exv4w1



 






EXHIBIT 4.1




Electro Rent Corporation




2005 EQUITY INCENTIVE PLAN




 









 





TABLE OF CONTENTS




	 	 	 	 	 
	SECTION 1: BACKGROUND, PURPOSE AND DURATION
	 	 	1	 
	 
	 	 	 	 
	1.1 Background and Effective Date
	 	 	1	 
	1.2 PURPOSE OF THE PLAN
	 	 	1	 
	 
	 	 	 	 
	1.3 Duration of the Plan
	 	 	1	 
	1.4 Termination of Old Plans
	 	 	1	 
	SECTION 2 DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	2.1 1934 Act
	 	 	1	 
	2.2 Affiliate
	 	 	2	 
	2.3 Affiliated SAR
	 	 	2	 
	2.4 Applicable Laws
	 	 	2	 
	2.5 Award
	 	 	2	 
	2.6 Award Agreement
	 	 	2	 
	2.7 Board or Board of Directors
	 	 	2	 
	2.8 Change in Control
	 	 	2	 
	2.9 Code
	 	 	2	 
	2.10 Committee
	 	 	2	 
	2.11 Company
	 	 	2	 
	2.12 Consultant
	 	 	2	 
	2.13 Director
	 	 	2	 
	2.14 Disability
	 	 	3	 
	2.15 Employee
	 	 	3	 
	2.16 ERISA
	 	 	3	 
	2.17 Fair Market Value
	 	 	3	 
	2.18 Freestanding SAR
	 	 	3	 
	2.19 Incentive Stock Option
	 	 	3	 
	2.20 Nonqualified Stock Option
	 	 	3	 
	2.21 Option
	 	 	3	 
	2.22 Option Price
	 	 	3	 
	2.23 Participant
	 	 	3	 
	2.24 Performance Share
	 	 	4	 
	2.25 Performance Unit
	 	 	4	 
	2.26 Period of Restriction
	 	 	4	 
	2.27 Plan
	 	 	4	 
	2.28 Restricted Stock
	 	 	4	 
	2.29 Retirement
	 	 	4	 
	2.30 Rule 16b-3
	 	 	4	 
	2.31 Section 16 Person
	 	 	4	 
	2.32 Shares
	 	 	4	 
	2.33 Stock Appreciation Right or SAR
	 	 	4	 
	2.34 Subsidiary
	 	 	4	 
	2.35 Tandem SAR
	 	 	4	 
	2.36 Termination of Employment
	 	 	4	 
	SECTION 3 ADMINISTRATION
	 	 	5	 
	 
	 	 	 	 
	3.1 The Committee
	 	 	5	 
	3.2 Authority of the Committee
	 	 	5	 
	3.3 Decisions Binding
	 	 	5	 






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	SECTION 4 SHARES SUBJECT TO THE PLAN
	 	 	5	 
	 
	 	 	 	 
	4.1 Shares Available
	 	 	5	 
	4.1.1 Maximum Shares Available Under Plan
	 	 	5	 
	4.1.2 Limitation on Restricted Stock, Performance Units and Performance Shares
	 	 	5	 
	4.1.3 Limitation on Incentive Stock Options and Stock Appreciation Rights
	 	 	5	 
	4.1.4 General Award Limitation
	 	 	6	 
	4.1.5 Adjustments
	 	 	6	 
	4.2 Number of Shares
	 	 	6	 
	4.3 Lapsed Awards
	 	 	7	 
	SECTION 5 STOCK OPTIONS
	 	 	7	 
	 
	 	 	 	 
	5.1 Grant of Options
	 	 	7	 
	5.2 Award Agreement
	 	 	7	 
	5.3 Option Price
	 	 	7	 
	5.3.1 Nonqualified Stock Options
	 	 	7	 
	5.3.2 Incentive Stock Options
	 	 	7	 
	5.3.3 Substitute Options
	 	 	7	 
	5.4 Expiration of Options
	 	 	8	 
	5.4.1 Expiration Dates
	 	 	8	 
	5.4.2 Committee Discretion
	 	 	8	 
	5.5 Exercise of Options
	 	 	8	 
	5.6 Payment
	 	 	8	 
	5.7 Restrictions on Share Transferability
	 	 	9	 
	5.8 Certain Additional Provisions for Incentive Stock Options
	 	 	9	 
	5.8.1 Exercisability
	 	 	9	 
	5.8.2 Termination of Employment
	 	 	9	 
	5.8.3 Company and Subsidiaries
	 	 	9	 
	5.8.4 Expiration
	 	 	9	 
	5.9 Nontransferability
	 	 	10	 
	SECTION 6 STOCK APPRECIATION RIGHTS
	 	 	10	 
	 
	 	 	 	 
	6.1 Grant of SARs
	 	 	10	 
	6.2 Exercise of Tandem SARs
	 	 	10	 
	6.2.1 ISOs
	 	 	10	 
	6.3 Exercise of Affiliated SARs
	 	 	10	 
	6.4 Exercise of Freestanding SARs
	 	 	10	 
	6.5 SAR Agreement
	 	 	10	 
	6.6 Expiration of SARs
	 	 	11	 
	6.7 Payment of SAR Amount
	 	 	11	 
	6.8 Nontransferability of SARs
	 	 	11	 
	SECTION 7 RESTRICTED STOCK
	 	 	11	 
	 
