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                                MCGRATH RENTCORP

                             1998 STOCK OPTION PLAN

                   SECTION 1. PURPOSE OF PLAN; ADMINISTRATION.

        1.1 PURPOSE. The intent and purpose of this 1998 Stock Option Plan (the
"PLAN") is to strengthen McGrath RentCorp, a California corporation ("MCGRATH"),
by providing a means to attract and retain competent personnel and to provide to
participating officers, key employees, directors and others added incentive for
high levels of performance and for unusual efforts to improve the financial
performance of MCGRATH. The purposes may be achieved through the grant of
options to purchase common stock of MCGRATH (the "COMMON STOCK"). The options
granted under the PLAN may be incentive stock options ("INCENTIVE OPTIONS") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE"), or options which are not incentive stock options as so defined in that
code section ("NON-QUALIFIED OPTIONS").

        1.2 ADMINISTRATION. This PLAN shall be administered by the Board of
Directors of MCGRATH (the "BOARD"). Any action of the BOARD with respect to the
administration of the PLAN shall be taken pursuant to a majority vote, or by the
written consent of all of its members. Subject to the express provisions of the
Plan, the BOARD shall have the authority to construe and interpret the PLAN, to
define the terms used herein, 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 options, and the terms and
provisions of such options (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 hereunder.

        1.3 PARTICIPATION. Only officers, key employees and directors of MCGRATH
or of any subsidiary of MCGRATH, and other persons who provide significant
valuable services to MCGRATH or any subsidiary of MCGRATH, shall be eligible for
selection to participate in the PLAN upon approval by the BOARD. INCENTIVE
OPTIONS may be granted only to persons who are employees of MCGRATH or a
subsidiary of MCGRATH. An individual who has been granted an option (a
"PARTICIPANT") may, if otherwise eligible, be granted additional options if the
BOARD shall so determine.

        1.4 STOCK SUBJECT TO THE PLAN. Subject to the adjustments provided in
Section 3.1 hereof, the stock to be offered under the PLAN shall be shares of
authorized but unissued COMMON STOCK. The aggregate amount of COMMON STOCK to be
issued under this PLAN shall not exceed two million (2,000,000) shares, subject
to adjustment as set forth in Section 3.1 of this PLAN. If any option granted
hereunder shall expire or terminate for any reason without having been fully
exercised, the unpurchased shares subject thereof shall again be available for
the purposes of this PLAN.



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        1.5 OPTION AGREEMENT. All options granted hereunder shall be evidenced
by a written stock option agreement, which agreement shall specify whether the
option granted is intended to be an INCENTIVE OPTION or to be a NON-QUALIFIED
OPTION. The BOARD may provide for additional terms and conditions in such stock
option agreements not inconsistent with the terms and conditions of this Plan,
and in the case of INCENTIVE OPTIONS, terms and provisions not prohibited by
Section 422 of the CODE.

                         SECTION 2. STOCK OPTION TERMS.

        2.1 OPTION PRICE. The purchase price of the COMMON STOCK covered by each
option shall be determined by the BOARD, but shall not be less than 100% of the
FAIR MARKET VALUE of such stock on the date immediately preceding the granting
of the option.

               2.1.1 If an INCENTIVE OPTION is granted to an employee who, at
the time such option is granted, owns or is deemed to own more than ten percent
(10%) of the total combined voting power of all classes of stock of MCGRATH, the
option price shall be at least 110% of the FAIR MARKET VALUE of the COMMON STOCK
on the date immediately preceding the granting of the option.

               2.1.2 "FAIR MARKET VALUE" shall mean: (1) the closing price of
the COMMON STOCK as reported by the NASDAQ Stock Market or by any national
exchange on which the COMMON STOCK may hereafter be listed, or if no trading
occurred on such date for the next preceding date on which such trading
occurred; or (2) if there is no trading of the COMMON STOCK either on the NASDAQ
Stock Market or on a national exchange, the value established by the BOARD in
good faith.

