<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File Number 0-27490
ALRENCO, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1480655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1736 East Main Street
New Albany, Indiana 47150
(812) 949-3370
(Address, including zip code, and telephone
number, including area code of registrant's
principal executive offices)
NONE
(Former name, former address and former
fiscal year if changed since last report)
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
---- ----
The number of shares outstanding of the issuer's common stock, as of the close
of business May 8, 1996: 4,424,200.
<PAGE>
ALRENCO, INC.
INDEX
PART I. Financial Information
Page No.
Item 1. Financial Statements
Condensed Balance Sheets as of December 31,
1995 and March 31, 1996. 3
Condensed Statements of Earnings for
the three months ended March 31, 1996 and 1995. 4
Condensed Statements of Cash Flows for the three
months ended March 31, 1996 and 1995. 5
Notes to the Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
2
<PAGE>
ALRENCO, INC.
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
Cash $ 806,438 $ 27,041
Rental Merchandise, net 16,079,806 13,115,368
Prepaid Expenses and other assets 902,666 1,480,759
Deferred income taxes 18,699 18,699
Property Assets, net 2,528,227 1,402,409
Loan to stockholder 64,384 64,384
Intangible Assets, net 8,829,571 4,868,590
------------ -------------
$29,229,791 $20,977,250
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable - trade $ 1,959,531 $ 1,763,272
Accrued Liabilities 1,376,312 1,542,621
Taxes other than income 360,996 330,530
Debt 3,916,889 12,865,239
------------ -------------
7,613,728 16,501,662
Stockholders' equity
Preferred stock, no par; 1,000,000
shares authorized; none issued
or outstanding -- --
Common stock, no par; 20,000,000
shares authorized, 4,424,200 shares
issued and outstanding at March 31, 1996
and 3,000,000 shares issued and
outstanding December 31, 1995 17,759,298 1,500
Unamortized value of stock award (1,318,199) --
Retained Earnings 5,174,964 4,474,088
------------ -------------
21,616,063 4,475,588
------------ -------------
$29,229,791 $20,977,250
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
ALRENCO, INC.
Statements Of Earnings
For the Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
March 31,
--------------------------------------------
1996 1995
(Unaudited) (Unaudited)
------------ -------------
<S> <C> <C>
REVENUE
Rentals and fees $12,107,892 $ 8,171,187
Sales 275,782 147,185
Other 175,743 100,899
------------ -------------
Total Revenues 12,559,417 8,419,271
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise 2,702,024 2,201,465
Cost of Sales 146,160 101,986
Salaries and other expenses 6,683,303 4,663,930
------------ -------------
9,531,487 6,967,381
General and administrative expenses 1,539,826 963,562
Amortization of intangibles 155,462 48,360
------------ -------------
Total operating expenses 11,226,775 7,979,303
------------ -------------
Operating Profit 1,332,642 439,968
Interest expense 141,766 185,949
------------ -------------
Earnings before income taxes 1,190,876 254,019
Income tax expense 490,000 115,141
------------ -------------
NET EARNINGS $ 700,876 $ 138,878
------------ -------------
------------ -------------
Weighted average shares outstanding 3,978,995 3,105,000
Earnings per common share $ 0.18 $ 0.04
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
ALRENCO, INC.
Statements of Cash Flows
For the Three Months Ended March 31, 1996 & 1995
<TABLE>
<CAPTION>
March 31,
--------------------------------------------
1996 1995
(Unaudited) (Unaudited)
------------ -------------
<S> <C> <C>
Cash Flows from operating activities
Net Earnings $ 700,876 $ 138,828
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation of rental merchandise 2,702,024 2,201,465
Depreciation of property assets 128,997 79,829
Amortization of intangibles 155,462 43,360
Other (27,234) -
Changes in operating assets and
liabilities net of effects of acquisitions
Rental merchandise (3,479,031) (1,550,880)
Prepaid expenses and other 568,093 143,574
Accounts payable - trade 196,259 60,085
Accrued liabilities (14,508) 53,125
Income taxes payable 30,466 (112,011)
------------ -------------
Net cash provided by
operating activities 961,404 1,062,375
Cash flows from investing activities
Purchases of property assets (526,315) (100,619)
Proceeds from sale of property assets - 196,667
Acquisition of businesses (6,995,140) -----
------------ -------------
Net cash provided by (used in)
investing activities (7,521,455) 96,048
Cash flows from financing activities
Proceeds from initial public offering - net 16,287,798 -
Increase (decrease) in line of credit (8,948,350) (771,535)
------------ -------------
Net cash provided by (used in)
financing activities 7,339,448 (771,535)
------------ -------------
NET INCREASE IN CASH 779,397 386,888
Cash at beginning of period 27,041 23,927
------------ -------------
Cash at end of period $ 806,438 $ 410,815
------------ -------------
------------ -------------
Supplemental cash flow information
Cash paid during the period for
Interest $ 141,766 $ 185,949
Income taxes $ 1,291,340 $ 656,419
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
ALRENCO, INC.
Notes to Condensed Financial Statements
1. In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of the
company as of March 31, 1996 and March 31, 1995, the results of operations for
the three month periods ended March 31, 1996 and March 31, 1995, and the
results of operations for the three month periods ended March 31, 1996 and March
31, 1995. The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the operating results for the full year.
2. On February 29, 1996, the company entered into a formal agreement with a
bank for a $16,150,000 continuing line of credit facility. This agreement
replaces a similar, smaller facility with the same bank and carries a three-
year term with interest rates ranging from prime rate plus 1/2% to prime rate
plus 1-3/4% depending upon level of indebtedness. Under the terms of the
agreement, the company is required to pay 1/2 of 1% per annum on the unused
portion of the facility. As of March 31, 1996 the company had outstanding
loans under the agreement of $3,916,889.
3. The company purchased 14 rental-purchase stores from a company doing
business as Easy Rentals on March 1, 1996 for cash of approximately $6.5
million. The acquisition was accounted for as a purchase and, accordingly, the
operating results of the acquired stores have been included in the operating
results of the company since March 1, 1996. On August 31,1995, the Company
purchased 15 rental-purchase stores for $5.95 million which was accounted for as
a purchase. The operating results are included in the operating results of the
company since August 31, 1995.
The following summary, prepared on a pro forma basis, combines the results of
operations as if the stores had been acquired at the beginning of each of the
periods presented after including the effect of adjustments for amortization of
intangibles and interest expense on acquisition debt.
<TABLE>
<CAPTION>
03/31/96 03/31/95
------------ -------------
<S> <C> <C>
Revenue...................................... $14,257,000 $13,002,000
Net Earnings $ 664,000 $ 317,000
Earnings per common share $ .17 $ .10
</TABLE>
4. Statement of Financial Accounting Standard No. 123 (SFAS 123) "Accounting
for Stock-Based Compensation", is effective for 1996. As permitted by SFAS 123,
the Company has elected to continue to account for stock-based compensation
under pre-existing accounting standards. The pro forma disclosures required
pursuant to this election for the three months ended March 31, 1995 and 1996
have not been presented because the effect on net income of the provisions of
SFAS 123 is not material. Since the number of stock options that may be granted
in the future is not predictable, the effect that SFAS 123 would have on future
periods is not known.
5. On January 23, 1996, the Company completed an initial public offering of
its stock. In conjunction with this offering the Company awarded 105,000
shares of restricted stock to two key employees. The awards vest at the end
of seven years. At the date of grant, the fair value of such shares was
$1,470,000. Compensation will be charged to earnings over the seven year
vesting period. Additionally, 101,247 stock options were issued to directors
and employees under a stock incentive plan.
6
<PAGE>
ALRENCO, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
In March and April 1996, the company acquired seven rental-purchase stores in
four separate transactions. The impact of these acquisitions on the quarter
ended March 31, 1996 was not significant.
RESULTS OF OPERATIONS
REVENUE. Revenue increased $4.1 million or 49.2% to $12.6
million for the quarter ended March 31, 1996 from $8.4 million in the comparable
quarter in 1995. Revenue from same store operations accounted for $943,100, or
23.0% of the increase for the quarter, and revenue from acquired stores
accounted for $3.2 million or 77.0% of the increase. Management believes that
the increase in revenue for the period was primarily attributable to continued
improved performance of the stores acquired in the 1994 acquisition, and the
addition of revenue from the stores acquired in the 1995 acquisition. Also
contributing to the increase was $867,000 in revenue generated in March 1996 by
the acquisition of the Easy Rental stores.
DEPRECIATION OF RENTAL MERCHANDISE. Depreciation of rental
merchandise increased $500,600 or 22.7% to $2.7 million for the quarter ended
March 31, 1996 from $2.2 million in the comparable quarter in 1995. As a
percentage of revenue, depreciation of rental merchandise decreased to 21.5% for
the three months ended March 31, 1996 from 26.1% for the comparable period in
1995, primarily as a result of the change in the Company's depreciation method
for new rental merchandise, the effect of lower acquisition cost allocations for
the 1995 acquisition stores, and increased revenue per item on rent.
OTHER DIRECT STORE EXPENSES. Other direct store expenses
increased $2.1 million or 43.3% to $6.8 million for the quarter ended March 31,
1996 from $4.8 million for the same period in 1995. This increase was primarily
attributable to the additional costs incurred in connection with the operation
of the stores acquired in the 1995 acquisition.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $576,300 or 59.8% to $1.5 million for the quarter ended
March 31, 1996 from $963,600 in the comparable quarter in 1995 primarily
attributable to additional corporate and administrative personnel needed to
support the 1994 and 1995 acquisitions and future store acquisitions. Corporate
and administrative personnel levels are not expected to increase significantly
over the forseeable future.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles
increased $107,100 or 221.2% to $155,500 for the quarter ended March 31, 1996
primarily as a result of intangible assets created by the 1995 acquisition.
INTEREST EXPENSE. Interest expense decreased $44,200 or 23.8% to
$141,800 for the quarter, primarily as a result of reduced debt levels.
Proceeds from the Company's initial public offering was used to repay
outstanding debt in January 1996.
7
<PAGE>
NET EARNINGS. Net earnings increased $562,000 or 404.7% to
$700,900 for the quarter from $138,900 for the comparable quarter in 1995. As a
percentage of revenue, net earnings increased to 5.3% for the quarter ended
March 31, 1996 from 1.6% for the comparable period in 1995. This increase is
primarily attributable to improvement in operating margins for the stores
acquired in the 1994 acquisition and generally high operating margins for the
stores acquired in the 1995 acquisition. In addition, the fourteen stores
acquired on February 29, 1996 generated approximately $118,000 of net earnings
in the month of March, 1996.
LIQUIDITY AND CAPITAL RESOURCES
On January 23, 1996, the company completed an initial public offering of
stock. In this transaction, 1,100,000 shares were offered by the company and
700,000 shares were offered by a selling shareholder at the price of $14.00
per share. On February 26, 1996, the underwriters of the offering exercised
part of their over-allotment option for 219,200 shares. Net proceeds to the
Company from these transactions amounted to $16.3 million. A portion of the
net proceeds was used to repay all outstanding indebtedness under the Loan
Agreement.
On February 29, 1996, the company entered into a formal agreement
with a bank for a $16.2 million continuing line of credit facility. This
agreement replaces a similar, smaller facility with the same bank and carries a
three-year term with interest rates ranging from prime rate plus 1/2% to prime
rate plus 1-3/4% depending upon level of indebtedness. Under the terms of the
agreement, the company is required to pay 1/2 of 1% per annum on the unused
portion of the facility. As of March 31, 1996 the company had outstanding loans
under the agreement of $3.9 million.
Uses of cash during the three month period ended March 31, 1996 included
the purchase of merchandise inventory in the amount of $3.5 million, the
purchase of property assets in the amount of $526,300, the acquisition of
businesses in the amount of $7.0 million, and the net repayment of debt of $8.9
million.
8
<PAGE>
ALRENCO, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
10 - Financing Agreement dated as of February 29, 1996, between the
Registrant and Star Bank N.A.
27 - Financial Data Schedule
(b) On March 15, 1996, the Registrant filed a report on form 8-K to
disclose the acquisition, effective as of March 1, 1996, of 4 rental-
purchase stores doing business under the name "Easy Rental".
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Date: May 14, 1996
ALRENCO, INC.
-------------
(Registrant)
-------------
/s/ Theodore H. Wilson
-----------------------------------
Theodore H. Wilson, Executive
Vice President and Chief Financial
Officer
10
<PAGE>
10
AMENDED AND RESTATED
FINANCING AGREEMENT
BETWEEN
ALRENCO, INC.
