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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
ALRENCO, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement,
if other than the Registrant))
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
ALRENCO, INC.
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 1997
--------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders of ALRENCO, INC. (the "Company") will be held at The
Jefferson Club, 2900 Citizens Plaza, 500 West Jefferson Street,
Louisville, Kentucky, on Wednesday, May 14, 1997 at 10:00 A.M.
(Eastern Daylight Savings Time), for the following purposes:
(1) To elect one director for a term expiring in 2000;
(2) To ratify the selection of Grant Thornton LLP as the
Company's independent auditors for the fiscal year
ending December 31, 1997; and
(3) To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only shareholders of record at the close of business on
March 28, 1997 are entitled to notice of and to vote at the
Annual Meeting. In the event the Annual Meeting should be
adjourned to a date or dates later than September 11, 1997, the
Board of Directors will establish a new record date for purposes
of determining those shareholders entitled to notice of and to
vote at any such adjournments. The transfer books will not be
closed.
By Order of the Board of Directors
WILLIAM R. HAESELEY, SECRETARY
1736 East Main Street
New Albany, Indiana 47150
April 11, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE, WHICH DOES NOT REQUIRE ANY POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ARE ABLE TO ATTEND THE
MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT
ANY TIME BEFORE THE PROXY IS EXERCISED.
<PAGE>
ALRENCO, INC.
1736 EAST MAIN STREET
NEW ALBANY, INDIANA 47150
---------------
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of
Alrenco, Inc., an Indiana corporation (the "Company"), to be used
at the Annual Meeting of Shareholders of the Company to be held
at 10:00 A.M. (Eastern Daylight Savings Time), on Wednesday, May
14, 1997, at The Jefferson Club, 2900 Citizens Plaza, 500 West
Jefferson Street, Louisville, Kentucky, and at any and all
adjournments thereof, for the purposes set forth in the
accompanying Notice of the meeting.
Shares represented by duly executed proxies in the
accompanying form received prior to the meeting and not revoked
will be voted at the meeting or at any adjournments thereof in
accordance with the choices specified on the ballot. If no
choices are specified, it is the intention of the persons named
as proxies in the accompanying form of proxy to vote for the
nominee for election as a director and for the ratification of
independent auditors for the 1997 fiscal year. Such proxy may be
revoked by the person executing it at any time before the
authority thereby granted is exercised by giving written notice
to the Secretary of the Company, by delivery of a duly executed
proxy bearing a later date or by voting in person at the meeting.
Attendance at the meeting will not have the effect of revoking a
proxy unless the shareholder so attending so notifies the
secretary of the meeting in writing prior to voting of the proxy.
The presence in person or by proxy of shareholders holding a
majority of the outstanding shares of the Company's Common Stock
will constitute a quorum for the transaction of all business at
the Annual Meeting. A shareholder voting for the election of
directors may withhold authority to vote for the nominee for
director. A shareholder may also abstain from voting on the
proposal to ratify the selection of independent auditors for the
1997 fiscal year. Votes withheld from the election of the
nominee for director and abstentions from any other proposal will
be treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will not be
counted in the number of votes cast on any matter. If a broker
does not receive voting instructions from the beneficial owner of
shares on a particular matter and indicates on the proxy that it
does not have discretionary authority to vote on that matter,
those shares will not be considered as present and entitled to
vote with respect to that matter.
Only shareholders of record at the close of business on
March 28, 1997 are entitled to vote at the Annual Meeting or any
adjournments within 120 days thereof. As of March 28, 1997,
there were 6,076,892 shares of the Company's Common Stock
outstanding and entitled to vote. Each share of Common Stock
entitles the holder to one vote on all matters presented at the
Annual Meeting.
The expenses of soliciting proxies for the Annual Meeting,
including the cost of preparing, assembling and mailing this
proxy statement and the accompanying form of proxy, will be borne
by the Company. In addition to the solicitation of proxies by
mail, certain officers and regular employees of the Company,
without additional compensation, may use their personal efforts,
by telephone or otherwise, to obtain proxies. The Company will
also request persons, firms and corporations holding shares in
their names, or in the names of their nominees, which shares are
beneficially owned by others, to send this proxy material to and
obtain proxies from such beneficial owners, and will reimburse
such holders for their reasonable expenses in so doing.
