<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549

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

                                    FORM 10-K

         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000     COMMISSION FILE NUMBER 0-13292

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

                                MCGRATH RENTCORP
             (Exact name of registrant as specified in its Charter)

          CALIFORNIA                                          94-2579843
 (State or other jurisdiction                             (I.R.S. Employer
of incorporation or organization)                         Identification No.)

                   5700 LAS POSITAS ROAD, LIVERMORE, CA 94550
                    (Address of principal executive offices)

                  Registrant's telephone number: (925) 606-9200

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

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

Title of each class                  Name of each exchange on which registered
-------------------                  -----------------------------------------
      NONE                                             NONE

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

                                 Title of Class
                                 --------------
                                  COMMON STOCK

        Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes  [X]   No  [ ]

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

        State the aggregate market value of voting stock, held by nonaffiliates
of the registrant: $174,507,255 as of March 16, 2001.

        At March 16, 2001, 12,160,248 shares of Registrant's Common Stock were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

        McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange commission within 120 days after the end of its fiscal
year, is incorporated by reference into Part III, Items 10, 11, 12 and 13.

        Exhibit index appears on page 36.




<PAGE>   2


                                     PART I


ITEM 1. BUSINESS.

GENERAL

        McGrath RentCorp (the "Company") is a California corporation organized
in 1979. The Company is comprised of three business segments: "Mobile Modular
Management Corporation" ("MMMC"), its modular building rental group, "RenTelco,"
its electronic test equipment rental group, and "Enviroplex," its majority-owned
subsidiary classroom manufacturing business. The Company's corporate offices are
located in Livermore, California. In addition, branch operations for both rental
divisions are conducted from this facility.

        MMMC rents and sells modular buildings and accessories to fulfill
customers' temporary and permanent space needs in California and Texas. These
units are used as temporary offices adjacent to existing facilities, and are
used as sales offices, construction field offices, classrooms, health care
clinics, child care facilities and for a variety of other purposes. MMMC
purchases the modulars from various manufacturers who build them to MMMC's
design specifications. MMMC operates from two branch offices in California and
one in Texas. Although MMMC's primary emphasis is on rentals, sales of modulars
routinely occur and can fluctuate quarter to quarter and year to year depending
on customer demands and requirements. Rentals and sales to school districts by
MMMC represent a significant portion of MMMC's total revenues.

        RenTelco rents and sells electronic test equipment nationally from two
locations. The Plano, Texas location houses the Company's communications and
fiber optic test equipment inventory, calibration laboratory and eastern U.S.
sales engineer and operations staffs. The Livermore, California location houses
the Company's general-purpose test equipment inventory, calibration laboratory
and western U.S. sales engineer and operations staffs.

        Communications and fiber optic test equipment is utilized by field
technicians, engineers and installer contractors in evaluating voice, data and
multimedia communications networks, installing optical fiber cabling and in the
development of switch, network and wireless products. This test equipment is
rented primarily to network systems companies, electrical contractors, local &
long distance carriers and manufacturers of communications transmission
equipment. RenTelco purchases communications test equipment from over 40
different manufacturers domestically and abroad.

        Engineers, scientists and technicians utilize general-purpose test
equipment in evaluating the performance of their own electrical and electronic
equipment, developing products, controlling manufacturing processes and in field
service applications. These instruments are rented primarily to electronics,
industrial, research and aerospace companies. The majority of general-purpose
equipment is manufactured by Agilent (formerly Hewlett Packard), Tektronix and
Acterna.

        McGrath RentCorp owns 73% of Enviroplex, a California corporation
organized in 1991. Enviroplex manufactures portable classrooms built to the
requirements of the California Division of the State Architect ("DSA") and sells
directly to school districts. Enviroplex conducts its sales and manufacturing
operations from its facility located in Stockton, California. Since inception,
McGrath RentCorp has assisted Enviroplex in a variety of corporate functions
such as accounting, human resources, facility improvements and insurance.
McGrath RentCorp has not purchased significant quantities of manufactured
product from Enviroplex. Enviroplex sales revenues were $17.0 million, $11.2
million and $20.7 million in 2000, 1999 and 1998, respectively.

        The rental (by MMMC) and sale (by Enviroplex and MMMC) of modulars to
school districts for use as portable classrooms, restroom buildings and
administrative offices for kindergarten through grade twelve (K-12) are a
significant portion of the Company's revenues. School business comprised
approximately 35%, 34%, and 45% of the Company's consolidated rental and sales
revenues for 2000, 1999 and 1998, respectively.

        Please see Note 8 to the Consolidated Financial Statements on page 31
for more information on the Company's business segments.



                                       2



<PAGE>   3

        The Company has 404 employees, of whom 51 are primarily administrative
and executive personnel, and the remaining 353 are engaged in manufacturing or
rental operations. Unions represent none of these employees. The operations of
the Company share common facilities, financing, senior management, and operating
and accounting systems, which results in the efficient use of overhead. Each
product line has its own sales and technical personnel.

        No single customer has accounted for more than 10% of the Company's
total revenues generated in any given year. The Company's business is not
seasonal, except for the rental and sale of classrooms, which is heaviest in the
several months prior to the opening of school each fall.

        The Company operates with a marketing sense throughout. The Company is
constantly searching for ways to streamline its service and to raise the quality
of each relocatable office, classroom or instrument it rents, sells or
manufactures. The Company not only rents, sells and manufactures products, it
sells an old-fashioned idea: Paying attention to our customers pays off.

        The Company's common stock is traded on the NASDAQ National Market
System under the symbol "MGRC".

        This Annual Report on Form 10-K contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places.
Such statements can be identified by the use of forward-looking terminology such
as "believes", "expects", "may", "estimates", "will", "should", "plans" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
significant risks and uncertainties, and that actual results may vary materially
from those in the forward-looking statements as a result of various factors.
These factors include the effectiveness of management's strategies and
decisions, general economic and business conditions, new or modified statutory
or regulatory requirements and changing prices and market conditions. This
report identifies other factors that could cause such differences. No assurance
can be given that these are all of the factors that could cause actual results
to vary materially from the forward-looking statements.

                           RELOCATABLE MODULAR OFFICES

DESCRIPTION

        Modulars are designed for use as temporary office space and may be moved
from one location to another. Modulars vary from simple single-unit construction
site offices to attractive multi-modular facilities, complete with wood
exteriors and mansard roofs. The rental fleet includes a full range of styles
and sizes. The Company considers its modulars to be among the most attractive
and well designed available. The units are constructed with wood siding,
sturdily built and physically capable of a useful life often exceeding 18 years.
Units are provided with installed heat, air conditioning, lighting, electricity
and floor covering, and may have customized interiors including partitioning,
carpeting, cabinetwork and plumbing facilities.

        MMMC purchases new modulars from various manufacturers who build to
MMMC's design specifications. None of the principal suppliers are affiliated
with the Company. During 2000, the Company purchased 33% of its modular product
from one manufacturer with multiple operations in several states. The Company
believes that the loss of its primary manufacturer of modulars would not have a
material adverse effect on its operations, however the Company could experience
higher prices and longer lead times for modular product until other
manufacturers increased their capacity.

MARKETING

        The Company's largest single demand is for temporary classroom and other
educational space needs of public and private schools, colleges and
universities. Management believes the demand for classrooms is caused by
shifting and fluctuating school populations, the lack of state funds for new
construction, the need for temporary classroom space during reconstruction of
older schools and, several years ago, class size reduction (see "Classroom
Rentals and Sales" below). Other customer use applications include sales
offices, construction field offices, health care facilities, sanctuaries and
child care services. Industrial, manufacturing, entertainment and utility
companies, as well as governmental agencies, commonly use large multi-modular
complexes to serve their interim administrative and




                                       3



<PAGE>   4

operations space needs. The Company's branch and corporate offices, with the
exception of RenTelco's Plano facility and Enviroplex's facility, are housed in
various sizes of modulars.

        Since most of MMMC's customer requirements are to fill temporary space
needs, the Company's marketing emphasis is on rentals rather than sales. MMMC
solicits customers through extensive yellow-page advertising, telemarketing and
direct mail. Customers are encouraged to visit an inventory center to view
different models on display and to see a branch office, which itself is a
working example of a modular application.

        Because service is a major competitive factor in the rental of modulars,
MMMC offers quick response to requests for information, assistance in the choice
of a suitable size and floor plan, in-house customization services, rapid
delivery, timely installation and maintenance of its units.

RENTALS

        Rental periods range from one month to ten years with a typical rental
period of eighteen months. Most rental agreements provide no purchase options;
and when a rental agreement does provide the customer with a purchase option, it
is generally on terms attractive to MMMC.

        The customer is responsible for the costs of insuring the unit,
transporting the unit to the site, preparation of the site, installation of the
unit, dismantle and return delivery of the unit to one of MMMC's three inventory
centers, and certain costs for customization. MMMC maintains the units in good
working condition while on rent. Upon return, the units are inspected for damage
and customers are billed for items considered beyond normal wear and tear. The
units are then refurbished for subsequent use. Refurbishment work can include
floor tile repairs, roof maintenance, cleaning, painting and other cosmetic
repairs.

        At December 31, 2000, MMMC had 17,555 new or previously rented modulars
in its rental fleet with an aggregate original cost including accessories of
$261.1 million or an average cost per unit of $14,900. Utilization is calculated
each month by dividing the cost of rental equipment on rent by the total cost of
rental equipment, excluding new equipment inventory and accessory equipment. At
December 31, 2000, fleet utilization was 84.9% and average fleet utilization
during 2000 was 82.3%.

SALES

        In addition to operating its rental fleet, MMMC sells modulars to
customers. These sales arise out of its marketing efforts for the rental fleet.
Such sales can be of either new units or used units from the rental fleet, which
permits an orderly turnover of older units. During 2000, MMMC's largest sale of
modulars was for new classrooms to a school district for approximately $4.4
million. This sale represented approximately 18% of MMMC's sales, 9% of the
Company's consolidated sales, and less than 3% of the Company's consolidated
revenues.

        MMMC provides limited 90-day warranties on used modulars and passes
through manufacturers' one-year warranty on new units. Warranty costs have not
been significant to MMMC's operations to date, and MMMC attributes this to its
commitment to high quality standards and regular maintenance programs.

        In addition to MMMC's sales, the Company's subsidiary, Enviroplex,
manufactures and sells portable classrooms to school districts in California
(see "Classroom Sales by Enviroplex" below).

COMPETITION

        This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.

        Competition in the rental and sale of relocatable modular offices is
intense. Many firms are engaged in the rental of modulars, and some have
substantially greater financial resources than MMMC. Significant competitive
factors in the rental business include availability, price, services,
reliability, appearance and functionality of the product. MMMC markets
high-quality, well constructed and attractive modulars. MMMC believes that part
of the strategy for modulars should be to create facilities and infrastructure
capabilities that its competitors cannot easily duplicate. The Company's
facilities and related infrastructure enable it to modify modulars efficiently
and cost effectively to meet its



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<PAGE>   5

customers' needs. Management's goal is to be more responsive at less expense.
Management believes this strategy, together with its emphasis on prompt and
efficient customer service, gives MMMC a competitive advantage. The Company is
determined to offer quick response to requests for information, experienced
assistance for the first-time user, rapid delivery and timely maintenance of its
units. The efficiency and responsiveness continues to be enhanced by the
Company's computer based relational database programs that control its internal
operations. MMMC anticipates strong competition in the future and believes its
process of improvement is ongoing.

CLASSROOM SALES BY ENVIROPLEX

        This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.

        Enviroplex manufactures moment-resistant, rigid steel framed portable
classrooms built to the requirements of the DSA and sells directly to school
districts. The moment-resistant, rigid steel-framed classroom is engineered to
have the structural columns support the weight of the building. This offers the
customer greater design flexibility as to overall classroom size and the
placement of doors and windows. Enviroplex fabricates most of the structural
steel component parts using only mill certified sheet steel. Enviroplex's
standard designs have been engineered for strength and durability using lighter
weight steel. Customers are offered a wide variety of DSA pre-approved classroom
sizes and features with market established pricing, saving them valuable time on
their classroom project. Customization features include restrooms, computer lab
setups, interior offices, cabinetwork and kitchen facilities.

         During 2000, Enviroplex's largest sale was for $2.5 million of new
classrooms to a school district. This sale represented 15% of Enviroplex's
sales, 5% of the Company's consolidated sales and less than 2% of the Company's
consolidated revenues.

        Competition in the manufacture of DSA classrooms is broad, intense, and
highly competitive. Several manufacturers have greater capacity for production
and have been in business longer than Enviroplex. Larger manufacturers with
greater capacity have a larger appetite for the standard classroom while
Enviroplex caters to schools' requirements for more customized classrooms. The
remaining manufacturers are of a similar size or smaller and do not have the
production capacity nor the financial resources of Enviroplex.

        Enviroplex manufactures solid, attractive classrooms. Through value
engineering, Enviroplex has simplified its manufacturing process by changing
materials, determining which components are made in-house versus purchased,
reducing the number of components and increasing the production efficiency at an
overall lower cost without sacrificing quality. Enviroplex's strategy is to
improve the quality and flexibility of its product. Enviroplex understands that
its customers want more than a quality classroom, competitively priced and
delivered on time, and believes its niche is providing customers with choices in
design flexibility and customization. Management believes this strategy gives
Enviroplex a competitive edge.

        Enviroplex provides a one-year warranty on equipment manufactured.
Warranty costs have not been significant to Enviroplex's operations to date that
can be attributed to Enviroplex's dedication to manufacturing and delivering a
quality, problem-free product.

        Enviroplex purchases raw materials from a variety of suppliers. Each
component part has multiple suppliers. Enviroplex believes the loss of any one
of these suppliers would not have a material adverse affect on its operations.

CLASSROOM RENTALS AND SALES

        The rental and sales of modulars to public school districts for use as
portable classrooms, restroom buildings and administrative offices for
kindergarten through grade twelve (K-12) are a significant portion of the
Company's revenues. The following table shows the approximate percentages
schools are of the Company's modular rental and sales revenues, and of its
consolidated rental and sales revenues for the past five years:

SCHOOLS AS A PERCENTAGE OF RENTAL AND SALES REVENUES

------------------------------------------------------------------------------
Percentage of:                               2000    1999   1998   1997   1996
--------------                               ----    ----   ----   ----   ----
Modular Rental Revenues                       47%     48%    44%    45%    40%
Modular Sales Revenues                        61%     52%    78%    74%    54%

Consolidated Rental and Sales Revenues        35%     34%    45%    52%    37%
------------------------------------------------------------------------------


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<PAGE>   6

        The increased modular sales percentage shown for 1998 and 1997 can be
attributed to the Class Size Reduction Program instituted by the state of
California. School districts were given great incentive to reduce class size in
the lower grades from 30 students to no greater than 20 students. This highly
popular program created a great demand for both purchasing and renting classroom
buildings and was essentially implemented by the end of 1999. In 2000, the
increased modular sales percentages resulted from new requirements beyond Class
Size Reduction by school districts.

        LEGISLATION

        In California (where most of the Company's rentals to public school
districts have occurred), school districts are permitted to purchase only
portable classrooms built to the requirements of the DSA. However, school
districts may rent classrooms that meet either the Department of Housing ("DOH")
or DSA requirements. Prior to 1988 the majority of the classrooms in the
Company's rental fleet were built to the DOH requirements, and since 1988 almost
all new classrooms have been built to the DSA requirements. In 1988, California
adopted a law which limited the term for which school districts may rent
portable classrooms built to DOH standards to three years (under a waiver
process), and also required the school board to indemnify the State against any
claims arising out of the use of such classrooms. During the 1990's additional
legislation was passed extending the use of these DOH classroom buildings under
the waiver process through September 30, 2000.

         In 2000, new California legislation was passed allowing for DOH
classroom buildings already in use for classroom purposes as of May 1, 2000 to
be utilized until September 30, 2007, provided various upgrades were made to
their foundation and ceiling systems. School districts have until August 31,
2002 to make the necessary modifications to extend their usage of these
buildings. To the extent that school districts elect not to proceed with
retrofitting these existing buildings on rent and return the equipment, rental
income levels could be impacted negatively. Currently, regulations are in place
that allow for the ongoing use of DOH classrooms from the Company's inventory to
meet shorter term space needs of school districts for periods up to 24 months,
provided they receive a "Temporary Certification" from the DSA. As a
consequence, the tendency is for school districts to rent the DOH classrooms for
shorter periods and to rent the DSA classrooms for longer periods. At December
31, 2000, the net book value of DOH classrooms represented less than 2% of the
total assets of the Company and utilization was at 90.3%.

                   ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS

DESCRIPTION

        The Company's communications and fiber optics rental inventory includes
fiber, telecom, SONET, ATM, broadcast, copper, line simulator, microwave,
network and transmission test equipment. The general-purpose inventory includes
oscilloscopes, amplifiers, spectrum, network and logic analyzers, and CATV,
component measurement, industrial, signal source, microprocessor development and
power source test equipment. The Company also rents electronic instruments from
other rental companies and re-rents the instruments to customers.

        At December 31, 2000, the Company had an aggregate cost of electronics
rental inventory and accessories of $92.4 million. Utilization is calculated
each month by dividing the cost of the rental equipment on rent by the total
cost of the rental equipment, excluding accessory equipment. At December 31,
2000 utilization was 63.5%, and the average utilization during 2000 was 61.4%.
The Company rents electronic equipment for a typical rental period of one to six
months at monthly rental rates ranging from approximately 3.0% to 10.0% of the
current manufacturers' list price. The Company depreciates its equipment over 5
to 8 years.

        The Company endeavors to keep its equipment fresh and attempts to sell
equipment so that the majority of the inventory is less than five years old. The
Company generally sells used equipment after approximately four years of service
to permit an orderly turnover and replenishment of the electronics inventory. In
2000, approximately 21% of the electronics revenues were derived from sales. The
largest electronics sale during 2000 represented 3% of electronics sales and
less than 1% of the Company's consolidated revenues.



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<PAGE>   7

MARKET

        The business of renting electronic test and measurement instruments is
an industry which today has equipment on rent or available for rent in the
United States with an aggregate original cost in excess of a half billion
dollars. While there is a broad customer base for the rental of such
instruments, most rentals are to electronics, communications, network systems,
industrial, research and aerospace companies. The Company markets its electronic
equipment throughout the United States.

