not have
to issue any shares on the exercise of this Option if there has not been full
compliance with all applicable requirements of the Securities Act (whether by
registration or satisfaction of exemption conditions), all applicable listing
requirements of any national securities exchange on which shares of the same
class are then listed and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance.

19. WITHHOLDING OF TAXES. Upon the exercise of this Option, the Company may
require the person entitled to exercise it to pay the Company the amount of any
taxes which the Company is required to withhold with respect to the exercise.

20. NO ASSIGNMENT. This Option and all other rights and privileges granted
hereby shall not be transferred, either voluntarily or by operation of law
except (i) by will or the laws of descent and distribution or (ii) pursuant to a
Qualified Domestic Relations Order to the extent permitted by the Committee. If
there is any other attempt to transfer this Option or any other right or
privilege granted hereby, this Option and all rights and privileges granted
hereby shall immediately become null and void and be of no further force or
effect.

21. ADJUSTMENT FOR REORGANIZATIONS, STOCK SPLITS, ETC. If the outstanding shares
of Common Stock of the Company (or any other class of shares or securities which
shall have become issuable upon the exercise of this Option pursuant to this
sentence) are increased or decreased or changed into or exchanged for a
different number or kind of shares or securities of the Company through
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, an appropriate and
proportionate adjustment shall be made in the Number of Shares, without change
in the aggregate purchase price applicable to the unexercised portion of this
Option, but with a corresponding adjustment in the price for each share or other
unit of any security covered by this Option.

        Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all the property or more than eighty percent
(80%) of the then outstanding stock of the Company to another corporation, this
Option shall terminate; provided, however, that notwithstanding the foregoing,
the Committee shall provide in writing in connection with such transaction for
the appropriate satisfaction of this Option by one or more of the following
alternatives (separately or in combinations): (i) for the Option to become
immediately exercisable notwithstanding the vesting provisions; (ii) for the
assumption by the successor corporation of this Option or the substitution by
such corporation therefor of a new option covering the stock of the successor
corporation or its subsidiaries with appropriate adjustments as to the number
and kind of shares and prices; (iii) for the continuance of the Plan by such
successor corporation in which event the Plan and this Option shall continue in
the manner and under the terms so provided; or (iv) for the payment in cash or
stock in lieu of and in complete satisfaction of this Option.

        Adjustments under this Section 8 will be made by the Committee, and its
determination as to what adjustments to make will be final, binding and
conclusive. No fractional shares of stock shall be issued under this Option on
any such adjustment.



                             Exhibit 10(E)(5) - 20


22. PARTICIPATION IN OTHER COMPANY PLANS. The grant of this Option will not
affect any right you might otherwise have to participate in and receive benefits
under the then current provisions of any pension, insurance, or profit sharing
program of the Company or of any subsidiary of the Company.

23. NOT AN EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Option is to be
construed as an agreement, express or implied, by the Company or any of its
subsidiaries to employ you or contract for your services, nor will it restrict
the Company's or such subsidiary's right to discharge you or cease contracting
for your services or to modify, extend or otherwise affect in any manner
whatsoever, the terms of any employment agreement or contract for services which
may exist between you and the Company or any of its subsidiaries.

24. NO RIGHTS AS A SHAREHOLDER UNTIL ISSUANCE OF STOCK CERTIFICATE. Neither you
nor any other person legally entitled to exercise this Option will be entitled
to any of the rights or privileges of a shareholder of the Company with respect
to any shares issuable upon any exercise of this Option unless and until a
certificate or certificates representing the shares shall have been actually
issued and delivered.

25. AGREEMENT SUBJECT TO STOCK OPTION PLAN. This Option is subject to, and the
Company and you agree to be bound by, all of the terms and conditions of the
Plan, as it may be amended from time to time in accordance with its terms. No
amendment to the Plan will adversely affect your rights under this Option in a
material manner without your prior written consent.

26. GOVERNING LAW. The interpretation, performance and enforcement of this
Agreement shall be governed by the internal substantive laws of the State of
California, without regard to the conflict of laws provisions of that or any
other State. The Option can only be amended in a writing executed by a member of
the Committee.