This proxy statement and the accompanying form of proxy are
being mailed to shareholders commencing on or about April 11,
1997.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding
those persons known to management of the Company to own of record
or beneficially more than five percent of the outstanding shares
of the Company's Common Stock and the ownership of such Common
Stock by all directors and officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP (1)(2)(3) CLASS (1)
---------------- ------------------- ---------
<S> <C> <C>
Michael D. Walts ............. 2,160,000 35.5%
1736 East Main Street
New Albany, Indiana 47150
Delaware Management Holdings,
Inc. ....................... 541,300(4) 8.9%
2005 Market Street
Philadelphia, Pennsylvania 19103
OppenheimerFunds, Inc. ....... 352,000(5) 5.8%
Two World Trade Center, Suite 3400
New York, New York 10048
All directors and officers
as a group (6 persons)...... 2,309,939(6) 37.8%
</TABLE>
- ---------------
(1) The table reflects share ownership and the percentage of
such share ownership as of March 28, 1997.
(2) Except as otherwise indicated, each person or entity shown
has sole voting and investment power with respect to the
shares of Common Stock owned by him or it.
(3) Information with respect to beneficial ownership has been
obtained from the Company's shareholder records and from
information provided by shareholders.
(4) Based upon a Schedule 13G filed on February 12, 1997, with
the Securities and Exchange Commission by Delaware
Management Holdings, Inc. Includes 7,250 shares held with
sole voting power and no shares held with shared voting
power.
(5) Based upon an amended Schedule 13G filed on January 8, 1997,
with the Securities and Exchange Commission by
OppenheimerFunds, Inc. Includes no shares held with either
sole or shared voting power. All shares are held with
shared investment power.
(6) Includes 40,624 shares subject to outstanding stock options
under the Company's Stock Incentive Plan which are presently
exercisable. Also includes 105,000 shares of restricted
stock awarded pursuant to such Plan. See "Executive
Compensation - Stock Incentive Plan."
See "Election of Directors" below for share ownership
information with respect to the nominee for election as director
and continuing directors.
2
<PAGE>
ITEM I. ELECTION OF DIRECTORS
The number of directors of the Company is currently fixed at
seven. All of the current directors except Michael D. Walts were
first elected to the Board of Directors in October 1995. The
Company's Articles of Incorporation provide that the Company's
Board of Directors shall be divided into three classes. The
members of each class of directors serve for staggered three-year
terms. The Board is presently composed of two Class I directors,
one Class II director and three Class III directors, whose terms
will expire upon the election and qualification of directors at
the annual meetings of shareholders held following the fiscal
years ending December 31, 1998, 1996 and 1997, respectively. At
each annual meeting of shareholders, directors will be re-elected
or elected for a full term of three years to succeed those
directors whose terms are expiring. One vacancy currently exists
in Class II as a result of the resignation of Michael D. Walts,
Jr. in February 1997. In accordance with the Bylaws of the
Company, that vacancy may be filled by a vote of the remaining
directors then in office. The nominee for election as a Class II
director whose current term expires at the 1997 Annual Meeting is
Donald E. Groot. If elected, Mr. Groot will hold office for a
three-year term expiring in 2000 and until his successor has been
elected and qualified.
Shareholders voting at the Annual Meeting may not vote for
more than the number of nominees listed in this Proxy Statement.
Directors will be elected by a plurality of the total votes cast
at the Annual Meeting. That is, the one nominee receiving the
greatest number of votes for Class II director will be deemed
elected a director. It is the intention of the persons named as
proxies in the accompanying form of proxy (unless authority to
vote therefor is specifically withheld) to vote for the election
of the one nominee for Class II director. In the event that the
nominee becomes unavailable (which is not now anticipated by the
Company), the persons named as proxies have discretionary
authority to vote for a substitute nominee designated by the
present Board of Directors. The Board of Directors has no reason
to believe that the nominee will be unwilling or unable to serve
if elected.