        The Company believes that customers rent electronic test and measurement
instruments for many reasons. Customers frequently need equipment for short-term
projects, for backup to avoid costly downtime and to evaluate new products.
Delivery times for the purchase of such equipment can be lengthy; thus, renting
allows the customer to obtain the equipment expeditiously. The Company also
believes that a substantial portion of electronic test and measurement
instruments is used for research and development projects where the relative
certainty of rental costs can facilitate cost control and be useful in bidding
for government contracts. Finally, as is true with the rental of any equipment,
renting rather than purchasing may better satisfy the customer's budgetary
constraints.

        The industry consists primarily of three major companies. One of these
companies is much larger than the Company, has substantially greater financial
resources and is well established in the industry with a large inventory of
equipment, several branch offices and experienced personnel.


















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<PAGE>   8

        PRODUCT HIGHLIGHTS

        The following table shows the revenue components, percentage of rental
and total revenues, rental equipment (at cost), rental equipment (net book
value), number of relocatable modular offices, year-end and average utilization,
average rental equipment (at cost), annual yield on average rental equipment (at
cost) and gross margin on rental revenues and sales by product line for the past
five years.


<TABLE>
<CAPTION>
PRODUCT HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------
(dollar amounts in thousands)                                     YEAR ENDED DECEMBER 31,
                                               ------------------------------------------------------------
                                                 2000         1999         1998         1997         1996
                                               --------     --------     --------     --------     --------
<S>                                            <C>          <C>          <C>          <C>          <C>
RELOCATABLE MODULAR OFFICES
(operates under MMMC and Enviroplex)
Revenues
 Rental                                        $ 56,779     $ 51,622     $ 47,957     $ 41,514     $ 31,931
 Rental Related Services                         16,462       12,542       11,007        9,898        8,399
                                               --------     --------     --------     --------     --------
     Total Modular Rental Operations             73,241       64,164       58,964       51,412       40,330
                                               --------     --------     --------     --------     --------
 Sales -- MMMC                                   23,831       16,100       23,171       33,522       14,359
   Sales -- Enviroplex                           16,992       11,150       20,672       21,287       10,206
                                               --------     --------     --------     --------     --------
     Total Modular Sales                         40,823       27,250       43,843       54,809       24,565
                                               --------     --------     --------     --------     --------
 Other                                              423          500          448          656          885
                                               --------     --------     --------     --------     --------
     Total Modular Revenues                    $114,487     $ 91,914     $103,255     $106,877     $ 65,780
                                               ========     ========     ========     ========     ========

Percentage of Rental Revenues                      59.8%        65.5%        66.6%        67.3%        65.2%
Percentage of Total Revenues                       69.7%        70.7%        76.2%        79.2%        73.9%
Rental Equipment, at cost (year-end)           $261,081     $238,449     $216,444     $196,133     $158,377
Rental Equipment, net book
  value (year-end)                             $187,059     $171,166     $156,790     $142,816     $110,014
Number of Units (year-end)                       17,555       16,230       15,139       14,240       11,582
Utilization (year-end)(1)                          84.9%        80.2%        83.0%        83.0%        78.7%
Average Utilization(1)                             82.3%        81.6%        83.1%        81.6%        72.5%
Average Rental Equipment, at cost(2)           $238,408     $213,571     $186,865     $161,821     $145,760
Annual Yield on Average Rental Equipment,
  at cost                                          23.8%        24.2%        25.7%        25.7%        21.9%
Gross Margin on Rental Revenues                    50.2%        55.3%        56.2%        59.0%        55.4%
Gross Margin on Sales                              28.0%        29.5%        30.8%        31.2%        30.7%

ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
(operates under RenTelco)
Revenues
 Rental                                        $ 38,152     $ 27,132     $ 24,010     $ 20,174     $ 17,055
 Rental Related Services                            723          501          521          380          319
                                               --------     --------     --------     --------     --------
     Total Electronics Rental Operations         38,875       27,633       24,531       20,554       17,374
 Sales                                           10,201        9,789        7,201        7,212        5,610
 Other                                              595          626          441          333          241
                                               --------     --------     --------     --------     --------
     Total Electronics Revenues                $ 49,671     $ 38,048     $ 32,173     $ 28,099     $ 23,225
                                               ========     ========     ========     ========     ========

Percentage of Rental Revenues                      40.2%        34.5%        33.4%        32.7%        34.8%
Percentage of Total Revenues                       30.3%        29.3%        23.8%        20.8%        26.1%
Rental Equipment, at cost (year-end)           $ 92,404     $ 72,832     $ 66,573     $ 50,351     $ 43,335
Rental Equipment, net book
  value (year-end)                             $ 60,343     $ 46,012     $ 43,238     $ 31,270     $ 27,279
Utilization (year-end)(1)                          63.5%        54.4%        51.5%        52.6%        51.8%
Average Utilization(1)                             61.4%        53.8%        54.6%        54.9%        54.9%
Average Rental Equipment, at cost              $ 82,401     $ 68,420     $ 56,859     $ 46,483     $ 39,335
Annual Yield on Average Rental Equipment,
  at cost                                          46.3%        39.7%        42.2%        43.4%        43.4%
Gross Margin on Rental Revenues                    63.8%        59.5%        61.5%        61.7%        59.4%
Gross Margin on Sales                              32.6%        29.7%        32.9%        33.2%        37.3%

TOTAL REVENUES                                 $164,158     $129,962     $135,428     $134,976     $ 89,005
-----------------------------------------------------------------------------------------------------------
</TABLE>


(1) Utilization is calculated each month by dividing the cost of the rental
    equipment on rent by the total cost of rental equipment, excluding new
    equipment inventory and accessory equipment. Average utilization is
    calculated using the average costs for the year.

(2) Average rental equipment, at cost for modulars excludes new equipment
    inventory and accessory equipment.









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<PAGE>   9


I
TEM 2. PROPERTIES.

        The Company currently conducts its operations from five locations.
Inventory centers, at which relocatable modular offices are displayed,
refurbished and stored are located in Livermore, California (San Francisco Bay
Area), Mira Loma, California (Los Angeles Area) and Pasadena, Texas (Houston
Area). These three branches conduct rental and sales operations from
multi-modular offices, serving as working models of the Company's product.
Electronic test and measurement instrument rental and sales operations are
conducted from the Livermore facility and from a facility in Plano, Texas
(Dallas Area). The Company's majority owned subsidiary, Enviroplex, manufactures
portable classrooms from its facility in Stockton, California (San Francisco Bay
Area).

        During 2000, the Company developed a 39,110 square foot office and
warehouse facility on 2.6 acres of land in Plano, Texas. RenTelco relocated its
operations from Richardson, Texas to the new Plano facility in September 2000
and currently occupies half of the constructed space. The Company has subleased
the remaining half of the facility on a five-year lease beginning in March 2001.

        The following table sets forth for each property the total acres, square
footage of office space, square footage of warehouse space and total square
footage at December 31, 2000. The Company owns all properties.


<TABLE>
<CAPTION>
FACILITIES
---------------------------------------------------------------------------------------------
                                                                     Square Footage
                                              -----------    --------------------------------
                                              Total Acres    Office     Warehouse      Total
                                              -----------    ------     ---------      -----
<S>                                           <C>            <C>        <C>            <C>
CORPORATE OFFICES
   Livermore, California(1)                         --        9,840           --        9,840
RELOCATABLE MODULAR OFFICES
   Livermore, California(1),(2)                  139.7        7,680       53,440       61,120
   Mira Loma, California                          78.5        7,920       45,440       53,360
    Pasadena, Texas                               50.0        3,868       24,000       27,868
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
   Livermore, California(1)                         --        8,400        7,920       16,320
   Plano, Texas(3)                                 2.6       28,337(3)    10,773       39,110
ENVIROPLEX, INC
   Stockton, California                           13.9        3,365      102,050      105,415
OTHER
   Corona, California(4)                          10.4           --           --           --
   Arlington, Texas(5)                             1.8        1,680        2,387        4,067
                                                 -----      -------      -------      -------
                                                 296.9       71,090      246,010      317,100
                                                 =====      =======      =======      =======
---------------------------------------------------------------------------------------------
</TABLE>


(1) The modular office complex in Livermore, California is 33,840 square feet
    and includes the Corporate offices and both modulars and electronics branch
    operations.

(2) Of the 139.7 acres owned, 2.2 acres with an 8,000 square foot warehouse
    facility is rented out to a third party through March, 2008, 2.2 acres to a
    third party through October, 2005 and 35.8 acres are undeveloped.

(3) The office and warehouse facility was completed and occupied October, 2000.
    Of the 28,337 square feet of office space, 19,152 square feet was rented to
    a third party through February, 2006.

(4) Facility is for sale or lease.

(5) Facility rented out to a third party on a month to month basis.



ITEM 3. LEGAL PROCEEDINGS.

        McGrath RentCorp has been named along with a number of other companies
as a defendant in a lawsuit alleging a failure to warn about certain chemicals
associated with building materials used in portable classrooms in California.
The lawsuit was filed by As You Sow, a corporation that has served as a
plaintiff in numerous lawsuits alleging similar failures to warn. The Company
and its subsidiary Enviroplex, Inc. are two of nineteen named defendants, all of
whom are involved in the portable classroom industry in the State of California.
While the plaintiff alleges that materials used to construct portable classrooms
require certain warnings, there is no allegation that any individual has
suffered any injury or harm. The plaintiff does not allege that any particular
classroom leased, sold or manufactured by the Company or Enviroplex has exposed
anyone to any such chemicals; and the Company believes that in fact none of the
portable classrooms it leases or sells and none of the portable classrooms
manufactured by Enviroplex pose any health risk. The 



                                       9

<PAGE>   10

Company believes the lawsuit is without merit, and it intends to defend against
the suit vigorously. The lawsuit was filed in the Superior Court of the State of
California for the County of San Francisco on July 7, 2000. The complaint seeks
a court injunction ordering the defendants to post warning signs in portable
classrooms, recovery of a fine of $2,500 for each failure to post a warning sign
where required, and recovery of monies the defendants may have made by selling
or leasing classrooms without appropriate warnings. Plaintiff also asks for
payment of attorneys' fees. The Company has entered into an agreement to settle
this lawsuit on terms that it believes will have no material adverse impact on
its operations or financial position.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        Not applicable.


                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.


        The Company's common stock is traded in the NASDAQ National Market
System under the symbol "MGRC".

        The market price (as quoted by NASDAQ) and cash dividends declared, per
share of the Company's common stock, by calendar quarter for the past two years
were as follows:

STOCK ACTIVITY

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                   2000                                      1999
                 ----------------------------------------- -----------------------------------------
                      4Q        3Q         2Q        1Q           4Q        3Q         2Q        1Q
                  ---------  --------  ---------  --------  ---------  --------  ---------  --------
<S>                 <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>   
High                $19.88    $19.88     $18.13    $17.88     $19.00    $20.38     $20.50    $22.50
Low                 $15.00    $15.00     $14.00    $14.88     $15.88    $17.63     $17.13    $16.75
Close               $19.38    $19.00     $17.00    $15.88     $17.50    $18.00     $20.00    $18.25
Dividends Declared   $0.14     $0.14      $0.14     $0.14      $0.12     $0.12      $0.12     $0.12
----------------------------------------------------------------------------------------------------
</TABLE>


        As of March 16, 2001, the Company's common stock was held by
approximately 105 shareholders of record, which does not include shareholders
whose shares are held in street or nominee name. The Company believes that when
holders in street or nominee name are added, the number of holders of the
Company's common stock exceeds 500.

        The Company has declared a quarterly dividend on its common stock every
quarter since 1990. Subject to its continued profitability and favorable cash
flow, the Company intends to continue the payment of quarterly dividends.

        In March 2001, the Company issued an aggregate of 4,948 shares of its
common stock to Dennis C. Kakures and Thomas J. Sauer, both officers of the
Company, pursuant to the Company's Long-Term Stock Bonus Plan (as described in
the Company's Proxy Statement). Under the same Plan, the Company had issued to
the same two officers an aggregate of 20,920 shares of common stock in March
2000, 33,486 shares of common stock in March 1999, and 36,840 shares of common
stock in April 1998. These issuances were exempt from the registration
requirements of the Securities Act of 1933 by virtue of section 4(2) thereof and
Regulation 230.506.







                                       10




<PAGE>   11


ITEM 6. SELECTED FINANCIAL DATA.

         The following table summarizes the Company's selected financial data
for the five years ended December 31, 2000 and should be read in conjunction
with the more detailed Consolidated Financial Statements and related notes
reported in Item 8.


<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
---------------------------------------------------------------------------------------------------------------------------
(dollar and share amounts in thousands, except                       
 per share data)                                                             Year Ended December 31,
                                                     ----------------------------------------------------------------------
                                                        2000           1999            1998           1997           1996
                                                     ---------      ---------       ---------      ---------      ---------
<S>                                                  <C>            <C>             <C>            <C>            <C>      
Operations Data
Revenues
  Rental                                             $  94,931      $  78,754       $  71,967      $  61,688      $  48,986
  Rental Related Services                               17,185         13,043          11,528         10,278          8,718
                                                     ---------      ---------       ---------      ---------      ---------
    Rental Operations                                  112,116         91,797          83,495         71,966         57,704
  Sales                                                 51,024         37,039          51,044         62,021         30,175
  Other                                                  1,018          1,126             889            989          1,126
                                                     ---------      ---------       ---------      ---------      ---------
      Total Revenues                                   164,158        129,962         135,428        134,976         89,005
                                                     ---------      ---------       ---------      ---------      ---------
Costs and Expenses
  Direct Costs of Rental Operations
    Depreciation                                        23,850         19,780          16,862         14,358         12,456
    Rental Related Services                              9,304          7,153           6,531          6,287          5,515
    Other                                               18,250         14,284          13,390         10,375          8,703
                                                     ---------      ---------       ---------      ---------      ---------
      Total Direct Costs of Rental Operations           51,404         41,217          36,783         31,020         26,674
  Cost of Sales                                         36,256         26,078          35,189         42,550         20,532
                                                     ---------      ---------       ---------      ---------      ---------
      Total Costs                                       87,660         67,295          71,972         73,570         47,206
                                                     ---------      ---------       ---------      ---------      ---------
        Gross Margin                                    76,498         62,667          63,456         61,406         41,799
  Selling and Administrative                            19,982         17,103          16,220         15,957         13,147
                                                     ---------      ---------       ---------      ---------      ---------
    Income from Operations                              56,516         45,564          47,236         45,449         28,652
  Interest                                               8,840          6,606           6,326          4,070          2,887
                                                     ---------      ---------       ---------      ---------      ---------
    Income before Provision for Income Taxes            47,676         38,958          40,910         41,379         25,765
  Provision for Income Taxes                            19,762         14,874          16,010         16,323          9,885
                                                     ---------      ---------       ---------      ---------      ---------
    Income before Minority Interest                     27,914         24,084          24,900         25,056         15,880
  Minority Interest in Income of Subsidiary                670            251           1,005          1,011            358
                                                     ---------      ---------       ---------      ---------      ---------
    Income before Effect of Accounting Change           27,244         23,833          23,895         24,045         15,522
  Cumulative Effect of Accounting Change,
     net of tax(1)                                          --         (1,367)             --             --             --
                                                     ---------      ---------       ---------      ---------      ---------
Net Income                                           $  27,244      $  22,466       $  23,895      $  24,045      $  15,522
                                                     =========      =========       =========      =========      =========
Earnings Per Share:
  Basic
    Income before Cumulative Effect of
      Accounting Change                              $    2.21      $    1.80       $    1.69      $    1.60      $    1.03
    Cumulative Effect of Accounting Change, net
      of tax(1)                                             --          (0.10)             --             --              -
                                                     ---------      ---------       ---------      ---------      ---------
    Net Income                                       $    2.21      $    1.70       $    1.69      $    1.60      $    1.03
                                                     =========      =========       =========      =========      =========
  Diluted
    Income before Cumulative Effect of               $    2.19      $    1.78       $    1.67      $    1.58      $    1.01
Accounting Change
    Cumulative Effect of Accounting Change,
      net of tax(1)                                         --          (0.10)             --             --              -
                                                     ---------      ---------       ---------      ---------      ---------
    Net Income                                       $    2.19      $    1.68       $    1.67           1.58      $    1.01
                                                     =========      =========       =========      =========      =========
Shares Used in Per Share Calculation:
  Basic                                                 12,334         13,235          14,163         14,982         15,102
  Diluted                                               12,428         13,383          14,349         15,181         15,306
Cash Dividends Declared Per Common Share             $    0.56      $    0.48       $    0.40      $    0.32      $    0.28
Pro Forma Amounts Assuming Change had been in
effect during 1998, 1997 and 1996
  Net Income                                         $  27,244      $  23,833       $  23,697      $  23,816      $  15,400
  Earnings Per Share - Basic                         $    2.21      $    1.80       $    1.67      $    1.59      $    1.02
  Earnings Per Share - Diluted                       $    2.19      $    1.78       $    1.65      $    1.57      $    1.01
---------------------------------------------------------------------------------------------------------------------------
</TABLE>




                                       11




<PAGE>   12



<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA (continued)
------------------------------------------------------------------------------------------------------------
(dollar and share amounts in thousands,
except per share data)                                            Year Ended December 31,
                                        --------------------------------------------------------------------
                                          2000           1999           1998           1997           1996
                                        --------       --------       --------       --------       --------
<S>                                     <C>            <C>            <C>            <C>            <C>
Balance Sheet Data (at period end)
Rental Equipment, at cost               $353,485       $311,281       $282,987       $246,484       $201,712
Rental Equipment, net                   $247,402       $217,178       $200,028       $174,086       $137,292
Total Assets                            $357,246       $297,722       $278,676       $252,392       $200,035
Notes Payable                           $126,876       $110,300       $ 97,000       $ 82,000       $ 53,850
Shareholders' Equity                    $108,958       $ 95,403       $105,394       $ 98,646       $ 88,808
Shares Issued and Outstanding             12,125         12,546         13,970         14,522         14,820

Book Value Per Share                    $   8.99       $   7.60       $   7.54       $   6.79       $   5.99
Debt (Total Liabilities) to Equity          2.28           2.12           1.64           1.56           1.25
Debt (Notes Payable) to Equity              1.16           1.16           0.92           0.83           0.61
Return on Average Equity                    26.7%          22.7%          24.0%          24.5%          18.0%
-------------------------------------------------------------------------------------------------------------
</TABLE>


(1) See "Management's Discussion and Analysis of Financial Condition and Results
    of Operations - Fiscal Years 1999 and 1998" below for a discussion of the
    change in accounting method for rental revenue recognition in response to
    SAB No. 101.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

RESULT OF OPERATIONS

GENERAL

        Revenues are derived primarily from the rental of relocatable modular
offices and electronic test and measurement instruments. The Company has
expanded the rental inventory of relocatable modular offices and electronic
instruments. This expansion has been funded through internal cash flow, private
placement of long-term debt and conventional bank financing.

