ALRENCO INC, POS AM, 1998-02-09

ALRENCO INC
POS AM, 1998-02-09
EQUIPMENT RENTAL & LEASING, NEC

Previous: BELL TECHNOLOGY GROUP LTD, PRE 14A, 1998-02-09

Next: AMRESCO RESIDENTIAL SECURITIES CORP, 424B5, 1998-02-09

<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998

REGISTRATION NO. 333-44451
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------

POST-EFFECTIVE AMENDMENT NO. 1
TO
Form S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
ALRENCO, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<C> <C> <C>
INDIANA 7359 35-1480655
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>

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)
------------------------------------

MICHAEL D. WALTS
CHAIRMAN OF THE BOARD AND PRESIDENT
ALRENCO, INC.
1736 EAST MAIN STREET
NEW ALBANY, INDIANA 47150
(812) 949-3370
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------------

COPIES TO:

<TABLE>
<C> <C>
C. CRAIG BRADLEY, JR., ESQ. JOHN D. CAPERS, JR., ESQ.
STITES & HARBISON KING & SPALDING
Suite 1800 191 Peachtree Street
400 West Market Street Atlanta, Georgia 30303
Louisville, Kentucky 40202
</TABLE>

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

Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after consummation of the Merger.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [ ]
---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
---------------

The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
================================================================================
<PAGE> 2

RTO LETTERHEAD
February , 1998
Dear RTO Stockholder:
As you know, we are currently soliciting proxies for a special meeting of
stockholders (the "Special Meeting") of RTO, Inc. ("RTO") originally scheduled
to be held on February 12, 1998. The purpose of the Special Meeting is to
consider and vote upon a proposal to approve an Agreement and Plan of Merger,
dated as of September 28, 1997, as amended (the "Merger Agreement"), by and
between RTO and Alrenco, Inc. ("Alrenco"). Pursuant to the terms of the Merger
Agreement, RTO will be merged with and into Alrenco, with Alrenco as the
surviving corporation (the "Merger"). Notice of the Special Meeting, together
with a Joint Proxy Statement/Prospectus containing information about the
proposed Merger, was mailed to all RTO stockholders on or about January 21,
1998.
On February 6, 1998, Alrenco announced operating results for the fourth
quarter and year ended December 31, 1997. At the same time, RTO reported
preliminary unaudited results for the fourth quarter. A copy of our joint press
release announcing fourth quarter and year-end results for both companies is
enclosed. In addition, we are enclosing a Supplement to the Joint Proxy
Statement/Prospectus which contains additional information regarding fourth
quarter and year-end operating results for Alrenco and RTO. We feel it is
important that all of our stockholders receive this information prior to voting
on the merger proposal. We urge you to give this information your careful
attention.
In order to provide you with sufficient time to consider the information
contained in the Supplement, your Board of Directors has decided to adjourn the
Special Meeting to a new date and time. The adjourned Special Meeting will
resume on February , 1998, at 10:00 a.m., local time, at the offices of King &
Spalding, 50th Floor, 191 Peachtree Street, Atlanta, Georgia 30303.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
In view of the significance of the action to be taken, it is important that
your shares be represented at the Special Meeting. If you have not yet returned
your proxy or you wish to change your prior vote, you should complete, sign and
date the enclosed proxy card and return it in the enclosed postage-prepaid
envelope. If you attend the Special Meeting, you may vote in person, even if you
previously returned your proxy. If you have already returned your proxy card,
your prior vote on the merger will still be counted, unless you revoke your
prior vote or send in a new proxy card.
IF YOU DO NOT RETURN THE PROXY CARD AND DO NOT VOTE AT THE SPECIAL MEETING,
IT WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE PROPOSAL TO APPROVE AND
ADOPT THE MERGER AGREEMENT.
If you would like to receive additional copies of the Joint Proxy
Statement/Prospectus, please write or call Pat Disbrow, RTO, Inc., 714 East
Kimbrough Street, Mesquite, Texas 75149; Telephone: (972) 288-9327, extension
148; Facsimile: (972) 288-3086.
We look forward to seeing you at the Special Meeting.
Sincerely,

GEORGE D. JOHNSON, JR.

GEORGE D. JOHNSON, JR.
Chairman of the Board
<PAGE> 3

Alrenco Letterhead
February , 1998
Dear Alrenco Shareholder:
As you know, we are currently soliciting proxies for a special meeting of
shareholders (the "Special Meeting") of Alrenco, Inc. ("Alrenco") originally
scheduled to be held on February 12, 1998. The purpose of the Special Meeting is
to consider and vote upon a proposal to approve an Agreement and Plan of Merger,
dated as of September 28, 1997, as amended (the "Merger Agreement"), by and
between Alrenco and RTO, Inc. ("RTO"), including (i) the issuance of shares of
common stock of Alrenco in connection therewith (the "Stock Issuance"), and (ii)
an amendment to and restatement of (the "Articles Amendment") the existing
Amended and Restated Articles of Incorporation of Alrenco. Pursuant to the terms
of the Merger Agreement, RTO will be merged with and into Alrenco, with Alrenco
as the surviving corporation (the "Merger"). Notice of the Special Meeting,
together with a Joint Proxy Statement/Prospectus containing information about
the proposed Merger, was mailed to all Alrenco shareholders on or about January
21, 1998.
On February 6, 1998, we announced operating results for Alrenco for the
fourth quarter and year ended December 31, 1997. At the same time, RTO reported
preliminary unaudited results for the fourth quarter. A copy of our joint press
release announcing fourth quarter and year-end results for both companies is
enclosed. In addition, we are enclosing a Supplement to the Joint Proxy
Statement/Prospectus which contains additional information regarding fourth
quarter and year-end operating results for Alrenco and RTO. We feel it is
important that all of our shareholders receive this information prior to voting
on the merger proposal. We urge you to give this information your careful
attention.
In order to provide you with sufficient time to consider the information
contained in the Supplement, your Board of Directors has decided to adjourn the
Special Meeting to a new date and time. The adjourned Special Meeting will
resume on February , 1998, at 10:00 a.m., local time, at the offices of King &
Spalding, 50th Floor, 191 Peachtree Street, Atlanta, Georgia 30303.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT, INCLUDING THE
STOCK ISSUANCE AND THE ARTICLES AMENDMENT.
In view of the significance of the action to be taken, it is important that
your shares be represented at the Special Meeting. If you have not yet returned
your proxy or you wish to change your prior vote, you should complete, sign and
date the enclosed proxy card and return it in the enclosed postage-prepaid
envelope. If you attend the Special Meeting, you may vote in person, even if you
previously returned your proxy. If you have already returned your proxy card,
your prior vote on the Merger will still be counted, unless you revoke your
prior vote or send in a new proxy card.
IF YOU DO NOT RETURN THE PROXY CARD AND DO NOT VOTE AT THE SPECIAL MEETING,
IT WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE PROPOSAL TO APPROVE THE
MERGER AGREEMENT.
If you would like to receive an additional copy of the Joint Proxy
Statement/Prospectus, please write or call Theodore H. Wilson, Alrenco, Inc.,
1736 East Main Street, New Albany, Indiana 47150; telephone: (812) 949-3370;
facsimile: (812) 948-2579.
We look forward to seeing you at the Special Meeting.

Sincerely,

/s/ Michael D. Walts
MICHAEL D. WALTS
Chairman of the Board and President
<PAGE> 4

SUPPLEMENT
TO
JOINT PROXY STATEMENT
OF

ALRENCO, INC.

AND

RTO, INC.

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

PROSPECTUS
OF
ALRENCO, INC.

This Supplement (this "Supplement") to the Joint Proxy Statement/Prospectus
relates to the proposed merger and certain related transactions contemplated by
the Agreement and Plan of Merger, dated as of September 28, 1997, as amended
(the "Merger Agreement"), by and between Alrenco, Inc., an Indiana corporation
("Alrenco") and RTO, Inc., a Delaware corporation ("RTO"). The Joint Proxy
Statement/Prospectus was originally mailed to shareholders of Alrenco (the
"Alrenco Shareholders") and stockholders of RTO (the "RTO Stockholders") on or
about January 21, 1998. Subsequent to such mailing, management of both Alrenco
and RTO have developed additional information relating to the results of
operations of Alrenco and RTO for the fiscal quarter ended December 31, 1997.
The purpose of this Supplement is to inform you of such developments. See
"Recent Developments."

This Supplement also constitutes a supplement to the Prospectus of Alrenco
filed as part of the Registration Statement on Form S-4 under the Securities Act
of 1933, as amended, with respect to up to 12,280,316 shares of common stock, no
par value, of Alrenco, to be issued to RTO Stockholders pursuant to the terms of
the Merger Agreement. To the extent information in this Supplement differs from
or conflicts with information contained in the Joint Proxy Statement/Prospectus,
then this Supplement shall supersede and replace the Joint Proxy
Statement/Prospectus. To the extent certain capitalized terms are used herein
and not otherwise defined herein, such terms shall have the meanings ascribed
thereto in the Joint Proxy Statement/Prospectus. All information contained
herein with respect to Alrenco has been furnished by Alrenco and all information
contained herein with respect to RTO has been furnished by RTO.

SEE "RISK FACTORS" BEGINNING ON PAGE 19 OF THE JOINT PROXY
STATEMENT/PROSPECTUS FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN THE SHARES OF ALRENCO
COMMON STOCK OFFERED THEREBY AND HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The date of this Supplement is February , 1998. This Supplement is first
being mailed to the Alrenco Shareholders and the RTO Stockholders on or about
February , 1998.
<PAGE> 5

RECENT DEVELOPMENTS

ALRENCO

On February 6, 1998, Alrenco reported financial results for the fourth
quarter and year ended December 31, 1997. Revenue for the year ended December
31, 1997 increased 61% to $102.6 million from $63.9 million in 1996. Operating
profit was $7.0 million compared with $6.7 million for the year earlier period.
Net earnings for the year decreased 2% to $3.6 million from $3.7 million for the
prior year. Earnings per diluted share were $0.59 for 1997 compared with $0.76
for 1996.

For the fourth quarter, revenue increased 34% to $26.4 million from $19.7
million for the fourth quarter of 1996. Operating profit was $218,000 compared
with an operating profit of $1.4 million for the year earlier period. Net loss
for the quarter was ($540,000), or ($0.09) per diluted share, compared with net
earnings of $914,000, or $0.15 per diluted share, for the prior year period.

Operating results for the fourth quarter were adversely affected by several
factors, including (i) a decline in number of units on rent and collection
rates, (ii) settlement costs incurred in connection with a federal income tax
audit, (iii) write-offs or unsaleable rental merchandise, and (iv) establishment
of additional reserves for self-insurance and rental merchandise. The following
discussion provides additional information and analysis regarding Alrenco's
operations and financial results for the fourth quarter of 1997.

Revenue. Revenue for the quarter was adversely affected by several
factors, including (i) the midyear decline in units on rent of over 6,000 units,
(ii) a decline in average collection percentage of approximately 4% following
the announcement of the merger with RTO, (iii) lower gross profits due to an
aggressive discounting program and (iv) the failure to recover the 6,000 units
forecast for the fourth quarter. The effect on net income from these items was
approximately $760,000 for the quarter and approximately $2.1 million for the
year. Earnings per diluted share for the quarter and year were negatively
impacted by $0.13 and $0.35, respectively.

Partial Settlement of Income Tax Audit. In December 1997, Alrenco reached
a partial settlement with the Internal Revenue Service on an income tax audit
for the years 1992 through 1995. The settlement resulted in the payment of
$167,200 in additional income taxes and $50,300 in interest. Those one-time
expenses resulted in an earnings per share decline for the quarter and total
year of $0.03. Management of Alrenco is in the process of appealing the
remaining unresolved issues.

Changes in Estimates. Alrenco merged a number of stores to effect a more
efficient and profitable environment for the markets in which those stores are
situated. The resulting lease abandonment and write-off of prepaid rents
amounted to a loss of $110,000 for the quarter and year of $0.01 per diluted
share. Management of Alrenco believes that many of the properties can be sublet
at a reasonable rate which could result in a recovery of some of this reserve at
a future date.

Alrenco is largely self-insured and must therefor provide reserves for
future losses. These reserves are periodically reviewed and adjusted for
expected future losses and recent loss levels. Adjustments in the fourth quarter
impacted net income by approximately $60,000 or $0.01 per share.

In November and December 1997, management of Alrenco began a process of
critically reviewing the condition of rental merchandise held by Alrenco with a
goal of establishing any needed reserves to reduce the carrying value to true
market value. In doing so, it was determined that certain units of inventory and
rental accounts had significantly reduced or no value. In December unsaleable
rental merchandise of $160,000 was written off. Additionally, some functional
units were sold at bargain prices, generating a gross loss of approximately
$30,000. To ensure all remaining units are carried at a realizable level,
additional provisions of $480,000 were created. The impact of these items was
approximately $402,000 or $0.07 per diluted share.

Miscellaneous Expenses. Alrenco incurred various unanticipated
administrative and advertising expenses in the fourth quarter. The aggregate
impact of these items on net earnings was approximately $355,000 or $0.06 per
share.

2
<PAGE> 6

RTO

Based upon preliminary unaudited financial results, RTO expects to report a
loss before income tax of approximately $8.5 million to $9.5 million during the
quarter ended December 31, 1997, as compared to a pre-tax loss for the third
quarter of 1997 of approximately $2.0 million. This loss is primarily
attributable to (i) losses incurred at stores opened during 1997, (ii) costs
incurred with respect to the Merger, (iii) higher advertising expenses and other
costs associated with changing the name of 165 of RTO's existing stores to "Home
Choice," (iv) higher store level expenses and (v) higher corporate expenses due
both to the Merger and to RTO's substantial growth since its inception.

New store openings. During the fourth quarter of 1997, RTO opened 18 new
stores, as compared to a total of 16 new stores opened during the first three
quarters of 1997. RTO expects an operating loss of approximately $1.5 million
from these 34 stores during the quarter ended December 31, 1997 compared to a
loss of approximately $800,000 during the quarter ended September 30, 1997. For
the year, RTO expects these stores to report an operating loss of approximately
$3.0 million. RTO also expects these stores to continue to incur losses in the
near term.

Merger related expenses. During the quarter ended December 31, 1997, RTO
incurred costs related to the Merger, including legal and accounting expenses,
of approximately $1.5 million. RTO expects to incur additional merger related
expenses in the first quarter of 1998.

Expenses associated with name change and other promotional
activities. During the quarter ended December 31, 1997, RTO incurred
advertising expenses of approximately $1.4 million in excess of normally
recurring levels for advertising and other marketing costs related to changing
the name of RTO's 267 stores and, upon completion of the Merger, Alrenco's
stores to "Home Choice", as well as a new marketing campaign directed at
promoting the "Home Choice" name. RTO incurred additional expenses relating to
the name change of approximately $800,000 for items such as expensing the net
carrying value of replaced old signs and branded supplies at 165 of RTO's 267
stores, as well as expensing new vehicle decals for 600 of RTO's 750 vehicles
consistent with prior accounting policies. RTO's accounting policy with respect
to advertising costs is to expense these costs when incurred. RTO began its
advertising campaign in 1997 and plans to continue the campaign, and expects to
incur additional costs, throughout 1998. Advertising and other promotional
expenses, other than those associated with the name change, increased by
approximately $350,000 primarily as a result of the costs of RTO's "customer
appreciation day" promotion in December.

Other direct store expenses. During the fourth quarter of 1997, store
level staffing increased (i) in anticipation of the Merger, (ii) in order to
effectively manage the growth that RTO has experienced since its inception in
June 1996 and (iii) in response to seasonal business trends. For these reasons
and due to the inclusion of a full quarter of expenses of Amigo's stores in the
fourth quarter, store level salaries and related expenses (excluding employee
insurance and new store expenses) increased approximately $450,000 during the
fourth quarter as compared to the third quarter of 1997. In addition, other
direct store expenses, excluding expenses for new stores and advertising,
increased approximately $700,000 due to (i) the inclusion in the fourth quarter
of a full quarter of expenses of the Amigo group of stores which were acquired
in July 1997, (ii) higher insurance expense resulting from increases in store,
vehicle and employee counts and the temporary extension of the Company's
property, casualty and workers compensation coverages at higher than normal
rates while permanent coverages with a new carrier were being purchased and
(iii) increases in product cost resulting primarily from lower margins on a
comparable level of cash sales to the third quarter and higher fee revenue
related expenses that increased proportionately to the related fee revenue.

While increased staffing of the combined company will continue to be
necessary, management of RTO cannot estimate to what extent such additional
personnel will result in duplication of functions in the combined company. To
the extent functions may be duplicative, salary expenses may be reduced in the
future.

3
<PAGE> 7

Corporate expenses. Salaries and related expenses have increased at the
corporate level by approximately $930,000 due primarily to recruiting and
relocating certain key employees, including RTO's chief operating officer,
vice-president of marketing and corporate controller, increasing support staff,
severance costs relating to the termination of certain employees and year-end
support staff bonuses. Interest expense will be approximately $250,000 higher
compared to the quarter ended September 30, 1997, because of a higher balance
outstanding under RTO's credit facilities.

RTO does not believe that the expected loss for the quarter ended December
31, 1997 reflects any material adverse change in its business. Units on rent
increased by 20,808, or 10%, during the fourth quarter as compared to units on
rent at September 30, 1997. RTO believes that the fourth quarter loss is
primarily attributable to higher costs associated with the growth of its
business through new store openings and acquisitions of stores and expenses
incurred to manage new stores opened during 1997 and stores acquired during 1997
as well as higher expenses incurred in anticipation of managing Alrenco's 165
stores and in connection with the Merger.

RTO expects to open 50 new stores during 1998, including 8 or 9 stores
during the first quarter of 1998, and expects to continue to acquire existing
stores during 1998. New stores opened during 1998 are expected to operate at a
loss for a period of 6 to 9 months after opening. Acquired stores may also be
unprofitable when acquired or may become unprofitable during the period of
acquisition due to disruptions in their business operations caused by the
acquisition. Some stores acquired as part of an acquisition of a larger group of
stores may be closed because they are unprofitable. The operating results of new
and acquired stores may also suffer because of disruptions associated with
integrating their operations into the existing operations of RTO.

Because of these factors, the growth of RTO's business through new store
openings and acquisitions of existing stores is likely to affect RTO's results
of operations and financial condition. Such factors may also cause quarterly
results to vary from quarter to quarter and may cause the market price of the
common stock of the combined company to fluctuate substantially.

ADJOURNMENT OF THE MEETINGS

ALRENCO

In order to provide the Alrenco Shareholders with sufficient time to
consider the information contained in this Supplement, the Alrenco Board has
decided to adjourn the Alrenco Special Meeting to a new date and time. The
adjourned Alrenco Special Meeting will resume on February , 1998, at 10:00
a.m., local time, at the offices of King & Spalding, 50th Floor, 191 Peachtree
Street, Atlanta, Georgia 30303. At the Alrenco Special Meeting, the Alrenco
Shareholders will be asked to consider and vote upon a proposal to approve the
Merger Agreement, including the Stock issuance and the Articles Amendment.
Consummation of the Merger is conditioned upon approval by the Alrenco
Shareholders of the Merger Agreement, including the Stock Issuance and the
Articles Amendment.

A form of proxy for the Alrenco Special Meeting was enclosed with the
copies of the Joint Proxy Statement/Prospectus that were sent to Alrenco
Shareholders. All shares of Alrenco Common Stock held of record as of the
Alrenco Record Date represented by properly executed proxies will, unless such
proxies have been previously revoked, be voted in accordance with the
instructions indicated on such proxies. If no instructions are indicated, such
shares will be voted FOR the proposal to approve the Merger Agreement, including
the Stock Issuance and the Articles Amendment and, in the discretion of the
proxy holder, as to any other matter which may properly come before the Alrenco
Special Meeting. An additional proxy card has been enclosed with this
Supplement. If you have not yet returned your proxy or you wish to change your
prior vote, you should complete, sign and date the enclosed proxy card and
return it in the enclosed postage-prepaid envelope. If you have already returned
your proxy card, your prior vote on the Merger will still be counted, unless you
revoke your prior vote or send in a new proxy card.

4
<PAGE> 8

shares represented by proxies in the form accompanying the Joint Proxy
Statement/Prospectus will be voted by the persons named in the proxy in
accordance with their best judgment. Any proxy given pursuant to this
solicitation may be revoked in writing by the person giving it at any time
before the proxy is exercised by giving written notice to the Alrenco Secretary
or by submitting a proxy having a later date or by such person appearing at the
Alrenco Special Meeting and electing to vote in person.

THE ALRENCO BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT THE ALRENCO SHAREHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT, INCLUDING THE STOCK ISSUANCE AND THE
ARTICLES AMENDMENT.

RTO

In order to provide the RTO Stockholders with sufficient time to consider
the information contained in this Supplement, the RTO Board has decided to
adjourn the RTO Special Meeting to a new date and time. The adjourned RTO
Special Meeting will resume on February , 1998, at 10:00 a.m., local time, at
the offices of King & Spalding, 50th Floor, 191 Peachtree Street, Atlanta,
Georgia 30303. At the RTO Special Meeting, the RTO Stockholders will be asked to
consider and vote upon a proposal to approve and adopt the Merger Agreement.
Consummation of the Merger is conditioned upon approval and adoption by the RTO
Stockholders of the Merger Agreement.

A form of proxy for the RTO Special Meeting was enclosed with the copies of
the Joint Proxy Statement/Prospectus that were sent to RTO Stockholders. All
shares of RTO Common Stock held of record as of the RTO Record Date represented
by properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such shares will be voted FOR the proposal to
approve and adopt the Merger Agreement and, in the discretion of the proxy
holder, as to any other matter which may properly come before the RTO Special
Meeting. An additional proxy card has been enclosed with this Supplement. If you
have not yet returned your proxy or you wish to change your prior vote, you
should complete, sign and date the enclosed proxy card and return it in the
enclosed postage-prepaid envelope. If you have already returned your proxy card,
your prior vote on the Merger will still be counted, unless you revoke your
prior vote or send in a new proxy card.

The RTO Board is not aware of any other matters which may be presented for
action at the RTO Special Meeting, but if other matters do properly come before
the RTO Special Meeting, it is intended that shares represented by proxies in
the form accompanying the Joint Proxy Statement/Prospectus will be voted by the
persons named in the proxy in accordance with their best judgment. Any proxy
given pursuant to this solicitation may be revoked in writing by the person
giving it at any time before the proxy is exercised by giving written notice to
the RTO Secretary or by submitting a proxy having a later date or by such person
appearing at the RTO Special Meeting and electing to vote in person.

THE RTO BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS
THAT THE RTO STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.

FORWARD LOOKING STATEMENTS

Certain matters discussed in this Supplement constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The forward-looking statements relate to anticipated financial
performance, management's plans and objectives for future operations, growth
strategies, business prospects, industry trends and other matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements in certain circumstances. Forward-looking statements
include the information concerning possible or assumed future results of
operations of the combined company after the Merger and other statements in this
Supplement identified by words such as "anticipate," "estimate," "expect" and
"believe."

Readers are cautioned that such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the combined company following the
Merger to be materially different from any future results, performance or
achievements

5
<PAGE> 9

expressed or implied by such forward-looking statements. Such factors may affect
the combined company's operations, markets, products, services and prices. In
addition to any assumptions and other factors referred to specifically in
connection with such forward-looking statements, factors that could cause the
combined company's actual results to differ materially from those contemplated
in any forward-looking statement include, among others, the following: general
economic and business conditions; changes in the competitive environment within
the rental-purchase industry; the ability of Alrenco and RTO to integrate their
respective operations following the Merger; the ability to integrate and manage
future acquired businesses; the rate of acquisitions and new store openings; the
ability to open new rental-purchase stores on a profitable basis; the ability of
Alrenco and RTO to implement and to obtain anticipated cost savings related to
the Merger and realize anticipated cost savings; the actual costs required to
effect the Merger and to realize Merger synergies and cost savings; and changes
in business strategy or development plans.

6
<PAGE> 10

ALRENCO, INC.
------------------------

CROSS REFERENCE SHEET SHOWING LOCATION OR
CAPTION IN JOINT PROXY STATEMENT/PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4

<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION OR CAPTION IN JOINT PROXY STATEMENT/PROSPECTUS
------------- -------------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Joint Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page;
Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Summary; Risk Factors
4. Terms of the Transaction................... Summary; The Merger; Description of Alrenco Capital
Stock; Comparison of Shareholder Rights; Amendment to
Alrenco Articles of Incorporation
5. Pro Forma Financial Information............ Summary; Index to Financial Statements
6. Material Contracts With the Company Being
Acquired................................... Summary; The Merger; The Stock Option Agreements; The
Stockholder Voting Agreements
7. Additional Information Required For
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel..... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
10. Information With Respect to S-3
Registrants................................ Not Applicable
11. Incorporation of Certain Information by
Reference.................................. Not Applicable
12. Information With Respect to S-2 or
S-3 Registrants............................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants.......... Summary; Management's Discussion and Analysis of
Financial Condition and Results of Operations of
Alrenco; Business of Alrenco; Index to Financial
Statements
15. Information With Respect to S-3
Companies.................................. Not Applicable
16. Information With Respect to S-2 or
S-3 Companies.............................. Not Applicable
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION OR CAPTION IN JOINT PROXY STATEMENT/PROSPECTUS
------------- -------------------------------------------------------
<S> <C> <C>
17. Information With Respect to Companies Other
Than S-3 or S-2 Companies.................. Summary; Management's Discussion and Analysis of
Financial Condition and Results of Operations of RTO;
Business of RTO; Index to Financial Statements
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Summary; The Meetings; The Merger; Principal
Shareholders of Alrenco; Principal Stockholders of RTO
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer....................... Not Applicable
</TABLE>
<PAGE> 12

[ALRENCO LETTERHEAD]

January 21, 1998

Dear Alrenco Shareholder:

You are cordially invited to attend a special meeting of shareholders (the
"Special Meeting") of Alrenco, Inc. ("Alrenco") to be held on February 12, 1998,
at 10:00 a.m., local time, at the offices of King & Spalding, 50th Floor, 191
Peachtree Street, Atlanta, Georgia 30305.

At this important meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of September 28,
1997, as amended (the "Merger Agreement"), by and between Alrenco and RTO, Inc.
("RTO"), including (i) the issuance of shares of common stock of Alrenco (the
"Alrenco Common Stock") in connection therewith (the "Stock Issuance"), and (ii)
an amendment to and restatement of (the "Articles Amendment") the existing
Amended and Restated Articles of Incorporation (the "Articles") of Alrenco.
Pursuant to the terms of the Merger Agreement, RTO will be merged with and into
Alrenco, with Alrenco as the surviving corporation (the "Merger").

If the proposed Merger is consummated, each outstanding share of RTO common
stock will be converted into the right to receive 89.795 shares of Alrenco
Common Stock, all on the basis set forth in the Merger Agreement and described
in the accompanying Joint Proxy Statement/Prospectus. Each share of Alrenco
Common Stock that you own will continue to represent one share of Alrenco Common
Stock following the Merger. Based upon the number of shares of common stock of
RTO and Alrenco outstanding at the time the Merger Agreement was signed, upon
completion of the Merger, approximately 33.5% on a fully diluted basis of the
outstanding Alrenco Common Stock will be owned by those who were shareholders of
Alrenco prior to the Merger and approximately 66.5% on a fully diluted basis
will be owned by former RTO stockholders.

The Articles Amendment will (a) increase the amount of authorized Alrenco
Common Stock from 20,000,000 shares to 75,000,000 shares and the amount of
authorized preferred stock of Alrenco from 1,000,000 shares to 10,000,000
shares, and (b) amend the percentage of outstanding shares of Alrenco Common
Stock required to approve amendments to certain provisions of the Articles. The
Articles Amendment will permit the issuance of Alrenco Common Stock pursuant to
the Merger and will ensure that Alrenco will have the flexibility to issue
additional stock when the need arises without the delay associated with having
to obtain shareholder approval for such issuance if not otherwise required.

Your Board of Directors believes that the Merger represents a unique
opportunity to create a larger and stronger company with an enhanced management
team. In an industry that is experiencing increased competitive pressures and
accelerating consolidation, the Merger is strategically important to Alrenco's
efforts to position itself as an effective competitor in the coming years. The
combined company may also realize operational and financial benefits by
capitalizing on each of the separate companies' specific strengths. Finally,
your Board believes that the Merger will bring opportunities for greater growth
and expansion, resulting in improved cash flow, enhanced profitability and
higher long-term value for our shareholders.

YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT, INCLUDING THE
STOCK ISSUANCE AND THE ARTICLES AMENDMENT.

Approval of the Merger Agreement requires the approval of a majority of the
outstanding shares of Alrenco Common Stock entitled to vote at the Special
Meeting. Certain shareholders of Alrenco holding of record and beneficially
approximately 40.1% of the outstanding shares of Alrenco Common Stock have
entered into voting agreements with RTO requiring them, among other things, to
vote all shares of Alrenco Common Stock beneficially owned by them for approval
of the Merger Agreement and each of the other transactions contemplated thereby.
<PAGE> 13

The accompanying Joint Proxy Statement/Prospectus describes in more detail
the Merger Agreement and the Merger, including a description of the conditions
to consummation of the Merger, and contains financial and other information
about RTO and Alrenco. Please give this information your careful attention.

In view of the importance of the action to be taken, we urge you to
complete, sign and date the enclosed proxy and to return it promptly in the
enclosed envelope, whether or not you plan to attend the Special Meeting. If you
attend the Special Meeting, you may vote in person, even if you previously
returned your proxy.

IF YOU DO NOT RETURN THE PROXY CARD AND DO NOT VOTE AT THE SPECIAL MEETING,
IT WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE PROPOSAL TO APPROVE THE
MERGER AGREEMENT, INCLUDING THE STOCK ISSUANCE AND THE ARTICLES AMENDMENT.

We look forward to seeing you at the Special Meeting.

Sincerely,

/s/ MICHAEL D. WALTS

MICHAEL D. WALTS
Chairman of the Board and President
<PAGE> 14

Letterhead of RTO, Inc.

January 21, 1998

Dear RTO Stockholder:

You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of RTO, Inc. ("RTO") to be held on February 12, 1998, at
10:00 a.m., local time, at the offices of King & Spalding which are located at
191 Peachtree Street, Atlanta, Georgia 30305.

At this important meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
September 28, 1997, as amended (the "Merger Agreement"), by and between RTO and
Alrenco, Inc. ("Alrenco"). Pursuant to the terms of the Merger Agreement, RTO
will be merged with and into Alrenco, with Alrenco as the surviving corporation
(the "Merger").

If the proposed Merger is consummated, each outstanding share of RTO common
stock ("RTO Common Stock") that you own will be converted into the right to
receive 89.795 shares of Alrenco common stock ("Alrenco Common Stock"), all on
the basis set forth in the Merger Agreement and described in the enclosed Joint
Proxy Statement/Prospectus. Each share of Alrenco Common Stock will continue to
represent one share of Alrenco Common Stock following the Merger. Based upon the
number of shares of RTO Common Stock and Alrenco Common Stock outstanding at the
time the Merger Agreement was signed, upon completion of the Merger,
approximately 66.5% on a fully diluted basis of the outstanding Alrenco Common
Stock will be owned by current RTO Stockholders and approximately 33.5% on a
fully diluted basis will be owned by current Alrenco Shareholders.

Your Board of Directors believes that this transaction represents a unique
opportunity to create a larger and stronger company with an enhanced management
team. The combined company may realize operational and financial benefits by
capitalizing on each of the separate companies' specific strengths. Your Board
believes that the Merger also will bring opportunities for greater growth and
expansion, resulting in improved cash flow, enhanced profitability and higher
long-term value for our stockholders.

YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.

Approval of the Merger Agreement requires the approval and adoption of a
majority of the outstanding shares of RTO Common Stock entitled to vote at the
Special Meeting. Certain stockholders of RTO holding of record and beneficially
approximately 39.6% of the outstanding shares of RTO Common Stock have entered
into voting agreements with Alrenco requiring them, among other things, to vote
all shares of RTO Common Stock beneficially owned by them for approval and
adoption of the Merger Agreement.

IF YOU DO NOT RETURN THE PROXY CARD AND DO NOT VOTE AT THE SPECIAL MEETING,
IT WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE PROPOSAL TO APPROVE AND
ADOPT THE MERGER AGREEMENT.

We look forward to seeing you at the Special Meeting.

Sincerely,

/s/ GEORGE D. JOHNSON, JR.
GEORGE D. JOHNSON, JR.
Chairman of the Board
<PAGE> 15

[ALRENCO (LOGO)]

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

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 12, 1998
------------------------

NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting") of Alrenco, Inc. ("Alrenco") will be held at the offices of King &
Spalding, 50th floor, 191 Peachtree Street, Atlanta, Georgia 30305, on Thursday,
February 12, 1998 at 10:00 a.m., local time, for the following purpose:

Approval of the Merger Agreement. To consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of September
28, 1997, as amended (the "Merger Agreement"), by and between Alrenco and
RTO, Inc. ("RTO"), a copy of which is attached as Annex A to the
accompanying Joint Proxy Statement/Prospectus, and the transactions
contemplated thereby including, among other matters, (i) the issuance of
shares of Alrenco common stock pursuant to the terms of the Merger
Agreement, and (ii) an amendment to and restatement of the existing Amended
and Restated Articles of Incorporation (the "Articles") of Alrenco.
Pursuant to the terms of the Merger Agreement, among other matters, RTO
will merge with and into Alrenco (the "Merger"), with Alrenco as the
surviving corporation, and each share of common stock of RTO outstanding at
the effective time of the Merger will be converted into the right to
receive 89.795 shares of common stock of Alrenco. The proposed amendment to
and restatement of the Articles will (a) increase the amount of authorized
common stock of Alrenco from 20,000,000 shares to 75,000,000 shares and the
amount of authorized preferred stock of Alrenco from 1,000,000 shares to
10,000,000 shares, and (b) amend the percentage of outstanding shares of
Alrenco common stock required to approve amendments to certain provisions
of the Articles. The Articles, as proposed to be amended and restated, are
attached as Annex G to the accompanying Joint Proxy Statement/Prospectus.

Only shareholders of record at the close of business on January 13, 1998
are entitled to notice of and to vote at the Special Meeting. In the event the
Special Meeting should be adjourned to a date or dates later than June 11, 1998,
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.

By Order of the Board of Directors

/s/ WILLIAM R. HAESELEY

WILLIAM R. HAESELEY, Secretary
1736 East Main Street
New Albany, Indiana 47150
January 21, 1998

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL 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 SPECIAL MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU
MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.
<PAGE> 16

[RTO INC. LOGO]

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

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 12, 1998
------------------------

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of RTO, Inc. ("RTO") will be held at the offices of King & Spalding
which are located at 191 Peachtree Street, Atlanta, Georgia 30305, on Thursday,
February 12, 1998 at 10:00 a.m., local time, for the following purposes:

(1) Approval and Adoption of the Merger Agreement. To consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger,
dated as of September 28, 1997, as amended (the "Merger Agreement"), by and
between Alrenco, Inc. ("Alrenco") and RTO. Pursuant to the terms of the
Merger Agreement, among other matters, RTO will merge with and into Alrenco
(the "Merger"), with Alrenco as the surviving corporation, and each share
of common stock of RTO outstanding at the effective time of the Merger will
be converted into the right to receive 89.795 shares of common stock of
Alrenco. A copy of the Merger Agreement is attached as Annex A to the
accompanying Joint Proxy Statement/Prospectus.

(2) Other Business. To transact such other business as may properly
come before the Special Meeting or any adjournment or postponement thereof.

Only stockholders of record at the close of business on January 13, 1998
are entitled to notice of and to vote at the Special Meeting and any adjournment
or postponement thereof. In the event the Special Meeting should be adjourned to
a date or dates later than February 12, 1998, the Board of Directors will
establish a new record date for purposes of determining those stockholders then
entitled to notice of and to vote at any such adjournments.

If the Merger is consummated, stockholders of RTO who comply with the
requirements of Section 262 of the Delaware General Corporation Law (the "DGCL")
will have the right to seek appraisal of their shares. See "The
Merger -- Dissenters' Rights" in the accompanying Joint Proxy
Statement/Prospectus and Section 262 of the DGCL, a copy of which is attached as
Annex I to the Joint Proxy Statement/Prospectus, for a description of the
procedures required to be followed to perfect appraisal rights.

By Order of the Board of Directors

/s/ Daniel C. Breeden, Jr.
DANIEL C. BREEDEN, JR., Secretary
714 E. Kimbrough Street
Mesquite, Texas 75149
January 21, 1998

JOINT PROXY STATEMENT
OF
ALRENCO, INC.
AND
RTO, INC.
------------------------
PROSPECTUS
OF
ALRENCO, INC.

This Joint Proxy Statement/Prospectus relates to the proposed merger and
certain related transactions contemplated by the Agreement and Plan of Merger,
dated as of September 28, 1997, as amended (the "Merger Agreement"), by and
between Alrenco, Inc., an Indiana corporation ("Alrenco"), and RTO, Inc., a
Delaware corporation ("RTO").

The Merger Agreement provides for the merger of RTO with and into Alrenco
(the "Merger"), with Alrenco as the surviving corporation. Pursuant to the
Merger Agreement, upon effectiveness of the Merger, each issued and outstanding
share of common stock, $.01 par value per share, of RTO (the "RTO Common Stock")
(except shares held by RTO Stockholders (as defined below) who perfect
dissenters' rights with respect thereto (the "RTO Dissenting Shares")), will be
cancelled and converted into the right to receive 89.795 shares (the "Exchange
Ratio") of common stock, no par value, of Alrenco (the "Alrenco Common Stock").
Each issued and outstanding share of Alrenco Common Stock will remain
outstanding, unchanged, as one share of Alrenco Common Stock. Based upon the
capitalization of Alrenco and RTO at September 28, 1997 and the Exchange Ratio,
holders of Alrenco Common Stock (the "Alrenco Shareholders") and holders of RTO
Common Stock (the "RTO Stockholders") would have held approximately 33.5% and
66.5%, respectively, on a fully diluted basis, of the aggregate number of shares
of Alrenco Common Stock that would have been outstanding if the Merger had been
consummated as of such date.

This Joint Proxy Statement/Prospectus is being furnished to the Alrenco
Shareholders in connection with the solicitation of proxies by the Board of
Directors of Alrenco (the "Alrenco Board") for use at the special meeting of
Alrenco Shareholders (the "Alrenco Special Meeting") to be held at 10:00 a.m. on
February 12, 1998 at the offices of King & Spalding, 50th Floor, 191 Peachtree
Street, Atlanta, Georgia 30305, and at any adjournment or postponement thereof.
At the Alrenco Special Meeting, the Alrenco Shareholders will be asked to
consider and vote upon a proposal to approve the Merger Agreement and the
transactions contemplated thereby, including (i) the issuance of shares of
Alrenco Common Stock pursuant to the terms of the Merger Agreement (the "Stock
Issuance"), and (ii) an amendment to and restatement of (the "Articles
Amendment") the existing Amended and Restated Articles of Incorporation of
Alrenco (the "Alrenco Articles") to (a) increase the number of authorized shares
of Alrenco Common Stock from 20,000,000 shares to 75,000,000 shares, and the
number of authorized shares of Alrenco preferred stock (the "Alrenco Preferred
Stock") from 1,000,000 shares to 10,000,000 shares and (b) amend the percentage
of outstanding shares of Alrenco Common Stock required to approve amendments to
certain provisions of the Alrenco Articles. Holders of approximately 40.1% of
the outstanding shares of Alrenco Common Stock entitled to vote at the Alrenco
Special Meeting have agreed with RTO to vote all shares of Alrenco Common Stock
beneficially owned by them in favor of approval of the Merger Agreement and each
of the transactions contemplated thereby. See "The Stockholder Voting
Agreements."

This Joint Proxy Statement/Prospectus is also being furnished to the RTO
Stockholders in connection with the solicitation of proxies by the Board of
Directors of RTO (the "RTO Board") for use at the special meeting of RTO
Stockholders (the "RTO Special Meeting") to be held at 10:00 a.m. on February
12, 1998 at the offices of King & Spalding which are located at 191 Peachtree
Street, Atlanta, Georgia 30305, and at any adjournment or postponement thereof.
At the RTO Special Meeting, the RTO Stockholders will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement. Holders of
approximately 39.6% of the outstanding shares of RTO Common Stock entitled to
vote at the RTO Special Meeting have agreed with Alrenco to vote all shares of
RTO Common Stock beneficially owned by them in favor of approval and adoption of
the Merger Agreement. See "The Stockholder Voting Agreements."

This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Alrenco filed as part of the Registration Statement (as defined herein) with
respect to up to 12,280,316 shares of Alrenco Common Stock, to be issued to RTO
Stockholders pursuant to the terms of the Merger Agreement.

SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN THE SHARES
OF ALRENCO COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is January 20, 1998. This
Joint Proxy Statement/Prospectus is first being mailed to the Alrenco
Shareholders and the RTO Stockholders on or about January 21, 1998.
<PAGE> 18

AVAILABLE INFORMATION

Alrenco has filed with the Securities and Exchange Commission, Washington,
D.C. (the "Commission"), a Registration Statement on Form S-4 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Alrenco Common Stock offered hereby. This Joint Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information with respect to Alrenco and the Alrenco Common Stock,
reference is made to such Registration Statement. Statements contained in this
Joint Proxy Statement/Prospectus regarding the contents of any contract,
agreement or other document are not necessarily complete, and in each instance
reference is made to the copy of the contract, agreement or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Registration Statement may be inspected
at the Public Reference Section of the Commission's principal office, Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at its
regional offices located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of all or any part thereof may be obtained from the
Commission upon payment of the prescribed fees.

Alrenco is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by
Alrenco with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at its principal offices at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following regional offices of the Commission: Seven World Trade Center, Suite
1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. Such material, as well
as the Registration Statement, may be accessed electronically through the
Commission's site on the World Wide Web. The Commission's Internet address is
http://www.sec.gov.

The Alrenco Common Stock is listed on the Nasdaq National Market System.
Reports, proxy statements and other information about Alrenco can also be
inspected at the offices of the National Association of Securities Dealers, Inc.
located at 1735 K Street, N.W., Washington, D.C. 20006.
------------------------

All information contained herein with respect to Alrenco has been furnished
by Alrenco and all information contained herein with respect to RTO has been
furnished by RTO.

No person is authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus, and if given or made, such information or representation
should not be relied upon as having been authorized. This Joint Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement/Prospectus shall, under any
circumstances, create an implication that there has been no change in the
affairs of Alrenco or RTO or in the information set forth herein since the date
of this Joint Proxy Statement/Prospectus.

2
<PAGE> 19

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this Joint Proxy Statement/Prospectus
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements relate
to anticipated financial performance, management's plans and objectives for
future operations, growth strategies, business prospects, industry trends and
other matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements in certain circumstances. The
following discussion is intended to identify the forward-looking statements and
certain factors that could cause future outcomes to differ materially from those
set forth in the forward-looking statements.

Forward-looking statements include the information concerning possible or
assumed future results of operations of Alrenco, as the combined company, set
forth under "Summary -- Reasons for the Merger," "Risk Factors," "The
Merger -- Reasons for the Merger; Recommendations of the Boards of Directors,"
"The Merger -- Opinion of Financial Advisor to Alrenco," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of RTO"
and "Unaudited Pro Forma Condensed Combined Financial Statements" and other
statements in this Joint Proxy Statement/Prospectus identified by words such as
"anticipate," "estimate," "expect" and "believe," and include, in particular,
the statements in such sections of each party's expectations as to the potential
for the combined company to achieve (i) strengthened competitive position, (ii)
enhanced opportunities for expansion, (iii) increased access to capital markets,
(iv) leveraging of financial and managerial resources, (v) cost efficiencies
through consolidation, (vi) improved cash flow and profit potential, (vii)
increased shareholder value, (viii) enhanced managerial expertise, (ix) improved
inventory controls, (x) enhanced ability to attract quality personnel, and (xi)
decreased amortization expense for intangible assets with lives of three years
or less. Readers are cautioned that such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of Alrenco following the Merger to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors may affect
Alrenco's operations, markets, products, services and prices. In addition to any
assumptions and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause Alrenco's actual results to
differ materially from those contemplated in any forward-looking statement
include, among others, the following: general economic and business conditions;
changes in the competitive environment within the rental-purchase industry; the
ability of Alrenco and RTO to integrate their respective operations following
the Merger; the ability to integrate and manage future acquired businesses; the
rate of acquisitions and new store openings; the ability to open new
rental-purchase stores on a profitable basis; the ability of Alrenco and RTO to
implement and to obtain anticipated cost savings related to the Merger and
realize anticipated cost savings; the actual costs required to effect the Merger
and to realize Merger synergies and cost savings; and changes in business
strategy or development plans.

3
<PAGE> 20

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................... 2
FORWARD-LOOKING STATEMENTS................. 3
SUMMARY.................................... 5
Parties to the Merger.................... 5
The Alrenco Special Meeting.............. 5
The RTO Special Meeting.................. 6
Background of the Merger................. 7
Reasons for the Merger................... 7
Terms of the Merger Agreement............ 8
Effective Time of the Merger and Exchange
of Shares.............................. 10
Opinion of Financial Advisor to
Alrenco................................ 10
Recommendations of the Boards of
Directors.............................. 10
Interests of Certain Persons in the
Merger................................. 11
Certain Agreements in Connection with the
Merger................................. 11
Certain Federal Income Tax
Consequences........................... 11
Regulatory Approvals..................... 11
Accounting Treatment..................... 12
Resales of Alrenco Common Stock.......... 12
Dissenters' Rights....................... 12
Comparison of Shareholder Rights......... 12
Amendment to Alrenco Articles of
Incorporation.......................... 13
Market Prices and Dividends.............. 13
Comparative Per Share Data............... 14
Selected Financial Data.................. 15
Selected Historical Financial Data of
Alrenco................................ 15
Selected Historical Financial Data of
RTO.................................... 16
Selected Historical Financial Data of
Action................................. 17
Selected Pro Forma Combined Financial
Data of Alrenco and RTO................ 18
RISK FACTORS............................... 19
INTRODUCTION............................... 22
THE MEETINGS............................... 22
Alrenco Special Meeting.................. 22
RTO Special Meeting...................... 23
THE MERGER................................. 24
Background of the Merger................. 24
Reasons for the Merger; Recommendations
of the Boards of Directors............. 26
Terms of the Merger Agreement............ 30
Effective Time of the Merger and Exchange
of Shares.............................. 34
Confidentiality Letter and Standstill
Provisions............................. 34
Opinion of Financial Advisor to
Alrenco................................ 35
Interests of Certain Persons in the
Merger................................. 38
Certain Federal Income Tax
Consequences........................... 39
Regulatory Approvals..................... 40
Accounting Treatment..................... 41
Listing of Alrenco Common Stock.......... 41
Resales of Alrenco Common Stock.......... 41
Dissenters' Rights....................... 42
THE STOCK OPTION AGREEMENTS................ 44
General.................................. 44
Exercise of the Options.................. 44
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Adjustment of Number of Shares Subject to
Options................................ 45
Repurchase Rights........................ 45
Registration Rights; Listing............. 46
Effect of the Stock Option Agreements.... 46
THE STOCKHOLDER VOTING AGREEMENTS.......... 47
General.................................. 47
Effect of the Stockholder Voting
Agreements............................. 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ALRENCO.................... 48
BUSINESS OF ALRENCO........................ 55
PRINCIPAL SHAREHOLDERS OF ALRENCO.......... 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF RTO........................ 63
BUSINESS OF RTO............................ 75
PRINCIPAL STOCKHOLDERS OF RTO.............. 78
MANAGEMENT OF ALRENCO FOLLOWING THE
MERGER................................... 80
Directors................................ 80
Executive Officers....................... 81
Director Compensation.................... 82
Executive Compensation................... 82
Stock Incentive Plan..................... 83
Non-Employee Director Stock Option
Plan................................... 84
Certain Transactions..................... 85
DESCRIPTION OF ALRENCO CAPITAL STOCK....... 86
COMPARISON OF SHAREHOLDER RIGHTS........... 88
AMENDMENT TO ALRENCO ARTICLES OF
INCORPORATION............................ 93
LEGAL MATTERS.............................. 95
EXPERTS.................................... 95
SHAREHOLDER PROPOSALS...................... 95
OTHER MATTERS.............................. 96
INDEX TO FINANCIAL STATEMENTS.............. F-1
Annex A -- Agreement and Plan of Merger,
as amended
Annex B -- Alrenco Stock Option Agreement
Annex C -- RTO Stock Option Agreement
Annex D -- Form of Alrenco Stockholder
Voting Agreement
Annex E -- Form of RTO Stockholder Voting
Agreement
Annex F -- Opinion of SunTrust Equitable
Securities Corporation
Annex G -- Form of Amended and Restated
Articles of Incorporation of
Alrenco
Annex H -- Form of Amended and Restated
Code of Bylaws of Alrenco
Annex I -- Section 262: Delaware
Dissenters' Rights Statute
</TABLE>

4
<PAGE> 21

SUMMARY

The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus. This summary is not intended to be a
complete description of the matters covered in this Joint Proxy
Statement/Prospectus and is subject to and qualified in its entirety by
reference to the more detailed information and financial statements contained
elsewhere in this Joint Proxy Statement/Prospectus and the Annexes hereto. The
Merger Agreement is set forth in Annex A to this Joint Proxy
Statement/Prospectus and reference is made thereto for a complete description of
the terms of the Merger. Shareholders are urged to read carefully the entire
Joint Proxy Statement/Prospectus, including the Annexes.

PARTIES TO THE MERGER

Alrenco. Alrenco currently operates 165 rental-purchase stores in 18
states, primarily located in the midwestern and southern United States.
Alrenco's stores offer high quality, brand-name consumer merchandise under
flexible, renewable rental-purchase agreements, also known as rent-to-own
agreements. Alrenco's rental-purchase agreements provide customers with the
option, but not the obligation, to obtain ownership of the merchandise following
a stated number of consecutive rental payments, usually 78 weeks or 18 months.
Alrenco's customers are typically low to middle income consumers with limited or
no access to traditional credit sources such as bank financing, installment
credit and credit cards. Alrenco also provides its products to consumers who
desire only temporary rental of a product. Alrenco's products include consumer
electronics, appliances, furniture, jewelry and home furnishing accessories.

Alrenco was incorporated in 1980 under the laws of the State of Indiana.
Alrenco Common Stock is listed on the Nasdaq National Market under the symbol
"RNCO." Alrenco's principal executive offices are located at 1736 East Main
Street, New Albany, Indiana 47150, and its telephone number is (812) 949-3370.

RTO. RTO currently operates 267 rental-purchase stores in 16 states,
primarily located in the southeastern and southwestern United States. Similarly
to Alrenco, RTO offers high quality, brand-name consumer merchandise under
flexible, renewable rental-purchase agreements. RTO also targets customers that
are typically low to middle income consumers with limited or no access to
traditional credit sources. RTO's customers also include persons who desire only
temporary rental of a product.

RTO was incorporated in Delaware in June 1996. Unless the context otherwise
requires, references to RTO include RTO, Inc. and its subsidiaries. RTO's
principal executive offices are located at 714 E. Kimbrough Street, Mesquite,
Texas 75149 and the telephone number at that address is (972) 288-9327.

THE ALRENCO SPECIAL MEETING

Date, Time, Place and Purpose. The Alrenco Special Meeting will be held on
February 12, 1998, at 10:00 a.m., local time, at the offices of King & Spalding,
50th Floor, 191 Peachtree Street, Atlanta, Georgia 30305. At the Alrenco Special
Meeting, the Alrenco Shareholders will be asked to consider and vote upon a
proposal to approve the Merger Agreement, including the Stock Issuance and the
Articles Amendment. Consummation of the Merger is conditioned upon approval by
the Alrenco Shareholders of the Merger Agreement, including the Stock Issuance
and the Articles Amendment.

Record Date and Shares Entitled to Vote. The Alrenco Board has fixed the
close of business on January 13, 1998, as the record date (the "Alrenco Record
Date") for purposes of determining the Alrenco Shareholders entitled to receive
notice of and to vote at the Alrenco Special Meeting. Only those Alrenco
Shareholders as of the Alrenco Record Date are entitled to notice of and to vote
at the Alrenco Special Meeting and any adjournment thereof. As of the close of
business on the Alrenco Record Date, there were 6,095,516 shares of Alrenco
Common Stock issued and outstanding and entitled to vote at the Alrenco Special
Meeting, held of record by approximately 56 Alrenco Shareholders. Alrenco
Shareholders as of the Alrenco Record Date are entitled to cast one vote on any
matter that may properly come before the Alrenco Special Meeting.

5
<PAGE> 22

majority of the outstanding shares of Alrenco Common Stock entitled to vote at
the Alrenco Special Meeting is required to approve the Merger Agreement,
including the Stock Issuance and the Articles Amendment.

Security Ownership of Management; Voting Agreements. As of the Alrenco
Record Date, the directors and executive officers of Alrenco, together with
their affiliates, as a group beneficially owned approximately 38.9% of the
outstanding shares of Alrenco Common Stock entitled to vote at the Alrenco
Special Meeting. See "Principal Shareholders of Alrenco." Michael D. Walts,
Chairman of the Board and President of Alrenco, and Michael D. Walts, Jr., have
entered into voting agreements with RTO requiring them to vote all shares of
Alrenco Common Stock beneficially owned by them for approval of the Merger
Agreement and each of the other transactions contemplated thereby. As of the
Alrenco Record Date, Messrs. Walts and Walts, Jr. held of record and
beneficially approximately 40.1% of the outstanding shares of Alrenco Common
Stock entitled to vote at the Alrenco Special Meeting. See "The Stockholder
Voting Agreements."

Solicitation and Revocation of Proxies. A form of proxy for the Alrenco
Special Meeting is enclosed with the copies of this Joint Proxy
Statement/Prospectus being sent to Alrenco Shareholders. All shares of Alrenco
Common Stock held of record as of the Alrenco Record Date represented by
properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such shares will be voted FOR the proposal to
approve the Merger Agreement, including the Stock Issuance and the Articles
Amendment, and, in the discretion of the proxy holder, as to any other matter
which may properly come before the Alrenco Special Meeting.

The Alrenco Board is not aware of any other matters which may be presented
for action at the Alrenco Special Meeting, but if other matters do properly come
before the Alrenco Special Meeting, it is intended that shares represented by
proxies in the accompanying form will be voted by the persons named in the proxy
in accordance with their best judgment. Any proxy given pursuant to this
solicitation may be revoked in writing by the person giving it at any time
before the proxy is exercised by giving written notice to the Alrenco Secretary
or by submitting a proxy having a later date or by such person appearing at the
Alrenco Special Meeting and electing to vote in person.

THE RTO SPECIAL MEETING

Date, Time, Place and Purpose. The RTO Special Meeting will be held on
February 12, 1998, at 10:00 a.m., local time, at the offices of King & Spalding
which are located at 191 Peachtree Street, Atlanta, Georgia 30305. At the RTO
Special Meeting, the RTO Stockholders will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement. Consummation of the Merger
is conditioned upon approval and adoption by the RTO Stockholders of the Merger
Agreement.

Record Date and Shares Entitled to Vote. The RTO Board has fixed the close
of business on January 13, 1998, as the record date (the "RTO Record Date") for
purposes of determining the RTO Stockholders entitled to receive notice of and
to vote at the RTO Special Meeting. Only those RTO Stockholders as of the RTO
Record Date are entitled to notice of and to vote at the RTO Special Meeting. As
of the close of business on the RTO Record Date, there were 120,959 shares of
RTO Common Stock issued and outstanding and entitled to vote at the RTO Special
Meeting, held of record by approximately 160 RTO Stockholders. RTO Stockholders
as of the RTO Record Date are entitled to cast one vote on any matter that may
properly come before the RTO Special Meeting.

6
<PAGE> 23

Security Ownership of Management; Voting Agreements. As of the RTO Record
Date, the directors and executive officers of RTO, together with their
affiliates, as a group beneficially owned approximately 34.5% of the outstanding
shares of RTO Common Stock entitled to vote at the RTO Special Meeting. See
"Principal Stockholders of RTO." Certain RTO Stockholders have entered into
voting agreements with Alrenco requiring them to vote all shares of RTO Common
Stock beneficially owned by them for approval of the Merger Agreement. As of the
RTO Record Date, these persons and entities hold of record and beneficially
approximately 39.6% of the outstanding shares of RTO Common Stock entitled to
vote at the RTO Special Meeting. See "The Stockholder Voting Agreements."

Solicitation and Revocation of Proxies. A form of proxy for the RTO
Special Meeting is enclosed with the copies of this Joint Proxy
Statement/Prospectus being sent to RTO Stockholders. All shares of RTO Common
Stock held of record as of the RTO Record Date represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such shares will be voted FOR the proposal to approve and adopt
the Merger Agreement and in the discretion of the proxy holder, as to any other
matter which may properly come before the RTO Special Meeting.

The RTO Board is not aware of any other matters which may be presented for
action at the RTO Special Meeting, but if other matters do come properly before
the RTO Special Meeting, it is intended that shares represented by proxies in
the accompanying form will be voted by the persons named in the proxy in
accordance with their best judgment. Any proxy given pursuant to this
solicitation may be revoked in writing by the person giving it at the time
before the proxy is exercised by giving notice to the RTO Secretary or by
submitting a proxy having a later date or by such person appearing at the RTO
Special Meeting and electing to vote in person.

THE RTO BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS
THAT THE RTO STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.

THE MERGER

BACKGROUND OF THE MERGER

In August, 1997, management of RTO contacted management of Alrenco and
Alrenco's financial advisors to express RTO's interest in a combination of the
two companies. Over the ensuing weeks management of RTO and Alrenco, and their
respective representatives and advisors, discussed such a proposed transaction.
The Merger Agreement was executed on September 28, 1997. See "The Merger --
Background of the Merger."

REASONS FOR THE MERGER

The Alrenco and RTO Boards believe that the Merger presents significant
operational, strategic and financial opportunities for both companies and their
shareholders. These expected opportunities include, among others:

- Strengthened competitive position. Both Alrenco and RTO have
well-established market positions in their respective markets, and very
little overlap exists between the two companies' operations. The combined
company should be able to utilize these relative market strengths and
market coverage to gain a competitive advantage over smaller regional
companies.

- Enhanced opportunities for expansion. Alrenco following the Merger
plans to expand rapidly through new store openings and acquisitions. The
increased size of the combined company should enable it to pursue an
aggressive new store opening strategy more effectively than either
company independently due to greater access to capital, management and
other resources. Due to the initial costs of new store openings, an
aggressive new store opening plan would have a significant negative
effect on a smaller company's profitability. In addition, the increased
visibility of the combined company should increase its ability to
identify and consummate acquisitions of additional stores.

- Increased access to capital markets. The increased size and capital
base of the combined company should provide better access to the capital
markets than either company currently possesses. In

7
<PAGE> 24

addition, management of both companies believes that the increased
shareholder base of the combined company should ultimately create a more
efficient trading market for Alrenco Common Stock.

- Leveraging of financial and managerial resources. Management of both
companies believes that the combined company will benefit from the
combined management resources of the two companies. In addition, as
Alrenco expands following the Merger, management believes that overhead
costs necessarily will not increase proportionately, increasing Alrenco's
profitability.

- Cost efficiencies through consolidation. Management of both companies
believes that certain administrative and operational functions of the two
companies will be consolidated, and that such consolidation will result
in lower overall costs. In addition, management of both companies
believes that the increased size and scope of the combined company's
operations will enable Alrenco to achieve certain economies related to
purchasing of equipment, merchandise and other services.

For a more detailed discussion of the factors considered by the Alrenco and
RTO Boards in evaluating the Merger, see "The Merger -- Reasons for the Merger;
Recommendations of the Boards of Directors."

TERMS OF THE MERGER AGREEMENT

General. The Merger Agreement provides that, following approval of the
Merger Agreement by the Alrenco Shareholders and the RTO Stockholders and the
satisfaction or waiver of the other conditions to the Merger, RTO shall be
merged with and into Alrenco at the Effective Time (as defined herein) in
accordance with the Indiana Business Corporation Law (the "IBCL") and the
Delaware General Corporation Law (the "DGCL"). Alrenco will be the surviving
corporation in the Merger. As a result of the Merger, the separate corporate
existence of RTO will cease. If the Merger Agreement is approved by the Alrenco
Shareholders and approved and adopted by the RTO Stockholders, and the other
conditions to the Merger are satisfied or waived, the closing of the Merger (the
"Closing") shall take place on the later of (a) the date of the Alrenco Special
Meeting and the RTO Special Meeting or (b) the day on which all of the
conditions referred to below under "-- Conditions to the Merger" are satisfied
or waived, or at such other date, time and place as Alrenco and RTO shall agree.

Conversion of Shares. Pursuant to the Merger Agreement, at the Effective
Time of the Merger each outstanding share of RTO Common Stock (excluding any RTO
Dissenting Shares) shall be cancelled and converted into the right to receive
89.795 shares of Alrenco Common Stock with cash being paid in lieu of fractional
shares. The value of the 89.795 shares of Alrenco Common Stock to be received in
exchange for each share of RTO Common Stock was approximately $1,369.00, based
upon the closing price of $15.25 for a share of Alrenco Common Stock on the
Nasdaq National Market on September 26, 1997, the last trading day prior to the
public announcement of the Merger Agreement, and approximately $1,482, based
upon the closing price of $16.50 for a share of Alrenco Common Stock on January
20, 1998. Each issued and outstanding share of Alrenco Common Stock will be
unchanged as a result of the Merger and will remain outstanding thereafter as
one share of Alrenco Common Stock. Based upon the capitalization of Alrenco and
RTO at September 28, 1997 and the Exchange Ratio, Alrenco Shareholders and RTO
Stockholders would have held approximately 33.5% and 66.5%, respectively, on a
fully diluted basis, of the aggregate number of shares of Alrenco Common Stock
that would have been outstanding if the Merger had been consummated as of such
date.

Treatment of RTO Options. At the Effective Time, each employee stock
option under the employee stock option plan of RTO and each non-employee
director stock option under the non-employee director stock option plan of RTO
(individually, an "RTO Option") which is outstanding and unexercised at the
Effective Time will be converted into an option to purchase such number of
shares of Alrenco Common Stock as is equal to the product of (i) the number of
shares of RTO Common Stock subject to such RTO Option and (ii) the Exchange
Ratio, at a per share exercise price equal to the aggregate exercise price of
each RTO Option divided by the total number of shares of Alrenco Common Stock
subject to such RTO Option. See "The Merger -- Terms of the Merger
Agreement -- Treatment of RTO Options."

8
<PAGE> 25

Time, George D. Johnson, Jr., Chairman of the Board of RTO, will be the Chairman
of the Board of Alrenco. See "Management of Alrenco Following the Merger." In
addition, it is a condition to Alrenco's obligation to consummate the Merger
that Mr. Walts, the current Chairman of the Board and President of Alrenco, will
have entered into a Noncompetition and Consulting Agreement (the "Noncompetition
and Consulting Agreement") pursuant to which Mr. Walts will serve as a
consultant to Alrenco following the Merger. See "The Merger -- Interests of
Certain Persons in the Merger -- Noncompetition and Consulting Agreement."