The following table contains certain information regarding
the nominee for election as a director at this year's annual
meeting and each continuing director. Each of these individuals
has furnished the respective information shown. Except as
otherwise indicated, each of the persons listed below has sole
voting and investment power with respect to the shares of Common
Stock owned by him.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned as
Name and Year First of March 28, 1997
Principal Occupation Became ------------------------------------
or Employment Age Director Number of Shares Percent of Class
- -------------------- --- ---------- ---------------- ----------------
Nominee for Director
CLASS II
(TERM EXPIRING IN 2000)
<S> <C> <C> <C> <C>
Donald E. Groot ....... 40 1995 6,000(1) *
Partner, Welenken
Himmelfarb & Co.,
Accountants
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned as
Name and Year First of March 28, 1997
Principal Occupation Became ------------------------------------
or Employment Age Director Number of Shares Percent of Class
- -------------------- --- ---------- ---------------- ----------------
CONTINUING DIRECTORS
CLASS III
(TERM EXPIRING IN 1998)
<S> <C> <C> <C> <C>
Robert W. Lanum ....... 60 1995 8,315(1) *
Partner, Stites &
Harbison, Attorneys
Raymond C. Holladay ... 51 1995 70,000(2) 1.2%
Executive Vice President and
Chief Operating Officer
Michael D. Walts ...... 56 1980 2,160,000 35.5%
Chairman of the Board
and President
CLASS I
(TERM EXPIRING IN 1999)
W. Barrett Nichols .... 47 1995 6,000(1) *
President, Mesa Food
Products, Inc.
Theodore H. Wilson .... 51 1995 59,624(3) *
Executive Vice President
and Chief Financial Officer
</TABLE>
- ---------------
* Less than 1%
(1) Includes 6,000 shares subject to outstanding stock options
under the Company's Stock Incentive Plan which are presently
exercisable.
(2) Includes 10,000 shares subject to outstanding stock options
under the Company's Stock Incentive Plan which are presently
exercisable. Also includes 60,000 shares of restricted
stock awarded pursuant to such Plan.
(3) Includes 12,624 shares subject to outstanding stock options
under the Company's Stock Incentive Plan which are presently
exercisable. Also includes 45,000 shares of restricted
stock awarded pursuant to such Plan.
4
<PAGE>
Michael D. Walts, Chairman of the Board and President, is
the brother-in-law of Theodore H. Wilson, Executive Vice
President, Chief Financial Officer and a director. Robert W.
Lanum is a partner in the law firm of Stites & Harbison, which
serves as the Company's primary counsel. Donald E. Groot is a
partner in the accounting firm of Welenken Himmelfarb & Co.,
which served as the Company's independent accountants from its
inception in 1980 to September 1995.
NOMINEE FOR DIRECTOR
DONALD E. GROOT. Mr. Groot is a director of the Company.
He is a partner in the accounting firm of Welenken Himmelfarb &
Co. and has been a certified public accountant since 1985.
Mr. Groot served as principal engagement partner for the Company
from 1989 until September 1995. Mr. Groot is a member of the
Compensation Committee of the Company.
CONTINUING DIRECTORS
RAYMOND C. HOLLADAY. Mr. Holladay has served as Executive
Vice President and Chief Operating Officer of the Company since
November 1995. He previously served as Vice President -
Marketing from February 1993 to November 1995, and as Vice
President - Employee Development from February 1989 to
February 1993. Mr. Holladay has worked in the rental-purchase
industry for over 25 years as a store owner, operator and
consultant. From 1973 to 1988, he owned and operated ABC
Rentals, a chain of rental-purchase stores.
ROBERT W. LANUM. Mr. Lanum is a director of the Company.
He is a partner in the law firm of Stites & Harbison and has been
admitted to practice law since 1968. His principal areas of
practice include corporate, trust and estate and tax law.
Mr. Lanum has represented the Company on legal matters since its
inception in 1980. Mr. Lanum is a member of the Audit and
Compensation Committees of the Company.
W. BARRETT NICHOLS. Mr. Nichols is a director of the
Company. He is the President and a co-founder of Mesa Food
Products, Inc., a producer of frozen and dry Mexican food
products. He was previously employed in various capacities with
PNC Bank for 20 years, most recently serving as Executive Vice
President responsible for all of PNC's banking activities in
Kentucky and Indiana. He currently serves as Chairman of the
Board of PNC Bank Indiana. Mr. Nichols is a member of the Audit
and Compensation Committees of the Company.
MICHAEL D. WALTS. Mr. Walts is the Chairman of the Board of
Directors and President of the Company. He has worked in the
rental-purchase industry for over 15 years since founding the
Company in 1980. Prior to 1980, Mr. Walts owned and operated
Kentuckiana Outfitting Company, a door-to-door weekly installment
sales retailer which he acquired in 1964. Kentuckiana Outfitting
Company is currently a real estate holding company which, among
other things, leases certain properties to the Company. See
"Executive Compensation - Certain Transactions."