        The major portion of the Company's revenue is derived from rental
operations comprising approximately 68% of consolidated revenues in 2000 and 67%
of consolidated revenues for the three years ended December 31, 2000. Over the
past three years modulars comprised 68% of the cumulative rental operations, and
electronics comprised 32% of the cumulative rental operations.

        The Company sells both modular and electronic equipment that is new,
previously available for rent, or manufactured by its majority owned subsidiary,
Enviroplex. In the case of some modular equipment, the Company acts as a dealer
of relocatable modular offices and is licensed as a dealer by governmental
agencies in California and Texas. Revenues from sales of both modular and
electronic equipment have comprised approximately 31% of the Company's
consolidated revenues in 2000 and 32% of the Company's consolidated revenues
over the last three years. During these three years, modular sales represented
80% and electronic sales represented 20%.

        The rental and sale of modulars to public school districts is a
significant part of the Company's business. School business comprised 35%, 34%
and 45% of the Company's consolidated rental and sales revenues for 2000, 1999
and 1998. Sales revenues declined significantly in 1999 and 1998 as school
districts' demand for classrooms declined as school districts finished
implementing the Class Size Reduction Program introduced by the state of
California in 1996. (See "Business - Relocatable Modular Offices - Classroom
Rentals and Sales" above.)










                                       12





<PAGE>   13


The following table sets forth for the periods indicated the results of
operations as a percentage of revenues and the percentage of changes in such
items as compared to the indicated prior period:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                          Percent of Revenues                 Percent Change
                                                  ------------------------------------   --------------------
                                                    Three      Year Ended December 31,        
                                                    Years                                2000 over  1999 over
                                                  2000-1998   2000      1999      1998      1999       1998
                                                  ------------------------------------   --------------------
<S>                                               <C>       <C>       <C>       <C>       <C>         <C>
Revenues
  Rental                                             57%       58%       61%       53%       21%         9%
  Rental Related Services                            10        10        10         9        32         13
                                                    ---       ---       ---       ---
      Rental Operations                              67        68        71        62        22         10
  Sales                                              32        31        28        38        38        (27)
  Other                                               1         1         1        nm        nm         nm
                                                    ---       ---       ---       ---
      Total Revenues                                100%      100%      100%      100%       26%        (4)%
                                                    ---       ---       ---       ---
Costs and Expenses
  Direct Costs of Rental Operations
    Depreciation                                     14        15        15        12        21         17
    Rental Related Services                           5         6         6         5        30         10
    Other                                            11        10        11        10        28          7
                                                    ---       ---       ---       ---
      Total Direct Costs of Rental Operations        30        31        32        27        25         12
Cost of Sales                                        23        22        20        26        39        (26)
                                                    ---       ---       ---       ---
    Total Costs                                      53        53        52        53        30         (6)
                                                    ---       ---       ---       ---
          Gross Margin                               47        47        48        47        22         (1)
Selling and Administrative                           12        13        13        12        17          5
                                                    ---       ---       ---       ---
    Income from Operations                           35        34        35        35        24         (4)
Interest                                              5         5         5         5        34          4
                                                    ---       ---       ---       ---
    Income before Provision for Income Taxes         30        29        30        30        22         (5)
Provision for Income Taxes                           12        12        11        12        33         (7)
                                                    ---       ---       ---       ---
    Income before Minority Interest                  18        17        19        18        16         (3)
Minority Interest in Income of Subsidiary             1        nm         1        nm        nm         nm
                                                    ---       ---       ---       ---
    Income before Effect of Accounting Change        17        17        18        18        14         nm
Cumulative Effect of Accounting Change, net of       nm        nm         1        nm        nm         nm
tax
                                                    ---       ---       ---       ---       ---        ---
    Net Income                                       17%       17%       17%       18%       21%        (6%)
------------------------------------------------------------------------------------------------------------
</TABLE>

nm = not meaningful


FISCAL YEARS 2000 AND 1999

        This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.

        Rental revenues increased $16.2 million (21%) over 1999, with MMMC
contributing $5.2 million and RenTelco contributing $11.0 million of the
increase. As of December 31, 2000, rental equipment on rent increased for MMMC
by $30.7 million and for RenTelco by $19.0 million compared to a year earlier.
Average utilization for modulars, excluding new equipment not previously rented,
increased from 81.6% in 1999 to 82.3% in 2000 while the annual yield declined
slightly for modulars from 24.2% to 23.8% as a result of lower rental rates due
to mix of business activity. Average utilization for electronics increased
dramatically from 53.8% in 1999 to 61.4% in 2000 with electronics annual yield
increasing from 39.7% in 1999 to 46.3% in 2000 resulting from increased market
demand.

        Depreciation on rental equipment in 2000 increased $4.1 million (21%)
over 1999 due to additional rental equipment purchased during 2000 and 1999. The
average modular rental equipment, at cost, increased $23.9 million (11%) and
average electronics rental equipment, at cost, increased $14.0 million (20%)
over 1999. Other direct costs of rental operations increased $4.0 million (28%)
over 1999 primarily due to the $1.9 million of impairment losses recorded on
rental equipment that was beyond economic repair and increased maintenance and
repair expenses of the modular fleet. Consolidated gross margin on rents
declined slightly from 56.8% in 1999 to 55.7% in 2000.


                                       13



<PAGE>   14

        Rental related services revenues in 2000 increased $4.1 million (32%)
over 1999 as a result of a higher volume of modular equipment movements and site
requirements in 2000. Gross margins on these services increased slightly from
45.2% in 1999 to 45.9% in 2000.

        Sales in 2000 increased $14.0 million (38%) over 1999 as a result of
three significant sales by MMMC accounting for 56% of the increase and a $5.8
million increase in sales by Enviroplex to school districts. During 2000, the
Company's largest sale was recorded during the third and fourth quarter for new
classrooms to a school district for approximately $4.4 million and represented
9% of its sales. Sales continue to occur routinely as a normal part of the
Company's rental business; however, these sales can fluctuate from quarter to
quarter and year to year depending on customer demands, requirements and
funding. Consolidated gross margin on sales declined slightly from 29.6% in 1999
to 28.9% in 2000.

        Enviroplex's backlog of orders as of December 31, 2000 and 1999 was $6.8
million and $12.6 million, respectively. Typically, in the California classroom
market, booking activity for the first half of the year provides the most
meaningful information towards determining order levels to be produced for the
entire year. (Backlog is not significant in MMMC's modular business or in
RenTelco's electronic business.)

        Selling and administrative expenses in 2000 increased $2.9 million (17%)
over 1999. The increase is due primarily to increases in salaries, incentive and
performance bonuses, benefits and hiring costs during 2000. As a percentage of
revenues, selling and administrative expenses for 2000 remained consistent with
1999.

        Interest expense in 2000 increased $2.2 million (34%) over 1999 as a
result of 17% higher debt levels and 15% higher average interest rates over a
year earlier. During 2000, the higher debt levels resulted from capital
investments other than rental equipment, payment of dividends and repurchases of
common stock.

        Income before provision for taxes in 2000 increased $8.7 million (22%)
from 1999 and net income before effect of the accounting change increased $3.4
million (14%). The lower percentage increase for net income before effect of the
accounting change is due to a higher effective tax rate of 41.5% in 2000 as
compared to 38.1% in 1999. The higher effective tax rate in 2000 resulted from
recording a true-up of the state income tax accrual rate.

        Net income increased 21% from $22.5 million in 1999 to $27.2 million in
2000 with earnings per diluted share increasing 30% from $1.68 per diluted share
in 1999 to $2.19 per diluted share in 2000. Last year's comparative net income
included a one-time accounting charge of $1.4 million or $0.10 per diluted
share. Excluding the impact of the one-time accounting charge, net income for
1999 would have been $23.8 million or $1.78 per diluted share resulting in
comparative net income increasing 14% and diluted earnings per share increasing
23% in 2000.

FISCAL YEARS 1999 AND 1998

        As anticipated, during 1999 increased revenues from rental operations
significantly offset the decline in sales revenues. However, net income for 1999
was reduced by the impact of both a noncash pre-tax compensation charge of
$885,000, as well as a one-time, noncash, after-tax charge of $1.4 million
reflecting the cumulative effect through December 31, 1998 of the Company's
change in accounting method for rental revenues as of January 1, 1999. After
considering the impact of these two charges, net income for 1999 was $22.5
million, or $1.68 per diluted share compared to the prior year's reported net
income of $23.9 million, or $1.67 per diluted share. Excluding the impact of
these two charges, net income in 1999 would have been $24.4 million, or $1.82
per diluted share. Assuming this accounting method had been in effect in 1998,
net income for 1998 would have been $23.7 million, or $1.65 per diluted share,
and comparative earnings per diluted share would have increased 10% in 1999 as a
result of higher earnings and fewer outstanding shares.

Rental revenue is recognized under the "operating method" of accounting for the
majority of leases. Effective January 1, 1999, rental revenue was recognized
ratably over the month on a daily basis. Rental billings for periods extending
beyond the month end are recorded as deferred income. In prior years, only
rental billings extending beyond a one-month period were recorded as deferred
income. The new method of recognizing revenue was adopted in response to the
Security and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition." The effect was reported as a change in accounting method
in accordance with Accounting Principles Board Opinion ("APB")



                                       14


<PAGE>   15

No. 20, "Accounting Changes." The cumulative effect of changing to a new method
of accounting effective January 1, 1999 was to decrease net income by $1.4
million (net of taxes of $883,000) or $0.10 per diluted share. The pro forma
amounts shown on the consolidated statements of income have been adjusted as if
the new method of revenue recognition had been in effect for all periods
presented.

        Rental revenues increased $6.8 million (9%) over 1998, with MMMC
contributing $3.7 million and RenTelco contributing $3.1 million of the
increase. As of December 31, 1999, rental equipment on rent increased for MMMC
by $16.6 million and for RenTelco by $5.3 million compared to a year earlier.
Even though average utilization for modulars, excluding new equipment not
previously rented, decreased from 83.1% in 1998 to 81.6% in 1999, the annual
yield declined for modulars from 25.7% to 24.2% as a result of lower rental
rates due to competition. Average utilization for electronics declined slightly
from 54.6% in 1998 to 53.8% in 1999 with electronics annual yield declining from
42.2% in 1998 to 39.7% in 1999 resulting primarily from competitive pricing
pressures.

        Rental related services revenues in 1999 increased $1.5 million (13%),
over 1998 as a result of a higher volume of modular equipment movements and site
requirements in 1999. Gross margins on these services increased from 43.4% in
1998 to 45.2% in 1999.

        Sales in 1999 declined $14 million (27%) primarily due to a reduction in
sales of manufactured classrooms by Enviroplex to school districts from the high
levels in 1998 caused by California's Class Size Reduction Program. Further,
increased business levels for Enviroplex anticipated from the $9.2 billion
California bond measure, which passed in November 1998, did not materialize in
1999. The single largest sale in 1999 was by Enviroplex for $1.6 million of new
classrooms to a school district. Sales occur routinely as a normal part of the
Company's rental business; however, these sales fluctuate from quarter to
quarter and year to year depending on customer demands, requirements and
funding. Consolidated gross margin on sales declined slightly from 31.1% in 1998
to 29.6% in 1999 due to the lower margin classroom projects sold during 1999.

        Enviroplex's backlog of orders as of December 31, 1999 and 1998 was
$12.6 million and $1.5 million, respectively. (Backlog is not significant in
MMMC's modular business or in RenTelco's electronic business.)

        Depreciation on rental equipment in 1999 increased $2.9 million (17%)
over 1998 due to additional rental equipment purchased during 1999. The average
modular rental equipment, at cost, increased $22.3 million (11%) and average
electronics rental equipment, at cost, increased $11.6 million (20%) over 1998.
Other direct costs of rental operations increased $894,000 (7%) over 1998
primarily due to increased maintenance and repair expenses of the modular fleet.
Additionally, during 1998 as in the prior year, a significant number of school
customers opted to include upfront charges in the rental rate resulting in
higher amortization expense of these related upfront costs over the lease term
in subsequent periods.

        Selling and administrative expenses in 1999 increased $883,000 (5%) over
1998. During 1999, the Company repurchased 80,000 shares of stock at $18.00 per
share from an employee who had acquired the stock at $6.94 per share through the
exercise of a stock option, resulting in the recognition of a noncash
compensation expense of $885,000.

        Interest expense in 1999 increased $280,000 (4%) over 1998 as a result
of higher average borrowing levels in 1999 offset by a lower weighted average
interest rate. The debt increase funded part of the significant rental equipment
purchases made during 1999.

        Income before provision for taxes in 1999 decreased $2.0 million (5%)
from 1998 while net income before effect of the accounting change only decreased
$62,000 (less than 1%) from 1998. The lower percentage decrease for net income
before effect of the accounting change is due to the decrease in the minority
interest in income of Enviroplex combined with a lower effective tax rate in
1999 of 38.1% compared to 39.1% in 1998 as more business is derived outside of
California.



                                       15



<PAGE>   16

LIQUIDITY AND CAPITAL RESOURCES

        This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.

        The Company's rental businesses are capital intensive, with significant
capital expenditures required to maintain and grow the rental assets. During the
last three years, the Company has financed its working capital and capital
expenditure requirements through cash flow from operations, proceeds from the
sale of rental equipment, the private placement of long-term debt and from bank
borrowings. As the following table indicates, cash flow provided by operating
activities and proceeds from sales of rental equipment have been sufficient to
fund the net rental asset growth of $107.0 million in the past three years.


<TABLE>
<CAPTION>
FUNDING OF RENTAL ASSET GROWTH
-------------------------------------------------------------------------------------------------
(amounts in thousands)                                   Year Ended December 31,          Three
                                                     -------------------------------      Year
                                                      2000         1999        1998       Totals
                                                     -------      -------    -------     --------
<S>                                                  <C>          <C>        <C>         <C>     
Cash Provided by Operating Activities                $49,966      $53,235    $41,967     $145,168
Proceeds from the Sale of Rental Equipment           $18,380      $16,352    $13,759     $ 48,491
Total Cash Available for Purchase of Rental          $68,346      $69,587    $55,726     $193,659
Notes Payable Increase                               $16,576      $13,300    $15,000     $ 44,876

Purchase of Rental Equipment                         $67,389      $47,310    $51,159     $165,858
Rental Equipment, at cost, Increase                  $42,204      $28,294    $36,503     $107,001
-------------------------------------------------------------------------------------------------
</TABLE>


        In addition to increasing its rental assets, the Company has invested in
other capital expenditures of $3.4 million in 2000, $2.3 million in 1999 and
$1.9 million in 1998, and has used significant cash to provide returns to its
shareholders, both in the form of cash dividends and by stock repurchases. The
Company has made purchases of shares of its common stock from time to time in
the over-the-counter market (NASDAQ) and/or through privately negotiated, large
block transactions under an authorization of the Board of Directors. Shares
repurchased by the Company are canceled and returned to the status of authorized
but unissued stock. As of March 16, 2001, 805,800 shares remain authorized for
repurchase. The following table summarizes the dividends paid and the
repurchases of the Company's common stock during the past three years.


<TABLE>
<CAPTION>
DIVIDEND AND REPURCHASE SUMMARY
------------------------------------------------------------------------------
(amounts in thousands, except      Year Ended December 31,          
per share data)               ---------------------------------     Three Year
                                2000         1999        1998         Totals
                              -------      -------      -------      -------
<S>                           <C>          <C>          <C>          <C>    
Cash Dividends Paid           $ 6,675      $ 6,134      $ 5,386      $18,195
Shares Repurchased                451        1,550          620        2,621
Average Price Per Share       $ 16.33      $ 18.21      $ 19.77      $ 18.25
Aggregate Purchase Price      $ 7,364      $28,212      $12,247      $47,823
Total Cash Returned to
Shareholders                  $14,039      $34,346      $17,633      $66,018
------------------------------------------------------------------------------
</TABLE>


        As the Company's assets have grown, it has been able to negotiate
increases in the borrowing limit under its general bank line of credit, which
limit is currently $120.0 million. The Company increased its borrowings under
this line by $16.6 million during the year, and at December 31, 2000, the
outstanding borrowings under this line were $86.9 million. In addition to the
$120.0 million line of credit, the Company has a $5.0 million committed line of
credit facility related to its cash management services. The Company had a total
liabilities to equity ratio of 2.28 to 1 and 2.12 to 1 as of December 31, 2000
and 1999, respectively; and the debt (notes payable) to equity ratio was 1.16 to
1 at December 31, 2000 and 1999. Although no assurance can be given, the Company
believes it will continue to be able to negotiate higher limits on its general
bank lines of credit adequate to meet capital requirements not otherwise met by
operational cash flows and long term debt.





                                       16



<PAGE>   17

        In July 1998, the Company completed a private placement of $40.0 million
of 6.44% Senior Notes due in 2005. Interest on the notes is due semi-annually in
arrears and the principal is due in five equal installments commencing on July
15, 2001 (and thus, the outstanding balance at December 31, 2000, was $40.0
million).

        Please see the Company's Consolidated Statements of Cash Flows on page
22 for a more detailed presentation of the sources and uses of the Company's
cash.