Conditions to the Merger. The obligations of Alrenco, on the one hand, and
RTO, on the other hand, to consummate the Merger are subject to the satisfaction
or waiver of certain conditions, including among other matters, (i) approval of
the Merger Agreement by the requisite vote of each of the Alrenco Shareholders
and the RTO Stockholders, (ii) receipt of certain governmental and other
consents and approvals specified as conditions precedent to consummation of the
Merger, including expiration or early termination of the statutory waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), (iii) listing on the Nasdaq National Market of the shares of Alrenco
Common Stock to be issued pursuant to the terms of the Merger Agreement, (iv)
receipt by Alrenco and RTO of letters from their respective independent public
accountants to the effect that the Merger will qualify for pooling-of-interests
accounting treatment, (v) receipt by RTO and Alrenco of a tax opinion from King
& Spalding that the Merger will be treated as a tax-free reorganization, and
(vi) satisfaction of certain other customary conditions. See "The Merger --
Terms of the Merger Agreement -- Conditions to the Merger."

Indemnification Obligations. Alrenco has agreed in the Merger Agreement to
indemnify certain directors and officers of Alrenco and RTO against liabilities
arising at or prior to the Effective Time, to maintain in effect for a period of
six years from the Effective Time directors' and officers' liability insurance
covering RTO's directors and officers and to keep in effect certain provisions
in the Alrenco Articles and the Alrenco Bylaws regarding exculpation of director
and officer liability and indemnification of directors and officers. See "The
Merger -- Terms of the Merger Agreement -- Indemnification Obligations."

No Solicitation. The Merger Agreement provides that neither Alrenco nor
RTO will, directly or indirectly, solicit or, with certain exceptions,
facilitate mergers, sales of significant assets, tender offers or similar
transactions with other persons prior to the Effective Time. See "The Merger --
Terms of the Merger Agreement -- No Solicitation of Transactions."

Amendment and Waiver. The Merger Agreement may be amended by the parties
thereto, at any time before the Effective Time, but after approval thereof by
the Alrenco Shareholders or the RTO Stockholders, whichever shall occur first,
no such amendment shall alter or change the amount or kind of consideration to
be received by RTO Stockholders upon consummation of the Merger, alter or change
any term of the Alrenco Articles or the Certificate of Incorporation of RTO (the
"RTO Certificate"), or alter or change any of the terms and conditions of the
Merger Agreement if such alteration or change would adversely affect the holders
of any class or series of securities of Alrenco or RTO. Alrenco and RTO may
extend the time for the performance of any of the obligations or other acts of
the other party thereto and waive, among other things, compliance with any of
the agreements or conditions contained in the Merger Agreement. See "The Merger
- -- Terms of the Merger Agreement -- Amendment and Waiver."

Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time: (a) by mutual written consent of Alrenco and RTO; (b) by the
Alrenco Board or the RTO Board, if the Effective Time shall not have occurred on
or before February 28, 1998 (or, in certain circumstances, March 31, 1998); (c)
by Alrenco or RTO if the Merger Agreement and the Merger shall not have been
approved and adopted by the shareholders of the other party; (d) by Alrenco or
RTO in the event of government action prohibiting the Merger; (e) by either
party if certain material adverse changes shall have affected the other party or
by the non-breaching party if there occurs a material breach by the other party
that is not cured after thirty days' notice; or (f) by either party, under
certain circumstances, as a result of a more favorable third-party tender offer
or business combination proposal with respect to such party. See "The Merger --
Terms of the Merger Agreement -- Termination of the Merger Agreement." The
Merger Agreement requires that a termination fee in the amount of $3,000,000
plus certain fees and expenses be paid under certain circumstances, including if
certain actions are taken by a party as a result of a more favorable

9
<PAGE> 26

third-party tender offer or business combination proposal. See "The Merger --
Terms of the Merger Agreement -- Termination Fees."

Fees and Expenses. Except as set forth above, all costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby shall be paid by the party incurring such expense, except
that (a)(i) a filing fee in connection with any HSR Act filing, and (ii) the
expenses incurred in connection with printing and mailing of this Joint Proxy
Statement/Prospectus shall be shared equally by Alrenco and RTO, and (b) all
transfer taxes shall be paid by RTO. See "The Merger -- Terms of the Merger
Agreement -- Fees and Expenses."

EFFECTIVE TIME OF THE MERGER AND EXCHANGE OF SHARES

Effective Time of the Merger. If the Merger Agreement is approved by the
requisite vote of the Alrenco Shareholders and approved and adopted by the
requisite vote of the RTO Stockholders, all required governmental and other
consents and approvals specified in the Merger Agreement as conditions to
consummation of the Merger are obtained, and the other conditions to the
respective obligations of the parties to consummate the Merger are either
satisfied or waived (as permitted), the Merger will be consummated and will
become effective on the date and at the time that Articles of Merger are duly
filed with the Secretary of State of Indiana and a Certificate of Merger is duly
filed with the Secretary of State of Delaware (the "Effective Time"). Assuming
satisfaction or waiver of all conditions to consummation of the Merger, the
Merger is expected to become effective during the first quarter of 1998. The
Merger cannot become effective until all of the conditions to the Merger are
either satisfied or waived (as permitted). Thus, there can be no assurance as to
whether or when the Effective Time will occur. See "The Merger -- Terms of the
Merger Agreement -- Conditions to the Merger."

Exchange of RTO Stock Certificates. As soon as practicable after the
Effective Time, the exchange agent will mail to each holder of record of shares
of RTO Common Stock at the Effective Time, a transmittal letter and instructions
for use in surrendering such holder's stock certificates in exchange for
certificates representing shares of Alrenco Common Stock. At the Effective Time,
shares of RTO Common Stock will be cancelled and converted into the right to
receive Alrenco Common Stock at the Exchange Ratio with cash being paid for
fractional shares. Alrenco will not be obligated to deliver the consideration to
which any former RTO Stockholder is entitled until such holder surrenders his or
her or its certificate or certificates representing such shares of RTO Common
Stock for exchange. See "The Merger -- Effective Time of the Merger and Exchange
of Shares -- Exchange of RTO Stock Certificates."

RTO STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE
UNTIL THEY RECEIVE INSTRUCTIONS AND THE LETTER OF TRANSMITTAL.

OPINION OF FINANCIAL ADVISOR TO ALRENCO

On September 28, 1997, SunTrust Equitable Securities Corporation ("SunTrust
Equitable") delivered to the Alrenco Board its oral opinion, which was confirmed
by its written opinion dated January 21, 1998 (the "SunTrust Equitable
Opinion"), to the effect that, based upon and subject to certain matters stated
therein, as of the date of the SunTrust Equitable Opinion, the Exchange Ratio
and the consideration to be paid by Alrenco in the Merger are fair to the
Alrenco Shareholders from a financial point of view. See "The Merger -- Opinion
of Financial Advisor to Alrenco." The full text of the SunTrust Equitable
Opinion, which sets forth the assumptions made, matters considered and limits of
the review undertaken in connection with the SunTrust Equitable Opinion, is
attached hereto as Annex F and is incorporated herein by reference. Holders of
Alrenco Common Stock are urged to read the SunTrust Equitable Opinion in its
entirety.

RECOMMENDATIONS OF THE BOARDS OF DIRECTORS

Alrenco. THE ALRENCO BOARD, BY A UNANIMOUS VOTE, HAS ADOPTED THE MERGER
AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER ARE IN THE BEST INTERESTS OF
THE ALRENCO SHAREHOLDERS, AND RECOMMENDS THAT THE ALRENCO SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT, INCLUDING THE STOCK ISSUANCE AND THE ARTICLES
AMENDMENT.

10
<PAGE> 27

The Alrenco Board adopted the Merger Agreement after consideration of a
number of factors described under the heading "The Merger -- Reasons for the
Merger; Recommendations of the Boards of Directors -- Alrenco."

RTO. THE RTO BOARD, BY A UNANIMOUS VOTE, HAS APPROVED THE MERGER
AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER ARE IN THE BEST INTERESTS OF
THE RTO STOCKHOLDERS AND RECOMMENDS THAT THE RTO STOCKHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.

The RTO Board approved the Merger Agreement after consideration of a number
of factors described under the heading "The Merger -- Reasons for the Merger;
Recommendations of the Boards of Directors -- RTO."

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the Merger, holders of Alrenco Common Stock and RTO Common
Stock should be aware that certain executive officers and directors of Alrenco
and RTO have certain interests that may present them with potential conflicts of
interest with respect to the Merger. For example, under the terms of the Merger
Agreement, Alrenco will enter into the Noncompetition and Consulting Agreement
with Michael D. Walts, Chairman of the Board, President and a director of
Alrenco, pursuant to which Mr. Walts will receive annual compensation of
$400,000 for five years and reimbursement for reasonable out-of-pocket expenses.
Raymond C. Holladay, Executive Vice President, Chief Operating Officer and a
director of Alrenco, and Theodore H. Wilson, Executive Vice President, Chief
Financial Officer and a director of Alrenco, received, in January, 1996,
restricted stock awards of 60,000 shares and 45,000 shares, respectively, of
Alrenco Common Stock, and such awards vest upon the occurrence of certain change
in control transactions such as the Merger. The value of such stock awards to
Mr. Holladay and Mr. Wilson was $990,000 and $742,500, respectively, based upon
the closing price of $16.50 for a share of Alrenco Common Stock on January 20,
1998. See "The Merger -- Interests of Certain Persons in the Merger."

CERTAIN AGREEMENTS IN CONNECTION WITH THE MERGER

Certain additional agreements have been and will be entered into in
connection with the consummation of the Merger, including mutual Stock Option
Agreements, Stockholder Voting Agreements and the Noncompetition and Consulting
Agreement. See "The Merger -- Interests of Certain Persons in the Merger --
Noncompetition and Consulting Agreement," "The Stock Option Agreements" and "The
Stockholder Voting Agreements."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Merger is intended to be a tax-free reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Generally, no gain or loss should be recognized for federal income tax purposes
by RTO Stockholders as a result of the Merger, except that gain or loss will be
recognized with respect to cash received in lieu of fractional shares. A
condition to consummation of the Merger is the receipt by RTO and Alrenco of an
opinion of King & Spalding, counsel to RTO, to the effect that the Merger will
constitute a tax-free reorganization. See "The Merger -- Certain Federal Income
Tax Consequences."

REGULATORY APPROVALS

Under the Merger Agreement, the obligations of both RTO and Alrenco to
consummate the Merger are conditioned on the expiration of the waiting period
under the HSR Act, the absence of any action instituted by the Antitrust
Division of the Department of Justice (the "Antitrust Division") or the Federal
Trade Commission (the "FTC") and the receipt of all other material consents from
governmental authorities. Under the HSR Act and the rules promulgated thereunder
by the FTC, the Merger may not be consummated unless notification has been given
and certain information has been furnished to the FTC and the Antitrust Division
and the waiting period has expired or been terminated. On October 31, 1997,
Alrenco and RTO each filed a Notification and Report Form with the FTC and the
Antitrust Division pursuant to the HSR Act in connection with the Merger. The
30-day waiting period under the HSR Act applicable to the Merger was

11
<PAGE> 28

terminated early by action of the FTC on November 7, 1997. The requirements of
the HSR Act will be satisfied if the Merger is consummated by November 7, 1998.
There can be no assurance that the Merger will not be investigated or opposed by
the FTC or the Antitrust Division, or that at any time before the consummation
of the Merger, the FTC, the Antitrust Division, states or private parties will
not take action under the antitrust laws challenging the consummation of the
Merger. See "The Merger -- Regulatory Approvals."

ACCOUNTING TREATMENT

It is anticipated that the Merger will qualify as a pooling-of-interests
transaction for accounting and financial reporting purposes. Management of
Alrenco and RTO have been informed that Alrenco and RTO will receive from
Coopers & Lybrand L.L.P., RTO's independent accountants, on or prior to the
Effective Time, a letter to the effect that Coopers & Lybrand L.L.P. concurs
with the conclusions of Alrenco's and RTO's management that no conditions exist
with respect to either company which would preclude accounting for the Merger as
a pooling-of-interests and that Alrenco and RTO will receive from Grant Thornton
LLP, Alrenco's independent accountants, on or prior to the Effective Time, a
letter to the effect that Grant Thornton LLP concurs with the conclusions of
Alrenco's management that no conditions exist with respect to Alrenco which
would preclude accounting for the Merger as a pooling-of-interests. See "The
Merger -- Accounting Treatment." In order for the Merger to qualify for
pooling-of-interests accounting treatment, among other matters, the aggregate of
the fractional shares of Alrenco Common Stock for which cash will be paid and
the number of RTO Dissenting Shares cannot exceed 9.8% of the total number of
shares of RTO Common Stock outstanding at the Effective Time. See "The
Merger -- Dissenters' Rights."

RESALES OF ALRENCO COMMON STOCK

Shares of Alrenco Common Stock to be issued to RTO Stockholders in
connection with the Merger will be freely transferable by the holders of such
shares, except for shares of Alrenco Common Stock issued to any person or entity
who, at the time of the Merger, may be deemed to be an "affiliate" of RTO under
Rule 145 of the Securities Act ("Rule 145"), which shares will be subject to
certain volume and manner of sale restrictions. See "The Merger -- Resales of
Alrenco Common Stock."

DISSENTERS' RIGHTS

An RTO Stockholder who, prior to the vote at the RTO Special Meeting,
delivers to RTO a written demand for appraisal, who does not vote in favor of
the proposal to approve and adopt the Merger Agreement, and who complies with
the other applicable requirements of Delaware law will have the right to receive
in cash the "fair value" of his or her shares of RTO Common Stock as determined
in a judicial proceeding under Delaware law. An RTO Stockholder who returns a
signed blank proxy will be deemed to have voted in favor of the Merger and to
have waived the appraisal rights of a dissenting stockholder. Failure to
strictly comply with the provisions of Delaware law may result in the loss of a
dissenting stockholder's appraisal rights. See "The Merger -- Dissenters'
Rights" and Annex I to this Joint Proxy Statement/Prospectus which sets forth
the full text of Section 262 of the DGCL.

The Alrenco Shareholders are not entitled to appraisal or dissenters'
rights in connection with the Merger.

COMPARISON OF SHAREHOLDER RIGHTS

The rights of RTO Stockholders are currently determined by reference to the
DGCL, the RTO Certificate and the Bylaws of RTO (the "RTO Bylaws"). As a result
of the Merger, RTO Stockholders (other than RTO Stockholders who dissent from
the Merger and elect to pursue their statutory appraisal rights) will become
Alrenco Shareholders and their rights will then be determined by reference to
the IBCL and the Alrenco Articles and the Alrenco Amended and Restated Code of
Bylaws (the "Alrenco Bylaws"). The current Alrenco Articles and Alrenco Bylaws
will be amended and restated as part of the Merger. Because of differences
between the DGCL, the RTO Certificate and the RTO Bylaws, on the one hand, and
the IBCL, the Alrenco Articles and the Alrenco Bylaws, on the other hand, the
RTO Stockholders will have certain different rights as Alrenco Shareholders than
they had as RTO Stockholders. For a description of the

12
<PAGE> 29

material differences in the rights of RTO Stockholders and Alrenco Shareholders,
see "Comparison of Shareholder Rights." The forms of the Alrenco Articles and
the Alrenco Bylaws, as proposed to be amended and restated by virtue of the
Merger, are attached as Annexes G and H, respectively, to this Joint Proxy
Statement/Prospectus.

AMENDMENT TO ALRENCO ARTICLES OF INCORPORATION

Alrenco Shareholders are being asked to consider and approve the Merger
Agreement, including the Articles Amendment, which would amend and restate the
Alrenco Articles at the Effective Time to read in their entirety in the form set
forth in Annex G to this Joint Proxy Statement/Prospectus. The Articles
Amendment would (i) increase the amount of authorized Alrenco Common Stock from
20,000,000 shares to 75,000,000 shares and the amount of authorized Alrenco
Preferred Stock from 1,000,000 shares to 10,000,000 shares, and (ii) amend the
percentage of outstanding shares of Alrenco Common Stock required to approve
amendments to certain provisions of the Alrenco Articles. See "Amendment to
Alrenco Articles of Incorporation."

MARKET PRICES AND DIVIDENDS

Alrenco Common Stock is traded on the Nasdaq National Market under the
symbol "RNCO." The following table sets forth the high and low sales prices per
share of Alrenco Common Stock for the quarterly periods indicated as reported on
the Nasdaq National Market since January 23, 1996 (the date Alrenco completed
its initial public offering).

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1996
First Quarter (from January 23, 1996)....................... $15.88 $13.75
Second Quarter.............................................. 19.75 14.25
Third Quarter............................................... 23.75 16.75
Fourth Quarter.............................................. 22.25 9.63
FISCAL YEAR 1997
First Quarter............................................... $12.13 $10.13
Second Quarter.............................................. 13.38 10.00
Third Quarter............................................... 19.63 12.88
Fourth Quarter.............................................. 19.00 13.88
</TABLE>

On September 26, 1997, the last trading day prior to public announcement
that Alrenco and RTO had executed the Merger Agreement, the last reported sale
price per share of Alrenco Common Stock on the Nasdaq National Market was
$15.25. On January 20, 1998, the last reported sale price per share of Alrenco
Common Stock on the Nasdaq National Market was $16.50. The market price of
Alrenco Common Stock is subject to fluctuation. RTO Stockholders are urged to
obtain current market quotations for Alrenco Common Stock.

As of January 13, 1998, there were 56 holders of record of Alrenco Common
Stock; however, Alrenco believes the number of beneficial owners is
substantially greater.

RTO is privately held and therefore no established public trading market
exists for RTO Common Stock. On October 15, 1997, the most recent date for which
price information is known to management of RTO for transactions in RTO Common
Stock, 25 shares were sold at a price of $1,400.00 per share.

As of January 13, 1998, there were 160 holders of record of RTO Common
Stock.

Neither Alrenco nor RTO has ever paid any cash dividends on their common
stock. Following the Merger, it is expected that Alrenco will retain all
available earnings generated by its operations for the development and growth of
its business and the combined company does not anticipate paying any cash
dividends on the Alrenco Common Stock in the foreseeable future. Under the bank
credit agreements of each of Alrenco and RTO, both companies are subject to
certain restrictions on their ability to declare or pay dividends. Any future
change in Alrenco's dividend policy will be made at the discretion of the
Alrenco Board and will depend on a number of factors, including the future
earnings, capital requirements, contractual restrictions, financial condition
and future prospects of Alrenco and such other factors as the Alrenco Board may
deem relevant.

13
<PAGE> 30

The shares of Alrenco Common Stock to be issued pursuant to the terms of
the Merger Agreement have been approved for listing on the Nasdaq National
Market, subject to notice of issuance. It is a condition to consummation of the
Merger that such shares of Alrenco Common Stock be authorized for listing on the
Nasdaq National Market, subject to official notice of issuance. See "The
Merger -- Terms of the Merger Agreement -- Conditions to the Merger" and "The
Merger -- Listing of Alrenco Common Stock."

COMPARATIVE PER SHARE DATA

The following summary presents selected comparative unaudited per share
data for Alrenco and RTO on a historical basis, and on a pro forma combined and
equivalent pro forma combined basis, assuming the Merger had been consummated
during the periods presented and assuming an exchange ratio for the Merger of
89.795 shares of Alrenco Common Stock for each outstanding share of RTO Common
Stock. The Merger is reflected using the pooling-of-interests method of
accounting and pro forma data is derived accordingly. The information shown
below should be read in conjunction with the historical financial statements of
Alrenco and RTO, including the respective notes thereto, included elsewhere in
this Joint Proxy Statement/Prospectus, and with the unaudited pro forma
condensed combined financial statements, including the notes thereto, appearing
elsewhere herein. Information concerning dividends paid per share by Alrenco and
RTO is not presented in the table below as neither Alrenco nor RTO has ever paid
a cash dividend. See "Available Information," "The Merger -- Accounting
Treatment" and "Unaudited Pro Forma Condensed Combined Financial Statements."

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
----------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ALRENCO COMMON STOCK
Earnings per share:
Historical................................... $ .31 $ .41 $ .77 $ .68
Pro forma combined(1)........................ .37 1.11(5) .09 .07
Book value per share:
Historical(2)................................ $ 9.49 $ 10.19
Pro forma combined(3)........................ 8.18 8.26
RTO COMMON STOCK
Earnings per share:
Historical................................... $ 47.88 $ 237.43(5) $ (44.83) $ (23.78)
Equivalent pro forma combined(4)............. 33.59 99.36(5) 7.87 6.56
Book value per share:
Historical(2)................................ $ 735.86 $ 710.99
Equivalent pro forma combined(4)............. 734.62 741.58
</TABLE>

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

(1) Pro forma combined earnings per share amounts for Alrenco Common Stock
represent the sum of pro forma combined amounts for Alrenco and RTO,
divided by pro forma combined weighted average common shares outstanding.
(2) Historical book value per share information for Alrenco and RTO as of the
end of each period presented is computed by dividing historical
stockholders' equity for each company by the number of shares of Alrenco
Common Stock or RTO Common Stock, as the case may be, outstanding at the
end of each period presented, excluding shares under stock options.
(3) Pro forma combined book value per share information as of the end of the
periods presented is computed by dividing pro forma stockholders' equity
($138,287,481 and $140,041,895 at December 31, 1996 and September 30, 1997,
respectively) by the sum of the number of shares of Alrenco Common Stock
outstanding on such dates and the shares of Alrenco Common Stock assumed to
be issued pursuant to the Merger Agreement (16,903,197 and 16,957,119 at
December 31, 1996 and September 30, 1997, respectively).
(4) Equivalent pro forma combined amounts per share of RTO Common Stock
represent the pro forma combined per share amounts of Alrenco Common Stock,
multiplied by the Exchange Ratio of 89.795 in the Merger.
(5) Included in the Alrenco pro forma combined earnings per share, the
historical RTO earnings per share and the RTO equivalent pro forma combined
earnings per share is an extraordinary gain per share of $.74, $212.15 and
$66.32, respectively.

14
<PAGE> 31

SELECTED FINANCIAL DATA

Set forth below is certain selected historical financial data relating to
Alrenco, RTO and Action TV & Appliance Rental, Inc. ("Action"), and certain
selected unaudited pro forma combined financial data of Alrenco and RTO, giving
effect to the Merger under the pooling-of-interests method of accounting. See
"The Merger -- Accounting Treatment." This information should be read in
conjunction with the historical financial statements of Alrenco, RTO and Action,
including the respective notes thereto, included elsewhere in this Joint Proxy
Statement/Prospectus, and with the unaudited pro forma combined financial
statements, including the notes thereto, appearing elsewhere herein. See
"Available Information" and "Unaudited Pro Forma Condensed Combined Financial
Statements."

SELECTED HISTORICAL FINANCIAL DATA OF ALRENCO
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following selected financial data for the years ended December 31,
1994, 1995 and 1996 was derived from Alrenco's financial statements audited by
Grant Thornton LLP, independent certified public accountants. The following
selected financial data for the years ended December 31, 1992 and 1993 was
derived from Alrenco's financial statements. The financial statements of Alrenco
as of December 31, 1994, 1995 and 1996 and for each of the three years in the
period ended December 31, 1996, and the report of Grant Thornton LLP thereon are
included elsewhere in this Joint Proxy Statement/Prospectus. The selected
financial data should be read in conjunction with the financial statements of
Alrenco and the related notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Alrenco." The information for the
nine-month periods ended September 30, 1996 and 1997 is unaudited, but, in the
opinion of management of Alrenco, includes all adjustments (consisting only of
normal recurring accruals) necessary for a fair statement of the results for the
periods presented. The interim results for the nine-month period ended September
30, 1997 are not necessarily indicative of results for the entire year.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenue
Rentals and fees....................... $20,424 $22,283 $27,800 $37,576 $63,856 $44,172 $76,171
Operating expenses
Direct store expenses
Depreciation of rental merchandise... 5,620 5,889 7,483 9,099 13,964 9,612 18,065
Other expenses....................... 10,220 10,076 14,380 20,924 36,476 24,771 42,563
------- ------- ------- ------- ------- ------- -------
15,840 15,965 21,863 30,023 50,440 34,383 60,628
General and administrative expenses.... 2,741 3,650 3,678 4,339 5,589 3,903 6,299
Litigation settlement.................. -- 625 -- -- -- -- --
Amortization of intangibles............ 4 30 97 285 1,141 613 2,449
------- ------- ------- ------- ------- ------- -------
Total operating expenses............. 18,585 20,270 25,638 34,647 57,170 38,899 69,376
------- ------- ------- ------- ------- ------- -------
Operating profit..................... 1,839 2,013 2,162 2,929 6,686 5,273 6,795
Interest expense......................... 434 281 461 894 652 615 844
Interest income.......................... -- -- -- -- (134) (6) (1)
Gain on sale of investments.............. -- -- -- (100) -- -- --
Gain on sale of assets................... -- -- -- -- -- -- (950)
------- ------- ------- ------- ------- ------- -------
434 281 461 794 518 609 (107)
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes........... 1,405 1,732 1,701 2,135 6,168 4,664 6,902
Income tax expense....................... 497 722 739 868 2,505 1,914 2,775
------- ------- ------- ------- ------- ------- -------
Net earnings........................... $ 908 $ 1,010 $ 962 $ 1,267 $ 3,663 $ 2,750 $ 4,127
======= ======= ======= ======= ======= ======= =======
Earnings per common share................ $ .29 $ .33 $ .31 $ .41 $ .77 $ .63 $ .68
Weighted average common shares
outstanding............................ 3,105 3,105 3,105 3,105 4,787 4,366 6,082
BALANCE SHEET DATA:
Rental merchandise, net.................. $ 5,417 $ 5,675 $ 9,336 $13,115 $27,933 $24,948 $36,886
Intangible assets, net................... 13 12 592 4,869 20,323 18,908 35,430
Total assets............................. 7,088 7,666 12,680 21,007 62,196 61,394 84,887
Total debt............................... 4,137 2,929 7,201 12,865 -- -- 15,625
Total liabilities........................ 5,851 5,419 9,441 16,531 4,532 7,341 22,772
Stockholders' equity..................... 1,237 2,247 3,239 4,475 57,663 54,053 62,115
</TABLE>

15
<PAGE> 32

SELECTED HISTORICAL FINANCIAL DATA OF RTO

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following selected financial data for the years ended December 31,
1994, 1995 and 1996 was derived from RTO's consolidated financial statements
audited by Coopers & Lybrand L.L.P., independent accountants. The following
selected financial data for the years ended December 31, 1992 and 1993 was
derived from RTO's financial statements, which have not been audited. The
financial statements of RTO as of December 31, 1994, 1995 and 1996 and for each
of the three years in the period ended December 31, 1996, and the report of
Coopers & Lybrand L.L.P. thereon are included elsewhere in this Joint Proxy
Statement/Prospectus. The selected financial data should be read in conjunction
with the consolidated financial statements of RTO and the related notes thereto
included elsewhere in this Joint Proxy Statement/Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
RTO." The information for the nine-month periods ended September 30, 1996 and
1997 is unaudited, but, in the opinion of management of RTO, includes all
adjustments (consisting only of normal recurring accruals) necessary for a fair
statement of the results for the periods presented. The interim results for the
nine-month period ended September 30, 1997 are not necessarily indicative of
results for the entire year.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenue:
Rental and fee revenue............................. $35,306 $37,797 $38,322 $37,415 $57,289 $ 35,059 $ 89,462
Cash sales and other revenue....................... 1,727 1,672 2,659 2,538 3,016 2,191 3,794
------- ------- ------- ------- ------- -------- --------
Total revenue................................ 37,033 39,469 40,981 39,953 60,305 37,250 93,256
------- ------- ------- ------- ------- -------- --------
Operating expenses:
Direct store expenses:
Depreciation and disposition of rental
merchandise.................................... 12,037 12,536 13,720 13,738 18,865 11,680 25,251
Other............................................ 19,044 20,481 20,399 20,460 33,449 19,626 52,500
------- ------- ------- ------- ------- -------- --------
31,081 33,017 34,119 34,198 52,314 31,306 77,751
Corporate expenses................................. 2,620 2,865 3,867 4,450 6,549 3,998 11,200
Costs of business combinations..................... -- -- -- -- 1,743 49 864
Amortization of intangibles........................ 525 446 205 280 2,767 1,160 5,638
Key executive signing bonuses...................... -- -- -- -- 1,486 1,486 400
------- ------- ------- ------- ------- -------- --------
Total operating expenses..................... 34,226 36,328 38,191 38,928 64,859 37,999 95,853
------- ------- ------- ------- ------- -------- --------
Operating income (loss)...................... 2,807 3,141 2,790 1,025 (4,554) (749) (2,597)
Interest expense..................................... (2,003) (1,925) (1,683) (1,574) (919) (702) (758)
Interest income...................................... 29 25 39 35 512 231 193
Other non-operating income (expense), net............ 161 163 115 1,211 1,154 984 (6)
------- ------- ------- ------- ------- -------- --------
Income (loss) before income taxes and
extraordinary item......................... 994 1,404 1,261 697 (3,807) (236) (3,168)
Income tax expense (benefit)......................... -- -- 35 10 (1,286) (317) (79)
------- ------- ------- ------- ------- -------- --------
Income (loss) before extraordinary item...... 994 1,404 1,226 687 (2,521) 81 (3,089)
Extraordinary item, net of income tax benefit........ -- -- -- 3,336 -- --
------- ------- ------- ------- ------- -------- --------
Net income (loss)............................ $ 994 $ 1,404 $ 1,226 $ 4,023 $(2,521) $ 81 $ (3,089)
======= ======= ======= ======= ======= ======== ========
PRO FORMA INFORMATION(1) (UNAUDITED):
Income (loss) before extraordinary item............ $ 994 $ 1,404 $ 1,226 $ 687 $(2,521) $ 81 $ (3,089)
Pro forma income tax expense (benefit)............. 417 590 506 290 201 356 (214)
------- ------- ------- ------- ------- -------- --------
Pro forma income (loss) before extraordinary
item....................................... 577 814 720 397 (2,722) (275) (2,875)
Extraordinary item, net of income tax benefit...... -- -- -- 3,336 -- -- --
------- ------- ------- ------- ------- -------- --------
Pro forma net income (loss).................. $ 577 $ 814 $ 720 $ 3,733 $(2,722) $ (275) $ (2,875)
======= ======= ======= ======= ======= ======== ========
Pro forma income (loss) before extraordinary item
per share........................................ $ 39.16 $ 55.24 $ 47.88 $ 25.28 $(44.83) $ (6.77) $ (23.78)
Extraordinary item per share....................... -- -- -- 212.15 -- -- --
------- ------- ------- ------- ------- -------- --------
Pro forma net income (loss) per share.............. $ 39.16 $ 55.24 $ 47.88 $237.43 $(44.83) $ (6.77) $ (23.78)
======= ======= ======= ======= ======= ======== ========
Weighted average shares outstanding................ 14,734 14,734 15,043 15,724 60,727 40,624 120,909
======= ======= ======= ======= ======= ======== ========
BALANCE SHEET DATA:
Rental merchandise, net.............................. $ 8,567 $ 9,961 $11,114 $ 8,627 $30,791 $ 27,159 $ 43,666
Total assets......................................... 16,191 17,833 17,602 14,319 107,110 112,334 115,904
Total debt........................................... 17,798 17,379 15,951 10,199 6,772 9,767 18,835
Stockholders' equity (deficit)....................... (5,377) (4,920) (3,773) (1,009) 88,743 91,254 86,001
</TABLE>

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

(1) Pro forma information presents the results of RTO as if the Subchapter S
corporations acquired by RTO were fully-taxable entities for each of the
periods presented.

16
<PAGE> 33

SELECTED HISTORICAL FINANCIAL DATA OF ACTION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following selected financial data as of and for the seven month period
ended July 31, 1996 was derived from Action's financial statements audited by
Coopers & Lybrand L.L.P., independent accountants. The following selected
financial data as of and for the years ended December 31, 1994 and 1995 was
derived from Action's financial statements audited by Ernst & Young LLP,
independent auditors. The selected financial data as of and for the years ended
December 31, 1992 and 1993 was derived from Action's financial statements, which
have not been audited. The financial statements of Action as of and for the
seven month period ended July 31, 1996 and as of and for the years ended
December 31, 1994 and 1995, together with the reports of Coopers & Lybrand
L.L.P. and Ernst & Young LLP thereon, are included elsewhere in this Joint Proxy
Statement/Prospectus. The selected financial data should be read in conjunction
with the financial statements of Action and the related notes thereto included
elsewhere in this Joint Proxy Statement/ Prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of RTO".

<TABLE>
<CAPTION>
SEVEN MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------- JULY 31,
1992 1993 1994 1995 1996
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenue:
Rental and fee revenue...................... $30,331 $36,035 $39,059 $46,116 $32,954
Cash sales and other revenue................ 979 711 821 1,000 756
------- ------- ------- ------- -------
Total revenue....................... 31,310 36,746 39,880 47,116 33,710
------- ------- ------- ------- -------
Operating expenses:
Direct store expenses:
Depreciation and disposition of rental
merchandise............................ 9,717 11,790 11,786 14,042 9,456
Other.................................... 16,078 18,478 20,165 24,604 17,016
------- ------- ------- ------- -------
25,795 30,268 31,951 38,646 26,472
Corporate expenses.......................... 1,100 1,497 3,141 3,940 2,735
Amortization of intangibles................. 110 125 162 392 332
------- ------- ------- ------- -------
Total operating expenses............ 27,005 31,890 35,254 42,978 29,539
------- ------- ------- ------- -------
Operating income.................... 4,305 4,856 4,626 4,138 4,171
Interest expense.............................. (352) (408) (497) (759) (740)
Interest income............................... -- -- 30 90 147
Other non-operating income, net............... 124 178 70 51 153
------- ------- ------- ------- -------
Income before income taxes.......... 4,077 4,626 4,229 3,520 3,731
Income tax expense............................ 1,430 -- 150 120 147
------- ------- ------- ------- -------
Net income.......................... $ 2,647 $ 4,626 $ 4,079 $ 3,400 $ 3,584
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Rental merchandise, net....................... $12,629 $13,633 $14,093 $19,830 $19,832
Total assets.................................. 16,153 18,316 21,571 34,233 31,630
Total debt.................................... 6,147 6,145 8,630 17,035 13,707
Stockholders' equity.......................... 8,210 10,136 10,640 13,476 14,421
</TABLE>

17
<PAGE> 34

SELECTED PRO FORMA COMBINED FINANCIAL DATA OF ALRENCO AND RTO
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following table sets forth unaudited selected pro forma combined
financial data of Alrenco and RTO assuming the Merger is consummated and
accounted for under the pooling-of-interests method reflecting an Exchange Ratio
of 89.795 shares of Alrenco Common Stock for each outstanding share of RTO
Common Stock. See "The Merger -- Accounting Treatment." The pro forma combined
statement of earnings data presented below assumes that the Merger was
consummated at the beginning of the periods presented and the pro forma balance
sheet data assumes that the Merger was consummated on September 30, 1997. The
pro forma financial data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the Merger had been consummated on the dates indicated, nor is
it necessarily indicative of future operating results or financial position. The
selected pro forma combined financial data has been derived from and should be
read in conjunction with the unaudited pro forma financial statements, including
the notes thereto, appearing elsewhere in this Joint Proxy Statement/Prospectus.
See "Unaudited Pro Forma Condensed Combined Financial Statements."

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Total revenue........................................ $68,781 $77,529 $124,161 $81,421 $169,427
------- ------- -------- ------- --------
Operating expenses:
Direct store expenses.............................. 56,462 65,021 104,181 66,656 139,793
General and administrative expenses................ 7,064 7,988 10,711 6,933 16,086
Cost of business combinations...................... -- -- 1,743 49 864
Amortization of intangibles........................ 329 569 3,982 1,814 8,108
Key executive signing bonuses...................... -- -- 1,485 1,486 400
------- ------- -------- ------- --------
Total operating expenses.................... 63,855 73,578 122,102 76,938 165,251
------- ------- -------- ------- --------
Operating income............................ 4,926 3,951 2,059 4,483 4,176
Interest expense..................................... (2,144) (2,468) (1,572) (1,317) (1,602)
Interest income...................................... 39 35 645 237 194
Other non-operating income, net...................... 115 1,311 1,154 984 944
------- ------- -------- ------- --------
Income before income taxes and extraordinary
item...................................... 2,936 2,829 2,286 4,387 3,712
Income tax expense................................... 764 877 1,188 1,580 2,688
------- ------- -------- ------- --------
Income (loss) before extraordinary item..... 2,172 1,952 1,098 $ 2,807 $ 1,024
======= ======= ======== ======= ========
PRO FORMA INFORMATION(1) (UNAUDITED):
Income (loss) before extraordinary item............ $ 2,172 $ 1,952 $ 1,098 $ 2,807 $ 1,024
Pro forma income tax expense (benefit) before
extraordinary item............................... 505 290 201 356 (214)
------- ------- -------- ------- --------
Pro forma income before extraordinary item......... $ 1,667 $ 1,662 $ 897 $ 2,451 $ 1,238
======= ======= ======== ======= ========
Pro forma income before extraordinary item per
share............................................ $ 0.37 $ 0.37 $ 0.09 $ .31 $ (.07)
======= ======= ======== ======= ========
Pro forma weighted average number of shares
outstanding...................................... 4,456 4,517 10,240 8,014 16,939
======= ======= ======== ======= ========
BALANCE SHEET DATA:
Rental merchandise, net.............................. $ 80,552
Total assets......................................... 200,604
Total debt........................................... 34,460
Stockholders' equity................................. 140,042
</TABLE>

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

(1) Pro forma information presents the pro forma combined results of Alrenco and
RTO as if the Subchapter S corporations acquired by RTO were fully-taxable
entities for each of the periods presented.

18
<PAGE> 35

RISK FACTORS

An investment in the shares of Alrenco Common Stock offered hereby involves
a high degree of risk. Prospective investors should carefully consider the
following risk factors, in addition to other information and financial data
contained elsewhere in this Joint Proxy Statement/Prospectus, in evaluating an
investment in the shares of Alrenco Common Stock offered hereby. See
"Forward-Looking Statements."

RISKS ASSOCIATED WITH THE MERGER

Fixed Exchange Ratio; Volatility of Stock Price. The price per share of
Alrenco Common Stock at the Effective Time may vary significantly from the price
per share as of the last trading day preceding the date of execution of the
Merger Agreement, the date hereof or the date on which the Alrenco Shareholders
and the RTO Stockholders vote on the Merger Agreement due to changes in the
business, operations and prospects of Alrenco or RTO, market assessments of the
likelihood that the Merger will be consummated and the timing thereof, general
market and economic conditions and other factors.

The Exchange Ratio was fixed at 89.795 at the time of execution of the
Merger Agreement by the parties and is not subject to adjustment. Any increase
or decrease in the market price of the Alrenco Common Stock will correspondingly
increase or decrease the value of the Alrenco Common Stock to be received by the
RTO Stockholders pursuant to the Merger.

Further, there can be no assurance as to the trading volume or price of the
Alrenco Common Stock after the Merger. Events beyond the control of Alrenco
which could adversely affect the market price of Alrenco Common Stock may occur
during the period from the date of this Joint Proxy Statement/Prospectus to the
date the Merger is consummated or thereafter. All of the Alrenco Common Stock to
be issued to the RTO Stockholders in connection with the Merger, other than
affiliates of RTO or those who will become affiliates of Alrenco after the
Merger, will be freely tradeable. Sales of a substantial number of shares of
Alrenco Common Stock by current RTO Stockholders following the consummation of
the Merger, or the perception that such sales could occur, could adversely
affect the market price for Alrenco Common Stock after the Merger.

From time to time, there may be significant volatility in the market price
for Alrenco Common Stock. Quarterly operating results of Alrenco or of other
rental-purchase companies, changes in general economic conditions, the financial
markets or the rental-purchase industry, or other developments could cause the
market price of Alrenco Common Stock to fluctuate substantially.

Integration of Operations. The success of the Merger will be determined by
various factors, including the financial performance of the combined company's
operations after the Merger and management's ability to effectively integrate
the operations of Alrenco and RTO. The integration of the operations of Alrenco
and RTO may be negatively affected if costs or difficulties related to the
integration of the businesses of Alrenco and RTO are greater than expected.
There can be no assurance that the anticipated benefits of the Merger will be
realized or that the Merger will not adversely affect the future operating
results of Alrenco.

Interests of Certain Persons in the Merger. In considering the
recommendation of the Alrenco Board with respect to the Merger Agreement and the
transactions contemplated thereby, Alrenco Shareholders should be aware that
certain directors and executive officers of Alrenco have certain financial
interests in the Merger that are different from the interests of the Alrenco
Shareholders generally, and that may present them with potential conflicts of
interest with respect to the Merger. See "The Merger -- Interests of Certain
Persons in the Merger."

Control by Principal Shareholders. Following consummation of the Merger,
George D. Johnson, Jr., Chairman of the Board of RTO, together with his
affiliates, and Michael D. Walts, Chairman of the Board and President of
Alrenco, will own approximately 14.0% and 13.2%, respectively, of the
outstanding Alrenco Common Stock. As a result, Messrs. Johnson and Walts may be
in a position to control or significantly influence the management and policies
of Alrenco through their ability to determine the outcome of elections of the
Alrenco Board and certain other matters requiring the vote or consent of the
Alrenco Shareholders. See "Principal Shareholders of Alrenco" and "Principal
Stockholders of RTO."

19
<PAGE> 36

OPERATING RISKS FOLLOWING THE MERGER

Acquisition Risks. Alrenco and RTO have both experienced significant
growth in the last two years, principally through acquisitions and, to a lesser
extent, the opening of new stores. The growth strategy of the combined company
is expected to be based upon the continued acquisition of existing
rental-purchase stores and a more aggressive new store opening program. The
ability to continue to grow and improve the financial performance of the
combined company will be significantly affected by the company's ability to
acquire additional stores on favorable terms, to enhance their performance and
to integrate the acquired stores into the company's operations. Alrenco may
compete for acquisition and expansion opportunities with companies that have
significantly greater financial and other resources. There can be no assurance
that Alrenco will be able to locate or acquire suitable acquisition candidates,
or that any operations that are acquired can be effectively and profitably
integrated into Alrenco's existing operations. Additionally, although
acquisitions will be designed to increase Alrenco's long-term profitability,
they may negatively impact Alrenco's operating results, particularly during the
periods immediately following an acquisition. Alrenco may acquire operations
that are unprofitable or have inconsistent profitability. The inability to
improve the profitability of such acquired stores could have a material adverse
effect on Alrenco's results of operations or financial condition.

Development of New Rental-Purchase Stores. The continued growth and
financial performance of the combined company will be significantly affected by
the company's ability to open new rental-purchase stores on a profitable basis
and to integrate the new stores into Alrenco's operations. Alrenco may compete
for new store opportunities with companies that have significantly greater
financial and other resources than Alrenco. There can be no assurance that
Alrenco will be able to open new rental-purchase stores on a profitable basis or
that any new stores will be effectively and profitably integrated into Alrenco's
existing operations. Additionally, although new stores will be designed to
contribute to Alrenco's long-term profitability, they may negatively impact
Alrenco's operating results, particularly during the period immediately
following the opening of a new store. Alrenco may open new rental-purchase
stores that are unprofitable or have inconsistent profitability. The opening of
an unprofitable store or a store that has inconsistent profitability could have
a material adverse effect on Alrenco's results of operations and financial
condition.

Management of Growth. The rapid growth experienced by both Alrenco and RTO
has placed significant demands on their managements and operations. In addition,
certain of the officers and other key employees of RTO have recently joined RTO,
and certain of RTO's senior executive officers have no prior management
experience in large companies. The recent expansion has also resulted in
substantial growth in the number of employees, the scope of operating and
financial systems and the geographic area of operations, resulting in increased
responsibility for both existing and new management personnel. Alrenco's ability
to support the growth of its business following the Merger will be substantially
dependent upon its ability to attract and retain highly-trained executive
officers and store managers. In addition, Alrenco's future operating results
will depend upon the ability of its officers and other key employees to continue
to implement and improve its operational and financial control systems, to train
and manage its employees and to work effectively with the suppliers of Alrenco's
products. There can be no assurance that Alrenco will be able to manage its
recent or any future expansion successfully, and any inability to do so could
have a material adverse effect on Alrenco's results of operations or financial
condition.

Financing Growth Strategy. It is anticipated that, following the Merger,
future acquisitions and new store openings will be financed with cash from
operations, borrowings under available credit facilities, net proceeds from the
sale of debt or equity securities and issuances of additional equity securities
as consideration. If Alrenco cannot make such acquisitions with its equity
securities and does not have sufficient cash from operations, availability under
these credit facilities or the ability to raise cash through the sale of debt or
equity securities, Alrenco will be unable to pursue its growth strategy, which
would have a material adverse effect on Alrenco's ability to increase its
revenue and net income and could have a material adverse effect on Alrenco's
financial condition or results of operations.

Competition. The rental-purchase industry is highly competitive.
Competition is based primarily on store location, product selection and
availability, customer service and rental rates and terms. Competitors of
Alrenco and RTO include national, regional and local operators of
rental-purchase stores. Some of these

20
<PAGE> 37

competitors may have significantly greater financial and operating resources
and, in certain markets, greater name recognition than Alrenco or RTO. Because
barriers to entry in the rental-purchase industry are relatively low,
competition may arise from new sources not currently competing with Alrenco or
RTO. As a result of these competitive conditions, the combined company may not
be able to sustain past levels of revenue or continue the recent revenue growth
or profitability of Alrenco and RTO. See "Business of Alrenco -- Competition"
and "Business of RTO -- Competition."

Government Regulation. Forty-eight states have adopted legislation
regulating rental-purchase transactions. Of those states, 45 require companies
to provide certain disclosures to customers regarding the terms of the
rental-purchase transaction. North Carolina, Wisconsin and Minnesota regulate
rental-purchase transactions as credit sales subject to consumer lending
restrictions. North Carolina and Minnesota subject the transactions to interest
rate or finance charge limitations. In addition, recent court decisions in New
Jersey have created a legal environment in that state which is prohibitive to
rental-purchase transactions. Both Alrenco and RTO operate in North Carolina,
but neither Alrenco nor RTO operates in, nor does the combined company intend to
operate in, the other three states. Twenty-two of the 23 states in which Alrenco
and RTO operate impose some type of disclosure requirements, either in
advertising or in the rental-purchase agreement, or both. The regulations in
these states also distinguish rental-purchase transactions from credit sales.
The management of each company believes that the operations of their respective
companies are in material compliance with applicable state rental-purchase laws.
Although certain proposed federal regulations are under consideration, no
federal legislation has been enacted regulating rental-purchase transactions. As
of the date hereof, two bills have been introduced in Congress that would
regulate the rental-purchase industry. One of the bills is supported by the
Association of Progressive Rental Organizations ("APRO") and Alrenco does not
believe that this bill, if enacted, would have a material adverse effect upon
Alrenco's operations. The other bill would regulate rental-purchase transactions
as credit sales. Alrenco believes that in the event federal legislation is
enacted regulating rental-purchase transactions as credit sales, Alrenco would
be able to adapt to the new laws and remain profitable by repositioning itself
as a rent-to-rent business. However, there can be no assurance that the proposed
legislation, if enacted, would not have a material adverse effect on the
business of Alrenco. See "Business of Alrenco -- Government Regulation."

Dividend Policy. Following the Merger, Alrenco expects to retain earnings
to finance the growth and development of its business and does not anticipate
paying cash dividends on Alrenco Common Stock in the foreseeable future. Under
the bank credit agreements of Alrenco and RTO, both companies are subject to
certain restrictions on their ability to declare or pay dividends. See
"Summary -- Market Prices and Dividends."

Risks Associated with the Rental-Purchase Industry. The operating success
of Alrenco following the Merger, like other participants in the rental-purchase
industry, will depend upon a number of factors. These factors include the
ability to maintain and increase the number of units on rent, the collection of
rental payments when due and the control of inventory and other costs. The
rental-purchase industry is also affected by changes in consumer confidence,
preferences and attitudes, as well as general economic factors. Failure to
control operations and respond to changing market trends could adversely affect
the future operations of the combined company.

Anti-Takeover Provisions. Certain provisions of the Alrenco Articles and
the Alrenco Bylaws and certain sections of the IBCL may be deemed to have an
anti-takeover effect and may discourage takeover attempts not first approved by
the Alrenco Board (including takeovers which certain Alrenco Shareholders may
deem to be in their best interests). In addition, the IBCL imposes restrictions
upon change of control transactions and certain business combination
transactions. See "Description of Alrenco Capital Stock -- Preferred Stock;"
"-- Certain Anti-Takeover Matters;" "-- Indiana Anti-Takeover Statutes" and
"Amendment to Alrenco Articles of Incorporation."

21
<PAGE> 38

INTRODUCTION

This Joint Proxy Statement/Prospectus is being furnished to Alrenco
Shareholders in connection with the solicitation of proxies by the Alrenco Board
for use at the Alrenco Special Meeting. At the Alrenco Special Meeting, Alrenco
Shareholders will be asked to consider and approve the Merger Agreement,
including the Stock Issuance and the Articles Amendment. This Joint Proxy
Statement/Prospectus is also being furnished to RTO Stockholders in connection
with the solicitation of proxies by the RTO Board for use at the RTO Special
Meeting. At the RTO Special Meeting, RTO Stockholders will be asked to consider
a proposal to approve and adopt the Merger Agreement. Pursuant to the Merger
Agreement, approval of the Merger Agreement by the Alrenco Shareholders and
approval and adoption of the Merger Agreement by the RTO Stockholders are
conditions to consummation of the Merger. Copies of the Merger Agreement and the
Alrenco Articles (as proposed to be amended and restated) are attached as
Annexes A and G, respectively, to this Joint Proxy Statement/Prospectus and
incorporated herein by reference.

This Joint Proxy Statement/Prospectus constitutes the prospectus of Alrenco
with respect to the shares of Alrenco Common Stock to be issued pursuant to the
Merger Agreement.

If the Merger is consummated, RTO will merge with and into Alrenco, with
Alrenco as the surviving corporation, and each issued and outstanding share of
RTO Common Stock (except RTO Dissenting Shares), will be cancelled and converted
into the right to receive such number of shares of Alrenco Common Stock equal to
the Exchange Ratio, with cash being paid in lieu of fractional shares. Each
issued and outstanding share of Alrenco Common Stock will remain outstanding,
unchanged, as one share of Alrenco Common Stock. Based upon the capitalization
of Alrenco and RTO at September 28, 1997 and the Exchange Ratio, holders of
Alrenco Common Stock and RTO Common Stock would have held approximately 33.5%
and 66.5%, respectively, on a fully diluted basis, of the aggregate number of
shares of Alrenco Common Stock that would have been outstanding if the Merger
had been consummated as of such date.

THE MEETINGS

ALRENCO SPECIAL MEETING

Date, Time, Place and Purpose. The Alrenco Special Meeting will be held on
February 12, 1998, at 10:00 a.m., local time, at the offices of King & Spalding,
50th Floor, 191 Peachtree Street, Atlanta, Georgia 30305. The purpose of the
Alrenco Special Meeting is to consider and vote upon a proposal to approve the
Merger Agreement, including the Stock Issuance and the Articles Amendment.
Pursuant to the Merger Agreement, consummation of the Merger is conditioned upon
approval by the Alrenco Shareholders of the Merger Agreement, including the
Stock Issuance and the Articles Amendment.

Record Date and Shares Entitled to Vote. The Alrenco Board has fixed the
close of business on January 13, 1998, as the Alrenco Record Date for purposes
of determining the Alrenco Shareholders entitled to receive notice of and to
vote at the Alrenco Special Meeting. Only those Alrenco Shareholders as of the
Alrenco Record Date are entitled to notice of and to vote at the Alrenco Special
Meeting. As of the close of business on the Alrenco Record Date, there were
6,095,516 shares of Alrenco Common Stock issued and outstanding and entitled to
vote, held of record by approximately 56 Alrenco Shareholders. Alrenco
Shareholders as of the Alrenco Record Date are entitled to cast one vote on any
matter that may properly come before the Alrenco Special Meeting.

Vote Required. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Alrenco Common Stock entitled to vote at
the Alrenco Special Meeting is necessary to constitute a quorum for the
transaction of business at the Alrenco Special Meeting. The affirmative vote of
the holders of a majority of the outstanding shares of Alrenco Common Stock
entitled to vote at the Alrenco Special Meeting is required to approve the
Merger Agreement, including the Stock Issuance and the Articles Amendment.

Abstentions 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 (a "broker non-vote"), those shares will not be considered as
present and entitled to vote with respect to that matter. Abstentions and broker
non-votes will not be counted as votes cast either for or against the proposal
and thus will have the same effect as

22
<PAGE> 39

votes cast against the proposal to approve the Merger Agreement, including the
Stock Issuance and the Articles Amendment.

Security Ownership of Management; Voting Agreements. As of the Alrenco
Record Date, the directors and executive officers of Alrenco, together with
their affiliates, as a group beneficially owned approximately 38.9% of the
outstanding shares of Alrenco Common Stock entitled to vote at the Alrenco
Special Meeting. See "Principal Shareholders of Alrenco." As of the Alrenco
Record Date, the directors and executive officers of RTO as a group beneficially
owned less than 1% of the outstanding shares of Alrenco Common Stock. See
"Principal Stockholders of RTO." Michael D. Walts, Chairman of the Board and
President of Alrenco, and Michael D. Walts, Jr. have entered into voting
agreements with RTO requiring them to vote all shares of Alrenco Common Stock
beneficially owned by them for approval of the Merger Agreement and each of the
other transactions contemplated thereby. As of the Alrenco Record Date, Messrs.
Walts and Walts, Jr. held of record and beneficially approximately 40.1% of the
outstanding shares of Alrenco Common Stock entitled to vote at the Alrenco
Special Meeting. See "The Stockholder Voting Agreements."

Solicitation and Revocation of Proxies. Shares of Alrenco Common Stock
represented by duly executed proxies in the enclosed form received prior to the
Alrenco Special Meeting and not revoked will be voted at the meeting or at any
adjournments or postponements thereof in accordance with the instructions
specified on the proxy. If no instructions are specified, it is the intention of
the persons named as proxies in the enclosed form of proxy to vote FOR the
proposal to approve the Merger Agreement, including the Stock Issuance and the
Articles Amendment. 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 Alrenco, by delivery of a duly executed proxy bearing a
later date or by voting in person at the meeting. All written notices of
revocation and other communications with respect to revocation of proxies should
be addressed to Alrenco as follows: Alrenco, Inc., 1736 East Main Street, New
Albany, Indiana 47150, Attention: Corporate Secretary. Attendance at the Alrenco
Special Meeting will not have the effect of revoking a proxy unless the Alrenco
Shareholder so attending so notifies the secretary of the meeting in writing
prior to voting of the proxy.

The Alrenco Board is not aware of any other matters which may be presented
for consideration and a vote at the Alrenco Special Meeting. If other matters do
properly come before the Alrenco Special Meeting, it is intended that shares of
Alrenco Common Stock represented by duly executed proxies in the enclosed form
will be voted by the persons named in the proxy in accordance with their best
judgment.

The expense of soliciting proxies for the Alrenco Special Meeting,
including the cost of preparing, printing, assembling and mailing this Joint
Proxy Statement/Prospectus and the enclosed form of proxy, will be borne by
Alrenco. In addition to the solicitation of proxies by mail, certain officers
and regular employees of Alrenco, without additional compensation, may use their
personal efforts, by telephone or otherwise, to obtain proxies. Alrenco 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 Joint Proxy Statement/Prospectus to and obtain proxies from such
beneficial owners, and will reimburse such holders for their reasonable expenses
in so doing.

RTO SPECIAL MEETING

Date, Time, Place and Purpose. The RTO Special Meeting will be held on
February 12, 1998, at 10:00 a.m., local time, at the offices of King & Spalding,
191 Peachtree Street, Atlanta, Georgia 30305. The purpose of the RTO Special
Meeting is to consider and vote upon a proposal to approve and adopt the Merger
Agreement. Consummation of the Merger is conditioned upon approval and adoption
by the RTO Stockholders of the Merger Agreement.

Record Date and Shares Entitled to Vote. The RTO Board has fixed the close
of business on January 13, 1998, as the RTO Record Date. Only those RTO
Stockholders as of the RTO Record Date are entitled to notice of and to vote at
the RTO Special Meeting. As of the close of business on the RTO Record Date,
there were 120,959 shares of RTO Common Stock issued and outstanding and
entitled to vote, held of record by approximately 160 RTO Stockholders. RTO
Stockholders as of the RTO Record Date are entitled to cast one vote on any
matter that may properly come before the RTO Special Meeting.

23
<PAGE> 40

Vote Required. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of RTO Common Stock entitled to vote at the
RTO Special Meeting is necessary to constitute a quorum for the transaction of
business at the RTO Special Meeting. The affirmative vote of the holders of a
majority of the outstanding shares of RTO Common Stock entitled to vote at the
RTO Special Meeting is required to approve and adopt the Merger Agreement.
Abstentions 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. Abstentions will not be counted as votes
cast either for or against the proposal and thus will have the same effect as
votes cast against the proposal to approve and adopt the Merger Agreement.

Security Ownership of Management; Voting Agreements. As of the RTO Record
Date, certain directors and executive officers of RTO, together with their
affiliates, as a group beneficially owned approximately 34.5% of the outstanding
shares of RTO Common Stock entitled to vote at the RTO Special Meeting. See
"Principal Stockholders of RTO." Certain RTO Stockholders have entered into
voting agreements with Alrenco requiring them to vote all shares of RTO Common
Stock beneficially owned by them for approval and adoption of the Merger
Agreement. As of the RTO Record Date, these persons and entities hold of record
and beneficially approximately 39.6% of the outstanding shares of RTO Common
Stock entitled to vote at the RTO Special Meeting. See "The Stockholder Voting
Agreements."

Solicitation and Revocation of Proxies. Shares of RTO Common Stock
represented by duly executed proxies in the enclosed form received prior to the
RTO Special Meeting and not revoked will be voted at the meeting or at any
adjournments or postponements thereof in accordance with the instructions
specified on the proxy. If no instructions are specified, it is the intention of
the persons named as proxies in the enclosed form of proxy to vote FOR the
proposal to approve and adopt the Merger Agreement. 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 RTO, by delivery of a
duly executed proxy bearing a later date or by voting in person at the meeting.
All written notices of revocation and other communications with respect to
revocation of proxies should be addressed to RTO as follows: RTO, Inc., 714 E.
Kimbrough Street, Mesquite, Texas 75149, Attention: Corporate Secretary.
Attendance at the RTO Special Meeting will not have the effect of revoking a
proxy unless the stockholder so attending so notifies the secretary of the
meeting in writing prior to voting of the proxy.

The RTO Board is not aware of any other matters which may be presented for
consideration and a vote at the RTO Special Meeting. If other matters do
properly come before the RTO Special Meeting, it is intended that shares of RTO
Common Stock represented by duly executed proxies in the enclosed form will be
voted by the persons named in the proxy in accordance with their best judgment.

The expense of soliciting proxies for the RTO Special Meeting, including
the cost of preparing, printing, assembling and mailing this Joint Proxy
Statement/Prospectus and the enclosed form of proxy, will be borne by RTO. In
addition to the solicitation of proxies by mail, certain officers and regular
employees of RTO, without additional compensation, may use their personal
efforts, by telephone or otherwise, to obtain proxies. RTO 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
Joint Proxy Statement/Prospectus to and obtain proxies from such beneficial
owners, and will reimburse such holders for their reasonable expenses in so
doing.

THE MERGER

BACKGROUND OF THE MERGER

In August, 1997, Billy W. White, Sr., the President and Chief Executive
Officer of RTO, contacted Michael D. Walts, the Chairman of the Board and
President of Alrenco, and representatives of SunTrust Equitable to express RTO's
interest in a combination of the two companies. SunTrust Equitable indicated at
that time that Alrenco was willing to investigate opportunities for combining
the two companies. On August 29, 1997, representatives of SunTrust Equitable and
financial advisers to RTO held a conference call to discuss the potential for a
transaction. No specific terms were discussed.

24
<PAGE> 41

On August 27, 1997, the RTO Board met to review the completed acquisitions
of RTO and to consider the strategic alternatives of RTO. At that meeting, the
financial advisors of RTO presented to the RTO Board an analysis of the
strategic alternatives of RTO, including an initial public offering and a merger
of RTO with a public company in the rental-purchase industry. The financial
advisors also reviewed with the RTO Board information about public companies in
the rental-purchase industry that may have an interest in a strategic merger
with RTO. Following such presentation, the RTO Board determined, on the basis of
advice from its financial advisors, that RTO's first priority would be to pursue
a merger with a public company in the rental-purchase industry prior to any
further consideration of an initial public offering and authorized management of
RTO and the financial advisors of RTO to conduct substantive discussions with
Alrenco regarding a possible merger with RTO.

On September 3, 1997, representatives of SunTrust Equitable met with
financial advisors to RTO and discussed the status of RTO's acquisition and
growth strategy and the possibility of a merger with Alrenco. RTO's financial
advisors presented SunTrust Equitable with an initial proposal for a
transaction. SunTrust Equitable agreed to review the proposal with Alrenco and
speak with RTO's advisors later in the week.

On September 4, 1997, representatives of SunTrust Equitable met with Mr.
Walts and counsel to Alrenco to discuss RTO's proposal. The discussions focused
on Alrenco's long-term objectives and the potential opportunities and risks of
the Merger. In addition, a general negotiating strategy and timeline was
developed. SunTrust Equitable and Mr. Walts determined that they should attend
the meeting proposed for later that week.

On September 7, 1997, representatives of and financial advisors to RTO and
Alrenco met to discuss the proposed transaction and to provide Alrenco with a
detailed history of RTO and its plans for the future. On September 8, 1997,
representatives of and financial advisors to RTO and Alrenco negotiated and
agreed to the basic terms of the transaction, subject to the approval of the
Alrenco Board and the RTO Board. Representatives of RTO and Alrenco agreed to
present the terms to their respective Boards and update each other on the
reaction of their respective Boards to the proposal.

On September 8, 1997, Mr. Walts met informally with members of the Alrenco
Board to give them a briefing on the terms of the proposed transaction. Mr.
Walts outlined the general economic terms of the proposed transaction. Following
this meeting, on September 10, 1997, representatives of SunTrust Equitable met
with the Alrenco Board to discuss the proposed transaction and to present
certain background information on RTO. The Alrenco Board directed management and
SunTrust Equitable to collect additional due diligence information on RTO.

On September 15, 1997, representatives of SunTrust Equitable and counsel to
Alrenco met at the offices of RTO and its counsel for the purpose of conducting
financial, business and legal due diligence. The discussions focused on RTO's
recent acquisitions and their impact on RTO's historical and projected financial
results.

On September 16, 1997, representatives of SunTrust Equitable and management
of Alrenco presented a summary of the findings of their due diligence
investigations to the Alrenco Board. The Board reviewed the information and
determined that a meeting with RTO's management was necessary to address certain
strategic and financial issues.

On September 21, 1997, management of RTO and RTO's financial advisors met
with the Alrenco Board to discuss the benefits of the proposed transaction.
Members of the Alrenco Board questioned RTO's management about their strategy
and plans for the combined company following the Merger. On September 22, 1997,
the Alrenco Board agreed to proceed subject to final negotiation of the terms
and conditions of the proposed transaction.