AND
STAR BANK, NATIONAL ASSOCIATION
DATE: FEBRUARY __, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Capitalized Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Loans and Other Financial Accommodations. . . . . . . . . . . . . . . . 1
2.1. Total Facility. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Revolving Loan Facility . . . . . . . . . . . . . . . . . . . . . 1
2.3. Letter of Credit Facility . . . . . . . . . . . . . . . . . . . . 2
2.4. Disbursement of Loans . . . . . . . . . . . . . . . . . . . . . . 2
2.5. No Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . 2
2.6. Violations of Loan Formulas . . . . . . . . . . . . . . . . . . . 2
2.7. Discretionary Nature of Facility. . . . . . . . . . . . . . . . . 2
2.8. No Satisfaction or Cancellation of Debt; References . . . . . . . 3
3. Interest Charges; Fees. . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. Interest on Loans . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3. Unused Facility Fee . . . . . . . . . . . . . . . . . . . . . . . 6
3.4. Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . 6
3.5. Calculation of Certain Charges. . . . . . . . . . . . . . . . . . 7
3.6. Field Examination Fee . . . . . . . . . . . . . . . . . . . . . . 7
3.7. Charging Loan Account . . . . . . . . . . . . . . . . . . . . . . 7
4. Monthly Accountings . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1. Security Agreement and Financing Statements . . . . . . . . . . . 7
5.2. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . 8
6. Deliveries; Further Assurances. . . . . . . . . . . . . . . . . . . . . 8
7. Rights to Payments under Rental Contracts; Collection of Rights to
Payments under Rental Contracts; Disputed Rights to Payments under
Rental Contracts; Proceeds of Inventory . . . . . . . . . . . . . . . . 8
7.1. Representations and Warranties Regarding Rights to Payments
under Rental Contracts. . . . . . . . . . . . . . . . . . . . . . 8
7.2. Disputes and Claims Regarding Rights to Payments under Rental
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.3. Special Account; Local Accounts . . . . . . . . . . . . . . . . . 9
7.4. Crediting of Remittances. . . . . . . . . . . . . . . . . . . . . 9
7.5. Costs of Collection . . . . . . . . . . . . . . . . . . . . . . . 9
8. Examination of Collateral; Reporting. . . . . . . . . . . . . . . . . . 10
8.1. Maintenance of Books and Records. . . . . . . . . . . . . . . . . 10
8.2. Access and Inspection; Borrowing Base Report and Certificate. . . 10
8.3. Reporting Regarding Payables and Three Month Average Monthly
Rental Contract Revenues . . . . . . . . . . . . . . . . . . . . 10
8.4. Reporting Regarding Inventory . . . . . . . . . . . . . . . . . . 10
8.5. Monthly Financial Statements. . . . . . . . . . . . . . . . . . . 11
8.6. Annual Projections. . . . . . . . . . . . . . . . . . . . . . . . 11
8.7. Audited Annual Financial Statements . . . . . . . . . . . . . . . 11
8.8. Management Reports. . . . . . . . . . . . . . . . . . . . . . . . 11
8.9. Financial Certificate . . . . . . . . . . . . . . . . . . . . . . 11
8.10. Miscellaneous Other Reports . . . . . . . . . . . . . . . . . . . 11
9. Warranties, Representations and Covenants . . . . . . . . . . . . . . . 12
9.1. Organization, Etc . . . . . . . . . . . . . . . . . . . . . . . . 12
9.2. Due Authorization, Validity, Etc. . . . . . . . . . . . . . . . . 12
9.3. No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.4. Use of Loan Proceeds. . . . . . . . . . . . . . . . . . . . . . . 12
9.5. Management; Licenses, Patents, Etc. . . . . . . . . . . . . . . . 12
9.6. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.7. Title to Property; No Liens . . . . . . . . . . . . . . . . . . . 13
9.8. Restrictions; Labor Disputes; Labor Contracts, Etc. . . . . . . . 13
9.9. No Violation of Law; Hazardous Material . . . . . . . . . . . . . 13
9.10. Absence of Default. . . . . . . . . . . . . . . . . . . . . . . . 13
9.11. Accuracy of Financials; No Material Changes . . . . . . . . . . . 13
9.12. Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.13. Taxes and Other Charges . . . . . . . . . . . . . . . . . . . . . 14
9.14. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.15. No Brokerage Fee. . . . . . . . . . . . . . . . . . . . . . . . . 14
9.16. Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.17. Non-Competition Agreements. . . . . . . . . . . . . . . . . . . . 14
10. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.1. Payment of Fees, Costs and Expenses. . . . . . . . . . . . . . . 15
10.2. Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . 15
10.3. Notice of ERISA Events . . . . . . . . . . . . . . . . . . . . . 15
10.4. Notice of Labor Disputes . . . . . . . . . . . . . . . . . . . . 15
10.5. Notice of Changes in Law and/or Violations of Law. . . . . . . . 15
10.6. Notice of Certain Agreements . . . . . . . . . . . . . . . . . . 15
10.7. Notice of Violations by Other Parties and of Material Events . . 15
10.8. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-1-
<PAGE>
10.9. Property Insurance . . . . . . . . . . . . . . . . . . . . . . . 16
10.10. Liability Insurance. . . . . . . . . . . . . . . . . . . . . . . 16
10.11. Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . . 16
10.12. Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.13. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.14. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.15. Redemption of Stock; Changes in Capital Structure. . . . . . . . 16
10.16. Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . 16
10.17. Deposits to and Withdrawals From Accounts. . . . . . . . . . . . 17
10.18. Sale or Lease of Assets. . . . . . . . . . . . . . . . . . . . . 17
10.19. Consignments, Etc. . . . . . . . . . . . . . . . . . . . . . . . 17
10.20. Change in Management or Business . . . . . . . . . . . . . . . . 17
10.21. Claims Against Collateral. . . . . . . . . . . . . . . . . . . . 17
10.22. Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.23. Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . 17
10.24. Certificate of Officers and Good Standing Certificates . . . . . 17
10.25. Additional Stores. . . . . . . . . . . . . . . . . . . . . . . . 17
11. Effective Date; Termination . . . . . . . . . . . . . . . . . . . . . . 18
11.1. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.2. Termination by Bank. . . . . . . . . . . . . . . . . . . . . . . 18
11.3. Termination by Borrower at Certain Dates . . . . . . . . . . . . 19
11.4. Termination by Borrower at Other Dates and Related Fees. . . . . 19
11.5. Acceleration Upon Termination. . . . . . . . . . . . . . . . . . 19
11.6. Borrower Remains Liable. . . . . . . . . . . . . . . . . . . . . 19
12. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13. Bank's Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . 20
13.1. Acceleration, Etc. . . . . . . . . . . . . . . . . . . . . . . . 20
13.2. Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . 20
14. Waiver; Amendments; Successors and Assigns. . . . . . . . . . . . . . . 20
14.1. Release of Collateral. . . . . . . . . . . . . . . . . . . . . . 20
14.2. Waivers and Amendments in Writing. . . . . . . . . . . . . . . . 21
14.3. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.1. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.2. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.3. Choice of Jurisdiction and Venue . . . . . . . . . . . . . . . . 23
16.4. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . 23
16.5. Survival of Representations and Warranties . . . . . . . . . . . 23
16.6. Evidence of Loans. . . . . . . . . . . . . . . . . . . . . . . . 24
16.7. Bank's Ability Regarding Collateral. . . . . . . . . . . . . . . 24
16.8. Application of Payments, Etc . . . . . . . . . . . . . . . . . . 24
16.9. Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . 24
16.10. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.11. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16.12. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 25
16.13 Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . 26
EXHIBITS
EXHIBIT A LIBOR Election Notice
EXHIBIT B Deliveries
EXHIBIT C Local Accounts
EXHIBIT D Borrowing Base Report and Certificate
EXHIBIT E Financial Statement Certification
EXHIBIT F Licenses, Patents, Trademarks and Tradenames
EXHIBIT G Encumbrances
EXHIBIT H Litigation
EXHIBIT I Affiliates
EXHIBIT J Non-Competition Agreements
EXHIBIT K Financial Covenants
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<PAGE>
AMENDED AND RESTATED
FINANCING AGREEMENT
--------------------
WHEREAS, STAR BANK, NATIONAL ASSOCIATION, a national banking association
("Bank"), and ALRENCO, INC., an Indiana corporation ("Borrower"), entered into a
certain Financing Agreement dated as of February 10, 1993, which has previously
been amended, including, without limitation, by letter agreements dated as of
July 11, 1994, June 14, 1995 and August 31, 1995 to which Bank and Borrower are
parties (the aforedescribed Financing Agreement between Bank and Borrower, as
previously amended, including, without limitation, as amended by the
aforedescribed letter agreements, is hereinafter referred to as the "Initial
Financing Agreement"); and
WHEREAS, Bank and Borrower now desire to amend and restate the Initial
Financing Agreement, as described herein;
NOW, THEREFORE, THIS AMENDED AND RESTATED FINANCING AGREEMENT (this
"Agreement" or this "Financing Agreement") amends and restates the Initial
Financing Agreement, covers the terms upon which Bank has made and hereafter may
make loans and/or advances to Borrower, and is as follows:
1. CAPITALIZED TERMS. Certain capitalized terms used herein are defined
in Paragraph 15 hereof.
2. LOANS AND OTHER FINANCIAL ACCOMMODATIONS.
2.1. TOTAL FACILITY. Bank, in its sole discretion, may make up to a
Sixteen Million One Hundred and Fifty Thousand Dollar ($16,150,000) total credit
("Total Facility") available to Borrower, subject to the terms and conditions of
this Agreement and comprised of the following "Loans": (a) a revolving loan up
to a maximum of Fifteen Million Dollars ($15,000,000) ("Revolving Loan"), as
more particularly described below, (b) a letter of credit facility as long as
the letters of credit outstanding hereunder never exceed One Million Dollars
($1,000,000) in the aggregate (the "Letter of Credit Facility"), as more
particularly described below, and (c) a credit card facility pursuant to Bank's
standard forms, agreements and documentation in place from time to time of up to
a maximum of One Hundred and Fifty Thousand Dollars ($150,000) (the "Credit Card
Facility"); provided, however, that the maximum amount of the Total Facility and
the maximum amount of the Revolving Loan shall each permanently reduce by Two
Hundred and Fifty Thousand Dollars ($250,000) on February 1, 1997 and on each
May 1, August 1, November 1 and February 1 thereafter until the maximum amount
of the Total Facility shall permanently reduce to Zero Dollars ($0) and until
the maximum amount of the Revolving Loan shall permanently reduce to Zero
Dollars ($0). In addition, the Total Facility shall automatically reduce to
Zero Dollars ($0) effective on February 1, 1999 unless Bank hereafter amends
this provision, which Bank shall be under no obligation to do. The sum of the
then outstanding and unpaid balance of all indebtedness and obligations under
and/or in connection with the Revolving Loan, the aggregate amount of all
Letters of Credit (as hereinafter defined) then outstanding, and the then
outstanding and unpaid balance of all indebtedness and obligations under and/or
in connection with the Credit Card Facility shall not at any time exceed the
lesser of (i) the then applicable maximum amount of the Total Facility, as it
reduces from time to time, or (ii) Borrower's Three Month Average Monthly Rental
Contract Revenues for the immediately preceding three (3) calendar months
multiplied by the then applicable Monthly Revenue Multiplier (as hereinafter
defined).
2.2 REVOLVING LOAN FACILITY. The Revolving Loan will be lent and
relent, at Bank's discretion, in amounts (after deduction of such reserves as
Bank deems appropriate, including, without limitation, reserves which, in the
sole discretion of Bank, may be established from time to time (u) for amounts
equal to up to six (6) months of rent and other payment obligations for
locations leased to Borrower for which landlord waivers satisfactory to Bank
have not been duly and validly executed and delivered to Bank, (v) under
generally accepted accounting principles, (w) for amounts Borrower may be
required to expend for compliance with, or correcting any violations of, any
environmental laws for which Borrower may be responsible or liable, for tax
assessments and/or liabilities, for litigation liabilities, or for removal of
any liens from the Collateral, (x) to cover any anticipated costs and expenses
relating to liquidation of Collateral, (y) for the undrawn amounts of any
letters of credit and/or banker's acceptances outside the Letter of Credit
Facility that Bank may issue for the account or direct or indirect benefit of
Borrower, or (z) as Bank deems appropriate to ensure that the Obligations are
paid in full) of up to Borrower's Three Month Average Monthly Rental Contract
Revenues for the immediately preceding three (3) calendar months multiplied by
three and three quarters (3.75) (the "Monthly Revenue Multiplier"), but never in
excess of the maximum amount of the Revolving Loan then applicable; provided,
however, that the Monthly Revenue Multiplier shall reduce by one-quarter (0.25)
on February 1, 1997 and on each August 1 and February 1 thereafter until the
Monthly Revenue Multiplier shall permanently reduce to zero (0).
2.3. LETTER OF CREDIT FACILITY. For the Letter of Credit Facility
Bank may, in its sole discretion and subject to the terms and conditions of this
Agreement, issue commercial and/or stand-by letters of credit, which shall be
secured by the Collateral, in such amounts and with such maturity dates (which
shall in no event extend past February 1, 1999 and which additionally shall not
extend for a period greater than one (1) year, but which Borrower may request to
renew for additional one (1) year periods) as the Borrower may from time to time
request and as are acceptable to Bank; provided that in no event shall the total
aggregate amount of all such letters of credit (the "Letters of Credit")
outstanding at any time exceed One Million Dollars ($1,000,000) (the "Letter of
Credit Amount"); and provided further that the Bank shall not issue any banker's
acceptances. Each Letter of Credit may be issued subject to Bank's approval
thereof. Such approval or disapproval by the Bank shall be made no later than
five (5) business days after a written request from the Borrower is received by
the Bank accompanied by an original of the Bank's standard form Irrevocable
Letter of Credit Application and Agreement duly and validly executed by the
Borrower (the "Letter of Credit Agreement"). Each Letter of Credit shall be
fully reserved from, applied against and subject to the limitations of the Total
Facility and its availability, and upon any draw by or on behalf of a
beneficiary under a Letter of Credit, the amount so drawn shall immediately and
automatically be deemed a Revolving Loan by Bank to Borrower hereunder. Each
outstanding Letter of Credit shall reduce the unused portion of the Total
Facility for purposes of calculating the unused facility fee hereunder. Each
Letter of Credit shall bear fees, charges
<PAGE>
and interest as set forth in PARAGRAPH 3.4 hereof. Each Letter of Credit shall
be subject to the terms and conditions of the Letter of Credit Agreement, this
Agreement and the other Loan Documents. Outstanding as of the date hereof is
one (1) Letter of Credit in the face amount of $350,000 that was issued by the
Bank as of September 25, 1995.
2.4 DISBURSEMENT OF LOANS. All disbursements of proceeds of the
Loans shall be effectuated by Bank crediting Borrower's Account No. 00810-8649
at Bank which shall be structured as a controlled disbursement account;
provided, however that Bank may at any time hereafter elect not to credit
proceeds of the Loans to the aforedescribed controlled disbursement account, but
instead may establish a similar non-controlled disbursement account for Borrower
at Bank and disburse proceeds of the Loans by crediting such non-controlled
disbursement account of Borrower at Bank.
2.5. NO LIMITATION ON LIENS. The limits on outstanding advances
against Three Month Average Monthly Rental Contract Revenues set forth in
PARAGRAPH 2.2 above is not intended and shall not be deemed to limit in any way
Bank's security interest in or lien on the Receivables, Inventory, or Equipment.
2.6. VIOLATIONS OF LOAN FORMULAS. If the sum of all Loans
outstanding at any time exceeds the then applicable maximum amount of the Total
Facility, or if all or any part of the Revolving Loan at any time exceeds any of
the upper limits therefor established in PARAGRAPH 2.2, or if the Letters of
Credit outstanding at any time exceed the upper limit established therefor in
PARAGRAPH 2.3, or if the outstanding and unpaid balance of all indebtedness and
obligations under and/or in connection with the Credit Card Facility exceeds the
upper limit therefor established in PARAGRAPH 2.1, as applicable, Borrower shall
immediately, upon being notified thereof, reduce the outstanding balance of such
Loans so that the Total Facility or such upper limit, as applicable, is not
exceeded.
2.7. DISCRETIONARY NATURE OF FACILITY. NOTHING CONTAINED IN THIS
AGREEMENT SHALL, AT ANY TIME, REQUIRE BANK TO MAKE LOANS OR OTHER EXTENSIONS OF
CREDIT TO BORROWER, AND THE MAKING AND AMOUNT OF ANY LOANS OR OTHER EXTENSIONS
OF CREDIT HEREUNDER SHALL AT ALL TIMES BE IN BANK'S SOLE AND ABSOLUTE
DISCRETION, AND OUTSTANDING LOANS AND OTHER EXTENSIONS OF CREDIT SHALL BE
SUBJECT TO THE TERMS OF PARAGRAPHS 11 AND 13 HEREOF, INCLUDING, WITHOUT
LIMITATION, THE TERMS THEREOF RELATING TO REPAYMENT. Borrower acknowledges that
the covenants set forth in this Agreement are not (and are not intended to be)
an exclusive listing of all the elements of Borrower's condition which are
material to Bank, from time to time, in determining whether credit should be
advanced hereunder. Accordingly, compliance by Borrower with all of the
covenants set forth in this Agreement shall not be deemed to affect, in any
manner, Bank's discretion pursuant to PARAGRAPH 2 of this Agreement with respect
to the making and amount of any Loans or other extensions of credit hereunder,
nor to affect, in any manner, Bank's rights pursuant to PARAGRAPH 11 hereof.