	 	 	 	 
	7.1 Grant of Restricted Stock
	 	 	11	 
	7.2 Restricted Stock Agreement
	 	 	11	 
	7.3 Transferability
	 	 	11	 
	7.4 Other Restrictions
	 	 	11	 
	7.5 Removal of Restrictions
	 	 	12	 






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	7.6 Voting Rights
	 	 	12	 
	7.7 Dividends and Other Distributions
	 	 	12	 
	7.8 Return of Restricted Stock to Company
	 	 	12	 
	7.9 Repurchase Option
	 	 	12	 
	SECTION 8 PERFORMANCE UNITS AND PERFORMANCE SHARES
	 	 	12	 
	 
	 	 	 	 
	8.1 Grant of Performance Units/Shares
	 	 	12	 
	8.2 Value of Performance Units/Shares
	 	 	13	 
	8.3 Earning of Performance Units/Shares
	 	 	13	 
	8.4 Form and Timing of Performance Units/Shares
	 	 	13	 
	8.5 Cancellation of Performance Units/Shares
	 	 	13	 
	8.6 Nontransferability
	 	 	13	 
	SECTION 9 BENEFICIARY DESIGNATION
	 	 	13	 
	 
	 	 	 	 
	SECTION 10 DEFERRALS
	 	 	13	 
	 
	 	 	 	 
	SECTION 11 RIGHTS OF EMPLOYEES AND CONSULTANTS
	 	 	14	 
	 
	 	 	 	 
	11.1 No Effect on Employment or Service
	 	 	14	 
	11.2 Participation
	 	 	14	 
	SECTION 12 AMENDMENT, SUSPENSION, OR TERMINATION
	 	 	14	 
	 
	 	 	 	 
	SECTION 13 TAX WITHHOLDING
	 	 	14	 
	 
	 	 	 	 
	13.1 Withholding Requirements
	 	 	14	 
	13.2 Shares Withholding
	 	 	14	 
	SECTION 14 INDEMNIFICATION
	 	 	14	 
	 
	 	 	 	 
	SECTION 15 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE
	 	 	15	 
	 
	 	 	 	 
	15.1 Changes in Capitalization
	 	 	15	 
	15.2 Dissolution or Liquidation
	 	 	15	 
	15.3 Merger or Asset Sale
	 	 	15	 
	15.4 Change in Control
	 	 	16	 
	SECTION 16 CONDITIONS UPON ISSUANCE OF SHARES
	 	 	17	 
	 
	 	 	 	 
	16.1 Legal Compliance
	 	 	17	 
	16.2 Investment Representations
	 	 	17	 
	SECTION 17 INABILITY TO OBTAIN AUTHORITY
	 	 	17	 
	 
	 	 	 	 
	SECTION 18 RESERVATION OF SHARES
	 	 	17	 
	 
	 	 	 	 
	SECTION 19 LEGAL CONSTRUCTION
	 	 	17	 
	 
	 	 	 	 
	19.1 Gender and Number
	 	 	17	 
	19.2 Severability
	 	 	17	 
	19.3 Requirements of Law
	 	 	17	 
	19.4 Securities Law Compliance
	 	 	17	 
	19.5 Governing Law
	 	 	18	 
	19.6 Captions
	 	 	18	 







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Electro Rent Corporation




2005 Equity Incentive Plan




     Electro Rent Corporation hereby adopts the 2005 Equity Incentive Plan, effective as of August
22, 2005, as follows:



SECTION 1

BACKGROUND, PURPOSE AND DURATION




     1.1 Background and Effective Date. The Plan provides for the granting of Nonqualified
Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock,
Performance Units, and Performance Shares. The Plan is adopted and effective as of August 22,
2005, subject to approval by the stockholders of the Company within twelve (12) months. The
Company will seek stockholder approval in the manner and to the degree required under Applicable
Laws. Awards may be granted prior to the receipt of stockholder approval, but such grants shall be
null and void if such approval is not in fact received within twelve (12) months.



     1.2 Purpose of the Plan. The purpose of the Plan is to promote the success, and
enhance the value, of the Company by aligning the interests of Participants with those of the
Company’s shareholders, and by providing Participants with an incentive for outstanding
performance. The Plan is further intended to provide flexibility to the Company in its ability to
motivate, attract, and retain the services of outstanding individuals, upon whose judgment,
interest, and special effort the success of the Company largely is dependent.



     1.3 Duration of the Plan. The Plan shall commence on the date specified in Section
1.1 and subject to SECTION 12 (concerning the Board’s right to amend or terminate the Plan), shall
remain in effect thereafter. However, without further stockholder approval, no Incentive Stock
Option may be granted under the Plan on or after August 22, 2015.



     1.4 Termination of Old Plans. The Company’s existing stock option plans (the 2002
Stock Option Plan and the 1996 Stock Option Plan) shall terminate effective upon shareholder
approval of this Plan, and no further grants of awards shall be made under those plans after the
date of such approval. The termination of those plans will not affect the rights of holders of
options previously granted and outstanding under those plans.



SECTION 2

DEFINITIONS




     The following words and phrases shall have the following meanings unless a different meaning
is plainly required by the context:



     2.1 “1934 Act” means the Securities Exchange Act of 1934, as amended. Reference to a
specific section of the Exchange Act or regulation thereunder shall include such section or
regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.