On September 24, 1997, the RTO Board participated in a conference call
during which George D. Johnson, Jr., Chairman of the RTO Board, and Billy W.
White, Sr., the President and Chief Executive Officer of RTO, briefed the RTO
Board on the status of discussions between RTO and Alrenco and terms and
conditions of the proposed merger between RTO and Alrenco. The RTO Board
authorized RTO's management to proceed with a transaction with Alrenco subject
to negotiation of final terms and conditions and completion of business,
financial, accounting and legal due diligence.

25
<PAGE> 42

On September 25, 1997, the management of, and advisors to, RTO met with
management of Alrenco for the purpose of conducting financial and business due
diligence.

On September 28, 1997, the RTO Board met to review the results of RTO's
business, financial, accounting and legal due diligence and to review the
proposed terms and conditions of the Merger, including the terms of the Merger
Agreement, the Stock Option Agreements, the Stockholder Voting Agreements and
the Noncompetition and Consulting Agreement. Following such discussion, the RTO
Board approved the Merger and the execution of the Merger Agreement, the Stock
Option Agreements, the Stockholder Voting Agreements and the Noncompetition and
Consulting Agreement.

On September 28, 1997, the Alrenco Board met to review the terms of the
Merger Agreement, the Stock Option Agreements, the Stockholder Voting Agreements
and the Noncompetition and Consulting Agreement. The Alrenco Board also received
the oral opinion of SunTrust Equitable as to the fairness to the Alrenco
Shareholders, from a financial point of view, of the 12,280,316 shares of
Alrenco Common Stock to be issued in exchange for the outstanding shares of RTO
Common Stock and all securities convertible into RTO Common Stock (the "Merger
Consideration"). The Alrenco Board then approved the execution of the Merger
Agreement, including the Stock Issuance and the Articles Amendment, the Stock
Option Agreements, the Stockholder Voting Agreements and the Noncompetition and
Consulting Agreement.

On September 28, 1997, the Merger Agreement was executed and delivered on
behalf of Alrenco and RTO.

On January 8, 1998, the Merger Agreement was amended to extend the date
after which Alrenco or RTO may terminate the Merger Agreement if the Effective
Time shall not have occurred from January 31, 1998 to February 28, 1998.

REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS

Alrenco. The Alrenco Board, based upon certain factors listed below,
including the SunTrust Equitable Opinion, concluded that the Merger is fair to
and in the best interests of Alrenco and the Alrenco Shareholders, unanimously
adopted the Merger Agreement, including the Stock Issuance and the Articles
Amendment, and resolved to recommend that Alrenco Shareholders approve the
Merger Agreement, including the Stock Issuance and the Articles Amendment. The
Alrenco Board believes the Merger represents a unique opportunity to create a
larger and stronger company with an enhanced management team, and that in the
current industry environment of increased competitive conditions and industry
consolidation, the Merger is of strategic importance to Alrenco's efforts to
position itself as an effective competitor in the future. The Alrenco Board also
believes that the combined company can realize significant operational and
financial benefits by leveraging each of the separate companies' specific
strengths. The Alrenco Board further believes that the Merger will bring
opportunities for cost savings, economies of scale and other synergies, and for
increased expansion potential, resulting in improved cash flow and profit
potential for the long-term growth of Alrenco and increased shareholder value.

The following are all of the material factors considered by the Alrenco
Board in reaching its conclusions, certain of which factors contained both
positive and negative elements:

(i) the judgment, advice and analysis of its management with respect
to the potential strategic, financial and operational benefits of the
Merger, based in part on the business, financial, accounting and legal due
diligence investigations performed with respect to RTO;

(ii) current industry, economic and market conditions;

(iii) the advice of, and financial analysis prepared by, SunTrust
Equitable, including the SunTrust Equitable Opinion, to the effect that, as
of the date of such opinion and based on, and subject to, the assumptions,
limitations and qualifications set forth in such opinion, the Merger
Consideration is fair to the Alrenco Shareholders from a financial point of
view;

(iv) information concerning the financial condition, results of
operations and cash flows and businesses of Alrenco and RTO, both on a
historical and prospective basis;

26
<PAGE> 43

(v) the historical market prices and trading information with respect
to Alrenco shares;

(vi) the express terms and conditions of the Merger Agreement and the
fees and expenses that would be payable by Alrenco upon termination of the
Merger Agreement under certain circumstances;

(vii) the advice of Alrenco's independent auditors with respect to the
ability to account for the Merger as a pooling-of-interests under generally
accepted accounting principles;

(viii) the expectation that the Merger would be treated as a tax-free
reorganization under Section 368(a) of the Code;

(ix) the Alrenco Board's evaluation of the potential long-term value
of Alrenco following the Merger;

(x) the increased access to the capital markets expected to be
available to the combined company resulting from the Merger;

(xi) the synergies, cost savings and operational efficiencies that may
become available to the combined enterprise as a result of the Merger, as
well as the management challenges associated with successfully integrating
the businesses, cultures and managements of two large organizations,
particularly in light of competing demands for the attention of management,
and the possibility that before any potential cost savings or synergies are
realized, the combination may have a dilutive effect on earnings per share
in 1998;

(xii) the challenges of managing the growth expected to be achieved by
the combined company, and the lack of management experience with large
organizations on the part of certain senior executive officers of RTO;

(xiii) the potential strategic benefits of the Merger and the current
and anticipated environment in the rental-purchase industry, the strategic
options available to Alrenco and the effects on Alrenco of potential
further consolidation in the industry;

(xiv) the opportunities for constructive sharing of resources and
expertise between Alrenco and RTO, the complementary geographic
distribution of operations, corporate cultures and operating philosophies
of Alrenco and RTO, and the anticipated impact of such factors on the
ability to consummate the Merger in a timely fashion and on the combined
company resulting from the Merger;

(xv) the corporate governance aspects of the Merger, including the
fact that the Alrenco Board would be reduced from six to five members and
would include only one member of the current Alrenco Board;

(xvi) the number of shares of Alrenco Common Stock to be issued to RTO
Stockholders in the Merger, and the percentage ownership of the combined
company represented thereby;

(xvii) the ability to obtain required consents and regulatory
approvals to consummate the transaction;

(xviii) the possibility that, in certain circumstances, Alrenco may be
required to pay a significant fee to RTO in order to terminate the Merger
Agreement prior to consummation of the Merger; and

(xix) the inability of Alrenco under the terms of the Merger Agreement
to pursue an alternative and potentially more favorable transaction with
another party prior to consummation of the Merger.

There can be no assurance that the expected benefits of the Merger,
including those considered by the Alrenco Board, will be realized.

The foregoing discussion of the factors and information considered by the
Alrenco Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with the evaluation of the Merger, the Alrenco
Board did not find it practicable to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Alrenco Board may have
given different weights to different factors.

27
<PAGE> 44

THE ALRENCO BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND BELIEVES
THAT THE TERMS OF THE MERGER AGREEMENT ARE IN THE BEST INTERESTS OF THE ALRENCO
SHAREHOLDERS. THE ALRENCO BOARD RECOMMENDS THAT THE ALRENCO SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE STOCK ISSUANCE AND THE ARTICLES AMENDMENT.

RTO. The RTO Board, based upon certain factors listed below, concluded
that the Merger is fair to and in the best interests of RTO and the RTO
Stockholders, unanimously approved the Merger Agreement and resolved to
recommend that the RTO Stockholders approve and adopt the Merger Agreement and
the transactions contemplated thereby. The RTO Board believes that the Merger
represents a unique strategic opportunity for RTO and will enable RTO to
continue to pursue its strategic objective of becoming one of the leading
rental-purchase store operators in the rental-purchase industry by (i)
increasing the number of rental-purchase stores operated by the surviving
company to 432 and diversifying geographically, (ii) providing increased
management depth and expertise, as well as increased opportunity to attract new
employees, (iii) reducing the expenses of the combined company and thus
increasing operating profit, and (iv) enhancing the ability of the combined
company to continue to acquire existing rental-purchase stores and to open new
rental-purchase stores.

RTO was founded in June 1996 with the express goal of becoming one of the
leading rental-purchase operators in the industry. RTO has primarily pursued
this goal through the strategy of acquiring existing rental-purchase stores and
to a lesser extent by opening new rental-purchase stores. Since its formation,
RTO has acquired 237 existing rental-purchase stores, has opened 34 new
rental-purchase stores, has sold one rental-purchase store and has closed three
rental-purchase stores. As of the date of this Joint Proxy Statement/Prospectus,
RTO operated a total of 267 rental-purchase stores in 16 states. The Merger will
create a combined company that will operate a total of 432 rental-purchase
stores in 23 states. According to statistics maintained by APRO, following the
Merger, Alrenco would be the third largest rental-purchase operator in the
United States.

The Merger will allow the combined company to enjoy increased geographic
diversity. RTO now operates in 16 states and after the Merger the combined
company will operate in 23 states. The Merger will also increase the combined
company's presence in existing markets where both RTO and Alrenco have existing
stores.

Second, the Merger will provide the combined company with increased
management depth and expertise. Both Alrenco and RTO have experienced
significant growth in the past twelve months and therefore have experience with
solving the difficulties associated with such growth. The RTO Board also took
into account the expectation that members of RTO's senior management will
continue with the combined company in their current positions and that this will
allow RTO's management to continue to implement the current strategic plan and
initiatives of RTO. Further, the size of the combined company, coupled with the
ability to offer publicly traded stock and stock options as incentives, will
enhance the ability of the combined company to attract additional quality
personnel both as corporate officers and at the store level.

Third, the RTO Board believes that the Merger will allow the combined
company to reduce expenses as a percentage of revenue by spreading fixed
expenses over a larger base of stores. Fixed expenses include corporate overhead
such as lease payments and executive salaries. The combined company will also
enjoy greater buying power from having a larger number of stores and a greater
dollar volume of purchases per year from selected vendors. The RTO Board also
believes that the Merger will allow management of the combined company to better
control and maintain inventory at the individual store level by shifting
inventory to rental-purchase stores that can use such inventory from stores that
may not have as much demand for such inventory.

Finally, the Merger will create a combined company with greater expertise
and ability to both acquire existing rental-purchase stores and to open new
rental-purchase stores. RTO has historically used shares of RTO Common Stock as
a purchasing currency to acquire existing rental purchase stores. The Merger
will enable the combined company to use Alrenco Common Stock, which is publicly
traded, to purchase existing rental-purchase stores. The combined company will
also have access to the public equity markets in order to raise funds needed to
acquire existing rental-purchase stores and to open new rental-purchase stores.

28
<PAGE> 45

In addition to the above factors, the RTO Board considered the following
factors in approving the Merger Agreement and in making its recommendation that
the RTO Stockholders approve and adopt the Merger Agreement:

(ii) current industry, economic and market conditions;

(iii) the fact that both Alrenco and RTO have similar operating
philosophies, which should ease the effects of the Merger from an
operational standpoint and may enable the combined company to more easily
derive the expected synergies from the Merger;

(iv) the fact that both Alrenco and RTO use identical management
information systems, which should decrease the time it would otherwise take
to integrate the store operations of both companies;

(v) the advice of, and financial analysis prepared by, RTO's financial
advisors;

(vi) the information concerning the financial condition, results of
operations and cash flows and businesses of RTO and Alrenco, both on a
historical and prospective basis;

(vii) the terms and conditions of the Merger Agreement, including the
amount and form of consideration to be received by the RTO Stockholders and
the nature of the parties' representations, warranties, covenants and
agreements;

(viii) the expectation, based upon the advice of RTO's independent
auditors, that the Merger will qualify as a pooling-of-interests under
generally accepted accounting principles;

(ix) the expectation that the Merger would be treated as a tax-free
reorganization under Section 368(a) of the Code;

(x) the opportunity for the RTO Stockholders to increase the liquidity
of their investment by exchanging their shares of RTO Common Stock for
shares of Alrenco Common Stock, which is publicly traded on The Nasdaq
National Market;

(xi) the number of shares of Alrenco Common Stock to be issued to the
RTO Stockholders in the Merger, and the percentage ownership of the
combined company represented by such shares;

(xii) potential difficulties or delays in obtaining consents and
regulatory approvals required to consummate the Merger;

(xiii) the need for certain other conditions to be satisfied in order
to consummate the Merger, including the approval of the Merger Agreement by
the Alrenco Shareholders and the RTO Stockholders, and the possibility that
such conditions may not be satisfied;

(xiv) the possibility that, in certain circumstances, RTO may be
required to pay a significant fee to Alrenco in order to terminate the
Merger Agreement prior to consummation of the Merger; and

(xv) the inability of RTO under the terms of the Merger Agreement to
pursue an alternative, even if more favorable, transaction prior to
consummation of the Merger.

There can be no assurance that the expected benefits of the Merger,
including those considered by the RTO Board, will be realized.

The foregoing discussion of the factors and information considered by the
RTO Board is not intended to be exhaustive. In view of the variety of factors
considered in connection with the evaluation of the Merger, the RTO Board did
not find it practical to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the RTO Board may have given different weights
to different factors.

29
<PAGE> 46

THE RTO BOARD HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS FAIR AND IN THE
BEST INTERESTS OF RTO AND THE RTO STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND RECOMMENDS THAT THE RTO STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.

TERMS OF THE MERGER AGREEMENT

The following is a brief summary of the material provisions of the Merger
Agreement, which is attached as Annex A and is incorporated herein by reference.
Such summary is qualified in its entirety by reference to the Merger Agreement.

If the Merger Agreement is approved by the Alrenco Shareholders and the RTO
Stockholders, and the other conditions to the Merger are satisfied or waived,
the Closing shall take place on the later of (a) the date of the Alrenco Special
Meeting and the RTO Special Meeting, (b) the day on which all of the conditions
referred to below under "-- Conditions to the Merger" are satisfied or waived,
or at such other date, time and place as Alrenco and RTO shall agree.

Conversion of Shares. At the Effective Time, each issued and outstanding
share of RTO Common Stock (except RTO Dissenting Shares), will be cancelled and
converted into 89.795 shares of Alrenco Common Stock. Each share of RTO Common
Stock held in the treasury of RTO, if any, and each share of RTO Common Stock
held by Alrenco immediately prior to the Effective Time shall be cancelled and
retired and shall cease to exist. Each issued and outstanding share of Alrenco
Common Stock will remain outstanding, unchanged, as one share of Alrenco Common
Stock.

If any RTO Stockholder would be entitled to receive a number of shares of
Alrenco Common Stock that includes a fraction, then in lieu of a fractional
share, such RTO Stockholder will be entitled to receive a cash payment in an
amount determined by multiplying the fractional share interest by the closing
sale price of one share of Alrenco Common Stock on the Nasdaq National Market on
the day of the Effective Time or, if shares of Alrenco Common Stock are not so
traded on such day, the closing sale price of one such share on the next
preceding day on which such share was traded on the Nasdaq National Market.

RTO Dissenting Shares will not be cancelled and converted into the right to
receive Alrenco Common Stock in the Merger, but will be cancelled and converted
into such consideration as may be due with respect to such shares pursuant to
the applicable provisions of the DGCL, unless and until the right of such holder
to receive the fair value of such RTO Dissenting Shares terminates in accordance
with the DGCL, in which case such shares will cease to be RTO Dissenting Shares
and will represent the right to receive or retain Alrenco Common Stock pursuant
to the Merger Agreement.

Based upon the capitalization of Alrenco and RTO on September 28, 1997, and
the Exchange Ratio of 89.795 shares of Alrenco Common Stock per share of RTO
Common Stock, upon consummation of the Merger, approximately 33.5% of the
outstanding Alrenco Common Stock will be owned by the current Alrenco
Shareholders and approximately 66.5% will be owned by the current RTO
Stockholders, in each case on a fully diluted basis. The value of the 89.795
shares of Alrenco Common Stock to be received in exchange for each share of RTO
Common Stock was approximately $1,369.00 based upon the $15.25 closing price of
a share of Alrenco Common Stock on September 26, 1997, the trading day preceding
the public announcement of the Merger Agreement and approximately $1,482 based
upon the $16.50 closing price of a share of Alrenco Common Stock on January 20,
1998, the most recent date for which it was practicable to obtain market price
data prior to printing and mailing this Joint Proxy Statement/Prospectus.

30
<PAGE> 47

Treatment of RTO Options. The Merger Agreement provides that, at the
Effective Time, each RTO Option which is outstanding and unexercised at the
Effective Time, shall be converted into an option to purchase Alrenco Common
Stock, and Alrenco shall assume each RTO Option in accordance with the terms of
the applicable RTO stock option plan. From and after the Effective Time, (i) the
number of shares of Alrenco Common Stock subject to such RTO Option shall be
equal to the product of the number of shares of RTO Common Stock subject to the
RTO Option and the Exchange Ratio, provided that any fractional share of Alrenco
Common Stock resulting from such multiplication shall be rounded down to the
nearest share, and Alrenco shall pay an amount in cash to the holder of such RTO
Option equal to the fair market value immediately prior to the Effective Time of
such fractional share calculated based on the average closing price on the
Nasdaq National Market for the last five trading days immediately preceding the
day prior to the Effective Time, and (ii) the per share exercise price under
each such RTO Option shall be equal to the aggregate exercise price of the
original option divided by the total number of full shares of Alrenco Common
Stock subject to such RTO Option, provided that the exercise price shall be
rounded up to the nearest cent.

Management of Alrenco Following the Merger. The Merger Agreement provides
that, at the Effective Time, the Alrenco Board will consist of George D.
Johnson, Jr., Michael D. Walts, Billy W. White, Sr., Edward W. Phifer, III and
John S. Rainey. The Merger Agreement further provides that, at the Effective
Time, George D. Johnson, Jr., Chairman of the Board of RTO, will be the Chairman
of the Board of Alrenco. See "Management of Alrenco Following the Merger." In
addition, it is a condition to Alrenco's obligation to consummate the Merger
that Mr. Walts, the current Chairman of the Board and President of Alrenco, will
have entered into the Noncompetition and Consulting Agreement. See "The Merger
- -- Interests of Certain Persons in the Merger -- Noncompetition and Consulting
Agreement."

Conditions to the Merger. The respective obligations of Alrenco and RTO to
effect the Merger are subject to the following conditions: (a) any applicable
waiting period under the HSR Act shall have expired or terminated, and no action
by the Antitrust Division or the FTC shall be pending challenging or seeking to
enjoin the consummation of the Merger; (b) the Registration Statement shall have
become effective and shall not be the subject of a stop order; (c) the Merger
Agreement shall have been approved and adopted by the RTO Stockholders and
approved by the Alrenco Shareholders; and (d) no preliminary or permanent
injunction or other order shall be in effect that prohibits the consummation of
the Merger; (e) the receipt of all material consents from governmental
authorities or third parties as shall be required; (f) the receipt by Alrenco
and RTO of (i) a letter from Coopers & Lybrand L.L.P. stating that the Merger
will qualify as a pooling-of-interests transaction under generally accepted
accounting principles, and (ii) a letter from Grant Thornton LLP stating that
Alrenco meets the conditions to qualify as a pooling-of-interests transaction
under generally accepted accounting principles and applicable Commission
regulations; and (g) the receipt by Alrenco and RTO of an opinion of King &
Spalding stating that the Merger will be treated as a tax-free reorganization.

In addition to the foregoing, the obligation of RTO to effect the Merger is
subject to the following conditions: (a) Alrenco shall have performed in all
material respects its obligations under the Merger Agreement and the
representations and warranties of Alrenco contained in the Merger Agreement
shall be true and correct in all material respects at and as of the Effective
Time as if made at and as of such time (other than representations and
warranties that address matters only as of a particular date, which shall be
true and correct in all material respects as of such date), except as permitted
by the Merger Agreement, and RTO shall have received a certificate of the
Chairman of the Board and President of Alrenco to such effect; (b) RTO shall
have received an opinion of Stites & Harbison regarding execution and delivery
of the Merger Agreement and related matters; (c) a listing application covering
the shares of Alrenco Common Stock to be issued in connection with the Merger
shall have been approved by the National Association of Securities Dealers; and
(d) there shall not have occurred any change in the financial condition,
business or operations of Alrenco that would have or would be reasonably likely
to have a material adverse effect on Alrenco.

In addition to the foregoing, the obligation of Alrenco to effect the
Merger is subject to the following conditions: (a) RTO shall have performed in
all material respects its obligations under the Merger Agreement and the
representations and warranties of RTO contained in the Merger Agreement shall be
true and correct in all material respects at and as of the Effective Time as if
made at and as of such time (other than

31
<PAGE> 48

representations and warranties that address matters only as of a particular
date, which shall be true and correct in all material respects as of such date),
except as permitted by the Merger Agreement, and Alrenco shall have received a
certificate of the President and Chief Executive Officer of RTO to such effect;
(b) Alrenco shall have received an opinion of King & Spalding regarding
execution and delivery of the Merger Agreement and related matters; (c) there
shall not have occurred any change in the financial condition, business or
operations of RTO or its subsidiaries, taken as a whole, that would have or
would be reasonably likely to have a material adverse effect on RTO and its
subsidiaries, taken as a whole; and (d) Alrenco and Michael D. Walts shall have
entered into the Noncompetition and Consulting Agreement.

At any time before the Effective Time, the conditions to Alrenco's or RTO's
obligations to consummate the Merger may be waived by the other party. Any
determination to waive a condition would depend upon the facts and circumstances
existing at the time of such waiver and would be made by the waiving party's
Board, exercising its fiduciary duties to such party and its shareholders. See
"-- Amendment and Waiver." In certain circumstances involving the waiver of a
significant condition, fiduciary duties may require that one or both parties
obtain additional shareholder or stockholder approval prior to consummation of
the Merger. For example, if the parties waive the condition requiring King &
Spalding to deliver to Alrenco and RTO an opinion stating that the Merger will
be treated as a tax-free reorganization, Alrenco and RTO would resolicit the
Alrenco Shareholders and the RTO Stockholders, respectively, prior to proceeding
with the Merger.

Indemnification Obligations. Alrenco has agreed in the Merger Agreement to
indemnify each person who was a director or officer of Alrenco or RTO as of or
before the date of the Merger Agreement against liabilities arising at or prior
to the Effective Time and to maintain in effect for a period of six years from
the Effective Time directors' and officers' liability insurance covering RTO's
directors and officers. Alrenco has also agreed in the Merger Agreement to keep
in effect the provisions in the Alrenco Articles and the Alrenco Bylaws
providing for exculpation of director and officer liability and for Alrenco's
indemnification of directors and officers to the fullest extent allowed by law;
such provisions shall not be amended except as required by law or except to make
changes permitted by law that would enlarge the directors' and officers' right
of indemnification.

No Solicitation of Transactions. The Merger Agreement provides that
neither Alrenco nor RTO will permit its officers, directors, employees or
representatives of such party or its subsidiaries, to, directly or indirectly;
solicit, initiate or encourage the submission of any Acquisition Proposal (as
defined below); or participate in discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal. Neither party's
Board (or its authorized representatives) shall be prohibited from furnishing
information to, or entering into discussions or negotiations with, any person or
entity that makes an unsolicited Acquisition Proposal if (A) such party's Board,
based on the written advice of outside counsel, determines that such action is
required in order for the Board of Directors to comply with its fiduciary duties
to stockholders, (B) such person or entity executes a confidentiality agreement
in reasonably customary form, and (C) the Acquisition Proposal contains an offer
of consideration that is superior to the consideration represented by the
Exchange Ratio. Both Alrenco and RTO have agreed to provide prompt notice of any
Acquisition Proposal or inquiry to the other, including material terms and
conditions and the identity of the person making such Acquisition Proposal or
inquiry; keep the other party reasonably informed regarding such Acquisition
Proposal or inquiry; and negotiate with each other to make adjustments to the
terms and conditions of the Merger Agreement as would allow the Merger to
proceed; provided, however, that neither party is required to negotiate
exclusively with the other party. As used herein, "Acquisition Proposal" shall
mean any bona fide proposal with respect to a merger, consolidation, share
exchange or similar transaction involving Alrenco or RTO and its subsidiaries,
or any purchase of all or any significant portion of the assets of Alrenco or
RTO and its subsidiaries other than the transactions contemplated by the Merger
Agreement.

The Merger Agreement provides that if either Alrenco or RTO receives an
unsolicited Acquisition Proposal and its Board determines in good faith, based
on the advice of counsel, that it is necessary to do so in order to comply with
its fiduciary duties, its Board may (1) withdraw or modify its approval or
recommendation of the Merger Agreement and the Merger; (2) approve or recommend
such Acquisition Proposal;

32
<PAGE> 49

(3) cause such party to enter into an agreement with respect to such Acquisition
Proposal; or (4) terminate the Merger Agreement. Prior to taking such action
such party must, and must cause its respective financial and legal advisors to,
negotiate with the other party to make such adjustments in the terms and
conditions of the Merger Agreement as would enable such party to proceed with
the transactions contemplated therein on such adjusted terms. However, such
party is not required to negotiate exclusively with the other party.

Amendment and Waiver. The Merger Agreement may be amended by the parties
thereto at any time before the Effective Time, but after approval thereof by the
Alrenco Shareholders or RTO Stockholders, whichever shall occur first, no such
amendment shall alter or change the amount or kind of consideration to be
received by RTO Stockholders upon consummation of the Merger, alter or change
any term of the Alrenco Articles or the RTO Certificate, or alter or change any
of the terms and conditions of the Merger Agreement if such alteration or change
would adversely affect the holders of any class or series of securities of
Alrenco or RTO. Alrenco and RTO may extend the time for the performance of any
of the obligations or other acts of the other parties thereto, waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto, and waive compliance with any of the
agreements or conditions contained in the Merger Agreement.

Termination of the Merger Agreement. The Merger Agreement may be
terminated at any time prior to the Effective Time: (a) by mutual written
consent of Alrenco and RTO; or (b) by the Alrenco Board or the RTO Board, if (i)
the Effective Time shall not have occurred on or before February 28, 1998 (or
March 31, 1998 if all conditions but the receipt of the required statutory
approvals and consents have been or are capable of being fulfilled by February
28, 1998), except that neither party may terminate the Merger Agreement if it
caused such delay; or (ii) any court of competent jurisdiction or any political,
governmental or administrative body shall have issued any order, decree or
ruling or taken any other action prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable.

In addition to the foregoing, RTO may terminate the Merger Agreement if:
(a) there shall have been any material adverse change in the business, financial
condition, results of operations, properties, assets or liabilities of Alrenco,
or if Alrenco shall have breached certain covenants set forth in the Merger
Agreement, in any case which is not cured after thirty days notice thereof; (b)
the Merger Agreement and the Merger shall not have been approved by the Alrenco
Shareholders; (c) RTO receives an unsolicited Acquisition Proposal and the RTO
Board determines in good faith, based on the advice of counsel and in accordance
with the procedures discussed in "-- No Solicitation of Transactions" above,
that it is necessary to terminate the Merger Agreement in order to comply with
its fiduciary duties to stockholders; or (d) the Alrenco Board shall have (i)
withdrawn or modified in a manner adverse to RTO its recommendation of the
Merger Agreement and the Merger, (ii) approved or recommended an Acquisition
Proposal, or (iii) caused Alrenco to enter into an agreement with respect to an
Acquisition Proposal.

In addition to the foregoing, Alrenco may terminate the Merger Agreement
if: (a) there shall have been any material adverse change in the business,
financial condition, results of operations, properties, assets or liabilities of
RTO and its subsidiaries taken as a whole, or if RTO shall have breached certain
covenants set forth in the Merger Agreement, in any case which is not cured
after thirty days notice thereof; (b) the Merger Agreement and the Merger shall
not have been approved and adopted by the RTO Stockholders; (c) Alrenco receives
an unsolicited Acquisition Proposal and the Alrenco Board determines in good
faith, based on the advice of counsel and in accordance with the procedures
discussed in "-- No Solicitation of Transactions" above, that it is necessary to
terminate the Merger Agreement in order to comply with its fiduciary duties to
stockholders; or (d) the RTO Board shall have (i) withdrawn or modified in a
manner adverse to Alrenco its recommendation of the Merger Agreement and the
Merger, (ii) approved or recommended an Acquisition Proposal, or (iii) caused
RTO to enter into an agreement with respect to an Acquisition Proposal.

In the event of the termination and abandonment of the Merger Agreement by
either Alrenco or RTO as provided above, the Merger Agreement shall become void
and have no effect and there shall be no liability or obligation on the part of
either Alrenco or RTO or their respective officers, directors or stockholders
thereunder except (a) to comply with the terms and provisions of the
confidentiality letter, dated September 9, 1997 (the "Confidentiality Letter"),
which requires each party, among other things, to hold in strict

33
<PAGE> 50

confidence all documents furnished to the other in accordance with its terms and
to comply with certain standstill provisions described below under
"-- Confidentiality Letter and Standstill Provisions"; (b) to pay certain fees
and expenses pursuant to certain specified provisions of the Merger Agreement
described below under "-- Termination Fees" and "-- Fees and Expenses"; and (c)
to the extent that such termination results from the willful breach by either
party of any material representation, warranty or covenant under the Merger
Agreement.

Termination Fees. The Merger Agreement provides that if the Board of
either Alrenco or RTO takes any action described in clause (3) or (4) under "--
No Solicitation of Transactions" above or the other party exercises its right to
terminate the Merger Agreement based on the Board of the withdrawing party
having taken any action described in clause (1) or (2) of the second paragraph
under "-- No Solicitation of Transactions" above, then the withdrawing party
shall pay to the other party upon demand the sum of $3,000,000 plus all fees and
expenses incurred by such other party in connection with the transactions
contemplated by the Merger Agreement.

EFFECTIVE TIME OF THE MERGER AND EXCHANGE OF SHARES

Effective Time of Merger. If the Merger Agreement is approved by the
Alrenco Shareholders and the RTO Stockholders, and the other conditions to the
Merger are satisfied or waived, the Merger will become effective at the
Effective Time.

Exchange of RTO Stock Certificates. Promptly after the Effective Time, an
exchange agent selected by Alrenco and reasonably satisfactory to RTO (the
"Exchange Agent") will mail (or deliver at its principal office) to each RTO
Stockholder a letter of transmittal and instructions for use in effecting the
surrender of the certificates held by such RTO Stockholder that represent shares
of RTO Common Stock for certificates representing shares of Alrenco Common
Stock. Upon surrender of a certificate representing shares of RTO Common Stock
to the Exchange Agent for cancellation, together with a duly executed letter of
transmittal and such other documents, if any, as the Exchange Agent may require,
the holder of such certificate or certificates will be entitled to receive a
certificate representing that number of whole shares of Alrenco Common Stock and
any cash in lieu of a fractional share of Alrenco Common Stock which such holder
has the right to receive pursuant to the provisions of the Merger Agreement.
Until surrendered, each certificate representing shares of RTO Common Stock will
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing shares of Alrenco
Common Stock and cash in lieu of any fractional share of Alrenco Common Stock.

No dividends or other distributions declared or made after the Effective
Time with respect to shares of Alrenco Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered certificate
representing shares of RTO Common Stock until such certificate is surrendered.
After such surrender, subject to applicable law, there will be paid to such
holder, without interest, any dividends which shall have become payable with
respect to the Alrenco Common Stock between the Effective Time and the time of
such surrender.

RTO STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES REPRESENTING SHARES
OF RTO COMMON STOCK UNTIL THEY RECEIVE A TRANSMITTAL LETTER.

CONFIDENTIALITY LETTER AND STANDSTILL PROVISIONS

Pursuant to the Confidentiality Letter, Alrenco and RTO have each agreed
(other than as contemplated in the Merger Agreement or the Stock Option
Agreements (as defined herein)), that they will not, until eighteen months from
the date of the Confidentiality Letter, (i) acquire or seek to acquire any of
the other

34
<PAGE> 51

party's assets or businesses or any securities issued by the other party, or any
rights or options to acquire such ownership; (ii) seek or propose to influence
or control the management or policies of the other party; or (iii) enter into or
propose any discussions, negotiations, arrangements or understandings with any
third party with respect to any of the foregoing.

OPINION OF FINANCIAL ADVISOR TO ALRENCO

On September 6, 1997, Alrenco retained SunTrust Equitable to act as its
exclusive financial advisor in connection with the Merger. Prior to that date,
SunTrust Equitable acted in a general financial advisory capacity for Alrenco
from time to time.

On September 28, 1997, SunTrust Equitable rendered its oral opinion, which
was confirmed by the delivery of the SunTrust Equitable Opinion, to the Alrenco
Board to the effect that, based upon and subject to certain matters stated
therein, as of the date of such opinion, the Merger Consideration to be paid by
Alrenco is fair to the Alrenco Shareholders from a financial point of view.

The full text of the SunTrust Equitable Opinion, which sets forth a
description of the assumptions made, general procedures followed, matters
considered and limitations on the review undertaken, is attached hereto as Annex
F. The SunTrust Equitable Opinion is directed only to the fairness to Alrenco
Shareholders, from a financial point of view, of the Merger Consideration, and
does not constitute a recommendation to any Alrenco Shareholder as to how such
shareholder should vote on the Merger Agreement. Alrenco Shareholders are urged
to read the SunTrust Equitable Opinion carefully in its entirety, especially
with regard to the assumptions made and matters considered by SunTrust
Equitable. The summary of the SunTrust Equitable Opinion set forth in this Joint
Proxy Statement/Prospectus is qualified in its entirety by reference to the full
text thereof.

In connection with rendering its opinion, SunTrust Equitable reviewed,
among other things, the Merger Agreement, certain publicly-available information
regarding Alrenco and certain other financial reports, forecasts and other
information concerning Alrenco and RTO which were provided to SunTrust
Equitable. SunTrust Equitable held discussions with the managements and
representatives of Alrenco and RTO concerning the historical and current
operations of Alrenco and RTO, their respective financial condition and
prospects, as well as the strategic and operating benefits anticipated from the
Merger. In addition, SunTrust Equitable (i) considered, to the extent available,
the financial terms of certain other similar transactions recently effected,
(ii) compared certain financial positions and operating results of Alrenco and
RTO to other companies in the rental-purchase industry, (iii) reviewed the pro
forma financial effects of the Merger to Alrenco and (iv) conducted such other
financial studies, analyses and investigations and reviewed such other factors
as SunTrust Equitable deemed appropriate for purposes of its opinion.

In rendering this opinion, SunTrust Equitable relied, without assuming any
responsibility for independent verification, on the accuracy and completeness of
all financial and other information reviewed by them that was publicly available
or furnished to them by or on behalf of Alrenco and RTO. SunTrust Equitable
assumed that the financial forecasts which they examined were reasonably
prepared on bases reflecting the best currently available estimates and good
faith judgments of the respective managements of Alrenco and RTO. SunTrust
Equitable also assumed, with Alrenco's consent, that: (i) the Merger will be
accounted for under the pooling-of-interests method of accounting, (ii) the
Merger will be a tax-free reorganization and (iii) all material liabilities
(contingent or otherwise) of RTO are as set forth in the financial statements of
RTO or as otherwise disclosed to them in connection with this engagement.
SunTrust Equitable has not made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of RTO, nor were they furnished
with any such evaluations or appraisals. The SunTrust Equitable Opinion is based
upon economic, market and other conditions existing of the date thereof and does
not address the fairness of the Merger Consideration to the Alrenco Shareholders
as of any other date, or any other aspect of the Merger. Subsequent developments
may affect the SunTrust Equitable Opinion. The SunTrust Equitable Opinion does
not constitute a recommendation to any Alrenco Shareholder as to whether or not
that shareholder should vote to approve the Merger. Furthermore, SunTrust
Equitable expressed no opinion as to the price or trading range at which shares
of Alrenco Common Stock will trade following the Merger.

35
<PAGE> 52

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analysis or the summary set forth below, without considering the
analyses as a whole, could create an incomplete view of the processes underlying
the SunTrust Equitable Opinion. In arriving at its fairness opinion, SunTrust
Equitable considered the results of all such analyses and did not attribute any
particular weight to any analyses or factor considered by it; rather, SunTrust
Equitable made its decision as to the fairness on the basis of experience and
professional judgment, after considering the results of all such analyses. No
company or transaction used in the analyses as a comparison is identical to
Alrenco or RTO or the Merger. The analyses were prepared solely for the purpose
of SunTrust Equitable providing its opinion to the Alrenco Board as to the
fairness to the Alrenco Shareholders of the Merger Consideration.

Analyses based upon forecast of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, neither Alrenco nor RTO or
any other person assumes responsibility if future results are materially
different from those forecasted.

Certain of SunTrust Equitable's analyses are based upon anticipated
financial results based upon consensus analyst estimates, forecasts provided by
the managements of Alrenco and RTO and discussions with Alrenco's and RTO's
managements (the "Alrenco Projections" and the "RTO Projections"). The Alrenco
Projections and RTO Projections contain numerous assumptions with respect to
industry performance, general business and the economic conditions and other
matters, many of which are beyond Alrenco's or RTO's control. The projections
furnished to SunTrust Equitable for each of Alrenco and RTO were prepared by the
respective management of each company. Neither Alrenco nor RTO publicly
discloses internal management projections of the type provided to SunTrust
Equitable in connection with its review of the Merger, and such projections were
not prepared with a view toward public disclosure. Any estimates contained in
the Alrenco Projections or RTO Projections are not necessarily indicative of
actual values or predictive of future values or results, which may be
significantly more or less favorable than as set forth therein.

The following paragraphs summarize the material quantitative analyses
performed by SunTrust Equitable in arriving at the opinion delivered to the
Alrenco Board.

Contribution Analysis. SunTrust Equitable analyzed the percentage of
revenues, operating profit, net income and numerous other factors that each of
Alrenco and RTO would contribute to the total of the combined entity based upon
the latest 12 months data, current data and projected data. Based upon this
information, Alrenco's contribution to the combined entity generally ranged from
approximately 34% to 44%. SunTrust Equitable noted that, at the Exchange Ratio,
the Alrenco Shareholders would own approximately 33.5% of the combined entity on
a fully diluted basis. SunTrust Equitable noted that, while this percentage was
lower than the implied contribution, RTO's results were affected by a number of
nonrecurring items and that RTO was making other significant contributions to
the combined companies, including management and increased growth potential.

Pro Forma Merger Analysis. SunTrust Equitable analyzed certain pro forma
effects resulting from the Merger. SunTrust Equitable reviewed the operating
synergies contemplated to result from the Merger by combining the operations of
Alrenco and RTO as projected by the management of Alrenco. SunTrust Equitable
analyzed the pro forma effect of such operating synergies on net income and
earnings per share for Alrenco. The analysis indicated that the pro forma
earnings per share ("EPS") of Alrenco on a fully taxed basis, before assuming
any operating synergies resulting from the Merger, would be approximately 54%
and 10% lower in the fiscal years ending December 31, 1997 and December 31, 1998
and 10% higher in the fiscal year ending December 31, 1999 than comparable
projections for Alrenco on a stand-alone basis during the same periods.

Historical Trading Analysis. To provide contextual data and comparative
market data, SunTrust Equitable examined the history of the trading prices, the
trading prices as a multiple of the then-last 12 months EPS of Alrenco and the
relative relationships to Renters Choice and Rent-Way (the other publicly-traded
rental-purchase companies which SunTrust Equitable deemed most comparable to
Alrenco)

36
<PAGE> 53

for the period from January 26, 1996 (the date of Alrenco's initial public
offering) to September 26, 1997. This analysis indicated the degree to which
Alrenco had traded at a premium or discounted multiple of the last 12 months EPS
relative to Renters Choice and Rent-Way. This information was presented solely
to provide the Alrenco Board with background regarding the stock prices and
trading multiples of Alrenco over the period indicated. This analysis indicated
that Alrenco's multiple has ranged from a 19.3 multiple point discount to a 6.7
multiple point premium and has averaged a discount of 5.1 multiple points to
Renters Choice. At the time of the announcement of the transaction, Alrenco was
trading at a 8.0 multiple point discount to Renters Choice. This analysis
indicated that Alrenco's multiple has ranged from a 14.8 multiple point discount
to a 9.3 multiple point premium and has averaged a discount of 4.0 multiple
points to Rent-Way. At the time of the announcement of the transaction, Alrenco
was trading at a 11.2 multiple point discount to Rent-Way. Based upon this
analysis, SunTrust Equitable determined that the relative market valuation of
Alrenco was within historical trading ranges relative to Renters Choice and
Rent-Way.

Analysis of Recent Acquisition Transactions. Using publicly available
information, SunTrust Equitable reviewed the purchase prices and multiples paid
in selected merger and acquisition transactions involving rental-purchase
companies. SunTrust Equitable examined nine transactions since January 1, 1996
and reviewed the relationship between the aggregate transaction value and the
acquired company's revenues, earnings before interest and taxes ("EBIT") and net
income for the twelve months preceding acquisition. Based upon SunTrust
Equitable's analysis of these transactions, the range of transaction multiples
was generally between 0.5x and 1.2x revenues, 3.3x and 16.9x EBIT and 7.7x and
16.1x net income. SunTrust Equitable noted that, based upon the closing stock
prices for Alrenco Common Stock on September 26, 1997, the Merger Consideration
implied 1.5x revenues, 51.5x EBIT and 102.4x net income. SunTrust Equitable
noted that it did not place significant weight on this analysis in its opinion
due to the lack of comparability of RTO to these transactions and the impact of
certain nonrecurring items on RTO's estimated 1997 financial results.

Analysis of Certain Publicly-Traded Companies. Using publicly-available
information, SunTrust Equitable reviewed the stock prices, market multiples,
profitability and certain other characteristics for certain companies in the
rental-purchase industry. The companies included in this analysis were Aaron
Rents, Inc., Alrenco, Renters Choice, Inc. and Rent-Way, Inc. SunTrust Equitable
determined that the range of market multiples based upon these companies' latest
current average monthly revenues, latest 12 months EBIT, estimated 1997 net
income and estimated 1998 net income were 12.7x to 22.7x for monthly revenues,
12.7x to 16.3x for EBIT, 17.5x to 27.0x estimated 1997 net income and 13.0x to
21.8x for estimated 1998 net income. SunTrust Equitable also noted that the
implied value per store for these companies ranged from $659,000 to $1.2
million. SunTrust Equitable noted that, based upon Alrenco's stock price on
September 26, 1997, the value of RTO implied by the Exchange Ratio was 15.7x
monthly revenues, 51.5x estimated 1997 EBIT, 102.4x estimated 1997 net income
and 17.0x estimated 1998 net income. In addition, the implied value per store of
RTO was approximately $790,000. With the exception of 1997 EBIT and net income,
which were affected by pooling-of-interest transactions and nonrecurring
charges, each of these multiples was within the range of multiples for the other
publicly-traded companies.

Discounted Cash Flow Analysis. SunTrust Equitable also performed a
discounted cash flow analysis. Using the information provided by the RTO
Projections, SunTrust Equitable performed stand-alone discounted cash flow
analyses for RTO. SunTrust Equitable calculated "Free Cash Flow" based upon
stand-alone EBIT adjusted for: (i) taxes, (ii) certain non-cash items, (iii)
projected changes in non-cash working capital and (iv) projected capital
expenditures. SunTrust Equitable analyzed the RTO Projections and discounted the
stream of Free Cash Flow over the period from 1998 through 2002 back to the
present time using discount rates ranging from 13% to 15%. To estimate the
residual values of RTO at the end of the forecast period, SunTrust Equitable
applied multiples ranging from 5.0x to 7.0x to the projected 2003 operating cash
flow and discounted such value at the same range of discount rates. SunTrust
Equitable then aggregated the present values of the Free Cash Flows and the
residual values to derive a range of implied enterprise values for RTO. The
range of enterprise values were then adjusted for outstanding debt less
outstanding cash to derive a range of equity values for RTO. Based upon this
analysis, the projections indicated a range of equity values of $205 million to
$271 million for RTO. SunTrust Equitable noted that, at

37
<PAGE> 54

the price of Alrenco Common Stock on September 26, 1997, the equity value
implied by the Exchange Ratio was below the range of the values calculated by
this analysis.

Leveraged Transaction Analysis. SunTrust Equitable also utilized the RTO
projection scenarios to calculate the value of RTO in a leveraged transaction.
SunTrust Equitable assumed for this analysis that RTO was acquired in a
leveraged transaction which involved a capital structure consisting of 25%
equity, 30% subordinated debt and the remainder consisting of senior debt and a
working capital revolver. The values were calculated assuming the maximum value
for RTO which enabled the equity investors to achieve internal rates of return
ranging from 30% to 40% while the subordinated debt achieved an internal rate of
return of 20%. These returns were calculated assuming a valuation in 2002 at
7.0x earnings before interest, taxes and goodwill amortization. This capital
structure and return levels were selected based upon SunTrust Equitable's
judgment of the returns expected by investors in transactions of this type.
Using the RTO Projections, this analysis resulted in a range of equity values
for RTO of $193 million to $234 million. SunTrust Equitable noted that, at the
Alrenco Common Stock price as of September 26, 1997, the equity value implied by
the Exchange Ratio was within the range of the values produced from this
analysis.

SunTrust Equitable, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. In the past, SunTrust
Equitable has performed investment banking and financial advisory services for
Alrenco from time to time for which it has received compensation, including
serving as lead managing underwriter for Alrenco's initial public offering of
Alrenco Common Stock in January 1996 and an offering of Alrenco Common Stock in
September 1996, and in both cases SunTrust Equitable received customary
underwriter's compensation. In the ordinary course of business, SunTrust
Equitable trades the equity securities of Alrenco for its own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in these securities.

Pursuant to the engagement letter, dated September 6, 1997, between Alrenco
and SunTrust Equitable, Alrenco has agreed to pay SunTrust Equitable a fee of
approximately 1.0% of the average aggregate value of Alrenco Common Stock for
the ten days prior to the closing of the Merger for services rendered in
connection with the Merger. Alrenco has also agreed to reimburse SunTrust
Equitable for the expenses reasonably incurred by it in connection with its
engagement (including reasonable counsel fees) and to indemnify SunTrust
Equitable and its officers, directors, employees, agents and controlling persons
against certain expenses, losses, claims, damages or liabilities in connection
with its services, including those arising under federal securities laws.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the Merger, the Alrenco Shareholders and the RTO
Stockholders should be aware that certain executive officers and directors of
Alrenco and RTO have certain interests that may present them with potential
conflicts of interest with respect to the Merger.

Noncompetition and Consulting Agreement. Under the terms of the Merger
Agreement, Alrenco will, at or prior to the Effective Time, enter into the
Noncompetition and Consulting Agreement with Michael D. Walts, Chairman of the
Board and President of Alrenco. The Noncompetition and Consulting Agreement
provides for annual compensation of $400,000 for five years and reimbursement
for reasonable out-of-pocket expenses.

Under the Noncompetition and Consulting Agreement, Mr. Walts agrees (i) to
provide consulting services as requested from time to time by the Alrenco Board,
(ii) not to divulge confidential information or trade secrets of Alrenco, (iii)
not to solicit employees of Alrenco, and (iv) not to compete with Alrenco for
five years. Mr. Walts' obligations under clauses (ii) through (iv) above survive
any termination of the agreement.

Either party may terminate the Noncompetition and Consulting Agreement on
60 days' written notice to the other. If Mr. Walts dies or terminates the
agreement for any reason, Mr. Walts shall be entitled to any

38
<PAGE> 55

amounts to which he may otherwise have been entitled to prior to his death or
the effective date of termination, as applicable. If Alrenco terminates the
agreement for any reason, Mr. Walts will be entitled to receive all amounts
payable to him under the agreement for the remainder of the original term.

Restricted Stock Awards. Raymond C. Holladay, Executive Vice President,
Chief Operating Officer and a director of Alrenco, and Theodore H. Wilson,
Executive Vice President, Chief Financial Officer and a director of Alrenco,
have received stock awards of 60,000 shares and 45,000 shares, respectively, of
Alrenco Common Stock pursuant to certain Restricted Stock Agreements dated
December 21, 1995. Under the terms of such Restricted Stock Agreements, such
awards vest upon the occurrence of certain change in control transactions such
as the Merger. The value of such stock awards to Mr. Holladay and Mr. Wilson was
$990,000 and $742,500, respectively, based upon the closing price of $16.50 for
a share of Alrenco Common Stock on January 20, 1998.

Management of Alrenco Following the Merger. The Merger Agreement provides
that, at the Effective Time, all of RTO's current directors and Michael D.
Walts, Chairman of the Board and President of Alrenco, will constitute the
Alrenco Board. The Merger Agreement also provides that, at the Effective Time,
George D. Johnson, Jr., Chairman of the Board of RTO, will be the Chairman of
the Board of Alrenco.

Indemnification Obligations. Alrenco has agreed in the Merger Agreement to
indemnify each person who was a director or officer of Alrenco or RTO as of or
before the date of the Merger Agreement, to maintain certain directors' and
officers' liability insurance and to keep in effect certain provisions in the
Alrenco Articles and the Alrenco Bylaws regarding exculpation of director and
officer liability and indemnification of directors and officers. See "The
Merger -- Terms of the Merger Agreement -- Indemnification Obligations."

Certain Transactions. Certain directors and officers of Alrenco and RTO
have entered into certain agreements with Alrenco and RTO. These agreements are
expected to continue after the Merger. See "Management of Alrenco Following the
Merger -- Certain Transactions."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

General. The following discussion describes the material federal income
tax consequences of the Merger. The discussion is based upon the Code, U.S.
Treasury Regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect on the date of this Joint Proxy
Statement/Prospectus, and is subject to any changes in these or other laws
occurring after such date. The discussion does not address the effects of any
state, local or foreign tax laws.

The tax consequences of the Merger to an individual shareholder may vary
depending upon such shareholder's particular situation, and certain shareholders
(particularly any shareholder which, at the Effective Time, is not a U.S.
person, is a tax-exempt entity, securities dealer, broker-dealer, insurance
company or financial institution or is an individual who acquired his or her RTO
Common Stock pursuant to an employee stock option or otherwise as compensation)
may be subject to special rules not discussed below. EACH SHAREHOLDER IS URGED
TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
HIM OR HER OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN ANY APPLICABLE TAX LAWS.

The obligations of the parties to consummate the Merger are conditioned on
the receipt by RTO and Alrenco of an opinion of King & Spalding, counsel to RTO,
to the effect that (1) the Merger will be treated for federal income tax
purposes as a reorganization qualifying under the provisions of Section 368(a)
of the Code, (2) no gain or loss will be recognized by RTO or Alrenco as a
result of the Merger, and (3) no gain or loss will be recognized by the RTO
Stockholders who exchange their RTO Common Stock solely for Alrenco Common Stock
as a result of the Merger (except with respect to cash received in lieu of a
fractional share interest). The opinion of King & Spalding will be based on
current law and on certain representations regarding factual matters and certain
covenants as to future actions made by RTO and Alrenco. If these representations
are incorrect in certain material respects or the covenants are not complied
with, the conclusions reached by counsel in its opinion might be jeopardized.

39
<PAGE> 56

Assuming that the Merger will qualify as a reorganization within Section
368(a) of the Code, the Merger will have the federal income tax consequences
discussed below.

Except to the extent that RTO Stockholders receive cash in lieu of
fractional share interest, RTO Stockholders who exchange RTO Common Stock in the
Merger for Alrenco Common Stock will not recognize gain or loss for federal
income tax purposes upon the receipt of Alrenco Common Stock in exchange for
their RTO Common Stock. The aggregate tax basis of Alrenco Common Stock received
as a result of the Merger will be the same as the RTO Stockholder's aggregate
tax basis in the RTO Common Stock surrendered in the exchange, reduced by the
portion of the RTO Stockholder's tax basis properly allocated to any fractional
share interest for which the RTO Stockholder receives cash. The holding period
of the Alrenco Common Stock received by an RTO Stockholder as a result of the
Merger will include the period during which such stockholder held the RTO Common
Stock exchanged in the Merger, provided that the RTO Common Stock so exchanged
was held as a capital asset at the Effective Time. An RTO Stockholder who
receives cash in lieu of a fractional share interest in the Alrenco Common Stock
in the Merger will be treated first as having received the fractional share
interest in Alrenco Common Stock in the Merger and then as having received the
cash payment in redemption of the fractional share interest. Under Section 302
of the Code, the RTO Stockholder should generally recognize gain or loss in the
deemed redemption in an amount equal to the difference between the amount of
cash received and the RTO Stockholder's adjusted tax basis allocable to such
fractional share. Such gain or loss will be capital gain or loss if such
stockholder's RTO Common Stock is held as a capital asset at the Effective Time.

REGULATORY APPROVALS

The respective obligations of Alrenco and RTO to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of, among others,
the following conditions: (i) any applicable waiting period under the HSR Act
shall have expired or been terminated, and no action shall have been instituted
by the Antitrust Division or the FTC challenging or seeking to enjoin the
consummation of the Merger, which action shall not have been withdrawn or
terminated; and (ii) each of RTO and Alrenco shall have obtained such consents
from third parties and governmental entities in addition to the HSR Act as shall
be required and which are material to Alrenco and RTO and to consummation of the
transactions contemplated by the Merger Agreement.

Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and the
applicable waiting period has expired or been terminated. On October 31, 1997,
Alrenco and RTO filed a Notification and Report Form with the FTC and the
Antitrust Division pursuant to the HSR Act in connection with the Merger. The
30-day waiting period under the HSR Act applicable to the Merger was terminated
early by action of the FTC on November 7, 1997. The requirements of the HSR Act
will be satisfied if the Merger is consummated by November 7, 1998.

At any time before or after consummation of the Merger, the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the Merger or seeking divestiture of substantial assets of
Alrenco or RTO. At any time before or after the Effective Time, and
notwithstanding that the waiting period under the HSR Act has expired, any state
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest. Such action could include seeking to enjoin
the consummation for the Merger or seeking the divestiture of substantial assets
of Alrenco or RTO. Private parties (including individual states) may also seek
to take legal action under the antitrust laws under certain circumstances.

Based on information available to them, Alrenco and RTO believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Alrenco and RTO would prevail or would not be required to accept certain
adverse conditions in order to consummate the Merger.

40
<PAGE> 57

Other than the approvals discussed above, Alrenco and RTO are not aware of
any federal or state regulatory requirements that must be complied with or
approval that must be obtained in connection with the Merger other than the
filing with the Commission of the Registration Statement and this Joint Proxy
Statement/Prospectus and compliance with applicable state securities laws and
regulations. Should any such approval be required, it is currently contemplated
that such approval will be sought.

ACCOUNTING TREATMENT

The Merger is anticipated to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of Alrenco and RTO will be carried forward
at the Effective Time to the financial statement of Alrenco at their recorded
amounts; income of Alrenco will include income of Alrenco and RTO for the entire
fiscal year in which the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of
Alrenco. Management of Alrenco and RTO have been informed that Alrenco and RTO
will receive from Coopers & Lybrand L.L.P., RTO's independent accountants, a
letter to the effect that Coopers & Lybrand L.L.P. concurs with the conclusions
of Alrenco's and RTO's management that no conditions exist with respect to
either company which would preclude accounting for the Merger as a
pooling-of-interests and that Alrenco and RTO will receive from Grant Thornton
LLP, Alrenco's independent accountants, a letter to the effect that Grant
Thornton LLP concurs with the conclusions of Alrenco's management that no
conditions exist with respect to Alrenco which would preclude accounting for the
Merger as a pooling-of-interests. Representatives of Grant Thornton LLP are
expected to be present at the Alrenco Special Meeting and representatives of
Coopers & Lybrand L.L.P. are expected to be present at the RTO Special Meeting.
These representatives will be available to respond to questions and will have an
opportunity to make a statement if they desire to do so. See "The
Merger -- Terms of the Merger Agreement -- Conditions to the Merger" and
"Unaudited Pro Forma Combined Condensed Financial Statements."

LISTING OF ALRENCO COMMON STOCK

Alrenco Common Stock is currently listed on the Nasdaq National Market
under the trading symbol "RNCO." The shares of Alrenco Common Stock to be issued
pursuant to the terms of the Merger Agreement have been approved for listing on
the Nasdaq National Market, subject to notice of issuance. The listing on the
Nasdaq National Market of such shares, subject to notice of issuance, is a
condition precedent to RTO's obligation to consummate the Merger.

RESALES OF ALRENCO COMMON STOCK

All shares of Alrenco Common Stock received by RTO Stockholders in the
Merger will be freely transferable, except that shares of Alrenco Common Stock
received by persons or entities who are deemed to be "affiliates" (as such term
is defined under the Securities Act) of RTO prior to the Merger and/or
affiliates of Alrenco following the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 or as otherwise
permitted under the Securities Act. These restrictions will consist of certain
volume and manner of sale restrictions on the resale of shares of Alrenco Common
Stock issued to such persons and entities. Persons who may be deemed to be
affiliates of Alrenco or RTO generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
shareholders of such party. The Merger Agreement requires each of Alrenco and
RTO to use all reasonable efforts to cause each of its respective affiliates to
execute a written agreement to the effect that such affiliate will not offer or
sell or otherwise dispose of (i) any shares of Alrenco Common Stock or RTO
Common Stock during the period beginning 30 days prior to the Effective Time and
continuing until such time as results covering at least 30 days of post-
Effective Time operations of Alrenco have been published or (ii) any of the
shares of Alrenco Common Stock issued to such affiliate in or pursuant to the
Merger in violation of the Securities Act or the rules and regulations
promulgated by the Commission thereunder.

41
<PAGE> 58

This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by RTO Stockholders upon consummation of the Merger,
and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.

DISSENTERS' RIGHTS

THE FOLLOWING SUMMARY OF SECTION 262 OF THE DGCL ("SECTION 262") IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262, THE COMPLETE TEXT OF
WHICH IS ATTACHED HERETO AS ANNEX I. THIS SUMMARY CONTAINS ALL OF THE MATERIAL
PROVISIONS OF SECTION 262.

Upon consummation of the Merger, holders of record of shares of RTO Common
Stock on the Record Date will be entitled to have the "fair value" of their
shares as of the Effective Time (exclusive of any element of value arising from
the accomplishment or expectation of the Merger) judicially determined and paid
to them by complying with the provisions of Section 262. Holders of record of
RTO Common Stock who desire to exercise their appraisal rights must satisfy all
of the conditions contained therein.

A written demand for appraisal of shares of RTO Common Stock must be
delivered to RTO by an RTO Stockholder seeking appraisal before the taking of
the vote on the Merger Agreement. The written demand must be separate from any
proxy or vote abstaining from or voting against approval and adoption of the
Merger Agreement. Voting against approval and adoption of the Merger Agreement,
abstaining from voting or failing to vote with respect to approval and adoption
of the Merger Agreement will not constitute a demand for appraisal within the
meaning of Section 262. By voting against approval and adoption of the Merger
Agreement or by abstaining from voting in favor of the Merger Agreement an RTO
Stockholder may preserve his rights of appraisal as a dissenting stockholder.

RTO STOCKHOLDERS ELECTING TO EXERCISE THEIR APPRAISAL RIGHTS UNDER SECTION
262 MUST NOT VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. A VOTE BY
AN RTO STOCKHOLDER AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT IS NOT
REQUIRED IN ORDER FOR SUCH RTO STOCKHOLDER TO EXERCISE APPRAISAL RIGHTS.
HOWEVER, IF AN RTO STOCKHOLDER RETURNS A SIGNED PROXY BUT DOES NOT SPECIFY A
VOTE AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT OR A DIRECTION TO
ABSTAIN, THE PROXY, IF NOT REVOKED, WILL BE VOTED FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT, WHICH WILL HAVE THE EFFECT OF WAIVING SUCH RTO
STOCKHOLDER'S APPRAISAL RIGHTS.

A demand for appraisal will be sufficient if it reasonably informs RTO of
the identity of the RTO Stockholder and that such RTO Stockholder intends
thereby to demand appraisal. If the RTO Common Stock is owned of record in a
fiduciary capacity, such as by a trustee, guardian, or custodian, such demand
must be executed by the fiduciary. If the RTO Common Stock is owned of record by
more than one person, as in a joint tenancy or tenancy in common, such demand
must be executed by all joint owners. An authorized agent, including an agent
for two or more joint owners, may execute the demand for appraisal for an RTO
Stockholder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in exercising the demand, he or she
is acting as agent for the record owner or owners.

A record owner, such as a broker, who holds RTO Common Stock as a nominee
for others, may exercise his or her right of appraisal with respect to the
shares held for all or less than all beneficial owners of shares as to which he
or she is the record owner. In such case, the written demand must set forth the
number of shares covered by such demand. Where the number of shares is not
expressly stated, the demand will be presumed to cover all shares of RTO Common
Stock outstanding in the name of such record owner.

An RTO Stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to RTO at its executive offices set forth
under the caption "Summary -- Parties to the Merger -- RTO" in this Joint Proxy
Statement/Prospectus or deliver such demand to RTO at the RTO Special Meeting.
The demand should specify such RTO Stockholder's name and mailing address and
the number of shares of RTO Common Stock owned. It is the responsibility of each
RTO Stockholder electing to exercise appraisal rights to ensure that the written
demand is received by RTO before the taking of the vote at the RTO Special
Meeting.

42
<PAGE> 59

Within 10 days after the Effective Time, Alrenco must provide notice as to
the Effective Time of the Merger to all RTO Stockholders who have complied with
Section 262(d), summarized above, and have not voted for approval of the Merger
Agreement.

Within 120 days after the Effective Time, any RTO Stockholder who has
complied with the provisions of Sections 262(a) and (d), summarized above, is
entitled, upon written request, to receive from Alrenco a statement setting
forth the aggregate number of shares of RTO Common Stock not voted in favor of
approval and adoption of the Merger and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such statement must be mailed within 10 days after the written request therefor
has been received by Alrenco or within 10 days after expiration of the time for
delivery of demands for appraisal under Section 262(d), whichever is later.

Within 120 days after the Effective Time, either Alrenco or any holder of
RTO Common Stock who has complied with the required conditions of Sections
262(a) and (d) and who is otherwise entitled to appraisal rights may file a
petition in the Court of Chancery of the State of Delaware (the "Court")
demanding a determination of the fair value of the shares of any dissenting RTO
Stockholders. If a petition for an appraisal is timely filed, at a hearing on
such petition, the Court will determine which RTO Stockholders are entitled to
appraisal rights and will appraise the shares of RTO Common Stock owned by such
RTO Stockholders, determining the fair value of such shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining fair value, the Court is to take
into account all relevant factors. In Weinberger v. UOP, Inc., decided in 1983
("Weinberger"), the Delaware Supreme Court, in the context of litigation
involving holders of common stock of a Delaware corporation, expanded the
factors that could be considered in determining fair value in an appraisal
proceeding, stating that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered, and that "[f]air price obviously
requires consideration of all relevant factors involving the value of a company
. . . ." The Delaware Supreme Court stated that in making this determination of
fair value the Court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be ascertained as of the date of the relevant merger which throw any light on
future prospects of the merged corporation. In Weinberger, the Delaware Supreme
Court held that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the Merger
and not the product of speculation, may be considered."

RTO Stockholders considering seeking appraisal should be aware that the
fair value of their shares determined under Section 262 could be more than, the
same as or less than the value of the consideration they are to receive pursuant
to the Merger Agreement if they do not seek appraisal of their shares.