2.8. NO SATISFACTION OR CANCELLATION OF DEBT; REFERENCES. Bank and
Borrower agree that the obligations of Borrower to Bank evidenced by the Initial
Financing Agreement shall not be deemed satisfied or cancelled, but upon
execution of this Agreement, the amounts outstanding under such document shall
be evidenced by this Agreement and by entries upon Bank's books and records,
instead of by such document. All amounts outstanding under the Initial
Financing Agreement in excess of the upper limits permitted by this Agreement
shall be paid in full by the Borrower upon execution hereof. The terms of this
Agreement shall control in the event that there is any conflict between the
terms of this Agreement and the terms of the Initial Financing Agreement. All
references in any of the Loan Documents to the Initial Financing Agreement shall
mean the Initial Financing Agreement as amended and restated by this Agreement
and as this Agreement may be amended, restated, supplemented and/or renewed from
time to time.
3. INTEREST CHARGES; FEES.
3.1. INTEREST ON LOANS. Borrower shall pay Bank interest on the
average daily outstanding principal amount of the Loans and the other
Obligations at a per annum rate which shall equal, and vary from time to time
with, the rate announced at Bank from time to time as its prime rate (the "Prime
Rate") PLUS: (a) one-half of one percent (0.50%) (with such rate to be adjusted
on the effective date of any change in the Prime Rate by Bank) during such time
and for as long as the aggregate outstanding unpaid balance of the Loans and the
other Obligations is less than or equal to Borrower's Three Month Average
Monthly Rental Contract Revenues for the immediately preceding three (3)
calendar months; (b) three-quarters of one percent (0.75%) (with such rate to be
adjusted on the effective date of any change in the Prime Rate by Bank) during
such time and for as long as the aggregate outstanding unpaid balance of the
Loans and the other Obligations is greater than Borrower's Three Month Average
Monthly Rental Contract Revenues for the immediately preceding three (3)
calendar months and less than or equal to Borrower's Three Month Average Monthly
Rental Contract Revenues for the immediately preceding three (3) calendar months
multiplied by two (2); (c) one percent (1.0%) (with such rate to be adjusted on
the effective date of any change in the Prime Rate by Bank) during such time and
for as long as the aggregate outstanding unpaid balance of the Loans and the
other Obligations is greater than Borrower's Three Month Average Monthly Rental
Contract Revenues for the immediately preceding three (3) calendar months
multiplied by two (2) and less than or equal to Borrower's Three Month Average
Monthly Rental Contract Revenues for the immediately preceding three (3)
calendar months multiplied by three (3); and (d) one and three-quarters percent
(1.75%) (with such rate to be adjusted on the effective date of any change in
the Prime Rate by Bank) during such time and for as long as the aggregate
outstanding unpaid balance of the Loans and the other Obligations is greater
than Borrower's Three Month Average Monthly Rental Contract Revenues for the
immediately preceding three (3) calendar months multiplied by three (3). The
Prime Rate is determined solely by Bank pursuant to market factors and its own
operating needs and is not necessarily Bank's best or most favorable rate for
commercial or other loans. The per annum rate of interest applicable at all
times after the
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<PAGE>
occurrence of an Event of Default shall be the Prime Rate (as
adjusted from time to time on the effective date of any change in the Prime Rate
by Bank) plus an additional three and three-quarters percent (3.75%) per annum.
As alternative methods of computing interest on some or all of the
Revolving Loan, in the absence of an Event of Default or the occurrence of an
event which with notice and/or passage of time would constitute an Event of
Default and during such time and for as long as the aggregate outstanding unpaid
balance of the Loans and the other Obligations is less than or equal to
Borrower's Three Month Average Monthly Rental Contract Revenues for the
immediately preceding three (3) calendar months multiplied by two (2), Borrower
may elect to fix the interest rate on the outstanding principal balance of the
Revolving Loan (or such lesser amounts not less than One Hundred Thousand
Dollars ($100,000) and increments of One Hundred Thousand Dollars ($100,000)
above any such amount) for periods of one, two or three months (but only if any
such period does not extend past February 1, 1999 and only for as long as the
aggregate outstanding unpaid balance of the Loans and the other Obligations
remains less than or equal to Borrower's Three Month Average Monthly Rental
Contract Revenues for the immediately preceding three (3) calendar months
multiplied by two (2)) at the then applicable "LIBOR Rate" (as hereinafter
defined) effective at the beginning of such period. In no event shall Borrower
at any time have outstanding more than three (3) separate parts of the Revolving
Loan subject to an alternative method of computing interest.
The "LIBOR Rate" shall mean the sum of (i) the consensus rate, as
determined by Bank, then being offered (rounded upwards, if necessary, to the
nearest 1/10,000 of one percent) by major international banks on Eurodollar
deposits in the amount chosen by Borrower and with an original maturity of the
period elected by Borrower (I.E., one, two or three months), as quoted on the
Reuter's London Interbank Offered Rates page (LIBOR), adjusted for the cost of
reserves, PLUS (ii) (y) three percent (3.0%) during such time and for as long
as the aggregate outstanding unpaid balance of the Loans and the other
Obligations is less than or equal to Borrower's Three Month Average Monthly
Rental Contract Revenues for the immediately preceding three (3) calendar months
and (z) three and one-quarter percent (3.25%) during such time and for as long
as the aggregate outstanding unpaid balance of the Loans and the other
Obligations is greater than Borrower's Three Month Average Monthly Rental
Contract Revenues for the immediately preceding three (3) calendar months and
less than or equal to Borrower's Three Month Average Monthly Rental Contract
Revenues for the immediately preceding three (3) calendar months multiplied by
two (2). If Reuter's ceases to quote current London Interbank Offered Rates,
Bank shall, in its sole discretion, select an alternative rate source.
In electing to utilize an alternative method of computing interest on
the Revolving Loan, Borrower shall provide Bank not less than two (2) business
days (by not later than 11:00 a.m. (Cincinnati, Ohio time)) nor more than ten
(10) business days prior written notice of Borrower's election to fix the
interest rate of all or part of the Revolving Loan at the LIBOR Rate applicable
for the period chosen commencing on the starting date of the period chosen
(which must be a day other than a Saturday or Sunday on which banks are open for
business in Cincinnati, Ohio, and in addition, a day on which dealings in
Eurodollar deposits are carried on between banks in the London interbank
market), which written notice from Borrower to Bank shall be in the form of
EXHIBIT A attached hereto. Upon the expiration of the elected period of a LIBOR
Rate, unless Borrower has provided not less than two (2) business days (by not
later than 11:00 a.m. (Cincinnati, Ohio time)) nor more than ten (10) business
days prior written notice to Bank of Borrower's election of another LIBOR Rate
period as provided hereunder, that part of the Revolving Loan to which the
expiring alternative method of computing interest was applicable shall again
bear interest at the Prime Rate plus the then applicable interest rate factor as
determined in accordance with the formula set forth in the initial paragraph of
this PARAGRAPH 3.1.
Upon prepayment of all or part of the principal of the Revolving Loan
for which an alternative method of computing interest described above has been
elected and is in effect, Borrower covenants and agrees to pay to Bank a fee
(the "Breakfunding Fee"), which shall be equal to the greatest of: (a) zero; (b)
the sum of the breakage fees incurred by Bank in connection with such
prepayment; and (c) the "Net Present Value Adjustment" (as hereinafter defined).
"Net Present Value Adjustment" means the amount, calculated on the
"Prepayment Date" (as hereinafter defined), which is derived by subtracting: (i)
the then-outstanding principal amount of the Revolving Loan (or portion of the
Revolving Loan) for which an alternative method of computing interest described
above has been elected to be prepaid as of such Prepayment Date, from (ii) the
"Net Present Value" (as hereinafter defined) of the then-outstanding principal
amount of the Revolving Loan (or portion of the Revolving Loan) to be prepaid on
such Prepayment Date.
"Prepayment Date" means for any part of the Revolving Loan for which
an alternative method of computing interest described above has been elected,
that business day prior to expiration of the applicable elected period of a
LIBOR Rate that Bank receives from Borrower an unscheduled principal payment
amount.
"Net Present Value" means the amount, calculated by Bank, which is
derived by adding together the present values discounted to the Prepayment Date
of each prospective payment of principal and interest which, without such full
or partial prepayment, would otherwise have been received by Bank over the
remaining contractual life of the Revolving Loan for which an alternative method
of computing interest described above has been elected for which a prepayment is
being made. The individual discount rate used to determine the present value of
each prospective payment of principal and/or interest shall be the "Current
Matched Maturity Rate" (as hereinafter defined) for the maturity matching that
of each specific payment of principal and/or interest.
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<PAGE>
"Current Matched Maturity Rate" means that zero-coupon rate,
calculated by Bank, and determined solely by Bank, as the rate at which Bank
would be able to borrow funds in "Money Markets" (as hereinafter defined) on the
Prepayment Date for the prepayment amount matching the maturity of a specific
prospective "Loan Payment Date" (as hereinafter defined). Such a rate shall
include FDIC insurance, reserve requirements and other explicit or implicit
costs levied by any regulatory agency. A separate Current Matched Maturity Rate
will be calculated for each prospective Loan Payment Date.
"Money Markets" means one or more wholesale funding markets available
to Bank including negotiable certificates of deposit, eurodollar deposits, bank
notes, fed funds or others.
"Loan Payment Date" means a date on which a prospective principal
and/or interest payment of the Revolving Loan for which an alternative method of
computing interest described above has been elected for which a prepayment is
being made is due and payable.
In calculating the amount of such Breakfunding Fee, Bank is hereby
authorized by Borrower to make such assumptions regarding the source of funding,
redeployment of funds and other related matters as Bank may deem appropriate.
If Borrower fails to pay any Breakfunding Fee when due, the amount of such fee
shall thereafter bear interest until paid at a rate per annum equal to the Prime
Rate in effect from time to time plus three and three-quarters percent (3.75%)
(computed on the basis of a 360 day year, but applied to actual days elapsed).
If there is more than one prepayment, a Breakfunding Fee shall be due
and payable with respect to each such prepayment, and the Breakfunding Fee shall
be separately computed with respect to each successive prepayment, taking into
account any previous partial prepayments of principal.
The amount of any Breakfunding Fee as computed by Bank shall be
binding and conclusive upon Borrower.
All of the Loans for which Borrower is obligated to pay a Breakfunding
Fee may only be prepaid subject to payment by Borrower of a further out-of-
pocket expense charge in an amount determined by Bank in its reasonable
discretion, with such charge to compensate Bank for all out-of-pocket
liabilities, obligations, costs, expenses, charges and fees incurred by Bank in
connection with such prepayment (the "Out-of-Pocket Expenses"), and with such
Breakfunding Fee and Out-of-Pocket Expenses to be payable by Borrower to Bank,
upon Bank's demand therefor.
In the event of any change in reserve requirements and/or assessment
rates which are applicable to Bank in making any or all of the Revolving Loan at
a LIBOR Rate or any change in circumstances affecting the interbank market, and
the result of any such event is to increase the cost to Bank in making the
Revolving Loan, Borrower shall promptly pay Bank the increased costs incurred by
it in making the Revolving Loan under this Agreement upon Bank's demand therefor
accompanied by a reasonably detailed statement as to such additional costs
(which statement shall be conclusive in the absence of manifest error). If by
reason of circumstances affecting the interbank market adequate and reasonable
means do not exist in the reasonable judgment of Bank for ascertaining the LIBOR
Rate at any time, Bank shall forthwith give notice thereof to Borrower. Unless
and until such notice has been withdrawn by Bank, Borrower may not thereafter
elect to have any Revolving Loan bear interest at the LIBOR Rate. If any law,
rule, regulation, treaty, guideline, order or directive or any change therein or
in the interpretation or application thereof shall make it unlawful for all or
any part of the Revolving Loan to bear interest at the LIBOR Rate, Bank shall
notify Borrower thereof and no Revolving Loan may thereafter bear interest at
the LIBOR Rate. If required by law, any Revolving Loan then bearing interest at
the LIBOR Rate shall cease to bear interest at the LIBOR Rate and shall bear
interest at the Prime Rate plus the then applicable interest rate factor as
determined in accordance with the formula set forth in the initial paragraph of
this PARAGRAPH 3.1.
Provided, however, that notwithstanding anything to the contrary
herein, to the extent the Loans or other Obligations accrue interest at a higher
rate under other documents relating to such Loans or other Obligations (such as
for any credit card facility made available by Bank to Borrower), such higher
interest rates shall apply.
3.2. INCREASED COSTS - CAPITAL ADEQUACY. In case of any change in
law or governmental rules, regulations, guidelines or orders (or any
interpretations thereof) or the introduction of new laws, regulations or
guidelines which require Bank to reserve for unfunded credit commitments, Bank
may charge Borrower an additional fee which will compensate Bank for such
requirements.
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<PAGE>
3.3. UNUSED FACILITY FEE. Borrower shall pay Bank an unused facility
fee equal to the rate of one-half of one percent (0.50%) per annum of the daily
average of the unused portion of the Total Facility, and such unused facility
fee shall be payable monthly in arrears, commencing on March 1, 1996, and on the
first day of each month thereafter, and when the Loans are due (whether by
reason of acceleration or otherwise).
3.4. LETTER OF CREDIT FEES. In addition to all other fees and
expenses (including, without limitation, for cables, postage, telexes and
indemnities) charged by the Bank for commercial and/or stand-by letters of
credit, Borrower shall pay Bank letter of credit fees on all Letters of Credit
("Letter of Credit Fees"), as follows: (i) for each Letter of Credit, a letter
of credit administration fee (the "Letter of Credit Administration Fee") at the
rate of two percent (2.00%) per annum of the face amount of each such Letter of
Credit, which Letter of Credit Administration Fee shall be due and payable upon
the issuance of any Letter of Credit and on each anniversary thereof that such
Letter of Credit remains outstanding, and (ii) upon the opening, closing,
paying, amending or renewing of each Letter of Credit, the greater of Bank's
then standard fees therefor or Fifty Dollars ($50.00) for each such opening,
closing, payment, amendment or renewal.
3.5. CALCULATION OF CERTAIN CHARGES. Accrued interest charges and
the unused facility fee shall be computed on the basis of a year of three
hundred sixty (360) days and applied to actual days elapsed and shall be payable
monthly to Bank on the first day of each month hereafter. All such charges and
fees shall be paid in arrears, except that any charges and fees imposed with
respect to any Letters of Credit shall be paid in advance.
3.6. FIELD EXAMINATION FEE. Borrower shall pay Bank a field
examination fee at the rate of $2,000 per month, which shall be payable by
Borrower to the Bank on the first day of each month in advance and without any
right of refund therefor.
3.7. CHARGING LOAN ACCOUNT. Borrower hereby authorizes Bank, at
Bank's option, to charge any account or charge or increase any Loan balance of
Borrower at Bank for the payment or repayment of any interest or principal of
the Loans or any fees, charges or other amounts due to Bank hereunder or under
any of the other Loan Documents.
3.8. MAXIMUM RATE. If at any time any rate of interest computed in
the manner provided in this PARAGRAPH 3 ("Applicable Rate"), together with all
fees and charges as provided for herein or in any other Loan Document
(collectively, the "Charges"), which are treated as interest under applicable
law exceeds the maximum lawful rate (the "Maximum Rate") allowed under
applicable law, the rate of interest payable hereunder, together with all
Charges, shall be limited to the Maximum Rate; provided, however, that any
subsequent reduction in the Prime Rate and/or the LIBOR Rate shall not reduce
the Applicable Rate below the Maximum Rate until the total amount of interest
earned hereunder, together with all Charges, equals the total amount of interest
which would have accrued at the Applicable Rate if the Applicable Rate had at
all times been in effect. If any payment hereunder, for any reason, results in
Borrower having paid interest in excess of that permitted by applicable law,
then all excess amounts theretofore collected by Bank shall be credited on the
principal balance owing hereunder (or, if all sums owing hereunder have been
paid in full, refunded to Borrower), and the amounts thereafter collectible
hereunder shall immediately be deemed reduced, without the necessity of the
execution of any new document, so as to comply with applicable law and permit
the recovery of the fullest amount otherwise called for hereunder.