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     2.2 “Affiliate” means any corporation or any other entity (including, but not limited
to, partnerships and joint ventures) controlling, controlled by, or under common control with the
Company.



     2.3 “Affiliated SAR” means an SAR that is granted in connection with a related Option,
and which automatically will be deemed to be exercised at the same time that the related Option is
exercised.



     2.4 “Applicable Laws” means the requirements relating to the administration of equity
plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock
exchange or quotation system on which the Shares are listed or quoted and the applicable laws of
any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.



     2.5 “Award” means, individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units, or
Performance Shares.



     2.6 “Award Agreement” means the written agreement setting forth the terms and
provisions applicable to each Award granted under the Plan.



     2.7 “Board” or “Board of Directors” means the Board of Directors of the Company.



     2.8 “Change in Control” is defined in Section 15.4.



     2.9 “Code” means the Internal Revenue Code of 1986, as amended. Reference to a
specific section of the Code or regulation thereunder shall include such section or regulation, any
valid regulation promulgated under such section, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such section or regulation.



     2.10 “Committee” means the committee appointed by the Board to administer the Plan
pursuant to Section 3.1.



     2.11 “Company” means Electro Rent Corporation., a California corporation, or any
successor thereto.



     2.12 “Consultant” means an individual who provides significant services to the Company
and/or an Affiliate, including a Director who is not an Employee.



     2.13 “Director” means any individual who is a member of the Board of Directors of the
Company.



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     2.14 “Disability” means a permanent and total disability within the meaning of Code
Section 22(e)(3).



     2.15 “Employee” means an employee of the Company or of an Affiliate, whether such
employee is so employed at the time the Plan is adopted or becomes so employed subsequent to the
adoption of the Plan.



     2.16 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
Reference to a specific section of ERISA shall include such section, any valid regulation
promulgated thereunder, and any comparable provision of any future legislation amending,
supplementing or superseding such section.



     2.17 “Fair Market Value” means as of any date, the value of a Share determined as
follows:



          (a) If the Shares are listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq
Stock Market, its Fair Market Value shall be the closing sales price for such Share (or the closing
bid, if no sales were reported) as quoted on such exchange or system on the day of, or the last
market trading day prior to, the day of determination, as reported in The Wall Street Journal or
such other source as the Committee deems reliable;




          (b) If the Shares are regularly quoted by a recognized securities dealer but selling prices
are not reported, the Fair Market Value of the Shares shall be the mean between the high bid and
low asked prices for the Shares on the day of, or the last market trading day prior to, the day of
determination, as reported in The Wall Street Journal or such other source as the Committee deems
reliable; or




          (c) In the absence of an established market for the Shares, the Fair Market Value shall be
determined in good faith by the Committee.




     2.18 “Freestanding SAR” means a SAR that is granted independently of any Option.



     2.19 “Incentive Stock Option” or “ISO” means an option to purchase Shares, which is
designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of
the Code.



     2.20 “Non-qualified Stock Option” means an option to purchase Shares which is not
intended to be an Incentive Stock Option.



     2.21 “Option” means an Incentive Stock Option or a Nonqualified Stock Option.



     2.22 “Option Price” means the price at which a Share may be purchased pursuant to an
Option.



     2.23 “Participant” means an Employee, Consultant or Director who has an outstanding
Award.



3









 





     2.24 “Performance Share” means an Award granted to an Employee pursuant to SECTION 8
having an initial value equal to the Fair Market Value of a Share on the date of grant.



     2.25 “Performance Unit” means an Award granted to an Employee pursuant to SECTION 8
having an initial value (other than the Fair Market Value of a Share) that is established by the
Committee at the time of grant.



     2.26 “Period of Restriction” means the period during which the transfer of Shares of
Restricted Stock are subject to restrictions.



     2.27 “Plan” means the Electro Rent Corporation 2005 Equity Incentive Plan, as set
forth in this instrument and as hereafter amended from time to time.



     2.28 “Restricted Stock” means an Award granted to a Participant pursuant to SECTION 7.



     2.29 “Retirement” means, in the case of an Employee, a Termination of Employment by
reason of the Employee’s retirement at or after age 62.



     2.30 “Rule 16b-3” means Rule 16b-3 promulgated under the 1934 Act, and any future
regulation amending, supplementing or superseding such regulation.



     2.31 “Section 16 Person” means a person who, with respect to the Shares, is subject to
Section 16 of the 1934 Act.



     2.32 “Shares” means the shares of common stock, no par value, of the Company.



     2.33 “Stock Appreciation Right” or “SAR” means an Award, granted alone or in
connection with a related Option, that pursuant to the terms of SECTION 6 is designated as an SAR.



     2.34 “Subsidiary” means any “subsidiary corporation” (other than the Company) as
defined in Code Section 424(f).



     2.35 “Tandem SAR” means an SAR that is granted in connection with a related Option,
the exercise of which shall require forfeiture of the right to purchase an equal number of Shares
under the related Option (and when a Share is purchased under the Option, the SAR shall be canceled
to the same extent).



     2.36 “Termination of Employment” means a cessation of the employee-employer or
director or other service arrangement relationship between an Employee, Consultant or Director and
the Company or an Affiliate for any reason, including, without limitation, a termination by
resignation, discharge, death, Disability, Retirement, or the disaffiliation of an Affiliate, but
excluding any such termination where there is a simultaneous reemployment or re-engagement by the
Company or an Affiliate.