                             Exhibit 10(E)(5) - 21


                   ELECTRO RENT CORPORATION STOCK OPTION PLAN
                                 EXERCISE NOTICE

        As the holder of an option under the Electro Rent Corporation 2002 Stock
Option Plan, I hereby exercise that option as follows:

Stock Option Date of Grant:                 ___________________

Number of Shares Exercised:                 ___________________(1)

Exercise Price per share:                   ___________________

Total Amount Paid:                          ___________________


                My check in that amount is attached. I also attach a check for
the amount of any withholding tax due.

                Shares of Common Stock of Electro Rent Corporation (I previously
purchased these shares on the open market or I acquired these shares more than
six months ago through exercise of a stock option).

        I understand that my ability to transfer these shares will be limited by
applicable Company policy and that I will not be a shareholder until the
Certificates are actually used.

        Please issue the shares in the following name (must be mine or mine and
my spouse's) and deliver them to:

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

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

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



Dated:                                  Signed:
      --------------------------



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




- --------

(1)     (MUST BE TOTAL SHARES YOU HAVE VESTED OR, IF LESS, A MULTIPLE OF 100
        SHARES)



                             Exhibit 10(E)(5) - 22

EX-13

exv13

EX-22

                                                                      EXHIBIT 22

The inside front cover and pages 5-9 and 11-23 of the Annual Report to Security
Holders for the fiscal year ended May 31, 2002 are appended hereto as Exhibit 22
hereof and are being electronically filed with this Form 10-K Annual Report.




                                   Exhibit 22

EX-23.(A)

                                                                   EXHIBIT 23(A)
                         INDEPENDENT AUDITORS' CONSENT


        We consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-37692) and the Registration Statement on Form S-8
and S-3 (No. 333-17295) of Electro Rent Corporation of our report dated August
5, 2002, appearing in this Annual Report on Form 10-K of Electro Rent
Corporation for the year ended May 31, 2002.



/s/ Deloitte & Touche LLP
Los Angeles, California
August 28, 2002



             INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE



        Our audit was conducted for the purpose of forming an opinion on the
basic 2002 financial statements taken as a whole. The supplemental schedule of
Valuation and Qualifying Accounts on page 10 of the Form 10-K is presented for
the purpose of additional analysis and is not a required part of the basic 2002
financial statements. This supplemental schedule is the responsibility of the
Company's management. Such 2002 schedule has been subjected to the auditing
procedures applied in our audit of the basic 2002 financial statements and, in
our opinion, is fairly stated in all material respects when considered in
relation to the basic 2002 financial statements taken as a whole. The 2001 and
2000 schedule of Valuation and Qualifying Accounts was subjected to auditing
procedures by other auditors whose report dated August 6, 2001, stated that such
information is fairly stated in all material respects when considered in
relation to the basic 2001 and 2000 financial statements taken as a whole.





/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
August 5, 2002


                                 Exhibit 23(A)

EX-23.(B)

                                                                   EXHIBIT 23(B)

THE FOLLOWING REPORTS ARE COPIES OF PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP
REPORTS AND HAVE NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

                        REPORTS OF INDEPENDENT AUDITORS

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, 2001
and 2000, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended May 31,
2001. 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 auditing standards generally
accepted in the United States. 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 its subsidiaries as of May 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period
ended May 31, 2001, in conformity with accounting principles generally accepted
in the United States.


/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Los Angeles, California
August 6, 2001

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

We have audited, in accordance with auditing standards generally accepted in the
United States, the financial statements of Electro Rent Corporation included in
this Form 10-K, and have issued our report thereon dated August 6, 2001. Our
audit was made for the purpose of forming an opinion on the basic financial
statements, taken as a whole. The schedule of valuation and qualifying accounts
is the responsibility of the Company's management, is presented for the purpose
of complying with the Securities and Exchange Commission's rules, and is not
part of the basic financial statements included in this Form 10-K. 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.

/s/ Arthur Andersen LLP
Arthur Andersen LLP
Los Angeles, California
August 6, 2001

                                 Exhibit 23(B)

EX-99.(A)

                                                                   EXHIBIT 99(A)

                                  RISK FACTORS

        You should carefully consider the following discussion of various risks
and uncertainties, keeping in mind that they are not the only ones that affect
us. Additional risks which we do not presently consider material, or of which we
are not currently aware, may also have an adverse impact on us. Unless otherwise
noted (1) the terms "Electro Rent," "we," "us," and "our," refer to Electro Rent
Corporation and its subsidiary, Genstar Rental Electronics, Inc., and (2) the
terms "Common Stock" and "shareholder(s)" refer to Electro Rent's common stock
and the holders of that stock, respectively.