Both fairness opinions and appraisal proceedings review many different
aspects of a company's financial and business circumstances under accepted
valuation techniques, but the perspectives differ. A determination that a
transaction is fair from a financial point of view may be based on a finding
that the price term of a transaction falls within a range of values that would
be fair for other companies involved in similar types of transactions and
circumstances. Such a finding does not determine what the best possible price
would be but looks at the transaction as a whole and determines whether entering
the transaction is a reasonable business decision. In reaching the determination
that an offered price is fair from a financial point of view, consideration is
given to the fact that a purchaser of an entire company may be willing to pay a
"control premium" in excess of the fair market value of the stock. A
determination of fair value in an appraisal proceeding attempts to reduce all of
the elements of value of a company to a set amount rather than focusing on the
range of values in similar transactions. A judicial finding of fair value
attempts to ensure that each dissenting shareholder receives the substantial
equivalent of his proportionate interest in a company before the merger
occurred. An appraisal proceeding does not attempt to consider the effects, if
any, of the merger transaction itself on the value of the stock of a company.

The cost of the appraisal proceeding may be determined by the Court and
taxed against the parties as the Court deems equitable in the circumstances.
Upon application of a dissenting RTO Stockholder, the Court may order that all
or a portion of the expenses incurred by any dissenting stockholder in
connection with the

43
<PAGE> 60

appraisal proceeding, including without limitation reasonable attorney's fees
and the fees and expenses of experts, be charged against the value of shares of
RTO Common Stock entitled to appraisal. In the absence of such a determination
or assessment, each party bears its own expenses.

An RTO Stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Time, have any rights in respect of
shares subject to such demand except for appraisal rights and the right to
receive payment of dividends or other distributions (if any) on such shares
payable to RTO Stockholders of record as of a date prior to the Effective Time.

At any time within 60 days after the Effective Time, an RTO Stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms of the Merger; after this period, the RTO Stockholder may withdraw his
or her demand for appraisal only with the consent of Alrenco. If no petition for
appraisal is filed with the Court within 120 days after the Effective Time, the
RTO Stockholder's rights to appraisal shall cease. Inasmuch as Alrenco has no
obligation to file such a petition, an RTO Stockholder who desires such a
petition to be filed is advised to file it on a timely basis. No petition timely
filed in the Court demanding appraisal may be dismissed as to an RTO Stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.

The provisions of Section 262 are technical in nature and complex. RTO
Stockholders desiring to exercise appraisal rights and obtain appraisal of the
fair value of their RTO Common Stock should consult counsel, since failure to
comply strictly with the provisions of Section 262 may defeat their appraisal
rights.

THE STOCK OPTION AGREEMENTS

The following is a brief summary of the material terms of the Stock Option
Agreements, copies of which are attached as Annexes B and C and which are
incorporated herein by reference. The terms of the Stock Option Agreements are
identical in all material respects other than with respect to the shares which
may be purchased pursuant thereto and the exercise prices. The following summary
generally refers to the party granting the option as the issuer and the party to
whom the option was granted as the grantee. Such summary is qualified in its
entirety by reference to the Stock Option Agreements.

GENERAL

Pursuant to mutual Stock Option Agreements entered into concurrently with
the Merger Agreement (the "Stock Option Agreements"), Alrenco and RTO have
granted to each other an irrevocable option to purchase up to approximately 9.9%
of the other's total number of shares of Common Stock outstanding on the date of
the Stock Option Agreements, subject to adjustments provided therein. Alrenco
and RTO have the right, under certain circumstances, to purchase, respectively,
up to (i) 11,943 shares of RTO Common Stock, and (ii) 600,000 shares of Alrenco
Common Stock. The option exercise price per share for RTO Common Stock is
$1,400. The option exercise price per share for Alrenco Common Stock is $15.50.
The exercise price is payable in cash.

EXERCISE OF THE OPTIONS

The options are exercisable only upon the occurrence of one of the
following events (each a "Purchase Event"):

(i) any person (other than the grantee or any of its subsidiaries)
shall have commenced (as defined in Rule 14d-2 of the Exchange Act), or
shall have filed a registration statement under the Securities Act with
respect to, a tender offer or exchange offer for shares of the issuer's
common stock if, upon consummation of such offer, such person would own or
control 10% or more of the outstanding common stock of the issuer;

(ii) the issuer or any of its subsidiaries (without the consent of the
grantee or except as permitted by the Merger Agreement) shall have
authorized, recommended or proposed (or announced an intention to
authorize, recommend or propose), or shall have entered into an agreement
with any person (other than

44
<PAGE> 61

the grantee or any of its subsidiaries), to (A) effect a merger,
consolidation or similar transaction involving the issuer or any of its
material subsidiaries, (B) sell, lease or otherwise dispose of 15% or more
of the consolidated assets of the issuer and its subsidiaries, or (C)
issue, sell or otherwise dispose of (including by merger, consolidation,
share exchange or similar transaction) securities representing 10% or more
of the voting power of the issuer or any of its significant subsidiaries
(any of the foregoing, an "Acquisition Transaction");

(iii) any person (other than the grantee or its subsidiaries and other
than the issuer and its subsidiaries in a fiduciary capacity) shall have
acquired beneficial ownership (as defined in the Exchange Act) or the right
to acquire beneficial ownership of, or any "group" (as defined in the
Exchange Act) shall have been formed which beneficially owns or has the
right to acquire beneficial ownership of, 10% or more of the outstanding
common stock of the issuer; or

(iv) the holders of common stock of the issuer shall not have approved
and adopted the Merger Agreement at the meeting of such shareholders held
for the purpose of voting on the Merger Agreement, such meeting shall not
have been held or shall have been canceled prior to termination of the
Merger Agreement or the Board of the issuer shall have withdrawn or
modified in a manner adverse to the grantee the recommendation of such
Board with respect to the Merger Agreement, in each case after any person
(other than grantee or any subsidiary of the grantee) shall have publicly
announced a proposal, or publicly disclosed an intention to make a
proposal, to engage in an Acquisition Transaction.

Each option expires upon the earliest to occur of (i) the Effective Time,
(ii) 12 months after the first occurrence of a Purchase Event, and (iii)
termination of the Merger Agreement prior to the occurrence of a Purchase Event.

ADJUSTMENT OF NUMBER OF SHARES SUBJECT TO OPTIONS

The number and type of securities subject to the options and the purchase
price of the shares will be adjusted for any change in the issuer's
capitalization such that the grantee will receive (upon exercise of the option)
the same number and type of securities as if the option had been exercised
immediately prior to the change in the issuer's common stock (or the record date
therefor). The number of shares of common stock subject to each option will also
be adjusted in the event the issuer issues additional shares of common stock,
such that the number of shares of common stock subject to the option represents
9.9% of the issuer's common stock then issued and outstanding, without giving
effect to shares subject to or issued pursuant to the option.

In the event the issuer enters into any agreement to (i) merge or
consolidate with any person other than the grantee or one of its subsidiaries
such that the issuer is not the surviving corporation, such that the issuer's
common stock is exchanged for any other securities or other property or such
that the outstanding shares of the issuer's common stock prior to such merger or
consolidation represent less than 50% of the issuer's common stock following
such merger or consolidation, or (ii) sell or otherwise transfer all or
substantially all of its assets to a person other than the grantee or one of its
subsidiaries, the agreement governing the transaction must provide that, upon
consummation of the transaction, the option will be converted into or exchanged
for an equivalent option to purchase securities of either the acquiring person,
a person that controls the acquiring person or the issuer (if the issuer is the
surviving entity), in all cases at the option of the grantee.

REPURCHASE RIGHTS

The grantee has the right to require the issuer to repurchase the option
(unless previously expired) and any shares acquired by exercise of the option
(but, in the case of paragraph (ii) below, only those shares or that portion of
the option for which the regulatory approval was not obtained) in the following
circumstances:

(i) upon the first occurrence of and for twelve months following a
Purchase Event (provided that in the case of a Purchase Event described in
paragraph (i) of the section above entitled "Exercise of Options," the
Purchase Event must be followed by the holders of the issuer's common stock
not approving the Merger Agreement at a meeting called for the purpose of
voting on the Merger Agreement or the cancellation of or failure to hold a
meeting called for that purpose prior to the termination of the Merger
Agreement), and

45
<PAGE> 62

(ii) for 30 business days following (A) the grantee's receipt of
notice that a regulatory authority would not issue or grant an approval
necessary to the exercise of the option, or (B) the failure, due to the
failure to obtain necessary regulatory approval, of the closing of the
purchase of shares pursuant to the option to occur within 18 months of the
date upon which the grantee notified the issuer that it intended to
exercise the option.

Such repurchase will be at an aggregate price equal to the sum of (I) the
aggregate exercise price paid by grantee for any shares of the issuer's common
stock acquired pursuant to the option with respect to which grantee then has
beneficial ownership; (II) the excess, if any, of (x) the Applicable Price (as
defined below) for each share of the issuer's common stock over (y) the exercise
price (subject to adjustment), multiplied by the number of shares of the
issuer's common stock with respect to which the option has not been exercised;
and (III) the excess, if any, of the Applicable Price over the exercise price
(subject to adjustment) paid by grantee for each share of the issuer's common
stock with respect to which the option has been exercised and with respect to
which grantee then has beneficial ownership, multiplied by the number of such
shares. For purposes of the Stock Option Agreements, "Applicable Price" means
the highest of (x) the highest price at which a tender offer or exchange offer
has been made for shares of the issuer's common stock, (y) the price per share
paid by a third party for shares of the issuer's common stock in connection with
a merger or other business combination and (z) the highest closing sale price
per share quoted on the New York Stock Exchange (or, if the issuer's common
stock is not quoted on the New York Stock Exchange, the highest bid price per
share as quoted on the National Association of Securities Dealers Automated
Quotations System or, if the issuer's common stock is not quoted thereon, on the
principal trading market on which such shares are traded as reported by a
recognized source) during the 60 business days prior to the grantee's exercise
of its right to require the issuer to repurchase the option or the shares
acquired by exercise thereof.

REGISTRATION RIGHTS; LISTING

The grantee has the right within three years of the first exercise of the
option to require the issuer to prepare and file up to two registration
statements under the Securities Act for the shares issued or issuable upon
exercise of the option and to use its best efforts to qualify the shares under
any applicable state securities laws if necessary for the grantee to be able to
sell the shares. If any shares of the issuer's common stock (or other securities
issuable upon exercise of the option) are then listed on the New York Stock
Exchange or the National Association of Securities Dealers Automated Quotation
System, the grantee has the right to require the issuer to file an application
and use its best efforts to list on the New York Stock Exchange or the National
Association of Securities Dealers Automated Quotation System the common stock
(or other securities) issuable upon exercise of the option.

EFFECT OF THE STOCK OPTION AGREEMENTS

The Stock Option Agreements are intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement. Consequently, certain aspects of the Stock Option Agreements may have
the effect of discouraging persons who might now or prior to the Effective Time
be interested in acquiring all of or a significant interest in, or otherwise
effecting a business combination with, Alrenco or RTO from considering or
proposing such a transaction, even if such persons were prepared to offer to pay
consideration to Alrenco Shareholders or RTO Stockholders, as the case may be,
which had a higher value than the shares of Alrenco Common Stock to be received
per share of RTO Common Stock or to be retained by holders of Alrenco Common
Stock, as the case may be, pursuant to the Merger Agreement.

46
<PAGE> 63

THE STOCKHOLDER VOTING AGREEMENTS

The following is a brief summary of the material terms of the Stockholder
Voting Agreements, copies of the forms of which are attached as Annexes D and E
and which are incorporated herein by reference. Such summary is qualified in its
entirety by reference to the Stockholder Voting Agreements.

GENERAL

Certain Alrenco Shareholders, including Michael D. Walts, Chairman of the
Board, President and a director of Alrenco, have each entered into a Stockholder
Voting Agreement with RTO, and certain RTO Stockholders, including GDJ, Jr.
Investments, L.P., of which George D. Johnson, Jr., Chairman of the Board and a
director of RTO is general partner, John S. Rainey, a director of RTO, and
certain of RTO's affiliates, have each entered into a Stockholder Voting
Agreement with Alrenco (collectively, the "Stockholder Voting Agreements"). The
Stockholder Voting Agreements provide that such Alrenco Shareholders and such
RTO Stockholders shall vote their shares in favor of approval and adoption of
the Merger Agreement, the terms thereof and each of the other transactions
contemplated by the Merger Agreement, and against any action or agreement (other
than the Merger Agreement or the transactions contemplated thereby) that would
impede, interfere with, delay, postpone or attempt to discourage the Merger. The
Stockholder Voting Agreements also provide, among other things, that such
persons shall not sell, transfer, assign, pledge or otherwise dispose of or
hypothecate any of their shares without the prior written consent of the other
party subject to certain limited exceptions. In addition, Mr. Johnson's
Stockholder Voting Agreement provides that he shall use his reasonable best
efforts to cause all other RTO Stockholders to vote in favor of approval and
adoption of the Merger Agreement, the terms thereof and each of the other
transactions contemplated by the Merger Agreement.

The 2,442,142 shares of Alrenco Common Stock subject to the Stockholder
Voting Agreements represent approximately 40.1% of the outstanding shares of
Alrenco Common Stock as of January 13, 1998. The 47,948 shares of RTO Common
Stock subject to the Stockholder Voting Agreements represent approximately 39.6%
of the outstanding shares of RTO Common Stock as of January 13, 1998.

EFFECT OF THE STOCKHOLDER VOTING AGREEMENTS

The Stockholder Voting Agreements are intended to increase the likelihood
that the Merger will be consummated in accordance with the terms of the Merger
Agreement. Consequently, certain aspects of the Stockholder Voting Agreements
may have the effect of discouraging persons who might now or prior to the
Effective Time be interested in acquiring all of or a significant interest in,
or otherwise effecting a business combination with, Alrenco or RTO from
considering or proposing such a transaction, even if such persons were prepared
to offer to pay consideration to Alrenco Shareholders or RTO Stockholders, as
the case may be, which had a higher value than the shares of Alrenco Common
Stock to be received per share of RTO Common Stock or to be retained by holders
of Alrenco Common Stock, as the case may be, pursuant to the Merger Agreement.

47
<PAGE> 64

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ALRENCO

The following discussion and analysis should be read in conjunction with
the information set forth under "Summary -- Selected Historical Financial Data
of Alrenco," and the financial statements of Alrenco and the accompanying notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus.

GENERAL

Alrenco grew primarily through the opening of new stores from its inception
in 1980 through 1990. During the period from 1990 to 1993, management focused
its efforts on improving the performance of Alrenco's stores and, as a result,
Alrenco increased its revenue from $16.3 million to $22.3 million. During the
same period, operating profit increased from $908,000 to $2.0 million and net
earnings increased from $119,000 to $1.0 million.

In July 1994, Alrenco acquired 18 rental-purchase stores located in three
states (the "1994 Acquisition"). The purchase price for the stores was $3.5
million, all of which was borrowed under Alrenco's bank loan agreement (the
"Loan Agreement"). Of the purchase price, $180,000 was allocated to the value of
rental contracts and $497,000 was allocated to other intangible assets.

In September 1995, Alrenco acquired 15 stores located in five states (the
"1995 Acquisition"). The purchase price for the stores was $5.9 million, all of
which was borrowed under the Loan Agreement. Of the purchase price, $210,000 was
allocated to the value of rental contracts and $3.7 million was allocated to
other intangible assets.

In March 1996, Alrenco acquired 14 stores located in four states. The
purchase price for the stores was $6.5 million, of which $3.8 million came from
Alrenco's cash and $2.7 million was borrowed under the Loan Agreement. At the
time of acquisition, the stores were generating approximately $850,000 in
aggregate average monthly revenues or approximately $60,000 per store,
approximately the same level as Alrenco's core stores.

In August 1996, Alrenco acquired 14 stores located in one state from
Network Rental, Inc., representing the entire operations of Network Rental, Inc.
The purchase price for the stores was $5.9 million, all of which was borrowed
under the Loan Agreement. At the time of acquisition, the stores were generating
approximately $595,000 in aggregate average monthly revenues or approximately
$40,000 per store.

In addition, in 1996, Alrenco acquired 47 stores in 21 separate
transactions for an aggregate purchase price of $12.9 million. At the times of
acquisition, these stores were generating approximately $1.4 million in
aggregate average monthly revenues or approximately $31,000 per store. Of the
aggregate purchase price, $476,000 was allocated to the value of rental
contracts and $7.2 million was allocated to other intangible assets. These
stores are positioned in, or are contiguous to, a number of Alrenco's existing
market areas. The 1996 acquisitions mentioned above are collectively referred to
as the "1996 Acquisitions."

In January 1997, Alrenco acquired 28 stores located in four states from
Fastway, Inc., representing the entire operations of Fastway, Inc. The purchase
price for the stores was $11.9 million, of which $6.2 million came from
Alrenco's cash and $5.7 million was borrowed under the Loan Agreement. At the
time of acquisition, the stores were generating approximately $994,000 in
aggregate average monthly revenues or approximately $36,000 per store. Of the
purchase price, $311,000 was allocated to the value of rental contracts, and
$7.4 million was allocated to other intangible assets.

In February 1997, Alrenco acquired nine stores for cash of approximately
$6.5 million. In addition, during the eleven-month period ended November 30,
1997, Alrenco acquired 17 rental-purchase stores and 13 rental portfolios in 17
unrelated transactions for an aggregate purchase price of $7.1 million. The 1997
acquisitions mentioned above are collectively referred to as the "1997
Acquisitions."

Due to the significant impact of these acquisitions on Alrenco's operations
and the increase in Alrenco's management personnel to support these and future
acquisitions, Alrenco's historical results of operations and period-to-period
comparisons may not be meaningful or indicative of future results. All
acquisitions were

48
<PAGE> 65

accounted for as purchase transactions. The financial statements therefore
include the operations of the acquired entities from the date of acquisition,
and the addition of revenues, expenses and other components associated with the
acquisitions are the principal reasons for the significant differences when
comparing results of operations to prior periods.

CERTAIN COMPONENTS OF NET EARNINGS

Revenue. Alrenco collects non-refundable rental payments and fees in
advance, generally on a weekly basis. This revenue is recognized over the rental
term. Rental-purchase agreements include a discounted early purchase option.
Amounts received upon sales of merchandise pursuant to these options and upon
the sale of used merchandise are recognized as revenue when the merchandise is
sold.

Depreciation of Rental Merchandise. Rental merchandise acquired prior to
January 1, 1995 was being depreciated by the straight-line method over various
estimated useful lives, primarily 21 months. For rental merchandise acquired
after January 1, 1995 Alrenco adopted the income forecasting method of
depreciation. Management believes income forecasting is the most widely used
method of depreciation in the rental-purchase industry, because it provides a
more systematic and rational allocation of the cost of rental merchandise to
operations as its useful life expires. This depreciation method is intended to
match as closely as practicable the recognition of depreciation expense with the
consumption of the rental merchandise. The consumption of rental merchandise
occurs during periods of rental and directly coincides with the receipt of
rental revenue over the rental-purchase agreement period, generally 18 to 24
months. Under the income forecasting method, merchandise held for rent is not
depreciated, and merchandise on rent is depreciated in the proportion of rents
received to total rents provided in the rental contract, which is an
activity-based method similar to the units of production method. The effect of
the change in accounting method was to increase net earnings by approximately
$470,000 for the year ended December 31, 1995, primarily because of the
treatment of merchandise held for rent under the new method. For additional
information regarding Alrenco's method of depreciating rental-purchase
merchandise for financial accounting purposes, see Note A of Notes to Financial
Statements of Alrenco.

Other Direct Store Expenses. Other direct store expenses include all
salaries, wages and commissions paid to store-level employees, including any
related benefits and taxes, as well as store-level general and administrative
expenses and delivery expenses, advertising, occupancy, non-rental depreciation
and other operating expenses.

General and Administrative Expenses. General and administrative expenses
include all overhead expenses related to Alrenco's corporate offices (including
expenses of field supervisors), such as salaries, taxes and benefits, occupancy,
training and travel expenses.

Amortization of Intangibles. Amortization of intangibles represents the
amortization of excess of purchase price over the fair market value of acquired
assets. See "-- General." Intangible assets generally include covenants not to
compete, intangible value of customer contracts and goodwill with writeoff
periods ranging from 15 months to 240 months.

Income Tax Expense. Income tax expense includes the combined effect of all
federal, state and local income taxes imposed upon Alrenco by various taxing
jurisdictions.

49
<PAGE> 66

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
Statement of Earnings data as a percentage of revenue.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rentals and fees.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Direct store expenses
Depreciation of rental merchandise.............. 26.9 24.2 21.9 21.8 23.7
Other direct store expenses..................... 51.7 55.7 57.1 56.1 55.9
--------- --------- --------- --------- ---------
78.6 79.9 79.0 77.9 79.6
General and administrative expenses............... 13.2 11.5 8.8 8.8 8.3
Amortization of intangibles....................... 0.4 0.8 1.8 1.4 3.2
--------- --------- --------- --------- ---------
Operating profit.................................. 7.8 7.8 10.4 11.9 8.9
Interest income................................... -- -- (0.2) -- --
Interest expense.................................. 1.7 2.4 1.0 1.4 1.1
Non-operating income.............................. -- (0.3) -- -- (1.2)
--------- --------- --------- --------- ---------
Earnings before income taxes...................... 6.1 5.7 9.6 10.5 9.0
Income tax expense................................ 2.7 2.3 3.9 4.3 3.6
--------- --------- --------- --------- ---------
Net earnings...................................... 3.4% 3.4% 5.7% 6.2% 5.4%
========= ========= ========= ========= =========
</TABLE>

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

Revenue. Revenue increased $32.0 million, or 72.4%, to $76.0 million for
the nine months ended September 30, 1997 from $44.2 million for the comparable
period in 1996. Revenue growth from same store operations accounted for
$581,300, or 1.8% of the increase for the period, and revenue from stores
acquired subsequent to December 31, 1996 accounted for $31.4 million or 98.2% of
the increase.

Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased $8.5 million, or 88.0%, to $18.1 million for the nine months ended
September 30, 1997 from $9.6 million for the comparable period in 1996. As a
percentage of revenue, depreciation of rental merchandise increased to 23.7%
from 21.8% for the nine months ended September 30, 1996, primarily as a result
of discounted terms on second and third quarter rentals.

Other Direct Store Expenses. Other direct store expenses increased $17.8
million, or 71.8%, to $42.6 million for the nine months ended September 30, 1997
from $24.8 million for the comparable period in 1996. As a percentage of
revenue, other direct store expenses decreased to 55.9% from 56.1% for the nine
months ended September 30, 1996. This percentage decrease was primarily
attributable to increased revenue from the stores acquired in the 1996 and 1997
Acquisitions.

General and Administrative Expenses. General and administrative expenses
increased $2.4 million, or 61.4%, to $6.3 million for the nine months ended
September 30, 1997 from $3.9 million for the nine months ended September 30,
1996. As a percentage of revenue, general and administrative expenses decreased
to 8.3% from 8.8% for the comparable period in 1996. This percentage decrease
was due primarily to advertising and vendor co-op reimbursement received in the
third quarter.

Amortization of Intangibles. Amortization of intangibles increased $1.8
million, or 289.3%, to $2.4 million for the nine months ended September 30,
1997, from $613,000 for the nine months ended September 30, 1996. This increase
was primarily attributable to intangible assets created by the 1996 and 1997
Acquisitions. As a percentage of revenue, amortization of intangibles increased
to 3.2% for the nine months ended

50
<PAGE> 67

September 30, 1997 from 1.4% for the nine months ended September 30, 1996. A
portion of intangibles is amortized over a 15 month period from the date of
acquisition. As intangibles created by the 1996 and 1997 Acquisitions become
fully amortized, amortization expense for these acquisitions will
correspondingly decrease.

Gain on Sale of Assets. In August 1997, the Company sold eight marginally
performing stores in two separate transactions for an aggregate purchase price
of $3.0 million in cash. Net gain on these transactions was $950,400.

Net Earnings. Net earnings increased $1.4 million, or 50.1%, to $4.1
million for the nine months ended September 30, 1997, from $2.7 million for the
comparable period in 1996. As a percentage of revenue, net earnings decreased to
5.4% from 6.2% for the comparable period in 1996. This percentage decrease was
primarily attributable to higher amortization of intangibles.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995

Revenue. Revenue increased $26.3 million, or 69.9%, to $63.9 million for
the year ended December 31, 1996, from $37.6 million in 1995. Revenue from same
store operations accounted for $1.3 million, or 4.9% of the increase, and
revenue from acquired stores accounted for $25.0 million, or 95.1% of the
increase for the year. Management believes that the increase in revenue for the
period was primarily attributable to improved performance of the stores acquired
in the 1994 and 1995 Acquisitions, and an increase in the number of items on
rent and in revenue earned per item on rent, improved collections and the
addition of revenue from operations of the stores acquired in 1996.

Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased $4.9 million, or 53.5%, to $14.0 million for the year ended December
31, 1996, from $9.1 million in 1995. As a percentage of revenue, depreciation of
rental merchandise decreased to 21.9% for the year ended December 31, 1996, from
24.2% in 1995, primarily as a continuing result of the change in Alrenco's
depreciation method for new inventory additions.

Other Direct Store Expenses. Other direct store expenses increased $15.6
million, or 74.3%, to $36.5 million for the year ended December 31, 1996, from
$20.9 million in 1995. As a percentage of revenue, other direct store expenses
increased to 57.1% for the year ended December 31, 1996, from 55.7% in 1995.
This increase was primarily attributable to the fact that the stores acquired in
the 1996 Acquisitions operated at lower average revenue per store and therefore
had higher operating costs as a percentage of revenue than Alrenco's existing
stores.

General and Administrative Expenses. General and administrative expenses
increased $1.3 million, or 28.8%, to $5.6 million for the year ended December
31, 1996, from $4.3 million in 1995. This increase was primarily attributable to
additional corporate and administrative personnel hired to support the 1996
Acquisitions and future store acquisitions. As a percentage of revenue, general
and administrative expenses decreased to 8.8% for the year ended December 31,
1996, from 11.5% in 1995, primarily as a result of increased revenue from stores
acquired in 1996 and greater operating efficiencies achieved through higher
rental revenue.

Amortization of Intangibles. Amortization of intangibles increased
$856,000, or 300.4%, to $1.1 million for the year ended December 31, 1996, from
$285,000 in 1995, primarily as a result of intangible assets created by the 1995
and 1996 Acquisitions. As a percentage of revenue, amortization of intangibles
increased to 1.8% for the year ended December 31, 1996, from 0.8% in 1995,
primarily as a result of intangible assets created in the 1995 and 1996
Acquisitions.

Interest Income. Interest income of $134,000 was provided in the year
ended December 31, 1996 by investing the cash proceeds of the public offerings
of Alrenco Common Stock until the proceeds could be used for acquisitions.

Interest Expense. Interest expense decreased $242,000, or 27.0%, to
$652,000 for the year ended December 31, 1996, from $894,000 in 1995. As a
percentage of revenue, interest expense decreased to 1.0% for the year ended
December 31, 1996, from 2.4% in 1995, primarily as a result of the capital
raised by the

51
<PAGE> 68

public offerings of Alrenco Common Stock. A portion of the net proceeds of such
offerings was used to repay all then outstanding indebtedness under the Loan
Agreement.

Net Earnings. Net earnings increased $2.4 million, or 189.2%, to $3.7
million for the year ended December 31, 1996, from $1.3 million in 1995. As a
percentage of revenue, net earnings increased to 5.7% for the year ended
December 31, 1996, from 3.4% in 1995, primarily as a result of increased
revenues and operating margins in 1996 for the stores acquired in the 1994 and
1995 Acquisitions.

COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994

Revenue. Revenue increased $9.8 million, or 35.2%, to $37.6 million for
the year ended December 31, 1995, from $27.8 million in 1994. Revenue from same
store operations accounted for $779,300, or 8.5% of the increase, and revenue
from stores acquired in the 1994 and 1995 Acquisitions accounted for $8.4
million, or 91.5% of the increase. Management believes that the increase in
revenue was primarily attributable to improved performance of the stores
acquired in the 1994 Acquisition, an increase in the number of items on rent and
in revenue earned per item on rent, improved collections and the addition of
revenue from four months of operations of the stores acquired in the 1995
Acquisition. The increase in revenue earned per item on rent was primarily
attributable to the purchase and subsequent rental of higher priced merchandise.

Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased $1.6 million, or 21.6%, to $9.1 million for the year ended December
31, 1995, from $7.5 in 1994. As a percentage of revenue, depreciation of rental
merchandise decreased to 24.2% for the year ended December 31, 1995, from 26.9%
in 1994, primarily as a result of the change in Alrenco's depreciation method
for new inventory additions and increased revenue per item. The effect of the
change in accounting method was to increase net earnings by $470,000 for the
year ended December 31, 1995, primarily because of the treatment of merchandise
held for rent under the new method. See "-- Certain Components of Net Earnings."

Other Direct Store Expenses. Other direct store expenses increased $6.5
million, or 45.5%, to $20.9 million for the year ended December 31, 1995, from
$14.4 million in 1994. As a percentage of revenue, other expenses increased to
55.7% for the year ended December 31, 1995, from 51.7% in 1994. This increase
was primarily attributable to the fact that the stores acquired in the 1994
Acquisition operated at lower average revenue per store and therefore had higher
operating costs as a percentage of revenue than Alrenco's existing stores.

General and Administrative Expenses. General and administrative expenses
increased $660,900, or 18.0%, to $4.3 million for the year ended December 31,
1995, from $3.7 million in 1994. This increase was primarily attributable to
additional corporate and administrative personnel to support the 1994 and 1995
Acquisitions and future store acquisitions. As a percentage of revenue, general
and administrative expenses decreased to 11.5% for the year ended December 31,
1995, from 13.2% in 1994, primarily as a result of increased revenue from stores
acquired in 1994 and greater operating efficiencies achieved through higher
rental revenue.

Amortization of Intangibles. Amortization of intangibles increased
$188,000 to $285,000 for the year ended December 31, 1995, primarily as a result
of intangible assets created by the 1994 and 1995 Acquisitions.

Interest Expense. Interest expense increased $433,000, or 93.9%, to
$894,000 for the year ended December 31, 1995, from $461,000 in 1994. As a
percentage of revenue, interest expense increased to 2.4% for the year ended
December 31, 1995, from 1.7% in 1994, primarily as a result of the debt incurred
in connection with the 1994 and 1995 Acquisitions.

Non-Operating Income. Non-operating income of $100,000 was provided in the
year ended December 31, 1995 by the gain on sale of securities previously held
by Alrenco.

Net Earnings. Net earnings increased $305,000, or 31.7%, to $1.3 million
for the year ended December 31, 1995, from $962,000 in 1994. As a percentage of
revenue, net earnings decreased to 3.4% for the year ended December 31, 1995,
from 3.5% for the 1994 comparable period, primarily as a result of increased
interest expense and lower operating margins for the stores acquired in the 1994
Acquisition.

52
<PAGE> 69

LIQUIDITY AND CAPITAL RESOURCES

Alrenco's primary requirements for capital (other than those related to
acquisitions) consist of purchasing additional rental merchandise and replacing
rental merchandise which has been sold or is no longer suitable for rent. During
the years ended December 31, 1996 and 1995, Alrenco purchased additional rental
merchandise for aggregate amounts of approximately $22.1 million and $10.9
million, respectively. During the nine months ended September 30, 1997 and 1996,
Alrenco purchased rental merchandise for aggregate amounts of approximately
$21.6 million and $15.3 million, respectively. In addition, during the nine
months ended September 30, 1997, Alrenco acquired 52 stores and 13 rental
account portfolios for an aggregate cash purchase price of $25.4 million and
sold eight stores for $3.0 million cash.

Historically, Alrenco's growth has been financed through internally
generated working capital, borrowings under the Loan Agreement and proceeds from
two public offerings of Alrenco Common Stock.

For the year ended December 31, 1996, net cash used in operating activities
was $2.0 million, consisting primarily of purchases of rental merchandise for
existing and acquired stores. Net cash used in investing activities was $26.9
million, consisting primarily of funds used to acquire businesses. Net cash
provided by financing activities was $36.4 million, which included the proceeds
of the two public stock offerings partially offset by repayments on the line of
credit.

For the nine months ended September 30, 1997, net cash provided by
operating activities increased $5.1 million to $4.7 million from $385,000 cash
used in the corresponding period in 1996. This increase was primarily due to the
additional cash generated from the operations of the stores acquired in the 1995
and 1996 Acquisitions, partially offset by increased purchases of rental
merchandise for stores acquired in the 1996 and 1997 Acquisitions.

On January 23, 1996, Alrenco completed an initial public offering of
1,800,000 shares of Alrenco Common Stock which included 700,000 shares by a
selling shareholder. Proceeds of the sale to Alrenco net of underwriters
discount but before expenses amounted to $14,322,000. On February 26, 1996 the
underwriters of the offering exercised part of their over-allotment option for
219,200 shares. Net proceeds to Alrenco from this transaction amounted to
$2,853,984. A portion of the net proceeds of the public offering was used to
repay all outstanding indebtedness under the Loan Agreement.

On September 18, 1996, Alrenco completed a public offering of 1,500,000
shares of Alrenco Common Stock. Proceeds of the sale to Alrenco net of
underwriters discount but before expenses amounted to $30,315,000. On October
17, 1996 the underwriters of the offering exercised part of their over-allotment
option for 149,300 shares. Net proceeds to Alrenco from this transaction
amounted to $3,017,353. A portion of the net proceeds of the public offering was
used to repay all outstanding indebtedness under the Loan Agreement.

Alrenco has a debt facility with a bank which provides for a maximum debt
level of $30.0 million and carries a three-year term with interest rates of
prime rate minus 1/2%. Under the terms of the agreement, Alrenco is required to
pay 0.125% per annum on the unused portion of the facility. As of November 30,
1997, Alrenco had $22.1 million in outstanding loans under the agreement.

DEPRECIATION ISSUES; INCOME TAX CONSEQUENCES

The Internal Revenue Service ("IRS") published a revenue ruling in July
1995 providing that a five-year Modified Accelerated Cost Recovery System
("MACRS") is the appropriate depreciation method for rental-purchase
merchandise. In August, 1997, federal tax legislation was enacted that included
a provision requiring use of three-year MACRS as the appropriate depreciation
method for rental-purchase merchandise. Prior to 1996, Alrenco used the income
forecasting method of depreciation for tax accounting, and management of Alrenco
believes that this method has been widely used throughout the rental-purchase
industry prior to the publication of either of these rulings. The conversion to
three-year MACRS has required that the cost of rental merchandise be depreciated
over a three-year period while revenue is recognized over the contract term,
typically 18 to 24 months. Management of Alrenco believes that conversion to
three-year MACRS will not negatively impact Alrenco's financial condition or
results of operations. The potential effect of converting to

53
<PAGE> 70

three-year MACRS cannot be accurately estimated, but management of Alrenco
believes that the conversion will potentially create tax benefits. Alrenco is
currently being audited by the IRS and may be required to pay certain additional
taxes and interest and penalties thereon as a result of its use of the income
forecasting method in prior years. Pending the resolution of this audit, Alrenco
has converted to the MACRS method of depreciation for tax accounting purposes
only. Management of Alrenco believes that any such additional taxes and interest
and penalties thereon, if incurred, will not have a material adverse effect on
Alrenco's financial condition, liquidity or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully diluted
earnings per share together with disclosure of how the per share amounts were
computed. Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The adoption of
this new pronouncement will not have a material impact on the disclosure of
earnings per share in the financial statements.

INFLATION AND SEASONALITY

During the nine months ended September 30, 1997, and the years ended
December 31, 1996 and 1995, the cost of rental merchandise, occupancy expenses
and salaries and wages have increased. The increases have not had a significant
effect on Alrenco's results of operations because Alrenco has been able to
charge higher rental rates for its merchandise. Alrenco's business is relatively
seasonal, with a greater percentage of rentals occurring during the fourth
quarter of each year.

54
<PAGE> 71

BUSINESS OF ALRENCO

GENERAL

Alrenco is a growing operator of rental-purchase stores that currently has
165 stores in 18 states primarily in the midwestern and southern United States.
Alrenco's stores offer quality, brand-name consumer merchandise principally
consisting of consumer electronics, appliances, furniture, jewelry and home
furnishing accessories. Merchandise is made available to individuals under
flexible rental-purchase agreements that allow the customer to use the
merchandise immediately and obtain ownership of the merchandise at the
conclusion of the rental period.

Alrenco's customers are typically low to middle income consumers with
limited or no access to traditional credit sources such as bank financing,
installment credit and credit cards. Alrenco's customers also include persons
who desire only temporary rental of a product.

RENTAL-PURCHASE INDUSTRY

Based on APRO estimates, in 1996, the rental-purchase industry had gross
revenues of $4.1 billion and rented 5.8 million products to 2.8 million
households through 7,500 stores.

Alrenco's market includes customers with income at or below the median
family income level in each of its individual markets. According to U.S. Census
Bureau data, the median family income in 1990 (the latest date for which such
information is available) was approximately $35,000. Approximately 57.6% of all
households in the United States have incomes at or below this level.

The rental-purchase industry is highly fragmented. According to industry
estimates, the 10 largest companies in the industry own 48.4% of the total
stores. Management believes, based on APRO information, that the majority of
dealers operate fewer than 20 stores. See "-- Competition."

The rental-purchase industry is experiencing consolidation primarily
because larger, multi-unit operators have significant competitive advantages
compared to their smaller competitors. Rental-purchase operators typically have
been financed by a small number of commercial lenders who specialized in the
industry. In recent years, many of the lenders have withdrawn from the market or
imposed more restrictive lending standards. These conditions have reduced many
smaller operators' access to the capital necessary to maintain and grow their
business. Larger operators enjoy greater purchasing power that enables them to
provide more competitively priced merchandise. Larger operators typically are
also able to operate more efficiently than smaller operators because of
management information systems and economies of scale. Many smaller competitors
lack the managerial resources necessary to operate larger rental-purchase
operations efficiently across multiple locations. Management believes that these
factors will continue to promote the trend toward consolidation and present an
opportunity for well-capitalized operators to acquire additional stores on
favorable terms.

MERCHANDISING

Each of Alrenco's stores offers an assortment of quality, brand-name
merchandise, including consumer electronics, appliances, furniture, jewelry and
home furnishing accessories. Alrenco displays a wide variety of styles and
models of merchandise in its stores. Merchandise is displayed in showroom
settings featuring attractive, professional displays and signage. Store
interiors feature bright colors and neon in an atmosphere intended to make
customers feel comfortable. Corporate and regional management closely monitors
adherence to Alrenco's standards for cleanliness and quality of merchandise in
all stores.

Management regularly evaluates and modifies its product offerings to
reflect changing local demand. Alrenco frequently test markets new merchandise
items to expand the total number of items on rent and increase the dollar value
of its outstanding contracts. As a percentage of total units on rent at December
31, 1997, consumer electronics accounted for 34.7%; appliances accounted for
24.0%; furniture accounted for 25.1%; and jewelry and home furnishing
accessories accounted for 16.2%. Customers may choose either new or previously
rented merchandise. Previously rented merchandise is marketed at the same rental
rate as new

55
<PAGE> 72

merchandise, but requires fewer consecutive rental payments to obtain ownership.
On December 31, 1997, Alrenco's average rental rate was $13.69 per week.
Alrenco, like the rental-purchase industry in general, requires higher aggregate
payments than are usually charged under installment purchase or credit plans
that do not offer the same array of payment options or services or that require
a continuing financial obligation.

STORE OPERATIONS

Alrenco currently operates 165 stores in 18 states. The following table
sets forth the number of store locations in each state in which Alrenco
presently operates.

<TABLE>
<CAPTION>
NUMBER
STATE OF STORES
----- ---------
<S> <C>
Alabama............................ 12
Arizona............................ 4
Arkansas........................... 19
Florida............................ 19
Georgia............................ 16
Indiana............................ 12
Kansas............................. 1
Kentucky........................... 14
Louisiana.......................... 7
</TABLE>

<TABLE>
<CAPTION>
NUMBER
STATE OF STORES
----- ---------
<S> <C>
Mississippi........................ 6
Missouri........................... 4
North Carolina..................... 1
Ohio............................... 15
South Carolina..................... 1
Tennessee.......................... 6
Texas.............................. 11
Virginia........................... 11
West Virginia...................... 6
</TABLE>

The average store contains approximately 3,800 square feet. Approximately
70% of each store's space is generally used for showroom space and 30% for
offices and storage. Each regional manager maintains an office in a store within
his or her region. Management believes that suitable store space is available
for lease in each market where Alrenco currently operates or plans to operate.
Alrenco does not operate any distribution warehouses.

Management and Supervision. Alrenco's 165 stores are presently organized
into three divisions. A Division Vice President directs up to eight regional
managers who are responsible for five to seven stores each. Division Vice
Presidents are experienced executives who report directly to the Chief Operating
Officer. Regional managers reside in the regions that they supervise and monitor
individual store performance and inventory on a daily basis.

Each store is typically staffed with a manager, an assistant manager, three
account managers and a showroom sales assistant. Individual store managers are
responsible for customer relations and account collection, development of new
rental accounts, inventory management, staffing and training and profit and loss
control.

Management at Alrenco's corporate offices directs and coordinates
purchasing, product servicing, planning and controls, employee training and
personnel matters. Marketing and operations personnel evaluate the performance
of each store utilizing on-site reviews and daily operations summaries. Alrenco
has significantly expanded its corporate office resources during 1994, 1995 and
1996 to support its continued growth.

Alrenco distributes simplified written procedures and policies covering all
aspects of store-level operations. These policies and procedures have been
designed to minimize the operating risks inherent in the rental-purchase
business. Alrenco also seeks to enforce profit and loss accountability at each
level of management through profit-based incentive compensation programs. Store
managers receive a monthly commission based on profits of their stores before
corporate overhead. Division and regional managers receive commissions based on
the profitability of the group of stores for which they are responsible. Strict
inventory controls allow management to monitor the status and income production
of each individual piece of inventory until its disposal, typically 18 to 24
months after original date of purchase.

Customer Service. Alrenco provides same day delivery and installation of
its merchandise at little or no additional cost to the customer. Alrenco
performs all necessary service without charge, except for damage in

56
<PAGE> 73

excess of normal wear and tear. Most products offered by Alrenco are covered
under standard manufacturers' warranties, and the remainder of the warranties
may be transferred to a customer who obtains ownership. Customers are fully
liable for damage, loss or destruction of the merchandise unless they have
purchased an optional loss/damage waiver.

Alrenco monitors customer relations at the store level and encourages
customer feedback. Alrenco's company policy requires employees to provide all
customers, upon request, with the telephone number of Alrenco's corporate office
where any complaints or problems which are not handled at the store level to the
satisfaction of the customer can be resolved.

Collection Procedures. Alrenco manages the collection process by making a
thorough and accurate initial presentation of the rental-purchase transaction to
each customer and then monitoring each new account closely thereafter. Alrenco
has adopted and closely monitors compliance with standardized collection
procedures. Information on delinquent accounts is reported in detail each day,
and Alrenco's collection procedures are monitored by store managers and reviewed
routinely by their regional managers. Average chargeoffs due to lost or stolen
merchandise were approximately 1.9% of Alrenco's revenue during the three years
ended December 31, 1996. This rate compares favorably to the three-year average
chargeoff rate of approximately 2.8% of revenue for the largest chains in the
industry reporting to APRO for 1996.

In the event a customer fails to renew a rental-purchase agreement or
return the merchandise in a timely manner, the account manager who delivered the
product contacts the customer to arrange for reinstatement by in-store payment
of the amount due. If no payment is received, the account manager will arrange
for reinstatement of the agreement or the return of the merchandise to the
store. In order to reduce potential conflict and liability, employees are
discouraged from collecting payments at the customer's residence. Approximately
90% of all rental payments are made in person at the store or by mail.
Management attempts to recover all rental merchandise or receive full payment
within seven days of expiration of the agreement. Substantially all recoveries
of merchandise are voluntary. In a small number of cases, Alrenco utilizes the
judicial process to enforce the return of unrecovered items. Only a corporate
officer may approve civil proceedings against a customer.

Management Information Systems. Alrenco's management information systems
provide detailed information on store operations in daily, weekly, monthly and
year-to-date reports. These reports cover data in a broad range of categories
and present information by stores or groups of stores. The systems provide
Alrenco's management with on-demand access to operating and financial
information about any store. Alrenco's integrated computerized management
information and control systems track inventory movement for each store location
and by each product category, minimizing excess inventory while maintaining
optimal in-stock positions. The systems also monitor collection procedures and
practices in order to help minimize late payments and expenses related to
recovery of merchandise while maximizing customer relations and compliance with
regulatory and industry-accepted collection practices. Store reports are
reviewed daily by store and regional managers. Division managers and senior
executives review group summaries, and exceptions to Alrenco's standards are
addressed each day. Daily store activity is electronically transmitted to home
office computers each night. The integration of the management information
systems with Alrenco's accounting system allows financial statements to be
generated within seven to ten days after the end of each month. These systems
have enabled Alrenco to expand its operations while maintaining a high degree of
control over cash receipts, inventory and customer transactions.

Rental-Purchase Agreements. Alrenco extends renewable week-to-week or
month-to-month rental-purchase agreements that can be canceled at any time.
Approximately 75% of all agreements provide for weekly payments. The customer's
obligations are to make rental payments in advance of the period for which he or
she chooses to rent the merchandise, to pay for loss or damage to the
merchandise if not covered under available loss/damage waivers and to return the
merchandise to Alrenco at the expiration of the rental period if he or she
elects not to renew the agreement. Each agreement automatically expires at the
end of the stated rental period unless a renewal payment is made. Expired
accounts may be renewed by payment of the delinquent rent and a nominal
reinstatement fee. Alrenco retains title to the merchandise during the term of

57
<PAGE> 74

the agreement. Ownership of the merchandise may transfer to the customer after
continuous renewal of the agreement for a stated period, usually 78 weeks.

Alrenco has developed and uses its own standard form rental-purchase
agreements based upon APRO model documents. Variations in the legal requirements
of each state are normally addressed through the use of riders to the form
agreements. Management believes that Alrenco's agreements materially comply with
the legal requirements of the states in which they are used. See "-- Government
Regulation."

Although Alrenco does not conduct a formal credit investigation to qualify
its customers, potential customers must provide certain personal information
which is verified by the store manager or assistant manager before a
rental-purchase agreement can be approved. Required information typically
includes a valid driver's license, a place of employment or verifiable source of
income, home address and the phone numbers and addresses of relatives.
Approximately 90% of all rental orders are approved. Subsequent rental payments
are required to be mailed to or made at the store. Where permitted by law,
Alrenco offers loss/damage waivers to customers who desire protection from loss
or damage. Such fees are standard in the industry, are not represented as
insurance, and may be subject to government-specified limits.

Product Turnover. Historical information maintained by Alrenco indicates
that less than 25% of Alrenco's customers complete the full term of a
rental-purchase agreement, and management believes that this trend will
continue. During the 12-month period ended December 31, 1996, the average
duration of Alrenco's rental-purchase agreements was approximately six months.
On December 31, 1997, Alrenco's stores were assigned an average of 1,212 items
of merchandise per store, of which approximately 862 items were on
rental-purchase agreements and approximately 350 items were in service or
available for rental.

PURCHASING AND DISTRIBUTION

Alrenco's product mix is determined by senior management, based on
promotional requirements and on customer demand as determined from store
inventory analysis reports. Store managers order inventory on a weekly basis and
consult with their regional managers to determine whether existing merchandise
can be reallocated before ordering new products. Store managers are not
permitted to order directly from a manufacturer but may order fill-in quantities
from local distributors with prior approval from the purchasing department.
Alrenco does not maintain a centralized warehouse or distribution facility,
since Alrenco's suppliers make direct shipments to its stores. Management
believes that such an arrangement minimizes inventory costs and overhead
expenses while allowing Alrenco to structure reasonably competitive terms and
prices with its suppliers.

Alrenco purchases the majority of its electronics merchandise directly from
manufacturers and most of its appliances from one distributor. Alrenco purchases
its furniture from various manufacturers and distributors. Alrenco's largest
suppliers include Hart-Parrish Distributors and Whirlpool Corporation, which
accounted for approximately 12.3% and 8.4%, respectively, of all merchandise
purchased for Alrenco's stores in 1997. No other supplier accounted for more
than 10% of total purchases. Management generally does not sign contracts with
suppliers. Alrenco currently expects to continue relationships with its existing
suppliers, but believes there are numerous sources of products available to
Alrenco. Management does not believe that Alrenco's success is dependent on any
one or more of its present suppliers. Executive officers and key managers
regularly attend national and regional markets and trade shows to identify new
products, negotiate prices and initiate contacts with potential new suppliers.

MARKETING AND ADVERTISING

Alrenco promotes its products and services primarily through television and
direct mail advertising. Alrenco's television advertising and promotional
literature emphasize Alrenco's credibility, quality of service and competitive
weekly rental rates. Alrenco also markets its products and services through
direct customer solicitation by Alrenco's store employees. Each store manager is
required to generate additional business from Alrenco's active and inactive
customer base.

58
<PAGE> 75

Alrenco utilizes television advertising in each of its markets. The
commercials generally promote a special price for a particular product for a
limited time period. Four-color, four-page direct mail brochures are mailed
several times a year to selected zip codes within a five-mile radius of each of
Alrenco's stores. Alrenco utilizes extensive point of sale materials in each
store.

For the years ended December 31, 1995 and 1996, total advertising expense
was approximately 7.7% and 5.9%, respectively, of revenue. The decrease in
advertising expense as a percentage of revenue in 1996 is attributable to a
leveraging of expenditures for the stores acquired in 1996.

SERVICE MARKS

Alrenco owns the registered service marks "Alrenco Rent To Own For The
Home" and "Alrenco Rent To Own For The Home -- The Only Way To Go." The products
held for rent by Alrenco also bear trademarks and service marks held by their
manufacturers.

COMPETITION

The rental-purchase industry is highly competitive. As the following table
illustrates, the 10 largest rental-purchase chains accounted for 48.4% of the
approximately 7,500 rental-purchase stores in the United States.

RENTAL-PURCHASE INDUSTRY COMPETITORS

<TABLE>
<CAPTION>
NUMBER PERCENTAGE OF
COMPANY(1) OWNERSHIP OF STORES(2) U.S. STORES
---------- --------- ------------ -------------
<S> <C> <C> <C>
Rent-A-Center...................................... Private(3) 1,500 20.0%
Renters Choice, Inc.(4)............................ Public 803 10.7
RTO................................................ Private 267 3.6
Rent-Way, Inc...................................... Public 237 3.2
Aaron's Rents, Inc.(4)............................. Public 225 3.0
Central Rents...................................... Private 168 2.2
Alrenco............................................ Public 165 2.2
Champion Rent to Own............................... Private 145 1.9
Rainbow Rentals.................................... Private 62 0.8
Bestway Rental, Inc................................ Public 60 0.8
--------- -------
Totals........................................ 3,632 48.4%
========= =======
</TABLE>

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

(1) Some of these competitors may also operate rent-to-rent stores in addition
to the rental-purchase stores referenced in the table.

(2) Sources: November 1997 APRO estimates (based on membership records) and
other publicly available information.

(3) Owned by Thorn PLC, a publicly traded company in the United Kingdom.

(4) Includes franchised rental-purchase stores.

Alrenco competes directly with other national and regional rental-purchase
businesses, and on a very limited basis with temporary-use rental stores, such
as furniture rental outlets, that investigate credit and generally extend three
month minimum leases. Competition within the rental-purchase industry is based
primarily on store location, product selection and availability, customer
service and rental rates and terms. Alrenco's largest national competitors have
significantly greater resources than Alrenco.

GOVERNMENT REGULATION

State Regulation. Forty-eight states have adopted legislation regulating
rental-purchase transactions. Of those states, 45 require companies to provide
certain disclosures to customers regarding the terms of the

59
<PAGE> 76

rental-purchase transaction. North Carolina, Wisconsin and Minnesota regulate
rental-purchase transactions as credit sales subject to consumer lending
restrictions. North Carolina and Minnesota subject the transactions to interest
rate or finance charge limitations. In addition, recent court decisions in New
Jersey have created a legal environment in that state which is prohibitive to
rental-purchase transactions. Alrenco operates in North Carolina, but does not
operate in the other three states. All but one of the 18 states in which Alrenco
operates impose some type of disclosure requirements, either in advertising or
in the rental-purchase agreement, or both. The regulations in these states also
distinguish rental-purchase transactions from credit sales. Management believes
that the operations of Alrenco are in material compliance with applicable state
rental-purchase laws.

Federal Regulation. Although certain proposed federal regulations are
under consideration, no federal legislation has been enacted regulating
rental-purchase transactions. As of the date hereof, two bills have been
introduced in Congress that would regulate the rental-purchase industry. One of
the bills is supported by APRO and mandates certain disclosures to customers
similar to those required by most state legislation. Alrenco does not believe
that this bill, if enacted, would have a material adverse effect upon Alrenco's
operations.

The other bill includes certain credit sale requirements and would subject
rental-purchase transactions to interest rate, finance charge and fee
limitations, as well as the Federal Truth in Lending Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Fair Credit
Reporting Act. This bill would also require the lessor to make certain
disclosures to customers about the terms of the rental-purchase transaction.
Alrenco believes that in the event federal legislation is enacted regulating
rental-purchase transactions as credit sales, Alrenco would be able to adapt to
the new laws and remain profitable by repositioning itself as a rent-to-rent
business. However, there can be no assurance that the proposed legislation, if
enacted, would not have a material adverse effect on the business of Alrenco.

Depreciation Issues. The IRS published a revenue ruling in July 1995
providing that a five-year recovery period under MACRS is the appropriate
depreciation method for rental-purchase merchandise. In August, 1997, federal
tax legislation was enacted that included a provision requiring use of
three-year MACRS as the appropriate depreciation method for rental-purchase
merchandise. Prior to 1996, Alrenco has used the income forecasting method of
depreciation for tax accounting, and management of Alrenco believes that this
method has been widely used throughout the rental-purchase industry prior to
publication of either of these rulings. The conversion to three-year MACRS has
required that the cost of rental merchandise be depreciated over a three-year
period while revenue is recognized over the contract term, typically 18 to 24
months. Management of Alrenco believes that conversion to three-year MACRS will
not negatively impact Alrenco's financial condition or results of operations.
The potential effect of conversion to three-year MACRS cannot be accurately
estimated, but management of Alrenco believes that the conversion will
potentially create tax benefits. Alrenco is currently being audited by the IRS
and may be required to pay certain additional taxes and interest and penalties
thereon as a result of its use of the income forecasting method in prior years.
Pending resolution of this audit, Alrenco intends to convert to the MACRS method
of depreciation for tax accounting purposes only. Management does not believe
that any additional taxes, interest and penalties which may be incurred as a
result of the conversion to MACRS or the IRS audit will have a material adverse
effect on Alrenco's financial condition, liquidity or results of operations.

EMPLOYEES

As of December 31, 1997, Alrenco employed 1,003 people, 61 of whom are
assigned to Alrenco's corporate office and 942 of whom are directly involved in
the management and operation of Alrenco's stores. None of Alrenco's employees
are covered by a collective bargaining agreement. Alrenco provides numerous
employee benefits, including a 401(k) plan and group life and health insurance
plans. Management believes that relationships between Alrenco and its employees
are good.

60
<PAGE> 77

PROPERTIES

Alrenco leases space for all of its rental-purchase stores as well as its
corporate offices under leases expiring at various times through 2004. Most of
the leases contain renewal options for additional periods at rental rates
adjusted according to agreed upon formulas. Alrenco's corporate office consists
of approximately 11,600 square feet and is leased from Kentuckiana Outfitting
Company, a corporation owned by Michael D. Walts, Chairman of the Board and
President of Alrenco. Alrenco also leases one store from Kentuckiana Outfitting
Company. See "The Merger -- Interests of Certain Persons in the Merger" and
"Management of Alrenco Following the Merger -- Certain Transactions."

LEGAL PROCEEDINGS

From time to time Alrenco has been a party to various legal proceedings
arising in the ordinary course of its business. Alrenco is not currently a party
to any material litigation and is not aware of any litigation threatened against
it that could have a material adverse effect on its business.

In connection with the settlement in 1994 of certain employment
discrimination litigation initiated in the United States District Court,
Northern District of Alabama, by former management employees, management
employees and non-management employees, Alrenco agreed to take certain
affirmative actions in hiring and established a "target" level for certain
pivotal management and store-level positions. Failure to meet the target
established in the settlement is not to be considered a per se violation of the
settlement if Alrenco can demonstrate good faith efforts toward compliance.
Alrenco has implemented a number of measures since the settlement in order to
meet the targets. The court has retained jurisdiction pending the service of
Alrenco's final consent decree report and subsequent motion to dismiss the
action. The final report has been provided to plaintiff's counsel and Alrenco
has filed its motion to dismiss. The settlement is final and binding on all
parties.

PRINCIPAL SHAREHOLDERS OF ALRENCO

The following table sets forth information with respect to the beneficial
ownership of Alrenco Common Stock by (i) each current director and executive
officer of Alrenco, (ii) each person known to management of Alrenco to own of
record or beneficially more than 5% of the outstanding shares of Alrenco Common
Stock, and (iii) all directors and officers of Alrenco as a group. The table
reflects share ownership and the percentage of such ownership as of January 13,
1998, and as adjusted to give effect to the issuance of shares of Alrenco Common
Stock in the Merger pursuant to the Merger Agreement. Except as otherwise
indicated, each person or entity shown has sole voting and investment power with
respect to the shares of Alrenco Common Stock owned by him or it.

<TABLE>
<CAPTION>
NUMBER OF SHARES(1) PERCENT OF CLASS
------------------------ ----------------------
BEFORE AFTER BEFORE AFTER
NAME MERGER MERGER(2) MERGER MERGER(3)
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Michael D. Walts (4)........................... 2,230,000 2,230,000 36.6% 13.2%
Raymond C. Holladay............................ 70,000(5) 70,000 1.2 *
Theodore H. Wilson............................. 59,624(6) 59,624 1.0 *
Robert W. Lanum................................ 9,315(7) 9,315 * *
Donald E. Groot................................ 11,000(7) 11,000 * *
W. Barrett Nichols............................. 7,000(7) 7,000 * *
All directors and officers as a group (6
persons)..................................... 2,386,939(8) 2,386,939 38.9 14.0
</TABLE>

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

* Less than 1%.

(1) Information with respect to beneficial ownership has been obtained from
Alrenco's shareholder records and from information provided by Alrenco
Shareholders.

(2) Each issued and outstanding share of Alrenco Common Stock will remain
outstanding after the Merger, unchanged, as one share of Alrenco Common
Stock.

61
<PAGE> 78

(3) Based upon the Exchange Ratio in the Merger of 89.795 shares of Alrenco
Common Stock for each outstanding share of RTO Common Stock.

(4) Michael D. Walts is the Chairman of the Board and President of Alrenco. His
address is 1736 East Main Street, New Albany, Indiana 47150.

(5) Includes 10,000 shares subject to outstanding stock options under the
Alrenco, Inc. 1995 Stock Incentive Plan (the "Alrenco Stock Incentive
Plan") which are presently exercisable. Also includes 60,000 shares of
restricted stock awarded pursuant to the Alrenco Stock Incentive Plan.

(6) Includes 10,000 shares subject to outstanding stock options under the
Alrenco Stock Incentive Plan which are presently exercisable. Also includes
45,000 shares of restricted stock awarded pursuant to the Alrenco Stock
Incentive Plan.

(7) Includes 7,000 shares subject to outstanding stock options under the
Alrenco Stock Incentive Plan which are presently exercisable.

(8) Includes 41,000 shares subject to outstanding stock options under the
Alrenco Stock Incentive Plan which are presently exercisable. Also includes
105,000 shares of restricted stock awarded pursuant to the Alrenco Stock
Incentive Plan.

RTO may be deemed to own beneficially the 600,000 shares of Alrenco Common
Stock for which it has been granted an option to purchase in connection with the
Merger. If such option was exercised in full, RTO would own approximately 9.0%
of the issued and outstanding shares of Alrenco Common Stock. See "The Stock
Option Agreements."

Michael D. Walts, Chairman of the Board and President of Alrenco, has
agreed with RTO to vote all shares of Alrenco Common Stock beneficially owned by
him for approval of the Merger Agreement and each of the other transactions
contemplated thereby. See "The Stockholder Voting Agreements."

62
<PAGE> 79

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RTO

The following discussion of the financial condition and results of
operations of RTO should be read in conjunction with the financial statements of
RTO and Action and related notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus.

GENERAL

RTO was incorporated on June 20, 1996 as a Delaware corporation to develop,
acquire, own, and operate a chain of stores that rent durable household products
such as consumer electronics, appliances, furniture, jewelry and home furnishing
accessories under cancelable rental-purchase agreements renewable on a weekly or
monthly basis.

On July 1, 1996, RTO purchased seven stores from Carl's TV & Appliances,
Inc. -- East ("Carl's") and on August 1, 1996, purchased the 102 store chain of
Action (collectively the "1996 Purchase Acquisitions"). The 1996 Purchase
Acquisitions were accounted for under "purchase" accounting as defined by
Accounting Principles Board Opinion No. 16 ("APB 16").

On October 31, 1996 and November 1, 1996, RTO added 8 more stores by
acquiring Home Choice, Inc. ("Home Choice") and Yam's, Inc. ("Yams"),
respectively (collectively the "1996 Pooling Acquisitions") in stock for stock
transactions accounted for as "pooling-of-interests" transactions as set forth
in APB 16.

During the first nine months of 1997, RTO acquired the 27 stores of B & L
Concepts, Inc. ("B & L"), the 8 stores of United Electronics, Inc. ("United"),
the 4 stores of Mr. C Rental Limited Partnership ("Mr. C"), the 1 store of
Sunburst Rentals, Inc. ("Sunburst"), the 11 stores of Instant Rent to Own, Inc.
("Instant"), the 1 store of Rightway Home Furnishings Inc. ("Rightway") and the
17 stores of Amigo TV Rental, Inc. ("Amigo") (collectively the "1997 Purchase
Acquisitions") for cash, notes payable and, in the case of B & L and Instant,
convertible debt, in transactions accounted for as purchases.

During the first nine months of 1997, RTO also acquired ARTO, Inc.
("ARTO"), Showtyme Group (consisting of Carolina's Best Rent-to-Own, Inc., H & J
TV Rental, Inc., Rentmaster Appliance & TV Rentals, Inc., Showtyme TV Rentals of
Anderson, Inc., Showtyme TV Rentals of Charleston, Inc. and Showtyme TV Rentals
of Spartanburg, Inc.) ("Showtyme"), Seajay Group (consisting of Seajay
Investment Group, Inc. and Mercury Acceptance Corporation) ("Seajay"), ABC Group
(consisting of ABC TV & Stereo Rental of Colorado, Inc., Daniel B. Rudden &
Partners, L.L.C. and R & K Rentals, L.L.C.) ("ABC"), National TV Rental, Inc.
("National"), The Hut Co., Inc. ("Hut") and Discount Centers of America, Inc.
("Discount") (collectively the "1997 Pooling Acquisitions") in stock for stock
transactions accounted for as "pooling-of-interests" transactions as set forth
in APB 16. The 1997 Pooling Acquisitions added a total of 51 stores and ranged
in size from Discount's 4 stores to Seajay's 12 stores.