               2.1.3 The purchase price of any shares purchased shall be paid in
full in cash or by check acceptable to MCGRATH at the time of each purchase;
provided that, subject to the discretion of the BOARD and upon receipt of all
regulatory approvals, the person exercising the option may deliver shares of
COMMON STOCK in payment of the exercise price. Such stock shall be valued at its
FAIR MARKET VALUE on the date immediately preceding the day of exercise of the
option.

        2.2 OPTION PERIOD. Except as provided below, each option and all rights
or obligations thereunder shall expire on such date as the BOARD shall
determine, but not later than the day before the tenth (10th) anniversary of the
date on which the option is granted (the "EXPIRATION DATE"), and shall be
subject to earlier termination as hereinafter provided.

               2.2.1 If an INCENTIVE OPTION is granted to an employee, who at
the time the option is granted owns or is deemed to own more than ten percent
(10%) of the total combined voting power of all classes of stock of MCGRATH,
each such option and all rights or obligations thereunder shall expire as the
BOARD shall determine but not later than the day before the fifth (5th)
anniversary of the date on which the option is granted (the "EXPIRATION DATE").



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        2.3 EXERCISE OF OPTIONS. Each option shall become exercisable and the
total number of shares subject thereto shall be purchasable, in such
installments, which need not be equal, as the BOARD shall determine (subject to
Section 2.10 of this PLAN in the case of an INCENTIVE OPTION); provided,
however, that if the PARTICIPANT shall not purchase in any given installment
period all of the shares purchasable, the right to purchase any shares not
purchased in such installment period shall continue until the EXPIRATION DATE or
sooner termination of such PARTICIPANT's option. The BOARD may, at any time
after grant of the option and from time to time, increase the number of shares
purchasable in any installment, subject to the restrictions imposed by Section
422 of the CODE in the case of INCENTIVE OPTIONS, but may not increase the total
number of shares subject to the option. No option or installment thereof shall
be exercisable except in respect of whole shares, and fractional share interests
shall be disregarded.

        2.4 NON-TRANSFERABILITY OF OPTIONS. An option granted under this PLAN
shall, by its terms, be non-transferable by the PARTICIPANT other than by will
or the laws of descent and distribution, and shall be exercisable during the
PARTICIPANT's lifetime only by the PARTICIPANT or his or her duly appointed
guardian or personal representative.

        2.5 TERMINATION OF EMPLOYMENT. If the PARTICIPANT's employment with
MCGRATH terminates for any reason other than death or disability, such
PARTICIPANT shall have, at the discretion of the BOARD at the time of grant of
the option, a period no longer than three (3) months after the date of
termination to exercise his or her option. Upon expiration of such period, all
unexercised options of such PARTICIPANT under this PLAN shall terminate. If the
BOARD does not grant such a period in the written stock agreement, all of the
PARTICIPANT's unexercised options shall terminate at the close of business
thirty (30) days after PARTICIPANT's last day of employment.

               2.5.1 Employment Not Continued. Neither service as a director,
consultant, advisor or other service provider by a PARTICIPANT who had been
granted an option when an employee, nor the payment of a director's,
consultant's, advisor's or other fee by MCGRATH, shall be sufficient to
constitute continued "employment" by MCGRATH with respect to such option.

               2.5.2 Transfer. An employee's employment shall not be deemed to
have terminated by reason of a transfer between MCGRATH, its parent, any
subsidiary, or any successor.

               2.5.3 Leave of Absence. An employee's employment shall not be
deemed to have terminated by reason of a leave of absence approved by MCGRATH .
For purposes of INCENTIVE OPTIONS, no such leave of absence may exceed four (4)
months unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by MCGRATH is not so guaranteed, after the first four (4) months of
such leave any INCENTIVE OPTION held by the PARTICIPANT shall cease to be
treated as an INCENTIVE OPTION and shall be treated for tax purposes as a
NON-QUALIFIED OPTION. In the event of a leave of absence approved 



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by MCGRATH, the vesting of all options held by such employee shall be tolled
during such absence, unless otherwise provided by MCGRATH.