4









 





SECTION 3

ADMINISTRATION




     3.1 The Committee. The Plan shall be administered by a committee of the Board that
meets the requirements of this Section 3.1 (hereinafter referred to as “the Committee”).
The Committee shall consist of not less than two (2) Directors. The members of the Committee shall
be appointed from time to time by, and shall serve at the pleasure of, the Board of Directors. The
Committee shall be comprised solely of Directors who are both “outside directors” under Rule 16b-3
and “independent directors” under the requirements of any national securities exchange or system
upon which the Shares are then listed and/or traded.



     3.2 Authority of the Committee. The Committee shall have all powers and discretion
necessary or appropriate to administer the Plan and to control its operation, including, but not
limited to, the power (a) to determine which Employees, Consultants and Directors shall be granted
Awards, (b) to prescribe the terms and conditions of such Awards, (c) to interpret the Plan and the
Awards, (d) to adopt rules for the administration, interpretation and application of the Plan as
are consistent therewith, and (e) to interpret, amend or revoke any such rules.



          The Committee, in its sole discretion and on such terms and conditions as it may provide, may
delegate all or any part of its authority and powers under the Plan to one or more directors and/or
officers of the Company; provided, however, that the Committee may not delegate its
authority and powers with respect to Section 16 Persons.




     3.3 Decisions Binding. All determinations and decisions made by the Committee shall
be final, conclusive, and binding on all persons, and shall be given the maximum deference
permitted by law.



SECTION 4

SHARES SUBJECT TO THE PLAN




     4.1 Shares Available.



          4.1.1 Maximum Shares Available under Plan. The aggregate number of Shares available
for issuance under the Plan may not exceed one million (1,000,000) Shares. Such shares may be
authorized but unissued shares or treasury shares.




          4.1.2 Limitation on Restricted Stock, Performance Units and Performance Shares. The
aggregate number of Shares available for issuance pursuant to Awards of Restricted Stock,
Performance Units and Performance Shares may not exceed one million (1,000,000) Shares.




          4.1.3 Limitation on Incentive Stock Options and Stock Appreciation Rights. No
Participant may receive Options and SARs for more than sixty thousand (60,000) Shares in the
aggregate in any single calendar year; provided, however, that a Participant may receive
Options and SARs for up to one hundred thousand (100,000) Shares in the Participant’s initial
year of service to the Company.





5









 








          4.1.4 General Award Limitation. No Participant may receive Awards under the Plan, the
value of which Awards is based solely on an increase in the value of Shares after the date of grant
of such Awards, for more than sixty thousand (60,000) Shares in the aggregate in any single
calendar year; provided, however, that a Participant may receive Options and SARs for up
one hundred thousand (100,000) Shares in the Participant’s initial year of service to the Company.
The foregoing annual limitation specifically includes the grant of any Awards representing
“qualified performance-based compensation” within the meaning of Section 162(m) of the Code.




          4.1.5 Adjustments. All Share numbers in this Section 4.1 are subject to adjustment as
provided in SECTION 15.




     4.2 Number of Shares. The following rules will apply for purposes of the
determination of the number of Shares available for grant under the Plan:



          (a) While an Award is outstanding, it shall be counted against the authorized pool of Shares,
regardless of its vested status.




          (b) The grant of an Option or Restricted Stock shall reduce the Shares available for grant
under the Plan by the number of Shares subject to such Award.




          (c) The grant of a Tandem SAR shall reduce the number of Shares available for grant by the
number of Shares subject to the related Option (i.e., there is no double counting of Options and
their related Tandem SARs); provided, however, that, upon the exercise of such Tandem SAR,
the authorized Share pool shall be credited with the appropriate number of Shares representing the
number of shares reserved for such Tandem SAR less the number of Shares actually delivered upon
exercise thereof or the number of Shares having a Fair Market Value equal to the cash payment made
upon such exercise.




          (d) The grant of an Affiliated SAR shall reduce the number of Shares available for grant by
the number of Shares subject to the SAR, in addition to the number of Shares subject to the related
Option; provided, however, that, upon the exercise of such Affiliated SAR, the authorized Share
pool shall be credited with the appropriate number of Shares representing the number of shares
reserved for such Affiliated SAR less the number of Shares actually delivered upon exercise thereof
or the number of Shares having a Fair Market Value equal to the cash payment made upon such
exercise.




          (e) The grant of a Freestanding SAR shall reduce the number of Shares available for grant by
the number of Freestanding SARs granted; provided, however, that, upon the exercise of such
Freestanding SAR, the authorized Share pool shall be credited with the appropriate number of Shares
representing the number of shares reserved for such Freestanding SAR less the number of Shares
actually delivered upon exercise thereof or the number of Shares having a Fair Market Value equal
to the cash payment made upon such exercise.




          (f) The Committee shall in each case determine the appropriate number of Shares to deduct from
the authorized pool in connection with the grant of Performance Units and/or Performance Shares.





6









 








          (g) To the extent that an Award is settled in cash rather than in Shares, the authorized Share
pool shall be credited with the appropriate number of Shares having a Fair Market Value equal to
the cash settlement of the Award.