        The Company does not have any material commitments or obligations
requiring the expenditure of cash in the future inconsistent with its
expenditures in the periods reported herein. The Company believes that its needs
for working capital and capital expenditures through 2001 and beyond will be
adequately met by operational cash flow, proceeds from sale of rental equipment,
and bank borrowings. The Company believes that it has the ability to reduce
materially the amount of cash it uses to purchase rental equipment, pay
dividends and repurchase its common stock in the future if a need to conserve
cash should arise unexpectedly.

MARKET RISK

        This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.

        The Company currently has no material derivative financial instruments
which expose the Company to significant market risk. The Company is exposed to
cash flow and fair value risk due to changes in interest rates with respect to
its notes payable. The table below presents principal cash flows and related
weighted average interest rates of the Company's notes payable at December 31,
2000 by expected maturity dates. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
(dollar amounts in thousands)

                     2001       2002      2003       2004      2005       Total    Fair Value
                    ------     ------   -------     ------    ------     ------    ----------
<S>                <C>         <C>      <C>         <C>       <C>        <C>       <C>    
Fixed Rate         $ 8,000     $8,000   $ 8,000     $8,000    $8,000     $40,000    $40,000
Average Interest
Rate                  6.44%      6.44%     6.44%      6.44%     6.44%       6.44%
Variable Rate      $21,719    $43,438   $21,719     $   --    $   --     $86,876    $86,876
Average Interest
Rate                  7.62%      7.62%     7.62%        --        --       7.62%
---------------------------------------------------------------------------------------------
</TABLE>


IMPACT OF INFLATION

        Although the Company cannot precisely determine the effect of inflation,
from time to time it has experienced increases in costs of rental equipment,
manufacturing costs, operating expenses and interest. Because most of its
rentals are relatively short term, the Company has generally been able to pass
on such increased costs through increases in rental rates and selling prices.


I
TEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


<TABLE>
<CAPTION>
INDEX                                                                                             PAGE
-----                                                                                             ----
<S>                                                                                               <C>
Report of Independent Public Accountants                                                           18
Consolidated Financial Statements
     Consolidated Statements of Income for the Years Ended December 31, 2000,
     1999 and 1998                                                                                 19 
     Consolidated Balance Sheets as of December 31, 2000 
     and 1999                                                                                      20 
     Consolidated Statements of Shareholders' Equity for the Years Ended
     December 31, 2000, 1999 and 1998                                                              21 
     Consolidated Statements of Cash Flows
     for the Years Ended December 31, 2000, 1999 and 1998                                          22
Notes to Consolidated Financial Statements                                                         23
</TABLE>






                                       17



<PAGE>   18

Report of Independent Public Accountants
-------------------------------------------------------------------------------

To the Shareholders and Board of Directors of McGrath RentCorp:

        We have audited the accompanying consolidated balance sheets of McGrath
RentCorp (a California corporation) and subsidiary as of December 31, 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. 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 misstatements. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of McGrath
RentCorp as of December 31, 2000 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.

        As explained in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for rental revenue effective January 1,
1999 whereby all rental revenues are recognized ratably over the month on a
daily basis.


San Francisco, California
February 9, 2001                                            ARTHUR ANDERSEN LLP











                                       18





<PAGE>   19

                                MCGRATH RENTCORP
                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                                        Year Ended December 31,
                                                              ----------------------------------------
(in thousands, except per share amounts)                        2000           1999           1998
------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>             <C>
REVENUES
  Rental                                                      $  94,931      $  78,754       $  71,967
  Rental Related Services                                        17,185         13,043          11,528
                                                              ---------      ---------       ---------
     Rental Operations                                          112,116         91,797          83,495
  Sales                                                          51,024         37,039          51,044
  Other                                                           1,018          1,126             889
                                                              ---------      ---------       ---------
         Total Revenues                                         164,158        129,962         135,428
                                                              ---------      ---------       ---------
COSTS AND EXPENSES
  Direct Costs of Rental Operations
     Depreciation                                                23,850         19,780          16,862
     Rental Related Services                                      9,304          7,153           6,531
     Other                                                       18,250         14,284          13,390
                                                              ---------      ---------       ---------
               Total Direct Costs of Rental Operations           51,404         41,217          36,783
  Cost of Sales                                                  36,256         26,078          35,189
                                                              ---------      ---------       ---------
               Total Costs                                       87,660         67,295          71,972
                                                              ---------      ---------       ---------
            Gross Margin                                         76,498         62,667          63,456
  Selling and Administrative                                     19,982         17,103          16,220
                                                              ---------      ---------       ---------
     Income from Operations                                      56,516         45,564          47,236
  Interest                                                        8,840          6,606           6,326
                                                              ---------      ---------       ---------
     Income before Provision for Income Taxes                    47,676         38,958          40,910
  Provision for Income Taxes                                     19,762         14,874          16,010
                                                              ---------      ---------       ---------
     Income before Minority Interest                             27,914         24,084          24,900
  Minority Interest in Income of Subsidiary                         670            251           1,005
                                                              ---------      ---------       ---------
     Income before Effect of Accounting Change                   27,244         23,833          23,895
 Cumulative Effect of Accounting Change, net of tax
     benefit of $883                                                 --         (1,367)             --
                                                              ---------      ---------       ---------
 Net Income                                                   $  27,244      $  22,466       $  23,895
                                                              =========      =========       =========
Earnings Per Share:
   Basic
    Income before cumulative effect of accounting change      $    2.21      $    1.80       $    1.69
    Cumulative effect of accounting change, net of tax               --          (0.10)             --
                                                              ---------      ---------       ---------
    Net Income                                                $    2.21      $    1.70       $    1.69
                                                              =========      =========       =========
   Diluted
    Income before cumulative effect of accounting change      $    2.19      $    1.78       $    1.67
    Cumulative effect of accounting change, net of tax               --          (0.10)             --
                                                              ---------      ---------       ---------
    Net Income                                                $    2.19      $    1.68       $    1.67
                                                              =========      =========       =========
Shares Used in Per Share Calculation:
   Basic                                                         12,334         13,235          14,163
   Diluted                                                       12,428         13,383          14,349
Pro Forma Amounts Assuming Accounting Change had been in
effect during 1998
   Net Income                                                 $  27,244      $  23,833       $  23,697
   Earnings Per Share - Basic                                 $    2.21      $    1.80       $    1.67
   Earnings Per Share - Diluted                               $    2.19      $    1.78       $    1.65
------------------------------------------------------------------------------------------------------
</TABLE>


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




                                       19



<PAGE>   20

                                MCGRATH RENTCORP
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                                 December 31,
                                                          ----------------------------
(in thousands)                                                  2000           1999
--------------------------------------------------------------------------------------
<S>                                                         <C>             <C>
ASSETS
Cash                                                        $     643       $     490
Accounts Receivable, less allowance for doubtful
   accounts of $650 in 2000 and 1999                           45,687          25,095

Rental Equipment, at cost:
   Relocatable Modular Offices                                261,081         238,449
   Electronic Test Instruments                                 92,404          72,832
                                                            ---------       ---------
                                                              353,485         311,281
   Less Accumulated Depreciation                             (106,083)        (94,103)
                                                            ---------       ---------
    Rental Equipment, net                                     247,402         217,178
                                                            ---------       ---------

Land, at cost                                                  19,303          19,303
Buildings, Land Improvements, Equipment and Furniture,
   at cost, less accumulated depreciation of $6,815
   in 2000 and $5,116 in 1999                                  33,233          31,668

Prepaid Expenses and Other Assets                              10,978           3,988
                                                            ---------       ---------
                      Total Assets                          $ 357,246       $ 297,722
                                                            =========       =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Notes Payable                                            $ 126,876       $ 110,300

   Accounts Payable and Accrued Liabilities                    37,012          24,811
   Deferred Income                                             19,241           9,511
   Minority Interest in Subsidiary                              3,506           2,836
   Deferred Income Taxes                                       61,653          54,861
                                                            ---------       ---------
                      Total Liabilities                       248,288         202,319
                                                            ---------       ---------
Shareholders' Equity:
   Common Stock, no par value --
      Authorized -- 40,000 shares
      Issued and Outstanding -- 12,125 shares in
               2000 and 12,546 shares in 1999                   8,971           8,755
    Retained Earnings                                          99,987          86,648
                                                            ---------       ---------
                      Total Shareholders' Equity              108,958          95,403
                                                            ---------       ---------
                      Total Liabilities and
                         Shareholders' Equity               $ 357,246       $ 297,722
                                                            =========       =========
--------------------------------------------------------------------------------------
</TABLE>

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






                                       20




<PAGE>   21

                                MCGRATH RENTCORP
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                     Common Stock                            Total
                                                ---------------------       Retained     Shareholders'
(in thousands, except per share amounts)        Shares        Amount        Earnings        Equity
------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>            <C>           <C>
BALANCE AT DECEMBER 31, 1997                    14,522       $  7,757       $ 90,889       $ 98,646
   Net Income                                       --             --         23,895         23,895
   Repurchase of Common Stock                     (620)          (340)       (11,907)       (12,247)
   Noncash Compensation                             37            485             --            485
   Exercise of Stock Options                        31            236             --            236
   Dividends Declared of $0.40 Per Share            --             --         (5,621)        (5,621)
------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998                    13,970          8,138         97,256        105,394
   Net Income                                       --             --         22,466         22,466
   Repurchase of Common Stock                   (1,550)        (1,381)       (26,831)       (28,212)
   Noncash Compensation                             35          1,343             --          1,343
   Exercise of Stock Options                        91            655             --            655
   Dividends Declared of $0.48 Per Share            --             --         (6,243)        (6,243)
------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999                    12,546          8,755         86,648         95,403
   Net Income                                       --             --         27,244         27,244
   Repurchase of Common Stock                     (451)          (327)        (7,037)        (7,364)
   Noncash Compensation                             20            454             --            454
   Exercise of Stock Options                        10             89             --             89
   Dividends Declared of $0.56 Per Share            --             --         (6,868)        (6,868)
------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000                    12,125         $8,971        $99,987       $108,958
------------------------------------------------------------------------------------------------------
</TABLE>

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



                                       21



<PAGE>   22

                                MCGRATH RENTCORP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                                       Year Ended December 31,
                                                            ------------------------------------------
(in thousands)                                                    2000           1999           1998
------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>           <C>
Cash Flow from Operating Activities:
   Net Income                                                   $ 27,244       $ 22,466       $ 23,895
   Adjustments to Reconcile Net Income to Net Cash
      Provided by Operating Activities:
      Depreciation and Amortization                               25,716         21,474         18,309
      Impairment Loss Related to Rental Equipment                  1,689             --             --
      Cumulative Effect of Accounting Change, net of tax              --          1,367             --
      Noncash Compensation                                           454          1,343            485
      Gain on Sale of Rental Equipment                            (6,755)        (5,971)        (5,404)
      Change In:
        Accounts Receivable                                      (20,592)        (3,284)           (17)
        Prepaid Expenses and Other Assets                         (6,990)         1,579            991
        Accounts Payable and Accrued Liabilities                  12,678          1,990         (3,850)
        Deferred Income                                            9,730          1,687         (1,354)
        Deferred Income Taxes                                      6,792         10,584          8,912
                                                                --------       --------       --------
          Net Cash Provided by Operating Activities               49,966         53,235         41,967
                                                                --------       --------       --------
Cash Flow from Investing Activities:
   Purchase of Rental Equipment                                  (67,389)       (47,310)       (51,159)
   Purchase of Land, Buildings, Land Improvements,
      Equipment and Furniture                                     (3,430)        (2,253)        (4,041)
   Proceeds from Sale of Land, Buildings and
      Land Improvements                                               --             --          2,190
   Proceeds from Sale of Rental Equipment                         18,380         16,352         13,759
                                                                --------       --------       --------
          Net Cash Used in Investing Activities                  (52,439)       (33,211)       (39,251)
                                                                --------       --------       --------
Cash Flow from Financing Activities:
   Net Borrowings (Repayments)  under Bank Lines of Credit        16,576         13,300        (25,000)
   Borrowings under Private Placement                                 --             --         40,000
   Net Proceeds from the Exercise of Stock Options                    89            655            236
   Repurchase of Common Stock                                     (7,364)       (28,212)       (12,247)
   Payment of Dividends                                           (6,675)        (6,134)        (5,386)
                                                                --------       --------       --------
          Net Cash Provided by (Used in) 
            Financing Activities                                   2,626        (20,391)        (2,397)
                                                                --------       --------       --------
          Net Increase (Decrease) in Cash                            153           (367)           319
Cash Balance, Beginning of Period                                    490            857            538
                                                                --------       --------       --------
Cash Balance, End of Period                                     $    643       $    490       $    857
                                                                ========       ========       ========
Interest Paid During the Period                                 $  8,504       $  6,473       $  5,407
                                                                ========       ========       ========
Income Taxes Paid During the Period                             $ 12,970       $  4,290       $  7,098
                                                                ========       ========       ========
Dividends Declared but not yet Paid                             $  1,699       $  1,506       $  1,397
                                                                ========       ========       ========
------------------------------------------------------------------------------------------------------
</TABLE>


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






                                       22



<PAGE>   23


                                MCGRATH RENTCORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. ORGANIZATION AND BUSINESS

        McGrath RentCorp (the "Company") is a California corporation organized
in 1979. The Company is comprised of three business segments: "Mobile Modular
Management Corporation" ("MMMC"), its modular building rental group, "RenTelco,"
its electronic test equipment rental group, and "Enviroplex," its majority-owned
subsidiary classroom manufacturing business. The Company's corporate offices are
located in Livermore, California. In addition, branch operations for both rental
divisions are conducted from this facility.

        MMMC rents and sells modular buildings and accessories to fulfill
customers' temporary and permanent space needs in California and Texas. These
units are used as temporary offices adjacent to existing facilities, and are
used as sales offices, construction field offices, classrooms, health care
clinics, child care facilities and for a variety of other purposes. MMMC
purchases the modulars from various manufacturers who build them to MMMC's
design specifications. MMMC operates from two branch offices in California and
one in Texas. Although MMMC's primary emphasis is on rentals, sales of modulars
routinely occur and can fluctuate quarter to quarter and year to year depending
on customer demands and requirements. Rentals and sales to school districts by
MMMC represent a significant portion of MMMC's total revenues.

        RenTelco rents and sells electronic test equipment nationally from two
locations. The Plano, Texas location houses the Company's communications and
fiber optic test equipment inventory, calibration laboratory and eastern U.S.
sales engineer and operations staffs. The Livermore, California location houses
the Company's general-purpose test equipment inventory, calibration laboratory
and western U.S. sales engineer and operations staffs. Communications and fiber
optic test equipment is utilized by field technicians, engineers and installer
contractors in evaluating voice, data and multimedia communications networks,
installing optical fiber cabling and in the development of switch, network and
wireless products. This test equipment is rented primarily to network systems
companies, electrical contractors, local & long distance carriers and
manufacturers of communications transmission equipment. RenTelco purchases
communications test equipment from over 40 different manufacturers domestically
and abroad. Engineers, scientists and technicians utilize general-purpose test
equipment in evaluating the performance of their own electrical and electronic
equipment, developing products, controlling manufacturing processes and in field
service applications. These instruments are rented primarily to electronics,
industrial, research and aerospace companies. The majority of general-purpose
equipment is manufactured by Agilent (formerly Hewlett Packard), Tektronix and
Acterna.

        McGrath RentCorp owns 73% of Enviroplex, a California corporation
organized in 1991. Enviroplex manufactures portable classrooms built to the
requirements of the California Division of the State Architect ("DSA") and sells
directly to school districts. Enviroplex conducts its sales and manufacturing
operations from its facility located in Stockton, California.

        The rental and sale of modulars to public school districts for use as
portable classrooms, restroom buildings and administrative offices for
kindergarten through grade twelve (K-12) are a significant portion of the
Company's revenues. School business comprised approximately 35%, 34% and 45% of
the Company's consolidated rental and sales revenues for 2000, 1999 and 1998,
respectively.

NOTE 2.  SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

        The consolidated financial statements include the accounts of McGrath
RentCorp and Enviroplex. All significant intercompany accounts and transactions
are eliminated.

REVENUES

        Rental revenue is recognized under the "operating method" of accounting
for the majority of leases. Effective January 1, 1999, rental revenue is
recognized ratably over the month on a daily basis. Rental billings for periods




                                       23




<PAGE>   24

                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

extending beyond the month end are recorded as deferred income. In prior years,
only rental billings extending beyond a one-month period were recorded as
deferred income. The new method of recognizing revenue was adopted in response
to the Security and Exchange Commission's Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition." The effect is reported as a change in accounting
method in accordance with Accounting Principles Board Opinion ("APB") No. 20,
"Accounting Changes." The cumulative effect of changing to a new method of
accounting effective January 1, 1999 was to decrease net income by $1,367,000
(net of taxes of $883,000) or $0.10 per diluted share. The pro forma amounts
shown on the consolidated statements of income have been adjusted as if the new
method of revenue recognition had been in effect for all periods presented.

        Rental related services revenue is primarily associated with relocatable
modular office leases and consists of billings to customers for delivery,
installation, modifications, skirting, additional site related work, and return
delivery and dismantle. Revenue related to these services is recognized over the
term of the lease.

        Sales revenue is recognized upon delivery and installation of the
equipment to the customer. Certain leases meeting the requirements of Statement
of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases," are
accounted for as sales type leases. For these leases, sales revenue and the
related accounts receivable are recognized upon execution of the lease and
unearned interest is recognized over the lease term on a basis which results in
a constant rate of return on the unrecovered lease investment (see Note 4).

DEPRECIATION AND MAINTENANCE

        Rental equipment, buildings, land improvements, equipment and furniture
are depreciated on a straight-line basis for financial reporting purposes and on
an accelerated basis for income tax purposes. The costs of major refurbishment
of relocatable modular offices are capitalized to the extent the refurbishment
significantly improves the quality and adds value or life to the equipment. Land
improvements consist of development costs incurred to build storage and
maintenance facilities at each of the relocatable modular branch offices. The
following estimated useful lives and residual values are used for financial
reporting purposes:


<TABLE>
<CAPTION>
     <S>                                                         <C>
     Rental equipment:
        Relocatable modular offices and accessories              3 to 18 years, 0% to 18% residual value
        Electronic test instruments and accessories              5 to 8 years, no residual value
     Buildings, land improvements, equipment and furniture       5 to 50 years, no residual value
</TABLE>


Maintenance and repairs are expensed as incurred.