        Except for the historical statements and discussions contained in these
Risk Factors, statements contained in these Risk Factors constitute
forward-looking statements within the meaning of section 21E of the Securities
Exchange Act of 1934. These forward-looking statements reflect the current views
of our management with respect to future events and financial performance. All
plans, projections, and future estimates are forward-looking statements, which
in some, but not all, cases, are identified by words such as "anticipates,"
"believes," "expects," "intends," "future," and other similar expressions.
Please do not put undue reliance on forward looking statements. Forward looking
statements are subject to certain risks and uncertainties, not all of which are
disclosed in the following Risk Factors. Although we believe our assumptions are
reasonable, it is likely that at least some of these assumptions will not come
true. Accordingly, our actual results will probably differ from the outcomes
contained in any forward-looking statement, and those differences could be
material. Factors that could cause or contribute to those differences include
the ones discussed below, as well as those discussed elsewhere in our Annual
Report on Form 10-K for the fiscal year ended May 31, 2002, our Annual Report to
Shareholders (especially in the sections entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and in "Quantitative
and Qualitative Disclosure About Interest Rates and Currency Rates,") and our
other filings with the Securities and Exchange Commission. Should one or more of
the risks discussed, or any other risks, materialize, or should one or more of
our underlying assumptions prove incorrect, our actual results may vary
materially from those anticipated, estimated, expected or projected. In light of
the risks and uncertainties, there can be no assurance that any forward-looking
information will in fact prove to be correct. We do not undertake any obligation
to update forward-looking statements.

COMMON STOCK PRICE FLUCTUATIONS

        Our Common Stock price has fluctuated significantly and may continue to
do so in the future.

        General Factors. We believe some of the reasons for past fluctuations in
the price of our stock have included:

        - announcements of developments related to our business;

        -       announcements concerning new products or enhancements in the
                equipment that we rent;

        -       developments in our relationships with our customers;

        -       variations in our revenues, gross margins, earnings or other
                financial results from investors' expectations; and

        -       fluctuations in results of our operations and general conditions
                in the economy, our market, and the markets served by our
                customers.

        In addition, prices in the stock market have been volatile in recent
years. In many cases, the fluctuations have been unrelated to the operating
performance of the affected companies. As a result, the price of our Common
Stock could fluctuate in the future without regard to our operating performance.

        Future Sales of Electro Rent Common Stock. Sales of Electro Rent's
Common Stock by our officers, directors and employees could adversely and
unpredictably affect the price of our shares. Additionally, the price could be
affected even by the potential for sales by these persons. In addition to the
approximately 24,774,734 shares outstanding as of May 31, 2002, we are
authorized to issue up to 2,167,500 shares of Common Stock upon exercise of
stock options issued under our Stock Option Plans. We cannot predict the



                               Exhibit 99(A) - 1


effect that any future sales of our Common Stock, or the potential for those
sales, will have on our share price.

FLUCTUATIONS IN OPERATING RESULTS

        Historically, Electro Rent's operating results have fluctuated, and we
expect that fluctuations could continue in the future. The fluctuations in our
past results have resulted from many factors, some of which are beyond our
control. In the future, these or other factors could have a material adverse
impact on our operating results and cause our stock price to decrease.

        Timing of Equipment Purchases, and Sales and Marketing Expenditures. We
try to base expenditures for equipment purchases, sales and marketing and other
items on our expectations of future customer demand. If our assumptions prove to
be wrong, and our revenues fall short of our expectations, we may not be able to
adjust our expenditures quickly enough to compensate for a lower revenue base.
This could compound the impact of any revenue shortfall and further affect our
operating results and the price of our stock.

        Seasonal and Quarterly Fluctuations. December and January typically
reflect lower rental activity. In addition, because February is a short month,
revenue billing in that month is reduced. We cannot predict whether these
seasonal factors or their effects will change in the future. The seasonal
spending patterns of our customers are affected by factors such as:

        -       weather, holiday and vacation considerations; and

        -       budgetary considerations.