THEODORE H. WILSON. Mr. Wilson has served as Executive Vice
President and Chief Financial Officer of the Company since
November 1995. He previously served as Vice President - Finance
and Administration for over ten years.
5
<PAGE>
MEETINGS OF THE BOARD
The Board of Directors met four times during fiscal 1996.
All incumbent directors attended at least 75% of the aggregate
number of meetings of the Board and the committees of which they
were members.
COMMITTEES OF THE BOARD
The Board of Directors has standing Compensation and Audit
Committees. The Board of Directors has no nominating committee,
or committee performing a similar function.
The Audit Committee consists of Messrs. Lanum and Nichols
and is responsible for establishing and monitoring compliance
with the Company's audit policies. The Audit Committee also
reviews the scope of the Company's annual audit performed by the
Company's independent accountants and monitors the implementation
of recommendations or corrective measures disclosed in the
independent accountants' audit report. The Audit Committee is
responsible for reviewing all related party transactions on a
continuing basis and potential conflict of interest situations
where appropriate. The Audit Committee met once in fiscal 1996.
The Compensation Committee consists of Messrs. Lanum, Groot and
Nichols and reviews and recommends compensation arrangements for
all officers of the Company. The Compensation Committee is also
responsible for the design, implementation and administration of
the Company's incentive compensation plans. The Compensation
Committee held no meetings in fiscal 1996.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company ("Nonemployee
Directors") receive $2,000 for each meeting of the Board of
Directors that they attend and $500 for attending a meeting of a
committee of the Board. In addition, all directors are
reimbursed for travel and lodging expenses incurred in connection
with their attendance at Board, shareholder and committee
meetings. Nonemployee Directors are entitled to receive
nondiscretionary awards of stock options under the Stock
Incentive Plan. The Company has entered into agreements with all
directors pursuant to which the Company has agreed to indemnify
them against certain claims arising out of their service as
directors. Directors are also entitled to the protection of
certain indemnification provisions in the Articles of
Incorporation and Bylaws.
Immediately following completion of the Company's initial
public offering on January 23, 1996, each Nonemployee Director as
of such date automatically received nonqualified options to
purchase 5,000 shares of Common Stock at an exercise price equal
to $14.00 per share, the initial public offering price. Any
other Nonemployee Director who is subsequently elected to serve
as such after the completion of the offering will as of the date
of such election automatically receive options to purchase 5,000
shares of Common Stock at a price equal to the fair market value
of such stock on the date such options are granted. These
initial option grants became or will become fully vested twelve
months following completion of this offering or subsequent
election, as the case may be. Beginning January 1, 1997,
automatic annual awards of fully-vested stock options will be
made to each Nonemployee Director in each of the five years
following the initial option grant providing for the purchase of
1,000 shares of Common Stock at a price equal to the fair market
value of such shares on the date such options are granted.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth summary compensation
information for the fiscal years ended December 31, 1996, 1995
and 1994, paid or awarded by the Company to, or accrued for the
benefit of, the Company's chief executive officer and each other
executive officer of the Company whose total annual salary and
bonus exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------------------------ -------------------------
Securities
Underlying
Other Restricted Stock Option
Name and Annual Stock Awards All Other
Principal Position Year Salary Bonus Compensation Awards (# shares) Compensation
- ------------------ ---- ------ ----- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael D. Walts ........ 1996 $265,000 $263,000 (2) 0 0
Chairman of the Board 1995 473,600 205,000(2) $57,651(2) 0 0 $38,790(4)
and President 1994 473,600 205,000 (2) 0 0 47,338(4)
Raymond C. Holladay ..... 1996 182,000 47,000 (2) $840,000(3) 10,000
Executive Vice President 1995 110,000 52,566 (2) 0 0 28,150(5)
and Chief Operating 1994 110,000 36,476 (2) 0 0 37,534(5)
Officer
Theodore H. Wilson ...... 1996 129,000 17,000 (2) 630,000(3) 12,624
Executive Vice President
and Chief Financial
Officer
</TABLE>
- ---------------
(1) Represents bonus compensation accrued by the Company in
1995. This amount was paid in January 1996.
(2) In addition to salary and bonus amounts, the named executive
officers received certain personal benefits from the Company
during each of the years presented. The amount disclosed
for Mr. Walts in 1995 includes approximately $15,245 for
personal use of Company-owned automobiles and the Company's
cost (approximately $42,406) of purchasing certain
automobiles for Mr. Walts. The aggregate amount of such
benefits received by each of the named executive officers in
each of the other years included in the summary compensation
table did not exceed the lesser of $50,000 or 10% of the
total of annual salary and bonus reported for such officer
for that year.