4. MONTHLY ACCOUNTINGS. Bank will provide Borrower monthly with a
statement of advances, charges and payments made pursuant to this Agreement and
such account rendered by Bank shall be deemed binding as against Borrower unless
Bank is notified by Borrower within fifteen (15) days after each account is
delivered to Borrower that Borrower disputes such account.
5. SECURITY. The Obligations shall be secured by:
5.1. SECURITY AGREEMENT AND FINANCING STATEMENTS. A security
interest in all of the Collateral, pursuant to a Security Agreement previously
executed and delivered by Borrower to Bank (as heretofore, concurrently
herewith, and/or hereafter amended, restated, supplemented and/or renewed from
time to time, the "Security Agreement") and accompanying financing statements in
form and substance suitable for filing under the applicable state(s) version(s)
of the Uniform Commercial Code (the "Financing Statements"). Without limiting
any of the Borrower's liabilities and/or obligations thereunder, and only
insofar as necessary to confirm that the Security Agreement, the other Loan
Documents and the security interests and liens provided thereunder or in
connection therewith secure all of Borrower's liabilities under this Agreement
(as the same may be amended, restated, supplemented and/or renewed from time to
time) and the Obligations, the Security Agreement and any other Loan Documents
shall be deemed amended hereby.
5.2. INTELLECTUAL PROPERTY. The assignment of Borrower's patents and
related rights and interests, pursuant to a Contingent Patent Assignment
previously executed and delivered by Borrower to Bank (as heretofore,
concurrently herewith, and/or hereafter amended, restated, supplemented and/or
renewed from time to time, the "Patent Assignment") and the assignment of
Borrower's trademarks, licenses and related rights and interests, pursuant to a
Contingent Trademark Assignment previously executed and delivered by Borrower to
Bank (as heretofore, concurrently
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<PAGE>
herewith, and/or hereafter amended, restated, supplemented and/or renewed from
time to time, the "Trademark Assignment").
The foregoing documents shall be and remain in form and substance
satisfactory to Bank and its counsel, and the Collateral and other assets and
property covered thereby shall secure the Obligations in such order as may be
determined by Bank in its sole discretion.
By virtue of Bank's Acceptance of this Agreement, the following documents
shall be deemed to be cancelled and of no further force or effect: (a) the
Guaranty dated as of February 10, 1993 executed and delivered by Michael D.
Walts to Bank pursuant to which Michael D. Walts guaranteed the obligations of
Borrower to Bank; (b) the Guaranty dated as of February 10, 1993 executed and
delivered by Geraldine W. Walts to Bank pursuant to which Geraldine W. Walts
guaranteed the obligations of Borrower to Bank; and (c) the Assignment of Life
Insurance Policy as Collateral executed and delivered by Borrower and Michael D.
Walts to Bank pursuant to which insurance on the life of Michael D. Walts was
collaterally assigned to Bank. In connection with the foregoing, upon
Borrower's request therefor, Bank shall return said Guaranties to Michael D.
Walts and Geraldine W. Walts, respectively, and the Assignment of Life Insurance
Policy as Collateral to Borrower.
6. DELIVERIES; FURTHER ASSURANCES. Simultaneously with or prior to the
execution of this Agreement, Borrower shall have delivered to Bank all of the
documents, instruments and other information described on EXHIBIT B attached
hereto. Borrower agrees to execute and deliver or cause to be executed and
delivered any and all further documents and instruments and to take any and all
further actions as may be determined by Bank to be necessary or appropriate to
the transactions contemplated herein.
7. RIGHTS TO PAYMENTS UNDER RENTAL CONTRACTS; COLLECTION OF RIGHTS TO
PAYMENTS UNDER RENTAL CONTRACTS; DISPUTED RIGHTS TO PAYMENTS UNDER RENTAL
CONTRACTS; PROCEEDS OF INVENTORY.
7.1. REPRESENTATIONS AND WARRANTIES REGARDING RIGHTS TO PAYMENTS
UNDER RENTAL CONTRACTS. Borrower agrees and represents that each Right to
Payment under Rental Contracts and each lease-purchase agreement or other
document representing any such Right to Payment under Rental Contracts will
cover a bona fide sale and/or lease and delivery of merchandise usually dealt in
by Borrower and will be for a liquidated amount maturing as stated in the
schedule thereof and in the duplicate lease-purchase agreement covering said
lease and/or sale, and Bank's security interest therein, to the best of
Borrower's knowledge, will not be subject to any offset, deduction,
counterclaim, lien or other condition, except for the rights of the lessee to
terminate any such lease-purchase agreement in accordance with the terms thereof
by returning the leased items and paying all payments due through the date of
return. None of Borrower's lease-purchase agreements shall be backdated,
postdated or redated and Borrower shall make no leases on terms beyond that
customary in Borrower's industry.
7.2. DISPUTES AND CLAIMS REGARDING RIGHTS TO PAYMENTS UNDER RENTAL
CONTRACTS. Borrower shall notify Bank promptly of all material returns and
recoveries and, on request, deliver the material returns and recoveries of
merchandise to Bank at a location or locations selected by Bank in its sole
discretion. Borrower shall also notify Bank promptly of all material disputes
and claims and settle or adjust them at no expense to Bank, but no discount,
credit or allowance outside the ordinary course of business or material, adverse
extension, compromise or settlement shall be granted to any customer or account
debtor and no returns of merchandise outside the ordinary course of business
shall be accepted by Borrower without Bank's consent.
7.3. SPECIAL ACCOUNT; LOCAL ACCOUNTS. In order to provide for
collection and forwarding to Bank of all remittances of every kind due Borrower
("Remittances"), proceeds of other Collateral, and other funds received by
Borrower, Borrower shall on a daily basis deposit all such Remittances,
proceeds, and funds into the accounts of Borrower maintained at the banks where
Borrower's stores are located, all as described at EXHIBIT C attached hereto
(such accounts described at EXHIBIT C, as the same may be supplemented hereafter
from time to time, and any other accounts where Borrower now or hereafter
deposits any Remittances, proceeds of Receivables or other Collateral, or other
funds are collectively referred to as the "Local Accounts"). On a twice per
week basis (and a more frequent basis if Bank hereafter requires, including,
without limitation, after the occurrence of an Event of Default), all funds and
other items in the Local Accounts shall be transferred to, and deposited in,
Account No. 00810-8771 at Bank (the "Special Account"), and Borrower shall take
all actions necessary to effectuate such transfers to the Special Account.
Borrower further hereby grants to Bank an irrevocable power of attorney, coupled
with an interest, to take in Borrower's name all action necessary to grant Bank
access to each and all of the Local Accounts and to effectuate transfers to, and
deposits in, the Special Account of all funds and other items now or hereafter
in any or all of the Local Accounts. Any Remittance or other proceeds of
Receivables or Rights to Payments under Rental Contracts or other Collateral or
funds received by Borrower shall be deemed held by Borrower in trust and as
fiduciary for Bank, and Borrower immediately shall deposit the same, in its
original form, into one of the Local Accounts or, at Bank's discretion, the
Special Account. Pending such deposit, Borrower agrees that it will not
commingle any such Remittance or other proceeds of Receivables or Rights to
Payments under Rental Contracts or other Collateral or funds with any of
Borrower's other funds or property, but will hold it separate and apart
therefrom in trust for Bank until deposit is made into one of the Local Accounts
or the Special Account. All deposits to the Special Account shall be Bank's
property and shall be subject only to the signing authority designated from time
to time by Bank, and Borrower shall have no interest therein or control
thereover. Bank shall have, and Borrower hereby grants to Bank, a security
interest in all funds held in the Special Account and Local Accounts as security
for the Obligations. The Special Account shall not be
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subject to any deduction, set-off, banker's lien or any other right in favor of
any person or entity other than Bank. Deposits to the Special Account and Local
Accounts may be applied against the principal and/or interest of the Revolving
Loan and/or other Obligations of Borrower to Bank in such order and method of
application as may be elected by Bank in its discretion. Any funds in the
Special Account or Local Accounts which Bank elects not to apply to the
Obligations as provided in the preceding sentence may, at Bank's option, be paid
over by Bank to Borrower or retained in the Special Account or Local Accounts as
continuing security for the Obligations. Borrower hereby indemnifies and holds
Bank harmless from and against any loss or damage with respect to any Remittance
deposited in the Special Account or Local Accounts which is dishonored or
returned for any reason. If any Remittance deposited in the Special Account or
Local Accounts is dishonored or returned unpaid for any reason, Bank, at its
discretion, may charge the amount of such dishonored or returned Remittance
directly against Borrower and/or any account maintained by Borrower with Bank
and such amount shall be deemed part of the Obligations hereunder. Bank shall
not be liable for any loss or damage resulting from any error, omission, failure
or negligence on the part of Bank under this Agreement.
7.4. CREDITING OF REMITTANCES. For the purpose of calculating
interest, all Remittances and other proceeds of Receivables and Rights to
Payments under Rental Contracts and other Collateral shall be credited to
Borrower (conditional upon final collection) two (2) business days after deposit
into the Special Account. For the purpose of determining the aggregate loan
availability and the unused facility fee hereunder, all such Remittances shall
be credited on the date of deposit of the same into the Special Account. From
time to time, Bank may adopt such regulations and procedures as it may deem
reasonable and appropriate with respect to the operation of the Special Account
and Local Accounts and the services to be provided by Bank under this Agreement.
7.5. COSTS OF COLLECTION. All costs of collection of Borrower's
Receivables and Rights to Payments under Rental Contracts, including Attorneys'
Fees, out-of-pocket expenses, administrative and record-keeping costs, and all
service charges and costs related to the establishment and maintenance of the
Special Account and the Local Accounts, shall be the sole responsibility of
Borrower, whether the same are incurred by Bank or Borrower, and Bank, at its
discretion, may charge the same against Borrower and/or any account maintained
by Borrower with Bank and the same shall be deemed part of the Obligations
hereunder.
8. EXAMINATION OF COLLATERAL; REPORTING.
8.1. MAINTENANCE OF BOOKS AND RECORDS. Borrower shall keep and
maintain complete books of account, records and files with respect to its
business in accordance with generally accepted accounting principles
consistently applied and shall accurately and completely record all transactions
therein.
8.2. ACCESS AND INSPECTION; BORROWING BASE REPORT AND CERTIFICATE.
Bank may at all times have access to and the right to examine and inspect all of
Borrower's real and personal property, and access to and the right to inspect,
audit and make extracts from all of Borrower's records, files and books of
account, and Borrower shall execute and deliver at the request of Bank such
instruments as may be necessary for Bank to obtain such information concerning
the business of Borrower as Bank may require from any Person. Borrower hereby
authorizes all federal, state and municipal authorities to furnish to Bank
copies of reports of examinations of Borrower which have been made by them and
further authorizes any banking institution, account debtor, lessee or other
third party with whom Borrower has a contractual relationship pertaining to the
Collateral, this Agreement, any of the other Loan Documents or any matter
referenced herein or therein, to furnish to Bank copies of such contracts and
any affiliated writings. Borrower shall furnish Bank at reasonable intervals
with such statements and reports regarding Borrower's financial condition and
the results of Borrower's operations, in addition to those hereinafter required,
as Bank may request from time to time. Not less frequently than monthly by not
later than 30 days after the end of each month, and more frequently if Bank
shall require, Borrower shall provide Bank a fully completed and executed
Borrowing Base Report and Certificate in the form of EXHIBIT D hereto,
containing all such information (including, without limitation, the information
concerning Rights to Payments under Rental Contracts and Three Month Average
Monthly Rental Contract Revenues and reconciliations to Borrower's financial
statements) called for by the Borrowing Base Report and Certificate. With each
Borrowing Base Report and Certificate delivered by Borrower to Bank on a monthly
basis, and more frequently if Bank shall require, Borrower shall provide Bank
with such supporting information as Bank may from time to time request,
including, without limitation, sales and/or lease journals, remittance/cash
receipt advices, credit memoranda, and information concerning leases, sales,
collections and non-cash charges.
8.3. REPORTING REGARDING PAYABLES AND THREE MONTH AVERAGE MONTHLY
RENTAL CONTRACT REVENUES. No later than 30 days after the end of each month, or
sooner if available, Borrower shall deliver to Bank monthly agings of its
accounts payable, and a reconciliation of such accounts payable agings to
Borrower's general ledger, together with such further information with respect
thereto as Bank may require. No later than 30 days after the end of each month,
or sooner if available, Borrower shall deliver to Bank a report regarding its
immediately preceding Three Month Average Monthly Rental Contract Revenues in
such detail as Bank may require and with such further information with respect
thereto as Bank may require (including, without limitation, a reconciliation of
Borrower's total cash Remittances and receipts for the preceding calendar month
to Borrower's revenue reported in Borrower's financial statements for such
month).
8.4. REPORTING REGARDING INVENTORY. Borrower shall conduct a full
and complete physical count of its Inventory at least annually and more
frequently if Bank shall require, in a manner and in accordance with procedures
approved by Borrower's independent certified public accountants and Bank, and
shall promptly extend, price and summarize such physical counts and submit a
report thereof to Bank. Values shown on reports of Inventory shall be at the
lower of cost
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or market value determined in accordance with Borrower's usual cost accounting
system, consistently applied. No later than 30 days after the end of each
month, or sooner if available, Borrower shall submit to Bank an inventory report
broken down into such detail and with such categories as Bank shall require
(including, but not limited to, a report of such Inventory reconciled to
Borrower's general ledger, a report of Inventory on rent and total Inventory on
hand, and a report indicating the mix and location of all of Borrower's
Inventory). In addition, Borrower shall on a monthly basis submit to Bank a
copy of any inventory report that Borrower delivers to its insurer(s) at the
same time such report is delivered to the insurer(s).
8.5. MONTHLY FINANCIAL STATEMENTS. No later than 30 days after the
end of each month, Borrower shall furnish to Bank monthly statements showing
Borrower's financial condition and the results of Borrower's operations for the
periods covered by such statements in form and detail as Bank may from time to
time require, prepared in accordance with generally accepted accounting
principles consistently applied and containing all disclosures required to fully
and accurately present the financial position and results of operations of
Borrower and to make such statements not misleading under the circumstances.
Said statements shall include: (i) a comparison of the projected financial
position and results of operations of Borrower for the month and year-to-date
provided for in PARAGRAPH 8.6 with the actual financial position and results of
operations of Borrower for the month and year-to-date and an explanation of any
material variations between them; and (ii) a comparison between actual
calculated results and covenanted results for each of the Financial Covenants
contained in EXHIBIT K.