     4.3 Lapsed Awards. If an Award is cancelled, terminates, expires, or lapses for any
reason (with the exception of the termination of a Tandem SAR upon exercise of the related Option,
or the termination of a related Option upon exercise of the corresponding Tandem SAR), any Shares
subject to such Award again shall be available to be the subject of an Award.



SECTION 5

STOCK OPTIONS




     5.1 Grant of Options. Options may be granted to Employees, Consultants and Directors
at any time and from time to time, as determined by the Committee in its sole discretion. The
Committee, in its sole discretion, shall determine the number of Shares subject to Options granted
to each Participant. The Committee may grant ISOs, NQSOs, or a combination thereof.



     5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement that shall
specify the Option Price, the expiration date of the Option, the number of Shares to which the
Option pertains, any conditions to exercise of the Option, and such other terms and conditions as
the Committee, in its discretion, shall determine. The Award Agreement also shall specify whether
the Option is intended to be an ISO or a NQSO.



     5.3 Option Price. Subject to the provisions of this Section 5.3, the Option Price for
each Option shall be determined by the Committee in its sole discretion.



          5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock Option, the
Option Price shall be not less than one hundred percent (100%) of the Fair Market Value of a Share
on the date that the Option is granted.




          5.3.2 Incentive Stock Options. In the case of an Incentive Stock Option, the
Option Price shall be not less than one hundred percent (100%) of the Fair Market Value of a Share
on the date that the Option is granted; provided, however, that if at the time that the
Option is granted, the Employee (together with persons whose stock ownership is attributed to the
Employee pursuant to Section 424(d) of the Code) owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of its Subsidiaries, the Option
Price shall be not less than one hundred and ten percent (110%) of the Fair Market Value of a Share
on the date that the Option is granted.




          5.3.3 Substitute Options. Notwithstanding the provisions of Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate consummates a transaction described in Section 424(a) of the Code (e.g., the acquisition of property or stock from an unrelated corporation), persons who become Employees, Consultants or Directors on account of such transaction may be granted Options in substitution for options granted by their former employer. If such substitute Options are granted, the Committee, in its sole discretion, may determine that such substitute Options shall have an exercise price less than 100% of the Fair Market Value of the Shares on the date the Option is granted.





7










 






     5.4 Expiration of Options. Unless the applicable stock option agreement provides
otherwise, each Option shall terminate upon the first to occur of the events listed in Section
5.4.1, subject to Section 5.4.2.



          5.4.1 Expiration Dates.



               (a) The date for termination of the Option set forth in the Award Agreement;



               (b) The expiration of ten years from the date the Option was granted, or



               (c) The expiration of three months from the date of the Participant’s Termination of
Employment for a reason other than the Participant’s death, Disability or Retirement, or



               (d) The expiration of twelve months from the date of the Participant’s Termination of
Employment by reason of Disability, or



               (e) The expiration of twelve months from the date of the Participant’s death, if such death
occurs while the Participant is in the employ or service of the Company or an Affiliate.



          5.4.2 Committee Discretion. The Committee shall provide, in the terms of each
individual Option, when such Option expires and becomes unexercisable. After the Option is
granted, the Committee, in its sole discretion may extend the maximum term of such Option. The
foregoing discretionary authority is subject to the limitations and restrictions on Incentive Stock
Options set forth in Section 5.8.



     5.5 Exercise of Options. Options granted under the Plan shall be exercisable at such
times, and subject to such restrictions and conditions, as the Committee shall determine in its
sole discretion. After an Option is granted, the Committee, in its sole discretion, may accelerate
the exercisability of the Option.



     5.6 Payment. The Committee shall determine the acceptable form of consideration for
exercising an Option, including the method of payment. In the case of an Incentive Stock Option,
the Committee shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:



          (a) cash;



          (b) check;



          (c) promissory note;



          (d) other Shares which (i) in the case of Shares acquired upon exercise of an Option, have
been owned by the Participant for more than six (6) months on the date of surrender, and (ii) have
a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;



8









 





          (e) consideration received by the Company from a licensed broker under a cashless exercise
program implemented by the Company to facilitate “same day” exercises and sales of Options;



          (f) a reduction in the amount of any Company liability to the Participant;



          (g) any combination of the foregoing methods of payment; or



          (h) such other consideration and method of payment for the issuance of Shares to the extent
permitted by applicable laws.



     5.7 Restrictions on Share Transferability. The Committee may impose such restrictions
on any Shares acquired pursuant to the exercise of an Option, as it may deem advisable, including,
but not limited to, restrictions related to Federal securities laws, the requirements of any
national securities exchange or system upon which such Shares are then listed and/or traded, and/or
any blue sky or state securities laws.



     5.8 Certain Additional Provisions for Incentive Stock Options.



          5.8.1 Exercisability. The aggregate Fair Market Value (determined at the time the
Option is granted) of the Shares with respect to which Incentive Stock Options are exercisable for
the first time by any Employee during any calendar year (under all plans of the Company and its
Subsidiaries) shall not exceed $100,000.




          5.8.2 Termination of Employment. No Incentive Stock Option may be exercised more than
three months after the Participant’s termination of employment for any reason other than Disability
or death, unless (a) the Participant dies during such three-month period, and (b) the Award
Agreement and/or the Committee permits later exercise. No Incentive Stock Option may be exercised
more than one year after the Participant’s termination of employment on account of Disability,
unless (a) the Participant dies during such one-year period, and (b) the Award Agreement and/or the
Committee permit later exercise.