(3) Represents the dollar value of restricted stock awarded
under the Company's Stock Incentive Plan. A total of 60,000
and 45,000 shares were awarded to Messrs. Holladay and
Wilson, respectively, effective upon completion of the
Company's initial public offering. The shares are valued at
the initial public offering price of $14.00 per share. All
of these restricted shares will vest on January 23, 2003, or
if sooner, immediately upon death, disability or a change in
control of the Company. The holders of the restricted
shares will be entitled to receive dividends, if any, at the
same rate as paid to all shareholders. As of December 31,
1996, based upon the closing price for the Common Stock of
$10.625 per share on that date, Mr. Holladay held a total of
60,000 restricted shares having a then market value of
$637,500, and Mr. Wilson held a total of 45,000 restricted
shares having a then market value of $478,125.
7
<PAGE>
(4) Includes the Company's expense under an executive deferred
compensation arrangement with Mr. Walts. This arrangement
was terminated effective September 30, 1995. Mr. Walts
received a lump sum distribution of $305,729 from his
deferred compensation account in 1995. Also includes a
premium payment by the Company of $2,338 in 1994 and $2,534
in 1995 on a life insurance policy maintained for the
benefit of Mr. Walts.
(5) Represents the Company's expense under an executive deferred
compensation arrangement with Mr. Holladay. This
arrangement was terminated effective September 30, 1995.
Mr. Holladay received a lump sum distribution of $147,906
from his deferred compensation account in 1995.
STOCK INCENTIVE PLAN
In November 1995, the Board of Directors of the Company
adopted, and the shareholders approved, the Company's 1995 Stock
Incentive Plan (the "Stock Incentive Plan"). The purpose of the
Stock Incentive Plan is to further the interests of the Company
by providing eligible employees with an additional incentive to
increase the value of the Company's stock by granting such
employees a stake in the future of the Company. A total of
450,000 shares of Common Stock have been reserved for issuance
under the Stock Incentive Plan. The Stock Incentive Plan is
administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Stock Incentive Plan authorizes
the Committee to grant, in its discretion, stock options, stock
appreciation rights, restricted stock, nonrestricted stock or any
combination thereof to employees of the Company. The following
table presents certain information regarding stock options
granted during fiscal 1996 to each of the executive officers of
the Company pursuant to the Stock Incentive Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
---------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (# SHARES) FISCAL YEAR ($/SHARE)(2) DATE 5% 10%
---- ---------- ------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Walts ......... 0 0 -- -- -- --
Raymond C. Holladay ...... 10,000 9.78% 14.00 1/23/06 $ 88,045 $223,124
Theodore H. Wilson ....... 12,624 12.34% 14.00 1/23/06 111,148 281,672
</TABLE>
- ---------------
(1) Options granted in 1996 to each of the named individuals
became exercisable immediately upon grant.
(2) Option grants to each of the named individuals became
effective concurrently with the Company's initial public
offering at an exercise price per share equal to the initial
public offering price of the underlying shares of Common
Stock.
As of December 31, 1996, the total number of shares of
Common Stock underlying stock options held by each of the
executive officers of the Company were as follows: Michael D.
Walts, none; Raymond C. Holladay, 10,000; and Theodore H. Wilson,
12,624. All of these options are currently exercisable. As of
December 31, 1996, none of these options were in-the-money.
8
<PAGE>
EXECUTIVE BENEFIT PLANS
KEY EXECUTIVE LIFE INSURANCE. The Company and Michael D.
Walts currently maintain a life insurance policy on Mr. Walts.
The Company is a beneficiary of such policy to the extent the
death benefit does not exceed $200,000. Mr. Walts has designated
other beneficiaries in the event the death benefit exceeds
$200,000. Mr. Walts owns the cash value of such policy.
LONG-TERM DISABILITY AND SALARY CONTINUATION PLANS. The
Company maintains a long-term disability insurance plan for the
benefit of certain management employees, excluding Michael D.