8.6. ANNUAL PROJECTIONS. At least 30 days prior to the end of each
of Borrower's fiscal years, Borrower shall furnish to Bank detailed projections
for the next 12 months setting forth projected income and cash flow for each
month and the projected balance sheet as of the end of each month. Such
projections shall be prepared in a manner fully and accurately presenting the
projected financial condition and results of operations of Borrower and making
such projections not misleading under the circumstances.
8.7. AUDITED ANNUAL FINANCIAL STATEMENTS. No later than 90 days
after the end of each of Borrower's fiscal years, Borrower shall submit to Bank
statements of its financial condition and the results of its operations for the
period then ended. Such statements shall be prepared by an independent
certified public accountant acceptable to Bank and shall be prepared and
presented in accordance with generally accepted accounting principles
consistently applied. Such statements shall be delivered to Bank together with
an audit report of such independent certified public accountant addressed to
Bank. Said statements shall be accompanied by: (i) a comparison prepared by
Borrower of the projected financial position and results of operations of
Borrower provided for in PARAGRAPH 8.6 with the actual financial position and
results of operations of Borrower and an explanation of any material variations
between them; and (ii) a comparison prepared by Borrower between actual
calculated results and covenanted results for each of the Financial Covenants
contained in EXHIBIT K.
8.8. MANAGEMENT REPORTS. Borrower shall furnish to Bank promptly
upon receipt copies of all management letters and any other material reports
and/or examinations provided by Borrower's independent accountants. After an
Event of Default, Bank shall be given notice of and the right to attend any
meetings between Borrower and the independent accountants with respect to any
such matters.
8.9. FINANCIAL CERTIFICATE. Borrower shall furnish Bank together
with all materials required pursuant to PARAGRAPHS 8.5, 8.6 AND 8.7 of this
Agreement, a certificate signed by the Chief Financial Officer of Borrower in
the form of EXHIBIT E attached hereto.
8.10. MISCELLANEOUS OTHER REPORTS. Borrower shall additionally
provide to Bank by not later than 30 days after the end of each month, or sooner
if available: (i) a report, in form and detail satisfactory to Bank, of
Borrower's actual units on rent broken down by each store location of Borrower
(and including, without limitation therein, reports of the percentages of pick-
ups, pay-offs, charge-offs and deliveries from Borrower's business during the
prior month, and of the percentage that idle inventory represents of total
inventory); (ii) reports, in form and detail satisfactory to Bank, concerning
the yield and delinquency of Borrower's lease-purchase agreement receivables for
the prior month; and (iii) reports, in form and detail satisfactory to Bank,
indicating the total value of all then existing rental contracts for all items
then being rented by Borrower to its customers. Borrower shall provide to Bank,
as they are issued and/or delivered to the Securities and Exchange Commission,
stock exchanges and other governmental and private regulatory agencies, complete
and up-to-date copies of Borrower's Forms 10-K and 10-Q and other filings and
reports made and/or delivered by or on behalf of Borrower to any or all of such
entities.
9. WARRANTIES, REPRESENTATIONS AND COVENANTS. Borrower warrants and
represents as of the date hereof, and covenants from and after the date hereof
and until the Obligations are fully paid, performed and satisfied, the following
representations, warranties and covenants are and shall remain true:
9.1. ORGANIZATION, ETC. Borrower is and shall remain duly organized,
validly existing and in good standing under the laws of the State of Indiana and
is and shall remain qualified to do business under the laws of all other states
and jurisdictions where such qualification by Borrower is required by such other
state(s) and jurisdiction(s), and has and shall maintain all requisite power and
authority, corporate or otherwise, to conduct its business, to own its property
and to execute, deliver and perform all of its obligations under this Agreement
and each of the other Loan Documents;
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9.2. DUE AUTHORIZATION, VALIDITY, ETC. This Agreement and each of
the other Loan Documents have been duly executed and delivered and authorized by
all requisite corporate action;
9.3. NO VIOLATION. The execution, delivery and/or performance by
Borrower of this Agreement and the other Loan Documents does not and will not
(i) constitute a violation of any applicable law or a breach of any provision
contained in Borrower's Articles of Incorporation or Bylaws or contained in any
order of any court or other governmental agency or in any agreement, instrument
or document to which Borrower is a party or by which Borrower or any of its
properties is bound or (ii) result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of Borrower's properties
(other than in favor of Bank hereunder);
9.4. USE OF LOAN PROCEEDS. Borrower's uses of the proceeds of the
Loans made by Bank to Borrower pursuant to this Agreement are, and will continue
to be, legal and proper corporate uses (duly authorized by Borrower's Board of
Directors), such uses do not and shall not violate any applicable laws or
statutes as in effect as of the date hereof or hereafter, and the Loans are not
and shall not be secured, directly or indirectly, by any stock for the purpose
of purchasing or carrying any margin stock or for any purpose which would
violate either Regulation U, 12 C.F.R. Part 221, or Regulation X, 12 C.F.R. Part
224, promulgated by the Board of Governors of the Federal Reserve System;
9.5. MANAGEMENT; LICENSES, PATENTS, ETC. Borrower possesses and
shall continue to possess active, full-time, professional management adequate to
handle its affairs and adequate employees, assets, governmental approvals,
licenses, patents, copyrights, trademarks and trade names to continue to conduct
its business as heretofore and hereafter conducted by it and all such licenses,
patents, copyrights, trademarks and trade names are described on EXHIBIT F
attached hereto;
9.6. INDEBTEDNESS. Except as reflected in the Financials and except
for short term unsecured trade payables and operating accruals of Borrower
(including for leases of real property and/or vehicles) incurred in the ordinary
course of its business, Borrower has no Indebtedness and shall incur no
Indebtedness, other than the Obligations, and has not guaranteed and shall not
guarantee the obligations of any other Person;
9.7. TITLE TO PROPERTY; NO LIENS. Borrower has and shall retain
good, indefeasible and merchantable title to and ownership of all of its real
and personal property, including, without limitation, the Collateral and other
security for the Obligations, free and clear of all liens, claims, security
interests, assignments, mortgages, pledges and encumbrances, except Permitted
Liens and except as described on EXHIBIT G attached hereto;
9.8. RESTRICTIONS; LABOR DISPUTES; LABOR CONTRACTS, ETC. Borrower is
not, to the best of Borrower's knowledge following diligent inquiry, a party or
subject to, and Borrower shall not become a party or subject to, any charge,
corporate restriction, judgment, decree or order, materially and adversely
affecting its business, property, assets, operations or condition, financial or
otherwise, or any labor dispute; and there are not and shall not be any strikes
or walkouts relating to any labor contracts and no such contract is scheduled to
expire within three (3) years of the date hereof;
9.9. NO VIOLATION OF LAW; HAZARDOUS MATERIAL. Borrower is not, to
the best of Borrower's knowledge following diligent inquiry, and shall not be in
violation of any applicable statute, regulation or ordinance of any governmental
entity (including, but not by way of limitation, any such statute, regulation or
ordinance relating to ecology, human health or the environment), in any respect
materially and adversely affecting the Collateral or other security for the
Obligations or Borrower's business, assets, operations or condition, financial
or otherwise, and, without limiting the generality of the foregoing, no
Hazardous Material is or shall be located on any real property owned or leased
by Borrower in violation of any applicable statute, regulation or ordinance of
any governmental entity or has been or shall be discharged or penetrating into
any real property or surface or subsurface rivers or streams crossing or
adjoining any real property owned or leased by Borrower or the aquifer
underlying any real property owned or leased by Borrower ("Hazardous Material"
as used herein means any existing or future asbestos, polychlorinated byphenyls
and petroleum products, solid wastes, ureaformaldehyde, discharges of sewer or
effluent, paint containing lead and any other hazardous or toxic material,
substance or waste which is defined, determined or identified by those or
similar terms or is regulated as such under any such statute, law, ordinance,
rule or regulation (whether now existing or hereafter promulgated) or any local,
state or federal authority, or any judicial or administrative interpretation of
any such statute, law, ordinance, rule or regulation, including but not limited
to any material, substance or waste which is a hazardous substance within the
meaning of 33 U.S.C. Section 1251 et seq., as amended, or 42 U.S.C. Section 9601
et seq., as amended, or a hazardous waste within the meaning of 42 U.S.C.
Section 6901 et seq., as amended);
9.10. ABSENCE OF DEFAULT. Neither Borrower nor any guarantor of the
Obligations is and neither Borrower nor any guarantor of the Obligations shall
be in default under any note, indenture, loan agreement, mortgage, lease, or
other similar agreement relating to the borrowing of monies or the incurring of
indebtedness to which Borrower or any guarantor of the Obligations is a party or
by which Borrower or any guarantor of the Obligations or any of their respective
assets are bound;
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9.11. ACCURACY OF FINANCIALS; NO MATERIAL CHANGES. The Financials
have been prepared in accordance with generally accepted accounting principles
consistently applied and are true, correct and complete in all material
respects; the Financials fairly present Borrower's assets, liabilities and
financial condition and results of operations and those of such other Persons
described therein as of the date thereof; there are no omissions from the
Financials or other facts or circumstances not reflected in the Financials which
are or may be material; there has been no material and adverse change in
Borrower's assets, liabilities or financial condition since the date of the
Financials nor has there been any material damage to or loss of any of
Borrower's assets or properties since such date; and Borrower's outstanding
advances to any Person do not constitute any equity or long term investment in
any Person which is not reflected in the Financials;
9.12. PENSION PLANS. No "reportable event" or "prohibited
transaction," as defined by the Employee Retirement Income Security Act of 1974
("ERISA"), has occurred or is continuing, or shall occur or continue, as to any
plan of Borrower or any Affiliate, which poses a threat of taxes or penalties
against or termination of such plans (or trusts related thereto); Borrower has
not violated and shall not violate the requirements of any "qualified pension
benefit plan," as defined in ERISA and the Internal Revenue Code of 1986 or done
anything or will do anything to create liability under the Multi-Employer
Pension Plan Amendments Act; and neither Borrower nor any Affiliate has
incurred, and neither shall incur, any material liability to the Pension Benefit
Guaranty Corporation in connection with such plans, including, but not limited
to, any "funding deficiency" (as defined by ERISA);
9.13. TAXES AND OTHER CHARGES. Borrower and each guarantor of the
Obligations has filed and shall file all federal, state and local tax returns
and other reports which it is required by law to file, has paid and shall pay
all taxes, assessments and other similar charges that are due and payable, has
withheld and shall withhold all employee and similar taxes which it is required
by law to withhold, and has maintained and shall maintain adequate reserves for
the payment of all taxes and similar charges; provided, however, neither
Borrower nor any guarantor of the Obligations shall be required to pay any tax
if the validity and/or amount thereof is being contested in good faith and by
appropriate proceedings promptly initiated and diligently conducted of which
Borrower or any guarantor of the Obligations has given prior notice to Bank and
for which appropriate reserves (in Bank's reasonable judgment) have been
established and so long as levy and execution have been and continue to be
stayed, and provided that Borrower or any guarantor of the Obligations, as
applicable, shall promptly pay such tax when the dispute is finally settled;
9.14. NO LITIGATION. There is not and shall not be any litigation,
action or proceeding pending or, to the best of Borrower's knowledge,
threatened, against Borrower or any guarantor of the Obligations, except as set
forth on EXHIBIT H attached hereto (none of which would result in any material
adverse change in the financial condition of Borrower or any guarantor of the
Obligations or materially and adversely affect the operations or assets of
Borrower or any guarantor of the Obligations);
9.15. NO BROKERAGE FEE. No brokerage, finder's or similar fee or
commission is due to any party by reason of Borrower entering into this
Agreement or by reason of any of the transactions contemplated hereby, and
Borrower shall indemnify and hold Bank harmless from all such fees and
commissions;
9.16. AFFILIATES. All Persons who are Borrower's Affiliates at this
time and at all times hereafter are and shall be identified on EXHIBIT I
attached hereto; and
9.17. NON-COMPETITION AGREEMENTS. Other than as described at EXHIBIT
J attached hereto or as consented to in writing by Bank, Borrower is not and
shall not be subject to any contract or agreement containing a covenant not to
compete in any line of business with any person, firm or corporation.
To the extent necessary to cause these representations, warranties and
covenants to remain true, complete and accurate at all times, Borrower shall
promptly update any Exhibits provided for in this PARAGRAPH 9 upon learning of
any circumstance which might make any representation, warranty or covenant
contained herein untrue. The requirement of Borrower to update any Exhibit
provided for herein shall not be and shall not be deemed by the Bank a cure of
any Event of Default occurring prior to any such update and no such update shall
be deemed a cure of any existing or continuing Event of Default.
10. COVENANTS. Until the Obligations are fully paid, performed and
satisfied and this Agreement is terminated, Borrower covenants that it shall:
10.1. PAYMENT OF FEES, COSTS AND EXPENSES. Pay to Bank immediately,
any and all fees, costs and expenses which Bank pays to a bank or other similar
institution arising out of or in connection with (i) the forwarding to Borrower,
or any other Person on Borrower's behalf, by Bank of proceeds of loans made by
Bank to Borrower pursuant to this Agreement, and (ii) the depositing for
collection by Bank of any check or item of payment received and/or delivered to
Bank on account of the Obligations and reimburse Bank, immediately, for any
claims asserted by any bank at which a
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blocked account or local account is established for the deposit of proceeds of
the Collateral in connection with such blocked account or local account or any
returned or uncollected checks received by such bank as proceeds of the
Collateral;
10.2. NOTICE OF LITIGATION. Notify Bank in writing, promptly upon
Borrower's learning thereof, of any litigation, suit or administrative
proceeding which involves a monetary claim of in excess of One Hundred Thousand
Dollars ($100,000) or which may affect Borrower's operations, financial
condition or business in a material adverse manner or Bank's security interest
in the Collateral or other security for the Obligations or any guarantor of the
Obligations in a material adverse manner, whether or not the claim is considered
by Borrower to be covered by insurance;
10.3. NOTICE OF ERISA EVENTS. Notify Bank in writing (i) promptly
upon the occurrence of any event described in Section 4043 of ERISA, other than
a termination, partial termination or merger of a "Plan" (as defined in ERISA)
or a transfer of a Plan's assets, and (ii) prior to any termination, partial
termination or merger of a Plan or a transfer of a Plan's assets;
10.4. NOTICE OF LABOR DISPUTES. Notify Bank in writing, promptly
upon Borrower's learning thereof, of any labor dispute to which Borrower may
become a party, any strikes or walkouts relating to any of its plants or other
facilities and the expiration of any labor contract to which Borrower is a party
or by which Borrower is bound;
10.5. NOTICE OF CHANGES IN LAW AND/OR VIOLATIONS OF LAW. Notify Bank
in writing, promptly upon Borrower's learning thereof, of any changes in
existing laws and/or implementation of new laws materially impacting on the
operation of rent-to-own businesses (including, without limitation, any laws
converting lease-purchase arrangements to installment sales arrangements) and/or
of any violation of any law, statute, regulation or ordinance of any
governmental entity, or of any agency thereof, and of any federal, state or
local tax withholding or assessment, applicable to Borrower or any guarantor of
the Obligations, which violation or withholding or assessment in any respect may
materially and adversely affect the Collateral or other security for the
Obligations or the business, assets, operations or condition, financial or
otherwise, of Borrower or any guarantor of the Obligations;
10.6. NOTICE OF CERTAIN AGREEMENTS. Notify Bank, promptly upon the
occurrence thereof, of default and/or failure to make timely payment by Borrower
or any guarantor of the Obligations under any note, indenture, loan agreement,
mortgage, lease, deed or other similar agreement (including, without limitation,
this Agreement or any of the other Loan Documents) to which Borrower or any
guarantor of the Obligations is a party or by which Borrower or any guarantor of
the Obligations is bound;