          5.8.3 Company and Subsidiaries Only. Incentive Stock Options may be granted only to
persons who are Employees of the Company and/or a Subsidiary at the time of grant.




          5.8.4 Expiration. No Incentive Stock Option may be exercised after the expiration of
10 years from the date such Option was granted; provided, however, that if the Option is
granted to an Employee who, together with persons whose stock ownership is attributed to the
Employee pursuant to Section 424(d) of the Code, owns stock possessing more than 10% of the total
combined voting power of all classes of the
stock of the Company or any of its Subsidiaries, the Option may not be exercised after the
expiration of 5 years from the date that it was granted.





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     5.9 Nontransferability of Options. No Option granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, the
laws of descent and distribution, or as provided under SECTION 9. All Options granted to a
Participant under the Plan shall be exercisable during his or her lifetime only by such
Participant.



SECTION 6

STOCK APPRECIATION RIGHTS




     6.1 Grant of SARs. An SAR may be granted to an Employee, Consultant or Director at
any time and from time to time as determined by the Committee, in its sole discretion. The
Committee may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof.
The Committee shall have complete discretion to determine the number of SARs granted to any
Participant, and consistent with the provisions of the Plan, the terms and conditions pertaining to
such SARs. However, the grant price of a Freestanding SAR shall be at least equal to the Fair
Market Value of a Share on the date of grant. The grant price of Tandem or Affiliated SARs shall
equal the Option Price of the related Option.



     6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the
Shares subject to the related Option upon the surrender of the right to exercise the equivalent
portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for
which its related Option is then exercisable.



          6.2.1 ISOs. Notwithstanding any contrary provision of the Plan, with respect to a
Tandem SAR granted in connection with an ISO: (i) the Tandem SAR shall expire no later than the
expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR shall
be for no more than one hundred percent (100%) of the difference between the Option Price of the
underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time
the Tandem SAR is exercised; and (iii) the Tandem SAR shall be exercisable only when the Fair
Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO.




     6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be exercised
upon the exercise of the related Option. The deemed exercise of an Affiliated SAR shall not
necessitate a reduction in the number of Shares subject to the related Option.



     6.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable on such
terms and conditions as the Committee, in its sole discretion, shall determine.



     6.5 SAR Agreement. Each SAR shall be evidenced by an Award Agreement that shall
specify the grant price, the term of the SAR, the conditions of exercise, and such other terms and
conditions as the Committee, in its sole discretion, shall determine.



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     6.6 Expiration of SARs. An SAR granted under the Plan shall expire upon the date
determined by the Committee, in its sole discretion, and set forth in the Award Agreement.
Notwithstanding the foregoing, the rules of Section 5.4 (pertaining to Options) also shall apply to
SARs.



     6.7 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled
to receive payment from the Company in an amount determined by multiplying:



          (a) The difference between the Fair Market Value of a Share on the date of exercise over the
grant price; times




          (b) The number of Shares with respect to which the SAR is exercised.




          At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of
equivalent value, or in some combination thereof.




     6.8 Nontransferability of SARs. No SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, the
laws of descent and distribution, or as permitted under SECTION 9. An SAR granted to a Participant
shall be exercisable during the Participant’s lifetime only by such Participant.



SECTION 7

RESTRICTED STOCK




     7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the
Committee, at any time and from time to time, may grant Shares of Restricted Stock to Employees,
Consultants or Directors in such amounts as the Committee, in its sole discretion, shall determine.



     7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be evidenced by
an Award Agreement that shall specify the Period of Restriction, the number of Shares granted, and
such other terms and conditions as the Committee, in its sole discretion, shall determine. Unless
the Committee determines otherwise, shares of Restricted Stock shall be held by the Company as
escrow agent until the restrictions on such Shares have lapsed.



     7.3 Transferability. Except as provided in this SECTION 7, Shares of Restricted Stock
may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction. All rights with respect to the Restricted Stock
granted to a Participant under the Plan shall be available during his or her lifetime only to such
Participant.



     7.4 Other Restrictions. The Committee, in its sole discretion, may impose such other
restrictions on any Shares of Restricted Stock as it may deem advisable including, without
limitation, restrictions based upon the achievement of specific performance goals (Company-wide,
divisional, and/or individual), and/or restrictions under applicable Federal or state securities
laws; and may legend the certificates representing Restricted Stock to give appropriate notice of
such restrictions. For example, the Committee
may determine that some or all certificates representing Shares of Restricted Stock shall bear
the following legend:




“The sale or other transfer of the shares of stock represented by this certificate,
whether voluntary, involuntary, or by operation of law, is subject to certain



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restrictions on transfer as set forth in the Electro Rent Corporation 2005 Equity
Incentive Plan, and in a Restricted Stock Agreement. A copy of the Plan and such
Restricted Stock Agreement may be obtained from the Secretary of Electro Rent
Corporation”



     7.5 Removal of Restrictions. Except as otherwise provided in this SECTION 7, Shares
of Restricted Stock covered by each Restricted Stock grant made under the Plan shall be released
from escrow as soon as practicable after the last day of the Period of Restriction. The Committee,
in its discretion, may accelerate the time at which any restrictions shall lapse, and/or remove any
restrictions. After the restrictions have lapsed, the Participant shall be entitled to have any
legend or legends under Section 7.4 removed from his or her Share certificate, and the Shares shall
be freely transferable by the Participant.