        Additionally, our operating results are subject to quarterly
fluctuations resulting from a variety of factors, including remarketing
activities, product announcements by manufacturers, economic conditions and
variations in the financial mix of new rentals and leases. The financial mix of
new rentals and leases is a result of a combination of factors such as:

        -       changes in customer demands and/or requirements;

        -       new product announcements;

        -       price changes;

        -       changes in delivery dates;

        -       changes in maintenance policies and the pricing policies of
                equipment manufacturers; and

        -       price competition from other rental, leasing and finance
                companies.

        Other Factors. Other factors that may affect our operating results
include:

        -       competitive forces within our current and anticipated future
                markets;

        -       changes in interest rates;

        -       our ability to attract customers and meet their expectations;

        -       currency fluctuations and other risks of international
                operations;

        -       general economic conditions; and

        -       differences in the timing of our spending on acquiring
                equipment, renting or leasing that equipment and receiving
                revenues from our customers.

        All or any of these and similar factors could result in our operating
results differing substantially from the expectations of public market analysts
and investors, which would likely have a material adverse impact on our stock
price.



                               Exhibit 99(A) - 2


RISKS ASSOCIATED WITH TECHNOLOGY CHANGES

        If we do not adequately anticipate or respond to changes in technology,
it could have a material adverse effect on our operating results and stock
price.

        Technological Advancements. We must anticipate and keep pace with the
introduction of new hardware, software and networking technologies and acquire
equipment that will be marketable to our current and prospective customers. The
equipment we rent can be the subject of rapid technological developments,
evolving customer demands and frequent new product announcements and
enhancements. If we fail to adequately anticipate or adapt to new technological
developments or to recognize changing market conditions, our operating results
and stock price could be materially and adversely affected.

        Expenses Resulting from Technological Advancements. As a result of
technology developments, we may have to make substantial and unanticipated
expenditures to acquire new equipment or invest in further staff education on
operating and servicing the equipment we deliver to our customers. Further, we
may not adequately anticipate or respond successfully to technological changes
for many reasons, including misjudging the impact of technological changes as
well as financial, technological or other constraints. If we do not adequately
anticipate or respond to changes in technological advancements or customer
preferences, it would likely have a material adverse impact on our operating
results and stock price.

        Introducing New Products and Services. The markets in which we operate
are characterized by rapidly changing technology, evolving industry standards
and declining prices of personal computers. Our operating results will depend to
a significant extent on our ability to continue to introduce new services and to
control and/or reduce costs on existing services. Whether we succeed in our new
offerings depends on several factors such as:

        -       including proper identification of customer needs;

        -       our costs;

        -       timely completion and introduction of products and services as
                compared to our competitors;

        -       our ability to differentiate our equipment and services from our
                competitors; and

        -       market acceptance of our business.

RISKS ASSOCIATED WITH THE INTERNET AND THE COMMUNICATIONS INDUSTRIES

        If we do not collect on contracts with customers, it could have a
material adverse effect on our operating results and stock price.

        The emergence of Internet consulting services and facilities-based
broadband communications companies, internet service providers and other
telecommunications carriers, referred to as the "communications industry" and
the growth of broadband networks has provided us with customers who often find
it more attractive to rent or lease electronic equipment than to own that
equipment. However, many of our customers in these industries have accumulated
net deficits and have liquidity issues. To the extent that these companies are
unable to meet their business plans or unable to obtain funding at reasonable
rates to complete their business plans, our credit losses would increase above
historical levels. If this should occur, our results of operations and stock
price may be materially and adversely affected.

COMPETITION

        If we do not effectively compete in our market, our operating results
and stock price will be materially and adversely affect.

        Our industry is characterized by intense competition from several large
competitors, some of which have access to greater financial and other resources
than we do. Although no single competitor holds a dominant market share, we face
intensifying competition from both established entities and new entries in the
market. Our primary competitors have been identified by independent industry
publications to include:




                               Exhibit 99(A) - 3


        -       Technology Rentals & Services, a division of CIT Group;

        -       McGrath Rent Corp.;

        -       Telogy; and

        -       Continental Resources.

        Some of our competitors may offer similar equipment for lease, rental or
sale at lower prices and may offer more extensive servicing options.