10.7. NOTICE OF VIOLATIONS BY OTHER PARTIES AND OF MATERIAL EVENTS.
Notify Bank, promptly upon the occurrence thereof, of any default by any obligor
under any note or other evidence of debt payable to Borrower or of anything
which might have a material adverse effect on the credit of a customer of
Borrower;
10.8. SOLVENCY. At all times prior to, during and after any
disbursement of the Loans, have capital sufficient to carry on its business and
transactions as now conducted and all business and transactions in which it is
about to engage and will be solvent and able to pay its debts as they mature,
and Borrower will own property having a value, both at fair valuation and at
present fair salable value, greater than the amount required to pay Borrower's
debts as they mature;
10.9. PROPERTY INSURANCE. Insure all of its real and personal
property, including, without limitation, the Collateral and other security for
the Obligations, in Bank's name against loss or damage by fire, theft, burglary,
pilferage, loss in transit and such other hazards as Bank shall specify in
amounts and under policies by insurers acceptable to Bank, and all premiums
thereon shall be paid by Borrower and the policies or a certificate thereof
signed by the insurer shall be delivered to Bank within fifteen (15) business
days after the issuance of the policies to Borrower and after each renewal
thereof; each such policy shall name Bank (and no other party) as mortgagee
under a New York Standard Mortgage clause or other similar clause acceptable to
Bank and shall provide that such policy may not be amended or cancelled without
thirty (30) days prior written notice to Bank; and if Borrower fails to do so,
Bank may (but shall not be required to) procure such insurance and charge the
cost to Borrower's account as part of the Obligations payable on demand and
secured by the Collateral and other security for the Obligations;
10.10. LIABILITY INSURANCE. At all times, maintain in full force and
effect such liability insurance with respect to its activities and business
interruption and other insurance as may be reasonably required by Bank, such
insurance to be provided by insurer(s) acceptable to Bank, and if requested by
Bank, such insurance shall name Bank (and no other party) as an additional
insured;
10.11. DEPOSIT ACCOUNTS. At Bank's option, and except as otherwise
specifically contemplated hereby, maintain throughout the term of this Agreement
all of Borrower's depository, disbursement, trust, payroll and other account
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relationships with Bank, and not alter existing account relationships which bear
on the creditworthiness of Borrower and/or the pricing of the Loans or this
credit arrangement or such other account relationships;
10.12. MERGER, ETC. Not, without the Bank's prior written consent,
which the Bank may grant or withhold in its sole discretion, merge or
consolidate or form a joint venture or partnership with any other Person;
10.13. INVESTMENTS. Other than in the ordinary course of Borrower's
business or with the Bank's prior written consent, which the Bank may grant or
withhold in its sole discretion, not make any investment in the securities of
any Person;
10.14. DIVIDENDS. Not, without the Bank's prior written consent,
which shall not be unreasonably withheld, declare or pay cash or stock dividends
upon any of Borrower's stock or make any distributions of Borrower's assets or
make any loans, advances and/or extensions of credit to, or investments in, any
Persons, including, without limitation, any of Borrower's Affiliates, officers
or employees;
10.15. REDEMPTION OF STOCK; CHANGES IN CAPITAL STRUCTURE. Not
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's capital stock, or make any material change in Borrower's capital
structure or in any of Borrower's business objectives, purposes and operations
which might in any way materially adversely affect the repayment of the
Obligations;
10.16. AFFILIATE TRANSACTIONS. Not enter into, or be a party to, any
transaction with any of Borrower's Affiliates, except in the ordinary course of
business, pursuant to the reasonable requirements of Borrower's business, and
upon fair and reasonable terms which are fully disclosed to Bank and are no less
favorable to Borrower than Borrower could obtain in a comparable arm's length
transaction with a Person not Borrower's Affiliate;
10.17. DEPOSITS TO AND WITHDRAWALS FROM ACCOUNTS. Except in
connection with transactions otherwise permitted herein, not make deposits to or
withdrawals from any of Borrower's deposit accounts for the benefit of any of
its Affiliates;
10.18. SALE OR LEASE OF ASSETS. Not sell or lease (except with
Bank's prior written consent, which Bank will not unreasonably withhold, except
for the sale or lease of Inventory in the ordinary course of business, and
except for sales or leases by Borrower of assets having an aggregate value not
in excess of $20,000 in any calendar year) or otherwise dispose of or transfer,
whether by sale, merger, consolidation, liquidation, dissolution, or otherwise,
any of Borrower's assets, including, without limitation, the Collateral and
other security for the Obligations;
10.19. CONSIGNMENTS, ETC. Not make a sale to any customer on a
bill-and-hold, guaranteed sale, sale or return, sale on approval, consignment,
or return (other than in the ordinary course of business) basis, or any other
repurchase basis;
10.20. CHANGE IN MANAGEMENT OR BUSINESS. Not permit to occur any
seizure, vesting or intervention by or under the authority of any government by
which Borrower's management is displaced or its authority in the conduct of its
business is materially curtailed;
10.21. CLAIMS AGAINST COLLATERAL. Not permit to occur any attachment
or distraint of any of the Collateral or other security for the Obligations and
not permit any of the Collateral or other security for the Obligations to become
subject, at any time, to any mandatory court order or other legal process;
10.22. JUDGMENTS. Not permit any judgment in excess of Fifty
Thousand Dollars ($50,000) or any judgments in excess of One Hundred Thousand
Dollars ($100,000), in the aggregate, to be rendered against Borrower unless
such judgments are paid within ten (10) days of the date such judgments become
final, non-appealable and payable or such judgments are otherwise bonded in a
manner and on terms satisfactory to Bank;
10.23. FINANCIAL COVENANTS. Comply with all of the financial
covenants contained in EXHIBIT K (the "Financial Covenants") attached hereto and
incorporated herein by reference;
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10.24. CERTIFICATE OF OFFICERS AND GOOD STANDING CERTIFICATES.
Furnish to Bank by each six (6) month anniversary of the date hereof an updated
Certificate of Officers on Bank's standard Certificate of Officers form and by
each twelve (12) month anniversary of the date hereof a certificate from the
Secretary of State of the state of incorporation of Borrower indicating that
Borrower is in good standing as a corporation under the laws of such state; and
10.25. ADDITIONAL STORES. Not, without Bank's prior written consent
(which may be granted or withheld in Bank's sole discretion) or except as
otherwise specifically permitted by this PARAGRAPH 10.25, open or put into
operation (whether by acquisition of existing stores or outlets, opening new
stores or outlets, or otherwise) more than three (3)
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additional stores or outlets during any calendar year. In the event that
Borrower intends to acquire existing stores or outlets (by means of an asset or
stock acquisition or otherwise) or independently to expand by opening new stores
or outlets, Borrower may do so without requiring Bank's prior written consent to
the financial terms of any such acquisition and/or expansion as long as: (a)
any such acquisition, in conjunction with all acquisitions hereafter by Borrower
of existing stores and/or outlets to which Bank has not granted its express
prior written consent as to all terms thereof, do not result in Borrower's
assuming debts and/or liabilities aggregating to in excess of Five Hundred
Thousand Dollars ($500,000); (b) Borrower has provided Bank not less than
fourteen (14) days prior written notice of Borrower's intent to consummate such
planned acquisition and/or expansion and the specific details thereof (and in
connection therewith, Borrower shall have provided to Bank by not later than
seven (7) days before the closing date for such transaction (i) all documents
evidencing the agreements relating to and the terms of, and designed to
effectuate, such proposed transaction and (ii) pro forma financial statements
for Borrower (in form and detail reasonably satisfactory to Bank) projecting the
impact on Borrower's financial performance and status of such proposed
acquisition and/or expansion); (c) Bank maintains its first priority and
exclusive security interest on all of the Collateral (including, without
limitation, the assets and properties that Borrower plans to acquire as a result
of such proposed acquisition and/or expansion); (d) Bank is permitted and given
the opportunity (at Borrower's expense) to conduct a legal audit and review
(satisfactory to Bank in its discretion) of the structure, mechanics, and the
documents and agreements relating to, and intended to effectuate, such proposed
acquisition and/or expansion, and Bank shall attempt to proportion the scope of
its legal audit and review to the type, size and complexity of the proposed
transaction; and (e) in the event that as of the time of such transaction the
aggregate unpaid balance of the Loans and the other Obligations that is actually
outstanding plus that which is reasonably projected to be outstanding after (and
as a result of) consummation of the proposed transaction plus indebtedness and
liabilities assumed and/or retained by Borrower and/or its Affiliates in
connection with the proposed transaction is greater than or equal to Borrower's
Three Month Average Monthly Rental Contract Revenues (which shall specifically
not include for purposes of the calculation thereof any revenues from the stores
and/or outlets to be acquired and/or opened) for the immediately preceding three
(3) calendar months multiplied by two (2), Bank is provided the opportunity to,
and actually conducts (at Borrower's expense), a field examination of the
Borrower and/or the entity or operations to be acquired, as applicable, with
results reasonably satisfactory to Bank. Notwithstanding anything to the
contrary herein, in the event that Borrower closes on any transaction in which
it acquires existing stores or outlets (by means of an asset or stock
acquisition or otherwise) or independently expands by opening new stores or
outlets of more than three (3) during any calendar year and Borrower has not
received Bank's written consent to all aspects of any such transaction prior to
the closing thereof, Bank shall have the right, in its sole discretion, at any
time within sixty (60) days after the closing of any such transaction to
terminate this Agreement by providing not less than one hundred and fifty (150)
days written notice thereof to Borrower; and if Bank exercises the right of
termination of this Agreement under the preceding clause Borrower shall be
obligated to pay to Bank the Termination Fee, except that if Bank exercises the
right of termination of this Agreement under the preceding clause for any reason
other than Bank's not being satisfied with the results of its field examination
(if applicable) or legal review of the transaction or the documents relating
thereto or Bank's not maintaining its first priority and exclusive security
interest on all of the Collateral (including, without limitation, the assets and
properties that Borrower acquired and/or acquires as a result of such
transaction), in connection with its payment in full of the Obligations Borrower
shall not be obligated to pay to Bank the additional Termination Fee provided at
PARAGRAPH 11.4 hereof.
11. EFFECTIVE DATE; TERMINATION.
11.1. EFFECTIVE DATE. This Agreement shall be effective on the date
of acceptance hereof by Bank.
11.2. TERMINATION BY BANK. Bank may terminate this Agreement
immediately upon notice to Borrower at any time on or after February 1, 1999.
Recourse to security will not be required at any time. Borrower waives
presentment and protest of any
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instrument and notice thereof, notice of default and all other notices to which
Borrower might otherwise be entitled.
11.3. TERMINATION BY BORROWER AT CERTAIN DATES. Except as otherwise
provided in PARAGRAPH 11.4, Borrower may only terminate this Agreement effective
on February 1, 1999 or any later anniversary of such date by giving Bank notice
of its election to so terminate the Agreement at least ninety (90) days before
February 1, 1999 or any later anniversary of such date. If Borrower does not
terminate this Agreement effective on the specific dates permitted pursuant to
this PARAGRAPH 11.3, then, at Bank's sole discretion, and subject to Bank's
rights under PARAGRAPH 11.2 hereof, this Agreement may be extended to the next
following anniversary date of February 1, 1999 or any later anniversary thereof
except as otherwise provided in PARAGRAPH 11.4.
11.4. TERMINATION BY BORROWER AT OTHER DATES AND RELATED FEES. In
addition to Borrower's rights pursuant to PARAGRAPH 11.3, Borrower may terminate
this Agreement as of the last day of any month by giving Bank notice of the date
on which this Agreement is to terminate ("Voluntary Termination Date"), which
date must be the last day of a month, at least ninety (90) days before the
Voluntary Termination Date and by paying, in addition to the other Obligations,
on the Voluntary Termination Date as compensation to Bank for loss of bargain
with respect to the credit advanced hereunder, and not as a penalty, a
termination fee (the "Termination Fee") in the amount of Two Hundred and Twenty-
Five Thousand Dollars ($225,000).
11.5. ACCELERATION UPON TERMINATION. Upon the effective date of
termination, all of Borrower's Obligations to Bank shall become immediately due
and payable without notice or demand. If this Agreement is terminated upon the
occurrence or during the continuance of an Event of Default (unless such Event
of Default is deemed by Bank to have been caused by circumstances beyond the
reasonable control of Borrower), the Obligations shall include an amount equal
to the Termination Fee which would be payable by Borrower if Borrower had
terminated this Agreement pursuant to PARAGRAPH 11.4 as of the last day of the
month in which Bank terminates this Agreement, said amount to compensate Bank
for loss of bargain with respect to the credit advanced hereunder, and not as a
penalty.
11.6. BORROWER REMAINS LIABLE. Notwithstanding any termination,
until all of the Obligations have been fully performed, paid and satisfied,
Borrower shall remain liable for the full and prompt performance and payment of
the Obligations and Bank shall retain all of its rights and privileges
hereunder, including, without limitation, the retention of its interest in and
to all of the Collateral and other security for the Obligations.
12. EVENTS OF DEFAULT. Each of the following shall constitute an "Event
of Default" hereunder:
(a) Borrower shall fail to pay, when due (whether by demand or
otherwise), any portion of the Obligations owing from Borrower to Bank;
(b) Borrower shall commit any breach of this Agreement, as amended or
supplemented, any of the other Loan Documents or any other agreement between
Bank and Borrower or between Borrower and any Affiliate of Bank;
(c) any representation or warranty made by Borrower herein or in any
of the other Loan Documents is, or becomes, untrue or misleading in any material
respect;
(d) Borrower or any guarantor of the Obligations shall: (i) become
insolvent, (ii) become generally unable to pay their respective debts as they
become due, (iii) make an assignment for the benefit of creditors, (iv) call a
meeting of creditors for the composition of debts, (v) make any material
misrepresentation to Bank in connection with this Agreement or any transaction
relating hereto, or (vi) make any material misrepresentation or fail to make any
payment due to any Affiliate of Bank;
(e) there shall be filed by or against Borrower or any guarantor of
the Obligations a petition in bankruptcy or for reorganization or a custodian,
receiver or agent is appointed or authorized to take charge of any of their
respective properties;
(f) there shall occur any material and adverse change in the business
operations or condition, financial or otherwise, of Borrower or any guarantor of
the Obligations;
(g) any guarantor of the Obligations shall be in default under its
guaranty of the Obligations or demand is made on any such guarantor thereunder;
(h) any guarantor of the Obligations shall be in material default
under any other agreement to which it is a party or demand is made on any such
guarantor under the terms of any guaranty agreement to which such guarantor is a
party;
(i) any guarantor of the Obligations dies unless within 90 days of the
death of such guarantor a substitute guarantor acceptable to the Bank has duly
and validly guaranteed the Obligations pursuant to a guaranty in form and
substance satisfactory to the Bank, or any guarantor of the Obligations denies
its obligation to guarantee any then existing Obligations or attempts to limit
or terminate its obligation to guarantee any future Obligations (including,
without limitation, any future advance by Bank to Borrower);
(j) there shall occur a material casualty loss with respect to the
Collateral or other security for the Obligations which is not covered by
insurance;
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(k) the audit report required pursuant to PARAGRAPH 8.7 is not an
unqualified audit report, unless the reason for qualification is not material to
Borrower's financial condition;
(l) an event of default shall occur under any of the other Loan
Documents or any other agreement between Bank and Borrower or between Borrower
and any Affiliate of Bank; or
(m) the Collateral or other security for the Obligations shall decline
in value with the result that Bank's security for the Obligations is materially
diminished.