During the nine months ended September 30, 1997, RTO also opened 16 new
stores. RTO has instituted a new store opening program designed to open stores
in markets where there may not be opportunities for acquisitions. Since
September 30, 1997, RTO has opened 18 additional stores.

Because of the significant growth of RTO since its formation, RTO's
historical results of operations and period-to-period comparisons of such
results and certain financial data may not be meaningful or indicative of future
results.

CERTAIN COMPONENTS OF NET INCOME

Total revenue. RTO collects non-refundable rental payments and fees in
advance, generally on a weekly basis. The revenue is recognized as received over
the rental term. Rental-purchase agreements include a discounted early purchase
option. Amounts received upon the sale of merchandise pursuant to these options
and upon the sale of used merchandise are recognized as revenue when the
merchandise is sold.

Depreciation and disposition of rental merchandise. Rental merchandise is
carried at the lower of cost or net realizable value. Depreciation is provided
using the income forecasting method or straight-line method

63
<PAGE> 80

over a period designed to approximate the income forecasting method. The income
forecasting method is designed to match as closely as practicable the
recognition of depreciation expense with the consumption of the rental
merchandise. The consumption of rental merchandise occurs during periods of
rental and directly coincides with the receipt of rental revenue over the
rental-purchase agreement period, generally 18 to 24 months. Under the income
forecasting method, merchandise held for rent is not depreciated, and
merchandise on rent is depreciated in the proportion of rents received to total
rents required to obtain ownership as provided in the rental agreement. The
income forecasting method is an activity-based method similar to the units of
production method. Disposition of rental merchandise represents the expensing of
the remaining carrying value of rental merchandise sold, charged off or rented
until owned by the customer.

Other direct store expenses. Other direct store expenses include salaries,
wages and related expenses paid to all store level, regional management and
service department employees, store-level occupancy costs, advertising costs and
other direct store-level expenses, including general and administrative
expenses, delivery and collection expenses and non-rental depreciation.

Corporate expenses. Corporate expenses include all overhead expenses
related to RTO's corporate offices, such as salaries, taxes and benefits,
occupancy, training and travel expenses.

Amortization of intangibles. Amortization of intangibles consists
primarily of the amortization of rental-purchase agreements, noncompetition
agreements and the excess of purchase price over the fair market value of
acquired assets.

Income tax expenses. Income taxes for RTO are determined by use of the
liability method in which deferred income taxes are provided for temporary
differences between the financial reporting and income tax basis of assets and
liabilities using the income tax rates under existing legislation expected to be
in effect at the date such temporary differences are expected to reverse.

Since certain of RTO's business combinations involved companies which were
nontaxable enterprises (e.g. S corporations), unaudited pro forma income tax
expense (benefit) has been presented for the nontaxable enterprises as if they
had been a taxable enterprise for periods prior to consummation. Deferred tax
assets and liabilities for the tax effects of temporary differences for the
nontaxable enterprises were established through an adjustment of $137,070 to
income tax expense during the nine month period ending September 30, 1997, the
period of consummation.

RESULTS OF OPERATIONS -- RTO

RTO's consolidated financial statements (included elsewhere herein) reflect
the financial position and results of operations of the 1996 Purchase
Acquisitions and the 1997 Purchase Acquisitions from the date of acquisition by
RTO through September 30, 1997, consistent with the requirements of APB 16 for
purchase acquisitions. In addition, RTO's consolidated financial statements
reflect the financial position and results of operations of the 1996 Pooling
Acquisitions and the 1997 Pooling Acquisitions as though RTO and the 1996
Pooling Acquisitions and the 1997 Pooling Acquisitions had operated as a single
business for all periods required to be presented (for each of the three years
beginning January 1, 1994 through December 31, 1996 and each of the nine month
periods ended September 30, 1996 and 1997) consistent with the requirements of
APB 16 for pooling-of-interests acquisitions. Accordingly, RTO's consolidated
financial statements for 1994, 1995 and for the portion of 1996 prior to July 1,
1996 (the date of the first purchase acquisition), reflect the financial
position and results of operations of the 1996 Pooling Acquisitions and the 1997
Pooling Acquisitions only.

During the last six months of 1996 and the first nine months of 1997, RTO
acquired nine businesses in transactions accounted for as pooling-of-interests
(the 1996 Pooling Acquisitions and the 1997 Pooling Acquisitions). Acquisitions
accounted for as pooling-of-interests transactions, as compared to acquisitions
accounted for as purchases, generally require a longer period of time to
consummate. During the period between the time that RTO reaches an agreement in
principle to purchase a business and the consummation of the transaction, the
operations of such business are still under the control of the seller. Any
failure of the

64
<PAGE> 81

seller to operate the business in accordance with sound business practices may
adversely affect the operating results of such business.

The operating results of certain of the 1996 Pooling Acquisitions and the
1997 Pooling Acquisitions declined substantially during the last half of 1996
and the first half of 1997. Management of RTO believes that this decline is
attributable primarily to a failure of these businesses to properly replenish
rental merchandise while the acquisitions of the businesses were pending, which
resulted in the businesses not having adequate inventories during the fourth
quarter of 1996 and the first quarter of 1997. The failure of such businesses to
have adequate inventories of rental merchandise during such periods, together
with other factors relating to the operations of these businesses outside the
control of RTO, resulted in a substantial decline in revenues and net income of
these businesses for the year ended December 31, 1996, and the nine months ended
September 30, 1997.

Management of RTO continues to believe that the 1996 Pooling Acquisitions
and the 1997 Pooling Acquisitions can be operated profitably. The 1996 Pooling
Acquisitions and the 1997 Pooling Acquisitions were managed by diverse
management teams with significant differences in (i) goals and objectives
relating to profitability, (ii) access to capital resources, (iii) operating
philosophies and strategies, and (iv) compensation programs. Management of RTO
has taken steps to replenish inventories at these businesses and to implement
operational controls, compensation plans and other systems designed to improve
the performance of these businesses.

For the years ended December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997, the differences in operating results
are also impacted by the changes in number of stores operated due to (i) the
sale, merger or closing of certain stores in 1994, 1995 and 1996, (ii) the
opening of new stores during such periods and (iii) the inclusion of purchased
stores' operating results from the respective dates of acquisition in accordance
with the purchase accounting requirements of APB 16. The table below outlines
the changes in number of stores included in the consolidated operating results
for the periods presented.

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------
1994 1995 1996 1996 1997
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Beginning of Period....................................... 72 71 61 61 168
Opened.................................................. 1 2 4 3 16
Acquired................................................ 0 1 109 109 69
Merged/Closed........................................... (2) 0 (2) (2) (5)
Sold.................................................... 0 (13) (4) 0 0
---- ---- ---- ---- ----
End of Period............................................. 71 61 168 171 248
==== ==== ==== ==== ====
</TABLE>

65
<PAGE> 82

The following table sets forth, for the periods indicated, certain
Statement of Operations data as a percentage of total revenue.

RTO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS DATA

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Rental and fee revenue............................. 93.5% 93.6% 95.0% 94.1% 95.9%
Cash sales and other revenue....................... 6.5 6.4 5.0 5.9 4.1
----- ----- ----- ----- -----
Total revenue............................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Depreciation and disposition of rental
merchandise...................................... 33.5 34.4 31.3 31.3 27.1
Other direct store expenses........................ 49.8 51.2 55.5 52.7 56.3
----- ----- ----- ----- -----
Total direct store expenses.............. 83.3 85.6 86.8 84.0 83.4
Corporate expenses................................. 9.4 11.1 10.9 10.7 12.0
Cost of business combinations...................... -- -- 2.9 .1 .9
Amortization of intangibles........................ 0.5 0.7 4.5 3.1 6.1
Key executive signing bonuses...................... -- -- 2.5 4.0 .4
----- ----- ----- ----- -----
Total operating expenses................. 93.2 97.4 107.6 101.9 102.8
Other income (expense):
Interest income (expense)........................ (4.0) (3.9) (0.7) (1.3) (.6)
Gain on sale of stores........................... -- 2.6 1.2 2.0 --
Other non-operating income (net)................. 0.3 0.4 0.8 .6 --
----- ----- ----- ----- -----
Income (loss) before income taxes and
extraordinary item..................... 3.1 1.7 (6.3) (.6) (3.4)
Income tax expense (benefit)....................... 0.1 -- (2.1) (.8) (.2)
Extraordinary item (net of income tax expense)..... -- 8.3 -- -- --
----- ----- ----- ----- -----
Net income (loss).................................. 3.0% 10.0% (4.2)% .2 (3.2)
===== ===== ===== ===== =====
</TABLE>

RTO CONSOLIDATED NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO RTO
CONSOLIDATED NINE MONTHS ENDED SEPTEMBER 30, 1996.

RTO's results of operations for the nine months ended September 30, 1996
represent the combined results of the 1996 Pooling Acquisitions and the 1997
Pooling Acquisitions and the 1996 Purchase Acquisitions from the respective
dates of acquisition. RTO was incorporated on June 20, 1996 and had only three
months of financial activity for the period between incorporation and September
30, 1996. RTO's results of operations for the nine months ended September 30,
1997 represent the combined results of the 1996 Pooling Acquisitions, the 1997
Pooling Acquisitions, and the 1996 Purchase Acquisitions and the results of the
1997 Purchase Acquisitions from the respective dates of acquisition.

Total revenue. Total revenue increased $56.0 million, or 150.4% to $93.3
million for the nine months ended September 30, 1997 from $37.2 million for the
nine months ended September 30, 1996, primarily as a result of an additional
$58.9 million in revenue due to the inclusion of revenue of the 1997 Purchase
Acquisitions from the respective dates of acquisition, and the inclusion of
revenue of the 1996 Purchase Acquisitions for a full nine-month period in 1997,
offset in part by a net decrease in revenue from the 1996 Pooling Acquisitions
and 1997 Pooling Acquisitions of $2.9 million, or 10.7%, for the reasons
described under "-- Results of Operations" above, including a decrease of $1.2
million related to the sale of 4 stores by National in September 1996.

Depreciation and disposition of rental merchandise. Depreciation and
disposition of rental merchandise increased $13.6 million, or 116.2%, to $25.3
million for the period ended September 30, 1997, from $11.7 million for the nine
months ended September 30, 1996, primarily from the addition of depreciation and

66
<PAGE> 83

disposition of rental merchandise of the 1997 Purchase Acquisitions from the
respective dates of acquisition, and the inclusion of depreciation and
disposition of rental merchandise of the 1996 Purchase Acquisitions, for a full
nine-month period. However, as a percentage of total revenue, depreciation and
disposition of rental merchandise decreased to 27.1% for the nine months ended
September 30, 1997, from 31.4% for the nine months ended September 30, 1996, as
a result of (i) the decline in depreciation and disposition of rental
merchandise as a percentage of revenue from 31.8% in 1996 to 25.5% in 1997 in
the 1996 Pooling Acquisitions and 1997 Pooling Acquisitions as a result of (a)
lower rental merchandise costs as a percentage of revenue during the nine months
ended September 30, 1997, due to the failure of certain of the 1996 Pooling
Acquisitions and 1997 Pooling Acquisitions to replenish rental merchandise
during the last quarter of 1996 and first quarter of 1997, as discussed under
"-- Results of Operations" above (depreciation expense as a percentage of rental
revenue is generally lower for the rental of used merchandise as compared to new
merchandise), (b) reducing, in accordance with the policies of RTO, the
percentage of total revenues contributed by cash sales and other revenue (gross
margins are significantly lower on cash sales relative to margins generated on
the rental of merchandise) for certain of the 1996 Pooling Acquisitions and 1997
Pooling Acquisitions, (c) increasing, during the nine months ended September 30,
1997, the revenue generated as a multiple of rental merchandise cost for certain
of the 1996 Pooling Acquisitions and 1997 Pooling Acquisitions in order to
conform the pricing policies of such acquisitions to RTO's pricing policies, and
(d) electing to depreciate all additions to rental merchandise acquired
subsequent to December 31, 1996 using the income forecasting method and other
conforming changes resulting in a nonrecurring decrease in depreciation expense
and (ii) the use by one of the 1997 Purchase Acquisitions of a more aggressive
pricing strategy, thereby producing greater revenues as a multiple of rental
merchandise cost. The factors contributing to the decline in depreciation and
disposition of rental merchandise as a percentage of revenue described in
clauses (i)(a) and (i)(d) are non-recurring in nature and caused depreciation
and disposition of rental merchandise as a percentage of revenue to decrease to
a level lower than that which management believes is sustainable. Management
believes that, on an ongoing basis, depreciation and disposition of rental
merchandise as a percentage of revenue will average between 28% and 29%.

Other direct store expenses. Other direct store expenses increased $32.9
million, or 167.5%, to $52.5 million for the nine months ended September 30,
1997, from $19.6 million for the nine months ended September 30, 1996, primarily
as a result of an additional $33.1 million of other direct store expenses due to
the inclusion of other direct store expenses of the 1997 Purchase Acquisitions
from the respective dates of acquisition and the inclusion of other direct store
expenses of the 1996 Purchase Acquisitions for a full nine-month period, offset
in part by a decrease in other direct store expenses of the 1996 Pooling
Acquisitions and 1997 Pooling Acquisitions of $0.2 million. As a percentage of
revenue, other direct store expenses increased to 56.3% for the nine months
ended September 30, 1997, from 52.7% for the nine months ended September 30,
1996, primarily as a result of (i) higher proportionate other direct store
expenses associated with 16 new locations opened during the nine months ended
September 30, 1997, (ii) a higher percentage of other direct store expenses for
the 1996 Purchase Acquisitions and the 1997 Purchase Acquisitions and (iii) a
higher percentage of other direct store expenses for the 1996 Pooling
Acquisitions and the 1997 Pooling Acquisitions for the reasons discussed under
"-- Results of Operations" above.

Corporate expenses. Corporate expenses increased $7.2 million, or 180.2%
to $11.2 million for the nine months ended September 30, 1997, from $4.0 million
for the nine months ended September 30, 1996, primarily as a result of an
additional $5.9 million of corporate expenses due to the inclusion of corporate
expenses of the 1997 Purchase Acquisitions from the respective dates of
acquisition and the inclusion of corporate expenses of the 1996 Purchase
Acquisitions for a full nine-month period, and an increase in corporate expenses
of the 1996 Pooling Acquisitions and 1997 Pooling Acquisitions of $1.3 million.
As a percentage of revenue, corporate expenses increased to 12.0% for the nine
months ended September 30, 1997, from 10.7% for the nine months ended September
30, 1996, primarily as a result of corporate expenses in the 1996 Pooling
Acquisitions and 1997 Pooling Acquisitions not being reduced in proportion to
revenue decreases and duplication of certain corporate expenses during
transition periods subsequent to certain acquisitions.

Amortization of intangibles. Amortization of intangibles increased $4.5
million, or 369.3%, to $5.6 million for the nine months ended September 30,
1997, from $1.1 million for the nine months ended

67
<PAGE> 84

September 30, 1996, due to the acquisition of the 1996 Purchase Acquisitions and
1997 Purchase Acquisitions. As a percentage of total revenue, amortization of
intangibles increased to 6.0% for the nine months ended September 30, 1997, from
3.1% for the nine months ended September 30, 1996, primarily as a result of the
amortization of noncompetition agreements, customer rental agreements and
goodwill of $3.1 million, $.7 million and $.7 million, from the Action, B&L and
United acquisitions, respectively.

Interest income. Interest income decreased $38,000, or 16.6%, to $193,000
for the nine months ended September 30, 1997, from $231,000 for the nine months
ended September 30, 1996, primarily as a result of utilizing, subsequent to
September 30, 1996, the proceeds from the issuance of RTO Common Stock in June
and July 1996 for the 1996 Purchase Acquisitions and 1997 Purchase Acquisitions.

Interest expense. Interest expense increased $55,000, or 25.3%, to
$757,000 for the nine months ended September 30, 1997, from $702,000 for the
nine months ended September 30, 1996, primarily as a result of increased
borrowings under RTO's credit facility and accrued interest on notes payable
incurred in connection with certain of the 1997 Purchase Acquisitions. As a
percentage of total revenue, interest expense decreased to 0.8% for the nine
months ended September 30, 1997, from 1.9% for the nine months ended September
30, 1996, primarily as a result of repayment of debt assumed in the 1996
Purchase Acquisitions, the 1996 Pooling Acquisitions, the 1997 Purchase
Acquisitions and the 1997 Pooling Acquisitions with proceeds received from the
issuance of RTO Common Stock.

Net income (loss). The net income (loss) for the period ended September
30, 1997, decreased from income of $.1 million for the nine months ended
September 30, 1996 to a loss of $3.1 million primarily as a result of the
amortization of intangibles relating to the 1996 Purchase Acquisitions and 1997
Purchase Acquisitions and professional fees associated with the business
combinations in the amount of $.8 million. Additionally, the 16 new stores
opened during the nine months ending September 30, 1997, created an operating
loss of $1.3 million on revenue of $1.2 million for the same period with $.5
million in depreciation and disposition of rental merchandise and $2.0 million
in other direct store expenses.

RTO CONSOLIDATED YEAR ENDED DECEMBER 31, 1996 COMPARED TO RTO CONSOLIDATED
YEAR ENDED DECEMBER 31, 1995

As previously noted, the results of operations for the year ended December
31, 1995 represent the combined results of the 1996 Pooling Acquisitions and
1997 Pooling Acquisitions. The results of operations for the year ended December
31, 1996 represent the combined results of the 1996 Pooling Acquisitions and
1997 Pooling Acquisitions and the results of the 1996 Purchase Acquisitions from
the dates of acquisition.

Total revenue. Total revenue increased $20.3 million, or 50.9%, to $60.3
million for the year ended December 31, 1996, from $40.0 million in 1995. The
increase consisted primarily of revenue of $25.2 million from the 1996 Purchase
Acquisitions, offset in part by a $4.6 million decrease in revenue resulting
from the sale of thirteen stores in September 1995 and four stores in September
1996. Same store revenue (not including the results of stores sold, closed,
opened or bought during the periods) for the 1996 Pooling Acquisitions and 1997
Pooling Acquisitions decreased by $1.5 million, or 4.5%, compared to 1995 due to
the reasons discussed under "-- Results of Operations" above. Revenue from new
stores acquired in 1995 and opened on various dates in 1995 and 1996 increased
by $1.3 million. Cash sales and other revenue decreased as a percentage of total
revenue because of the addition of the results of the 1996 Purchase
Acquisitions, whose results reflect a smaller percentage of cash sales to total
revenue.

Depreciation and disposition of rental merchandise. Depreciation and
disposition of rental merchandise increased $5.2 million, or 37.3%, to $18.9
million for the year ended December 31, 1996, from $13.7 million in 1995,
primarily as a result of $7.6 million in depreciation and disposition of rental
merchandise for the 1996 Purchase Acquisitions, offset in part by a $2.4 million
decrease in depreciation and disposition of rental merchandise for the 1996
Pooling Acquisitions and 1997 Pooling Acquisitions resulting primarily from the
sale of thirteen stores in September 1995 and four stores in September 1996. As
a percentage of revenue, depreciation and disposition of rental merchandise
decreased to 31.3% for the year ended December 31, 1996 from 34.4% in 1995,
primarily as a result of (i) a reduction in the percentage of total revenues
contributed by cash sales and other revenue (gross margins are significantly
lower on cash sales relative to margins generated

68
<PAGE> 85

on the rental of merchandise) as a result of the acquisition of Action, which
had lower cash sales and other revenues as a percentage of total revenues, and
(ii) the use by Action of a more aggressive pricing strategy, thereby producing
greater revenues as a multiple of rental merchandise cost.

Other direct store expenses. Other direct store expenses increased $12.9
million, or 63.5%, to $33.4 million for the year ended December 31, 1996, from
$20.5 million in 1995, primarily as a result of the inclusion of $15.2 million
of other direct store expenses for the 1996 Purchase Acquisitions offset in part
by a $2.3 million decrease in other direct store expenses for the 1996 Pooling
Acquisitions and the 1997 Pooling Acquisitions resulting primarily from the sale
of thirteen stores in September 1995 and four stores in September 1996. As a
percentage of revenue, other direct store expenses increased to 55.5% for the
year ended December 31, 1996, from 51.2% in 1995, primarily as a result of (i)
higher other direct store expenses of the 1996 Purchase Acquisitions, (ii)
higher other direct store expenses as a percentage of revenue for the 1996
Pooling Acquisitions and 1997 Pooling Acquisitions attributable to the reasons
discussed above and (iii) higher proportionate direct store expenses associated
with the 6 new locations opened on various dates in 1995 and 1996.

Corporate expenses. Corporate expenses increased $2.1 million, or 47.2%,
to $6.5 million for the year ended December 31, 1996, from $4.4 million in 1995.
This increase was the result of the inclusion of $2.2 million in corporate
expenses for the 1996 Purchase Acquisitions. As a percentage of revenue,
corporate expenses decreased to 10.9% for the year ended December 31, 1996 from
11.1% in 1995, primarily as a result of lower corporate expenses as a percentage
of revenue for the 1996 Purchase Acquisitions which was partially offset by
higher corporate expenses as a percentage of revenue for the 1996 Pooling
Acquisitions and 1997 Pooling Acquisitions due primarily to revenue decreases
during the second half of 1996 due to the reasons discussed under "-- Results of
Operations."

Costs of business combinations. For the year ended December 31, 1996, RTO
incurred costs of business combinations of $1.7 million, representing the
professional fees incurred with respect to the 1996 Pooling Acquisitions and
several of the 1997 Pooling Acquisitions which had been initiated during the
third and fourth quarters of 1996.

Key executive signing bonuses. For the year ended December 31, 1996, RTO
incurred non-recurring key executive signing bonuses of $1.5 million related to
the retention of key employees in the Action Acquisition.

Amortization of intangibles. Amortization of intangibles increased $2.5
million to $2.8 million for the year ended December 31, 1996, from $0.3 million
in 1995, primarily as a result of the amortization of noncompetition agreements,
customer rental agreements and goodwill from the acquisition of Action. As a
percentage of revenue, amortization of intangibles increased to 4.5% for the
year ended December 31, 1996, from 0.7% in 1995, primarily as a result of such
amortization.

Interest income. Interest income increased $477,000, or 1,345%, to
$512,000 for the year ended December 31, 1996, from $35,000 in 1995, primarily
as a result of the short term investment of excess proceeds from the issuance of
RTO Common Stock, net of amounts required for completing the 1996 Purchase
Acquisitions.

Interest expense. Interest expense decreased $0.7 million, or 41.6%, to
$0.9 million for the year ended December 31, 1996, from $1.6 million in 1995,
and as a percentage of revenue, interest expense decreased to 1.5% for the year
ended December 31, 1996, from 4.0% in 1995 primarily as a result of using
proceeds from RTO's stock issuance to reduce the debt of the 1996 Purchase
Acquisitions and the 1996 Pooling Acquisitions, and the forgiveness of $2.9
million of debt and $0.4 million of accrued interest by a secured lender in
1995.

Net Income (loss). Net income decreased $6.5 million, to a net loss of
$2.5 million for the year ended December 31, 1996, from net income of $4.0
million in 1995, primarily as a result of (i) costs of business combinations of
$1.7 million, representing the professional fees incurred with respect to the
1996 and 1997 Pooling Acquisitions, (ii) non-recurring key executive signing
bonus expense of $1.5 million, related to the retention of key employees in the
Action Acquisition, (iii) an increase of amortization of intangibles in the
amount of $2.5 million as a result of the amortization of noncompetition
agreements, customer rental agreements and goodwill from the Action Acquisition,
(iv) the increase of other direct store expenses in the amount of $.8 million
from the opening of 6 new locations on various dates in 1995 and 1996, and (v)
the

69
<PAGE> 86

decrease in same store revenue of $1.5 million for the 1996 Pooling Acquisitions
and the 1997 Pooling Acquisitions.

RTO CONSOLIDATED YEAR ENDED DECEMBER 31, 1995 COMPARED TO RTO, INC.
CONSOLIDATED YEAR ENDED DECEMBER 31, 1994.

The results of operations for the years ended December 31, 1995, and
December 31, 1994, are exclusively those of the 1996 Pooling Acquisitions and
1997 Pooling Acquisitions and include no results from 1996 Purchase Acquisitions
or 1997 Purchase Acquisitions.

Total revenue. Total revenue decreased $1.0 million, or 2.5%, to $40.0
million for the year ended December 31, 1995, from $41.0 million in 1994,
representing revenue reductions of $2.9 million resulting from the sale of
stores in September 1995 and the closing of stores in 1994, offset in part by
$1.0 million of additional revenue from 4 stores opened or acquired in 1994 and
1995 and same store revenue increases of $900,000, or 2.6%. Same store results
were adversely impacted by a 4.3% decrease in revenue from Seajay resulting from
capital resource constraints related to a prior bankruptcy filing.

Depreciation and disposition of rental merchandise. Depreciation and
disposition of rental merchandise increased by $18,000 to $13.7 million in 1995.
As a percentage of total revenue, depreciation and disposition of rental
merchandise increased to 34.4% for the year ended December 31, 1995 from 33.5%
in 1994, primarily as a result of new store openings in October 1994, March 1995
and October 1995. Depreciation expense as a percentage of rental revenue is
generally higher for new merchandise than for used merchandise.

Other direct store expenses. Other direct store expenses increased by
$61,000 to $20.5 million in 1995. As a percentage of total revenue, other direct
store expenses increased to 51.2% for the year ended December 31, 1995, from
49.8% in 1994, primarily as a result of decreases in total revenue not totally
offset by corresponding reductions in other direct store expenses for Seajay and
as a result of the higher percentage of other direct store expenses inherent in
new store opening results.

Corporate expenses. Corporate expenses increased $0.5 million, or 15.1%,
to $4.4 million for the year ended December 31, 1995, from $3.9 million in 1994
and, as a percentage of revenue, corporate expenses increased to 11.1% for the
year ended December 31, 1995, from 9.4% for 1994, primarily due to increases in
salaries combined with the effect of failing to downsize corporate structures
commensurate with the reduction in number of stores and the corresponding
revenue reductions.

Amortization of intangibles. Amortization of intangibles increased
$74,000, or 36.4%, to $280,000 for the year ended December 31, 1995, from
$206,000 in 1994, primarily as a result of the acquisition of one store in 1995.
As a percentage of revenue, amortization of intangibles increased to 0.7% for
the year ended December 31, 1995, from 0.5% in 1994, primarily as a result of
(i) a decrease of $1.0 million in revenue from period to period as a result of
the sale of stores in September 1995 and the closing of stores in 1994 and (ii)
the increase in amortization from the acquisition of one store in 1995.

Interest income. Interest income decreased $3,000, or 8.5%, to $35,000 for
the year ended December 31, 1995.

Interest expense. Interest expense decreased $0.1 million, or 6.5%, to
$1.6 million for the year ended December 31, 1995, from $1.7 million in 1994,
primarily as a result of debt reduction relating to the sale of stores in
September 1995.

Gain on sale of stores. RTO recorded a gain of $1.0 million for the year
ended December 31, 1995, on the sale of thirteen stores in September 1995.

Extraordinary item. RTO recorded an extraordinary item, net of income tax
benefit, of $3.3 million for the year ended December 31, 1995, resulting from
forgiveness of debt by a secured lender.

Net income (loss). Net income increased $2.8 million, or 228.1%, to $4.0
million for the year ended December 31, 1995, from $1.2 million in 1994 and, as
a percentage of revenue, net income increased to 10.0% for the year ended
December 31, 1995, from 3.0% for 1994, primarily as a result of the $1.0 million
gain on the

70
<PAGE> 87

sale of stores in September 1995, and the extraordinary item, net of income tax
benefit, in the amount of $3.3 million, offset in part by the increase in
operating expenses and the decrease in revenue.

RESULTS OF OPERATIONS -- ACTION

Action, which opened its first store in 1975, had, by the time of its
acquisition by RTO, grown to be the 7th largest rental-purchase chain in the
U.S. primarily through acquiring underperforming rental-purchase chains and
enhancing operating results through training of personnel, applying consistent
and proven operating strategies and providing needed product, marketing and
other resources. Because of its considerable operating and acquisition
experience, Action's management team was retained and RTO's corporate offices
were moved to Action's offices in Mesquite, Texas. Consequently, as RTO's
predecessor and as a significant purchase, Action's financial statements for the
years ended December 31, 1994 and 1995 and the seven months ended July 31, 1996
appear elsewhere herein.

The following table sets forth certain historical Statement of Operations
data for Action for the years ended December 31, 1994 and 1995.

ACTION TV & APPLIANCE RENTAL, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995
-------- --------
<S> <C> <C>
Rental and fee revenue...................................... 97.9% 97.9%
Cash sales and other revenue................................ 2.1 2.1
----- -----
Total revenue..................................... 100.0 100.0
----- -----
Depreciation and disposition of rental merchandise.......... 29.5 29.8
Other direct store expenses................................. 50.6 52.2
----- -----
Total direct store expenses....................... 80.1 82.0
Corporate expenses.......................................... 7.9 8.4
Amortization of intangibles................................. 0.4 0.8
----- -----
Operating income.......................................... 11.6 8.8
Other income (expense)...................................... (1.0) (1.3)
----- -----
Income before income taxes................................ 10.6 7.5
Income tax expense.......................................... .4 .3
----- -----
Net income........................................ 10.2% 7.2%
===== =====
</TABLE>

ACTION YEAR ENDED DECEMBER 31, 1995 COMPARED TO ACTION YEAR ENDED DECEMBER 31,
1994

The results of operations for the years ended December 31, 1994 and 1995
represent only the results of operations of Action. During the year ended
December 31, 1995, Action acquired 43 rental-purchase stores (the "1995
Acquisitions"). All of the 1995 Acquisitions were accounted for as purchases.
The results of operations of the 1995 Acquisitions have been included in
Action's results of operations for the year ended December 31, 1995 since the
respective date of such acquisitions. Because of the 1995 Acquisitions, the
results of operations of Action for the year ended December 31, 1995, and
comparisons of such results with the results of operations of Action for the
year ended December 31, 1994, may not be meaningful or indicative of future
results. In addition, Action was a corporation taxed under Subchapter S of the
Code, and, accordingly, was not subject to federal income taxes.

Total revenue. Total revenue increased $7.2 million, or 18.1%, to $47.1
million for the year ended December 31, 1995, from $39.9 million in 1994. The
increase in total revenue was attributable to the purchase of 43 stores by
Action throughout 1995. Total revenue for same stores owned for twelve months
increased by $1.5 million, or 3.7%, to $41.4 million in 1995 from $39.9 million
in 1994. The increase in total revenue from

71
<PAGE> 88

same store operations was primarily attributable to continued increases in total
revenue earned per item on rent and an improvement in the percentage of
collections made by Action.

Depreciation and disposition of rental merchandise. Depreciation and
disposition of rental merchandise increased $2.2 million, or 19.1%, to $14.0
million for the year ended December 31, 1995, from $11.8 million in 1994. As a
percentage of total revenue, depreciation of rental merchandise increased to
29.8% for the year ended December 31, 1995 from 29.5% in 1994. The increase in
depreciation and disposition of rental merchandise is primarily attributable to
the higher levels of new rental merchandise as a result of the acquisition of 43
stores.

Other direct store expenses. Other direct store expenses increased $4.4
million, or 22.0%, to $24.6 million for the year ended December 31, 1995, from
$20.2 million in 1994, as a result of (i) an increase in salaries and wages of
$2.3 million, (ii) an increase in occupancy costs of $1.1 million, (iii) an
increase of $.2 in advertising, and (iv) an increase in other miscellaneous
direct store expenses of $1.8 million. All of the increases were the result of
the 1995 Acquisitions, less favorable expense coverage efficiencies of acquired
stores, entry into markets with higher space costs, duplication of facilities,
and increased repair, maintenance and accessories expense of rental merchandise
for the acquired stores. As a percentage of total revenue, other direct store
expenses increased to 52.2% for the year ended December 31, 1995, from 50.6% in
1994, primarily as a result of the less favorable expense coverage efficiency of
acquired stores due to inadequate revenue and duplication of facilities.

Corporate expenses. Corporate expenses increased $0.8 million, or 25.4%,
to $3.9 million for the year ended December 31, 1995, from $3.1 million in 1994,
primarily as a result of (i) $250,000 of legal expenses incurred in settlement
of a lawsuit, (ii) increased travel related to the 1995 Acquisitions and (iii)
increased staffing to handle the additional store count. As a percentage of
total revenue, corporate expense increased to 8.4% for the year ended December
31, 1995, from 7.9% in 1994, primarily as a result of the additional expenses
associated with the 1995 Acquisitions.

Amortization of intangibles. Amortization of intangibles increased $.2
million, or 141.4%, to $.4 million for the year ended December 31, 1995, from
$.2 million in 1994, and as a percentage of total revenue, amortization of
intangibles increased to .8% for the year ended December 31, 1995, from .4% in
1994 primarily as a result of amortizing the intangibles acquired in the 1995
Acquisitions.

Other expense. Other expense increased $221,000 to $618,000 for the year
ended December 31, 1995, from $397,000 in 1994, primarily as a result of an
increase of $262,000 for interest expense attributable to the 1995 Acquisitions,
which was offset in part by an increase in other income of $41,000. As a
percentage of total revenue, other expense increased to 1.3% for the year ended
December 31, 1995, from 1.0% for 1994, primarily as a result of the increase in
interest expense.

Income before income taxes. Income before income taxes decreased $.7
million, or 16.8%, to $3.5 million in 1995 from $4.2 million in 1994. The
decrease is attributable to the increased amortization of intangibles, the
acquisition of unprofitable stores, the increase in interest expense, the
settlement of the lawsuit and duplicate costs of acquisitions in 1995.

LIQUIDITY AND CAPITAL RESOURCES

RTO's primary requirements for capital are the acquisition of existing
stores (including the retirement of any assumed acquisition indebtedness), the
opening of new stores, the purchase of additional rental merchandise and the
replacement of rental merchandise which has been sold, charged-off, rented to
term or is no longer suitable for rent.

RTO was capitalized on June 20, 1996 with proceeds of $93.1 million from a
private placement of common stock. The 1996 Purchase Acquisitions included the
purchase of Action's common stock for $45.3 million in cash, $2.6 million for
certain noncompetition agreements and the repayment of $13.7 million of long
term debt. The 1996 Pooling Acquisitions included the retirement of $1.1 million
of assumed debt. The 1996 Pooling Acquisitions and 1996 Purchase Acquisitions
were funded out of original capital. Purchases of rental merchandise for 1996,
$21.2 million, were funded from cash provided by operating activities.

72
<PAGE> 89

The 1997 Purchase Acquisitions had a purchase price of $35.0 million in the
aggregate, with $23.5 million being paid in cash, $4.4 million paid to retire
assumed debt, $5.0 million paid in notes that are convertible into RTO Common
Stock at $1,250.00 per share, and a note for $2.1 million payable in three
annual installments of $700,000 beginning January 3, 1997. In acquiring the 1997
Pooling Acquisitions, RTO issued approximately 11,985 shares of RTO Common Stock
in the aggregate, paid approximately $266,000 in cash to dissenting shareholders
and paid $7.7 million to retire assumed debt. Cash used to pay dissenting
shareholders and to retire debt of the 1997 Pooling Acquisitions was paid from
working capital and from $12.0 million in borrowings from RTO's revolving line
of credit. Purchases of rental merchandise for the nine months ended September
30, 1997 of $28.7 million, were primarily funded from cash provided by operating
activities.

RTO estimates that the average investment with respect to new stores is
approximately $350,000 per store, of which rental merchandise comprises
approximately 75% to 80%. The remaining investment consists of leasehold
improvements, delivery trucks, store signage, computer equipment and start-up
costs. Management of RTO believes that there are numerous acquisition
opportunities in the rental purchase industry.

On May 1, 1991 Action entered into a loan and security agreement, amended
December 29, 1995 (the "Loan Agreement") with a bank which provides for a fixed
rate loan and a revolving line of credit. The fixed rate loan is payable on
demand but not later than October 1, 1998, and bears interest at a rate fixed at
the time of borrowing. Interest is due and payable monthly. The revolving line
of credit bears interest at a rate equivalent to the 30, 60, 90, 180 or 360 day
Libor rate existing from time to time, as selected by Action, plus 2.5% and
provides for maximum borrowings of $16.5 million less any outstanding principal
balance of the fixed rate loan. Borrowings available under the revolving line of
credit may also be limited based on multiples of average monthly receipts and
rental income value, as defined. At December 31, 1996, RTO did not have any
outstanding borrowings under the revolving line of credit or fixed rate loan. At
November 30, 1997, RTO had outstanding borrowings of $15.4 million under the
revolving line of credit at an interest rate of 8.25%. Borrowings under the
Agreement are collateralized by the rental units, property and equipment and
substantially all other assets of RTO. The Agreement also requires the
maintenance of minimum levels of tangible net worth, as defined, subjects RTO to
a maximum ratio of total liabilities to tangible net worth and restricts the
payment of dividends to a percentage of annual income. On December 8, 1997, RTO
entered into a new loan agreement with the same bank which provides for an
additional $3.5 million line of credit, for a total of $20.0 million in
borrowings available. The terms and conditions of the new line of credit are
equivalent to those under the Loan Agreement, except that the new line of credit
bears interest at a rate equal to Prime - .25%.

On December 29, 1997 RTO entered into a commitment letter to enter into
loan and security agreement with Comerica Bank which provides for a $50.0
million secured three year revolving credit facility (the "New Facility") which
will replace the existing $16.5 million facility and the $3.5 million facility.
The New Facility provides for certain borrowing options for advances based on a
"Base Rate" of (i) the agent's prime rate or (ii) the federal funds rate plus
100 basis points, or a "Eurodollar Rate" adjusted for reserves and other
regulatory requirements, plus an Applicable Margin. The New Facility is for
general corporate purposes including working capital and permitted acquisition
financing. The New Facility generally requires a first security interest from
RTO in all accounts, notes and contracts receivable, machinery and equipment,
rental units, and substantially all other assets. Additionally, the New Facility
requires the pledge of stock of all subsidiaries of RTO. Management believes
that cash flow from operations and the New Facility will be adequate to fund the
operations and growth plans through 1998.

SEASONALITY AND INFLATION

Based upon the operating history of RTO, management of RTO believes that
operating results may be subject to seasonality. In particular, the third
quarter generally exhibits a slight tightening of customer spending habits
commensurate with summer vacations, school needs and other factors. Conversely,
the fourth quarter typically has a greater percentage of rentals because of
traditional holiday shopping patterns. Management plans for these seasonal
variances and takes particular advantage of the fourth quarter with product
promotions, marketing campaigns, and employee incentives. Because many of RTO's
expenses do not

73
<PAGE> 90

fluctuate with seasonal revenue changes, such revenue changes may cause
fluctuations in RTO's quarterly earnings.

The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenue, expenses or operating
results of RTO from its inception on June 20, 1996 because RTO has been able to
charge higher rental rates for its merchandise to offset the modest inflationary
pressures. There can be no assurance, however, that inflation will not affect
future operating costs or consumer spending habits.

OTHER MATTERS

The IRS published a revenue ruling in July 1995 providing that a five-year
recovery period under MACRS is the appropriate depreciation method for
rental-purchase merchandise. In August 1997, federal tax legislation was enacted
that included a provision requiring use of three-year MACRS as the appropriate
depreciation method for rental-purchase merchandise. Prior to 1996, RTO used the
income forecasting method of depreciation for tax accounting, and management of
RTO believes that this method has been widely used throughout the
rental-purchase industry prior to the publication of either of these rulings.
The conversion to three-year MACRS has required that the cost of rental
merchandise be depreciated over a three-year period while revenue is recognized
over the contract term, typically 18 to 24 months. Management of RTO believes
that conversion to three-year MACRS will not negatively impact RTO's financial
condition or results of operations. The potential effect of conversion to
three-year MACRS cannot be accurately estimated, but management of RTO believes
that the conversion will potentially create tax benefits.

The legal and legislative environment in 45 states is favorable to the
rental-purchase industry with laws that require certain full disclosures and
notices to the customer. Several states have modest price regulation that have
not significantly impacted RTO's financial condition or results of operations.
Several states, including North Carolina, New Jersey, Wisconsin and Minnesota,
have legal or legislative environments that are prohibitive to the
rental-purchase transaction. RTO does not currently do business in any of these
states other than North Carolina.

74
<PAGE> 91

BUSINESS OF RTO
GENERAL

RTO is a growing operator of rental-purchase stores that currently has 267
stores in 16 states: Texas, Florida, Oklahoma, Arkansas, Louisiana, Arizona,
South Carolina, Colorado, North Carolina, Alabama, Georgia, Missouri, New
Mexico, Nevada, Utah and Mississippi. RTO offers quality, brand-name consumer
merchandise principally consisting of consumer electronics, appliances,
furniture, jewelry and home furnishing accessories to individuals under flexible
rental-purchase agreements also known as rent-to-own agreements. The agreements
provide customers with the option, but not the obligation, to obtain ownership
of the merchandise at the conclusion of the stated number of consecutive rental
payments, usually 52 to 104 weeks. Previously rented merchandise is refurbished
and re-rented, normally for a reduced term.

OPERATING STRATEGY

RTO has continued to refine its operational concept which RTO believes
effectively distinguishes RTO's stores from its competitors. RTO has sought to
position itself as the leading rental-purchase store within each of its markets
by: (1) emphasizing the highest level of customer service and providing a
comfortable and courteous store environment; (2) achieving operating
efficiencies through clustering its stores within defined market areas; (3)
closely monitoring each store's performance, through the use of its management
information system, to ensure each store's adherence to established operating
guidelines; and (4) emphasizing results-oriented compensation structures and
offering intensive training programs for its employees.

GROWTH STRATEGY

RTO's growth strategy has been to expand its business by: (i) increasing
the number of stores it owns through acquisitions and new store openings; (ii)
increasing the average total revenue per unit rented by expanding RTO's
offerings of higher priced lines of merchandise; and (iii) consolidating
corporate overhead to reduce expenses. Pursuant to this strategy, RTO acquired
Action and since the acquisition of Action has acquired 132 stores in the
following 17 transactions:

<TABLE>
<CAPTION>
NUMBER DATE OF FISCAL 1996
ACQUISITION STATES OF OPERATION OF STORES ACQUISITION REVENUE(1)
----------- ------------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Home Choice, Inc.................. Florida 2 10/31/96 $ 322,000(2)
Yam's, Inc........................ Arkansas 6 11/1/96 4,800,000(2)
United Electronics, Inc........... Arkansas, Louisiana 8 1/3/97 4,600,000
B&L Concepts, Inc................. Florida, Alabama, Georgia 27 1/7/97 14,200,000
Mr. C Rental Limited
Partnership..................... Texas 4(3) 1/24/97 1,000,000
Sunburst Rentals, Inc............. Texas 1 2/7/97 592,000
Showtyme Group(4)................. South Carolina 8 2/28/97 4,300,000
ARTO, Inc......................... Arizona, Nevada, Utah 5 2/28/97 4,200,000
Seajay Group(5)................... Texas 12 2/28/97 7,400,000
National TV Rental, Inc........... Florida 8 2/28/97 6,400,000(6)
ABC Group(7)...................... Colorado 7 3/11/97 3,500,000
Discount Centers of America,
Inc............................. Florida 4 5/12/97 2,400,000
The Hut Co., Inc.................. Arkansas, Missouri 7 5/13/97 1,700,000(8)
Instant Rent to Own, Inc.......... Louisiana, Texas 11 5/30/97 8,500,000
Rightway Home Furnishings, Inc.... Louisiana 1 5/30/97 713,000
Amigo TV Rental, Inc.............. New Mexico, Texas 17(3) 7/25/97 8,900,000
B.P.S. Inc........................ Louisiana 4 12/15/97 1,398,022
</TABLE>

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

(1) The revenue amounts presented are based upon the financial statements of the
companies acquired.

(2) Home Choice, Inc. and Yam's, Inc. are based upon fiscal 1995 total revenue.

(3) Subsequent to their acquisition by RTO, Mr. C. Rental Limited Partnership
and Amigo TV Rental, Inc. each consolidated two (2) stores.

75
<PAGE> 92

(4) The Showtyme Group consists of Carolina's Best Rent-to-Own, Inc., H&J TV
Rental, Inc., Rentmaster Appliance and TV Rentals, Inc., Showtyme TV
Rentals of Anderson, Inc., Showtyme TV Rentals of Charleston, Inc. and
Showtyme TV Rentals of Spartanburg, Inc.

(5) The Seajay Group consists of Seajay Investment Group, Inc. and Mercury
Acceptance Corporation.

(6) National TV Rental, Inc.'s fiscal 1996 total revenue includes approximately
$1.1 million from stores sold during 1996.

(7) The ABC Group consists of ABC TV & Stereo Rental of Colorado, Inc., Daniel
B. Rudden & Partners, L.L.C. and R&K Rentals, L.L.C.

(8) The Hut Co., Inc.'s 1996 fiscal year ended on January 31, 1997.

PRODUCTS AND MERCHANDISING

RTO's stores generally offer an assortment of quality, brand-name
merchandise, including consumer electronics, appliances, furniture, jewelry and
home furnishing accessories. RTO displays a wide variety of types and models of
merchandise in its stores. Merchandise is displayed in showroom settings
featuring attractive, professional displays and signage. Store interiors feature
bright colors in an atmosphere intended to make customers feel comfortable.
RTO's management regularly evaluates and modifies its product offerings to
reflect changing local demand and monitors adherence to RTO's standards for
cleanliness and quality of merchandise.

OPERATIONS

Management and Supervision. RTO currently has divided the management of
its stores among three geographic zones. Each zone is directed by a Vice
President of Operations who is responsible for store operations, new store
openings, store staffing, training, merchandising and real estate leasing for
the zone. Each Vice President of Operations directs the efforts of one or more
Directors of Store Operations, each of whom directs several regional managers
who are responsible for six to ten stores each. Vice Presidents of Operations
and Directors of Store Operations are experienced executives, averaging over 14
years of experience in the rental-purchase industry. Regional managers reside in
the regions that they supervise and monitor individual store performance and
rental merchandise on a daily basis. RTO limits the number of stores supervised
by each regional manager to assure adequate monitoring of operations.

Each mature RTO store requires a staff of three to ten employees, including
a store manager, assistant manager and sales, delivery and collection personnel.
Each RTO store manager reports to a regional manager. Individual store managers
are responsible for customer relations and account collection, development of
new rental accounts, rental merchandise management, staffing and training and
profit and loss control.

Customer Service. RTO provides same day delivery and installation of its
merchandise at no additional cost to the customer. RTO performs all necessary
repair and maintenance service on rental merchandise without charge, except for
damage in excess of normal wear and tear. Most products offered by RTO are
covered under standard manufacturer's warranties and the remainder of the
warranties may be transferred to a customer who obtains ownership. Customers are
fully liable for damage, loss or destruction of the merchandise unless they have
purchased an optional loss/damage waiver.

RTO monitors customer relations at the store level and encourages customer
feedback. RTO's policy requires employees to provide all customers, upon
request, with the telephone number of RTO's corporate office where any
complaints or problems which are not handled at the store level to the
satisfaction of the customer can be resolved.

Delivery of Merchandise. RTO's customers generally obtain rental
merchandise at the store although they may also do so by telephone. RTO offers
same-day delivery of in-stock merchandise. Generally, a sufficient quantity of
merchandise is held at all store locations to fill customer orders promptly. In
most instances, suppliers of merchandise ship products directly to individual
store locations on a weekly basis.

76
<PAGE> 93

Management Information Systems. RTO's management information systems
provide detailed information on store operations in daily, weekly, monthly and
year-to-date reports. These reports cover data in a broad range of categories
and present information by stores or groups of stores. The systems provide RTO's
management with on-demand access to operating and financial information about
any store. RTO's integrated computerized management information and control
systems track rental merchandise movement for each store location and by each
product category, minimizing excess rental merchandise while maintaining
optional in-stock positions. The systems also monitor collection procedures and
practices in order to help minimize late payments and expenses related to
recovery of merchandise while maximizing customer relations and compliance with
regulatory and industry-accepted collection practices. These systems have
enabled RTO to expand its operations while maintaining a high degree of control
over cash receipts, rental merchandise and customer transactions.

COMPETITION

The rental-purchase industry is highly competitive. RTO competes directly
with other national and regional rental-purchase businesses, and on a limited
basis with temporary-use rental stores, such as furniture rental outlets. RTO
believes, however, that its most direct competition comes from national firms
such as Rent-A-Center, Renters Choice, Aaron Rents and Rent-Way, Inc. RTO's
largest national competitors have significantly greater resources than RTO.

PROPERTIES

RTO leases space for all of its rental-purchase stores as well as its
corporate and zone offices under leases expiring at various times through July
2001. Most of the leases contain renewal options for additional periods at
rental rates adjusted according to agreed upon formulas. RTO's corporate office
consists of approximately 28,500 square feet plus an 8,400 square foot regional
service center. The corporate office building and service center are leased from
White Property Company No. 2, Ltd., an affiliate of Billy W. White, Sr., the
Chief Executive Officer and a director of RTO. RTO also leases one store
location from White Property Company No. 2, Ltd. See "The Merger -- Interests of
Certain Persons in the Merger" and "Management of Alrenco Following the Merger
- -- Certain Transactions."

EMPLOYEES

As of December 15, 1997, RTO employed 1,770 people, 133 of whom were
assigned to RTO's corporate and zone office and 1,637 of whom were directly
involved in the management and operation of RTO's stores. None of RTO's
employees is covered by a collective bargaining agreement. RTO provides numerous
employee benefits, including a 401(k) plan and group life, health and disability
insurance plans. Management of RTO believes that the relationships between RTO
and its employees are good.

77
<PAGE> 94

PRINCIPAL STOCKHOLDERS OF RTO

The following table sets forth information with respect to the beneficial
ownership of RTO Common Stock by (i) each current director and executive officer
of RTO, (ii) each person known to management of RTO to own of record or
beneficially more than 5% of the outstanding shares of RTO Common Stock, and
(iii) all directors and officers of RTO as a group. The table reflects ownership
of RTO Common Stock and the percentage of such ownership as of January 13, 1998,
and the number of shares of Alrenco Common Stock which each such person will
receive in the Merger at the Exchange Ratio of 89.795 shares of Alrenco Common
Stock for each outstanding share of RTO Common Stock. Except as otherwise
indicated, each person or entity shown has sole voting and investment power with
respect to the shares of RTO Common Stock owned by him or it.

<TABLE>
<CAPTION>
NUMBER OF SHARES(1) PERCENT OF CLASS
----------------------- ------------------
BEFORE AFTER BEFORE AFTER
NAME MERGER MERGER MERGER(2) MERGER
---- --------- --------- --------- ------
<S> <C> <C> <C> <C>
George D. Johnson, Jr.(3)........................... 26,448(4) 2,374,898 21.9% 14.0%
Billy W. White, Sr.................................. 250(5) 22,448 * *
John S. Rainey...................................... 1,188(6) 106,676 1.0 *
Edward W. Phifer, III............................... 188(7) 22,481(8) * *
James G. Steckart................................... 0 0 * *
K. David Belt....................................... 3,395(9) 304,854 2.8 1.8
Tracy Schrader...................................... 0 0 * *
R. Daniel Matthews.................................. 69(10) 6,195 * *
Larry D. Sutton..................................... 2,478(11) 222,512 1.9 1.3
Wayne Sutton........................................ 1,600(11) 143,672 1.3 *
A. Foster Chapman(12)............................... 6,000(13) 538,770 5.0 3.2
Geneva Partners LLC(14)............................. 8,500 763,257 7.0 4.5
Daniel C. Breeden, Jr.(15).......................... 7,625(16) 686,686(17) 6.3 4.0
All directors and officers as a group (9
persons)(18)...................................... 43,241 3,890,422 34.5 22.3
</TABLE>

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

* Less than 1%.

(1) Includes shares of RTO Common Stock that may be acquired upon the exercise
of stock options or the conversion of convertible notes exercisable or
convertible within 60 days. Each person named above has sole voting and
dispositive power with respect to all shares listed opposite such person's
name, except as otherwise noted.

(2) Based on 120,959 shares of RTO Common Stock outstanding as of January 13,
1998 plus, for each individual, the number of shares of RTO Common Stock
that may be acquired upon the exercise of stock options or the conversion
of convertible notes exercisable or convertible within 60 days.

(3) George D. Johnson, Jr. is the Chairman of the Board of Directors of RTO.
His address is 450 E. Las Olas Boulevard, Ft. Lauderdale, Florida 33301.

(4) Represents shares owned by GDJ, Jr. Investments Limited Partnership for
which Daniel C. Breeden, Jr. shares voting and investment power.

(5) Represents 250 shares of RTO Common Stock issuable upon exercise of
outstanding stock options.

(6) Includes 188 shares of RTO Common Stock issuable upon exercise of
outstanding stock options. Includes 500 shares owned by C&J Investing
Partners. Mr. Rainey is co-trustee of the two trusts that are the partners
of C&J Investing Partners, and he is a general partner in the partnership
(as to which he shares voting and investment authority with the other
general partner). Mr. Rainey disclaims beneficial ownership of these
shares.

(7) Represents 188 shares of RTO Common Stock issuable upon exercise of
outstanding stock options.

(8) Includes 5,600 shares of Alrenco Common Stock purchased by Mr. Phifer
prior to the Merger.

(9) Includes 1,250 shares of RTO Common Stock owned by the Billy W. White, Sr.
Annuity Trust and 1,250 shares of RTO Common Stock held by the Lillie B.
White Annuity Trust, for which Mr. Belt's

78
<PAGE> 95

wife, Debra Belt, shares voting and investment power. Includes 145 shares
of RTO Common Stock issuable upon exercise of outstanding stock options.

(10) Represents 69 shares of RTO Common Stock issuable upon exercise of
outstanding stock options.

(11) Includes 2,400 shares of RTO Common Stock issuable upon conversion of
convertible notes and 78 shares of RTO Common Stock issuable upon exercise
of outstanding stock options.

(12) The address of Mr. Chapman is 961 East Main Street, Spartanburg, South
Carolina 29302.

(13) Includes 5,500 shares deemed beneficially owned by Mr. Chapman as trustee
of two trusts. Mr. Chapman disclaims beneficial ownership of these shares.

(14) The address of Geneva Partners LLC is c/o Rosemarie Buntrock, 3003
Butterfield Road, Oak Brook, Illinois 60521.

(15) The address of Mr. Breeden is 961 East Main Street, Spartanburg, South
Carolina 29302.

(16) Includes 6,000 shares deemed to be beneficially owned by Mr. Breeden as
trustee of five trusts. Mr. Breeden disclaims beneficial ownership of these
shares. Includes 125 shares of RTO Common Stock issuable upon exercise of
outstanding stock options.

(17) Includes 2,000 shares of Alrenco Common Stock purchased by Mr. Breeden
prior to the Merger.

(18) The percentage of shares owned by all directors and officers as a group is
based on the applicable number of shares of RTO Common Stock outstanding
plus (i) 4,000 shares of RTO Common Stock subject to notes convertible at
the option of certain executive officers of RTO and (ii) 1,043 shares of
RTO Common Stock issuable upon exercise of outstanding stock options held
by certain executive officers and directors of RTO. Such convertible notes
and options are the only securities convertible into or exercisable for RTO
Common Stock within 60 days of the date of this Joint Proxy Statement/
Prospectus.

Alrenco may be deemed to own beneficially the 11,943 shares of RTO Common
Stock for which it has been granted an option to purchase in connection with the
Merger. If such option was exercised in full, Alrenco would own approximately
9.0% of the issued and outstanding shares of RTO Common Stock. See "The Stock
Option Agreements."

George D. Johnson, Jr., Chairman of the Board of RTO, has agreed with
Alrenco to vote all shares of RTO Common Stock beneficially owned by him for
approval of the Merger Agreement and each of the other transactions contemplated
thereby. See "The Stockholder Voting Agreements."

79
<PAGE> 96

MANAGEMENT OF ALRENCO FOLLOWING THE MERGER

DIRECTORS

The number of directors of Alrenco is currently fixed at seven. The Merger
Agreement provides that, at the Effective Time, the Alrenco Board will consist
of George D. Johnson, Jr., Michael D. Walts, Billy W. White, Sr., Edward W.
Phifer, III and John S. Rainey. The Merger Agreement further provides that, at
the Effective Time, George D. Johnson, Jr., Chairman of the Board of Directors
of RTO, will be the Chairman of the Board of Alrenco. Information concerning
those persons who will continue as or become directors of Alrenco following the
Merger is set forth below.

<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION POSITION FOLLOWING THE MERGER
---- --- ---------------- -----------------------------
<S> <C> <C> <C>
George D. Johnson, Jr............. 55 Chairman of the Board of Chairman of the Board
RTO
Michael D. Walts.................. 57 Chairman of the Board and Director
President of Alrenco
Billy W. White, Sr................ 63 President, Chief Executive President, Chief Executive
Officer and Director of Officer and Director
RTO
Edward W. Phifer, III............. 56 Director of RTO Director
John S. Rainey.................... 56 Director of RTO Director
</TABLE>

George D. Johnson, Jr. Mr. Johnson has been Chairman of the Board of RTO
since its incorporation in June 1996. Mr. Johnson has been President and Chief
Executive Officer of Extended Stay America, Inc. since January 1995. Mr. Johnson
is the former President of the Consumer Products Division of Blockbuster
Entertainment Corp., a division of Viacom. In this position, he was responsible
for all U.S. video and music stores. Mr. Johnson has over 30 years of experience
developing and managing various businesses. He was formerly the Managing General
Partner of WJB Video, the largest Blockbuster franchisee which developed over
200 video stores prior to a merger with Blockbuster in 1993 and is the managing
general partner of American Storage Limited Partnership, a chain of 27
self-storage facilities located in the Carolinas and Georgia. He currently
serves on the Board of Directors of Republic Industries, Inc., Duke Energy
Corporation, Extended Stay America, Inc. and Florida Panthers Holding Company,
Inc., and has been the Chairman of the Board of Directors of Johnson Development
Associates, Inc. since its founding in 1986. Johnson Development Associates,
Inc. is a real estate management, leasing and development company controlling
approximately three million square feet of commercial, retail and industrial
property located in the Carolinas and Georgia which are owned by various
partnerships controlled by Mr. Johnson and his family. Mr. Johnson practiced law
in Spartanburg, South Carolina from 1967 until 1986 and served three terms in
the South Carolina House of Representatives. Mr. Johnson is the brother-in-law
of Edward W. Phifer, III, a director of RTO.

Michael D. Walts. Mr. Walts is the current Chairman of the Board of
Directors and President of Alrenco. He has worked in the rental-purchase
industry for more than 17 years since founding Alrenco 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 Alrenco. See "-- Certain Transactions."

Billy W. White, Sr. Mr. White has been President, Chief Executive Officer
and a director of RTO since August 1996. He has been President and Chief
Executive Officer of Action TV & Appliance Rental, Inc. since he founded it in
1975. For several years, Mr. White has been on the Board of Directors of APRO
and he recently completed his second term as President of APRO's board. He is
also a former member of the Board of Directors and past president of the Texas
Association of Rental Agents and serves on the Mesquite (Texas) Economic
Development Foundation Board of Directors. Mr. White is the father-in-law of K.
David Belt, Chief Financial Officer of RTO.

Edward W. Phifer, III. Mr. Phifer has been a director of RTO since
December 1996. Mr. Phifer is a founding shareholder, director and Senior Vice
President of E.J. Victor, Inc., a furniture manufacturer located in Morganton,
North Carolina. Prior experience includes nine years in sales at Henredon
Furniture Company

80
<PAGE> 97

and 16 years as Vice President, director and partner at Hardwoods of Morganton,
Inc., a lumber brokerage firm. Mr. Phifer is the brother-in-law of George D.
Johnson, Jr., Chairman of the Board of RTO.

John S. Rainey. Mr. Rainey has been a director of RTO since December 1996.
Mr. Rainey is a partner in the law firm of Demo & Rainey, L.L.P., in Lexington,
South Carolina. Mr. Rainey has served as Chairman of South Carolina Public
Service Authority (Santee Cooper), a publicly-owned electric and water utility,
since 1990; Chairman of Easlan Capital, Inc., a real estate development company,
since 1982; a director of National Bank of South Carolina since July 1997; a
director of Prym-Dritz Corporation, a major sewing notions distributor, since
1985; a director of Texfi Industries, Inc., a diversified textile company from
1985 to March 1997; and a director of NationsBank, National Association and
predecessor corporations from 1977 to June 1997.

The Alrenco Articles provide that the Alrenco Board shall be divided into
three classes. The members of each class of directors serve for staggered
three-year terms. One class of directors is elected at each annual meeting of
shareholders with the terms of each class expiring in successive years.
Directors hold office for their elected term and until their successors are
elected and qualified.

EXECUTIVE OFFICERS

The executive officers of Alrenco following the Merger are expected to be
as follows:

<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION POSITION FOLLOWING THE MERGER
---- --- ---------------- -----------------------------
<S> <C> <C> <C>
James G. Steckart................. 49 Chief Operating Officer of Chief Operating Officer
RTO
K. David Belt..................... 43 Chief Financial Officer Chief Financial Officer
of RTO
Daniel C. Breeden, Jr............. 42 Vice President, Secretary Vice President, Secretary and
and Treasurer of RTO Treasurer
Tracy A. Schrader................. 30 General Counsel of RTO General Counsel
R. Daniel Matthews................ 45 Vice President of Vice President of Operations
Operations of RTO
Larry D. Sutton................... 46 Vice President of Vice President of Operations
Operations of RTO
Wayne Sutton...................... 48 Vice President of Vice President of Operations
Operations of RTO
</TABLE>

James G. Steckart. Mr. Steckart has been Chief Operating Officer of RTO
since October 1997. From 1996 to October 1997, he was the President and Chief
Executive Officer of Alameda Management Company, a company engaged in the
development, management and ownership of inn-type motels. From 1991 to 1996, he
was employed by Advantage Companies, Inc., a publicly traded franchisee of
Rent-a-Center, first as Vice President of Operations from 1991 to 1993 and as
President from 1993 to 1996.

K. David Belt. Mr. Belt has been Chief Financial Officer of RTO since
August 1996. He has been Vice President and Chief Financial Officer of Action
since July 1983. From August 1977 to July 1983, Mr. Belt was an accounting
manager for Texas Utilities Company, where he worked in the financing and
Commission regulation area. Mr. Belt is a certified public accountant and a
member of APRO's Tax and Accounting committee. He is the son-in-law of Billy W.
White, Sr., the President, Chief Executive Officer and a director of RTO.

Tracy Schrader. Mr. Schrader has been General Counsel of RTO since October
1997. From June 1996 to October 1997, he was Corporate Counsel to Unisite, Inc.,
and from 1992 to June 1996, he was an attorney at the law firm of Gardere &
Wynne, LLP.

Daniel C. Breeden, Jr. Mr. Breeden has been Vice President, Secretary and
Treasurer of RTO since its incorporation in June 1996. He has served as the
Chief Financial Officer of Johnson Development Associates,

81
<PAGE> 98

Inc. and American Storage since July 1987. From August 1983 to July 1987, he was
a tax accountant at Price Waterhouse, and from February 1979 to August 1983, he
was a Budget Coordinator at The South Carolina State Ports Authority. Mr.
Breeden currently serves on the Board of Directors of First United
Bancorporation and E. J. Victor, Inc. Mr. Breeden is a certified public
accountant.