RISKS ASSOCIATED WITH CHANGING ECONOMIC CONDITIONS

        General domestic and international economic conditions could have a
material adverse effect on our operating results and stock price.

        Domestic and/or International Economic Downturns. Historically, our
customers have reduced their expenditures for electronic equipment during
economic downturns. When the domestic and/or international economy weakens,
demand for our services may decline. This could have a material adverse effect
on our operating results and stock price.

        Industry-Specific Slowdowns. A large part of our equipment portfolio is
rented or leased to customers in the aerospace, defense, electronics and
telecommunications industries. If one or more of these industries experiences a
slowdown, it could have a material adverse effect on our operating results and
stock price.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

        If we do not adequately anticipate and respond to the risks inherent in
international operations, it could have a material adverse effect on our
operating results and stock price.

        We generate a meaningful portion of our revenues from contracts with
Canadian parties. These contacts are generally priced in Canadian dollars. Our
consolidated financial statements are prepared in U.S. dollars. Consequently,
changes in exchange rates can unpredictably and adversely affect our
consolidated operating results, and could result in exchange losses. We do not
hedge against the risks associated with fluctuations in exchange rates. Although
we may use hedging techniques in the future, we may not be able to eliminate or
reduce the effects of currency fluctuations. Thus, exchange rate fluctuations
could have a material adverse impact on our operating results and stock price.

        Other Risks Associated with International Operations. Additionally, our
financial results may be adversely affected by other international risks, such
as:

        -       international political and economic conditions;

        -       changes in government regulation in various countries;

        -       trade barriers;

        -       difficulty in staffing our foreign sales and services centers,
                and in training and retaining foreign employees;

        -       adverse tax consequences; and

        -       costs associated with expansion into new territories.

        We expect to continue our international operations and that the revenues
we derive from these activities will continue to be a meaningful portion of our
total revenues. If we do not anticipate and respond to the risks associated with
international operations, it could have a material adverse effect on our
operating results and stock price.

RISKS ASSOCIATED WITH OUR MANUFACTURERS AND SUPPLIERS

        If we are not able to obtain equipment at favorable rates, it could have
a material adverse effect on our operating results and stock price.



                               Exhibit 99(A) - 4


        About 70% of our equipment portfolio at acquisition cost is composed of
general purpose test and measurement instruments purchased from leading
manufacturers such as Agilent Technologies and Tektronix. The remainder of our
equipment portfolio is comprised of personal computers and workstations which
include personal computers from Compaq, Dell, IBM, Apple, and Toshiba and
workstations primarily from Sun Microsystems and Hewlett Packard. We depend on
these manufacturers and suppliers to contract for our equipment. If, in the
future, we are not able in to purchase necessary equipment from one or more of
these suppliers on favorable terms, our business and stock price may be
materially and adversely affected. Additionally, if this should occur, we can
make no assurance that we will be able to secure necessary equipment from an
alternative source on acceptable terms.

DEPENDENCE ON KEY PERSONNEL

        If we are unable to recruit and retain qualified personnel, it could
have a material adverse effect on our operating results and stock price.

        Our success depends in large part on the continued services of our
executive officers, our senior managers and other key personnel, including,
among others, our Chief Executive Officer, Daniel Greenberg, our President,
William Weitzman, our Senior Vice President of Sales, Gary Phillips, our Chief
Financial Officer, Craig Jones, and our Vice President and Secretary, Steven
Markheim. The loss of these people, especially without advance notice, could
materially and adversely impact our results of operations. It is also very
important that we attract and retain highly skilled personnel to accommodate
growth and to replace personnel who leave. Competition for qualified personnel
is intense, especially in technology industries, and there are a limited number
of people with the requisite knowledge and experience to market, sell and
service our equipment. Under these conditions, we could be unable to recruit,
train, and retain employees. If we cannot attract and retain qualified
personnel, it could have a material adverse impact on our operating results and
stock price.

CONTROL BY MANAGEMENT

        Senior management has significant influence over Electro Rent's policies
and affairs and may be in a position to determine the outcome of corporate
actions.