     7.6 Voting Rights. During the Period of Restriction, Participants holding Shares of
Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares,
unless the Committee determines otherwise.



     7.7 Dividends and Other Distributions. During the Period of Restriction, Participants
holding Shares of Restricted Stock shall be entitled to receive all dividends and other
distributions paid with respect to such Shares, unless otherwise provided in the Award Agreement.
If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect
to which they were paid.



     7.8 Return of Restricted Stock to Company. Subject to the applicable Award Agreement
and Section 7.5, upon the earlier of (a) the Participant’s Termination of Employment, or (b) the
date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and, subject to Section 4.3, again shall become available for grant
under the Plan.



     7.9 Repurchase Option. Unless the Committee determines otherwise, the Restricted
Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary
or involuntary termination of the Participant’s service with the Company for any reason (including
death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock
Purchase Agreement shall be the original price paid by the Participant and may be paid by
cancellation of any indebtedness of the Participant to the Company. The repurchase option shall
lapse at a rate determined by the Committee.



SECTION 8

PERFORMANCE UNITS AND PERFORMANCE SHARES




     8.1 Grant of Performance Units/Shares. Performance Units and Performance Shares may
be granted to
Employees, Consultants or Directors at any time and from time to time, as shall be determined
by the Committee, in its sole discretion. The Committee shall have complete discretion in
determining the number of Performance Units and Performance Shares granted to each Participant.



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     8.2 Value of Performance Units/Shares. Each Performance Unit shall have an initial
value that is established by the Committee at the time of grant. Each Performance Share shall have
an initial value equal to the Fair Market Value of a Share on the date of grant. The Committee
shall set performance goals in its discretion which, depending on the extent to which they are met,
will determine the number and/or value of Performance Units/Shares that will be paid out to the
Participants. The time period during which the performance goals must be met shall be called the
“Performance Period”.



     8.3 Earning of Performance Units/Shares. After the applicable Performance Period has
ended, the holder of Performance Units/Shares shall be entitled to receive a payout of the number
of Performance Units/Shares earned by the Participant over the Performance Period, to be determined
as a function of the extent to which the corresponding performance goals have been achieved. After
the grant of a Performance Unit/Share, the Committee, in its sole discretion, may adjust and/or
waive the achievement of any performance goals for such Performance Unit/Share.



     8.4 Form and Timing of Payment of Performance Units/Shares. Payment of earned
Performance Units/Shares shall be made as soon as practicable after the expiration of the
applicable Performance Period. The Committee, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the
value of the earned Performance Units/Shares at the close of the applicable Performance Period) or
in a combination thereof.



     8.5 Cancellation of Performance Units/Shares. Subject to the applicable Award
Agreement, upon the earlier of (a) the Participant’s Termination of Employment, or (b) the date set
forth in the Award Agreement, all remaining Performance Units/Shares shall be forfeited by the
Participant to the Company, and subject to Section 4.3, the Shares subject thereto shall again be
available for grant under the Plan.



     8.6 Nontransferability. Performance Units/Shares may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will, the laws of descent
and distribution, or as permitted under SECTION 9. A Participant’s rights under the Plan shall be
exercisable during the Participant’s lifetime only by the Participant or the Participant’s legal
representative.



SECTION 9

BENEFICIARY DESIGNATION




     If permitted by the Committee, a Participant may name a beneficiary or beneficiaries to whom
any unpaid vested Award shall be paid in event of the Participant’s death. Each such designation
shall revoke all prior designations by the same Participant and shall be effective only if given in
a form and manner acceptable to the Committee. In the absence of any such designation, benefits
remaining unpaid at the Participant’s death shall be paid to the
Participant’s estate and, subject to the terms of the Plan, any unexercised vested Award may
be exercised by the Committee or executor of the Participant’s estate.



SECTION 10

DEFERRALS




     The Committee, in its sole discretion, may permit a Participant to defer receipt of the
payment of cash or the delivery of Shares that would otherwise be due to such Participant under



13









 




an
Award. Any such deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.




SECTION 11

RIGHTS OF EMPLOYEES AND CONSULTANTS




     11.1 No Effect on Employment or Service. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Participant’s employment or service at
any time, with or without cause.



     11.2 Participation. No Employee, Consultant or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.



SECTION 12

AMENDMENT, SUSPENSION, OR TERMINATION




     The Board, in its sole discretion, may alter, amend or terminate the Plan, or any part
thereof, at any time and for any reason. However, as required by Applicable Laws, no alteration or
amendment shall be effective without further stockholder approval. None of the amendment,
suspension, or termination of the Plan shall, without the consent of the Participant, alter or
impair any rights or obligations under any Award theretofore granted. No Award may be granted
during any period of suspension or after termination of the Plan.



SECTION 13

TAX WITHHOLDING




     13.1 Withholding Requirements. Prior to the delivery of any Shares or cash pursuant
to an Award, the Company shall have the power and the right to deduct or withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local
taxes required to be withheld with respect to such Award.



     13.2 Shares Withholding. The Committee, in its sole discretion and pursuant to such
procedures as it may specify from time to time, may permit a Participant to satisfy the minimum
statutory tax withholding obligation, in whole or in part, by delivering to the Company Shares
already owned for more than six (6) months having a value equal to the amount required to be
withheld. The value of the Shares to be delivered will be based on their Fair Market Value on the
date of delivery.