R. Daniel Matthews. Mr. Matthews has been Vice President of Operations of
RTO since August 1996. He was the Vice President of Operations for Action from
October 1991 to August 1996. From 1987 to September 1991, he was Regional
Manager of Rent-a-Center, and from 1986 to 1987, he was General Manager of Alamo
Rentals. From 1984 to 1986, he was the owner of Express Leasing, and from 1976
to 1984, he was Regional Manager of ABC Rentals.

Larry D. Sutton. Mr. Sutton has been Vice President of Operations of RTO
since January 1997. From 1980 to January 1997, he was the co-owner of B&L
Concepts, Inc., which he first opened in 1980 and grew to 27 store locations at
the time of its acquisition by RTO. Mr. Sutton is a member of the APRO Board of
Directors and serves on APRO's Ethics, Education and Public Relations
committees.

Wayne Sutton. Mr. Sutton has been Vice President of Operations of RTO
since May 1997. From 1983 to May 1997, he was the President, Chief Executive
Officer and sole owner of Instant Rent To Own, Inc., which he first opened in
1983 and grew to 11 store locations at the time of its acquisition by RTO. Mr.
Sutton has been a member of the APRO Board of Directors since 1995, a board
member of The Rental Industry Buying Group since 1996 and President of the
Louisiana State Rental Dealers Association since 1994.

DIRECTOR COMPENSATION

Following the Merger, directors of Alrenco will not receive any fee for
attending meetings of the Alrenco Board or any of its committees. However, all
directors will be reimbursed for travel and lodging expenses incurred in
connection with their attendance at Alrenco Board, shareholder and committee
meetings. Directors who are not employees of Alrenco ("Nonemployee Directors")
will be entitled to receive nondiscretionary awards of stock options under the
Alrenco Stock Incentive Plan.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth summary
compensation information for the Chief Executive Officer and each other
executive officer of RTO whose aggregate salaries and bonuses exceeded $100,000
(collectively, the "Named Executive Officers") for services rendered in all
capacities to RTO during the fiscal years ended December 31, 1996 and 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING
OTHER STOCK OPTION
ANNUAL AWARDS
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) (# SHARES)
--------------------------- ---- -------- --------------- ------------
<S> <C> <C> <C> <C>
Billy W. White, Sr.............................. 1997 $300,000 -- 714
President and Chief Executive Officer 1996 300,000 $982,851(2) 1,000
K. David Belt................................... 1997 $150,000 -- 357
Chief Financial Officer 1996 105,815(3) $255,085(4) 580
R. Daniel Matthews.............................. 1997 $125,000 -- 46
Vice President of Operations 1996 100,052 -- 275
Larry D. Sutton................................. 1997 $122,596 -- 383
Vice President of Operations 1996 (5) (5) (5)
</TABLE>

82
<PAGE> 99

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

(1) None of the Named Executive Officers received Other Annual Compensation in
excess of $50,000 or 10% of the total reported annual salary and bonus for
such Named Executive Officers in 1997.

(2) Represents (i) a one-time payment of $976,271 received upon joining RTO;
(ii) $6,000 in matching contributions under RTO's 401(k) plan; and (iii)
$580 for use of a company-owned automobile.
(3) Includes $1,042 of Excess Group Term Life Insurance.
(4) Represents (i) a one-time payment of $244,068 received upon joining RTO;
(ii) $4,048 in matching contributions under RTO's 401(k) plan; and (iii)
$6,969 for use of company-owned automobiles.
(5) Larry D. Sutton became Vice President of Operations for RTO in January 1997.

Option Grants. The following table sets forth information regarding option
grants during fiscal 1997 to each of the Named Executive Officers:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
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) DATE 5% 10%
---- ---------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Billy W. White, Sr.............. 714 14.0% $1,400 4/01/07 $628,643 $1,593,105
K. David Belt................... 357 7.0% 1,400 4/01/07 314,322 796,552
R. Daniel Matthews.............. 46 0.9% 1,400 4/01/07 40,501 102,637
Larry D. Sutton................. 312 6.1% 1,250 1/07/07 245,269 621,560
71 1.4% 1,400 4/07/07 62,512 158,418
</TABLE>

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

(1) Options granted in 1997 to each of the named individuals become exercisable
25% per year over 4 years.

Option Holdings. The following table sets forth certain information
concerning the status and value of unexercised options held by each of the Named
Executive Officers as of December 31, 1997:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1997 DECEMBER 31, 1997(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Billy W. White, Sr........................ 250 1,464 $100,000 $300,000
K. David Belt............................. 145 792 53,000 159,000
R. Daniel Matthews........................ 68.75 252.25 27,500 82,500
Larry D. Sutton........................... 78 305 11,700 35,100
</TABLE>

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

(1) Based on a fair market value of $1,400 per share as of December 31, 1997, as
determined by the RTO Board.

STOCK INCENTIVE PLAN

In November 1995, the Alrenco Board adopted, and the Alrenco Shareholders
approved, the Alrenco Stock Incentive Plan. The purpose of the Alrenco Stock
Incentive Plan is to further the interests of Alrenco by providing eligible
employees with an additional incentive to increase the value of Alrenco's stock
by granting such employees a stake in the future of Alrenco. A total of 450,000
shares of Common Stock has been reserved for issuance under the Alrenco Stock
Incentive Plan. The Alrenco Stock Incentive Plan is administered by the
Compensation Committee of the Alrenco Board (the "Committee"). The Alrenco 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 Alrenco.

83
<PAGE> 100

Stock Options. Each stock option granted under the Alrenco Stock Incentive
Plan will entitle the holder thereof to purchase the number of shares of Alrenco
Common Stock specified in the grant at the purchase price specified therein. The
terms and conditions of each stock option granted under the Alrenco Stock
Incentive Plan will be determined by the Committee.

Stock options to be granted under the Alrenco Stock Incentive Plan may be
either incentive stock options or nonqualified stock options. Stock options
designated by the Committee as incentive stock options will comply with Section
422 of the Internal Revenue Code of 1986. The purchase price for shares subject
to an incentive stock option will not be less than 100% of the fair market value
of the Alrenco Common Stock at the time of grant. No incentive stock option may
be granted to any employee of Alrenco who owns at the date of grant shares of
stock representing in excess of 10% of the voting power of all classes of stock
of Alrenco unless the exercise price for stock subject to such option is at
least equal to 110% of the fair market value of the stock at the time of grant
and the option term does not exceed five years. The terms of any nonqualified
stock option, including without limitation the exercise price and period of
exercise, will be determined by the Committee in its sole discretion at the time
of grant.

Stock Appreciation Rights. Stock appreciation rights will entitle the
holder to receive an amount equal to the excess of the fair market value of one
share of Alrenco Common Stock as of the date such right is exercised over the
exercise or base price specified in the stock appreciation right, multiplied by
the number of shares of Alrenco Common Stock in respect of which the stock
appreciation right is being exercised.

Restricted Stock. The Committee may also grant shares of Alrenco Common
Stock to plan participants subject to certain restrictions ("Restricted Stock").
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered during a "Restricted Period," which shall not be less than one year
from the date of grant. The employee as the owner of such stock shall have all
rights of a shareholder including, but not limited to, the right to vote such
stock and to receive dividends thereon as and when paid. Upon the grant of
shares of Restricted Stock, the employee shall enter into an agreement with
Alrenco in a form specified by the Committee and containing such additional
terms and conditions, if any, as the Committee in its sole discretion shall
determine, which are not inconsistent with the provisions of the Alrenco Stock
Incentive Plan. The amount of Restricted Stock to be granted to any employee and
the respective terms and conditions of such grant (which terms and provisions
need not be the same in each case) will be determined by the Committee in its
discretion.

Nonrestricted Stock. The Committee may from time to time make awards of
unrestricted Alrenco Common Stock ("Nonrestricted Stock") to plan participants.
The Committee in its discretion will determine those plan participants to whom
awards of Nonrestricted Stock will be granted and the number of shares to be
granted to each participant.

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

The Alrenco Stock Incentive Plan provides for the granting to non-employee
directors of stock options to purchase up to 5,000 shares of Alrenco Common
Stock. Options granted under the plan are non-qualified stock options. Option
exercise prices are required to be the fair market value of the Alrenco Common
Stock as determined by the Alrenco Board at the date of grant. Options with
respect to one-half of the total number of shares subject to options for each
non-employee director are granted on the date each such director takes office,
and as to the remaining one-half of such shares, options with respect to
one-fourth of such shares are granted at the end of the twelve-month period
following the date such director takes office and at the end of each subsequent
twelve-month period for the succeeding three years. All options are exercisable
six months after the date of grant and have a ten-year term.

RTO has adopted a stock option plan (the "RTO Non-Employee Director Stock
Option Plan") that provides for the granting to non-employee directors of stock
options to purchase up to 376 shares of RTO Common Stock. Options granted under
the plan are non-qualified stock options. Option exercise prices are required to
be the fair market value of the RTO Common Stock as determined by the RTO Board
at the date of grant. Options with respect to 188 shares are granted on the date
each such director takes office, and as to the remaining 188 shares subject to
such options to which each such director is entitled, options with respect

84
<PAGE> 101

to 47 shares are granted at the end of the twelve-month period following the
date on which each such director takes office and at the end of each subsequent
twelve-month period for the succeeding three years. All options are exercisable
six months after the date of grant and have a ten-year term.

Pursuant to the Merger Agreement, each RTO Option outstanding and
unexercised at the Effective Time, including each option granted pursuant to the
RTO Non-Employee Director Stock Option Plan, will be converted at the Effective
Time into an option to purchase Alrenco Common Stock and Alrenco will assume the
obligations of RTO to grant any additional options to which any RTO director is
entitled under the RTO Non-Employee Director Stock Option Plan.

RTO directors Edward W. Phifer, III and John S. Rainey each have been
granted options to purchase 188 shares of RTO Common Stock pursuant to the RTO
Non-Employee Director Stock Option Plan. At the Effective Time, such options
will be converted into options to purchase Alrenco Common Stock in accordance
with the Merger Agreement. Directors Phifer and Rainey will be granted the
remaining options to which they are entitled under the RTO Non-Employee Director
Stock Option Plan in the form of options to purchase Alrenco Common Stock as
provided in the Merger Agreement. Directors Phifer and Rainey will not, however,
be granted any options to purchase Alrenco Common Stock pursuant to the Alrenco
Stock Incentive Plan upon taking office as directors of Alrenco, and options
granted to any future directors of Alrenco will be granted pursuant to the
Alrenco Stock Incentive Plan.

CERTAIN TRANSACTIONS

RTO. During the years ended December 31, 1995, 1996 and 1997, RTO (or its
predecessor Action) engaged in the following transactions with its affiliates:

During 1995, 1996 and 1997, Action paid $174,000, $196,000 and $207,000,
respectively, to White Property Company No. 2, Ltd., a limited partnership, for
lease payments related to Action's corporate office building and regional
service center in Mesquite, Texas and a store in Greenville, Texas. White
Property Company No. 2, Ltd.'s general partner, White Properties, Inc., is a
corporation controlled by Billy W. White, Sr., the President, Chief Executive
Officer and a director of RTO.

On December 31, 1995 and 1996, Action had outstanding indebtedness to
various affiliates of Action of $480,000 and $0, respectively. During 1995 and
1996, Action paid total interest on such indebtedness of $97,802 and $2,940,
respectively. All such indebtedness was repaid in connection with the Action
Acquisition.

In 1996 and 1997, RTO paid $106,649 and $120,870, respectively, to Wyoming
Associates, Inc. for aircraft rental charges. Wyoming Associates, Inc. is wholly
owned by George D. Johnson, Jr., Chairman of the Board of Directors of RTO.

In August, 1996, RTO acquired Action. In connection with the acquisition of
Action, Billy W. White, Sr., who is the President, Chief Executive Officer and a
director of RTO, and K. David Belt and R. Daniel Matthews, both of whom are
executive officers of RTO, received $45,451,231, $1,896,969 and $200,000,
respectively, in exchange for their stock in Action and certain noncompetition
and employment agreements.

In August, 1996, Action sold real properties located in Texarkana, Texas to
Texarkana Holdings, Inc., a Texas corporation, for $108,947.50. Texarkana
Holdings, Inc. is wholly owned by Billy W. White, Sr., who is the President,
Chief Executive Officer and a director of RTO.

Alrenco. Alrenco leases its corporate office building, located in New
Albany, Indiana, from Kentuckiana Outfitting Company ("Kentuckiana"), a
corporation owned by Michael D. Walts, the current Chairman of the Board,
President and the principal shareholder of Alrenco. 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.
Alrenco 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.

85
<PAGE> 102

In connection with a life insurance policy insuring the life of Mr. Walts,
Alrenco 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 November 30,
1997, was approximately $78,654.

Prior to Alrenco's initial public offering, Mr. Walts and his wife
guaranteed Alrenco's indebtedness under its bank loan agreement. These
guarantees were released in February 1996 in connection with an amendment to
such loan agreement.

DESCRIPTION OF ALRENCO CAPITAL STOCK

The authorized capital stock of Alrenco consists of 20,000,000 shares of
Alrenco Common Stock, no par value, and 1,000,000 shares of Alrenco Preferred
Stock. As of the close of business on the Alrenco Record Date, there were
6,095,516 shares of Alrenco Common Stock outstanding. There are no shares of
Alrenco Preferred Stock outstanding. Alrenco has reserved 450,000 shares of its
authorized Common Stock for issuance from time to time pursuant to the Alrenco,
Inc. 1995 Stock Incentive Plan. The following description of the capital stock
of Alrenco is qualified in its entirety by reference to the Alrenco Articles and
the Alrenco Bylaws, which have been incorporated by reference as exhibits to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part.

COMMON STOCK

Each Alrenco Shareholder is entitled to one vote per share on all matters
submitted to a vote of Alrenco Shareholders. Alrenco Shareholders do not have
cumulative voting rights. Holders of Alrenco Common Stock will be entitled to
receive such dividends and other distributions as may be declared by the Alrenco
Board out of funds legally available therefor. See "Summary -- Market Prices and
Dividends." In the event of the liquidation, dissolution or winding-up of
affairs of Alrenco, holders of Alrenco Common Stock will be entitled to share
ratably in all assets of Alrenco remaining after payment or provision for
payment of all debts, liabilities and preferences, if any. Holders of Alrenco
Common Stock have no preemptive rights and no right to convert their Alrenco
Common Stock into any other securities. The shares of Alrenco Common Stock are
not redeemable. All shares of Alrenco Common Stock issued in the Merger, upon
receipt by Alrenco of the designated consideration therefor, will be fully paid
and non-assessable.

PREFERRED STOCK

The Alrenco Board may, without further action by the Alrenco Shareholders,
designate and issue from time to time up to 1,000,000 shares of Alrenco
Preferred Stock in one or more series and fix the rights and preferences
thereof, including voting rights, dividend rights and rates, redemption rights,
liquidation rights, conversion rights, and any other designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof not inconsistent with the Alrenco Articles
or the IBCL. Such Alrenco Preferred Stock could rank prior to the Alrenco Common
Stock with respect to dividend rights and rights upon liquidation and could have
rights which would dilute the voting power of the Alrenco Common Stock. Shares
of Alrenco Preferred Stock may also be issued to deter or delay an attempted
takeover of Alrenco that may be opposed by management. Alrenco currently has no
plans to issue any Alrenco Preferred Stock.

CERTAIN ANTI-TAKEOVER MATTERS

Certain provisions of the Alrenco Articles and the Alrenco Bylaws concern
matters of corporate governance and the rights of shareholders. These
provisions, as well as the IBCL and the ability of the Alrenco Board to issue
shares of Preferred Stock and to set the voting rights, preferences and other
terms thereof, may be deemed to have an anti-takeover effect and may discourage
takeover attempts not first approved by the Alrenco Board (including takeovers
which certain Alrenco Shareholders may deem to be in their best interests).
These provisions and the ability of the Alrenco Board to issue Alrenco Preferred
Stock without further shareholder action, also could delay or frustrate the
removal of incumbent directors or the assumption

86
<PAGE> 103

of control by Alrenco Shareholders, even if such removal or assumption would be
beneficial to Alrenco Shareholders. These provisions also could discourage or
make more difficult a merger, tender offer or proxy contest, even if a
transaction or contest could be favorable to interests of Alrenco Shareholders,
and could potentially depress the market price of the Alrenco Common Stock. The
Alrenco Board believes that these provisions are appropriate to protect the
interests of Alrenco and the Alrenco Shareholders. The Alrenco Board has no
present plans to adopt any other measures or provisions which may be deemed to
have an anti-takeover effect.

Classification of Directors. Article VI of the Alrenco Articles provides
for the classification of the Alrenco Board into three classes, each class to
consist, as nearly as possible, of one-third of the number of directors
constituting the entire Board, as determined in the Alrenco Bylaws. Following
their initial terms each class will be elected for a three-year term. Thus,
beginning with the 1996 annual meeting, one class will be elected each year with
the terms of each class expiring in successive years. Article VI is intended to
ensure continuity of Board membership and impede the ability of a third party to
make sudden changes in directors through a proxy contest or the acquisition of a
substantial stock interest.

Removal of Directors. Article VI of the Alrenco Articles provides that the
directors can be removed from that position only for cause. "Cause" means a
director's participation in any transaction in which his or her financial
interests conflict with those of Alrenco or Alrenco Shareholders; any act or
omission not in good faith or involving intentional misconduct or violation of
law; or the participation by a director in any transaction from which he or she
derived improper personal benefit. The purpose of this provision is to impose a
more stringent standard generally for the removal of directors, and also to
prevent a majority shareholder from circumventing the classified board structure
by simply voting to remove directors without cause.

Advance Notice Bylaw Provision. The Alrenco Bylaws impose certain advance
notice requirements on an Alrenco Shareholder nominating a director or
submitting a proposal to a shareholder meeting. This notice must be submitted to
the Secretary of Alrenco between 60 and 90 days before a meeting, and must
contain the information prescribed by the Alrenco Bylaws.

Amendment of Alrenco Articles. Under the IBCL, amendments to articles of
incorporation must generally be approved by the Alrenco Board and by the holders
of a majority of the outstanding shares voting thereon at a meeting of Alrenco
Shareholders, unless the Alrenco Articles or the Alrenco Board provide a higher
voting requirement. Article VI of the Alrenco Articles requires that any
amendment or repeal of those provisions be approved by Alrenco Shareholders
owning at least 80% of the total shares outstanding and entitled to vote
generally in the election of directors, voting together as a single class. The
requirement for an increased shareholder vote to amend Article VI is intended to
prevent a shareholder that controls a majority of the voting shares (or possibly
less than a majority) from avoiding the requirements of the classified board and
removal of directors provisions discussed above by simply repealing such
provisions.

INDIANA ANTI-TAKEOVER STATUTES

Chapter 43 of the IBCL prohibits any business combination, such as a merger
or consolidation between an Indiana corporation with shares of its stock
registered under the federal securities laws or which makes an election under
the IBCL, and an "interested shareholder" (which is defined as any beneficial
owner, directly or indirectly, of 10% or more of the voting power of the
outstanding voting shares of such Indiana corporation) for five years after the
date on which such shareholder became an interested shareholder, unless the
stock acquisition which caused the person to become an interested shareholder
was approved in advance by the corporation's board of directors. This provision
of the IBCL is effective even if all parties should subsequently decide that
they wish to engage in the business combination. Chapter 42 of the IBCL contains
a "control share acquisition" provision which effectively denies voting rights
to shares of an "issuing public corporation" acquired in control share
acquisitions unless the grant of such voting rights is approved by a majority
vote of disinterested shareholders. An issuing public corporation is a
corporation that (i) has 100 or more shareholders; (ii) has its principal place
of business, its principal office or substantial assets within Indiana; and
(iii) either (a) more than 10% of its shareholders are Indiana residents, (b)
more than 10% of its shares are owned by Indiana residents, or (c) 10,000
shareholders resident in Indiana. A control share acquisition is

87
<PAGE> 104

one by which a purchasing shareholder acquires more than one-fifth, one-third,
or one-half of the voting power of the stock of the Indiana corporation whose
stock is registered under the federal securities laws. In addition, if any
person proposing to make or who has made "control share acquisitions" does not
file an "acquiring person statement" with the issuing corporation or if the
control shares are not accorded full voting rights by other shareholders, and if
the articles of incorporation or by-laws of the corporation whose shares are
acquired authorize such redemption, the acquired shares are subject to
redemption by the corporation. Finally, if a control share acquisition should be
made of a majority or more of the corporation's voting stock, and those shares
are granted full voting rights, shareholders are granted dissenters' rights.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Alrenco Common Stock is Star Bank,
N.A., Cincinnati, Ohio.

COMPARISON OF SHAREHOLDER RIGHTS

GENERAL

If the Merger is consummated, the persons who were holders of shares of RTO
Common Stock (other than RTO Dissenting Shares) immediately prior to the Merger
will become holders of shares of Alrenco Common Stock immediately after
consummation of the Merger and their rights will be governed by the Alrenco
Articles, the Alrenco Bylaws and the IBCL. The Alrenco Articles, as amended by
the Articles Amendment, will be the new Alrenco Articles at the Effective Time.
See "Amendment to Alrenco Articles of Incorporation." The Articles Amendment
provides for, among other things, (i) an increase in the amount of authorized
Alrenco Common Stock and Alrenco Preferred Stock and (ii) an increase in the
vote required to amend most sections of the Alrenco Articles from a majority of
shareholders to 67% of shareholders.

The following discussion is a brief summary of the material differences
between the current rights of Alrenco Shareholders and the current rights of RTO
Stockholders. The purpose of this summary is to indicate briefly the differences
between holding Alrenco Common Stock and RTO Common Stock to the extent such
differences are created by the state corporation laws applicable to Alrenco and
RTO or arise because of differences between the Alrenco Articles and the Alrenco
Bylaws and the RTO Certificate and the RTO Bylaws.

BOARD OF DIRECTORS

Alrenco. Article VI of the Alrenco Articles provides that the number of
directors (never less than three) shall be fixed from time to time or in the
manner provided in the Alrenco Bylaws. Article 5 of the Alrenco Bylaws provides
for seven directors, divided into three classes with three year terms of office
which expire at different times. Each director is entitled to serve for the
longer of the term for which he was elected or until his successor is elected
and qualified. Directors may be removed for cause by a majority vote of the
shareholders entitled to vote at a shareholder meeting called for that purpose.
In addition, Section 6.5 of the Alrenco Articles mandates that an affirmative
vote of 80% of the voting power of all the then outstanding Alrenco capital
stock entitled to vote is required to alter, amend or repeal any provision of
Article VI.

RTO. Article Eighth of the RTO Certificate provides that directors shall
be elected annually and shall hold office until their successors are duly
elected or they are displaced. Article Eighth of the RTO Certificate provides
that the number of directors shall be fixed from time to time (never less than
three nor more than fifteen). Section 141 of the DGCL provides that, unless the
corporation has either classes of directors under Section 141(d) or cumulative
voting, any director or the entire board of directors may be removed, with or
without cause, by the holders of a majority of shares then entitled to vote at
an election of directors. Section 8.12 of the RTO Certificate provides that
Directors may be removed for cause by an affirmative vote of 66 2/3% of the
shareholders entitled to vote at a shareholder meeting called for that purpose.
In addition, Section 8.6 of the RTO Certificate mandates that an affirmative
vote of 66 2/3% of the voting power of all the then outstanding RTO capital
stock entitled to vote is required to alter, amend, repeal, or adopt any
provision inconsistent with Article Eighth.

88
<PAGE> 105

LIMITATION OF DIRECTOR LIABILITY

Alrenco. The Alrenco Articles and the Alrenco Bylaws do not contain a
specific exculpatory provision regarding director liability. Under Section
23-1-35-1 of the IBCL, directors are required to discharge their duties: (i) in
good faith; (ii) with the care an ordinarily prudent person in a like position
would exercise under similar circumstances; and (iii) in a manner the directors
reasonably believe to be in the best interests of the corporation. However, this
section also provides that a director is not liable for any action taken as a
director, or any failure to act, unless the director has breached or failed to
perform the duties of the director's office and the action or failure to act
constitutes willful misconduct or recklessness. Section 23-1-35-1 does not apply
to officers of Alrenco who are not directors of Alrenco.

RTO. As permitted by the DGCL, Article 9.1 of the RTO Certificate provides
that directors of RTO shall not be liable personally to RTO or RTO Stockholders
for monetary damages for breach of fiduciary duty as a director except for
liability arising out of (a) any breach of the director's duty of loyalty to RTO
or RTO Stockholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) payment of a dividend
or approval of a stock repurchase in violation of Section 174 of the DGCL, or
(d) any transaction from which the director derived an improper personal
benefit. This provision protects RTO directors against personal liability for
monetary damages from breaches of their duty of care. Under Delaware law, absent
adoption of Article 9.1, directors can be held liable for gross negligence in
connection with decisions made on behalf of the corporation in the performance
of their duty of care, but may not be liable for simple negligence. Although
Article 9.1 provides RTO directors with protection from certain awards of
monetary damages for breaches of their duty of care, it does not eliminate the
director's duty of care. Accordingly, Article 9.1 has no effect on the
availability of equitable remedies, such as an injunction or rescission, based
upon a director's breach of his duty of care. Article 9.1 does not apply to
officers of RTO who are not directors of RTO.

INDEMNIFICATION

Alrenco. Under Sections 23-1-37-1, et seq., of the IBCL and as mandated by
Section 7.1 of the Alrenco Articles and Section 8.1 of the Alrenco Bylaws,
directors, officers and other employees and individuals may be indemnified
against expenses, judgments, fines and actions, suits or proceedings, whether
civil, criminal, administrative or investigative, if they are wholly successful
with respect thereto or if they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of Alrenco,
and, regarding any criminal action or proceeding, if they had no reasonable
cause to believe their conduct was unlawful or if they had reasonable cause to
believe their conduct was lawful. To the extent that an officer or director
otherwise eligible to be indemnified is wholly successful, on the merits of any
claim or otherwise, in the defense of any proceeding, indemnification for
expenses actually and reasonably incurred is mandated by the IBCL.

A claim, action, suit or proceeding includes any claim, action, suit or
proceeding that a person is threatened to be made a party to, or is involved in,
because he is or was a director, officer or employee of Alrenco or of any
Alrenco subsidiary (or was serving at the request of Alrenco as a director,
officer, trustee, employee or agent of another entity) while serving in such
capacity.

The right to indemnification is not exclusive of any other right which any
person may have or acquire by contract or as a matter of law. Alrenco may
execute indemnification agreements which are broader or different than the
rights authorized by the Alrenco Articles.

RTO. Under Section 145 of the DGCL, directors, officers, employees and
other individuals may be indemnified against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with
specified actions, suits or proceedings, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation --
a "derivative action") if they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, regarding any criminal action or proceeding, had no reasonable
cause to believe their conduct was unlawful. A similar standard is applicable in
the case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense or
settlement of such actions.

89
<PAGE> 106

The DGCL requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. To
the extent that a person otherwise eligible to be indemnified is successful on
the merits of any claim or defense described above, indemnification for expenses
(including attorneys' fees) actually and reasonably incurred is mandated by the
DGCL.

Article 9.2 of the RTO Certificate and Section 6 of Article VII of the RTO
Bylaws provide that RTO must indemnify, to the fullest extent authorized by the
DGCL, each person who was or is made party to, is threatened to be made a party
to, or is involved in, any action, suit or proceeding because he is or was a
director, officer or employee of RTO or of any RTO subsidiary (or was serving at
the request of RTO as a director, trustee, officer, employee or agent of another
entity) while serving in such capacity against all expenses, liabilities or loss
incurred by such person in connection therewith.

The right to indemnification is not exclusive of any other right which any
person may have or acquire under any statute, any provision of the RTO
Certificate or the RTO Bylaws, or otherwise. RTO is authorized to enter into
contracts of indemnification.

ANTITAKEOVER STATUTES

Alrenco. Chapter 43 of the IBCL prohibits any business combination, such
as a merger or consolidation between an Indiana corporation with shares of its
stock registered under the federal securities laws or which makes an election
under the IBCL, and an "interested shareholder" (which is defined generally as
any owner of 10% or more of the corporation's stock) for five years after the
date on which such shareholder became an interested shareholder unless the
business combination or the stock acquisition which caused the person to become
an interested shareholder was approved in advance by the corporation's board of
directors. This provision of the IBCL is effective even if all parties should
subsequently decide that they wish to engage in the business combination.
Following the five-year moratorium period, the Indiana corporation may engage in
certain business combinations with an interested shareholder only if, among
other things, (a) the business combination is approved by the affirmative vote
of the holders of a majority of the outstanding voting shares not beneficially
owned by the interested shareholder proposing the business combination or (b)
the business combination meets certain criteria designed to ensure that the
remaining shareholders receive fair consideration for their shares. Chapter 43
of the IBCL will not apply to the Merger Agreement or the grant or exercise of
options pursuant to the Stock Option Agreements because, before such options
were granted, the Alrenco Board approved both the granting of such options and
the Merger.

Chapter 42 of the IBCL contains a "control share acquisition" provision
which effectively denies voting rights to shares of an "issuing public
corporation" acquired in control share acquisitions unless the grant of such
voting rights is approved by a majority vote of disinterested shareholders. An
issuing public corporation is a corporation that (i) has 100 or more
shareholders; (ii) has its principal place of business, its principal office or
substantial assets within Indiana; and (iii) either (a) more than 10% of its
shareholders are Indiana residents, (b) more than 10% of its shares are owned by
Indiana residents, or (c) 10,000 shareholders resident in Indiana. A control
share acquisition is one by which a purchasing shareholder acquires more than
one-fifth, one-third, or one-half of the voting power of the stock of an Indiana
corporation whose stock is registered under the federal securities laws. In
addition, if any person proposing to make or who has made "control share
acquisitions" does not file an "acquiring person statement" with the issuing
corporation or if the control shares are not accorded full voting rights by
other shareholders, and if the articles of incorporation or by-laws of the
corporation whose shares are acquired authorize such redemption, the acquired
shares are subject to redemption by the corporation. Finally, if a control share
acquisition should be made of a majority or more of the corporation's voting
stock, and those shares are granted full voting rights, shareholders are granted
dissenters' rights.

Chapter 42 of the IBCL does not apply to the acquisition of shares of an
issuing public corporation if the acquisition is consummated (a) before January
8, 1986; (b) pursuant to a contract existing before January 8, 1986; (c)
pursuant to the laws of descent and distribution; (d) pursuant to a satisfaction
of a pledge or other security interest created in good faith and not for the
purposes of circumventing the statute; or (e) pursuant to a merger or plan of
shares exchange effected in compliance with IBCL Section 23-1-40 if the issuing
public

90
<PAGE> 107

corporation is a party to the agreement of merger or plan of share exchange.
Because Alrenco, as the issuing corporation, is a party to the Merger, which is
being effected in compliance with IBCL Section 23-1-40, the acquisition of
shares of Alrenco Common Stock by RTO Stockholders in connection with the Merger
will not be considered a control share acquisition.

RTO. Section 203 of the DGCL ("Section 203") is similar, but not
identical, to Chapter 43 of the IBCL. Section 203, which applies to RTO,
regulates transactions with major stockholders after they become major
stockholders. Section 203 prohibits a Delaware corporation from engaging in
mergers, dispositions of 10% or more of its assets, issuances of stock and other
transactions ("business combinations") with a person or group that owns 15% or
more of the voting stock of the corporation (an "interested stockholder") for a
period of three years after the interested stockholder crosses the 15%
threshold. These restrictions on transactions involving an interested
stockholder do not apply if (a) before the interested stockholder owned 15% or
more of the voting stock, the board of directors approved the business
combination or the transaction that resulted in the person or group becoming an
interested stockholder, (b) in the transaction that resulted in the person or
becoming an interested stockholder, the person or group acquired at least 85% of
the voting stock other than stock owned by inside directors and certain employee
stock plans, or (c) after the person or group became an interested stockholder,
the board of directors and at least two-thirds of the voting stock other than
stock owned by the interested stockholder approves the business combination. The
restrictions contained in Section 203 do not apply to RTO in connection with the
Merger because, under Section 203(b)(4), such restrictions generally do not
apply where a corporation does not have a class of voting stock that is (i)
listed on a national securities exchange; (ii) authorized for quotation on The
Nasdaq Stock Market; or (iii) held of record by more than 2,000 stockholders.
The DGCL does not have a statute that is similar to the Indiana Control Share
Acquisitions Statute.

PREFERRED STOCK

Alrenco. The Alrenco Articles authorize the Alrenco Board to determine the
preferences, limitations, and relative rights of any class or series of Alrenco
Preferred Stock prior to issuance. Each class or series must be designated with
a distinguishing designation prior to issuance. The preferred shares shall have
preferences, limitations, and relative rights identical with those of other
shares of the same series and, except to the extent otherwise provided in the
description of the series, with those of shares of other series of the same
class.

RTO. The RTO Certificate authorizes the RTO Board to issue shares of its
preferred stock (the "RTO Preferred Stock")_, from time to time, in one or more
series as the RTO Board may determine, and to fix the relative powers,
preferences and rights (including, but not limited to, voting rights, dividend
rights, liquidation rights, conversion rights, and redemption rights) of each
such series of RTO Preferred Stock in relation to the powers, preferences and
rights of any other series of RTO Preferred Stock. Voting rights, if any, may be
general, special, conditional or limited. The Board of Directors of RTO also has
the discretion to determine the number of votes per share which each holder of a
share of a series of the preferred stock will have. Additionally, the RTO Board
is authorized to permit the holders of a series of RTO Preferred Stock to vote
separately or together with the holders of one or more other series of preferred
stock on all or some matters as a separate voting group. The power of the RTO
Board to issue RTO Preferred Stock with voting or other powers, preferences and
rights may be used to impede or discourage a takeover attempt. Section 5.4 of
the RTO Certificate mandates that an affirmative vote of 66 2/3% of the voting
power of all the then outstanding RTO capital stock entitled to vote is required
to change any of the voting powers, designations, preferences and relative
participating, optional or other special rights, and the qualifications,
limitations and restrictions applicable to the preferred stock.

Generally, the issuance of RTO Preferred Stock could (a) result in a class
of securities outstanding which will have certain preferences regarding
distributions in a liquidation over RTO Common Stock and might provide for
certain rights (whether general, special, condition or limited) that could
dilute the voting rights of RTO Common Stock and (b) result in dilution of the
net income per share and net book value per share relating to RTO Common Stock.
Further, the issuance of any additional shares of RTO Common Stock, pursuant to
any conversion rights granted holders of any RTO Preferred Stock, may also
result in dilution of the voting rights, net income per share and net book value
of RTO Common Stock.

91
<PAGE> 108

CUMULATIVE VOTING

Alrenco. Section 23-1-30 of the IBCL provides that shareholders do not
have the right to cumulate their votes for directors unless a corporation's
articles of incorporation so provide. The Alrenco Articles do not provide for
cumulative voting in election of directors.

RTO. Section 214 of the DGCL provides that cumulative voting rights, in
respect of elections of directors, exist if provided for in a corporation's
certificate of incorporation. The RTO Certificate does not provide for
cumulative voting in elections of directors.

ACTION WITHOUT A MEETING

Alrenco. Under Section 23-1-29-4 of the IBCL, any action required or
permitted to be taken at a shareholders' meeting may be taken without a meeting
by written consent signed by all of the shareholders entitled to vote on such
action.

RTO. Section 228 of the DGCL permits any action required or permitted to
be taken at an RTO Stockholder's meeting to be taken by written consent signed
by the holders of the number of shares that would have been required to effect
the action at an actual meeting of the shareholders. The DGCL also provides that
a corporation's certificate of incorporation may restrict or even prohibit
stockholders' action without a meeting. Section 5.1 of the RTO Certificate
provides that RTO Stockholders may not consent in writing to act without a
meeting after the closing date of an initial public offering involving RTO
Common Stock. Section 5.4 of the RTO Certificate mandates that an affirmative
vote of 66 2/3% of the voting power of all the then outstanding RTO capital
stock entitled to vote is required to alter, amend, repeal, or adopt any
provision inconsistent with Section 5.1.

SPECIAL MEETINGS

Alrenco. Section 23-1-29-2 of the IBCL requires a corporation of fifty or
more shareholders to hold a special meeting on call of its board of directors or
the person or persons (including, but not limited to, shareholders or officers)
specifically authorized to do so by the articles of incorporation or bylaws. The
Alrenco Bylaws provide that a special meeting may be called by the Alrenco
Board, the President, by any Vice President (and must be called by the President
or one of the Vice Presidents at the written request of a majority of the
Alrenco Board), or at the written request of shareholders holding of record not
less than one-third of all the shares outstanding and entitled by the Alrenco
Articles to vote on the business for which the meeting is being called.

RTO. Section 211(d) of the DGCL authorizes the board of directors or those
persons authorized by the corporation's certificate of incorporation or by-laws
to call a special meeting of the corporation's stockholders. Section 5.2 of the
RTO Certificate provides that a special meeting may be called by the Chairman of
the Board or by the RTO Board pursuant to a resolution adopted by the
affirmative vote of a majority of the entire RTO Board. Section 5.4 of the RTO
Certificate mandates that an affirmative vote of 66 2/3% of the voting power of
all the then outstanding RTO capital stock entitled to vote is required to
alter, amend, repeal, or adopt any provision inconsistent with Section 5.2.

VOTING, APPRAISAL RIGHTS AND CORPORATE REORGANIZATIONS

Alrenco. The IBCL requires a majority vote of shareholders to approve a
plan of merger or share exchange. The approval of the Merger Agreement by the
requisite vote of Alrenco Shareholders is a condition to the parties' obligation
to close. Section 23-1-44-8 of the IBCL does not provide for dissenters' rights
for a merger or plan of share exchange by a corporation the shares of which are
(a) registered on a United States securities exchange registered under the
Exchange Act, or (b) traded on NASDAQ or a similar market.

RTO. The DGCL generally requires a majority vote of stockholders to
approve a merger, sale of assets or similar reorganization transaction. The
approval of the Merger Agreement by the requisite vote of RTO Stockholders is a
condition to the parties' obligation to close. Section 262 of the DGCL does not
provide for dissenters' rights of appraisal for (a) the sale, lease or exchange
of all or substantially all of the assets of a

92
<PAGE> 109

corporation, (b) a merger by a corporation, the shares of which are either
listed on a national securities exchange or held by more than 2,000 stockholders
if such stockholders receive shares of the surviving corporation or of a listed
or widely held corporation, or (c) stockholders of a corporation surviving a
merger if no vote of such stockholders is required to approve the merger. See
"The Merger -- Dissenters' Rights."

AMENDMENT TO BYLAWS

Alrenco. Section 10.1 of the Alrenco Bylaws provides that the Alrenco
Board may make, alter, amend, or repeal the Alrenco Bylaws by a majority vote.
IBCL Section 23-1-39-1 provides that only the Board of Directors may amend
bylaws unless a corporation's articles of incorporation provide otherwise.

RTO. Section 109 of the DGCL places the power to adopt, amend or repeal
bylaws in the corporation's stockholders, but permits the corporation, in its
certificate of incorporation, also to vest such power with the board of
directors. Although the RTO Board has been vested with such authority pursuant
to Section 8.7(a) of the RTO Certificate, RTO Stockholders' power to adopt,
amend or repeal by-laws remains unrestricted.

PREEMPTIVE RIGHTS

Alrenco. IBCL Section 23-1-27-1 provides that the shareholders of a
corporation do not have a preemptive right to acquire a corporation's unissued
shares except to the extent the articles of incorporation so provide. Article V
of the Alrenco Articles provides that Alrenco Shareholders shall have no
preemptive rights.

RTO. Under Section 102 of the DGCL, no statutory preemptive rights will
exist, unless a corporation's certificate of incorporation specifies otherwise.
The RTO Certificate does not provide for any such preemptive rights.

DIVIDEND RIGHTS

Alrenco. The IBCL does not permit dividend distributions if, after giving
effect to the proposed dividend, (a) the corporation would be unable to pay its
debts as they become due in the usual course of business, or (b) the
corporation's total assets would be less than the sum of its total liabilities
plus (unless the articles of incorporation permit otherwise) the amount that
would be needed, if the corporation were to be dissolved at the time of
distribution, to satisfy the preferential rights (if any) of shareholders whose
preferential rights are superior to those shareholders receiving the
distribution.

RTO. Delaware corporations may pay dividends out of surplus or, if there
is no surplus, out of net profits for the fiscal year in which declared and/or
the preceding fiscal year. Section 170 of the DGCL also provides that dividends
may not be paid out of net profits if, after the payment of the dividend,
capital is less than the capital represented by the outstanding stock of all
classes having a preference upon the distribution of assets.

COMPROMISE WITH CREDITORS OR STOCKHOLDERS

Article Sixth of the RTO Certificate provides that a compromise or
arrangement with creditors and/or RTO Stockholders which results in a
reorganization of RTO is binding upon all parties if it sanctioned by
three-fourths of the creditors and/or the RTO Stockholders and by a Delaware
Court of equitable jurisdiction. The Alrenco Articles contain no such provision.

AMENDMENT TO ALRENCO ARTICLES OF INCORPORATION

GENERAL

Alrenco Shareholders are being asked to consider and approve the Merger
Agreement, including the Articles Amendment, which would amend and restate the
Alrenco Articles. The Articles Amendment contains certain provisions that are
materially different from those contained in the current Alrenco Articles, as
described below. The Alrenco Articles as so amended and restated, attached
hereto as Annex G, will be the Alrenco Articles at the Effective Time and until
thereafter amended in accordance with the IBCL and the Alrenco Articles.

93
<PAGE> 110

INCREASE IN AUTHORIZED CAPITAL STOCK

The Articles Amendment increases the amount of authorized Alrenco Common
Stock and Preferred Stock from 20,000,000 shares to 75,000,000 shares, and from
1,000,000 shares to 10,000,000 shares, respectively. As described below, the
purpose of the Articles Amendment is to facilitate consummation of the Merger
and provide additional authorized shares of capital stock which will be
available for general corporate purposes following the Merger.

As of the close of business on the Alrenco Record Date, of the 20,000,000
shares of Alrenco Common Stock authorized, 6,095,516 shares were issued and
outstanding, 113,803 shares were subject to outstanding employee and
non-employee director stock options and 105,000 shares were issued pursuant to
the Restricted Stock Agreements. An additional 231,197 shares are reserved for
issuance under the Alrenco Stock Incentive Plan. If the Merger is consummated,
up to 12,280,316 additional shares of Alrenco Common Stock would be issued to
former holders of RTO Common Stock pursuant to the Merger Agreement.

In addition to facilitating consummation of the Merger, the additional
64,000,000 authorized shares may be issued for any proper corporate purpose
approved by the Alrenco Board. The Alrenco Board believes that it is in the best
interests of Alrenco and the Alrenco Shareholders to increase the number of
additional authorized shares which will be available for issuance from time to
time in connection with possible future financing programs, stock dividends,
acquisitions, stock option and other employee benefit plans and other general
corporate purposes. Having such additional authorized shares of capital stock
available for issuance in the future will give Alrenco greater flexibility and
allow additional shares of Alrenco capital stock, in excess of the number of
such shares presently authorized, to be issued without the expense and delay of
a special meeting of the shareholders unless such meeting is required for the
particular transaction by applicable law or regulations or otherwise.

The Alrenco Board has not proposed the increase in the amount of authorized
shares with the intention of discouraging tender offers or takeover attempts of
Alrenco. However, the availability of additional authorized shares for issuance
could render more difficult or discourage a merger, tender offer, proxy contest
or other attempt to obtain control of Alrenco, which may adversely affect the
ability of Alrenco Shareholders to obtain a premium for their shares of Alrenco
Common Stock and, accordingly, have a negative effect on the price of Alrenco
Common Stock.

If the Merger Agreement is approved, the Alrenco Board generally may issue
such additional authorized shares of Alrenco Common Stock and Preferred Stock
without further shareholder approval. In some instances, shareholder approval
for the issuance of additional shares may be required by law or by the
requirements of the Nasdaq Stock Market, or the obtaining of such approvals may
be otherwise necessary or desirable. Except in such cases, it is not anticipated
that further shareholder authorization will be solicited. The Alrenco
Shareholders are not entitled to preemptive rights to subscribe for or purchase
any part of any new or additional issue of Alrenco Common Stock or securities
convertible into Alrenco Common Stock.

The Alrenco Board regularly reviews a range of possible financing
transactions, including the issuance of Alrenco Common Stock. Except for shares
to be issued in connection with the Merger and shares reserved for issuance
under the Alrenco Stock Incentive Plan, Alrenco has no present intention of
issuing or selling Alrenco Common Stock for any purpose, but may do so if market
and other conditions should indicate that such a course of action were
advisable.

AMENDMENT OF ARTICLES

The Articles Amendment provides that the affirmative vote of 67% of the
Alrenco Shareholders is required to amend or repeal the Articles Amendment
(notwithstanding a lesser percentage which may be specified by law), except for
Article VI, which requires the affirmative vote of at least 80% of the then
outstanding shares entitled to vote generally in the elections of directors,
voting together as a single class. The current Alrenco Articles may be amended
or repealed by majority vote of shareholders under the IBCL except that Article
VI, providing for the division of the Alrenco Board into three classes, among
other things, may be

94
<PAGE> 111

altered, amended or repealed only by the affirmative vote of at least 80% of the
voting power of all of the then outstanding shares entitled to vote generally in
the election of directors, voting together as a single class.

LEGAL MATTERS

The legality of the shares of Alrenco Common Stock offered hereby will be
passed upon for Alrenco by Stites & Harbison, Louisville, Kentucky. Robert W.
Lanum, a partner in Stites & Harbison, is a director of Alrenco. King &
Spalding, counsel to RTO, will render its opinion to RTO and Alrenco with regard
to certain federal income tax consequences of the Merger. See "The Merger --
Certain Federal Income Tax Consequences."

EXPERTS

The financial statements of Alrenco, Network Rental, Inc. and Fastway, Inc.
included in this Joint Proxy Statement/Prospectus have been audited by the
following firms, as stated in their reports appearing elsewhere herein: (i) the
financial statements of Alrenco as of December 31, 1994, 1995 and 1996, and for
the years then ended, have been audited by Grant Thornton LLP, independent
certified public accountants; (ii) the financial statements of Network Rental,
Inc. as of May 31, 1995 and 1996, and for the years then ended, have been
audited by Grace & Associates, P.C., independent certified public accountants;
and (iii) the financial statements of Fastway, Inc. as of August 31, 1996, and
for the year then ended, have been audited by Travis Wolff & Company, L.L.P.,
independent certified public accountants. All such financial statements are so
included in reliance on such reports given upon the authority of said firms as
experts in accounting and auditing.

Welenken Himmelfarb & Co. served as Alrenco's independent accountants from
its inception in 1980 to 1995. On September 28, 1995, Alrenco engaged Grant
Thornton LLP to replace Welenken Himmelfarb & Co. as its independent accountants
in preparation for its initial public offering. Upon the engagement of Grant
Thornton LLP, Alrenco dismissed Welenken Himmelfarb & Co. as its independent
accountants. Alrenco's Board of Directors ratified the engagement of Grant
Thornton LLP as Alrenco's new independent accountants in November 1995. During
the period Welenken Himmelfarb & Co. was engaged by Alrenco, there were no
disagreements between them and Alrenco on any matters of accounting principles
or practices, financial statement disclosure or auditing scope or procedure, and
no reportable events relating to the relationship between Alrenco and Welenken
Himmelfarb & Co. Donald E. Groot, a current director of Alrenco, is a partner in
the accounting firm of Welenken, Himmelfarb & Co., and was first elected a
director in November 1995.

The financial statements of RTO, Action and B&L Concepts, Inc. included in
this Joint Proxy Statement/Prospectus have been audited by the following firms,
as stated in their reports appearing elsewhere herein: (i) the financial
statements of RTO as of and for the three years ended December 31, 1996 and the
financial statements of Action as of and for the seven months ended July 31,
1996, have been audited by Coopers & Lybrand L.L.P., independent accountants;
and (ii) the financial statements of Action as of and for the years ended
December 31, 1994 and 1995, and the financial statements of B&L Concepts, Inc.
as of and for the years ended December 23, 1995 and December 28, 1996 have been
audited by Ernst & Young LLP, independent accountants. All such financial
statements are so included in reliance on such reports given upon the authority
of said firms as experts in accounting and auditing.

SHAREHOLDER PROPOSALS

The deadline for submission of shareholder proposals to be presented at the
1998 annual meeting of Alrenco Shareholders was December 12, 1997. Shareholder
proposals intended to be presented at the 1999 annual meeting of Alrenco
Shareholders and included in Alrenco's proxy statement and form of proxy
relating to that meeting must be received by Alrenco at its principal executive
offices in New Albany, Indiana not less than 120 calendar days in advance of the
date of Alrenco's proxy statement distributed to shareholders in

95
<PAGE> 112

connection with the 1998 annual meeting of Alrenco Shareholders. All proposals
must also comply with the applicable requirements of the federal securities
laws.

In addition, the Alrenco 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 corporate secretary of Alrenco 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 Alrenco's proxy
statement.

OTHER MATTERS

As of the date of this Joint Proxy Statement/Prospectus, the Alrenco and
RTO Boards know of no matters that will be presented for consideration at the
Special Meetings other than as described in this Joint Proxy
Statement/Prospectus. However, if any other matter shall properly come before
the Alrenco Special Meeting or the RTO Special Meeting or any adjournments or
postponements thereof and shall be voted upon, the enclosed form of proxy will
be deemed to confer authority to the individuals named as proxies therein to
vote the shares represented by such proxy as to any such matters that fall
within the purposes set forth in the Notices of such Special Meetings as
determined by a majority of the Alrenco Board or RTO Board, as the case may be.

96
<PAGE> 113

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Financial Statements
Unaudited Pro Forma Condensed Combined Financial
Statements............................................. F-3
Condensed Combined Balance Sheet as of September 30,
1997................................................... F-5
Condensed Combined Statement of Operations for the nine
months ended September 30, 1997........................ F-6
Condensed Combined Statement of Operations for the nine
months ended September 30, 1996........................ F-7
Condensed Combined Statement of Operations for the year
ended December 31, 1996................................ F-8
Condensed Combined Statement of Operations for the year
ended December 31, 1995................................ F-9
Condensed Combined Statement of Operations for the year
ended December 31, 1994................................ F-10
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements............................................. F-11
Financial Statements of Alrenco, Inc.
Report of Independent Certified Public Accountants........ F-14
Balance Sheets as of December 31, 1995 and 1996 and
September 30, 1997 (unaudited)......................... F-15
Statements of Earnings for the years ended December 31,
1994, 1995 and 1996 and the nine month periods ended
September 30, 1996 and 1997 (unaudited)................ F-16
Statement of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and the nine month
period ended September 30, 1997 (unaudited)............ F-17
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and the nine month periods ended
September 30, 1996 and 1997 (unaudited)................ F-18
Notes to Financial Statements............................. F-19
Financial Statements of Network Rental, Inc.
Report of Independent Certified Public Accountants........ F-28
Balance Sheets as of May 31, 1995 and 1996 and July 31,
1996 (unaudited)....................................... F-29
Statements of Earnings for the years ended May 31, 1995
and 1996 and the two months ended July 31, 1995 and
1996 (unaudited)....................................... F-30
Statement of Stockholders' Equity for the years ended May
31, 1995 and 1996 and the two month period ended July
31, 1996 (unaudited)................................... F-31
Statements of Cash Flows for the years ended May 31, 1995
and 1996 and the two months ended July 31, 1995 and
1996 (unaudited)....................................... F-32
Notes to Financial Statements............................. F-33
Financial Statements of Fastway, Inc.
Independent Auditors' Report.............................. F-40
Balance Sheet as of August 31, 1996....................... F-41
Statement of Operations for the year ended August 31,
1996................................................... F-42
Statement of Changes in Stockholders' Equity for the year
ended August 31, 1996.................................. F-43
Statement of Cash Flows for the year ended August 31,
1996................................................... F-44
Notes to Financial Statements............................. F-45
Balance Sheet as of December 31, 1996 (unaudited)......... F-49
Statement of Operations for the four months ended December
31, 1995 and 1996 (unaudited).......................... F-50
Statements of Changes in Stockholders' Equity for the four
months ended December 31, 1996......................... F-51
Statement of Cash Flows for the four months ended December
31, 1995 and 1996 (unaudited).......................... F-52
Note to Financial Statements.............................. F-53
Consolidated Financial Statements of RTO, Inc.
Report of Independent Accountants......................... F-54
Consolidated Balance Sheets as of December 31, 1995 and
1996 and September 30, 1997 (unaudited)................ F-55
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997 (unaudited).......... F-56
</TABLE>

F-1
<PAGE> 114
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Shareholders' Equity (Deficit)
for the three years ended December 31, 1994, 1995 and
1996 and the nine month period ended September 30, 1997
(unaudited)............................................ F-57
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997 (unaudited).......... F-58
Notes to Consolidated Financial Statements................ F-59
Financial Statements of Action TV and Appliance Rental, Inc.
Report of Independent Accountants......................... F-73
Report of Independent Auditors............................ F-74
Balance Sheets as of December 31, 1994 and 1995 and July
31, 1996............................................... F-75
Statements of Operations for the years ended December 31,
1994 and 1995 and for the seven months ended July 31,
1996................................................... F-76
Statements of Shareholders' Equity for the years ended
December 31, 1994 and 1995 and for the seven months
ended July 31, 1996.................................... F-77
Statements of Cash Flows for the years ended December 31,
1994 and 1995 and for the seven months ended July 31,
1996................................................... F-78
Notes to Financial Statements............................. F-79
Financial Statements of B&L Concepts, Inc.
Report of Independent Auditors............................ F-85
Balance Sheets as of December 23, 1995 and December 28,
1996................................................... F-86
Statements of Income for the years ended December 23, 1995
and December 28, 1996.................................. F-87
Statements of Stockholders' Equity for the years ended
December 23, 1995 and December 28, 1996................ F-88
Statements of Cash Flows for the years ended December 23,
1995 and December 28, 1996............................. F-89
Notes to Financial Statements............................. F-90
</TABLE>

F-2
<PAGE> 115

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Following is an unaudited pro forma condensed combined balance sheet (the
"Pro Forma Balance Sheet") as of September 30, 1997, unaudited pro forma
condensed combined statements of operations for the years ended December 31,
1994, 1995, and 1996, and unaudited pro forma condensed combined statements of
operations for the nine months ended September 30, 1996 and 1997. The Pro Forma
Balance Sheet assumes the Merger was consummated as of September 30, 1997 and
accounted for as a pooling-of-interests as defined by Accounting Principles
Board Opinion No. 16 ("APB 16"). The unaudited pro forma condensed combined
statements of operations for the nine months ended September 30, 1996 and 1997
and the year ended December 31, 1996 give effect to(i) the assumed consummation
of the Merger accounted for as a pooling-of-interests; (ii) the completed 1996
acquisition by RTO of Action TV & Appliance Rental, Inc. ("Action") and Carl's
TV Appliances, Inc. -- East ("Carl's"), which were accounted for as purchases as
defined by APB 16; (iii) the completed 1997 acquisition by RTO of B&L Concepts,
Inc. ("B&L"), United Electronics, Inc. ("United"), Mr. C Rental Limited
Partnership ("Mr. C"), Sunburst Rentals, Inc. ("Sunburst"), Instant Rent to Own,
Inc. ("Instant"), Rightway Home Furnishings, Inc. ("Rightway") and Amigo T.V.
Rental, Inc. ("Amigo"), all of which were accounted for as purchases as defined
by APB 16; (iv) the completed 1996 acquisition by Alrenco of Easy Rentals
("Easy"), Network Rental, Inc. ("Network"), and Discount TV ("Discount"), all of
which were accounted for as purchases as defined by APB 16; and (v) the
completed 1997 acquisition by Alrenco of Fastway, Inc. ("Fastway"), Powerhouse
Rentals ("Powerhouse"), Hightower TV ("Hightower"), Rent-N-Own Center
("Rent-N-Own"), and RWC of Texas ("RWC"), all of which were accounted for as
purchases as defined by APB 16. The unaudited pro forma condensed combined
financial statements for the year ended December 31, 1996 and the nine month
period ended September 30, 1996 reflect the above "purchase" acquisitions
completed in 1996 and 1997 (the "1996 Purchase Acquisitions" and the "1997
Purchase Acquisitions") as if they were consummated on January 1, 1996. The pro
forma condensed combined financial statements for the nine month period ended
September 30, 1997 reflect the completed 1997 Purchase Acquisitions as if they
were consummated on January 1, 1997. Management of Alrenco and RTO have
determined that Network, Fastway, Action and B&L were the only acquisitions that
were significant as determined under Article 3 of Regulation S-X.

In addition, the aforementioned unaudited pro forma condensed combined
statements of operations also give effect to (i) the issuance of 1,100,000
shares of common stock in January 1996 by Alrenco, (ii) the issuance of
1,500,000 shares of common stock in September 1996 by Alrenco and (iii) the
issuances of 104,533 shares in July and August 1996 by RTO, as if all had
occurred on January 1, 1996 since these issuances of common stock by Alrenco and
RTO were the primary source of cash which was used to fund the cash portion of
the consideration issued for the 1996 Purchase Acquisitions and 1997 Purchase
Acquisitions. Accordingly, pro forma weighted average shares outstanding for the
periods presented have been adjusted.

The unaudited pro forma condensed combined statements of operations for the
years ended December 31, 1994 and 1995 give effect only to the Merger accounted
for as a pooling-of-interests. In accordance with Article 11 of Regulation S-X,
the 1996 Purchase Acquisitions and the 1997 Purchase Acquisitions are not
reflected in the unaudited pro forma condensed combined statements of operations
for the years ended December 31, 1994 and 1995. Accordingly, the unaudited pro
forma condensed combined statements of operations for the years ended December
31, 1994 and 1995 are not comparable to the unaudited pro forma condensed
combined statements of operations for the year ended December 31, 1996 and the
nine month periods ended September 30, 1996 and 1997.

For all periods presented in the pro forma condensed combined statements of
operations, the average number of common and common equivalent shares gives
effect to the proposed 89.795 Exchange Ratio. The pro forma condensed combined
statements of operations do not reflect any expenses of the Merger, which are
expected to be approximately $9.0 million.

Certain data and notes normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted. The accompanying unaudited pro forma \condensed combined financial
statements and notes (the "Pro Forma Financial Statements") have been prepared
by the management of Alrenco and RTO based upon the historical financial
statements of Alrenco

F-3
<PAGE> 116

and RTO and the other companies referred to herein. The Pro Forma Financial
Statements should be read in conjunction with (i) the historical financial
statements of Alrenco as of December 31, 1995 and 1996 and for the three years
ended December 31, 1996 and the unaudited financial statements as of September
30, 1997 and the nine month periods ended September 30, 1996 and 1997 included
elsewhere in this Joint Proxy Statement/Prospectus; (ii) the historical
consolidated financial statements of RTO as of December 31, 1995 and 1996 and
for the three years ended December 31, 1996 and the unaudited financial
statements as of September 30, 1997 and the nine month periods ended September
30, 1996 and 1997 included elsewhere in this Joint Proxy Statement/Prospectus;
(iii) the historical financial statements of Network as of and for the two years
ended May 31, 1996 included elsewhere in this Joint Proxy Statement/Prospectus;
(iv) the historical financial statements of Fastway as of and for the year ended
August 31, 1996 included elsewhere in this Joint Proxy Statement/Prospectus; (v)
the historical financial statements of Action as of and for the seven months
ended July 31, 1996 and as of and for the two years ended December 31, 1995
included elsewhere in this Joint Proxy Statement/Prospectus; (vi) the historical
financial statements of B&L as of and for the years ended December 23, 1995 and
December 28, 1996 included elsewhere in this Joint Proxy Statement/Prospectus
(See "Index to Financial Statements") and (vii) "Management's Discussion and
Analysis of Financial Condition and Results of Operations of RTO". The financial
information of Network and Fastway, included in the Pro Forma Financial
Statements, have been revised to reflect their operations as though they had
operated on a fiscal year ended December 31. The revised information is
unaudited.

The Pro Forma Financial Statements do not purport to be indicative of the
actual financial position or results of operations that would have been achieved
had the Merger and the above purchase transactions been consummated as of the
assumed dates or that may be achieved in the future.

F-4
<PAGE> 117

ALRENCO, INC.

PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
ALRENCO
AND RTO
ALRENCO RTO CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>

ASSETS
Cash and cash equivalents............. $ 4,015,993 $ 993,717 $ -- $ 5,009,710
Rental merchandise, net............... 36,886,237 43,665,981 -- 80,552,218
Property and equipment, net........... 5,499,528 7,528,900 -- 13,028,428
Intangible assets, net................ 35,429,549 58,203,542 (124,165)(1) 93,508,926
Deferred income taxes................. 378,263 2,753,223 49,666(2) 3,181,152
Income tax receivable................. -- 112,269 (112,269)(3) --
Notes receivable...................... 78,654 22,294 -- 100,948
Other assets.......................... 2,598,622 2,624,077 -- 5,222,699
----------- ------------ ------------ ------------
Total assets................ $84,886,846 $115,904,003 $ (186,768) $200,604,081
=========== ============ ============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable...................... $ 2,581,620 $ 4,726,848 $ -- $ 7,308,468
Accrued expenses...................... 4,300,770 5,784,215 8,000,000(4) 18,084,985
Income taxes payable.................. 264,222 (112,269)(3) 151,953
Notes payable......................... 15,625,092 18,834,859 -- 34,459,951
Deferred income taxes................. -- 556,829 -- 556,829
----------- ------------ ------------ ------------
Total liabilities........... 22,771,704 29,902,751 7,887,731 60,562,186
----------- ------------ ------------ ------------
Common stock.......................... 50,887,512 1,210 98,434,805(5) 149,323,527
Additional paid-in-capital............ -- 98,434,805 (98,434,805)(5) --
Unamortized value of stock award...... (1,036,392) -- 1,036,392(4) --
Retained earnings (accumulated
deficit)............................ 12,264,022 (12,434,763) (9,036,392)(4) (9,281,632)
(74,499)(6)
----------- ------------ ------------ ------------
Total shareholders'
equity.................... 62,115,142 86,001,252 (8,074,499) 140,041,895
----------- ------------ ------------ ------------
Total liabilities and
shareholders' equity...... $84,886,846 $115,904,003 $ (186,768) $200,604,081
=========== ============ ============ ============
</TABLE>

See Accompanying Notes.