               2.5.4 Directors. With respect to a PARTICIPANT who was a
director, but not an employee, of MCGRATH or one of its subsidiaries when
granted an option, he or she shall be deemed to have terminated employment for
purposes of such option on the date he or she ceases to be a director of MCGRATH
or one of its subsidiaries.

               2.5.5 Consultants, Advisors and Others. With respect to a
PARTICIPANT who was neither an employee nor a director of MCGRATH or one of its
subsidiaries when granted an option, he or she shall be deemed to have
terminated employment for purposes of such option on the date of the expiration
of his or her written contract under which he or she provided services to
MCGRATH; or if there is no such written contract, then he or she shall be deemed
to have terminated employment for purposes of such option on the date three (3)
months after MCGRATH last received services from the PARTICIPANT.

        2.6 DISABILITY OF PARTICIPANT. If a PARTICIPANT's employment with
MCGRATH terminates as a result of his or her disability, such PARTICIPANT shall
have the lesser of twelve (12) months after the date of termination or the
EXPIRATION DATE to exercise his or her option. Upon expiration of such
twelve-month period or until the EXPIRATION DATE, if earlier, all unexercised
options of such PARTICIPANT under this PLAN shall terminate. For purposes of
this PLAN, an individual is disabled if he or she is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted, or
can be expected to last, for a continuous period of not less than twelve (12)
months.

        2.7 DEATH OF PARTICIPANT. If any PARTICIPANT dies while employed by, or
otherwise providing services to, MCGRATH, such PARTICIPANT's options may be
exercised by the person or persons to whom the PARTICIPANT's rights under the
options shall pass by will or by the applicable laws of descent and
distribution. Such person or persons shall have the lesser of twelve (12) months
after the date of the Participant's death or until the EXPIRATION DATE of the
options to exercise the options. Upon expiration of such twelve-month period or
until the EXPIRATION DATE, if earlier, all unexercised options of such
PARTICIPANT under this PLAN shall terminate.

        2.8  MODIFICATION IN LEVEL OF EMPLOYMENT.

               2.8.1 Reduction in Hours. An employee's employment shall not be
deemed to have terminated by reason of a reduction in hours scheduled to be
worked if approved by an officer of MCGRATH. In the event of a reduction in
hours scheduled to be worked, the rate of vesting thereafter of all options held
by such employee shall be reduced proportionately to the reduction in hours,
unless otherwise provided by MCGRATH. The reduction in the rate of vesting may
result in the EXPIRATION DATE being reached prior to the full vesting of all
shares subject to the options, in which case unvested shares shall be forfeited
and returned to the PLAN.



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               2.8.2 Reduction in Duties and Responsibilities. A PARTICIPANT's
employment shall not be deemed to have terminated by reason of a reduction in
the duties or responsibilities of the PARTICIPANT with respect to MCGRATH. In
the event of a substantial reduction in the duties and responsibilities expected
of a PARTICIPANT, MCGRATH and the PARTICIPANT may mutually agree in writing to a
reduction in the number of shares subject to any options held by such
PARTICIPANT and/or a reduction in the rate of vesting of such options.

        2.9 ISSUANCE OF STOCK CERTIFICATES. Upon exercise of an option, the
person exercising such option shall be entitled to one stock certificate
evidencing the shares acquired upon exercise; provided, however, that any person
who tenders COMMON STOCK when exercising the option shall be entitled to receive
two certificates, one representing a number of shares equal to the number of
shares exchanged for the stock acquired upon exercise, and another representing
the additional shares, if any, acquired upon exercise of the option; provided,
further, that if the vesting limitation set forth in Section 2.10 below is
exceeded, the person exercising the option shall be entitled to receive two
certificates, one representing a number of shares constituting INCENTIVE OPTION
shares, and another representing the excess shares issued as NON-QUALIFIED
OPTION shares.