SECTION 14

INDEMNIFICATION




     Each person who is or shall have been a member of the Committee, or of the Board, shall be
indemnified and held harmless by the Company against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him or her in connection with or resulting from
any claim, notion, suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan or any Award Agreement
and against and from any and all amounts paid by him or her in settlement thereof, with the
Company’s approval, or paid by him or her in settlement thereof, with the Company’s approval, or
paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its



14









 




own expense, to handle
and defend the same before he or she undertakes to handle and defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company’s Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have
to indemnify them or hold them harmless.




SECTION 15

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




     15.1 Changes in Capitalization; No Award Repricing. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each outstanding Award, and the
number of Shares which have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or which have been returned to the Plan upon cancellation or expiration of an
Award, as well as the price per Share covered by each such outstanding Award, shall be
proportionately adjusted for any increase or decrease in the number of issued Shares resulting from
a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares,
or any other increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been “effected without receipt of
consideration.” Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number
or price of Shares subject to an Award. Further, except for the adjustments provided herein, no
Award may be amended to reduce its initial exercise price, and no Award may be cancelled and
replaced with an Award with a lower price.



     15.2  Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Committee shall notify each Participant as soon as practicable
prior to the effective date of such proposed transaction. The Committee in its discretion may
provide for a Participant to have the right to exercise his or her Award until ten (10) days prior
to such transaction as to all of the Shares covered thereby, including Shares as to which the Award
would not otherwise be exercisable. In addition, the Committee may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an Award shall lapse as to
all such Shares, provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent
it has not been previously exercised, an Award will terminate immediately prior to the
consummation of such proposed action.



     15.3 Merger or Asset Sale. In the event of a merger of the Company with or into
another corporation, or the sale of substantially all of the assets of the Company, each
outstanding Award shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Award, the Participant shall fully
vest in and have the right to exercise the Award as to all of the Shares as to which it would not
otherwise be vested or exercisable. If an Award becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Committee shall notify
the Participant in writing or electronically that the Award shall be fully vested and exercisable
for a period of fifteen (15) days from the date of such notice, and the Award shall terminate upon
the expiration of such period. For the purposes of this paragraph, the Award shall be considered
assumed if, following the merger or sale of assets, the option or right



15









 




confers the right to
purchase or receive, for each Share subject to the Award immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property) received in the
merger or sale of assets by holders of Shares for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common stock of the
successor corporation or its Parent, the Committee may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of the Award, for each
Share subject to the Award, to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders of Shares in the
merger or sale of assets.




     15.4 Change in Control. In the event of a Change of Control (as defined below),
except as otherwise determined by the Board, the Participant shall fully vest in and have the right
to exercise the Awards as to all of the Shares, including Shares as to which it would not otherwise
be vested or exercisable. If an Award becomes fully vested and exercisable as the result of a
Change of Control, the Committee shall notify the Participant in writing or electronically prior to
the Change of Control that the Award shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Award shall terminate upon the expiration of such
period. For purposes of this Agreement, a “Change of Control” means the happening of any of the
following events:



          (a) When any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act
(other than the Company, a Subsidiary or a Company employee benefit plan, including any trustee of
such plan acting as trustee) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company’s then outstanding securities entitled to
vote generally in the election of directors; or




          (b) The stockholders of the Company approve a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the total voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve an agreement for the sale
or disposition by the Company of all or substantially all the Company’s assets; or




          (c) A change in the composition of the Board of Directors of the Company, as a result of which
fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors”
shall mean directors who either (A) are directors of the Company as of the date the Plan is
approved by the stockholders, or (B) are elected, or nominated for election, to the Board of
Directors of the Company with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).




16









 








SECTION 16

CONDITIONS UPON ISSUANCE OF SHARES




     16.1 Legal Compliance. Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the Company with
respect to such compliance.



     16.2 Investment Representations. As a condition to the exercise of an Award, the
Company may require the person exercising such Award to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.



SECTION 17




INABILITY TO OBTAIN AUTHORITY




     The inability of the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to
issue or sell such Shares as to which such requisite authority shall not have been obtained.



SECTION 18




RESERVATION OF SHARES




     The Company, during the term of this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the Plan.



SECTION 19

LEGAL CONSTRUCTION




     19.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall include the singular
and the singular shall include the plural.



     19.2 Severability. In the event any provision of the Plan shall be held illegal or
invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not
been included.



     19.3 Requirements of Law. The granting of Awards and the issuance of Shares under the
Plan shall be subject to all Applicable Laws. Subject to the foregoing, any grants or payments
hereunder may be adjusted as reasonably required to comply with the terms of Section 409A of the
Internal Revenue Code, as amended, while attempting to achieve a result whose economic impact is as
similar as possible to that contemplated hereunder.



     19.4 Securities Law Compliance. With respect to Section 16 Persons, transactions
under this Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent
any provision of the Plan, Award Agreement or action by the Committee fails to so



17









 




comply, it shall
be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.




     19.5 Governing Law. The Plan and all Award Agreements shall be construed in
accordance with and governed by the laws of the State of California.



     19.6 Captions. Captions are provided herein for convenience only, and shall not
serve as a basis for interpretation or construction of the Plan.



18