Walts, who have completed six months of continuous service. This
plan provides that eligible employees who become disabled will
receive payments for a specified term equal to a percentage of
their salaries. The Company provides a management salary
continuation plan to certain executive officers who have
completed six months of continuous service. For all covered
employees except Michael D. Walts, the Company self-insures the
first 13 weeks of disability benefits under the plan and
maintains insurance for all benefit periods thereafter. The
Company maintains a long-term disability plan for Mr. Walts which
provides for annual payments of 100% of his salary.
401(K) PLAN. The Company's 401(k) plan was adopted by the
Company effective as of January 1, 1996. All active employees of
the Company who are 21 years of age are eligible to participate
in the 401(k) plan upon the completion of one year of service.
The 401(k) plan assets are held in trust for the benefit of the
employee participants pursuant to an agreement with Lincoln
National Life Insurance Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until November 1995, the Company had no Compensation
Committee or other committee of the Board of Directors performing
similar functions. Decisions concerning the compensation of
executive officers for fiscal 1995 were made by Michael D. Walts,
the Company's Chairman of the Board and President. In November
1995, the Board of Directors established a Compensation
Committee, consisting of Robert W. Lanum, Donald E. Groot and W.
Barrett Nichols. None of the members of the Compensation
Committee at any time during the last fiscal year served as an
officer of, or was employed by, the Company. Furthermore, none
of the executive officers of the Company currently serves as a
director or member of the compensation committee of another
entity or of any other committee of the board of directors of
another entity performing similar functions. Mr. Lanum is a
partner in the law firm of Stites & Harbison, which serves as the
Company's primary counsel.
CERTAIN TRANSACTIONS
The Company leases its corporate office building, located in
New Albany, Indiana, from Kentuckiana Outfitting Company
("Kentuckiana"), a corporation owned by Michael D. Walts, the
Chairman of the Board, President and the principal shareholder of
the Company. The rent under this lease is payable in monthly
installments of $8,300 per month, for an aggregate annual rent of
$99,610. The ten-year term of this lease expires December 31,
2004. The Company also leases a store location in Louisville,
Kentucky, from Kentuckiana. The rent under this lease is payable
in monthly installments of $2,200, for an aggregate annual rent
of $26,400. The ten-year term of this lease expires December 31,
2004.
9
<PAGE>
In connection with a life insurance policy insuring the life
of Mr. Walts, the Company has made a loan to Mr. Walts each year
beginning in 1988. Mr. Walts has used the proceeds of these
loans to pay his portion of the annual premium due under such
policy. Interest on each such loan has been calculated at the
prevailing applicable federal rate. The balance outstanding as
of December 31, 1995, was approximately $64,000.
Prior to the Company's initial public offering, Mr. Walts
and his wife guaranteed the Company's indebtedness under its bank
loan agreement. These guarantees were released in February 1996
in connection with an amendment to such loan agreement.
The Board of Directors has adopted a policy that any
transaction between the Company and any of its officers,
directors or principal shareholders or affiliates thereof, must
be on terms no less favorable than those which could be obtained
from unaffiliated parties and must be approved by a majority of
the disinterested members of the Board of Directors. The Audit
Committee of the Board of Directors will be responsible for
reviewing all related party transactions on a continuing basis
and potential conflict of interest situations where appropriate.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the
Board of Directors is responsible for administering the Company's
executive compensation program. Until November 1995, the Company
had no compensation committee or other committee of the Board of
Directors performing similar functions. Decisions regarding the
compensation of executive officers for all years prior to fiscal
1996 were made by Michael D. Walts, the Company's Chairman of the
Board and President. In preparation for the Company's initial
public stock offering, the Board of Directors established a
Compensation Committee in November 1995, consisting of Robert W.
Lanum, Donald E. Groot and W. Barrett Nichols. None of the
members of the Committee are officers or employees of the
Company.
COMPENSATION POLICY
As a newly public company, the Committee recognizes
that some period of time will be necessary to establish fully its
long-range compensation philosophy and objectives. Nevertheless,
the Committee has adopted the following general principles and
objectives which it considered in establishing executive
compensation levels for 1996 and which will guide future
compensation decisions:
-- The Company's compensation programs should be designed
to attract and retain highly qualified executives who
will be critical to the Company's long-term success;
-- A meaningful portion of the executive's total
compensation should bear a direct relationship to the
operating performance and profitability of the Company;
-- Executives should be recognized and rewarded for high
performance and extraordinary results; and
-- Incentive compensation arrangements should provide
executives with an opportunity to acquire a direct
ownership interest in the Company and motivate them to
build shareholder value by aligning their personal
interests with shareholder interests.