        2.10 LIMITATION ON VESTING OF INCENTIVE OPTIONS. The aggregate FAIR
MARKET VALUE (determined as of the time the option is granted) of the stock,
which first becomes exercisable by the PARTICIPANT during any calendar year
under all INCENTIVE OPTIONS of MCGRATH or any subsidiary or parent of MCGRATH,
shall not exceed $100,000, as determined in accordance with the rules and
regulations of the Internal Revenue Service promulgated under the CODE. The
$100,000 limitation described in this Section 2.10 shall be applied to all such
INCENTIVE OPTIONS in the order granted to the PARTICIPANT. In the event such
limitation is exceeded, the excess shares shall be deemed shares subject to a
NON-QUALIFIED OPTION and shall not be treated as part of an INCENTIVE OPTION
within the meaning of Section 422 of the CODE.

                          SECTION 3. OTHER PROVISIONS.

        3.1  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.

               3.1.1 Subject to any action by the stockholders required by law,
the number of shares of COMMON STOCK covered by this PLAN and any outstanding
option and the price per share thereof shall be proportionately adjusted for any
increase or decrease in the number of issued shares of COMMON STOCK 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 such shares effected without receipt of consideration by MCGRATH (for this
purpose, issuances of shares upon conversion of convertible securities shall be
deemed an issuance for which MCGRATH receives consideration).

               3.1.2 The successor corporation in any merger or consolidation of
MCGRATH shall be required to assume options then outstanding under the PLAN.
Should 


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MCGRATH sell all or substantially all of its assets in a transaction wherein the
employees of MCGRATH continue to be employed by the purchasing corporation, such
purchasing corporation shall likewise be required to assume options then
outstanding under the PLAN.

               3.1.3 Adjustments under this Section 3.1 shall be made by the
BOARD, whose determination as to what adjustments 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.

        3.2 DISSOLUTION OR LIQUIDATION. A dissolution or liquidation of MCGRATH
shall cause an outstanding option to terminate; provided that the holder of any
outstanding option shall, in such event, be given at least thirty (30) days
prior written notice of such event (which notice, if mailed, shall be deemed
given at the time of mailing) and shall have the right until such event to
exercise his or her option to the extent then exercisable; provided further that
the BOARD in its discretion (to the extent permitted by the CODE) may in the
event of any such dissolution or liquidation accelerate the accrual of exercise
rights in such manner as the BOARD shall deem appropriate.

        3.3  RIGHTS OF PARTICIPANTS AND BENEFICIARIES.

               3.3.1 Nothing contained in the PLAN (or in any option granted
pursuant to the PLAN) shall confer upon any employee, director or other service
provider any right to continue in the employ of MCGRATH (or its subsidiaries),
or constitute any contract or agreement of employment, or interfere in any way
with the right of McGrath (or its subsidiaries) to reduce such person's
compensation from the rate in existence at the time of the granting of an option
or to terminate such person's employment; but nothing contained herein or in any
option agreement shall affect any contractual rights of an employee, director or
other service provider.

               3.3.2 Except as provided in Section 2.7 of this PLAN, MCGRATH
shall provide all benefits hereunder only to the PARTICIPANT or beneficiaries
entitled thereto pursuant to this PLAN. MCGRATH shall not be liable for the
debts, contracts, or engagements of any PARTICIPANT or his or her beneficiaries,
and rights under this PLAN may not be taken in execution or by attachment or
garnishment, or by any other legal or equitable proceeding while in the hands of
MCGRATH; nor shall any Participant or his or her beneficiaries have any right to
assign, pledge or hypothecate any benefits hereunder.

        3.4 GOVERNMENT REGULATIONS. The PLAN and the grant and exercise of
options shall be subject to all applicable rules and regulations of governmental
authorities.