        Our executive officers and directors collectively own approximately 18%
of our Common Stock. Mr. Greenberg, Electro Rent's Chairman and Chief Executive
Officer, beneficially owns approximately 17% of Electro Rent's outstanding
shares of Common Stock. Consequently, our officers and directors, and Mr.
Greenberg in particular, may have significant influence over Electro Rent's
policies and affairs and may be in a position to determine the outcome of
corporate actions requiring stockholder approval. These may include, for
example, the election of directors, the adoption of amendments to our corporate
documents and the approval of mergers and sales of our assets.

RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS AND NEW BUSINESS VENTURES

        If we cannot successfully implement any future acquisitions or new
business ventures, it could have a material adverse effect on our operating
results and stock price.

        On occasion we evaluate business opportunities that appear to fit within
our overall business strategy. We could decide to pursue one or more of these
opportunities by acquisition or internal development. Acquisitions and new
business ventures involve many risks, including:

        -       the difficulty of integrating acquired operations and personnel
                with our existing operations;

        -       the difficulty of developing and marketing new products and
                services;

        -       the diversion of our management's attention as a result of
                evaluating, negotiating and integrating acquisitions or new
                business ventures;

        -       our exposure to unforeseen liabilities of acquired companies;
                and

        -       the loss of key employees of an acquired operation.



                               Exhibit 99(A) - 5


        In addition, an acquisition or new business venture could adversely
impact cash flows and/or operating results, and dilute shareholder interests,
for many reasons, including:

        -       charges to our income to reflect the impairment of acquired
                intangible assets, including goodwill;

        -       interest costs and debt service requirements for any debt
                incurred in connection with an acquisition or new business
                venture; and

        -       any issuance of securities in connection with an acquisition or
                new business venture which dilutes or lessens the rights of our
                current shareholders.

        We have had only one significant experience in executing and
implementing an acquisition, which was our acquisition of General Electric
Capital Technology Management Services' test and measurement operations in
November 1997. As a result of this 1997 acquisition Electro Rent was a party to
an arbitration proceeding in connection with the purchase price that settled in
2001. Although we have implemented new business ventures, those ventures have
not always been successful, and we may not succeed in the future. The risks
associated with acquisitions and new business ventures could have a material
adverse impact on our operating results and stock price.

RISKS ASSOCIATED WITH FLUCTUATING INTEREST RATES

Interest Rate Fluctuations could have a material adverse effect on our operating
results and stock price.

        Historically, our primary market risk exposure has been risks related to
interest rate fluctuations, primarily related to our previous borrowings under
our unsecured revolving credit facility. However, while we currently have the
ability to draw on our revolving credit line, we currently have outstanding no
borrowings under this credit facility. In the past we have attempted to reduce
this risk by utilizing derivative financial instruments, namely interest rate
caps and swaps, pursuant to past practices, and we may enter into derivative
financial instruments in the future to hedge our exposure to interest rate
fluctuations.

ANTI-TAKEOVER PROVISIONS

        The anti-takeover provisions contained in our Charter Documents could
materially and adversely impact the value of our Common Stock.

        Certain provisions of Electro Rent's Articles of Incorporation, our
Bylaws and California law could, together or separately, discourage, delay or
prevent a third party from acquiring Electro Rent, even if doing so might
benefit our shareholders. This may adversely impact the interests of our
shareholders with respect to a potential acquisition and may also affect the
price investors would receive for their shares of Common Stock. Some examples of
these provisions in our Articles of Incorporation and Bylaws are:

        -       the right of our board of directors to issue preferred stock
                with rights and privileges which are senior to the Common Stock,
                without prior stockholder approval; and

        -       certain limitations of the rights of stockholders to call a
                special meeting of stockholders.




                               Exhibit 99(A) - 6

EX-99.(B)

                                                                   EXHIBIT 99(B)

        STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002
                                       BY

           PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
       REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS

                              Dated August 23, 2002

        We, Daniel Greenberg and Craig R. Jones, certify that the periodic
report, to which this Statement is attached, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of
1934, and the information contained in the periodic report to which this
Statement is attached, fairly present, in all material respects, the financial
condition and results of operations of the registrant.

        IN WITNESS WHEREOF, the undersigned have executed this Statement as of
the date first written above.



                                        ----------------------------------------
                                        Daniel Greenberg
                                        Chief Executive Officer



                                        ----------------------------------------
                                        Craig R. Jones
                                        Chief Financial Officer