IMPAIRMENT LOSS

        The Company continually evaluates the carrying value of rental equipment
in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets". Under SFAS 121, rental equipment is reviewed for impairment whenever
events or circumstances have occurred that would indicate the carrying amount
may not be fully recoverable. An impairment loss is recognized if the fair value
is less than the carrying amount of the long-lived assets being evaluated. The
Company determines fair value based upon the condition of the equipment and the
projected net cash flows from its sale considering current market conditions.

OTHER DIRECT COSTS OF RENTAL OPERATION

        Other direct costs of rental operations primarily relate to costs
associated with relocatable modular offices and include equipment supplies and
repairs, impairment losses, direct labor, amortization of lease costs included
in the rental rate, property and liability insurance, property taxes, and
business and license fees.

WARRANTY SERVICE COSTS

        Sales of new relocatable modular offices, electronic test equipment and
related accessories not manufactured by the Company are typically covered by
warranties provided by the manufacturer of the products sold. The Company
provides limited 90-day warranties for certain sales of used rental equipment
and a one-year warranty on equipment manufactured by Enviroplex. Although the
Company's policy is to provide reserves for warranties when required for
specific circumstances, the Company has not found it necessary to establish such
reserves to date.





                                       24



<PAGE>   25


                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INCOME TAXES

        Provision has been made for deferred income taxes based upon the amount
of taxes payable in future years, after considering changes in tax rates and
other statutory provisions that will be in effect in those years (see Note 6).

FAIR VALUE OF FINANCIAL INSTRUMENTS

        The Company believes that the carrying amounts of its financial
instruments (cash and notes payable) approximate fair value.

USE OF ESTIMATES

        The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions in determining reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during each period
presented. Actual results could differ from those estimates.

EARNINGS PER 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
period, 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 period. Common stock equivalents result from dilutive stock
options computed using the treasury stock method with the average share price
for the reported period. The weighted average number of dilutive options
outstanding at December 31, 2000, 1999 and 1998 were 94,247, 147,789 and
186,624, respectively.

ACCOUNTING FOR DERIVATIVES

        SFAS 133, Accounting for Derivative Instruments and Hedging Activities,
as amended by SFAS 138, establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. The implementation of this statement is
not expected to have a material impact on the Company's financial position or
result of operations. The Company is required to adopt SFAS 133 on January 1,
2001.

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.

RECLASSIFICATIONS

        Certain prior period amounts have been reclassified to conform to
current year presentation.

NOTE 3.  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, individually performs credit evaluation
procedures on its customers on each transaction and will require security
deposits or personal guarantees from its customers when a significant credit
risk is identified. Historically, the Company has not incurred significant
credit related losses. However, an allowance for potential credit losses is
maintained. Typically, most customers are established companies or are publicly
funded entities located in California or Texas. Although no one customer
accounts for more than 10% of the Company's consolidated revenues, credit risk
exists in trade accounts receivable primarily due to the significant amount of
business transacted with California public school districts (K-12) which
represents a significant portion of the Company's revenues (see Note 1). The
lack of fiscal funding or a significant reduction of funding from the State of
California to the public schools could have a material adverse effect on the
Company.




                                       25




<PAGE>   26

                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4. SALES TYPE LEASE RECEIVABLES

        The Company has entered into several sales type leases. The minimum
lease payments receivable and the net investment included in accounts receivable
for such leases are as follows:

--------------------------------------------------------------------------
(in thousands)                                          December 31,
                                                  -----------  -----------
                                                     2000         1999
                                                  -----------  -----------
 Gross minimum lease payments receivable            $ 7,063       $ 6,992
 Less - unearned interest                            (1,233)       (1,253)
                                                    -------       -------
 Net investment in sales type lease receivables     $ 5,830       $ 5,739
--------------------------------------------------------------------------

        As of December 31, 2000, the future minimum lease payments to be
received in 2001 and thereafter are as follows:


<TABLE>
<CAPTION>
       ----------------------------------------------------
       <S>                                          <C>
       (in thousands)
       Year Ended December 31,
       2001                                          $4,229
       2002                                           1,910
       2003                                             618
       2004                                             200
       2005                                              98
       2006 and thereafter                                8
                                                     ------
           Total minimum future lease payments       $7,063
       ----------------------------------------------------
</TABLE>


NOTE 5.  NOTES PAYABLE

        On July 31, 1998, the Company completed a private placement of
$40,000,000 of 6.44% Senior Notes due in 2005. Interest on the notes is due
semi-annually in arrears and the principal is due in 5 equal installments
commencing on July 15, 2001. The outstanding balance at December 31, 2000 was
$40,000,000. Among other restrictions, the agreement requires (i) the Company to
maintain a minimum net worth of $80,000,000 plus 25% of all net income generated
subsequent to June 30, 1998, less an aggregate amount not to exceed $15,000,000
paid by the Company to repurchase its common stock after June 30, 1998,
(restricted equity at December 31, 2000 is $80,666,000), (ii) a fixed coverage
charge of not less than 2.0 to 1.0, (iii) a rolling fixed charges coverage ratio
of not less than 1.5 to 1.0, and (iv) senior debt not to exceed 275% of
consolidated net worth and consolidated total debt not to exceed 300% of
consolidated net worth.

        The Company maintains an unsecured line of credit agreement, as amended,
(the "Agreement") with its banks which expires on June 30, 2001 and permits it
to borrow up to $120,000,000 of which $84,000,000 was outstanding as of December
31, 2000. The Agreement requires the Company to pay interest at prime or, at the
Company's election, at other rate options available under the Agreement. In
addition, the Company pays a commitment fee on the daily average unused portion
of the available line. Among other restrictions, the Agreement requires (i) the
Company to maintain shareholders' equity of not less than $75,000,000 plus 50%
of all net income generated subsequent to September 30, 1999 plus 90% of any new
stock issuance proceeds (restricted equity at December 31, 2000 is $91,611,000),
(ii) a debt-to-equity ratio (excluding deferred income taxes) of not more than 3
to 1, (iii) interest coverage (income from operations compared to interest
expense) of not less than 2 to 1 and (iv) debt service coverage (earnings before
interest, taxes, depreciation and amortization compared to the following year's
pro forma debt service) of not less than 1.15 to 1.0. If the Company does not
amend or renegotiate the present Agreement for an additional time period prior
to its expiration date, the principal amount outstanding at that time will be
converted to a two-year term loan with principal due and payable in eight (8)
consecutive quarterly installments.


                                       26


<PAGE>   27

                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

        In addition to the $120,000,000 unsecured line of credit, the Company
has a $5,000,000 committed line of credit facility (at prime rate) related to
its cash management services of which $2,876,000 was outstanding as of December
31, 2000. This committed line related to its cash management services will
expire on June 30, 2001.

        The following information relates to the lines of credit for each of the
following periods:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------
 (dollar amounts in thousands)                   Year Ended December 31,
                                                -------------------------
                                                  2000             1999
                                                --------         --------
<S>                                             <C>              <C>     
 Maximum amount outstanding                     $ 88,090         $ 70,300
 Average amount outstanding                     $ 79,861         $ 62,646
 Weighted average interest rate                     7.57%            6.08%
 Effective interest rate at end of period           7.62%            7.11%
 Prime interest rate at end of period               9.50%            8.50%
-------------------------------------------------------------------------
</TABLE>


NOTE 6. INCOME TAXES

        The provision (benefit) for income taxes is comprised of the following:


<TABLE>
<CAPTION>
------------------------------------------------------------------
(in thousands)                Current   Deferred     Total
------------------------------------------------------------------
<S>                           <C>       <C>         <C>
Year Ended December 31,
2000
    Federal                   $10,644    $ 3,649    $14,293
    State                       2,326      3,143      5,469
                              -------    -------    -------
                              $12,970    $ 6,792    $19,762
                              -------    -------    -------
1999
    Federal                   $ 3,067    $ 8,972    $12,039
    State                       1,223        729      1,952
                              -------    -------    -------
                              $ 4,290    $ 9,701    $13,991
                              -------    -------    -------
1998
    Federal                   $ 5,526    $ 7,736    $13,262
    State                       1,572      1,176      2,748
                              -------    -------    -------
                              $ 7,098    $ 8,912    $16,010
------------------------------------------------------------------
</TABLE>


        In 1999, the total provision for income taxes includes a provision on
income before taxes of $14,874,000 and a tax benefit of $883,000 included with
the cumulative effect of accounting change on the consolidated statements of
income.

     The reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:

------------------------------------------------------------------------
                                 Year Ended December 31,
                               ---------------------------
                                2000       1999       1998
                                ----       ----       ----
 Federal statutory rate        35.00%     35.00%     35.00%
 State taxes, net of federal
   benefit                      7.46       3.46       4.37
 Other                         (1.01)     (0.35)     (0.24)
                               -----      -----      -----
                               41.45%     38.11%     39.13%
------------------------------------------------------------------------






                                       27





<PAGE>   28

                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

        The following table shows the tax effect of the Company's cumulative
temporary differences included in net deferred income taxes on the Company's
consolidated balance sheets:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------
(in thousands)                                  Year Ended December 31,
                                                -----------------------
                                                   2000           1999
                                                   ----           ----
<S>                                             <C>          <C>
Excess of tax over book depreciation            $ 67,697     $ 58,112
State income taxes                                (4,699)      (3,333)
Accrued liabilities not currently deductible        (948)         (73)
Revenue deferred for financial reporting
  purposes                                        (2,161)      (2,753)
Other, net                                         1,764        2,908
                                                --------     --------
                                                $ 61,653     $ 54,861
-----------------------------------------------------------------------
</TABLE>


NOTE 7. COMMON STOCK AND STOCK OPTIONS

        The Company adopted a 1998 Stock Option Plan (the "1998 Plan"),
effective March 9, 1998, under which 2,000,000 shares are reserved for the grant
of options to purchase common stock to directors, officers, key employees and
advisors of the Company. The plan provides for the award of options at a price
not less than the fair market value of the stock as determined by the Board of
Directors on the date the options are granted. Under the 1998 Plan, 532,500
options have been granted with exercise prices ranging from $15.63 to $21.69.
The options vest over 5 years and expire 10 years after grant. To date, no
options have been issued to any of the Company's advisors. As of December 31,
2000, 1,467,500 options remain available to issue under the 1998 plan.

        The Company adopted a 1987 Incentive Stock Option Plan (the "1987
Plan"), effective December 14, 1987, under which options to purchase common
stock may be granted to officers and key employees of the Company. The plan
provides for the award of options at a price not less than the fair market value
of the stock as determined by the Board of Directors on the date the options are
granted. Under the 1987 Plan, options have been granted with an exercise price
of $3.06, $6.94 and $10.75 per share. The options vest over 9.3 years and expire
10 years after grant. The 1987 Plan expired in December 1997 and no further
options can be issued under this plan.

        Option activity and options exercisable including weighted average
exercise price for the three years ended December 31, 2000 are as follows:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                          Year Ended December 31,
                                 ---------------------------------------------------------------------
                                         2000                    1999                    1998
                                 ---------------------   ---------------------   ---------------------
                                            Weighted                Weighted                Weighted
                                             Average                 Average                 Average
                                            Exercise                Exercise                Exercise
                                  Shares      Price       Shares      Price       Shares      Price
                                 ---------- ----------   ---------- ----------   ---------- ----------
<S>                              <C>        <C>          <C>        <C>          <C>        <C>
Options outstanding at 
  January 1,                      516,522      15.53      541,122      13.83      364,672      8.57
Options granted during the year   187,000      16.94      103,500      18.25      242,000     20.81
Options exercised during the
  year                             (9,948)      8.93     (91,250)       7.18      (31,282)     7.55
Options terminated during the
  year                            (33,964)     18.76     (36,850)      18.74      (34,268)    12.93
                                  -------                -------                  -------
Options outstanding at 
  December 31,                    659,610      15.87      516,522      15.53      541,122     13.85
                                  -------                -------                  -------
Options exercisable at 
  December 31,                    246,530      14.11      172,407      13.22      171,877      8.55
------------------------------------------------------------------------------------------------------
</TABLE>







                                       28




<PAGE>   29

                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


        The following table indicates the options outstanding and options
exercisable by exercise price with the weighted average remaining contractual
life for the options outstanding and the weighted average exercise price at
December 31, 2000:


<TABLE>
<CAPTION>
 --------------------------------------------------------------------------------------------
                             Options Outstanding                    Options Exercisable
                   ----------------------------------------    ------------------------------
                                   Weighted
                                    Average      Weighted
                      Number       Remaining      Average         Number         Weighted
                    Outstanding   Contractual    Exercise       Exercisable       Average
  Exercise Price    at 12/31/00   Life (Years)    Price         at 12/31/00   Exercise Price
 ----------------- -------------- ------------- -----------    ------------- ----------------
<S>                 <C>            <C>           <C>            <C>           <C>
              6.94        77,422          0.75        6.94           77,422             6.94
             10.75       120,188          5.50       10.75           52,208            10.75
             15.63        20,000          9.33       15.63               --            15.63
             15.94        12,000          9.92       15.94               --            15.94
             17.00       142,500          9.83       17.00               --            17.00
             18.25       101,000          8.92       18.25           20,200            18.25
             19.38        12,500          9.75       19.38               --            19.38
             20.25        10,000          7.50       20.25            7,500            20.25
             20.81       154,000          7.25       20.81           84,700            20.81
             21.69        10,000          7.67       21.69            4,500            21.69
                     ------------                              -------------
       6.94-21.69        659,610          7.15       15.53          246,530            14.11
 --------------------------------------------------------------------------------------------
</TABLE>



        SFAS 123 "Accounting for Stock-Based Compensation" became effective for
the Company in 1996. As allowed by SFAS 123, the Company has elected to continue
to follow APB 25 "Accounting for Stock Issued to Employees" in accounting for
its stock option plans. Under APB 25, the Company does not recognize
compensation expense on the issuance of stock options because the option terms
are fixed and the exercise price equals the market price of the underlying stock
on the grant date. However, APB 25 requires recognition of noncash compensation
when the Company repurchases stock acquired by an employee through the exercise
of an incentive stock option. During 1999, the Company repurchased 80,000 shares
of stock at $18.00 per share from an employee who had acquired the stock at
$6.94 per share through the exercise of a stock option, resulting in the
recognition of noncash compensation expense of $885,000. The noncash
compensation of $885,000 is included in the Company's consolidated statements of
income in selling and administrative expense.


        In accordance with SFAS 123, the fair value of each option grant is
estimated at the date of grant using the Black-Scholes option-pricing model. The
assumptions used in the 2000, 1999 and 1998 grants are as follows:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                                                 Year Ended December 31,
                                         2000              1999             1998
                                      -----------     -------------    -------------
<S>                                   <C>             <C>              <C>
Risk-free interest rates                    5.9%              6.3%             6.5%
Expected dividend yields                    2.9%              2.7%             2.0%
Expected volatility                        26.5%             27.8%            27.1%
Expected option life (in years)              7.5               7.5              7.5
------------------------------------------------------------------------------------
</TABLE>


The fair value of the options granted are $2,115,000, $2,422,000 and $2,249,000
during the year ended December 31, 2000, 1999 and 1998, respectively. The
weighted average fair value of grants are $5.03, $5.93 and $7.03 during the year
ended 2000, 1999 and 1998, respectively.





                                       29



<PAGE>   30


                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

        The following pro forma net income and earnings per share data are
computed for the years ended December 31, 2000, 1999 and 1998 as if compensation
cost for the stock options granted subsequent to 1995 had been determined
consistent with SFAS 123:


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
(in thousands, except per                     
share amounts)                                Year Ended December 31,
                                        -----------------------------------------
                                         2000             1999              1998
                                        -------          -------          -------
<S>                                     <C>              <C>              <C>
Net Income                              $27,244          $22,466          $23,895
Pro Forma net income                     26,826           22,043           23,583
    Earnings Per Share
       Basic                               2.21             1.70             1.69
       Diluted                             2.19             1.68             1.67
    Pro Forma Earnings Per
         Share
       Basic                               2.17             1.67             1.67
       Diluted                             2.16             1.65             1.64
---------------------------------------------------------------------------------
</TABLE>


        In 1985, the Company established an Employee Stock Ownership Plan. Under
the terms of the plan, as amended, the Company makes annual contributions in the
form of cash or common stock of the Company to a trust for the benefit of
eligible employees. The amount of the contribution is determined annually by the
Board of Directors. A cash contribution of $800,000 was approved for 2000 and
$750,000 for 1999 and 1998.

        In 1991, the Board of Directors adopted a Long-Term Stock Bonus Plan
(the "1990 LTB Plan") under which shares of common stock may be granted to
officers and key employees. The stock bonuses granted under the 1990 LTB Plan
are evidenced by written Stock Bonus Agreements covering specified performance
periods. The LTB Plan provides for the grant of stock bonuses upon achievement
of certain financial goals during a specified period. Stock bonuses earned under
the 1990 LTB Plan vest over 5 years from the grant date contingent on the
employee's continued employment with the Company. As of December 31, 2000,
203,507 shares of common stock have been granted, of which 163,096 shares are
vested. Future grants of 19,338 shares of common stock are authorized by the
Board of Directors to be issued under the 1990 LTB Plan in the event the Company
reaches the highest level of achievement. The 1990 LTB Plan expired in December
1999 and no further grants of common stock can occur under the 1990 LTB Plan.
Compensation expense for 2000, 1999 and 1998 under this plan was $454,000,
$458,000 and $485,000, respectively, and is based on a combination of the
anticipated shares to be granted, the amount of vested shares previously issued
and fluctuations in market price of the Company's common stock. As of December
31, 2000, 1999 and 1998, the unvested shares were 40,411, 61,348 and 64,457,
respectively, with the related weighted average grant-date fair value of these
unvested shares of $20.45, $20.23 and $20.42 per share, respectively.