        3.5 WITHHOLDING. MCGRATH or any of its subsidiaries which employ the
PARTICIPANT shall have the right to deduct any sums that federal, state or local
tax law requires to be withheld with respect to the exercise of any option, or
as otherwise may be required by such laws. MCGRATH or such subsidiary may
require as a condition to issuing shares upon exercise of the option that the
PARTICIPANT or other person exercising the option pay any sums that federal,
state or local tax law requires to be withheld with 



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respect to such exercise. There is no obligation hereunder that any PARTICIPANT
be advised of the existence of the tax or the amount which the employer
corporation will be so required to withhold.

               3.5.1 In its sole discretion, MCGRATH may allow a Participant to
satisfy withholding tax obligations by electing to have MCGRATH withhold from
the COMMON STOCK to be issued upon exercise of an option that number of shares
of COMMON STOCK having a FAIR MARKET VALUE equal to the amount required to be
withheld. The FAIR MARKET VALUE of the shares to be withheld shall be determined
as of the day immediately preceding the date the amount of tax to be withheld is
to be determined.

        3.6 AMENDMENT AND TERMINATION.

               3.6.1 The BOARD may at any time suspend, amend or terminate this
PLAN and may, with the consent of the holder of an option, make such
modifications of the terms and conditions of such PARTICIPANT's option as it
shall deem advisable. No option may be granted during any suspension of the PLAN
or after such termination. The amendment, suspension or termination of the PLAN
shall not, without the consent of the affected PARTICIPANT alter or impair any
rights or obligations under any option theretofore granted under the PLAN.

               3.6.2 In addition to BOARD approval of an amendment, if the
amendment would (i) increase the benefits accruing to Participants, (ii)
increase the number of securities issuable under this PLAN or (iii) modify the
requirements for eligibility, or if Section 422 of the CODE requires shareholder
approval of any amendment to the PLAN, then such amendment shall be approved by
the holders of a majority of MCGRATH's outstanding capital stock entitled to
vote at a meeting held for the purpose of approving such amendment.

        3.7  TIME OF GRANT AND EXERCISE.

               3.7.1 The granting of an option pursuant to the PLAN shall take
place at the time of the BOARD's action; provided, however, that if the
appropriate resolutions of the BOARD indicate that an option is to be granted as
of and at some future date, the date of grant shall be such future date. In the
event action by the BOARD is taken by the unanimous written consent of its
members, the action by the BOARD shall be deemed to be effective at the time the
last member signs the consent.

               3.7.2 An option shall be deemed to be exercised when the
Secretary or Chief Financial Officer of MCGRATH receives written notice from a
PARTICIPANT of such exercise, together with payment of the purchase price.

        3.8 NO PRIVILEGES OF STOCK OWNERSHIP. A PARTICIPANT shall not be
entitled to the privileges of stock ownership as to any shares of stock not
actually issued and delivered to him or her.



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        3.9 NON-DISTRIBUTIVE INTENT. Upon exercise of an option at a time when
there is not in effect under the Securities Act of 1933 a registration statement
relating to the stock issuable under the option, the PARTICIPANT shall represent
and warrant in writing to MCGRATH that the shares purchased are not being
acquired with a view to the distribution thereof. No shares shall be issued upon
the exercise of any option unless and until any then applicable requirements of
the Securities and Exchange Commission, the California Department of
Corporations, and any other regulatory agencies having jurisdiction and of any
exchanges or associations upon which the COMMON STOCK may be listed shall have
been fully satisfied.

        3.10 EFFECTIVE DATE OF THE PLAN. This PLAN shall be effective as of
March 9, 1998, and shall within twelve (12) months of such date, and before any
option issued pursuant to the PLAN may be exercised, be submitted to the
shareholders of MCGRATH for the approval by a vote of holders of a majority of
MCGRATH's outstanding capital stock entitled to vote thereon.

        3.11 TERMINATION. Unless previously terminated by the BOARD, this PLAN
shall terminate at the close of business on March 8, 2008, and no option shall
be granted under it thereafter, but such termination shall not affect any option
theretofore granted.


End of Plan                                                        March 9, 1998



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