13. BANK'S RIGHTS AND REMEDIES.
13.1. ACCELERATION, ETC. Upon the occurrence of any Event of
Default, in addition to all other rights and remedies provided herein or
available at law or in equity, Bank may, without further notice or demand,
declare the Loans and all other Obligations to be immediately due and payable,
and, to the extent that the maximum amount of the Total Facility has not yet
been used or fully drawn on by Borrower, terminate the undrawn balance of same,
and Bank shall have all rights to realize upon the Collateral and other security
for the Obligations set forth in the documents providing for such security as
described in PARAGRAPH 5 hereof, the terms of which are incorporated herein by
reference as if set forth herein in full, and as otherwise provided by
applicable law. Bank's rights and remedies under this Agreement shall be
cumulative and not exclusive of any other right or remedy which Bank may have.
13.2. FEES AND EXPENSES. Borrower shall pay to Bank, immediately and
as part of the Obligations, all costs and expenses, including court costs,
Attorneys' Fees and costs of sale, incurred by Bank in exercising any of its
rights or remedies hereunder.
14. WAIVER; AMENDMENTS; SUCCESSORS AND ASSIGNS.
14.1. RELEASE OF COLLATERAL. Bank's rights with respect to the
Collateral and other security for the Obligations and its security interest
therein shall continue unimpaired, and Borrower shall remain obligated in
accordance with the terms hereof, notwithstanding the release or substitution of
any Collateral or other security for the Obligations at any time(s), or any
rights or interests therein, or any delay, extension of time, renewal,
compromise or other indulgence granted by Bank in reference to any Obligations,
and Borrower hereby waives all notice of the same.
14.2. WAIVERS AND AMENDMENTS IN WRITING. Failure by Bank to exercise
any right, remedy or option under this Agreement or any supplement hereto or in
any other agreement between Borrower and Bank or delay by Bank in exercising the
same shall not operate as a waiver by Bank of its right to exercise any such
right, remedy or option. No waiver by Bank shall be effective unless it is in
writing and then only to the extent specifically stated. This Agreement cannot
be changed or terminated orally.
14.3. ASSIGNMENT. Bank shall have the right to assign this
Agreement. Borrower may not assign, transfer or otherwise dispose of any of its
rights or obligations hereunder, by operation of law or otherwise, and any such
assignment, transfer or other disposition without Bank's written consent shall
be void. All of the rights, privileges, remedies and options given to Bank
hereunder shall inure to the benefit of Bank's successors and assigns, and all
the terms, conditions, covenants, provisions and warranties herein shall inure
to the benefit of and bind the representatives, successors and assigns of
Borrower and Bank, respectively.
15. DEFINITIONS. Whenever the following terms are used herein, they shall
be defined as follows:
15.1. "Affiliate" shall mean any person, company or business
entity controlling, controlled by or under common control or having similar
shareholders owning at least ten percent (10%) thereof, whether such common
control is direct or indirect. All of Borrower's officers, shareholders,
directors, parent corporations, subsidiary corporations, joint venturers and
partners shall be deemed to be Borrower's Affiliates for purposes of this
Agreement.
15.2. "Attorneys' Fees" shall mean the reasonable value of the
services (and costs and expenses related thereto) of all attorneys (and all
paralegals and other staff employed by such attorneys) employed by Bank from
time to time in connection with any matter whatsoever related to or arising out
of the transactions contemplated hereunder.
15.3. "Collateral", "Equipment", "General Intangibles",
"Inventory" and "Receivables" shall have the meanings ascribed thereto in the
Security Agreement.
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15.4. "Financials" shall mean those financial statements
referenced at SCHEDULE 7 to the Initial Financing Agreement and those financial
statements delivered with the certificate of Borrower's chief financial officer
referenced at EXHIBIT B to this Agreement.
15.5. "Indebtedness" shall mean all of Borrower's obligations and
liabilities to any "Person" (as defined below), including, without limitation,
all debts, claims and indebtedness, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable, however evidenced,
created, incurred, acquired or owing and however arising, whether under written
or oral agreement, operation of law or otherwise. Indebtedness includes,
without limiting the foregoing, (i) the "Obligations" (as defined below), (ii)
obligations and liabilities of any Person secured by a lien, claim, encumbrance
or security interest upon property owned by Borrower, even though Borrower has
not assumed or become liable for the payment therefor and (iii) obligations or
liabilities created or arising under any lease of real or personal property,
conditional sales contract or other title retention agreement with respect to
property used and/or acquired by Borrower, even though the rights and remedies
of the lessor, seller and/or lender thereunder are limited to repossession of
such property.
15.6. "Loan Documents" shall mean this Agreement and all other
documents, instruments and agreements executed in connection herewith and/or in
connection with the Initial Financing Agreement, as the same may be amended from
time to time.
15.7. "Three Month Average Monthly Rental Contract Revenues" shall
mean the average of the monthly amount of Borrower's gross cash receipts
(including reinstatement, processing and insurance-related fees) actually
received by Borrower solely from the lease or rental of Inventory to Borrower's
customers in the ordinary course of business for the three (3) calendar months
immediately preceding the date of determination, but specifically excluding (i)
revenues from the sale of Inventory and (ii) all collected sales, use, excise
and other similar taxes.
15.8. "Obligations" shall mean the Loans and all other loans,
advances, debts, liabilities, obligations, covenants and duties owing to Bank or
any Affiliate of Bank from Borrower of any kind, present or future, whether or
not evidenced by or arising out of this Agreement or any other agreement,
transaction, extension of credit, letter of credit, guaranty or indemnification
or in any other manner, whether or not for the payment of money, whether direct
or indirect (including acquired by assignment), absolute or contingent, due or
to become due, now existing or hereafter arising and however acquired, and
including, without limitation, all interest, charges, expenses, fees and any
other sums chargeable to Borrower in connection with any of the foregoing, and
all Attorneys' Fees.
15.9. "Permitted Liens" shall mean the liens and interests in
favor of Bank granted in connection herewith and, to the extent reflected on
Borrower's books and records and not impairing the operations of Borrower or any
performance hereunder or contemplated hereby: (i) liens arising by operation of
law for taxes not yet due and payable; (ii) statutory liens of mechanics,
materialmen, shippers and warehousemen for services or materials for which
payment is not yet due; (iii) liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) liens, if any, specifically
permitted by Bank from time to time in writing; and (v) the following if the
validity or amount thereof is being contested in good faith and by appropriate
and lawful proceedings promptly initiated and diligently conducted of which
Borrower has given prior notice to Bank and for which appropriate reserves (in
Bank's reasonable judgment) have been established and so long as levy and
execution have been and continue to be stayed: claims and liens for taxes due
and payable and claims of mechanics, materialmen, shippers, warehouseman,
carriers and landlords.
15.10. "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or government.
15.11. "Real Property" shall mean all of Borrower's now owned or
held or hereafter acquired real property and interests therein, including,
without limitation, all buildings, structures and improvements now or hereafter
erected thereon, all rents, royalties and profits therefrom and all easements
and appurtenances thereto, and all replacements and additions thereto and
substitutes therefor.
15.12. "Rights to Payments under Rental Contracts" shall mean and
include all of Borrower's presently existing and hereafter arising or acquired
rights to payment under, and payment obligations from, rental, lease and/or
lease-purchase agreements and all present and future rights of Borrower to
payment for goods rented or leased or sold under lease-purchase agreements,
including, without limitation, those which are not evidenced by instruments or
chattel paper, and whether or not they have been earned by performance; contract
rights, chattel paper, instruments, documents and insurance proceeds relating to
any of the foregoing; and all such obligations whatsoever owing to Borrower,
together with all instruments and documents of title representing any of the
foregoing, all rights in any goods or merchandise which any of the same may
represent, and all right, title, security and guaranties with respect to each of
the foregoing, including, without limitation, any right of stoppage in transit.
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15.13. Any accounting terms used in this Agreement which are not
specifically defined shall have the meanings customarily given them in
accordance with generally accepted accounting principles.
16. MISCELLANEOUS.
16.1. SEVERABILITY. Each provision of this Agreement shall be
interpreted in such manner as to be valid under applicable law, but if any
provision hereof shall be invalid under applicable law, such provision shall be
ineffective to the extent of such invalidity, without invalidating the remainder
of such provision or the remaining provisions hereof.
16.2. GOVERNING LAW. This Agreement has been delivered and accepted
at and shall be deemed to have been made at Cincinnati, Ohio. This Agreement
shall be interpreted and the rights and liabilities of the parties hereto
determined in accordance with the laws of the State of Ohio and all other laws
of mandatory application.
16.3. CHOICE OF JURISDICTION AND VENUE. AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWER,
BORROWER AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT
OF THIS AGREEMENT, ITS VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF BANK, ITS
SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE ABILITY OF BANK, ITS
SUCCESSORS AND ASSIGNS, TO EXERCISE ALL RIGHTS AS TO THE COLLATERAL AND OTHER
SECURITY FOR THE OBLIGATIONS OR INITIATE AND PROSECUTE IN ANY APPLICABLE
JURISDICTION ACTIONS RELATED TO REPAYMENT OF THE OBLIGATIONS, SHALL BE INITIATED
AND PROSECUTED AS TO ALL PARTIES AND THEIR SUCCESSORS AND ASSIGNS AT CINCINNATI,
OHIO. BANK AND BORROWER EACH CONSENTS TO AND SUBMITS TO THE EXERCISE OF
JURISDICTION OVER ITS PERSON BY ANY COURT SITUATED AT CINCINNATI, OHIO HAVING
JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
CERTIFIED MAIL DIRECTED TO BORROWER AND BANK AT THEIR RESPECTIVE ADDRESSES SET
FORTH IN SUBPARAGRAPH 16.10 BELOW OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE
STATE OF OHIO. BORROWER WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND
ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT.
16.4. WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED INDUCEMENT
FOR BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWER, BORROWER
AND BANK EACH WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR
PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT AND/OR THE CONDUCT OF
THE RELATIONSHIP BETWEEN BANK AND BORROWER.
16.5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower
covenants, warrants and represents that all of Borrower's representations and
warranties contained in this Agreement are true at this time, shall survive the
execution, delivery and acceptance hereof by the parties hereto and the closing
of the transactions described herein or related hereto, and shall remain true
until the Obligations are fully performed, paid and satisfied, subject to such
changes as may not be prohibited hereby or do not constitute Events of Default
hereunder.
16.6. EVIDENCE OF LOANS. Each loan or advance made by Bank to
Borrower pursuant to this Agreement may or may not (at Bank's sole discretion)
be evidenced by notes or other instruments issued or made by Borrower to Bank.
Where such loans or advances are not so evidenced, such loans and advances shall
be evidenced solely by entries upon Bank's books and records.
16.7. BANK'S ABILITY REGARDING COLLATERAL. All of the Obligations
shall constitute one loan secured by all security as described in PARAGRAPH 5
above and by all other security now and from time to time hereafter granted by
Borrower to Bank. Bank may, in its sole discretion, (i) exchange, enforce,
waive or release any such security or portion thereof, (ii) apply such security
and direct the order or manner of sale thereof as Bank may, from time to time,
determine and (iii) settle, compromise, collect or otherwise liquidate any such
security in any manner following the occurrence of any Event of Default without
affecting or impairing its right to take any other further action with respect
to any security or any part thereof.
16.8. APPLICATION OF PAYMENTS, ETC. Bank shall have the continuing
right to apply or reverse and reapply any payments to any portion of the
Obligations. To the extent Borrower makes a payment or payments to Bank or Bank
receives any payment or proceeds of the Collateral or any other security for
Borrower's benefit, which payment(s) or proceeds or any part thereof are
subsequently voided, invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or proceeds received, the Obligations or
part thereof intended to be
-18-
<PAGE>
satisfied shall be revived and shall continue in full force and effect, as if
such payment or proceeds had not been received by Bank.
16.9. FEES AND EXPENSES. Borrower shall reimburse Bank for all
costs, fees, expenses and liabilities incurred by Bank or for which Bank becomes
obligated in connection with or arising out of (i) the negotiation, preparation,
closing and enforcement of this Agreement, any amendment hereof and any
agreements, documents and instruments in any way relating hereto and any of
Bank's rights hereunder, (ii) any loans or advances made by Bank hereunder,
(iii) any transaction contemplated by this Agreement, (iv) any inspection and/or
audit and/or verification of the Collateral and/or other security for the
Obligations and/or Borrower (Bank currently charges $400 per diem based on an 8
hour day (plus out of pocket expenses) per auditor or field examiner for the
services of its auditors and field examiners and a potentially greater amount if
the auditor is not a Bank employee), (v) any liability under Section 3505 of the
Internal Revenue Code and all other local, state and federal statutes of similar
import; and (vi) all costs and expenses incurred by Bank after the occurrence of
an Event of Default (a) in enforcing any Obligation or in foreclosing against
the Collateral or exercising or enforcing any other right or remedy available by
reason of such Event of Default, (b) in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or in any insolvency or bankruptcy proceeding, (c) in
commencing, defending or intervening in any litigation or in filing a petition,
complaint, answer, motion or other pleadings in any legal proceeding relating to
Borrower and related to or arising out of the transactions contemplated hereby
or by any of the Loan Documents, (d) in taking any other action in or with
respect to any suit or proceeding (whether in bankruptcy or otherwise), (e) in
protecting, preserving, collecting, leasing, selling, taking possession of, or
liquidating any of the Collateral, (f) in attempting to enforce or enforcing any
lien on or security interest in any of the Collateral or any other rights under
the Loan Documents or (g) in meeting with Borrower to discuss such Event of
Default and the course of action to be taken in connection therewith; the
foregoing to include, without limitation, Attorneys' Fees and fees of other
professionals, all lien search and title search fees, all title insurance
premiums, all filing and recording fees and all travel expenses. All of the
foregoing shall be part of the Obligations, payable upon demand, and secured by
the Collateral and other security for the Obligations described in PARAGRAPH 5
above. The Obligations described under this PARAGRAPH 16.9 shall survive any
termination of this Agreement.
16.10. NOTICES. Any notice required, permitted or contemplated
hereunder shall be in writing and addressed to the party to be notified at the
address set forth below or at such other address as each party may designate for
itself from time to time by notice hereunder, and shall be deemed validly given
(i) three (3) days following deposit in the U.S. mails, with proper postage
prepaid, or (ii) the next business day after such notice was delivered to a
regularly scheduled overnight delivery carrier with delivery fees either prepaid
or an arrangement, satisfactory with such carrier, made for the payment thereof,
or (iii) upon receipt of notice given by telecopy, mailgram, telegram, telex or
personal delivery:
To Bank: Star Bank, National Association
Structured Capital Division
425 Walnut Street
Mail Location 9220
Cincinnati, Ohio 45202
Attention: Steven C. Kieffner
Telecopy No: (513) 632-2040
To Borrower: ALRENCO, Inc.