10
<PAGE>
EXECUTIVE COMPENSATION PROGRAM
The Committee believes that a meaningful portion of the
compensation paid to executive officers should relate to both the
short term and long term profitability of the Company.
Therefore, the executive officers' compensation program is
composed of base salary, bonus and long term incentive
compensation.
BASE SALARY AND BONUS. Base salaries for 1996 were
adjusted from prior years to reflect what, in the Committee's
judgment, were appropriate for executive officers of a newly-
public company. The Committee considered a number of subjective
factors in determining appropriate base salaries for 1996,
including historical compensation levels, the range of
compensation paid to executive officers of other publicly-traded
rental-purchase companies as well as companies of similar size
and market capitalization outside the rental-purchase industry,
and the general level of compensation paid to executive officers
of other area public companies. The Committee also consulted
with the Company's financial and legal advisors regarding
appropriate salary levels for a newly-public company. None of
these criteria were assigned any specific numerical weighting or
otherwise considered to be any more or less important than other
factors. The group of industry companies considered by the
Committee included the three companies comprising the peer group
used for stock performance comparisons under the caption
"Performance Graph" appearing elsewhere in this Proxy Statement.
Each of the Company's three executive officers
(including the Chairman of the Board and President) participate
in annual cash bonus arrangements based upon a specified
percentage of net income. The individual bonus percentages for
1996 were established by the Committee based upon each officer's
level of responsibility within the Company and his contributions
toward improving operating performance and profitability. The
bonus percentages will be reviewed annually by the Committee and
may be adjusted in accordance with these factors or others that
the Committee determines to be relevant at the time.
The Committee believes that the bonus portion of the
executive compensation program is effective in motivating the
executive officers of the Company to improve the current
profitability of the Company. The Committee also believes that
an adequate base salary is necessary to retain effective
executive officers and to discourage management decisions which
might improve short term profitability but may not always be in
the long term best interest of the Company. In the future, the
Committee expects that it will place increasingly greater
emphasis on the bonus component of annual compensation as a means
of motivating the executive officers to continue to improve
profitability.
LONG-TERM INCENTIVES. The Committee believes that, in
addition to the annual cash bonus arrangements, it is appropriate
for the Company to provide long term incentive awards to motivate
the executive officers to improve long term profitability. In
recognition of their past contributions to the Company's growth
and their importance to the Company's future performance, the
Committee awarded stock options and restricted stock to two of
the executive officers under the Company's Stock Incentive Plan.
These awards became effective in January 1996 concurrently with
the completion of the Company's initial public offering.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Compensation arrangements for Michael D. Walts,
Chairman of the Board and President, were also adjusted in 1996
from prior years to make his total cash compensation more
11
<PAGE>
performance-based. The Committee considered the same comparative
factors described above in determining Mr. Walts' annual
compensation for 1996. The Committee also noted the significant
gains in the Company's operating performance from 1994 to 1995,
including the substantial growth in revenues and number of stores
generated from the Company's 1994 and 1995 acquisitions.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code, added as
part of the Omnibus Budget Reconciliation Act of 1993, imposes a
limitation on deductions that can be taken by a publicly held
corporation for compensation paid to certain of its executives.
Under Section 162(m), a deduction is denied for compensation paid
in a tax year beginning on or after January 1, 1994, to a
corporation's chief executive officer or any of its other four
most highly compensated officers to the extent that such
compensation exceeds $1 million. Certain performance-based
compensation, however, is specifically exempt from the deduction
limit.
The Committee's current policy with respect to the
Section 162(m) limitations is to preserve the federal income tax
deductibility of executive compensation payments when it is
appropriate and in the best interests of the Company and its
shareholders. For the foreseeable future, the Committee does not
expect Section 162(m) to have any practical effect on the
Company's compensation program. However, the Committee reserves
the right to approve the payment of nondeductible compensation in
the future if it deems such payment to be appropriate.