F-5
<PAGE> 118

ALRENCO, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>

ALRENCO HISTORICAL PRO FORMA
AND RTO COMPLETED PURCHASE
ALRENCO RTO CONFORMING PRO FORMA PURCHASE ACCOUNTING
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ACQUISITIONS(C) ADJUSTMENTS
----------- ----------- ----------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue................ $76,171,375 $93,255,866 $ -- $169,427,241 $11,744,687 $ --
----------- ----------- ---------- ------------ ----------- -----------
Direct store expenses........ 60,628,986 77,750,684 1,413,000(a) 139,792,670 9,503,648 --
General and administrative
expenses................... 6,298,852 11,200,158 (1,413,000)(a) 16,086,010 2,854,545 --
Costs of business
combinations............... -- 864,081 -- 864,081 -- --
Amortization of
intangibles................ 2,448,802 5,637,894 21,225(b) 8,107,921 2,553 628,990(d)
Key executive signing
bonuses.................... -- 400,119 400,119
----------- ----------- ---------- ------------ ----------- -----------
Total operating
expenses........... 69,376,640 95,852,936 21,225 165,250,801 12,360,746 628,990
----------- ----------- ---------- ------------ ----------- -----------
Operating income
(loss)............. 6,794,735 (2,597,070) (21,225) 4,176,440 (616,059) (628,990)
Interest expense............. (844,581) (757,537) -- (1,602,118) (270,940) (310,751)(e)
Interest income.............. 1,366 192,952 -- 194,318 1,070 (192,952)(f)
Other non-operating expense,
net........................ (6,113) -- (6,113) (108,856) --
Gain on sale of stores....... 950,366 950,366
----------- ----------- ---------- ------------ ----------- -----------
Income (loss) before
income taxes....... 6,901,886 (3,167,768) (21,225) 3,712,893 (994,785) (1,132,693)
Income tax expense
(benefit).................. 2,775,330 (78,509) (8,490)(g) 2,688,331 (49,909) (539,844)(g)
----------- ----------- ---------- ------------ ----------- -----------
Net income (loss).... $ 4,126,556 $(3,089,259) $ (12,735) $ 1,024,562 $ (944,876) $ (592,849)
=========== =========== ========== ============ =========== ===========
Pro forma information:
Net income (loss).......... $ 4,126,556 $(3,089.259) $ (12,735) $ 1,024,562 $ (944,876) $ (592,849)
Pro forma income tax
benefit(g)............... -- (213,833) -- (213,833) -- --
----------- ----------- ---------- ------------ ----------- -----------
Pro forma net income
(loss)............. $ 4,126,556 $(2,875,426) $ (12,735) $ 1,238,395 $ (944,876) $ (592,849)
=========== =========== ========== ============ =========== ===========
Pro forma net income (loss)
per share(h)............. $ 0.68 $ (23.78) $ 0.07
=========== =========== ============
Pro forma weighted average
number of shares
outstanding(h)........... 6,082,205 120,909 16,939,229
=========== =========== ============

<CAPTION>
ALRENCO, RTO
AND PURCHASE
ACQUISITIONS
PRO FORMA
COMBINED
------------
<S> <C>
Total revenue................ $181,171,928
------------
Direct store expenses........ 149,296,318
General and administrative
expenses................... 18,940,555
Costs of business
combinations............... 864,081
Amortization of
intangibles................ 8,739,464
Key executive signing
bonuses.................... 400,119
------------
Total operating
expenses........... 178,240,537
------------
Operating income
(loss)............. 2,931,391
Interest expense............. (2,183,809)
Interest income.............. 2,436
Other non-operating expense,
net........................ (114,969)
Gain on sale of stores....... 950,366
------------
Income (loss) before
income taxes....... 1,585,415
Income tax expense
(benefit).................. 2,098,578
------------
Net income (loss).... $ (513,163)
============
Pro forma information:
Net income (loss).......... $ (513,163)
Pro forma income tax
benefit(g)............... (213,833)
------------
Pro forma net income
(loss)............. $ (299,330)
============
Pro forma net income (loss)
per share(h)............. $ (0.02)
============
Pro forma weighted average
number of shares
outstanding(h)........... 16,939,229
============
</TABLE>

See Accompanying Notes.

F-6
<PAGE> 119

ALRENCO, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>

ALRENCO HISTORICAL PRO FORMA
AND RTO COMPLETED PURCHASE
ALRENCO RTO CONFORMING PRO FORMA PURCHASE ACCOUNTING
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ACQUISITIONS(C) ADJUSTMENTS
----------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue................ $44,171,577 $37,249,850 -- $81,421,427 $91,049,193 --
Direct store expenses........ 34,382,488 31,306,580 967,000(a) 66,656,068 72,341,441 --
General and administrative
expenses................... 3,903,214 3,997,645 (967,000)(a) 6,933,859 12,860,298 --
Costs of business
combinations............... -- 48,513 -- 48,513 -- --
Amortization of
intangibles................ 613,341 1,160,455 40,013(b) 1,813,809 343,077 7,028,514(d)
Key executive signing
bonuses.................... -- 1,485,641 -- 1,485,641 -- --
----------- ----------- --------- ----------- ----------- -----------
Total operating
expenses.......... 38,899,043 37,998,834 40,013 76,937,890 85,544,816 7,028,514
----------- ----------- --------- ----------- ----------- -----------
Operating income
(loss)............ 5,272,534 (748,984) (40,013) 4,483,537 5,504,377 (7,028,514)
Interest expense............. (615,204) (702,187) -- (1,317,391) (2,064,395) 445,536(e)
Interest income.............. 6,118 231,392 -- 237,510 182,518 (200,103)(f)
Other non-operating income,
net........................ -- 232,985 -- 232,985 376,432 --
Gain on sale of stores....... -- 750,800 -- 750,800 -- --
----------- ----------- --------- ----------- ----------- -----------
Income (loss) before
income taxes...... 4,663,448 (235,994) (40,013) 4,387,441 3,998,932 (6,783,081)
Income tax expense
(benefit).................. 1,913,774 (317,360) (16,005)(g) 1,580,409 108,070 (712,210)(g)
----------- ----------- --------- ----------- ----------- -----------
Net income (loss)... $ 2,749,674 $ 81,366 $ (24,008) $ 2,807,032 $ 3,890,862 $(6,070,871)
=========== =========== ========= =========== =========== ===========
Pro forma information:
Net income (loss).......... $ 2,749,674 $ 81,366 $ (24,008) $ 2,807,032 $ 3,890,862 $(6,070,871)
Pro forma income tax
expense(g)............... -- 356,202 -- 356,202 -- $ --
----------- ----------- --------- ----------- ----------- -----------
Pro forma net income
(loss)............ $ 2,749,674 $ (274,836) $ (24,008) $ 2,450,830 $ 3,890,862 $(6,070,871)
=========== =========== ========= =========== =========== ===========
Pro forma net income (loss)
per share(h) $ 0.63 $ (6.77) $ .31
=========== =========== ===========
Pro forma weighted average
number of shares
outstanding(h)........... 4,365,814 40,624 8,013,646
=========== =========== ===========

<CAPTION>
ALRENCO, RTO
AND PURCHASE
ACQUISITIONS
PRO FORMA
COMBINED
------------
<S> <C>
Total revenue................ $172,470,620
Direct store expenses........ 138,997,509
General and administrative
expenses................... 19,794,157
Costs of business
combinations............... 48,513
Amortization of
intangibles................ 9,185,400
Key executive signing
bonuses.................... 1,485,641
------------
Total operating
expenses.......... 169,511,220
------------
Operating income
(loss)............ 2,959,400
Interest expense............. (2,936,250)
Interest income.............. 219,925
Other non-operating income,
net........................ 609,417
Gain on sale of stores....... 750,800
------------
Income (loss) before
income taxes...... 1,603,292
Income tax expense
(benefit).................. 976,269
------------
Net income (loss)... $ 627,023
============
Pro forma information:
Net income (loss).......... $ 627,023
Pro forma income tax
expense(g)............... 356,202
------------
Pro forma net income
(loss)............ 270,821
============
Pro forma net income (loss)
per share(h) $ 0.02
============
Pro forma weighted average
number of shares
outstanding(h)........... 16,903,197
============
</TABLE>

See Accompanying Notes.

F-7
<PAGE> 120

ALRENCO, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
ALRENCO, RTO
ALRENCO HISTORICAL PRO FORMA AND PURCHASE
AND RTO COMPLETED PURCHASE ACQUISITIONS
ALRENCO RTO CONFORMING PRO FORMA PURCHASE ACCOUNTING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ACQUISITIONS(C) ADJUSTMENTS COMBINED
----------- ----------- ----------- ------------ --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $63,855,808 $60,305,552 $ -- $124,161,360 $106,460,819 $ -- $230,622,179
----------- ----------- ---------- ------------ ------------ ----------- ------------
Direct store expenses... 50,439,789 52,314,027 1,427,000(a) 104,180,816 85,112,067 -- 189,292,883
General and
administrative
expenses.............. 5,588,925 6,548,640 (1,427,000)(a) 10,710,565 15,246,928 -- 25,957,493
Costs of business
combinations.......... -- 1,743,433 -- 1,743,433 -- -- 1,743,433
Amortization of
intangibles........... 1,140,675 2,767,460 73,958(b) 3,982,093 346,946 7,473,036(d) 11,802,075
Key executive signing
bonuses............... -- 1,485,641 -- 1,485,641 -- -- 1,485,641
----------- ----------- ---------- ------------ ------------ ----------- ------------
Total operating
expenses...... 57,169,389 64,859,201 73,958 122,102,548 100,705,941 7,473,036 230,281,525
----------- ----------- ---------- ------------ ------------ ----------- ------------
Operating income
(loss)........ 6,686,419 (4,553,649) (73,958) 2,058,812 5,754,878 (7,473,036) 340,654
Interest expense........ (652,255) (919,553) -- (1,571,808) (2,437,154) 278,678(e) (3,730,284)
Interest income......... 133,688 511,603 -- 645,291 191,249 (624,263)(f) 212,277
Other non-operating
income, net........... -- 403,255 -- 403,255 333,008 -- 736,263
Gain on sale of
stores................ -- 750,800 -- 750,800 -- -- 750,800
----------- ----------- ---------- ------------ ------------ ----------- ------------
Income (loss)
before income
taxes......... 6,167,852 (3,807,544) (73,958) 2,286,350 3,841,981 (7,818,621) (1,690,290)
Income tax expense
(benefit)............. 2,504,474 (1,286,082) (29,600)(g) 1,188,792 71,048 (1,182,207)(g) 77,633
----------- ----------- ---------- ------------ ------------ ----------- ------------
Net income
(loss)........ $ 3,663,378 $(2,521,462) $ (44,358) $ 1,097,558 $ 3,770,933 $(6,636,414) $ (1,767,923)
=========== =========== ========== ============ ============ =========== ============
Pro forma information:
Net income (loss)..... $ 3,663,378 $(2,521,462) $ (44,358) $ 1,097,558 $ 3,770,933 $(6,636,414) $ (1,767,923)
Pro forma income tax
expense(g).......... -- 200,674 -- 200,674 $ -- $ -- 200,674
----------- ----------- ---------- ------------ ------------ ----------- ------------
Pro forma net
income
(loss)........ $ 3,663,378 $(2,722,136) $ (44,358) $ 896,884 $ 3,770,933 $(6,636,414) $ (1,968,597)
=========== =========== ========== ============ ============ =========== ============
Pro forma net income
(loss) per
share(h)............ $ 0.77 $ (44.83) $ 0.09 $ (0.12)
=========== =========== ============ ============
Pro forma weighted
average number of
shares
outstanding(h)...... 4,786,736 60,727 10,239,717 16,903,197
=========== =========== ============ ============
</TABLE>

See Accompanying Notes.

F-8
<PAGE> 121

ALRENCO, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
ALRENCO AND
RTO
ALRENCO RTO CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenue........................... $37,575,639 $39,953,085 $ -- $77,528,724
----------- ----------- --------- -----------
Direct store expenses................... 30,023,179 34,197,714 800,000(a) 65,020,893
General and administrative expenses..... 4,338,583 4,449,690 (800,000)(a) 7,988,273
Amortization of intangibles............. 284,901 280,398 3,087(b) 568,386
----------- ----------- --------- -----------
Total operating expenses...... 34,646,663 38,927,802 3,087 73,577,552
----------- ----------- --------- -----------
Operating income (loss)....... 2,928,976 1,025,283 (3,087) 3,951,172
Interest expense........................ (894,003) (1,573,649) -- (2,467,652)
Interest income......................... -- 35,415 -- 35,415
Other non-operating income, net......... 99,930 161,607 -- 261,537
Gain on sale of stores.................. -- 1,048,923 -- 1,048,923
----------- ----------- --------- -----------
Income (loss) before income
taxes and extraordinary
item........................ 2,134,903 697,579 (3,087) 2,829,395
Income tax expense (benefit)............ 868,311 10,116 (1,250)(g) 877,177
----------- ----------- --------- -----------
Income (loss) before
extraordinary item(i)....... $ 1,266,592 $ 687,463 $ (1,837) $ 1,952,218
=========== =========== ========= ===========
Pro forma information:
Income (loss) before extraordinary
item............................... $ 1,266,592 $ 687,463 $ (1,837) $ 1,952,218
Pro forma income tax expense(g)....... -- 290,000 -- 290,000
----------- ----------- --------- -----------
Pro forma income (loss) before
extraordinary item(i)............ $ 1,266,592 $ 397,463 $ (1,837) $ 1,662,218
=========== =========== ========= ===========
Pro forma income before extraordinary
item per share(h).................. $ 0.41 $ 25.28 $ -- $ 0.37
=========== =========== ========= ===========
Pro forma weighted average number of
shares outstanding(h).............. 3,105,000 15,724 4,516,937
=========== =========== ===========
</TABLE>

See Accompanying Notes.

F-9
<PAGE> 122

ALRENCO, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)

<TABLE>
<CAPTION>
ALRENCO
AND RTO
ALRENCO RTO CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenue............................. $27,800,152 $40,980,949 $ -- $68,781,101
----------- ----------- --------- -----------
Direct store expenses..................... 21,863,099 34,118,670 480,000(a) 56,461,769
General and administrative expenses....... 3,677,674 3,866,604 (480,000)(a) 7,064,278
Amortization of intangibles............... 97,134 205,604 25,895(b) 328,633
----------- ----------- --------- -----------
Total operating expenses........ 25,637,907 38,190,878 25,895 63,854,680
----------- ----------- --------- -----------
Operating income (loss)......... 2,162,245 2,790,071 (25,895) 4,926,421
Interest expense.......................... (461,130) (1,683,014) -- (2,144,144)
Interest income........................... -- 38,715 -- 38,715
Other non-operating income, net........... -- 115,526 -- 115,526
----------- ----------- --------- -----------
Income (loss) before income taxes....... 1,701,115 1,261,298 (25,895) 2,936,518
Income tax expense (benefit).............. 739,287 35,231 (10,350)(g) 764,168
----------- ----------- --------- -----------
Net income (loss)......................... $ 961,828 $ 1,226,067 $ (15,545) $ 2,172,350
=========== =========== ========= ===========
Pro forma information:
Net income (loss)....................... $ 961,828 $ 1,226,067 $ (15,545) $ 2,172,350
Pro forma income tax expense(g)......... -- $ 505,758 -- $ 505,758
----------- ----------- --------- -----------
Pro forma net income (loss).......... $ 961,828 $ 720,309 $ (15,545) $ 1,666,592
=========== =========== ========= ===========
Pro forma net income per share(h)......... $ 0.31 $ 47.88 $ 0.37
=========== =========== ===========
Pro forma weighted average number of
shares outstanding(h)................... 3,105,000 15,043 4,455,786
=========== =========== ===========
</TABLE>

See Accompanying Notes.

F-10
<PAGE> 123

ALRENCO, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The unaudited pro forma condensed combined financial statements reflect the
combined operations and financial position of Alrenco and RTO as if the Merger
had been consummated and accounted for as a pooling-of-interests. The unaudited
pro forma condensed combined statements of operations for the year ended
December 31, 1996 and the nine month period ended September 30, 1996 also
reflect the 1996 Purchase Acquisitions and the 1997 Purchase Acquisitions as if
they were consummated on January 1, 1996. The unaudited pro forma condensed
combined statement of operations for the nine month period ended September 30,
1997 reflects the 1997 Purchase Acquisitions as if they were consummated on
January 1, 1997. The unaudited pro forma condensed combined balance sheet
presents the combined financial position of Alrenco and RTO as if the merger
consummated on September 30, 1997.

The pro forma adjustments are based on available information and certain
estimates and assumptions. Therefore, it is likely that the actual adjustments
will differ from the pro forma adjustments. Alrenco and RTO believe that such
adjustments provide a reasonable basis for presenting all of the significant
effects of the Merger, the 1996 Purchase Acquisitions and 1997 Purchase
Acquisitions, and the related consideration paid by Alrenco and RTO. Management
of Alrenco and RTO also believe that the pro forma adjustments give appropriate
effect to those assumptions and are properly applied in the pro forma condensed
combined financial statements.

Included in the historical and unaudited pro forma combined condensed
financial statements are amortization of intangible assets, certain of which
have lives of three years or less. The following is a summary of the
amortization expense for intangibles with lives of three years or less included
in the historical and pro forma financial statements for the year ended December
31, 1996, the nine month periods ended September 30, 1996 and 1997, and the
expense which will be recognized for these intangibles during the remainder of
1997 and the years ended December 31, 1998 and 1999:

<TABLE>
<CAPTION>
ALRENCO, RTO AND
PURCHASE
ALRENCO AND RTO ACQUISITIONS PRO
COMBINED FORMA COMBINED
FINANCIAL FINANCIAL
PERIOD STATEMENTS STATEMENTS
- ------------------------------------------------------- --------------- ----------------
<S> <C> <C>
December 31, 1996...................................... $2,362,000 $6,991,000
September 30, 1996..................................... 1,813,809 9,185,400
September 30, 1997..................................... 4,669,000 4,946,000
Remainder of 1997...................................... 1,029,000
December 31, 1998...................................... 1,510,000
December 31, 1999...................................... 247,000
</TABLE>

The pro forma financial statements do not reflect any synergies, cost savings
and operational efficiencies that may become available to the combined
enterprise as a result of the Merger and the recent acquisitions by Alrenco and
RTO. However, the historical financial statements include certain quantifiable
non-recurring gains and charges, which management of Alrenco and RTO believes
should be considered in analyzing the combined pro forma condensed combined
financial statements. The following is a summary of these non-recurring gains
and charges for the year ended December 31, 1996 and the nine month periods
ended

F-11
<PAGE> 124

ALRENCO, INC.

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

September 30, 1996 and 1997, along with the aggregate effect on pro forma net
income and earnings per share as presented in the pro forma condensed combined
statements of operations for the respective periods:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Pro forma net income (loss):................ $(1,968,597) $ 270,821 $(299,330)
Adjustments:
Cost of business combinations.......... 1,743,433 48,513 864,081
Key executive signing bonuses.......... 1,485,641 1,485,641 400,119
Royalty/franchise fees................. 323,265 228,968 45,549
ESOP Contribution, net................. 429,081 321,000 149,875
Salaries eliminated upon consummation
of pooling acquisition............... 400,000 300,000 100,000
Non operating income................... (750,800) (750,800) (950,366)
Pro forma tax effect of adjustments....... (1,402,145) (1,204,543) (235,295)
----------- ----------- ---------
Adjusted pro forma net income............... $ 259,878 $ 1,111,977 $ 74,633
=========== =========== =========
Adjusted pro forma earnings per share....... $ .02 $ .06 $ .01
=========== =========== =========
</TABLE>

2. PRO FORMA ACCOUNTING ADJUSTMENTS -- BALANCE SHEET

(1) To adjust accumulated amortization as a result of conforming
amortization expense of rental contracts as calculated under the straight line
method of accounting to the sum of the years' digits method.

(2) Represents the deferred tax asset required to be recorded under FAS No.
109 "Accounting for Income Taxes" as the result of conforming amortization
expense on rental contracts.

(3) To net income tax receivable against income taxes payable.

(4) To reduce pro forma combined retained earnings for non-recurring costs
(as currently estimated by management) directly associated with the Merger,
estimated at approximately $9.0 million, $1,036,392 of which is the result of
the automatic vesting of the stock awards as a result of the change in control
provisions included in the awards.

(5) To reflect the issuance of Alrenco's common stock, no par value, in
exchange for all of the issued and outstanding shares of RTO, $.01 par value.

(6) Represents the net effect on retained earnings of conforming
amortization expense of rental contracts and the recording of the related
deferred tax asset (see adjustments (1) and (2)).

3. PRO FORMA ACCOUNTING ADJUSTMENTS -- INCOME STATEMENT

(a) Represents the reclassification of field managers' salaries and
benefits for Alrenco from general and administrative expenses to direct store
expenses in order to conform Alrenco's presentation.

(b) Adjustment to conform the amortization expense of rental contracts as
calculated under the straight line method of accounting to the sum of the years'
digits method.

(c) The historical statement of operations data for the 1996 Purchase
Acquisitions and the 1997 Purchase Acquisitions for the nine months ended
September 30, 1996 and 1997 represents the results of operations of the 1996
Purchase Acquisitions and the 1997 Purchase Acquisitions from January 1, 1996
and 1997, respectively, to the earlier of their respective dates of acquisitions
or September 30, 1997, respectively. The historical statement of operations data
for the 1996 Purchase Acquisitions and the 1997 Purchase Acquisitions for the
year ended December 31, 1996 represent the results of operations of the 1996
Purchase Acquisitions and the 1997 Purchase Acquisitions from January 1, 1996 to
the earlier of their respective dates of acquisition or December 31, 1996. The
results of operations of each of the 1996 Purchase Acquisitions and the 1997
Purchase Acquisitions are included in the historical results of Alrenco and RTO
from the date of acquisition.

F-12
<PAGE> 125

ALRENCO, INC.

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(d) Includes amortization of customer rental agreements over 18 months
using an accelerated method, noncompetition agreements over the life of the
contracts and goodwill over 20 to 30 years using the straight-line method.

(e) Represents interest expense that would have been incurred had the debt
issued in connection with each of the 1996 Purchase Acquisitions and the 1997
Purchase Acquisitions been outstanding since the beginning of the period to the
earlier of the date of acquisition or the end of the period, less historical
interest expense of the 1996 Purchase Acquisitions and the 1997 Purchase
Acquisitions for which the debt was retired or not assumed at consummation.

(f) Represents the elimination of interest income earned on the cash
portion of the purchase price consideration for the 1996 Purchase Acquisitions
and the 1997 Purchase Acquisitions and cash used to retire debt of the 1996
Purchase Acquisitions and the 1997 Purchase Acquisitions.

(g) Represents the pro forma income taxes which would have been required on
the pro forma income before income taxes. The pro forma tax provision also
represents the pro forma tax expense (benefit) on the income (loss) of the
companies which were Subchapter S Corporations prior to acquisition and the
income tax effects of the pro forma adjustments noted above. Pro forma income
taxes have been provided on income (loss) for financial statement purposes,
adjusted for non deductible expenses, using a combined federal and state income
tax rate of approximately 38.6%.

(h) Pro forma net income (loss) per share is computed by dividing the pro
forma net income (loss) by the pro forma weighted average shares outstanding for
the period presented. The pro forma weighted average shares outstanding ("WASO")
for the year ended December 31, 1996 and the nine months ended September 30,
1996 represents the WASO of Alrenco, the WASO of RTO adjusted for the Exchange
Ratio, the issuance by Alrenco of 1,100,000 shares in January 1996 and 1,500,000
shares in September 1996 as if these issuances had occurred on January 1, 1996,
and the initial capitalization of RTO through the issuance of 104,533 shares in
July and August 1996 adjusted for the Exchange Ratio, as if these issuances had
occurred on January 1, 1996. The WASO for the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1997 represents the WASO of Alrenco
and the WASO of RTO adjusted for the Exchange Ratio.

As permitted by SFAS No. 123, "Accounting for Stock Based Compensation"
(SFAS 123), Alrenco and RTO have chosen to apply APB Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related interpretations in
accounting for their employee stock option plans. Had compensation cost related
to grants of employee stock options granted under both the Alrenco and RTO stock
option plans been determined based on the fair value at the grant dates for
awards under the plans consistent with the method outlined in SFAS 123, the
unaudited pro forma combined net income (loss) and pro forma net income (loss)
per share would have changed to the pro forma amounts indicated below for the
year ended December 31, 1996 and the nine month periods ended September 30, 1996
and 1997:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------------- --------------------- -----------------------
PRO FORMA PRO FORMA PRO FORMA
AS SFAS 123 AS SFAS 123 AS SFAS 123
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Pro forma net income
(loss)................. $(1,968,597) (2,862,974) $270,821 (289,343) $(299,330) (1,801,693)
Pro forma net income
(loss) per share....... $ (0.12) (0.17) $ 0.02 (0.02) $ (0.02) (0.11)
</TABLE>

(i) The historical statement of operations of RTO for the year ended
December 31, 1995 includes an extraordinary gain of $3,335,851 or $212.15 per
share which is not reflected in these pro forma condensed combined financial
statements.

F-13
<PAGE> 126

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Alrenco, Inc.

We have audited the accompanying balance sheets of Alrenco, Inc. (an
Indiana corporation) as of December 31, 1995 and 1996, and the related
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alrenco, Inc. as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

As discussed in Note A to the accompanying financial statements, the
Company, on January 1, 1994, changed its method of accounting for investments
and on January 1, 1995, changed its method of depreciating rental merchandise.

GRANT THORNTON LLP

Dallas Texas
February 7, 1997

F-14
<PAGE> 127

ALRENCO, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash.................................................... $ 27,041 $ 7,468,539 $ 4,015,993
Rental merchandise, net
On rent............................................... 9,999,312 21,060,946 25,493,695
Held for rent......................................... 3,116,056 6,871,795 11,392,542
----------- ----------- -----------
13,115,368 27,932,741 36,886,237
Prepaid expenses and other assets....................... 1,381,452 1,436,556 2,598,622
Income tax receivable................................... 128,563 323,327 --
Deferred income taxes................................... 18,699 377,839 378,263
Property assets, net.................................... 1,402,409 4,261,951 5,499,528
Loan to stockholder..................................... 64,384 71,636 78,654
Intangible assets, net.................................. 4,868,590 20,323,147 35,429,549
----------- ----------- -----------
$21,006,506 $62,195,736 $84,886,846
=========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable -- trade............................... $ 1,763,272 $ 2,567,140 $ 2,581,620
Accrued liabilities..................................... 1,571,877 1,542,056 4,300,770
Taxes other than income................................. 330,530 423,274 264,222
Debt.................................................... 12,865,239 -- 15,625,092
----------- ----------- -----------
16,530,918 4,532,470 22,771,704
Stockholders' equity
Preferred stock, no par; 1,000,000 shares authorized;
none issued or outstanding......................... -- -- --
Common stock, no par; 20,000,000 shares authorized;
3,000,000, 6,074,100 and 6,095,516 shares issued
and outstanding in 1995, 1996 and 1997,
respectively....................................... 1,500 50,707,938 50,887,512
Unamortized value of stock awards..................... -- (1,182,138) (1,036,392)
Retained earnings..................................... 4,474,088 8,137,466 12,264,022
----------- ----------- -----------
4,475,588 57,663,266 62,115,142
----------- ----------- -----------
$21,006,506 $62,195,736 $84,886,846
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-15
<PAGE> 128

ALRENCO, INC.

STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Rentals and fees.............. $27,800,152 $37,575,639 $63,855,808 $44,171,577 $76,171,375
Operating expenses
Direct store expenses
Depreciation of rental
merchandise................ 7,482,614 9,099,579 13,964,028 9,611,828 18,065,635
Other......................... 14,380,485 20,923,600 36,475,761 24,770,660 42,563,351
----------- ----------- ----------- ----------- -----------
21,863,099 30,023,179 50,439,789 34,382,488 60,628,986
General and administrative
expenses................... 3,677,674 4,338,583 5,588,925 3,903,214 6,298,852
Amortization of intangibles... 97,134 284,901 1,140,675 613,341 2,448,802
----------- ----------- ----------- ----------- -----------
Total operating expenses... 25,637,907 34,646,663 57,169,389 38,899,043 69,376,640
----------- ----------- ----------- ----------- -----------
Operating profit........... 2,162,245 2,928,976 6,686,419 5,272,534 6,794,735
Other expense (income)
Interest expense.............. 461,130 894,003 652,255 615,204 844,581
Interest income............... -- -- (133,688) (6,118) (1,366)
Gain on sale of investments... -- (99,930) -- -- --
Gain on sale of assets........ -- -- -- -- (950,366)
----------- ----------- ----------- ----------- -----------
461,130 794,073 518,567 609,086 (107,151)
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes.................... 1,701,115 2,134,903 6,167,852 4,663,448 6,901,886
Income tax expense.............. 739,287 868,311 2,504,474 1,913,774 2,775,330
----------- ----------- ----------- ----------- -----------
NET EARNINGS............... $ 961,828 $ 1,266,592 $ 3,663,378 $ 2,749,674 $ 4,126,556
=========== =========== =========== =========== ===========
Earnings per common share....... $ .31 $ .41 $ .77 $ .63 $ .68
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-16
<PAGE> 129

ALRENCO, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK UNAMORTIZED
----------------------- VALUE OF RETAINED UNREALIZED
SHARES AMOUNT STOCK AWARDS EARNINGS GAIN TOTAL
--------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994........ 3,000,000 $ 1,500 $ -- $ 2,245,668 $ -- $ 2,247,168
Unrealized gains from initial
adoption of Statement of
Financial Accounting Standards
No. 115 effective January 1,
1994, net of tax of $24,972..... -- -- -- -- 35,313 35,313
Net change in unrealized gains,
net of tax of $3,689............ -- -- -- -- (5,216) (5,216)
Net earnings...................... -- -- -- 961,828 -- 961,828
--------- ----------- ----------- ----------- -------- -----------
Balance at December 31, 1994...... 3,000,000 1,500 -- 3,207,496 30,097 3,239,093
Net change in unrealized gains,
net of tax of $21,283........... -- -- -- -- (30,097) (30,097)
Net earnings...................... -- -- -- 1,266,592 -- 1,266,592
--------- ----------- ----------- ----------- -------- -----------
Balance at December 31, 1995...... 3,000,000 1,500 -- 4,474,088 -- 4,475,588
Initial public offering of common
stock........................... 1,319,200 16,285,414 -- -- -- 16,285,414
Restricted stock awards........... 105,000 1,470,000 (1,470,000) -- -- --
Public offering of common stock... 1,649,300 32,942,624 -- -- -- 32,942,624
Exercise of stock options......... 600 8,400 -- -- -- 8,400
Amortization of stock awards...... -- -- 287,862 -- -- 287,862
Net earnings...................... -- -- -- 3,663,378 -- 3,663,378
--------- ----------- ----------- ----------- -------- -----------
Balance at December 31, 1996...... 6,074,100 50,707,938 (1,182,138) 8,137,466 -- 57,663,266
Exercise of stock options......... 21,416 179,574 -- -- -- 179,574
Amortization of stock awards...... -- -- 145,746 -- -- 145,746
Net earnings...................... -- -- -- 4,126,556 -- 4,126,556
--------- ----------- ----------- ----------- -------- -----------
Balance at September 30, 1997
(unaudited)..................... 6,095,516 $50,887,512 $(1,036,392) $12,264,022 $ -- $62,115,142
========= =========== =========== =========== ======== ===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-17
<PAGE> 130

ALRENCO, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ----------------------------
1994 1995 1996 1996 1997
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net earnings.................... $ 961,828 $ 1,266,592 $ 3,663,378 $ 2,749,674 $ 4,126,556
Adjustments to reconcile net
earnings to net cash provided
by operating activities
Depreciation of rental
merchandise................. 7,482,614 9,099,579 13,964,028 9,611,828 18,065,635
Depreciation of property
assets...................... 271,775 373,502 556,098 524,273 703,563
Amortization of intangibles... 97,134 284,901 1,140,675 613,341 2,448,804
Loss on sale of property
assets...................... 671 13,353 -- -- --
Deferred income taxes......... 263,060 202,672 (177,135) -- --
Amortization of stock
awards...................... -- -- 287,862 107,006 145,746
Gain on sale of investments... -- (99,930) -- -- --
Gain on sale of assets........ -- -- -- -- (950,366)
Changes in operating assets and
liabilities, net of effects of
acquisitions
Rental merchandise............ (9,108,973) (10,888,866) (22,077,402) (15,327,389) (21,590,742)
Prepaid expenses and other.... (401,881) (676,064) (55,104) (1,244,527) (846,083)
Income taxes.................. (211,620) -- (194,764) 453,905 204,296
Accounts payable -- trade..... 310,861 755,788 803,868 3,317,100 14,480
Accrued liabilities........... (401,318) 480,269 (29,821) (1,215,636) 2,324,682
Taxes other than income....... 52,755 160,078 92,744 25,688 70,684
----------- ------------ ------------ ------------ ------------
Net cash provided by
(used in) operating
activities............. (683,094) 971,874 (2,025,573) (384,737) 4,717,255
Cash flows from investing
activities
Purchase of property assets..... (426,129) (434,846) (1,707,314) (1,314,036) (1,621,705)
Proceeds from sale of assets.... 83,975..... 160,661 -- -- 3,031,691
Purchases of investments........ (78,108) (58,581) -- -- --
Proceeds from sale of
investments................... -- 542,501 -- -- --
Acquisition of businesses....... (3,500,000) (6,835,060) (25,189,562) (22,195,241) (25,377,435)
Increase in loan to
stockholder................... (7,662) (7,466) (7,252) (7,252) (7,018)
----------- ------------ ------------ ------------ ------------
Net cash used in
investing activities... (3,927,924) (6,632,791) (26,904,128) (23,516,529) (23,974,467)
Cash flows from financing
activities
Increase (decrease) in line of
credit........................ 4,613,559 5,664,031 (12,865,239) (12,865,239) 15,625,092
Net proceeds from public
offerings..................... -- -- 49,228,038 48,058,013 --
Exercise of stock options....... -- -- 8,400 -- 179,574
----------- ------------ ------------ ------------ ------------
Net cash provided by
financing activities... 4,613,559 5,664,031 36,371,199 35,192,774 15,804,666
----------- ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH... 2,541 3,114 7,441,498 11,291,508 (3,452,546)
Cash at beginning of period....... 21,386 23,927 27,041 27,041 7,468,539
----------- ------------ ------------ ------------ ------------
Cash at end of period............. $ 23,927 $ 27,041 $ 7,468,539 $ 11,318,549 $ 4,015,993
=========== ============ ============ ============ ============
Supplemental cash flow information
Cash paid during the period for:
Interest........................ $ 394,037 $ 818,330 $ 758,623 $ 620,734 $ 846,018
Income taxes.................... $ 814,999 $ 623,903 $ 2,456,812 $ 1,744,164 $ 2,309,980
</TABLE>

The accompanying notes are an integral part of these statements.

F-18
<PAGE> 131

ALRENCO, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

NOTE A -- SUMMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:

NATURE OF OPERATIONS

The Company leases household durable goods to customers under
rental-purchase agreements. At December 31, 1996, the Company operated 130
stores in 17 states in the United States.

RENTAL MERCHANDISE

Rental merchandise is carried at the lower of cost or net realizable value.
Depreciation is provided using the income forecasting method which is intended
to match as closely as practicable the recognition of depreciation expense with
the consumption of the rental merchandise. The consumption of rental merchandise
occurs during periods of rental and directly coincides with the receipt of
rental revenue over the rental-purchase agreement period, generally 18 months.
Under the income forecasting method, merchandise held for rent is not
depreciated, and merchandise on rent is depreciated in the proportion of rents
received to total rents provided in the rental contract, which is an activity
based method similar to the units of production method.

Rental merchandise acquired prior to January 1, 1995 is being depreciated
by the straight-line method over various estimated useful lives, primarily 21
months. The range of the various estimated useful lives is generally one to
three years. The Company adopted the income forecasting method because
management believes that it provides a more systematic and rational allocation
of the cost of rental merchandise to operations as its useful life expires. The
effect of the change in accounting method was to increase net earnings and
earnings per share by approximately $470,000 and $.15, respectively, for the
year ended December 31, 1995.

RENTALS AND FEES

Merchandise is rented to customers pursuant to rental-purchase agreements
which provide for weekly or monthly rental terms with nonrefundable rental
payments. Generally, the customer has the right to acquire title either through
a purchase option or through payment of all required rentals. Rentals and fees
are recognized over the rental term. No revenue is accrued because the customer
can cancel the rental contract at any time and the Company cannot enforce
collection for nonpayment of rents. A provision is made for estimated losses of
rental merchandise damaged or not returned by customers.

PROPERTY ASSETS AND RELATED DEPRECIATION

Furniture, equipment and vehicles are stated at cost and depreciation is
provided over the estimated useful lives of the respective assets by the
straight-line method. Leasehold improvements are amortized over the lease term
plus one renewal option of the applicable leases by the straight-line method.

INTANGIBLE ASSETS AND AMORTIZATION

Intangible assets are stated at cost less accumulated amortization
calculated by the straight-line method.

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates long-lived assets and intangibles held and used for
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Impairment is

F-19
<PAGE> 132

ALRENCO, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

recognized when the carrying amounts of such assets cannot be recovered by the
discounted net cash flows they will generate.

INCOME TAXES

The Company provides deferred taxes for temporary differences between the
tax and financial reporting bases of assets and liabilities at the rate expected
to be in effect when taxes become payable or receivable.

INVESTMENTS

On January 1, 1994, the Company adopted Statement of Financial Accounting
Standard No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115). SFAS 115 requires companies to classify investments in
marketable securities and in all debt securities as trading securities,
available-for-sale securities, or held-to-maturity securities. The Company
designates all of its securities, as available-for-sale securities, which are
carried at fair value with unrealized holding gains and losses included in
equity.

CASH EQUIVALENTS

For purposes of reporting cash flows, cash equivalents include all highly
liquid investments with an original maturity of three months or less.

EARNINGS PER COMMON SHARE

Earnings per common share is based upon the weighted average number of
common shares and common share equivalents outstanding during each period
presented. Common share equivalents for all periods include restricted stock
awards of 105,000 shares and in 1996 and 1997, include the dilutive effect of
common stock equivalents, principally stock options. Weighted average shares are
3,105,000 for the years ended December 31, 1994 and 1995 and 4,786,736 for the
year ended December 31, 1996. Weighted average shares are 4,365,814 and
6,082,205 for the nine months ended September 30, 1996 and 1997, respectively.

The Company will adopt Statement of Accounting Standards No. 128 (SFAS
128), "Earnings Per Share," on December 31, 1997. SFAS No. 128 requires the
Company to change its method of computing, presenting and disclosing earnings
per share information. Upon adoption, all prior period data presented will be
restated to conform to the provisions of SFAS No. 128. The restatement will not
have a material impact on earnings per common share.

ADVERTISING COSTS

Costs incurred for producing and communicating advertising are generally
expensed when incurred.

STOCK-BASED COMPENSATION

Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation," encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and debt whose carrying
value approximates fair value at December 31, 1995 and 1996.

F-20
<PAGE> 133

ALRENCO, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

USE OF ESTIMATES

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

INTERIM FINANCIAL STATEMENTS

In the opinion of management, the unaudited interim financial statements as
of September 30, 1997 and for the nine months ended September 30, 1996 and 1997
include all adjustments, consisting only of those of a recurring nature,
necessary to present fairly the Company's financial position as of September 30,
1997 and the results of its operations and cash flows for the nine-month periods
ended September 30, 1996 and 1997. The results of operations for the interim
periods are not necessarily indicative of the operating results for the full
year.

RECLASSIFICATIONS

Certain reclassifications were made to prior year balances to conform to
1996 presentation.

NOTE B -- ACQUISITIONS

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 of
these acquired stores are included in the operating results of the Company since
August 31, 1995.

The Company purchased 14 stores from a company doing business as Easy
Rentals on March 1, 1996 for cash of approximately $6.5 million. On August 1,
1996, the Company completed the acquisition of 14 stores through the purchase of
the common stock of Network Rentals, Inc. (Network) for cash of approximately
$5.6 million. During 1996, the Company also acquired 48 stores in 21 unrelated
transactions for an aggregate cash purchase price of approximately $12.9
million. In January 1997, the Company completed the acquisition of 28 stores
located in four states (Fastway Rentals) for an aggregate cash purchase price of
approximately $11.9 million. During 1997, the Company also acquired 14 stores
and 11 rental account portfolios for an aggregate cash purchase price of
approximately $10.4 million. All of the acquisitions have been accounted for as
purchases, and accordingly, the operating results of the acquired stores have
been included in the operating results of the Company since their acquisition.

The following summary, prepared on an unaudited pro forma basis, combines
the results of operations as if the acquisitions had been consummated at the
beginning of each of the previous two fiscal years, after including the effect
of adjustments for amortization of intangibles and interest expense on
acquisition debt.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue..................................... $72,722,976 $75,263,597 $76,831,936 $80,187,102
Net earnings................................ $ 979,197 $ 3,543,074 $ 3,565,845 $ 4,151,951
Earnings per common share................... $ .32 $ .74 $ .82 $ .68
</TABLE>

The unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of operating
results that would have occurred had the acquisition been consummated as of the
above dates, nor are they necessarily indicative of future operating results.

F-21
<PAGE> 134

ALRENCO, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- RENTAL MERCHANDISE

Cost and accumulated depreciation of rental merchandise are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ON RENT
Cost............................................ $17,644,780 $31,938,928 $42,433,680
Less accumulated depreciation................... 7,645,468 10,877,982 16,939,985
----------- ----------- -----------
$ 9,999,312 $21,060,946 $25,493,695
=========== =========== ===========
HELD FOR RENT
Cost............................................ $ 4,405,998 $ 8,307,646 $13,646,904
Less accumulated depreciation................... 1,289,942 1,435,851 2,254,362
----------- ----------- -----------
$ 3,116,056 $ 6,871,795 $11,392,542
=========== =========== ===========
</TABLE>

NOTE D -- PROPERTY ASSETS

Property assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
DEPRECIATION ----------------------- SEPTEMBER 30,
PERIOD 1995 1996 1997
------------ ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and equipment............ 5-7 years $1,431,278 $2,010,218 $2,680,415
Delivery vehicles.................. 3-5 years 256,404 1,227,789 1,285,785
Computer software.................. 3-5 years -- 132,526 156,840
Leasehold improvements............. 3-10 years 1,178,699 2,911,910 4,013,186
---------- ---------- ----------
2,866,381 6,282,443 8,136,226
Less accumulated depreciation...... 1,463,972 2,020,492 2,636,698
---------- ---------- ----------
$1,402,409 $4,261,951 $5,499,528
========== ========== ==========
</TABLE>

NOTE E -- INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
AMORTIZATION ------------------------ SEPTEMBER 30,
PERIOD 1995 1996 1997
------------ ---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer rental agreements....... 15 months $ 430,000 $ 1,573,317 $ 2,399,197
Noncompete agreements............ 2-10 years 913,675 1,566,300 1,836,308
Goodwill......................... 20 years 3,918,265 18,715,176 34,952,046
---------- ----------- -----------
5,261,940 21,854,793 39,187,551
Less accumulated amortization.... 393,350 1,531,646 3,758,002
---------- ----------- -----------
$4,868,590 $20,323,147 $35,429,549
========== =========== ===========
</TABLE>

Customer rental agreements represent the fair value of open customer
contracts of acquired stores at acquisition date and are amortized straight-line
over the approximate average stated term of the customer contract, 15 months.
The noncompete agreements are amortized on the straight-line method over the
life of the respective agreements. Goodwill is amortized by the straight-line
method over 20 years.

F-22
<PAGE> 135

ALRENCO, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE F -- DEBT

The Company has a $25,000,000 line of credit facility with a bank. The
agreement carries a three-year term which expires in 1999 with interest rates
ranging from prime to prime plus 1 1/4% depending upon level of indebtedness.
Under the terms of the agreement, the Company is required to pay a commitment
fee of .375% to .50% (depending on the level of indebtedness) per annum on the
unused portion of the facility.

The borrowings are collateralized by all of the Company's assets and the
weighted average interest rate was 10.4%, 11.3% and 10.1% for the years ended
December 31, 1994, 1995 and 1996, respectively. As of December 31, 1996, the
Company had no outstanding borrowings under the agreement. As of September 30,
1997, $15,625,092 was outstanding under the agreement.

The loan agreement contains restrictive covenants which include, among
others, earnings and tangible net worth requirements; limitations on liabilities
and capital expenditures; and ratios concerning interest expense coverage and
rental merchandise, and restrictions on the payment of dividends.

NOTE G -- RELATED PARTY TRANSACTIONS

The Company leases office space from a corporation owned by its majority
stockholder. Rental expense pursuant to the lease was $85,796, $94,800 and
$126,010, respectively, for each of the three years in the period ended December
31, 1996.

NOTE H -- INCOME TAXES

The income tax provision was comprised of the following components:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current
Federal......................................... $334,320 $514,672 $1,879,026
State........................................... 141,907 150,967 448,313
-------- -------- ----------
476,227 665,639 2,327,339
Deferred
Federal......................................... 215,920 171,809 150,795
State........................................... 47,140 30,863 26,340
-------- -------- ----------
263,060 202,672 177,135
-------- -------- ----------
Total................................... $739,287 $868,311 $2,504,474
======== ======== ==========
</TABLE>

The income tax provision reconciled to the tax computed at the statutory
Federal rate is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate...................................... 34.0% 34.0% 34.0%
State income taxes, net of Federal benefit................. 7.3 5.6 5.4
Other...................................................... 2.2 1.1 1.2
---- ---- ----
Total............................................ 43.5% 40.7% 40.6%
==== ==== ====
</TABLE>

F-23
<PAGE> 136

ALRENCO, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets and liabilities consist of the following at December
31:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets
Deferred compensation..................................... $ 88,309 $ 34,644
Rental merchandise........................................ 40,460 62,482
Other..................................................... 51,256 76,712
Tax credits............................................... -- 414,581
-------- --------
180,025 588,419
Deferred tax liabilities
Intangible assets......................................... 154,137 210,580
Other..................................................... 7,189 --
-------- --------
161,326 210,580
-------- --------
Net deferred tax asset............................ $ 18,699 $377,839
======== ========
</TABLE>

At December 31, 1996, the Company had approximately $270,000 in general
business credit carryforwards which expire, if unused, beginning in the year
2000 and alternative minimum tax credits of approximately $145,000 which are not
subject to expiration. These credit carryforwards relate to the acquisition of
Network and utilization of these credits is limited to approximately $118,000
per year.

Realization of the net deferred tax asset is dependent on generating
sufficient taxable income prior to expiration of the carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the net deferred tax asset will be realized. The amount of the deferred
tax asset considered realizable; however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.

NOTE I -- ADVERTISING EXPENSES

Advertising expense was $2,064,430, $2,900,755 and $3,755,401,
respectively, for each of the three years in the period ended December 31, 1996.

NOTE J -- COMMITMENTS AND CONTINGENCIES

The Company leases its office and store facilities under operating leases
expiring in various years through 2003. Rental expense was $1,326,186,
$1,905,909 and $3,496,435, respectively, for each of the three years in the
period ended December 31, 1996. Future minimum rental payments under operating
leases with remaining noncancelable lease terms in excess of one year at
December 31, 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1997................................................. $2,994,141
1998................................................. 2,165,872
1999................................................. 1,402,731
2000................................................. 860,541
2001................................................. 388,062
Thereafter........................................... 366,120
----------
$8,177,467
==========
</TABLE>

The tax returns of the Company are currently under examination by the
Internal Revenue Service (IRS). In addition, the IRS has issued a revenue ruling
which could impact the manner in which the Company depreciates its rental
merchandise for income tax purposes. Management believes that no additional
provision

F-24
<PAGE> 137

ALRENCO, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

will be required for any liability that may arise from prior periods and the
revenue ruling will not have a material effect on the financial condition or
results of operations of the Company.

NOTE K -- EMPLOYEE BENEFIT PLANS AND STOCK BASED COMPENSATION

Effective January 1, 1996, the Company adopted an employee savings plan
which permits eligible employees to make contributions by salary reduction
pursuant to Section 401(k) of the Internal Revenue Code. The Plan provides for
uniform employer contributions to eligible employees of $.25 for each $1.00
contributed by participants up to 6% of the participant's compensation. Company
contributions to the Plan in 1996 were $56,169.

On November 8, 1995, the Company approved a stock incentive plan (the Plan)
under which 450,000 common shares were reserved. Under the Plan, the Company may
grant its employees incentive stock options or nonqualified stock options to
purchase a specified number of shares of common stock at a price not less than
fair market value on the date of grant and for a term not to exceed 10 years. In
addition to the stock options, the Company may grant stock appreciation rights
(SAR), restricted stock awards and options to directors. SARs and options to
directors must be granted at a minimum of fair market value at the date of grant
and restricted stock awards at a price to be determined by the Board of
Directors' compensation committee. Directors who are not involved in day-to-day
management of the Company are initially entitled to a grant of 5,000 shares and
on each of their next five anniversaries, an automatic 1,000 share grant. On
January 23, 1996, the Company granted 105,000 shares of restricted stock to two
key employees which vest the end of seven years. At December 31, 1996, there
were 242,705 shares reserved for issuance under the Plan.

The Company has adopted only the disclosure provisions of SFAS 123 for
employee stock options and continues to apply APB 25 for stock options granted
under the Plan. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the stock.
Compensation costs for all other stock-based compensation is accounted for under
SFAS 123. If the Company had elected to recognize compensation expense based
upon the fair value at the grant date for options under the Plan consistent with
the methodology prescribed by SFAS 123, the Company's net earnings and earnings
per share for the year ended December 31, 1996 would be reduced to the pro forma
amounts indicated as follows:

<TABLE>
<S> <C>
Net earnings
As reported............................................... $3,663,378
Pro forma................................................. $3,085,362
Earnings per common share
As reported............................................... $ .77
Pro forma................................................. $ .64
</TABLE>

The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 40 percent; risk-free interest rates of 5.75
percent; no dividend yield; and expected life of six years.

F-25
<PAGE> 138

ALRENCO, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Additional information with respect to options outstanding under the Plan
at December 31, 1996 and the changes for the year then ended are as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding at beginning of year......................... -- $ --
Granted................................................ 102,295 14
Exercised.............................................. 600 14
Forfeited.............................................. 400 14
-------
Outstanding at end of year............................... 101,295 14
=======
Options exercisable at year-end.......................... 66,545 14
Weighted average fair value per share of options granted
during 1996............................................ 6.70
</TABLE>

All options outstanding and exercisable at December 31, 1996 have exercise
prices of $14 per share, have a weighted-average remaining contractual life of
approximately 9 years and the exercise price equaled the market price on the
grant date.

Effective September 30, 1995, the Company rescinded existing deferred
compensation plans. Despite the rescission, the Company agreed to compensate the
executives for amounts accrued under the plans through September 30, 1995.
Compensation recognized under the deferred compensation plans was $75,658 and
$119,603 for the years ended December 31, 1994 and 1995, respectively.

NOTE L -- PUBLIC STOCK OFFERINGS

In January 1996, the Company completed a public offering of 1,800,000
shares of common stock at $14 per share. The net proceeds to the Company
relating to 1,100,000 shares (700,000 were sold by a shareholder) after
underwriting commissions and expenses were approximately $16.3 million and were
used to retire debt of approximately $12.9 million.

In September 1996, the Company completed a secondary stock offering in
which 1,500,000 shares of common stock were issued which provided the Company
with approximately $33 million, net of expenses.

F-26
<PAGE> 139

ALRENCO, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE M -- UNAUDITED QUARTERLY DATA

Summarized quarterly financial data for 1995 and 1996 and the nine months
ended September 30, 1997 (in thousands, except per share amounts) is as follows:

<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Revenue.................................. $ 8,419 $ 8,553 $ 9,323 $11,281
Operating profit......................... 392 823 720 994
Net earnings............................. 139 364 268 496
Earnings per common share................ $ .04 $ .12 $ .09 $ .16
Year ended December 31, 1996
Revenue.................................. $12,398 $14,606 $17,162 $19,690
Operating profit......................... 1,327 1,746 2,200 1,414
Net earnings............................. 701 942 1,107 914
Earnings per common share................ $ .18 $ .21 $ .24 $ .15
Nine months ended September 30, 1997
Revenue.................................. $23,908 $26,405 $25,856
Operating profit......................... 2,316 2,766 1,714
Net earnings............................. 1,281 1,445 1,400
Earnings per common share................ $ .21 $ .24 $ .23
</TABLE>

NOTE N -- SUBSEQUENT EVENT

On January 2, 1997 the Company completed the acquisition of an additional
28 stores (Fastway Rentals) for a cash purchase price of approximately $12
million. The acquisition will be accounted for as a purchase and the revenues
for these stores during the previous year were approximately $12.4 million.

F-27
<PAGE> 140

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Network Rental, Inc.

We have audited the accompanying balance sheets of Network Rental, Inc. (a
Georgia corporation) as of May 31, 1995 and 1996, and the related statements of
earnings, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the May 31, 1995 and 1996 financial statements referred to
above present fairly, in all material respects, the financial position of
Network Rental, Inc. as of May 31, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.

GRACE & ASSOCIATES, P.C.

Atlanta, Georgia
July 19, 1996, except for Note 8 and Note 12
as to which the date is August 9, 1996, and
the last paragraph of Note 12 as to which the
date is November 12, 1996

F-28
<PAGE> 141

NETWORK RENTAL, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
MAY 31,
----------------------- JULY 31,
1995 1996 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (note 1)......................... $ 74,526 $ 161,936 $ 83,787
Rental merchandise, net (note 2)
On rent.................................................. 1,460,196 1,330,199 1,229,980
Held for rent............................................ 264,685 269,310 229,495
Prepaid expenses and other assets.......................... 118,293 86,186 92,907
Deferred income taxes (note 7)............................. 306,730 235,924 235,924
Property assets, net (note 3).............................. 136,925 260,812 208,980
Loan to stockholder (note 9)............................... 384,596 377,427 376,180
---------- ---------- ----------
TOTAL ASSETS..................................... $2,745,951 $2,721,794 $2,457,253
========== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable......................................... $ 272,721 $ 241,504 $ 168,312
Accrued expenses (note 4)................................ 481,553 230,354 373,966
Capital lease obligation (note 6)........................ 58,080 197,378 152,826
Debt (note 5)............................................ 1,445,000 1,086,000 769,000
---------- ---------- ----------
Total Liabilities................................ 2,257,354 1,755,236 1,464,104
---------- ---------- ----------
STOCKHOLDERS' EQUITY
Common stock -- $.01 par value -- 2,000,000 shares
authorized; 900,000 shares issued and outstanding..... 9,000 9,000 9,000
Additional paid-in capital............................... 69,167 69,167 69,167
Retained earnings........................................ 410,430 888,391 914,982
---------- ---------- ----------
Total stockholders' equity....................... 488,597 966,558 993,149
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $2,745,951 $2,721,794 $2,457,253
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-29
<PAGE> 142

NETWORK RENTAL, INC.

STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEAR ENDED MAY 31, JULY 31,
----------------------- -----------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Rentals and fees.............................. $6,949,250 $7,057,807 $1,180,901 $1,144,040
---------- ---------- ---------- ----------
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise......... 1,899,362 1,916,619 324,154 295,845
Other...................................... 3,076,112 3,136,591 515,903 526,986
---------- ---------- ---------- ----------
4,975,474 5,053,210 840,057 822,831
General and administrative expenses............. 1,114,110 1,192,487 178,961 286,776
---------- ---------- ---------- ----------
Total operating expenses.............. 6,089,584 6,245,697 1,019,018 1,109,607
---------- ---------- ---------- ----------
Operating profit...................... 859,666 812,110 161,883 34,433
OTHER EXPENSE (INCOME)
Interest expense................................ 279,941 155,414 28,295 19,102
(Gain) loss on sale of property assets.......... 1,091 (18,762) -- --
Other........................................... (194,153) (155,825) (35,724) (27,558)
---------- ---------- ---------- ----------
86,879 (19,173) (7,429) (8,456)
---------- ---------- ---------- ----------
Earnings before income taxes.......... 772,787 831,283 169,312 42,889
INCOME TAX EXPENSE.............................. $ 314,786 $ 353,322 $ 64,339 $ 16,298
---------- ---------- ---------- ----------
NET EARNINGS.......................... $ 458,001 $ 477,961 $ 104,973 $ 26,591
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-30
<PAGE> 143

NETWORK RENTAL, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE --
May 31, 1994.................................. 900,000 $9,000 $69,167 $(47,571) $ 30,596
Net earnings............................... -- -- -- 458,001 458,001
------- ------ ------- -------- --------
BALANCE --
May 31, 1995.................................. 900,000 9,000 69,167 410,430 488,597
Net earnings............................... -- -- -- 477,961 477,961
------- ------ ------- -------- --------
BALANCE --
May 31, 1996.................................. 900,000 9,000 69,167 888,391 966,558
Net earnings (unaudited)................... -- -- -- 26,591 26,591
------- ------ ------- -------- --------
BALANCE --
July 31, 1996 (unaudited)..................... 900,000 $9,000 $69,167 $914,982 $993,149
======= ====== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-31
<PAGE> 144

NETWORK RENTAL, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31, TWO MONTHS ENDED JULY 31,
-------------------------- --------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings................................... $ 458,001 $ 477,961 $104,973 $ 26,591
Adjustments needed to reconcile to net cash
provided by operations:
Depreciation of rental merchandise........... 1,899,362 1,916,619 324,154 295,845
Depreciation of property assets.............. 75,305 99,332 13,500 18,549
(Gain) loss on sale of equipment............. 1,543 (18,762) -- --
Deferred income tax.......................... 152,321 70,806 76,047 --
Changes in operating assets and liabilities:
Rental merchandise........................... (2,054,793) (1,794,525) (268,621) (155,811)
Prepaid expenses and other................... (615) 35,385 (4,356) (6,721)
Accounts payable............................. (34,205) (31,217) (54,179) (73,192)
Accrued expenses............................. 196,430 (251,199) (28,469) 143,612
----------- ----------- -------- ---------
Net cash provided by operating
activities............................ 693,349 504,400 163,049 248,873
----------- ----------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property assets.................... (28,117) (226,727) -- --
Redemption of certificate of deposit........... 50,000 -- -- --
Sale of property assets........................ -- 22,270 -- 33,283
Collection of stockholder note receivable...... 6,666 7,169 1,159 1,247
----------- ----------- -------- ---------
Net cash provided by (used in) investing
activities............................ 28,549 (197,288) 1,159 34,530
----------- ----------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Additional lease obligations................... -- 197,588 -- --
Repayment of note payable...................... (1,300,022) (359,000) (4,291) (317,000)
Repayment of capital lease obligations......... (29,444) (58,290) (5,095) (44,552)
----------- ----------- -------- ---------
Net cash used by financing activities... (1,329,466) (219,702) (9,386) (361,552)
----------- ----------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (607,568) 87,410 154,822 (78,149)
CASH AND CASH EQUIVALENTS --
Beginning of period............................ 682,094 74,526 74,526 161,936
----------- ----------- -------- ---------
CASH AND CASH EQUIVALENTS --
End of period.................................. $ 74,526 $ 161,936 $229,348 $ 83,787
=========== =========== ======== =========
Supplemental cash flow information:
Cash paid during the period for --
Interest..................................... $ 268,028 $ 164,564 $ 28,295 $ 19,102
=========== =========== ======== =========
Income taxes................................. $ 6,610 $ 415,385 $ -- $ --
=========== =========== ======== =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-32
<PAGE> 145

NETWORK RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies and practices followed by the company
are as follows:

DESCRIPTION OF BUSINESS

Network Rental, Inc. rents household appliances and furniture for periods
of up to 18 months pursuant to rental agreements which are cancelable at any
time. Weekly or monthly rental payments are collected in advance, and ownership
in the related merchandise is transferred at the end of the designated rental
period. The company operates 14 rental-purchase stores in Atlanta and
surrounding areas. Additionally, it has three franchise locations in Georgia and
receives monthly royalty fees from the franchisees.

RENTAL MERCHANDISE

Rental revenue from merchandise on rent is recognized as rents are
collected. Rental agreements may be terminated at any time by a customer upon
the return of the merchandise. Depreciation is computed using the straight-line
method over 24 months, which represents the company's estimate of the useful
life of the rental merchandise. Upon transfer of ownership in the merchandise at
the end of the rental period, the remaining net book value of the merchandise,
if any, is charged to operations as depreciation expense. The Company does not
reserve for losses of rental merchandise damaged or not returned by customers.
The loss is recognized as they are incurred.

The Company includes in revenues the following income: rental fees,
franchise fees, collection fees, delivery fees, damage waivers and other fees.
Returned checks and refunds for 1995 are netted against revenues. For 1996, the
Company included the returned checks and refunds totaling $35,265 in other
direct store expenses, instead of netting them against revenues.

CASH AND CASH EQUIVALENTS

The company considers all money market accounts and highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.

The Company's cash management policy is to use all excess cash to repay its
debt referred to in note 5.

PROPERTY ASSETS AND RELATED DEPRECIATION

Equipment and leasehold improvements are stated at cost. Expenditures for
repairs and maintenance are charged to expense as incurred and additions and
improvements that significantly extend the lives of depreciable property are
capitalized. Upon sale or retirement of depreciable property, the cost and
accumulated depreciation are removed from the related accounts and any gain or
loss is reflected in operations. Depreciation on equipment is computed by using
an accelerated method based on the estimated useful lives of the depreciable
assets, principally three to five years. Leasehold improvements are amortized
over the respective lease terms using the straight-line method.

INCOME TAXES

Income taxes are computed based on the provisions of SFAS 109, "Accounting
for Income Taxes." Deferred tax assets and liabilities are recognized for the
estimated future tax effects attributed to temporary differences between book
and tax bases of assets and liabilities and for carryforward items. The
measurement of current and deferred tax assets and liabilities is based on
enacted tax law. Deferred tax assets are reduced, if necessary, by a valuation
allowance for the amount of tax benefits that may not be realized. Prior to
1994, income taxes were computed in accordance with APB Opinion No. 11.

F-33
<PAGE> 146

NETWORK RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

INTERIM FINANCIAL STATEMENTS

In the opinion of management, the unaudited interim financial statements
for each of the two month periods ended July 31, 1995 and July 31, 1996 include
all adjustments, consisting of normal recurring accruals necessary to present
fairly the Company's results of operations and cash flows.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash, accounts payable,
capital lease obligations and debt whose carrying value approximates fair value
at May 31, 1995 and 1996.

NOTE 2 -- RENTAL MERCHANDISE

Rental merchandise consists of the following at May 31:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
On rent
Cost...................................................... $2,828,142 $2,790,090
Less accumulated depreciation............................. 1,367,946 1,459,891
---------- ----------
$1,460,196 $1,330,199
========== ==========
Held for rent
Cost...................................................... $ 502,812 $ 596,828
Less accumulated depreciation............................. 238,127 327,518
---------- ----------
$ 264,685 $ 269,310
========== ==========
</TABLE>

NOTE 3 -- PROPERTY ASSETS

Equipment and leasehold improvements consist of the following major
classifications:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Furniture and equipment..................................... $ 831,227 $ 831,710
Vehicles.................................................... 363,807 276,991
Equipment and vehicles under capital leases................. 119,807 321,234
Leasehold improvements...................................... 270,713 281,672
----------- -----------
1,585,554 1,711,607
Accumulated depreciation.................................... (1,448,629) (1,450,795)
----------- -----------
$ 136,925 $ 260,812
=========== ===========
</TABLE>

NOTE 4 -- ACCRUED EXPENSES

Accrued expenses consist of the following major classifications:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Income taxes................................................ $155,855 $ 23,236
Accrued salaries............................................ 126,272 93,927
Accrued sales and other taxes............................... 40,753 53,827
Deferred compensation....................................... 111,725 6,437
Accrued interest............................................ 18,455 9,305
Other accrued expenses...................................... 28,493 43,622
-------- --------
$481,553 $230,354
======== ========
</TABLE>

F-34
<PAGE> 147

NETWORK RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- DEBT

The Company obtained a $1,500,000 revolving line of credit from Comerica
Bank -- Texas on June 26, 1995. Under terms of this loan, interest payments of
2% above the bank's prime rate are due monthly, and the entire principal balance
plus any accrued interest are due on September 1, 1996. All of the Company's
assets are pledged as collateral under the loan, and the Company's stockholder
has personally guaranteed the loan. The Company is bound by various financial
covenants related to minimum net worth and debt/equity ratios under the terms of
the loan agreement.