        In 2000, the Board of Directors adopted a Long-Term Stock Bonus Plan
(the "2000 LTB Plan") under which 400,000 shares of common stock are reserved
for grant to officers and key employees. The terms of the 2000 LTB Plan are the
same as the 1990 Plan described above. Future grants of 26,571 shares of common
stock are authorized by the Board of Directors to be issued under the 2000 LTB
Plan in the event the Company reaches its highest level of achievement. As of
December 31, 2000, no shares of common stock have been granted or vested under
this plan.

        The Board of Directors has authorized the repurchase of shares of the
Company's outstanding common stock. These purchases are to be made in the
over-the-counter market and/or through large block transactions at such
repurchase price as the officers shall deem appropriate and desirable on behalf
of the Company. All shares repurchased by the Company are to be canceled and
returned to the status of authorized but unissued shares of common stock. In
1998, the Company repurchased 619,550 shares of common stock for an aggregate
repurchase price of $12,247,000 or an average price of $19.77 per share. In
1999, the Company repurchased 1,549,526 shares of common stock for an aggregate
repurchase price of $28,212,000 or an average price of $18.21 per share. In
2000, the Company repurchased 450,942 shares of common stock for an aggregate
repurchase price of $7,364,000 or an average price of $16.33 per share. As of
December 31, 2000, 805,800 shares remain authorized for repurchase.


                                       30



<PAGE>   31

                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8. BUSINESS SEGMENTS

        As of January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company defined
its business segments based on the nature of operations for the purpose of
reporting under SFAS 131. The Company's three reportable segments are Mobile
Modular Management Corporation (Modulars), RenTelco (Electronics), and
Enviroplex. The operations of each of these segments is described in Note 1,
Organization and Business, and the accounting policies of the segments are
described in Note 2, Significant Accounting Policies. As a separate corporate
entity, Enviroplex revenues and expenses are separately maintained from Modulars
and Electronics. Excluding interest expense, allocations of revenues and
expenses not directly associated with Modulars or Electronics are generally
allocated to these segments based on their pro-rata share of direct revenues.
Interest expense is allocated between Modulars and Electronics based on their
pro-rata share of average rental equipment, accounts receivable, deferred income
and customer security deposits. The Company does not report total assets by
business segment. Summarized financial information for the years ended December
31, 2000, 1999 and 1998 for the Company's reportable segments is shown in the
following table:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
  (in thousands)                            Modulars   Electronics  Enviroplex  Consolidated
                                            ------------------------------------------------
  <S>                                       <C>        <C>          <C>         <C>
  YEAR ENDED DECEMBER 31,
  2000
  Rental Operations Revenues                $ 73,241    $ 38,875     $    --     $112,116
  Sales and Other Revenues                    24,254      10,796      16,992       52,042
  Total Revenues                              97,495      49,671      16,992      164,158
  Depreciation on Rental Equipment            12,546      11,304          --       23,850
  Interest Expense (Income)                    6,725       2,459        (344)       8,840
  Income before Provision for Income Taxes    23,565      20,454       3,657       47,676
  Rental Equipment Acquisitions               36,017      31,372          --       67,389
  Accounts Receivable, net (year-end)         28,816      12,902       3,969       45,687
  Rental Equipment, at cost (year-end)       261,081      92,404          --      353,485

  1999
  Rental Operations Revenues                $ 64,164    $ 27,633     $    --     $ 91,797
  Sales and Other Revenues                    16,600      10,415      11,150       38,165
  Total Revenues                              80,764      38,048      11,150      129,962
  Depreciation on Rental Equipment            10,811       8,969          --       19,780
  Interest Expense (Income)                    5,097       1,724        (215)       6,606
  Income before Provision for Income Taxes    23,838      13,641       1,479       38,958
  Rental Equipment Acquisitions               30,443      16,867          --       47,310
  Accounts Receivable, net (year-end)         11,334       9,691       4,070       25,095
  Rental Equipment, at cost (year-end)       238,449      72,832          --      311,281

  1998
  Rental Operations Revenues                $ 58,964    $ 24,531     $    --     $ 83,495
  Sales and Other Revenues                    23,619       7,642      20,672       51,933
  Total Revenues                              82,583      32,173      20,672      135,428
  Depreciation on Rental Equipment             9,398       7,464          --       16,862
  Interest Expense                             4,802       1,505          19        6,326
  Income before Provision for Income Taxes    23,133      11,875       5,902       40,910
  Rental Equipment Acquisitions               28,970      22,189          --       51,159
  Accounts Receivable, net (year-end)         10,765       6,900       4,146       21,811
  Rental Equipment, at cost (year-end)       216,414      66,573          --      282,987
-----------------------------------------------------------------------------------------------
</TABLE>





                                       31



<PAGE>   32

                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 9.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     Quarterly financial information for each of the two years ended December
31, 2000 is summarized below:


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)                            2000
                                          --------------------------------------------------------
                                           First       Second       Third       Fourth       Year
                                          --------------------------------------------------------
<S>                                       <C>         <C>         <C>         <C>         <C>
OPERATIONS DATA
  Rental revenues                         $ 21,381    $ 22,847    $ 24,876    $ 25,827    $ 94,931
  Total revenues                            31,643      37,369      54,643      40,503     164,158
  Gross margin                              15,953      17,679      23,678      19,188      76,498
  Income from operations                    11,258      12,892      18,138      14,228      56,516
  Income before income taxes                 9,314      10,732      15,777      11,853      47,676
  Net income                                 5,703       6,389       9,044       6,108      27,244

  Earnings per share:
    Basic                                 $   0.46    $   0.52    $   0.73    $   0.50    $   2.21
    Diluted                               $   0.45    $   0.52    $   0.73    $   0.50    $   2.19
  Dividends declared per share            $   0.14    $   0.14    $   0.14    $   0.14    $   0.56

  Shares used in per share calculation:
    Basic                                   12,500      12,305      12,308      12,223      12,334
    Diluted                                 12,593      12,393      12,402      12,335      12,428

 BALANCE SHEET DATA
  Rental equipment net                    $222,695    $234,832    $243,270    $247,402    $247,402
  Total assets                             301,823     321,955     345,371     357,246     357,246
  Notes payable                            114,000     125,800     127,400     126,876     126,876
  Shareholders' equity                      95,024      99,733     107,067     108,958     108,958
--------------------------------------------------------------------------------------------------
</TABLE>
















                                       32



<PAGE>   33

                                MCGRATH RENTCORP
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (continued)


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                   1999
                                                    ---------------------------------------------------------------
(in thousands, except per share amounts)                First        Second        Third       Fourth         Year
                                                    ---------------------------------------------------------------
<S>                                                 <C>            <C>          <C>          <C>          <C>
 OPERATIONS DATA
  Rental revenues                                    $  19,059     $  19,019    $  20,117    $  20,559    $  78,754
  Total revenues                                        28,574        31,559       36,657       33,172      129,962
  Gross margin                                          14,577        15,263       16,694       16,133       62,667
  Income from operations                                10,378        11,274       12,670       11,242       45,564
  Income before income taxes                             8,862         9,693       10,949        9,454       38,958
  Income before effect of accounting change              5,420         5,798        6,636        5,979       23,833
  Cumulative effect of accounting change, 
    net of tax                                          (1,367)           --           --           --       (1,367)
  Net income                                             4,053         5,798        6,636        5,979       22,466

  Earnings per share:
  Basic
    Income before cumulative effect of accounting
      change                                         $    0.39     $    0.43    $    0.51    $    0.47    $    1.80
    Cumulative effect of accounting change, 
      net of tax                                         (0.10)           --           --           --        (0.10)
                                                     ---------     ---------    ---------    ---------    ---------

    Net Income                                       $    0.29     $    0.43    $    0.51    $    0.47    $    1.70
                                                     =========     =========    =========    =========    =========
  Diluted
    Income before cumulative effect of accounting
      change                                         $    0.39     $    0.43    $    0.50    $    0.47    $    1.78
    Cumulative effect of accounting change, 
      net of tax                                         (0.10)           --           --           --        (0.10)
                                                     ---------     ---------    ---------    ---------    ---------

    Net Income                                       $    0.29     $    0.43    $    0.50         0.47    $    1.68
                                                     =========     =========    =========    =========    =========
  Dividends declared per share                       $    0.12     $    0.12    $    0.12    $    0.12    $    0.48
                                                     =========     =========    =========    =========    =========

  Shares used in per share calculation:
    Basic                                               13,820        13,403       13,067       12,649       13,235
    Diluted                                             13,991        13,568       13,220       12,751       13,383

 BALANCE SHEET DATA
  Rental equipment net                               $ 199,008     $ 205,797    $ 213,089    $ 217,178    $ 217,178
  Total assets                                         274,776       286,700      292,889      297,722      297,722
  Notes payable                                        101,450       102,900      108,700      110,300      110,300
  Shareholders' equity                                  97,937        99,476       92,274       95,403       95,403
-------------------------------------------------------------------------------------------------------------------
</TABLE>




I
TEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

        Not applicable.



                                    PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange Commission by not later than April 30, 2001.


ITEM 11. EXECUTIVE COMPENSATION

        The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange Commission by not later than April 30, 2001.




                                       33



<PAGE>   34


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange Commission by not later than April 30, 2001.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange Commission by not later than April 30, 2001.


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a)  Index of documents filed as part of this report:
     1.  The following Consolidated Financial Statements of McGrath RentCorp 
         are included in Item 8.


<TABLE>
<CAPTION>
                                                                                                  PAGE OF
                                                                                                 THIS REPORT
                                                                                                 -----------
     <S>                                                                                         <C>
     Report of Independent Public Accountants                                                       18
     Consolidated Financial Statements
        Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998      19
        Consolidated Balance Sheets as of December 31, 2000 and 1999                                20
        Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2000,
          1999 and 1998                                                                             21
        Consolidated Statements of Cash Flows for the Years Ended December 31, 2000,
          1999 and 1998                                                                             22
        Notes to Consolidated Financial Statements                                                  23
</TABLE>


     2. Financial Statement Schedules.  None

     3. Exhibits.  See Index of Exhibits on page 36 of this report.

    (b) Reports on Form 8-K.  None.


     Schedules and exhibits required by Article 5 of Regulation S-X other than
those listed are omitted because they are not required, are not applicable, or
equivalent information has been included in the consolidated financial
statements, and notes thereto, or elsewhere herein.






                                       34



<PAGE>   35


                                   SIGNATURES

        PURSUANT TO THE REQUIREMENTS OF SECTION 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.

        Date:  March 16, 2001                  MCGRATH RENTCORP

                                               by:  /s/ Robert P. McGrath
                                                    ---------------------------
                                                    Robert P. McGrath
                                                    Chairman of the Board
                                                    and Chief Executive Officer

        PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES AS INDICATED.


<TABLE>
<CAPTION>
               NAME                                    TITLE                             DATE
               ----                                    -----                             ----
     <S>                                    <C>                                      <C>
     /s/ William J. Dawson                  Director                                 March 16, 2001
     ----------------------------------
     William J. Dawson

     /s/ Robert C. Hood                     Director                                 March 16, 2001
     ----------------------------------
     Robert C. Hood

     /s/ Joan M. McGrath                    Director                                 March 16, 2001
     ----------------------------------
     Joan M. McGrath

     /s/ Robert P. McGrath                  Chairman of the Board and Chief          March 16, 2001
     -----------------------------------    Executive Officer
     Robert P. McGrath

     /s/ Thomas J. Sauer                    Vice President
     -----------------------------------    and Chief Financial Officer 
     Thomas J. Sauer                        (Chief Accounting Officer)               March 16, 2001

     /s/ Delight Saxton                      Senior Vice President and Director      March 16, 2001
     ----------------------------------
     Delight Saxton

     /s/ Ronald H. Zech                      Director                                March 16, 2001
     ----------------------------------
     Ronald H. Zech

</TABLE>




                                       35





<PAGE>   36

                                MCGRATH RENTCORP

                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
NUMBER       DESCRIPTION                                              METHOD OF FILING
------       -----------                                              ----------------
<S>          <C>                                                      <C>
3.1          Articles of Incorporation of McGrath RentCorp            Filed as exhibit 19.1 to the Company's Quarterly Report on
                                                                      Form 10-Q for the quarter ended June 30, 1988 (filed August
                                                                      14, 1988), and incorporated herein by reference.

3.1.1        Amendment to Articles of Incorporation of                Filed as exhibit 3.1 to the Company's Registration Statement
             McGrath RentCorp                                         on Form S-1 (filed March 28, 1991 Registration No. 33-39633),
                                                                      and incorporated herein by reference.

3.1.2        Amendment to Articles of Incorporation of                Filed as exhibit 3.1.2 to the Company's Annual Report on 
             McGrath RentCorp                                         Form 10-K for the year ended December 31, 1997 (filed 
                                                                      March 31, 1998), incorporated herein by reference.

3.2          Amended and Restated By-Laws of McGrath                  Filed as exhibit 3.1 to the Company's Annual Report on 
             RentCorp                                                 Form 10-K for the year ended December 31, 1990 (filed 
                                                                      March 28, 1991), incorporated herein by reference.

3.2.1        Amendment of By-Laws of McGrath RentCorp                 Filed as exhibit 3.2.1 to the Company's Annual Report on Form
                                                                      10-K for the year ended December 31, 1997 (filed March 31,
                                                                      1998), incorporated herein by reference.

3.2.2        Amendment of By-Laws of McGrath RentCorp                 Filed as exhibit 3.2.2 to the Company's Annual Report on Form
                                                                      10-K for the year ended December 31, 1998 (filed March 31,
                                                                      1999, amended June 25, 1999), incorporated herein by
                                                                      reference.

3.2.3        Amendment of By-Laws of McGrath RentCorp                 Filed as exhibit 3.1 to the Company's Quarterly Report on Form
                                                                      10-Q for the quarter ended March 31, 1999 (filed May 14, 1999,
                                                                      amended June 25, 1999) and incorporated herein by reference.

3.2.4        Amendment of By-Laws of McGrath RentCorp                 Filed as exhibit 3.2.4 to the Company's Annual Report on Form
                                                                      10-K for the year ended December 31, 1999 (filed March 27,
                                                                      2000), incorporated herein by reference.

4.1          Amended and Restated Credit Agreement                    Filed as exhibit 4.1 to the Company's Quarterly Report on Form
                                                                      10-Q for the quarter ended June 30, 1997 (filed August 1,
                                                                      1997), and incorporated herein by reference.

4.1.1        First Amendment to the Restated Credit                   Filed as exhibit 4.1.1 to the Company's Annual Report on Form
             Agreement                                                10-K for the year ended December 31, 1997 (filed March 31,
                                                                      1998), incorporated herein by reference.

4.1.2        Second Amendment to the Restated Credit                  Filed as exhibit 4.1.2 to the Company's Annual Report on Form
             Agreement                                                10-K for the year ended December 31, 1997 (filed March 31,
                                                                      1998), incorporated herein by reference.

4.1.3        Third Amendment to the Restated Credit                   Filed as exhibit 4.1 to the Company's Quarterly Report on Form
             Agreement                                                10-Q for the quarter ended March 31, 1998 (filed May
                                                                      13, 1998), incorporated herein by reference.

4.1.4        Facility Reduction Letter for Restated Credit            Filed as exhibit 4.1 to the Company's Quarterly Report on Form
             Agreement                                                10-Q for the quarter ended September 30, 1998 (filed
                                                                      November 12, 1998), incorporated herein by reference.

4.1.5        Fourth Amendment to the Restated                         Filed as exhibit 4.1 to the Company's Quarterly Report on Form
             Agreement                                                10-Q for the quarter ended March 31, 1999 (filed May 14, 1999,
                                                                      amended June 25, 1999) and incorporated herein by reference.

4.1.6        Amended and Restated Credit Agreement June, 1999         Filed as exhibit 4.1 to the company's Quarterly Report on Form
                                                                      10-Q for the quarter ended June 30, 1999 (filed August 11,
                                                                      1999) and incorporated herein by reference.

4.1.7        First Amendment to the Restated                          Filed as exhibit 4.1.7 to the Company's Annual Report on Form
             Credit Agreement June, 1999                              10-K for the year ended December 31, 1999 (filed March 17,
                                                                      2000), incorporated herein by reference.

4.1.8        Second Amendment to the Restated Credit Agreement        Filed as exhibit 4.1 to the Company's Quarterly Report on Form
             June, 1999                                               10-Q for the quarter ended September 30, 2000
                                                                      (filed November 9, 2000), incorporated herein by reference.

4.2          Note Purchase Agreement                                  Filed as exhibit 4.3 to the Company's Quarterly Report on Form
                                                                      10-Q for the quarter ended September 30, 1998 (filed November
                                                                      12, 1998), and incorporated herein by reference.

4.2.1        Schedule of Notes with Sample Note                       Filed as exhibit 4.3 to the Company's Quarterly Report on Form
                                                                      10-Q for the quarter ended June 30, 1998 (filed August 11,
                                                                      1998), and incorporated herein by reference.

10.1         The McGrath RentCorp 1987 Incentive Stock                Filed as exhibit 19.3 to the Company's Quarterly Report on 
             Option Plan                                              Form 10-Q for the quarter ended June 30, 1988 (filed 
                                                                      August 14, 1988), and incorporated herein by reference.

10.1.1       Exemplar Form of the Incentive Stock                     Filed as exhibit 19.3 to the Company's Quarterly Report on 
             Option Agreement                                         Form 10-Q for the quarter ended June 30, 1988 (filed 
                                                                      August 14, 1988), and incorporated herein by reference.

10.2         The 1998 Stock Option Plan                               Filed as exhibit 10.1 to the Company's Quarterly Report on
                                                                      Form 10-Q for the quarter ended September 30, 1998 (filed
                                                                      November 12, 1998), and incorporated herein by reference.
</TABLE>


                                       36



<PAGE>   37


<TABLE>
<CAPTION>
NUMBER       DESCRIPTION                                              METHOD OF FILING
------       -----------                                              ----------------
<S>          <C>                                                      <C>
10.2.1       Exemplar Incentive Stock Option for                      Filed as exhibit 10.2 to the Company's Quarterly Report on 
             Employees Under the 1998 Stock Option Plan               Form 10-Q for the quarter ended September 30, 1998 (filed
                                                                      November 12, 1998), and incorporated herein by reference.