COMPENSATION COMMITTEE
Robert W. Lanum, Chairman
Donald E. Groot
W. Barrett Nichols
12
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the
performance of the Company's Common Stock to the Nasdaq U.S. Market
Index and to a peer group for each calendar quarter in the period
commencing January 23, 1996 (the date of the Company's initial
public offering) and ending December 31, 1996. Since there is no
nationally recognized industry index consisting of rental-
purchase companies to be used as a peer group index, the Company
constructed its own peer group. This peer group is comprised of
three companies which represent the other public companies in the
industry -- Aaron Rents, Inc., Renters Choice, Inc. and Rent-Way,
Inc. The returns of each member of the peer group are weighted
according to each member's stock market capitalization as of the
beginning of the period measured. The graph assumes that the
value of the investment in the Company's Common Stock and each
index was $100 at January 22, 1996 and that all dividends were
reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED DECEMBER 31, 1996
ALRENCO, INC., NASDAQ U.S. MARKET INDEX AND PEER GROUP
<TABLE>
MEASUREMENT PERIOD
(QUARTERLY PERIOD COVERED)
------------------------------------------------
1/23/96 3/96 6/96 9/96 12/96
------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Alrenco, Inc. $100 $107 $124 $145 $73
Nasdaq U.S. Market Index $100 $107 $116 $120 $126
Peer Group $100 $111 $155 $127 $102
</TABLE>
Values are presented as of the last day of each quarterly period.
13
<PAGE>
ITEM II. RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit
Committee, has selected Grant Thornton LLP as the Company's
independent auditors for the fiscal year ending December 31,
1997. Grant Thornton LLP has audited the accounts of the Company
since 1995. This selection will be presented to shareholders for
ratification at the Annual Meeting. If the shareholders fail to
ratify this selection, the matter of the selection of independent
auditors will be reconsidered by the Board of Directors.
Representatives of Grant Thornton LLP are expected to be present
at the Annual Meeting and will have the opportunity to make a
statement if they so desire and will be available to respond to
appropriate questions.
The selection of Grant Thornton LLP will be deemed ratified
if the votes cast in favor of the proposal exceed the votes cast
against the proposal. Abstentions and broker non-votes will not
be counted as votes cast either for or against the proposal.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the
next annual meeting of shareholders must be received by the
Company at its principal executive offices in New Albany, Indiana
on or before December 12, 1997 for inclusion in the Company's
proxy statement and form of proxy relating to that meeting and
must comply with the applicable requirements of the federal
securities laws.
In addition, the Company's Bylaws impose certain advance
notice requirements on a shareholder nominating a director or
submitting a proposal to an Annual Meeting. Such notice must be
submitted to the secretary of the Company no earlier than 90, nor
later than 60, days before an Annual Meeting, and must contain
the information prescribed by the Bylaws, copies of which are
available from the secretary. These requirements apply even if
the shareholder does not desire to have his or her nomination or
proposal included in the Company's proxy statement.
OTHER MATTERS
The Board of Directors knows of no business which will be
presented for consideration at the Annual Meeting other than that
described above. However, if any such other business should
properly come before the Annual Meeting, it is the intention of
the persons named in the accompanying form of proxy to vote the
proxies in respect of any such business in accordance with their
best judgment.
By Order of the Board of Directors
WILLIAM R. HAESELEY, SECRETARY
New Albany, Indiana
April 11, 1997
14
<PAGE>
PROXY
ALRENCO, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael D. Walts and Raymond C.
Holladay, and each of them, as proxies, with full power of
substitution, and authorizes them, and each of them, to vote and act
with respect to all shares of common stock of Alrenco, Inc. which the
undersigned is entitled to vote at the Annual Meeting of Shareholders
to be held on Wednesday, May 14, 1997, at 10:00 A.M. EST, at The
Jefferson Club, 2900 Citizens Plaza, 500 West Jefferson Street,
Louisville, Kentucky, and at any and all adjournments thereof.
The Board of Directors recommends a vote FOR each of the
following proposals:
1. ELECTION OF DIRECTORS
[ ] FOR the nominee listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote for the
to the contrary below) nominee listed below
NOMINEE: Donald E. Groot
2. PROPOSAL TO RATIFY THE SELECTION OF GRANT THORNTON LLP AS
THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote
upon such other matters as may properly come before the meeting.
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
- -- -- -- -- -- -- -- -- -- --
THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A
CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR THE ELECTION OF THE
NOMINEE FOR DIRECTOR AND IN FAVOR OF PROPOSAL 2.
Dated: , 1997
-------------------------------
--------------------------------------------
Signature
--------------------------------------------
Signature
Name(s) should be signed exactly as shown to
the left hereof. Title should be added if
signing as executor, administrator, trustee,
etc.
PLEASE DATE, SIGN AND RETURN THIS PROXY
PROMPTLY IN THE ACCOMPANYING ENVELOPE