P. O. Box 85
1736 E. Main Street
New Albany, Indiana 47150
Attention: Michael D. Walts
Telecopy No: (812) 948-2579
16.11. HEADINGS. The table of contents and section headings in this
Agreement are for convenience of reference and shall in no manner modify,
supplement or limit the terms or provisions of this Agreement.
16.12. INDEMNIFICATION. In consideration of the execution and delivery of
this Agreement by Bank and the extension of the commitments hereunder, Borrower
hereby indemnifies, exonerates and holds Bank and each of its officers,
directors, employees and agents (collectively the "Indemnified Parties" and,
individually, each an "Indemnified Party") free and harmless from and against
any and all actions, causes of action, suits, losses, costs, liabilities,
damages, and expenses actually incurred in connection therewith (irrespective of
whether such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable attorneys' fees and
disbursements (the "Indemnified Liabilities"), incurred by the Indemnified
Parties or any of them as a result of, or arising out of, or relating to, or as
a direct or indirect result of:
(a) any transaction financed or to be financed in whole or in part or
directly or indirectly with the proceeds of any of the Loans;
(b) the entering into and performance of this Agreement and the other
Loan Documents by any of the Indemnified Parties;
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower of all or any portion of the
stock or all or substantially all the assets of any Person, whether or not Bank
is party thereto; and
(d) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real property
owned or operated by Borrower of any Hazardous Material (including,
-19-
<PAGE>
without limitation, any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under the Comprehensive Environmental Response,
Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or
any other federal, state, local or other statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to or imposing liability or
standards on conduct concerning, any Hazardous Material), regardless of whether
or not caused by, or within the control of, Borrower;
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of such Indemnified Party's gross
negligence or willful misconduct or breach by such Indemnified Party of its
obligations under the Loan Documents, and if and to the extent that the
foregoing undertaking may be unenforceable for any reason, Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law, except
as aforesaid to the extent not payable by reason of the Indemnified Party's
gross negligence or willful misconduct or breach of such obligations. The
Obligations described under this Paragraph 16.12 shall survive any termination
of this Agreement.
16.13 EQUITABLE RELIEF. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to
Bank; therefore, Borrower agrees that Bank, if Bank so requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
IN WITNESS WHEREOF, this Agreement has been duly executed by Borrower as of
the ____ day of February, 1996.
Signed and acknowledged
in the presence of: ALRENCO, INC.
______________________ By: ________________
Name: __________________________ Name: Michael D. Walts
______________________ Title: President
Name: __________________________
ATTEST:
_________________________________
Name: William R. Haeseley
Title: Secretary
STATE OF OHIO )
)SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me this ____ day of
February, 1996, by Michael D. Walts, the President of ALRENCO, Inc., an Indiana
corporation, on behalf of the corporation.
Notary Public
Accepted at Cincinnati, Ohio
as of February __, 1996.
STAR BANK, NATIONAL ASSOCIATION
By:_________________
Name:
Title:
-20-
<PAGE>
EXHIBIT B
DELIVERIES
----------
(A) A copy of the resolutions of Borrower's Board of Directors in
form and substance acceptable to the Bank in its sole discretion.
(B) An opinion of Borrower's counsel in form and substance acceptable
to Bank in its sole discretion.
(C) Borrower's year-end financial statements dated as of September
30, 1995, interim financial statements dated December 31, 1995, and pro-forma
financial statements broken down by month for the one (1) year period ending
December 31, 1996 and broken down by quarter for the two (2) year period ending
December 31, 1998, accompanied by a certificate of Borrower's chief financial
officer in form and substance acceptable to Bank in its sole discretion.
(D) Evidence of insurance as required by PARAGRAPHS 10.9 AND 10.10 of
this Agreement.
(E) Evidence, satisfactory to Bank, of no material adverse change to
Borrower or its financial condition or business prospects.
(F) Completion of UCC, judgment, lien, tax, litigation and other
record searches of Borrower in form and with results satisfactory to Bank.
(G) Evidence, satisfactory to Bank, that (except as is otherwise
acceptable to Bank) all pending, threatened or potential litigation, claims and
associated liabilities of Borrower are adequately covered by insurance.
(H) Review, with results satisfactory to Bank, of any shareholder
agreements entered into by or among any of the shareholders of Borrower.
(I) Evidence, satisfactory to Bank, that financing statements
(including, without limitation, those financing statements against the sellers
from the 1995 Television Management/Sights & Sounds transaction) against any of
the Collateral naming any parties (except Bank and lessors of vehicles leased to
Borrower) as secured parties have been terminated.
(J) Review, in form and with results satisfactory to Bank, of the
form rental and/or lease-purchase agreement(s) utilized by Borrower.
(K) Local Account Agreements in form and substance satisfactory to
Bank duly executed by the Borrower and by each of the banks where any of the
Local Accounts is maintained.
(L) Review, with results satisfactory to Bank, of the form of legend
that Borrower will attach to all of its rental, lease, and/or lease-purchase
agreements to indicate that Borrower's rights thereunder have been assigned to
and subjected to a security interest in favor of Bank.
(M) Any additional consents or waivers deemed necessary or
appropriate by Bank in order that it may receive the full benefit of its
interest in the Collateral and other security for the Obligations.
-21-
<PAGE>
EXHIBIT C
LOCAL ACCOUNTS
--------------
Account Number Bank
- -------------- ----
-22-
<PAGE>
EXHIBIT D
BORROWING BASE REPORT AND CERTIFICATE
-------------------------------------
This Report and Certificate is delivered pursuant to PARAGRAPH 8.2 of the
Amended and Restated Financing Agreement dated as of February __, 1996 (as
amended, supplemented, restated and/or otherwise modified from time to time, the
"Financing Agreement"), between ALRENCO, Inc., an Ohio corporation ("Borrower"),
and Star Bank, National Association, a national banking association ("Bank").
Unless otherwise defined herein, capitalized terms used herein shall have the
meanings provided in the Financing Agreement.
For purposes of this Report and Certificate, the date for which the
Borrowing Base is being calculated is _____________, 199_ (the "Calculation
Date").
The undersigned hereby certifies that he is the __________ of Borrower and
that, as such, he is authorized to execute this Report and Certificate on behalf
of Borrower and further certifies that, to the best of his knowledge after
making due inquiries:
1. A current, complete and true Borrowing Base calculation for
Borrower is attached hereto as ATTACHMENT 1.
2. The information contained in this Report and Certificate
(including the information upon which the foregoing calculations are based)
and in any attached reports is true and complete.
3. Except as disclosed in this Report and Certificate or in a prior
Report and Certificate issued pursuant to PARAGRAPH 8.2 of the Financing
Agreement, there has been no material adverse change in the Borrower's next
anticipated Three Month Average Monthly Rental Contract Revenues since
____________, 199_.
4. As of the Calculation Date, the aggregate outstanding principal
amount of all Revolving Loans on such date does not (and, after giving
effect to the Loan being requested in conjunction with the delivery of this
Report and Certificate, will not) exceed any of the limits established in
the Financing Agreement.
5. With respect to all Inventory, the Borrower has complied fully
with the Fair Labor Standards Act of 1932, including Sections 206 and 207
thereof.
IN WITNESS WHEREOF, the undersigned has hereunder set his hand this ____
day of ____________, 199_.
ALRENCO, INC.
By: __________________________
Name: ________________________
Title: _______________________
-23-
<PAGE>
ATTACHMENT 1
BORROWING BASE
--------------
I. AVERAGE MONTHLY RENTAL RECEIPTS FOR PRECEDING THREE MONTHS
A. ALRENCO, Inc.
1. Month of __________, 19__.
Gross cash receipts (including fee income)
from lease or rental of Inventory. $____________
2. Month of __________, 19__.
Gross cash receipts (including fee income)
from lease or rental of Inventory. $____________
3. Month of __________, 19__.
Gross cash receipts (including fee income)
from lease or rental of Inventory. $____________
B. 1. Total Cash Receipts
(Total of Lines A.1. + A.2. + A.3.) $____________
2. Average Monthly Rental Receipts
(Line B.1. divided by 3) $____________
II. CALCULATION OF BORROWING BASE:
1. Maximum Amount of Bank's Revolving
Loan Facility. $____________
2. ______________________ (____) Times Average
Monthly Rental Receipts. $____________
3. Lesser of Lines II 1. and II 2. $____________
4. (Less) Aggregate Amount of Advances Outstanding
as of month-end. $____________
5. (Less) Face amount of Letters of Credit $____________
6. Potentially Available Portion of Bank's
Revolving Loan Facility. $____________
Amount available for Advances (If Line 6
is negative, this amount is due Bank): $____________
-24-
<PAGE>
EXHIBIT E
FINANCIAL STATEMENT CERTIFICATION
I, ____________________________ , Chief Financial Officer of ALRENCO,Inc.,
hereby certify to Star Bank, National Association that the attached [financial
statement/projection] dated __________ for ALRENCO, Inc. is accurate, complete
and fairly presents the matters stated therein and has been prepared on a basis
consistent with such [financial statements/projections] prepared for prior
periods and in accordance with generally accepted accounting principles. I
further certify that no "Event of Default" as defined in the Financing Agreement
currently exists.
ALRENCO, Inc.
-------------
(Company Name)
(Name and Title)
(Date)
-25-
<PAGE>
EXHIBIT F
LICENSES, PATENTS, COPYRIGHTS, TRADEMARKS AND TRADENAMES
--------------------------------------------------------
-26-
<PAGE>
EXHIBIT G
ENCUMBRANCES
------------
-27-
<PAGE>
EXHIBIT H
LITIGATION
----------
-28-
<PAGE>
EXHIBIT I
AFFILIATES
----------
OFFICERS:
- ---------
DIRECTORS:
- ----------
SHAREHOLDERS:
- -------------
OTHER ENTITIES:
- ---------------
-29-
<PAGE>
EXHIBIT J
NON-COMPETITION AGREEMENTS
--------------------------
-30-
<PAGE>
EXHIBIT K
FINANCIAL COVENANTS
-------------------
I. COVENANTS. Borrower agrees that it shall:
(A) MODIFIED EBITDA. Not permit Borrower's Modified EBITDA (as defined
below) to be less than the following amounts for the following periods:
MODIFIED EBITDA PERIOD
--------------- ------
$11,685,000 1/1/95 through 12/31/95
3,641,000 1/1/96 through 3/31/96
7,410,000 1/1/96 through 6/30/96
11,284,000 1/1/96 through 9/30/96
15,257,000 1/1/96 through 12/31/96
4,497,000 1/1/97 through 3/31/97
8,999,000 1/1/97 through 6/30/97
13,596,000 1/1/97 through 9/30/97
18,274,000 1/1/97 through 12/31/97
5,000,000 1/1/98 through 3/31/98
10,000,000 1/1/98 through 6/30/98
15,000,000 1/1/98 through 9/30/98
20,000,000 1/1/98 through 12/31/98
(B) RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH. Not permit
Borrower's ratio of Total Liabilities (as defined below) to Tangible Net Worth
(as defined below) to exceed 1.00 to 1.00 at any time on or after February 1,
1996.
(C) MERCHANDISE PURCHASE PERCENTAGE. Not permit Borrower's Merchandise
Purchase Percentage (as defined below) to be greater than the following
percentages for the following periods:
MERCHANDISE PURCHASE PERCENTAGE CALENDAR QUARTER ENDING
- ------------------------------- -----------------------
51.2% 12/31/95
50.7% 3/31/96
48.6% 6/30/96
51.6% 9/30/96
46.0% 12/31/96
43.4% 3/31/97
48.3% 6/30/97
43.6% 9/30/97
40.6% 12/31/97
43.0% 3/31/98
48.0% 6/30/98
43.0% 9/30/98
40.0% 12/31/98
(D) IDLE-INVENTORY PERCENTAGE. Not permit Borrower's Idle Inventory
Percentage (which shall mean the total rental units of Borrower available for
rent (excluding rental units being serviced and/or rental units out on loan)
less rental units out on rent divided by total units available for rent
(excluding rental units being serviced and/or rental units out on loan)) to
exceed (i) 24% for any 3 consecutive calendar months during the period from
January 1 through September 30 of any year or (ii) 26% for any 3 consecutive
calendar months during the period from October 1 through December 31 of any
year.
II. DEFINITIONS. For purposes of this EXHIBIT K, the following terms
shall have the following meanings:
-31-
<PAGE>
(A) The term "Modified EBITDA" shall mean Borrower's earnings from
operations before income taxes and interest income or expense, plus
depreciation, plus the net book value of rental merchandise sold or disposed,
PLUS amortization of all non-cash charges, LESS Capital Expenditures (as defined
below), all as determined in accordance with generally accepted accounting
principles and based on the method of accounting for Inventory consistently
applied by Borrower in accordance with past practices, and Modified EBITDA shall
not include any gains from the sale of assets outside the normal course of
business or any other gains from extraordinary accounting adjustments or non-
recurring items.
(B) The term "Tangible Net Worth" shall mean the total of Borrower's book
net worth based on the method of accounting for Inventory consistently applied
by Borrower in accordance with past practices (including the sum of common
stock, preferred stock, paid in capital and earned surplus) less employee,
officer or Affiliate receivables, capitalized organizational or closing costs,
treasury stock, deferred financing costs, non-compete agreements, goodwill,
advances to Affiliates or guarantees on their behalf, investments and any other
asset generally considered as an intangible. Borrower's Tangible Net Worth for
purposes of this EXHIBIT K shall be reduced by any gains recognized by Borrower
as earnings which relate to adjustments made by Borrower as a result of the Tax
Reform Act of 1986 or any other extraordinary accounting adjustment or
non-recurring item of income.
(C) The term "Total Liabilities" shall have the meaning and be determined
in accordance with generally accepted accounting principles consistently applied
in accordance with past practices. Contingent liabilities and guaranties shall
be included as part of Total Liabilities.
(D) The term "Capital Expenditures" shall mean the total expenditures for
fixed assets or leases capitalized or required to be capitalized on Borrower's
books by purchase, lease-purchase agreement, option or otherwise.
(E) The term "Merchandise Purchase Percentage" shall mean Borrower's
rental merchandise purchases divided by Borrower's rental contract revenue
(which shall include gross cash receipts representing lease/rental revenue,
reinstatement fees, processing fees and insurance-related fees received by
Borrower in the ordinary course of business), with each of such calculations to
be determined in accordance with Borrower's past accounting practices
consistently applied and generally accepted accounting principles.
-32-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 806438
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17788910
<PP&E> 4121196
<DEPRECIATION> 1592969
<TOTAL-ASSETS> 29229791
<CURRENT-LIABILITIES> 7613728
<BONDS> 0
0
0
<COMMON> 17759298
<OTHER-SE> 3856765
<TOTAL-LIABILITY-AND-EQUITY> 29229791
<SALES> 275782
<TOTAL-REVENUES> 12559417
<CGS> 146160
<TOTAL-COSTS> 9531487
<OTHER-EXPENSES> 1695288
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141766
<INCOME-PRETAX> 1190876
<INCOME-TAX> 490000
<INCOME-CONTINUING> 700876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 700876
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