10.2.2       Exemplar Non-Qualified Stock Option for                  Filed as exhibit 10.3 to the Company's Quarterly Report on 
             Directors under the 1998 Stock Option Plan               Form 10-Q  for the quarter ended September 30, 1998
                                                                      (filed November 12, 1998), and incorporated herein by 
                                                                      reference.

10.2.3       Schedule of Options Granted to Members of the            Filed as exhibit 10.4 to the Company's Quarterly Report on 
             Board of Directors                                       Form 10-Q for the quarter ended September 30, 1998 (filed
                                                                      November 12, 1998), and incorporated herein by reference.

10.2.4       Schedule of Options Granted to Members of the            Filed as exhibit 10.2.4 to the Company's Annual Report on 
             Board of Directors                                       Form 10-K for the year ended December 31, 1999 (filed March
                                                                      17, 2000), and incorporated herein by reference.

10.2.5       Schedule of Options Granted to Members of the            Filed herewith.
             Board Of Directors

10.3         Exemplar Form of the Directors, Officers                 Filed as exhibit 19.5 to the Company's Quarterly Report on 
             and Other Agents Indemnification Agreements              Form 10-Q for the quarter ended June 30, 1988 (filed 
                                                                      August 14, 1988), and incorporated herein by reference.

10.3.1       Exemplar Form of Indemnification Agreement               Filed as exhibit 10.5 to the Company's Quarterly Report on
                                                                      Form 10-Q for the quarter ended September 30, 1998 (filed
                                                                      November 12, 1998), and incorporated herein by reference.

10.4         Long-Term Stock Bonus Plan together with                 Filed as exhibit 10.3 to the Company's Annual Report on 
             Exemplar Long-Term Stock Bonus Agreement                 Form 10-K for the year ended December 31, 1990 (filed March
                                                                      28, 1991), and incorporated herein by reference.

10.4.1       2000 Long-Term Stock Bonus Plan together with            Filed herewith.
             Exemplar Long-Term Stock Bonus Agreement

23           Written Consent of Arthur Andersen, LLP                  Filed herewith.

</TABLE>



        The exhibits listed above may be obtained from McGrath RentCorp, 5700
Las Positas Road, Livermore, California 94550-7800 upon written request. Each
request should specify the name and address of the requesting person and the
title of the exhibit or exhibits desired. A reasonable fee for copying any
exhibit requested plus postage will be charged by McGrath RentCorp prior to
furnishing such exhibit(s).

        See http://www.sec.gov/edaux/formlynx.htm for the Company's most recent
filings.





                                       37








<PAGE>   1
                                                                 EXHIBIT 10.2.5

                      OPTIONS GRANTED TO BOARD OF DIRECTORS



<TABLE>
<CAPTION>
                                                   NUMBER OF           EXERCISE
NAME                        GRANT DATE              OPTIONS              PRICE
<S>                      <C>                       <C>                 <C>
Robert C. Hood           November 8, 2000            4,000               15.938
William J. Dawson        November 8, 2000            4,000               15.938
Ronald H. Zech           November 8, 2000            4,000               15.938
</TABLE>











<PAGE>   1


                                                                 EXHIBIT 10.4.1




                                MCGRATH RENTCORP

                         2000 LONG-TERM STOCK BONUS PLAN

                       1. PURPOSE OF PLAN; ADMINISTRATION

        1.1 PURPOSE. The intent and purpose of this 2000 Long-Term Stock Bonus
Plan (the "Plan") is to strengthen McGrath RentCorp, a California corporation,
by providing a means to attract and retain competent personnel and to provide to
participating officers and other key employees added incentive for high levels
of performance and for unusual efforts to improve the financial performance of
McGrath RentCorp. These purposes may be achieved through the grant of bonuses
consisting of shares of Common Stock of McGrath RentCorp to participating
officers and key employees.

        1.2 ADMINISTRATION. This Plan shall be administered by the Board of
Directors of McGrath RentCorp (the "Board"). Any action of the Board with
respect to the administration of the Plan shall be taken pursuant to majority
vote, or by the written consent of all of its members. Subject to the express
provisions of the Plan, the Board shall have authority to construe and interpret
the Plan, to define the terms used herein, and to prescribe, amend and rescind
rules and regulations relating to the administration of the Plan, and to make
all other determinations
 necessary or advisable for the administration of the
Plan. The determinations of the Board on the foregoing matters shall be
conclusive. Subject to the express provisions of the Plan, the Board shall
determine from the eligible class the individuals who shall receive stock bonus
grants, and the terms and provisions of such stock bonus grants (which need not
be identical). No member of the Board shall be liable for any action, failure to
act, determination or interpretation made in good faith with respect to the Plan
or any transaction thereunder.

        1.3 PARTICIPATION. Only officers and other key employees of McGrath
RentCorp, or of any subsidiary of McGrath RentCorp, shall be eligible for
selection to participate in the Plan upon approval by the Board. No member of
the Board shall be eligible to participate in the Plan as long as he or she is a
Director. An individual who has been granted a stock bonus (a "Participant")
may, if otherwise eligible, be granted additional stock bonuses if the Board
shall so determine.

        1.4 STOCK SUBJECT TO THE PLAN. Subject to the adjustments provided in
Section 2.1 below, the stock to be offered under the Plan shall be shares of
authorized but unissued Common Stock of McGrath RentCorp. The aggregate amount
of Common Stock to be issued under this Plan shall not exceed four hundred
thousand (400,000) shares, subject to adjustment as set forth in Section 2.1.1
below. If any shares which are the subject of a stock bonus grant shall be
unearned, or shall be forfeited and returned to McGrath RentCorp pursuant to the
terms of the applicable Stock Bonus Agreement, such shares shall again be
available for future grants under this Plan.

        1.5 STOCK BONUS AGREEMENT. All stock bonuses granted hereunder shall be
evidenced by a written Stock Bonus Agreement, which Agreement shall incorporate
the following terms:

            1.5.1 Term of Stock Bonus Agreement. Each stock bonus granted under
        this Plan shall be based upon a performance period to be determined by
        the Board.

            1.5.2 Number of Shares Granted. The number of shares granted to a
        Participant shall be a function of the Participant's salary at the
        beginning of the performance period, the market value of McGrath
        RentCorp's Common Stock at the beginning of the performance period, and
        the return on equity realized by McGrath RentCorp for its shareholders
        over the performance period, and/or such other criteria as may be
        determined by the Board for any particular stock bonus grants (which
        need not be identical).

            1.5.3 Vesting of Bonus Shares; Forfeiture on Termination of
        Employment. Once a Participant has earned bonus shares at the end of the
        performance period, those shares shall be subject to forfeiture and
        return to McGrath RentCorp upon termination of the Participant's
        employment with McGrath RentCorp for any reason whatsoever, with the
        risk of forfeiture lapsing over a period of continued employment.

            1.5.4 Other Terms and Provisions of Stock Bonus Agreement. The Stock
        Bonus Agreements under the Plan may contain such other terms and
        conditions as the Board may direct, and such other terms and conditions
        as the officers of McGrath RentCorp shall deem to be in the best
        interests of McGrath RentCorp which are not inconsistent with the terms
        of this Plan or those approved by the Board of Directors.

                              2. OTHER PROVISIONS

        2.1 ADJUSTMENTS.

            2.1.1 Changes in Capitalization. Subject to any action by the
shareholders required by law, the number of shares of Common Stock covered by
this Plan and any outstanding Stock Bonus Agreement shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock of McGrath RentCorp resulting from a subdivision or consolidation of
shares or the payment of a stock dividend (but only on the Common Stock) or any
other increase or decrease in the number of shares effected without receipt of
consideration by McGrath RentCorp (for this purpose, issuance of shares upon
conversion of convertible securities shall be deemed to be an issuance for which
McGrath RentCorp receives consideration).



<PAGE>   2

            2.1.2 Successor Corporations. The successor corporation in any
merger or consolidation of McGrath RentCorp shall be required to assume the
obligations under then outstanding Stock Bonus Agreements under this Plan.
Should McGrath RentCorp sell all or substantially all of its assets in a
transaction wherein the employees of McGrath RentCorp continue to be employed by
the purchasing corporation, such purchasing corporation shall likewise be
required to assume the obligations then outstanding under Stock Bonus Agreements
under this Plan.

            2.1.3 Adjustments by Board. Adjustments shall be made by the Board,
whose determination as to what adjustment shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of Common Stock
shall be issued under the Plan on account of any such adjustment.

        2.2 NO RIGHT OF EMPLOYMENT. Nothing contained in this Plan (or any Stock
Bonus Agreement pursuant to this Plan) shall confer upon any employee any right
to continue in the employ of McGrath RentCorp (or its subsidiaries) or interfere
in any way with the right of McGrath RentCorp (or its subsidiaries) to reduce
such Participant's compensation or to terminate such Participant's employment
with McGrath RentCorp or its subsidiaries.

        2.3 NON-TRANSFERABILITY. The rights granted to a Participant to receive
shares of McGrath RentCorp Common Stock under certain circumstances shall be
non-transferable by the Participant other than by will or the laws of descent
and distribution. McGrath RentCorp shall not be liable for the debts, contracts
or engagements of any Participant or his or her beneficiaries, and rights under
any Stock Bonus Agreement may not be taken in execution or by attachment or
garnishment, or by any other legal or equitable proceeding; nor shall the
Participant or his or her beneficiaries have any right to assign, pledge or
hypothecate any rights or benefits under such Agreements.

        2.4 AMENDMENT, EFFECTIVE DATE, TERMINATION.

            2.4.1 Amendment. The Board may at any time suspend, amend or
terminate this Plan.

            2.4.2 Effective Date of the Plan. This Plan shall be effective,
retroactive as of January 1, 2000, and shall be submitted to the shareholders of
McGrath RentCorp for approval by a vote of a majority of McGrath RentCorp's
outstanding capital stock entitled to vote thereon on or before December 31,
2000, and before any shares of McGrath RentCorp Common Stock shall be issued
under this Plan.

            2.4.3 Termination of the Plan. Unless previously terminated by the
Board, this Plan shall terminate at the close of business on December 31, 2009,
and no Stock Bonus Agreements shall be granted under it thereafter; but such
termination shall not affect any Stock Bonus Agreements theretofore entered into
under the provisions of this Plan.

                                                                 March 23, 2000






<PAGE>   3

                                MCGRATH RENTCORP

                       EXEMPLAR LONG-TERM STOCK BONUS PLAN

                                 XXXXX XXXXXXXX

                                2000-2002 PROGRAM


        This Agreement by and between Xxxxxx X. Xxxxxxx ("Xxxxxxx") and McGrath
RentCorp, a California corporation, provides that Xxxxxxx is a participant in
the 2000-2002 Program of the McGrath RentCorp 2000 Long-Term Stock Bonus Plan
under the following terms and conditions.

1.      INITIAL VALUES:    Salary                             $xxx,xxx
                           Base Stock Value:                    $xx.xx
                           Divisor:                                x.x
                           LTB Base Points:                      x,xxx
                           Initial EBITDA:                 $XX,XXX,XXX

2.      DEFINITIONS. For purposes of this Agreement, the following terms will
have the following meanings ascribed to such terms below.

        2.1 "Average Return on Equity" shall mean the numerical average of the
Returns on Equity calculated for each of the three fiscal years ending December
31, 2000, 2001 and 2002.

        2.2 "Base Rental Revenue" [Intentionally Omitted]

        2.3 "Base Stock Value" shall be the number set forth in Section 1 above.
(The Base Stock Value is the Stock Value as of January 1, 2000.)

        2.4 "Board" shall mean the Board of Directors of McGrath RentCorp.

        2.5 "Change in Control" shall mean that there has been a corporate
merger or consolidation, a sale of all or substantially all of the assets, or a
purchase of outstanding shares that results in a corporation, partnership,
person or group of persons (which corporation, partnership, person or group of
persons is not affiliated with Robert P. McGrath) owning (i) more than fifty
percent (50%) of McGrath RentCorp's outstanding voting securities or (ii) all or
substantially all of its assets and business.

        2.6 "EBITDA" for any particular fiscal year shall mean the Net Income of
McGrath RentCorp for that year, before taking into account any income or losses
derived from or expenses attributable to interest, income taxes, depreciation
and/or amortization, as such figures are disclosed in McGrath RentCorp's
published, audited financial statements for that year.

        2.7 "EBITDA Growth Percentage" shall mean that factor (expressed as a
percentage) compounded annually by which the Initial EBITDA would have to grow
to achieve a smooth growth of EBITDA over the fiscal years ended December 31,
2000, 2001 and 2002 equal to the actual Three-Year EBITDA.

        2.8 "Gross Rental Revenues" [Intentionally Omitted]

        2.9 "Initial EBITDA" shall be the number set forth in Section 1 above.
(The Initial EBITDA set forth above is the EBITDA for the fiscal year ended
December 31, 1999.)

        2.10 "LTB Base Points" shall be the number set forth in Section 1 above.
(The LTB Base Points set forth above were calculated by dividing (i) Xxxxxxx'
Base Salary as of the beginning of this Program by (ii) the Base Stock Value of
McGrath RentCorp's Common Stock as of the beginning of the Program, and then
(iii) that result by the Divisor set forth above.)

        2.11 "LTB Final Points" shall be a number calculated by multiplying the
LTB Base Points by the Multiplier Factor.




<PAGE>   4

        2.12 The "Multiplier Factor" shall be determined as specified in Section
3.1 below.

        2.13 The "Option to Repurchase" is the option granted by Xxxxxxx in
Section 6 below to McGrath RentCorp to purchase the Xxxxxxx Shares.

        2.14 "Return on Equity" for any particular fiscal year shall mean (i)
Net Income (after taxes) of McGrath RentCorp for that year divided by (ii) Total
Shareholders' Equity as of the first day of that year, as such figures are
disclosed in McGrath RentCorp's published, audited financial statements for that
year.

        2.15 "Stock Bonus Allocation" shall be the number of shares of McGrath
RentCorp Common Stock allocated to Xxxxxxx as a bonus under this Program, as
determined in accordance with Section 3.3 below.

        2.16 "Stock Value" as of a particular date shall mean the then current
fair market value of McGrath RentCorp's Common Stock determined by calculating
the average of the high and low prices reported for transactions in such Common
Stock for each of the five preceding days on which transactions occurred on
NASDAQ or any exchange on which the stock is then traded, as reported by The
NASDAQ Stock Market, Inc. In the event McGrath's Common Stock is not then traded
on NASDAQ or an exchange, the fair market value of the Common Stock shall be
determined by the Board in good faith.

        2.17 A "Successor to McGrath RentCorp" shall be (i) any corporation
which is the surviving corporation in a merger or consolidation with McGrath
RentCorp, or (ii) any corporation, partnership or person(s) which acquires all
or substantially all of the assets of McGrath RentCorp in a transaction wherein
a majority of the employees of McGrath RentCorp continue to be employed by such
purchaser.

        2.18 "Termination of Employment" shall mean the termination of Xxxxxxx'
employment with McGrath RentCorp (and its subsidiaries) for any reason
whatsoever, whether by voluntary resignation due to disability or otherwise, by
reason of Xxxxxxx' death, or at the election of McGrath RentCorp for any reason
whatsoever. A leave of absence approved by the Board of Directors of McGrath
RentCorp shall not be considered to be a Termination of Employment for purposes
of this Agreement.

        2.19 "Three-Year EBITDA" shall be the numerical sum of McGrath
RentCorp's EBITDA for the three fiscal years ending December 31, 2000, 2001 and
2002.

        2.20 "Xxxxxxxs Shares" shall mean all securities of McGrath RentCorp now
owned by Xxxxxxxs or hereafter acquired by him in any manner whatsoever.

3.      CALCULATION OF STOCK BONUS ALLOCATION.

        3.1 Determination of Multiplier Factor. As soon as the audited financial
statements of McGrath RentCorp for the year ended December 31, 2002 have been
published, the Multiplier Factor shall be determined as follows.

        3.1.1 Growth in Rental Revenues as a Condition. [Intentionally Omitted]

        3.1.2 Average Return on Equity as a Function. The ROE Multiplier Factor
shall be determined as a function of the Average Return on Equity in the
following manner:

        3.1.2.1 In the event the Average Return on Equity is less than XX.XX%,
the ROE Multiplier Factor shall be zero (0);

        3.1.2.2 In the event the Average Return on Equity is XX.XX%, the ROE
Multiplier Factor shall be one (1.0);

        3.1.2.3 In the event the Average Return on Equity is greater than
XX.XX%, but less than XX.XX% the ROE Multiplier Factor shall be one (1.0) plus
the result of multiplying (i) the amount by which the Average Return on Equity
exceeds XX.XX% by (ii) 66.666667;

        3.1.2.4 In the event the Average Return on Equity is XX.XX%, the ROE
Multiplier Factor shall be two (2.0);

        3.1.2.5 In the event the Average Return on Equity is greater than
XX.XX%, but less than XX.XX%, the ROE Multiplier Factor shall be two (2.0) plus
the result of multiplying (i) the amount by which the Average Return on Equity
exceeds XX.XX% by (ii) 66.666667; and



<PAGE>   5

        3.1.2.6 In the event the Average Return on Equity is XX.XX% or greater,
the ROE Multiplier Factor shall be three (3.0).

        3.1.3 EBITDA Growth Percentage Growth Percentage as a Function. The
EBITDA Multiplier Factor shall be determined as a function of the EBITDA Growth
Percentage in the following manner:

        3.1.3.1 In the event the EBITDA Growth Percentage is less than XX.XX%,
the EBITDA Multiplier Factor shall be zero (0);

        3.1.3.2 In the event the EBITDA Growth Percentage is XX.XX %, the EBITDA
Multiplier Factor shall be one (1.0);

        3.1.3.3 In the event the EBITDA Growth Percentage is greater than XX.XX
%, but less than XX.XX %, the EBITDA Multiplier Factor shall be one (1.0) plus
the result of multiplying (i) the amount by which the EBITDA Growth Percentage
exceeds XX.XX % by (ii) 66.666667;

        3.1.3.4 In the event the EBITDA Growth Percentage is XX.XX %, the EBITDA
Multiplier Factor shall be two (2.0);

        3.1.3.5 In the event the EBITDA Growth Percentage is greater than XX.XX
%, but less than XX.XX %, the EBITDA Multiplier Factor shall be two (2.0) plus
the result of multiplying (i) the amount by which the EBITDA Growth Percentage
exceeds XX.XX % by (ii) 66.666667; and

        3.1.3.6 In the event the EBITDA Growth Percentage is XX.XX % or greater,
the EBITDA Multiplier Factor shall be three (3.0).

        3.1.4 Sum of Two Functions. The Multiplier Factor shall be one-half (
1/2) of the sum of the ROE Multiplier Factor plus the EBITDA Multiplier Factor.

        3.1.5 Adjustment in the Event of Capital Structure Change. In the event
of a significant change in the capital structure of McGrath RentCorp or in the
business conducted by it, the Board may, in its sole and absolute discretion,
determine that it would be equitable: (i) to revise the conditions based on
Average Return Equity or set new goals; or (ii) to declare that the purposes of
this Program had been met notwithstanding the failure to achieve an Average
Return on Equity of XX.XX % or greater; or (iii) to revise the conditions based
on EBITDA Growth Percentage or set new goals; or (iv) to declare that the
purposes of this Program have been met notwithstanding the failure to achieve an
EBITDA Growth Percentage of XX.XX % or greater; or alternatively, (v) the Board
may simply specify that the Multiplier Factor for this Program shall be a number
between 1.0 and 3.0.

        3.2 Calculation of LTB Final Points. As soon as the Multiplier Factor
has been determined in accordance with Section 3.1 above, the LTB Final Points
shall be calculated by multiplying the LTB Base Points by the Multiplier Factor.

        3.3 Allocation of Stock Bonus. Xxxxxxx shall be allocated one (1) share
of McGrath RentCorp Common Stock for each LTB Final Point, or portion thereof,
calculated in accordance with Section 3.2 above.

        3.3.1 The number of shares of McGrath RentCorp Common Stock to be
allocated to Xxxxxxx pursuant to this Section 3.3 shall be proportionally
adjusted for any increase or decrease in the number of outstanding shares of
Common Stock of McGrath RentCorp resulting from a subdivision or consolidation
of shares, or for the payment of a stock dividend (but only on the Common
Stock), or for any other increase or decrease in the number of such shares
effected without receipt of consideration by McGrath RentCorp. Adjustments under
this Section 3.3.1 shall be determined by the Board, whose determination as to
what adjustments shall be made, and the extent thereof, shall be final, binding
and conclusive.

        4. ISSUANCE OF SHARE CERTIFICATES.

        4.1 Issuance of Stock Certificates. As soon as reasonably practical
following the determination of Xxxxxxx' Stock Bonus Allocation, McGrath RentCorp
shall cause five stock certificates to be issued in the name of Xxxxxxx, each
one evidencing twenty percent (20%) of the number of shares of McGrath RentCorp
Common Stock allocated to him as a Stock Bonus.

        4.2 Delivery and Re-Delivery of Stock Certificates. McGrath RentCorp
shall deliver all five (5) stock certificates to the Xxxxxxx, and the Xxxxxxx
shall promptly redeliver back to McGrath RentCorp four (4) of the stock




<PAGE>   6

certificates to be held by McGrath RentCorp for later redelivery to the Xxxxxxx
in accordance with, and subject to, the forfeiture provisions set forth in
Section 5 below.

        4.3 Option to Receive a Portion in Cash. With respect to 20% of the
shares of Common Stock delivered to Xxxxxxx pursuant to Section 4.2 above, or
with respect to any shares redelivered to him in accordance with Section 5.2
below, Xxxxxxx may elect, by written notice given to McGrath RentCorp not less
than ten (10) days nor more than thirty (30) days prior to the delivery or
redelivery of a certificate evidencing such shares, to receive the Stock Value
of such shares in cash, in lieu of the issuance and delivery of such shares. For
purposes of determining the Stock Value of such shares, the Stock Value shall be
calculated as of the date of such notice.

        4.3.1 Notwithstanding the foregoing right to elect to receive cash, the
maximum amount of cash which Xxxxxxx shall have the right to receive in lieu of
the issuance and delivery of shares shall be forty percent (40%) of the
aggregate Stock Value of Xxxxxxx' entire Stock Bonus Allocation.

        5. FORFEITURE UPON TERMINATION OF EMPLOYMENT.

        5.1 Termination of Employment Prior to End of Program. In the event of
Xxxxxxx' termination of employment prior to December 31, 2002, Xxxxxxx shall
have no right to receive any Stock Bonus Allocation nor any certificates
evidencing any shares of McGrath RentCorp Common Stock to be issued pursuant to
this Agreement.

        5.2 Subsequent Delivery of Stock Certificates. Provided Xxxxxxx s has
remained in the employ of McGrath RentCorp, or its subsidiaries, continuously
from the date hereof through the applicable subsequent certificate delivery
date, one certificate evidencing twenty percent (20%) of the Stock Bonus
Allocation held in the possession of McGrath RentCorp in accordance with Section
4.2 above, shall be delivered to Xxxxxxx on December 31, 2003, and another one
of the certificates shall be delivered to Xxxxxxx each December 31 thereafter
for as long as Xxxxxxx remains in the continuous employ of McGrath RentCorp, or
its subsidiaries, until December 31, 2006, at which time all five stock
certificates shall have been delivered to Xxxxxxx.

        5.3 Termination of Employment Subsequent to December 31, 2002. In the
event of Xxxxxxx' Termination of Employment subsequent to December 31, 2002,
Xxxxxxx shall have the right to retain, subject to the Option to Repurchase set
forth in Section 6 below all share certificates evidencing Stock Bonus
Allocations which had been delivered to him pursuant to Sections 4.2 or 5.2
above prior to his Termination of Employment; however, upon his Termination of
Employment, such share certificates still held at that time by McGrath RentCorp
pursuant to Section 4.2 or 5.2 above shall be immediately forfeited by him, and
the shares evidenced thereby shall be deemed canceled and returned to the status
of authorized but unissued shares of McGrath RentCorp, and Xxxxxxx shall have no
further rights or claims thereto.

        6. OPTION TO REPURCHASE. Upon Termination of Employment, Xxxxxxx shall,
and does hereby, offer for sale to McGrath RentCorp, all, but not less than all,
of the Xxxxxxx Shares on the terms specified in this Section 6.

        6.1 Notice of Exercise. In order to exercise the Option to Repurchase
the Xxxxxxx Shares, McGrath RentCorp shall give notice of its intention to so
exercise to Xxxxxxx, or to his personal representative in the event of his death
or incapacity, within three (3) months following his Termination of Employment.

        6.2 Repurchase Price. The Repurchase Price for the repurchase of the
Xxxxxxx Shares shall be the Stock Value as of the date of Termination of
Employment or as of the date of the giving of the notice of exercise of the
Option to Repurchase, with the election of which price shall apply being stated
in the notice of exercise.

        6.3 Terms of Payment. Payment of the Repurchase Price shall be made at
the time that the notice of exercise of the Option to Repurchase is given.
McGrath RentCorp may first offset against the Repurchase Price due to Xxxxxxx
any amount of indebtedness owed by Xxxxxxx to McGrath RentCorp. Payment of the
net amount of the Repurchase Price after the offset of indebtedness shall be as
follows:

        6.3.1 One-third (?) thereof in cash or by check; and

        6.3.2 The remaining two-thirds (?) thereof by means of the delivery of a
Promissory Note, bearing interest at the rate of nine percent (9%) per annum on
the unpaid principal amount, and payable in ten (10) equal annual installments
of principal plus accrued interest, commencing one year from the date thereof.
Such Note shall permit prepayment of any amount by McGrath RentCorp at any time
without penalty.

        6.4 Other Shareholders. McGrath RentCorp may assign, partially or
completely, its Option to repurchase to one or more of its shareholders, and
each such assignee shall have the right to repurchase the Xxxxxxx Shares in his,
her or its 




<PAGE>   7

own name and for his, her or its own account, all on the same terms and
conditions specified in this Section 6; provided, that the exercise of the
Option to Repurchase as so assigned shall result in the repurchase of all of the
Xxxxxxx Shares.

        6.5 Restrictive Legend. The certificates evidencing the Xxxxxxx shares
shall be endorsed with an appropriate legend referring to the Option to
Repurchase granted by this Section 6. Xxxxxxx shall immediate cause to be
delivered to McGrath RentCorp all certificates evidencing Xxxxxxx Shares which
are currently outstanding so that they may be imprinted with such a legend. Such
certificates shall be returned to Xxxxxxx after they have been imprinted with
the appropriate legend.

        6.6 Permitted Transfers. Notwithstanding the provisions of this Section
6, nothing herein shall prevent Xxxxxxx from making a bona fide sale or gift of
any of the Xxxxxxx Shares.

        7. RESTRICTED ACTIVITIES.

        7.1 Unfair Trade Practices. Xxxxxxx acknowledges that the success of
McGrath RentCorp's business as conducted depends to a large extent upon the
business practices and methods used by it and upon the knowledge of the needs,
preferences and particularities of each of its customers and suppliers, which
practices, methods and knowledge are continuously developed by McGrath RentCorp.
Xxxxxxx further acknowledges that these practices, methods and knowledge
constitute trade secrets which are valuable assets belonging to McGrath
RentCorp. Accordingly, Xxxxxxx agrees that, during his employment with McGrath
RentCorp and for a period of five (5) years immediately following his
Termination of Employment, he shall not, either directly or indirectly, (i)
disclose to any person, firm or corporation, or use himself in any way, any
trade secret of McGrath RentCorp (except as may be required in the course of his
employment with McGrath RentCorp and for its benefit), or (ii) call on, solicit,
divert or take away, or attempt to call on, solicit, divert or take away any
person, firm or corporation who is a customer of or a supplier to McGrath
RentCorp, or who is being solicited by McGrath RentCorp at the time of Xxxxxxx'
Termination of Employment, or who had been a customer of or supplier to McGrath
RentCorp during the six months immediately preceding Xxxxxxx' Termination of
Employment.

        7.2 Covenant Not to Compete. In order to protect the element of good
will purchased in part by payment of the Repurchase Price for the Xxxxxxx
Shares, and as part of the consideration for the payment of the Repurchase Price
in the event McGrath RentCorp (or some of its shareholders) purchases all of the
Xxxxxxx Shares, Xxxxxxx agrees, for a period of two (2) years after such
purchase, not to engage or participate, or cause any other person, firm or
corporation to become engaged, in any activity or business within the
geographical regions within which McGrath RentCorp conducts its business as of
the date of Termination of Employment, either directly or indirectly, as an
employee, agent, representative, partner, owner, director, officer or investor,
which is in the same or similar business as McGrath RentCorp. For purposes of
this Section 7.2, a purchase of the Xxxxxxx Shares shall be deemed to have
occurred when McGrath RentCorp (and/or other shareholders) tenders the
Repurchase Price in accordance with Section 6.3 above.

        7.3 Enforcement. Xxxxxxx agrees that a violation on his part of any of
the terms of this Agreement shall cause irreparable damage, the exact amount of
which is impossible to ascertain, and for that reason agrees that McGrath
RentCorp (and/or the other shareholders) shall be entitled to a decree of
specific performance of the terms hereof and/or an injunction restraining
further violations; said right to be in addition to any other remedies available
under law.

        8. SUCCESSOR TO MCGRATH RENTCORP.

        8.1 Assumption of Program Obligations by Successor. Any Successor to
McGrath RentCorp shall be required to assume the obligations then outstanding
under this Program, or in the alternative, to enter into a substitute program
which is approved and accepted by Xxxxxxx in writing, which approval and
acceptance shall not be unreasonably withheld.

        8.2 Termination of Employment. As used in this Section 8 only,
"Termination of Employment" shall not include a termination of Xxxxxxx'
employment by reason of his voluntary resignation due to disability or otherwise
or by reason of his death.

        8.3 Effect of Change in Control. In the event of a Termination of
Employment at the time of a Change in Control or thereafter,

        8.3.1 The share certificate delivery schedule set forth in Sections 4
and 5 above shall accelerate and the full Stock Bonus Allocation shall vest as
of the date of such Termination of Employment notwithstanding Section 5.3 above,
and all share certificates then held by McGrath RentCorp pursuant to Section 4.2
above shall be delivered to Xxxxxxx; and

        8.3.2 In the event Xxxxxxx ' Termination of Employment is prior to
December 31, 2002, the determination of the Multiplier Factor in Section 3.1
above shall be made as of the last fiscal quarter completed prior to the
Termination of Employment, with appropriate adjustments to the calculation
therein of the Average Return on Equity.



<PAGE>   8

        9. MISCELLANEOUS PROVISIONS.

        9.1 Tax Withholding. McGrath RentCorp (or any of its subsidiaries which
employ Xxxxxxx) shall have the right to deduct any sums that federal, state or
local tax law requires to be withheld with respect to the issuance of Common
Stock under this Program or as otherwise may be required by such laws. McGrath
RentCorp (or such subsidiary) may require, as a condition to issuing shares of
Common Stock under this Program, that Xxxxxxx or his beneficiaries pay any sums
that federal, state or local tax law requires to be withheld with respect to
such issuance.

        9.2 Privileges of Stock Ownership. Xxxxxxx shall not be entitled to the
privileges of stock ownership as to any shares of Common Stock which have been
allocated to him but for which certificates have not been issued and delivered
to him.

        9.3 Non-Transferability of Stock Bonus Allocation. The right granted
hereby to Xxxxxxx to receive shares of McGrath RentCorp Common Stock under
certain circumstances shall be non-transferrable by Xxxxxxx other than by will
or the laws of descent and distribution. McGrath RentCorp shall not be liable
for the debts, contracts or engagements of Xxxxxxx or his beneficiaries, and
rights under this Program may not be taken in execution or by attachment or
garnishment, or by any other legal or equitable proceeding; nor shall Xxxxxxx or
his beneficiaries have any right to assign, pledge or hypothecate any rights or
benefits hereunder.

        9.4 No Effect on Employment. Nothing contained in this Agreement shall
confer upon Xxxxxxx any right to continue in the employ of McGrath RentCorp (or
its subsidiaries) or constituted any contract or agreement of employment.

        9.5 Governmental Regulations. This Program, the grant of Stock Bonus
Allocations and the issuance of Common Stock hereunder shall be subject to all
applicable rules and regulations of governmental authorities. At the time of the
issuance of any shares of Common Stock to Xxxxxxx under this Program, and as a
condition to the issuance of such shares, Xxxxxxx shall give such
representations and warranties in writing to McGrath RentCorp as its legal
counsel shall deem appropriate to insure compliance with applicable securities
laws and regulations. McGrath RentCorp may place upon the certificates
evidencing the shares of Common Stock being issued legends referring to
restrictions on transfer as may be appropriate in connection with compliance
with applicable securities laws and regulations.

        10. STANDARD PROVISIONS.

        10.1 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given (i) on the date of service if delivered personally, (ii) on the date of
transmission if sent by facsimile transmission with printed proof of electronic
receipt, (iii) on the date of delivery if delivered by a courier service with
proof of delivery, or (iv) on the third business day after mailing if mailed by
first class mail, certified, return receipt requested, postage prepaid, to the
following addresses:

        If to McGrath RentCorp, then to:        McGrath RentCorp
                                                5700 Las Positas Road
                                                Livermore, CA 94550
                                                Attn: Randle F. Rose
                                                Facsimile No.:  1-925-453-3200

        With a copy to:                         Christopher Ream, Esq.
                                                2600 El Camino Real, Suite 410
                                                Palo Alto, CA 94306
                                                Facsimile No.:  1-650-856-8448

        If to Xxxxxxx, then to:                 Xxxxxx X.. Xxxxxxx
                                                McGrath RentCorp
                                                5700 Las Positas Road
                                                Livermore, CA  94550
                                                Facsimile No.:  1-925-453-3200

        10.2 Entire Agreement; Modification; Waiver. This Agreement constitutes
the entire agreement between the parties pertaining to the subject matter
contained herein and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties. No supplement, modification
or amendment to this Agreement shall be binding unless executed in writing by
the party to be charged. No waiver of any of the provisions of this Agreement
shall be 




<PAGE>   9

deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.

        10.3 Remedies. The rights and remedies provided to any party herein
shall be cumulative and in addition to any other or further rights or remedies
available at law or in equity.

        10.4 Disputes. All disputes, controversies and claims arising out of or
relating to this Agreement, or the interpretation, construction, performance or
breach hereof shall be settled by arbitration in accordance with the rules of
the American Arbitration Association, regardless of whether one of the parties
fails or refuses to participate; and such arbitration shall take place in
Alameda County, State of California. Judgment upon the award rendered by the
arbitrator may be entered in any Court having jurisdiction thereof.
Notwithstanding the foregoing, either party hereby may bring an action in the
Superior Court of the State of California in and for Alameda County for
injunctive relief. In the event any court action is instituted, or a referral is
made to arbitration, to settle any dispute arising under this Agreement or to
enforce any right or obligation hereunder, the prevailing party shall be
entitled to recover its or his attorney fees and other expenses associated
therewith.

        10.5 Severability. In case any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, the meaning of such provision shall be construed
(to the extent feasible) so as to render the provisions valid and enforceable,
and if no feasible construction would save the provision, its invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement; rather this Agreement shall be construed as if such invalid, illegal
or unenforceable provision had never been contained herein.

        10.6 Governing Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California as applied to
contracts that are executed and performed entirely in California.

        10.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall be constitute one and the same instrument.

        IN WITNESS WHEREOF this Agreement has been executed and delivered as of
the ________ day of February, 2001, by the undersigned Chairman of the Board and
Chief Executive Officer of McGrath RentCorp, thereunto duly authorized by the
Board of Directors of said corporation, and by Xxxxxxx.

                                       MCGRATH RENTCORP

                                       By

                                       Robert P. McGrath, Chairman of the Board
                                       and Chief Executive Officer
                                       
                                       -----------------------------------------
                                       XXXXXX X . XXXXXXX






<PAGE>   1


                                                                    EXHIBIT 23





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

           As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K into the Company's
previously filed Registration Statement File No. 333-6112 and 333-74089.


                                                 Arthur Andersen LLP

San Francisco, California
March 26, 2001