Note payable on May 31, 1995 and 1996 consists of the following:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Prime Plus 3.5% Installment Note Payable to a Commercial
Finance Company -- collateralized by substantially all of
the company's assets and the personal guaranty of the
company's major stockholder. Interest is payable monthly.
Principal is payable $35,000 per month through maturity
with any remaining principal due April 14, 1995........... $1,445,000 $ --
Prime plus 2% Revolving Line of Credit with Comerica
Bank -- Texas............................................. -- 1,086,000
---------- ----------
$1,445,000 $1,086,000
========== ==========
</TABLE>

NOTE 6 -- LEASES

The Company leases computer equipment and vehicles which qualify as capital
leases. A capital lease obligation of $3,099 is personally guaranteed by the
Company's stockholder.

The Company leases its facilities under noncancellable operating leases.
Future minimum lease payments under the capital leases and operating leases as
of May 31, 1996, are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Year Ending
May 31, 1997................................................ $ 89,985 $356,316
May 31, 1998................................................ 65,656 205,304
May 31, 1999................................................ 63,448 84,427
May 31, 2000................................................ 22,048 43,704
May 31, 2001 and thereafter................................. -- 11,899
-------- --------
Total minimum lease payments...................... 241,137 $701,650
========
Less: amount representing interest.......................... 43,759
--------
Present value of net minimum lease payments................. $197,378
========
</TABLE>

The capital leases are payable in monthly installments totaling $7,875,
including interest and sales taxes.

Rent expense totaled $349,249 for 1995 and $364,326 for 1996.

NOTE 7 -- PROVISION FOR INCOME TAXES

During the year ended May 31, 1994, the company implemented Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 establishes standards for financial accounting and reporting for
income taxes that are currently payable and for provisions for deferred income
taxes. The standard requires a change from the deferred method to the asset and
liability method of accounting for income taxes. The cumulative effect of the
change in accounting method was a benefit of $727,908.
F-35
<PAGE> 148

NETWORK RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The current provision for federal income taxes results from imposition of
the alternative minimum tax (AMT). AMT is imposed at a 20% rate on the Company's
alternative minimum taxable income, which is determined by making statutory
adjustment to the Company's regular taxable income (loss). The adjustments
consist primarily of limitations on depreciation deductions as calculated under
an alternative depreciation system and limitations on the application of net
operating loss carryforwards.

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Current provision
Federal................................................... $ 247,875 $266,637
Utilization of net operating loss carryforward............ (109,155) (39,591)
--------- --------
138,720 227,046
--------- --------
State..................................................... 43,743 47,054
Utilization of net operating loss carryforward............ (20,608) --
--------- --------
23,135 47,054
--------- --------
Deferred Provision
Federal................................................... 126,849 67,617
State..................................................... 26,082 11,605
--------- --------
152,931 79,222
--------- --------
$ 314,786 $353,322
========= ========
</TABLE>

As of May 31, 1996, the tax effect of components of net deferred tax assets
and liabilities is as follows:

<TABLE>
<CAPTION>
FEDERAL STATE
-------- -------
<S> <C> <C>
Deferred tax assets
Capital leases.............................................. 7,896 1,393
Stock options............................................... 2,189 386
Depreciation................................................ 72,433 11,292
AMT credit.................................................. 144,779 --
-------- -------
227,297 13,071
-------- -------
Deferred tax liabilities
State income tax benefit.................................... (4,444) --
-------- -------
(4,444) --
-------- -------
Net Deferred Tax Assets and Liabilities..................... $222,853 $13,071
======== =======
</TABLE>

As of May 31, 1996, the Company has an Alternative Minimum Tax (AMT) credit
of $144,779 which may be carried forward indefinitely to reduce future taxable
income and taxes. The tax benefits of this carryforward is included in the
deferred tax assets presented above.

Additionally, the Company has investment tax credit carryovers totaling
$244,793 that will expire in the years 2000 and 2001. The investment tax credits
are not included in deferred tax assets.

NOTE 8 -- INCENTIVE STOCK OPTION PLAN

Under the Company's incentive stock option plan, options to purchase shares
of the Company's common stock are granted at a price equal to the estimated fair
market value of the stock at the date of the grant. Generally, the options
become exercisable in installments 2 years after the Company has exceeded a
certain average monthly sales volume and unless exercised, expire at various
intervals not exceeding ten years from date of grant.

F-36
<PAGE> 149

NETWORK RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At May 31, 1996, options to purchase up to 4,500 shares with an option
prices of $1.71 per share have been granted. For the year ending May 31, 1996,
options equal to 8.58% of the Company's total common stock were exercised by
employees and were sold back to the Company at market value. The Company
recorded compensation expense of $13,773 during 1996 related to the outstanding
options.

On August 2, 1996, all three remaining participants in the stock option
plan executed waivers to release the Company against any past and future claims
under the plan.

NOTE 9 -- RELATED PARTY TRANSACTIONS

Transactions and outstanding balances with the company's major stockholder
are summarized as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Notes receivable............................................ $384,596 $377,427
Interest income............................................. 28,342 27,839
Rent expense................................................ 33,817 52,271
Receivable.................................................. 2,358 2,328
</TABLE>

The note receivable is secured by real estate, bearing interest at 7.3%
with principal and interest payable monthly over twenty-five years through
September 2017.

NOTE 10 -- PROFIT SHARING PLAN

During the year ended May 31, 1994, the Company implemented a 401(k) profit
sharing plan covering substantially all employees. The Company is required to
match employee voluntary contributions subject to certain limitations at a rate
of 25 percent. The Company made matching contributions of $7,813 for 1996 and
$6,687 for 1995.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

Prior to January 1, 1996, management took the position that merchandise in
the hands of its customers was not part of its inventory and personal property
taxes due on these items were the responsibility of the customers. Network
Rental filed ad valorem taxes with the appropriate taxing authorities on an
annual basis and reported only unrented inventory. Management is aware that one
or more taxing authorities might assert a claim against the Company for taxes on
property in the hands of customers.

Discussions by management with the various taxing authorities has indicated
that when such a claim is asserted, audits go back three years even though the
statute of limitations may be longer.

Legal counsel for the Company advises that "the ad valorem taxes constitute
not only a lien against the property, but also the personal obligation of the
taxpayer. In this regard, the taxing authority could assert a claim against the
current owner of the property based on the lien or against the owner of the
property on January 1 of each year. For this reason, it can be assumed that
Network Rental has some exposure in this area. However, the exposure is
contingent at best and as a practical matter appears to be limited in scope."

Based on management's experience and investigation, its assessment is that
the Company has an annual exposure of between $0 and $30,000 on this contingent
claim and a total exposure of between $0 and $60,000, exclusive of any penalty
and interest that might be assessed.

The Company depreciates its rental merchandise using the income forecasting
method for federal and state income tax purposes. This depreciation method has
been widely used in the industry and purports to match the depreciation
deductions against the revenues that the rental merchandise generates. However,
in 1994 the United States Tax Court in the case ABC Rentals of San Antonio,
Inc., Et al v. Commissioner of the Internal Revenue, upheld the Internal Revenue
Service position that this method is not allowable for use by

F-37
<PAGE> 150

NETWORK RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

rental-purchase companies. Furthermore, the Internal Revenue Service issued in
1995 Revenue Ruling 95-52 which effectively precludes any Company taking a
contrary position from doing so without being in direct conflict with the
Revenue Code.

The "ABC Rentals" case is on appeal in two U.S. Circuit Courts and the
industry has been putting forth effort to have the tax code amended to allow for
a three year accelerated depreciation method. As a result, the Company has
continued to depreciate its rental merchandise under the income forecasting
method for years prior to June 1, 1995.

For the year ending May 31, 1996, the Company converted to the prescribed
method of depreciation (MACRS 5 years) for all new rental merchandise purchased
during the year, which represents 53% of the Company's total rental merchandise
at year end. Since the rental merchandise is generally rented for periods of
less than 24 months, it is likely that the remaining assets that were
depreciated under the income forecasting method would be disposed by May 31,
1997. The Company, however, would remain liable for penalties and interest for
not converting to the proper method after the issuance of the 1995 Revenue
Ruling.

Network Rental, Inc. is contingently liable for letters of credit extended
to a major supplier and to the State of Georgia for the Company's warranty
program.

Network Rental, Inc. is contingently liable for cellular phone contracts
which have not expired.

During the year ending May 31, 1996, the Company's employees exercised
certain stock options. The difference between the fair market value of the
common stock and the exercise price is compensation subject to withholding taxes
for federal income tax purposes. The Company did not report the amounts as
employee compensation, nor did it withhold any employment taxes. Therefore, the
Company is contingently liable for employment taxes on $35,191 in compensation
plus penalties and interest.

A claim has been made by Aaron Rents, Inc. alleging that Network Rental,
Inc. violated the Lanham Act in connection with a commercial comparing the two
companies. Legal counsel for Network believes that Aaron Rents does not intend
to pursue any damage claim. However, a release has not been executed and the
claim may or may not be pursued. Management has ceased running the
advertisement, and is advised and believes that no claim will result from the
alleged violation.

An $8,750 claim has been made against the Company by its previous auditors,
Joseph Decosimo and Company, for unpaid accounting fees. Management for Network
Rental, Inc. believes that all fees were paid in full per agreement and intends
to dispute the claim. Legal counsel believes that litigation may result.

NOTE 12 -- SUBSEQUENT EVENTS

As of August 8, 1996, Perry J. McNeal has negotiated to sell 107,100 of his
shares in the Company's common stock to Alrenco, Inc.

On July 26, 1996 Perry J. McNeal transferred 792,900 shares to the Vyrdilee
Brooks McNeal Scholarship Fund Charitable Remainder Trust. The Vyrdilee Brooks
McNeal Scholarship Fund Charitable Remainder Trust negotiated to sell all
792,900 shares to Alrenco, Inc. as of August 8, 1996.

On August 9, 1996, all 900,000 shares of the Company's common stock were
acquired by Alrenco, Inc.

Subsequent to a favorable tax court decision in the "ABC Rentals of San
Antonio, Inc." case, the Company decided on November 12, 1996 to use the income
forecasting method for purposes of computing its federal and state income taxes,
instead of switching to MACRS as indicated in Note 11. The effect of this change
is not reflected in the accompanying financial statements. Had it been included,
the company's income tax provision would decrease and its net earnings would
increase by $51,953. Additionally, its deferred tax asset would decrease by
$48,149 and its deferred tax liability would increase by $63,287.

F-38
<PAGE> 151

NETWORK RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

The Company's 14 rental-purchase stores are located exclusively in the
Atlanta metropolitan area. The concentration of its operations in a single
metropolitan area increases the vulnerability that its operations may be
jeopardized if the entire area should experience an economic depression.

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

F-39
<PAGE> 152

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Fastway, Inc.

We have audited the accompanying balance sheet of Fastway, Inc. (the
"Company") as of August 31, 1996, and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fastway, Inc. as of August
31, 1996, and the results of its operations and cash flows for the year then
ended in conformity with generally accepted accounting principles.

TRAVIS, WOLFF & COMPANY L.L.P.
November 8, 1996
Dallas, Texas

F-40
<PAGE> 153

FASTWAY, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
AUGUST 31,
1996
----------
<S> <C>
ASSETS
Assets:
Cash...................................................... $ 213,697
Accounts receivable -- officers and employees (Note 2).... 143,625
Income tax carryback claim receivable..................... 186,000
Prepaid expenses, primarily insurance..................... 173,555
Rental merchandise, net (Note 3).......................... 3,547,585
Property assets, net (Note 4)............................. 637,458
Deferred tax assets (Note 11)............................. 171,000
Deposits and other........................................ 26,330
----------
$5,099,250
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 301,430
Accrued liabilities....................................... 323,684
Taxes payable, primarily payroll.......................... 29,075
Revolving line of credit (Note 5)......................... 2,577,334
Notes payable, primarily to a stockholder (Note 9)........ 137,935
----------
3,369,458
----------
Stockholders' equity:
Common stock (Note 6)..................................... 100
Paid-in capital........................................... 900
Retained earnings......................................... 1,728,792
----------
1,729,792
----------
$5,099,250
==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-41
<PAGE> 154

FASTWAY, INC.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
AUGUST 31, 1996
------------------
<S> <C>
Revenue:
Rentals................................................... $10,434,093
Merchandise sales......................................... 380,102
Fees and other............................................ 1,571,850
-----------
12,386,045
-----------
Direct store expenses:
Depreciation of rental merchandise........................ 2,937,050
Cost of merchandise sold.................................. 1,098,981
Salaries and other........................................ 7,689,397
-----------
11,725,428
General and administrative.................................. 882,258
Depreciation and amortization of property assets............ 350,942
Interest, net............................................... 320,538
-----------
13,279,166
-----------
Operating (loss)....................................... (893,121)
-----------
Other income:
Gain on sale of stores (Note 10).......................... 259,223
Purchase rebates.......................................... 55,181
Gain on sale of fixed assets.............................. 107,338
-----------
421,742
-----------
(Loss) before income tax benefit....................... (471,379)
Income tax benefit (Note 11).............................. (130,193)
-----------
Net (loss)............................................. $ (341,186)
===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-42
<PAGE> 155

FASTWAY, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31, 1996
------------------------------------------------
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at August 31, 1995, as previously
reported.......................................... $100 $900 $2,179,876 $2,180,876
Adjustment for uncollectible rentals (Note 1)..... -- -- (109,898) (109,898)
---- ---- ---------- ----------
Balance, as adjusted, at August 31, 1995............ 100 900 2,069,978 2,070,978
Net (loss)........................................ -- -- (341,186) (341,186)
---- ---- ---------- ----------
Balance at August 31, 1996.......................... $100 $900 $1,728,792 $1,729,792
==== ==== ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-43
<PAGE> 156

FASTWAY, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
AUGUST 31,
1996
-----------
<S> <C>
Cash flows from operating activities:
Cash and fees received for rentals........................ $12,386,045
Cash paid to suppliers and employees...................... (8,628,219)
Cash paid for rental merchandise.......................... (3,238,814)
Interest received......................................... 1,393
Interest paid............................................. (321,931)
-----------
Net cash flows provided by operating activities............. 198,474
-----------
Cash flows from investing activities:
Proceeds from sales of stores (Note 10)................... 1,650,000
Purchase of property assets............................... (206,646)
Proceeds from sales of property assets.................... 129,198
-----------
Net cash provided by investing activities................... 1,572,552
-----------
Cash flows from financing activities:
Reduction on line of credit............................... (5,795,088)
Proceeds from borrowings on line of credit................ 3,672,422
Proceeds from purchase rebates............................ 55,181
Proceeds from note to stockholder......................... 324,018
Repayment of debt to stockholder.......................... (80,125)
Loan to non-stockholder officer........................... (132,500)
-----------
Net cash (used) by financing activities..................... (1,956,092)
-----------
Net (decrease) in cash...................................... (185,066)
Cash -- beginning of year................................... 398,763
-----------
Cash -- end of year......................................... $ 213,697
===========
Reconciliation of net (loss) to net cash provided by
operating activities
Net (loss).................................................. $ (341,186)
Reconciling items:
Depreciation and amortization............................. 350,942
(Increase) decrease in assets --
Accounts receivable.................................... (16,795)
Collections receivable (Note 1)........................ 166,898
Income taxes receivable................................ 28,046
Prepaids............................................... 126,760
Other.................................................. 66,437
(Decrease) increase in liabilities --
Accounts payable....................................... (73,240)
Accrued expenses....................................... 15,261
Income taxes payable................................... (124,649)
-----------
Net cash provided by operating activities................... $ 198,474
===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-44
<PAGE> 157

FASTWAY, INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Fastway, Inc. (the "Company") leases household durable goods to customers
on a rent-to-own basis. As of August 31, 1996, the Company operated 28 stores in
26 cities in the states of Arkansas, Mississippi, Missouri and Texas.

PROPERTY ASSETS

Property assets are stated at cost. Depreciation of office furniture and
equipment, computers, and vehicles is provided over the estimated useful lives
of the respective assets (five and seven years) using declining balance methods.
Leasehold improvements are amortized over the term of the applicable leases on
the straight-line basis.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and all highly liquid debt instruments
purchased with a maturity of three months or less. At August 31, 1996, there
were no cash equivalents.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

ADJUSTMENT FOR UNCOLLECTIBLE RENTALS

At August 31, 1995, the Company had $166,898 of uncollectible rental
contracts, included in rental merchandise, that had not been written off. During
the year ended August 31, 1996, these contracts were written off, net of $57,000
of related income tax benefit, and reflected as an adjustment to retained
earnings at August 31, 1995 in the accompanying statement of stockholders'
equity.

NOTE 2 -- ACCOUNTS RECEIVABLE -- OFFICERS AND EMPLOYEES

On August 31, 1996, the Company had a receivable from one of its officers
in the amount of $132,500. In addition, receivables from employees were $11,125
on August 31, 1996, and represented amounts owed for rental assets purchased.

NOTE 3 -- RENTAL MERCHANDISE, RELATED RENTAL INCOME AND AMORTIZATION

Rental merchandise is rented to customers pursuant to rental agreements
which provide for weekly or monthly rental terms with rental payments collected
in advance. Title to the merchandise passes to the customer upon the collection
of a specified number of rental payments. The rental agreements may be
terminated at any time by the customers, and if terminated, the rental
merchandise is returned to the Company. Rental income is recognized as
collected, since at the time of collection the rental merchandise has been
placed in service, costs of installation and delivery have been incurred and
generally there is no obligation to refund the rental income collected. A
customer may purchase the rental merchandise at any time at the current fair
market value of the merchandise.

F-45
<PAGE> 158

FASTWAY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Rental merchandise is stated at cost, less depreciation calculated by using
the income forecasting method. The income forecasting method amortizes rental
merchandise based on the income generated by the merchandise. Rental merchandise
is pledged as security for the revolving line of credit referred to in Note 5.

Original cost and accumulated depreciation of rental merchandise at August
31, 1996, is as follows:

<TABLE>
<S> <C>
Original cost of merchandise................................ $6,251,597
Accumulated depreciation.................................... 2,704,012
----------
$3,547,585
==========
</TABLE>

NOTE 4 -- PROPERTY ASSETS

Property assets are pledged as security for the revolving line of credit
referred to in Note 5. Property assets consisted of the following at August 31,
1996:

<TABLE>
<S> <C>
Office furniture and equipment.............................. $ 552,901
Computer equipment.......................................... 252,879
Vehicles.................................................... 99,336
Leasehold improvements...................................... 829,439
----------
1,734,555
Accumulated depreciation.................................... 1,097,097
----------
$ 637,458
==========
Total depreciation for the year................... $ 344,542
==========
</TABLE>

NOTE 5 -- REVOLVING LINE OF CREDIT

The revolving line of credit is with a bank. Under the line of credit, the
Company can borrow an amount based upon the sum not in excess of 100% of the
value of the eligible cash receipts of the Company for the average of the most
recent three calendar months up to the sum of $2,800,000. (See Note 12.) At
August 31, 1996, the borrowing base under the line of credit was $2,577,334. The
amount outstanding bears interest at the bank's prime rate plus 2% (10.5% at
August 31, 1996) and is secured by inventories, rental contracts, common stock
and a $500,000 life insurance policy on a stockholder. The revolving credit
agreement includes certain restrictive covenants as to financial reporting,
stockholders' compensation, ratio of debt to net worth and length of rental
contracts. The loan matures on February 1, 1997. As of November 8, 1996, the
outstanding balance of the revolving line of credit was $2,578,085.

NOTE 6 -- COMMON STOCK

At August 31, 1996, there were 10,000 shares of $10 par value common stock
authorized, with ten shares issued and outstanding.

NOTE 7 -- ECONOMIC DEPENDENCY -- MAJOR SUPPLIERS

During the year ended August 31, 1996, the Company purchased rental
merchandise from suppliers exceeding $3,138,000. Purchases from one major
supplier aggregated $599,000 or 19% of such purchases.

NOTE 8 -- OPERATING LEASES

The Company leases space for all of its store locations. The Company also
leases vehicles, generally over three year cancelable agreements. All leases are
accounted for as operating leases. Rental expense of $965,103 for the year ended
August 31, 1996, is included in Salaries and other direct store expenses. Future
minimum

F-46
<PAGE> 159

FASTWAY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

rental payments under operating leases with remaining noncancelable lease terms
in excess of one year at August 31, 1996, are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
AUGUST 31:
- ------------
<S> <C>
1997........................................................ $ 722,072
1998........................................................ 532,941
1999........................................................ 392,879
2000........................................................ 200,112
2001........................................................ 42,379
Thereafter.................................................. 0
----------
$1,890,383
==========
</TABLE>

NOTE 9 -- RELATED PARTY TRANSACTIONS

The Company leases eleven store locations from a stockholder. Total lease
expense under these leases was $294,067 for the year ended August 31, 1996.

As of August 31, 1996, there was a note payable to a stockholder in the
amount of $135,678.

NOTE 10 -- SALE OF STORES

The Company sold nine of its stores during the year in two separate sales.
The following is an analysis of the two sales:

<TABLE>
<CAPTION>
SALE OF SALE OF
SIX THREE SALE
LOCATIONS LOCATIONS TOTALS
---------- ---------- -----------
<S> <C> <C> <C>
Sales price....................................... $1,125,000 $ 525,000 $ 1,650,000
Rental merchandise sold, net...................... (747,933) (421,442) (1,169,375)
Property assets sold, net......................... (169,193) (52,209) (221,402)
---------- ---------- -----------
Gain on sale...................................... $ 207,874 $ 51,349 $ 259,223
========== ========== ===========
</TABLE>

NOTE 11 -- INCOME TAXES

Deferred tax assets represent a reduction in the amount of taxes payable in
future years (based on current tax laws) resulting from future net deductible
amounts arising from temporary differences in the reporting of certain expense
items for financial statement and for income tax purposes, primarily the
depreciation of leasehold improvements. The provision for deferred income tax
expense or benefit represents the net change during the year in the Company's
deferred tax assets.

The following is an analysis of income tax benefit for the year ended
August 31, 1996:

<TABLE>
<CAPTION>
CURRENTLY
REFUNDABLE DEFERRED BENEFIT
---------- -------- --------
<S> <C> <C> <C> <C>
Federal..................................... $129,000 $ 1,193 $130,193
</TABLE>

F-47
<PAGE> 160

FASTWAY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following is an analysis of deferred income taxes on future deductible
differences as of August 31, 1996:

<TABLE>
<S> <C>
Property assets, primarily leasehold improvements........... $159,000
Net operating loss carryforward (Arkansas).................. 48,400
Valuation allowance for Arkansas net operating loss
carryforward.............................................. (36,400)
--------
$171,000
========
</TABLE>

The following is a reconciliation between financial statement net (loss)
and estimated taxable (loss) for the year ended August 31, 1996:

<TABLE>
<S> <C>
Financial statement net (loss) before taxes................. $(471,379)
Add adjustment for uncollectible rentals (Note 1)........... (166,898)
---------
(Loss) before taxes, as adjusted.................. (638,277)
Adjustments for:
Depreciation of property assets........................... 92,900
Accrued salaries.......................................... (49,600)
Officer life insurance premiums........................... 33,400
Other differences......................................... 14,800
---------
Estimated taxable (loss) before income tax benefit.......... $(546,777)
=========
</TABLE>

NOTE 12 -- SUBSEQUENT EVENT

On November 8, 1996, the borrowing base on the revolving line of credit
from a bank was increased from $2,800,000 to $3,200,000.

F-48
<PAGE> 161

FASTWAY, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C>
ASSETS
Assets
Cash...................................................... $ 172,118
Accounts receivable -- officers and employees............. 149,788
Income tax carryback claim receivable..................... 187,939
Prepaid expenses, primarily insurance..................... 124,613
Rental merchandise, net................................... 4,153,754
Property assets, net...................................... 522,331
Deferred tax assets....................................... 169,807
Deposits and other........................................ 28,060
----------
$5,508,410
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable.......................................... $ 272,346
Accrued liabilities....................................... 175,530
Taxes payable, primarily payroll.......................... 28,591
Revolving line of credit.................................. 3,170,303
Notes payable, primarily to stockholder................... 137,174
----------
3,783,944
Stockholders' equity
Common stock.............................................. 100
Paid-in capital........................................... 900
Retained earnings......................................... 1,723,466
----------
1,724,466
----------
$5,508,410
==========
</TABLE>

The accompanying note is an integral part of these statements.

F-49
<PAGE> 162

FASTWAY, INC.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE FOUR MONTHS ENDED
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental.................................................... $3,446,564 $3,597,591
Merchandise sales......................................... 49,893 35,632
Fees and other............................................ 473,102 579,331
---------- ----------
3,969,559 4,212,554
Direct store expenses
Depreciation of rental merchandise........................ 900,090 992,843
Cost of merchandise sold.................................. 53,167 50,937
Salaries and other........................................ 2,647,451 3,328,178
---------- ----------
3,600,708 4,371,958
General and administrative.................................. 210,600 338,034
Depreciation and amortization of property assets............ 83,023 137,918
Interest.................................................... 96,640 121,938
---------- ----------
3,990,971 4,969,848
---------- ----------
Operating loss.................................... (21,412) (757,294)
Other
Gain on sale of stores.................................... -- 485,456
Gain (loss) on sale of fixed assets....................... 18,377 (156,027)
---------- ----------
18,377 329,429
---------- ----------
Loss before income tax benefit.................... (3,035) (427,865)
Income tax expense (benefit)................................ 2,291 (136,824)
---------- ----------
NET LOSS.......................................... $ (5,326) $ (291,041)
========== ==========
</TABLE>

The accompanying note is an integral part of these statements.

F-50
<PAGE> 163

FASTWAY, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at September 1, 1996........................ $100 $900 $1,728,792 $1,729,792
Net loss............................................ -- -- (5,326) (5,326)
---- ---- ---------- ----------
Balance at December 31, 1996........................ $100 $900 $1,723,466 $1,724,466
==== ==== ========== ==========
</TABLE>

The accompanying note is an integral part of these statements.

F-51
<PAGE> 164

FASTWAY, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE FOUR MONTHS ENDED
DECEMBER 31,
----------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $ (5,326) $ (29,041)
Depreciation and amortization............................. 983,113 1,130,761
Deferred tax expense...................................... 1,193 --
Gain on sale of assets.................................... (18,377) (329,429)
Changes in operating assets and liabilities
Accounts receivable.................................... (6,163) 133,585
Income taxes receivable................................ (1,939) 199,246
Prepaid expenses....................................... 48,942 (73,778)
Rental merchandise..................................... (1,506,259) (575,922)
Other assets........................................... (1,730) (6,294)
Accounts payable....................................... (29,084) 94,021
Accrued liabilities.................................... (148,154) (80,271)
Taxes payable.......................................... (484) (105,306)
----------- -----------
Net cash provided by (used in) operating
activities...................................... (684,268) 95,572
Cash flows from investing activities
Proceeds from sale of property assets..................... 50,481 1,650,000
----------- -----------
Net cash provided by investing activities......... 50,481 1,650,000
Cash flows from financing activities
Net change in line of credit.............................. 592,208 (1,874,999)
----------- -----------
Net cash provided by financing activities......... 592,208 (1,874,999)
----------- -----------
Net decrease in cash.............................. (41,579) (129,427)
Cash at the beginning of the period......................... 213,697 398,763
----------- -----------
Cash at the end of the period............................... $ 172,118 $ 269,336
=========== ===========
Supplemental disclosure of cash flow information
Cash paid for interest.................................... $ 95,400 $ 119,300
Cash paid for taxes....................................... $ -- $ --
</TABLE>

The accompanying note is an integral part of these statements.

F-52
<PAGE> 165

FASTWAY, INC.

NOTE TO FINANCIAL STATEMENTS

The interim financial statements of Fastway, Inc. (the Company) included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes included in the preceding financial statements
for the year ended August 31, 1996. In the opinion of management, the
accompanying unaudited interim financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's results of operations and cash flows for the periods
presented. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.

F-53
<PAGE> 166

REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors
RTO, Inc.
Mesquite, Texas

We have audited the accompanying consolidated balance sheets of RTO, Inc.
and subsidiaries (the "Company") as of December 31, 1995 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of RTO, Inc. and
subsidiaries at December 31, 1995 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina
May 28, 1997

F-54
<PAGE> 167

RTO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 1,082,970 $ 28,277,450 $ 993,717
Rental merchandise, net............................... 8,626,794 30,791,249 43,665,981
Property and equipment, net........................... 2,563,875 5,219,130 7,528,900
Intangible assets, net................................ 476,938 37,834,624 58,203,542
Deferred income taxes................................. 116,732 2,415,248 2,753,223
Income taxes receivable............................... -- -- 112,269
Notes receivable...................................... 947,547 1,181,221 22,294
Other assets.......................................... 504,218 1,390,905 2,624,077
----------- ------------ ------------
Total assets................................ $14,319,074 $107,109,827 $115,904,003
=========== ============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Accounts payable...................................... $ 3,002,718 $ 5,738,824 $ 4,726,848
Accrued expenses...................................... 2,015,440 5,285,769 5,784,215
Income taxes payable.................................. 107,573 248,159 --
Notes payable......................................... 10,198,965 6,772,269 18,834,859
Deferred income taxes................................. 3,630 322,000 556,829
----------- ------------ ------------
Total liabilities........................... 15,328,326 18,367,021 29,902,751
----------- ------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, par value $.01, 10,000,000 shares
authorized; none issued.......................... -- -- --
Common stock, par value $.01, 75,000,000 shares
authorized; 16,053, 120,598 and 120,960 shares
issued and outstanding at December 31, 1995,
December 31, 1996 and September 30, 1997
(unaudited), respectively........................ 161 1,206 1,210
Additional paid-in capital.......................... 4,472,302 98,010,488 98,434,805
Accumulated deficit................................. (5,481,715) (9,268,888) (12,434,763)
----------- ------------ ------------
Total shareholders' equity (deficit)........ (1,009,252) 88,742,806 86,001,252
----------- ------------ ------------
Total liabilities and shareholders' equity
(deficit)................................. $14,319,074 $107,109,827 $115,904,003
=========== ============ ============
</TABLE>

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

F-55
<PAGE> 168

RTO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Rental and fee revenue.................. $38,322,329 $37,414,635 $57,289,208 $35,058,733 $89,461,789
Cash sales and other revenue............ 2,658,620 2,538,450 3,016,344 2,191,117 3,794,077
----------- ----------- ----------- ----------- -----------
Total revenue.................... 40,980,949 39,953,085 60,305,552 37,249,850 93,255,866
----------- ----------- ----------- ----------- -----------
Operating expenses:
Direct store expenses:
Depreciation and disposition of rental
merchandise......................... 13,719,787 13,737,910 18,864,512 11,680,452 25,250,863
Other................................. 20,398,883 20,459,804 33,449,515 19,626,128 52,499,821
----------- ----------- ----------- ----------- -----------
34,118,670 34,197,714 52,314,027 31,306,580 77,750,684
Corporate expenses...................... 3,866,604 4,449,690 6,548,640 3,997,645 11,200,158
Costs of business combinations.......... -- -- 1,743,433 48,513 864,081
Amortization of intangibles............. 205,604 280,398 2,767,460 1,160,455 5,637,894
Key executive signing bonuses........... -- -- 1,485,641 1,485,641 400,119
----------- ----------- ----------- ----------- -----------
Total operating expenses......... 38,190,878 38,927,802 64,859,201 37,998,834 95,852,936
----------- ----------- ----------- ----------- -----------
Operating income (loss).......... 2,790,071 1,025,283 (4,553,649) (748,984) (2,597,070)
Other income (expense):
Interest expense........................ (1,683,014) (1,573,649) (919,553) (702,187) (757,537)
Interest income......................... 38,715 35,415 511,603 231,392 192,952
Other non-operating income (expense),
net................................... 115,526 161,607 403,255 232,985 (6,113)
Gain on sale of stores.................. -- 1,048,923 750,800 750,800 --
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes
and extraordinary item......... 1,261,298 697,579 (3,807,544) (235,994) (3,167,768)
Income tax expense (benefit).............. 35,231 10,116 (1,286,082) (317,360) (78,509)
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item............. 1,226,067 687,463 (2,521,462) 81,366 (3,089,259)
Extraordinary item, net of income tax
expense................................. -- 3,335,851 -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)................ $ 1,226,067 $ 4,023,314 $(2,521,462) $ 81,366 $(3,089,259)
=========== =========== =========== =========== ===========
Pro forma information (unaudited):
Income (loss) before extraordinary
item.................................. $ 1,226,067 $ 687,463 $(2,521,462) $ 81,366 $(3,089,259)
Pro forma income tax expense
(benefit)............................. 505,758 290,000 200,674 356,202 (213,833)
----------- ----------- ----------- ----------- -----------
Pro forma income (loss) before
extraordinary item............. 720,309 397,463 (2,722,136) (274,836) (2,875,426)
Extraordinary item, net of income tax
benefit............................... -- 3,335,851 -- -- --
----------- ----------- ----------- ----------- -----------
Pro forma net income (loss)...... $ 720,309 $ 3,733,314 $(2,722,136) $ (274,836) $(2,875,426)
=========== =========== =========== =========== ===========
Pro forma income (loss) before
extraordinary item per share.......... $ 47.88 $ 25.28 $ (44.83) $ (6.77) $ (23.78)
Extraordinary item per share............ -- 212.15 -- -- --
----------- ----------- ----------- ----------- -----------
Pro forma net income (loss) per share... $ 47.88 $ 237.43 $ (44.83) $ (6.77) $ (23.78)
=========== =========== =========== =========== ===========
Weighted-average shares outstanding..... 15,043 15,724 60,727 40,624 120,909
=========== =========== =========== =========== ===========
</TABLE>

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

F-56
<PAGE> 169

RTO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
AND NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
December 31, 1993....................... 14,734 $ 148 $ 3,200,602 $ (8,556,432) $(5,355,682)
Issuance of common stock................ 612 6 337,488 -- 337,494
Contributions of capital................ -- -- 405,440 -- 405,440
Distributions to S corporation
shareholders.......................... -- -- -- (687,721) (687,721)
Net income.............................. -- -- -- 1,226,067 1,226,067
------- ------ ----------- ------------ -----------
December 31, 1994....................... 15,346 154 3,943,530 (8,018,086) (4,074,402)
Issuance of common stock................ 707 7 483,274 -- 483,281
Contributions of capital................ -- -- 45,498 -- 45,498
Distributions to S corporation
shareholders.......................... -- -- -- (1,486,943) (1,486,943)
Net income.............................. -- -- -- 4,023,314 4,023,314
------- ------ ----------- ------------ -----------
December 31, 1995....................... 16,053 161 4,472,302 (5,481,715) (1,009,252)
Issuance of common stock................ 104,545 1,045 93,106,955 -- 93,108,000
Contributions of capital................ -- -- 431,231 -- 431,231
Distributions to S corporation
shareholders.......................... -- -- -- (1,265,711) (1,265,711)
Net loss................................ -- -- -- (2,521,462) (2,521,462)
------- ------ ----------- ------------ -----------
December 31, 1996....................... 120,598 1,206 98,010,488 (9,268,888) 88,742,806
Issuance of common stock (unaudited).... 552 6 689,994 -- 690,000
Purchase and retirement of common stock
from dissenters (unaudited)........... (190) (2) (265,677) -- (265,679)
Distributions to S corporation
shareholders (unaudited).............. -- -- (76,616) (76,616)
Net loss (unaudited).................... -- -- -- (3,089,259) (3,089,259)
------- ------ ----------- ------------ -----------
September 30, 1997 (unaudited).......... 120,960 $1,210 $98,434,805 $(12,434,763) $86,001,252
======= ====== =========== ============ ===========
</TABLE>

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

F-57
<PAGE> 170

RTO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ 1,226,067 $ 4,023,314 $ (2,521,462) $ 81,366 $ (3,089,259)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Extraordinary gain......................... -- (3,335,851) -- -- --
Loss on sale of property and equipment..... 78,876 169,872 157,743 -- 91,576
Gain on sale of stores..................... -- (1,048,923) (750,800) (750,800) --
Depreciation and disposition of rental
merchandise.............................. 13,719,787 13,737,910 18,864,512 11,680,452 25,250,863
Amortization of intangibles................ 205,604 282,046 2,770,646 1,160,455 5,637,894
Depreciation of property and equipment..... 824,430 902,452 1,318,082 560,864 1,690,958
Deferred income taxes...................... (8,016) (129,577) (1,585,178) (523,129) (77,697)
Changes in operating assets and liabilities,
net of effects of acquisitions of
businesses and dispositions of stores:
Purchase of rental merchandise............. (14,008,982) (12,424,197) (21,200,586) (9,868,033) (28,679,670)
Accounts payable and accrued expenses...... 145,253 61,917 2,374,120 (128,816) (2,268,928)
Other assets............................... (74,189) 12,065 273,172 384,203 (485,275)
Income taxes payable....................... 65,657 4,688 140,586 -- (698,788)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities................. 2,174,487 2,255,716 (159,165) 2,596,562 (2,628,326)
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment........... (1,069,404) (635,220) (1,329,160) (711,363) (2,385,971)
Purchase of investments...................... (51,520) -- -- -- --
Proceeds from sale of property and
equipment.................................. 79,988 83,728 71,468 -- 484,702
Acquisitions of businesses, net of cash
acquired................................... -- (370,000) (49,313,357) (49,313,357) (23,723,955)
Dispositions of stores, net of cash sold..... -- 2,700,000 1,043,058 1,043,058 --
Amounts advanced on notes receivable......... (23,797) (114,425) (336,225) -- --
Payments received on notes receivable........ 24,886 67,179 98,261 120,988 492,921
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities................. (1,039,847) 1,731,262 (49,765,955) (48,860,674) (25,132,303)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock....... 182,400 483,281 93,108,000 93,108,000 --
Proceeds from borrowings on notes payable.... 519,995 1,261,623 2,393,150 334,589 15,172,988
Payments on notes payable and capital
leases..................................... (2,157,987) (4,350,105) (16,913,009) (14,796,077) (14,353,797)
Payments for deferred loan fees.............. -- (16,090) -- -- --
Contributions of capital..................... 33,234 45,498 51,610 51,610 --
Distributions to S corporation
shareholders............................... (594,287) (1,328,012) (1,520,151) (1,091,002) (76,616)
Purchase of common stock from dissenters..... -- -- -- -- (265,679)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities................. (2,016,645) (3,903,805) 77,119,600 77,607,120 476,896
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash................ (882,005) 83,173 27,194,480 31,343,008 (27,283,733)
Cash at beginning of period.................... 1,881,802 999,797 1,082,970 1,082,970 28,277,450
------------ ------------ ------------ ------------ ------------
Cash at end of period.......................... $ 999,797 $ 1,082,970 $ 28,277,450 $ 32,425,978 $ 993,717
============ ============ ============ ============ ============
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest..................................... $ 2,190,990 $ 2,049,050 $ 918,270 $ 702,187 $ 757,537
============ ============ ============ ============ ============
Income taxes................................. $ 95,048 $ 59,171 $ 158,510 $ 65,618 $ 359,616
============ ============ ============ ============ ============
</TABLE>

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

F-58
<PAGE> 171

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION

RTO, Inc. ("RTO") was incorporated on June 20, 1996, as a Delaware
corporation to develop, acquire, own, and operate a chain of stores that rent
durable household products such as consumer electronics, appliances, furniture,
jewelry and home furnishing accessories under cancelable rental-purchase
agreements renewable on a weekly or monthly basis.

The consolidated financial statements include the combination of RTO, the
Purchase Acquisitions and the Pooling Acquisitions (as described in Note 3)
(collectively referred to as the "Company") as required by Accounting Principles
Board Opinion Number 16 ("APB 16"). The first Purchase Acquisition occurred on
July 1, 1996 and, accordingly, consistent with APB 16, the 1994 and 1995
financial statements consist only of the operations of the Pooling Acquisitions.
At December 31, 1994, 1995 and 1996, the Company operated 70, 61, and 168 stores
(in sixteen states at December 31, 1996), respectively (see Note 3).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
RTO and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.

RENTAL MERCHANDISE

Rental merchandise is carried at the lower of cost or net realizable value.
Depreciation is provided using the income forecasting method or straight-line
method over a period designed to approximate the income forecasting method. The
income forecasting method is designed to match as closely as practicable the
recognition of depreciation expense with the consumption of the rental
merchandise. The consumption of rental merchandise occurs during periods of
rental and directly coincides with the receipt of rental revenue over the
rental-purchase agreement period, generally 18 to 24 months. Under the income
forecasting method, merchandise held for rent is not depreciated, and
merchandise on rent is depreciated in the proportion of rents received to total
rents required to obtain ownership as provided in the rental-purchase agreement.
The income forecasting method is an activity-based method similar to the units
of production method. Effective January 1, 1997, RTO and its new subsidiaries
elected to depreciate all additions to rental merchandise acquired subsequent to
December 31, 1996 using the income forecasting method and make other conforming
changes to the estimate of depreciation expense. These changes were made to more
accurately match revenues and expenses. The impact of these changes on the
results of operations for the nine months ended September 30, 1997 was to
decrease net loss by approximately $400,000 or $3.30 per share (unaudited).

RENTAL REVENUE

Merchandise is rented to customers pursuant to rental-purchase agreements
which provide for predominantly weekly rental terms with non-refundable rental
payments. Rental revenue is recognized as collected, since at the time of
collection the rental merchandise has been placed in service and costs of
installation and delivery have been incurred. Generally, the customer has the
right to acquire title through either a purchase option or through payment of
all rentals required to obtain ownership as provided in the rental-purchase
agreement. Rental-purchase agreements may be terminated at any time by the
customers, and if terminated, the rental merchandise is returned to the Company.

PERVASIVENESS OF ESTIMATES

F-59
<PAGE> 172

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

CONCENTRATION OF CREDIT RISKS

The Company maintained deposits and a money market mutual fund account
totaling $1,082,970 and $28,277,450 at December 31, 1995 and 1996, respectively,
with primarily four banks. Deposits in excess of $100,000 and mutual funds are
not insured by the Federal Deposit Insurance Corporation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on hand and on deposit, and
highly liquid instruments with maturities of three months or less when
purchased. The carrying amount of cash and cash equivalents is the estimated
fair value at December 31, 1995 and 1996.

During 1996, the Company invested excess funds in a money market mutual
fund account with a bank which invests in short-term instruments. The market
value of the securities as of December 31, 1996 in the mutual funds approximates
the carrying amount of approximately $25,000,000.

PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION

Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred and additions and improvements
that significantly extend the lives of depreciable assets are capitalized. Upon
sale or other retirement of depreciable property, the cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
reflected in the results of operations. Depreciation of furniture and fixtures,
signs and vehicles is provided over the estimated useful lives of the respective
assets on an accelerated basis. Leasehold improvements are amortized over the
shorter of the useful life of the asset or the term of the lease and renewal
period, if applicable.

INCOME TAXES

Income taxes for the Company are determined by use of the liability method
in which deferred income taxes are provided for temporary differences between
the financial reporting and income tax basis of assets and liabilities using the
income tax rates under existing legislation expected to be in effect at the date
such temporary differences are expected to reverse.

Since certain of the business combinations accounted for as
poolings-of-interests as defined by APB 16 (see Note 3) involved companies which
were nontaxable enterprises prior to acquisition by RTO (e.g. S Corporations),
unaudited pro forma income tax expense (benefit) has been presented for the
nontaxable enterprises as if they had been a taxable enterprise for all periods
presented. Deferred tax assets and liabilities for the tax effects of temporary
differences for the nontaxable enterprises were established through an
adjustment to income tax expense (benefit) during the period that the
combinations were consummated (see Note 12).

INTANGIBLE ASSETS AND AMORTIZATION

Intangible assets are stated at cost less accumulated amortization
calculated by straight-line and accelerated methods (see Note 7).

ADVERTISING COSTS

Advertising costs amounting to $2,037,000, $1,938,000, and $3,779,000 for
the years ended December 31, 1994, 1995, and 1996, respectively, are expensed as
incurred.

F-60
<PAGE> 173

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NET INCOME (LOSS) PER SHARE

Net income (loss) per share and pro forma net income (loss) per share is
based on the weighted average number of common shares outstanding during the
period presented.

The Company will adopt Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share," on December 31, 1997. SFAS No. 128 requires the
Company to change its method of computing, presenting and disclosing earnings
per share information. Upon adoption, all prior period data presented will be
restated to conform to the provisions of SFAS No. 128. This restatement is not
expected to have a material impact on net income (loss) per share or pro forma
net income (loss) per share.

STATEMENTS OF CASH FLOWS

Excluded from the consolidated statements of cash flows was the effect of
the following noncash activities.

For the nine months ended September 30, 1997 (unaudited)

- The Company issued common stock to settle notes payable totalling
$690,000 to certain shareholders.

- Approximately $347,611 in capital leases were entered into by the
Company.

- In connection with certain Purchase Acquisitions, the Company issued a
total of $7,100,000 of notes payable to individuals.

For the nine months ended September 30, 1996 (unaudited)

- The Company entered into approximately $180,000 in capital lease
obligations for fixed assets.

For the year ended December 31, 1994

- The Company acquired the minority interest in a subsidiary through the
issuance of stock for $155,094. A shareholder of the Company contributed
$372,206 to capital through the forgiveness of debt.

INTERIM FINANCIAL INFORMATION

The consolidated balance sheet as of September 30, 1997, the consolidated
statement of shareholders' equity for the nine months then ended, the
consolidated statements of operations and cash flows for the nine months ended
September 30, 1996 and 1997 and the notes to consolidated financial statements
with respect to September 30, 1996 and 1997 and for the nine month periods then
ended, have been prepared by the Company without audit. In the opinion of
management, all adjustments (which included only normal, recurring adjustments)
necessary to present fairly the financial position at September 30, 1997, and
the results of operations and cash flows for the aforementioned interim periods
presented have been made. The results of operations for the interim periods are
not necessarily indicative of the operating results for the full year.

RECENT ACCOUNTING STANDARDS

During June 1997, the Financial Accounting Standards Board issued SFAS No.
130 "Reporting Comprehensive Income" and No. 131 "Disclosures About Segments of
an Enterprise and Related Information". Preliminary analysis of these new
standards by the Company indicates that the standards will not have a material
impact on the Company. The standards are effective for financial statements for
fiscal years beginning after December 15, 1997.

F-61
<PAGE> 174

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACQUISITIONS

The Company purchased the assets of one rent-to-own store from a company
doing business as Magic Rent to Own ("Magic") on June 1, 1995 for cash of
approximately $370,000.

The Company purchased the assets of seven rent-to-own stores from a company
doing business as Carl's TV ("Carl's") in July 1996 for cash of approximately
$1,375,000.

The Company purchased all of the issued and outstanding common stock of
Action TV & Appliance Rental, Inc. ("Action"), a 102 store chain, effective
August 1, 1996 for cash of approximately $45,300,000 and $2,600,000 for
noncompetition agreements.

The Company purchased the assets of eight rent-to-own stores from United
Electronics, Inc. ("United") on January 3, 1997 for total consideration of
$4,348,750, consisting of cash of $2,248,750 and notes totaling $2,100,000 (see
Note 9).

The Company purchased the assets of twenty-seven rent-to-own stores from
B&L Concepts, Inc. ("B&L") on January 6, 1997 for total consideration of
$13,761,878, consisting of cash of $10,761,878 and a $3,000,000 convertible note
(see Note 9).

The Company purchased the assets of four rent-to-own stores from Mr. C.
Rental Limited Partnership ("Mr. C") on January 24, 1997 for cash consideration
of $650,000.

The Company purchased the assets of one rent-to-own store from Sunburst
Rentals, Inc. ("Sunburst") on February 7, 1997 for cash consideration of
$400,000.

The Company purchased all of the issued and outstanding common stock of
Instant Rent to Own, Inc., ("Instant"), an owner and operator of eleven
rent-to-own stores, on May 30, 1997 for total consideration of $3,786,407,
consisting of cash consideration of $1,786,487 and a convertible note in the
amount of $2,000,000. Additionally the Company purchased the assets of one
rent-to-own store from Rightway Home Furnishings, Inc. ("Rightway") for cash
consideration of $488,181. (See Note 9) (unaudited).

The Company purchased the assets of seventeen rent-to-own stores from Amigo
T.V. Rental, Inc. ("Amigo") for cash consideration of $7,000,000, on July 27,
1997 (unaudited).

The above acquisitions (collectively referred to as the "Purchase
Acquisitions") have been accounted for as purchases as defined by APB 16 and,
accordingly, the operating results of the acquired businesses have been included
in the results of operations since their respective acquisition dates. The
purchase prices have been allocated as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996 SEPTEMBER 30, 1997
-------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
Rental merchandise........................ $177,000 $ 20,344,143 $ 9,445,925
Property and equipment.................... 75,000 2,871,760 1,843,424
Intangible assets......................... 118,000 40,118,643 26,032,261
Other assets.............................. -- 3,782,805 747,897
Accounts payable and accrued expenses..... -- (3,886,758) (1,755,398)
Notes payable, assumed.................... -- (13,917,236) (5,151,794)
Notes payable issued...................... -- -- (7,100,000)
Income tax liability...................... -- -- (338,360)
-------- ------------ -----------
Cash paid, net of cash
acquired...................... $370,000 $ 49,313,357 $23,723,955
======== ============ ===========
</TABLE>

F-62
<PAGE> 175

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summary, prepared on an unaudited pro forma basis, presents
the results of operations (i) as if the above acquisitions had been purchased as
of the beginning of the year of acquisition and the beginning of the year for
the immediately preceding period, (ii) as if the initial capitalization of RTO
had occurred on January 1, 1995, and (iii) to include the effect of adjustments
of (i) and (ii) for amortization of intangibles, interest, income taxes and the
weighted average shares outstanding. Magic has been excluded since the amounts
are immaterial.

<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
RESULTS OF OPERATIONS
--------------------------------------------------------
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------- ---------------------------
1995 1996 1996 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue.................................. $89,304,940 $124,932,801 $101,114,380 $101,476,806
Income (loss) before extraordinary
item................................... $ 2,124,330 $ (3,082,703) $ (1,123,732) $ (3,955,377)
Net income (loss)........................ $ 5,460,181 $ (3,082,703) $ (1,123,732) $ (3,955,377)
Income (loss) before extraordinary item
per share.............................. $ 17.63 $ (25.56) $ (9.32) $ (32.71)
Net income (loss) per share.............. $ 45.30 $ (25.56) $ (9.32) $ (32.71)
</TABLE>

The unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of operating
results that would have occurred had the acquisitions been consummated as of the
above dates, nor are they necessarily indicative of future operating results.

The Company entered into definitive agreements to merge with various
entities which were consummated during 1996 and 1997. Under the terms of each
merger agreement, shares of common stock of each entity were multiplied by an
exchange ratio and exchanged for shares of the Company's common stock. A summary
of each merger follows:

<TABLE>
<CAPTION>
SHARES
DATE OF OF COMPANY
POOLING ACQUISITIONS: MERGER STOCK ISSUED
- --------------------- ----------------- ------------
<S> <C> <C>
Home Choice, Inc. ("Home Choice")..................... October 31, 1996 266
Yam's, Inc. ("Yam's")................................. November 1, 1996 3,818
ARTO, Inc. ("ARTO")................................... February 28, 1997 2,080
National TV Rental, Inc. ("National")................. February 28, 1997 2,101
Seajay Group ("Seajay")............................... February 28, 1997 1,999
Showtyme Group ("Showtyme")........................... February 28, 1997 2,389
ABC Group ("ABC")..................................... March 11, 1997 1,900
Discount Centers of America, Inc. ("Discount")........ May 12, 1997 1,096
The Hut Co. ("Hut")................................... May 13, 1997 420
</TABLE>

The Pooling Acquisitions were accounted for as pooling-of-interests.
Separate unaudited results of the pooled entities prior to each date of the
merger for the years ended December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997 are as follows (unaudited):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue:
RTO, Inc........................ $ -- $ -- $25,157,509 $10,018,730 $88,135,815
Home Choice..................... -- 319,772 834,748 583,180 --
Yam's........................... 4,493,464 4,844,923 4,535,581 3,554,124 --
ARTO............................ 3,553,723 3,811,243 4,153,355 3,186,045 684,753
National........................ 7,328,178 7,260,425 6,378,971 5,115,697 850,086
Seajay.......................... 14,454,915 11,661,143 7,406,567 5,756,512 1,218,752
Showtyme........................ 4,187,987 4,627,591 4,346,450 3,311,817 632,548
ABC............................. 2,748,639 3,239,992 3,451,139 2,624,868 550,938
Discount........................ 2,330,979 2,369,852 2,385,037 1,860,914 742,969
Hut............................. 1,883,064 1,818,144 1,656,195 1,237,963 440,005
----------- ----------- ----------- ----------- -----------
Combined........................ $40,980,949 $39,953,085 $60,305,552 $37,249,850 $93,255,866
=========== =========== =========== =========== ===========
</TABLE>

F-63
<PAGE> 176

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1994 1995 1996
---------------------- ----------------------- -------------------------
ACTUAL PROFORMA ACTUAL PROFORMA ACTUAL PROFORMA
---------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss):
RTO, Inc................ $ -- $ -- $ -- $ -- $(3,175,692) $(3,141,549)
Home Choice............. -- -- (221,073) (135,695) (129,993) (79,790)
Yam's................... 145,154 145,154 59,313 59,313 (17,711) (17,711)
ARTO.................... 204,536 125,544 316,396 194,204 367,532 225,591
National................ 192,191 117,967 (6,232) (3,825) 204,135 125,298
Seajay (including
extraordinary item of
$3,335,851 in 1995)... 80,141 80,141 3,385,544 3,385,544 220,813 220,813
Showtyme................ 726,485 445,916 579,037 355,413 211,647 129,909
ABC..................... 186,363 114,390 82,779 50,810 (45,303) (27,807)
Discount................ (99,455) (99,455) (11,041) (11,041) (99,064) (99,064)
Hut..................... (209,348) (209,348) (161,409) (161,409) (57,826) (57,826)
---------- --------- ---------- ---------- ----------- -----------
Combined................ $1,226,067 $ 720,309 $4,023,314 $3,733,314 $(2,521,462) $(2,722,136)
========== ========= ========== ========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------
1996 1997
------------------------- -------------------------
ACTUAL PROFORMA ACTUAL PROFORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss):
RTO, Inc.......................... $(1,157,463) $(1,157,463) $(2,859,301) $(2,716,745)
Home Choice....................... (105,752) (64,913) -- --
Yam's............................. 80,519 80,519 -- --
ARTO.............................. 417,158 256,051 9,636 9,636
National.......................... 362,372 222,424 (74,480) (52,813)
Seajay............................ 249,140 249,140 (34,204) (34,204)
Showtyme.......................... 207,290 127,237 (2,776) (3,577)
ABC............................... 41,256 25,323 (76,500) (26,089)
Discount.......................... (50,520) (50,520) (45,335) (45,335)
Hut............................... 37,366 37,366 (6,299) (6,299)
----------- ----------- ----------- -----------
Combined.......................... $ 81,366 $ (274,836) $(3,089,259) $(2,875,426)
=========== =========== =========== ===========
</TABLE>

4. SALE OF STORES

In September 1996, the Company sold four stores for $1,410,700. In
connection with the transaction, the Company sold assets with a net book value
of $659,900, received $1,043,058 in cash and $367,642 to repay a portion of its
debt, and recorded a gain of $750,800.

In September 1995, the Company sold thirteen stores for $2,700,000. In
connection with the transaction, the Company sold assets with a net book value
of $1,651,077, received $2,700,000 in cash and recorded a gain of $1,048,923.

F-64
<PAGE> 177

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. RENTAL MERCHANDISE

Cost and accumulated depreciation of rental merchandise are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cost............................................ $22,076,348 $45,642,124 $72,910,762
Less accumulated depreciation................... 13,449,554 14,850,875 29,244,781
----------- ----------- -----------
Rental merchandise, net............... $ 8,626,794 $30,791,249 43,665,981
=========== =========== ===========
</TABLE>

6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
DEPRECIATION ------------------------
PERIOD 1995 1996
------------ ---------- -----------
<S> <C> <C> <C>
Buildings....................................... 20 years $ 493,672 $ 445,539
Furniture and equipment......................... 3-7 years 4,719,918 7,050,244
Leasehold improvements.......................... 3-10 years 1,580,311 2,667,976
---------- -----------
6,793,901 10,163,759
Less accumulated depreciation and
amortization.................................. 4,357,486 5,060,056
---------- -----------
2,436,415 5,103,703
Land............................................ 127,460 115,427
---------- -----------
Property and equipment, net........... $2,563,875 $ 5,219,130
========== ===========
</TABLE>

7. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
AMORTIZATION ------------------------ SEPTEMBER 30,
PERIOD 1995 1996 1997
------------ ---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer rental agreements......... 18-24 months $ 118,000 $ 1,498,000 $ 2,502,264
Noncompetition agreements.......... 2-5 years -- 3,000,000 5,917,883
Goodwill........................... 10-30 years 955,764 36,708,192 58,819,668
Other.............................. various 25,385 26,811 --
---------- ----------- -----------
1,099,149 41,233,003 67,239,815
Less accumulated amortization...... 622,211 3,398,379 9,036,273
---------- ----------- -----------
Intangible assets, net... $ 476,938 $37,834,624 $58,203,542
========== =========== ===========
</TABLE>

Customer rental agreements represent the fair value of active customer
agreements of acquired stores at the acquisition date and are amortized in
proportion to and over the period of related estimated rental income on an
accelerated basis. The noncompetition agreements are amortized on the
straight-line and accelerated methods. Goodwill is amortized on the
straight-line method.

The Company continually evaluates the propriety of the carrying value of
goodwill and other intangible assets based on the estimated future undiscounted
cash flows of the related investment, as well as the amortization period to
determine whether current events and circumstances warrant adjustments to
carrying value and/or revised estimates of useful lives. At this time, the
Company believes that no significant

F-65
<PAGE> 178

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

impairment of the goodwill and other intangible assets has occurred and that no
reduction of the estimated useful lives is warranted.

8. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Salaries, wages, taxes and benefits......................... $ 481,426 $1,515,015
Property taxes.............................................. 32,886 181,042
Sales and use taxes payable................................. 371,278 518,618
Professional and advisory fees.............................. -- 864,207
Bonuses..................................................... -- 392,360
Interest.................................................... 59,743 82,270
Other....................................................... 1,070,107 1,732,257
---------- ----------
Accrued expenses.................................. $2,015,440 $5,285,769
========== ==========
</TABLE>

9. NOTES PAYABLE

Notes payable consists of the following (terms are as of December 31, 1996
and September 30, 1997):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to individuals with an interest rate
of 9.25% payable in equal annual installments
of $700,000 plus accrued interest through
January 3, 1999................................ $ -- $ -- $ 1,400,000
Convertible note payable to individuals with an
interest rate of 6% payable quarterly with the
principal due in January 1999.................. -- -- 3,000,000
Convertible note payable to individuals with an
interest rate of 6% payable quarterly with the
principal due May 30, 1999..................... -- -- 2,000,000
Revolving credit facilities with lenders with
variable interest rates and fixed rates as
discussed below; interest-only payments;
certain facilities are renewable each year and
others are due on demand....................... 1,616,134 1,317,593 11,295,820
Notes payable to banks with fixed rates at 10%
and variable rates of prime plus 5%; payments
range from $1,600 to $5,671; maturing on dates
ranging from February 1999 to July 2014........ 6,250,348 3,119,987 --
Notes payable to affiliates...................... 1,560,707 1,670,811 --
Notes payable to individuals with interest rates
at 10% and 20%; payments ranging from $1,822 to
interest only; some maturing on May 2002 and
others no stated maturity date................. 116,662 105,156 109,994
</TABLE>

F-66
<PAGE> 179

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment notes payable with interest rates
ranging from 8% to 13.25%; payments ranging
from $297 to $2,303 (principal and interest);
maturing on dates from January 1997 to June
2000........................................... 191,245 200,520 --
Vehicle notes payable with interest rates ranging
from 9.5% to 13.25%; payments ranging from $380
to $597 (principal and interest); maturing on
dates from May 1997 to June 1999............... 141,489 85,399 --
Capital lease obligations........................ 322,380 272,803 1,029,045
----------- ---------- -----------
Notes payable.......................... $10,198,965 $6,772,269 $18,834,859
=========== ========== ===========
</TABLE>

The revolving credit facility (the "Facility") at September 30, 1997 has a
variable interest rate based on LIBOR plus 2.5% (8.23% at September 30, 1997)
and matures on October 1, 1998. The revolving credit facilities with lenders at
December 31, 1995 and 1996 had interest rates ranging from prime plus 1% to
prime plus 2.5% and a fixed rate of 14.5%. The Facility provides for maximum
borrowings of $16.5 million less any outstanding principal of the fixed rate
loan. Borrowings under the Facility may also be limited based on multiples of
average monthly receipts and rental income, as defined by the Facility. At
September 30, 1997, the Company had $5.2 million available under the revolving
credit facility (unaudited).

The Facility, notes payable to bank, certain notes payable to affiliates
and the revolving credit facilities are collateralized primarily by inventory
and property, plant and equipment of the Company. The equipment and vehicle
notes payable are collateralized by the same equipment and vehicles purchases.
Certain notes payable are guaranteed by the shareholders of the Company. The
Facility restricts the Company's ability to pay dividends to a percentage of
annual income, requires the Company to maintain minimum levels of tangible net
worth, as defined by the Facility, and subjects the Company to a maximum ratio
of total liabilities to net tangible net worth.

During 1995, $2,897,009 in notes payable and $438,842 in accrued interest
of Seajay was forgiven and the Company recognized an extraordinary gain in
accordance with SFAS No. 15.

On January 6, 1997 and May 28, 1997, the Company issued two notes in the
amounts of $3,000,000 and $2,000,000, respectively, in connection with the
acquisitions of B&L and Instant (see Note 3). Upon certain events these notes
are convertible into common stock of the Company at a conversion rate of $1,250
per share, which will be adjusted for stock splits, dividends, or
recapitalizations of the Company.

Based on current interest rates management believes that the carrying
amount of its notes payable approximates fair value.

Aggregate maturities of notes payable over the next five years are as
follows (excludes capital leases):

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
1998........................................................ $11,355,974
1999........................................................ 712,460
2000........................................................ 5,712,460
2001........................................................ 12,460
2002........................................................ 12,460
-----------
$17,805,814
===========
</TABLE>

F-67
<PAGE> 180

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. PREFERRED STOCK

Shares of preferred stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors. Prior to issuance of shares of
each series, the Board will designate for each such series, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, as are permitted by law. No shares of preferred stock are
outstanding and the Company has no present plans to issue any shares of
preferred stock.

11. STOCK OPTION PLAN

The Company has adopted the 1996 Employee Stock Option Plan (the "Plan") to
attract and retain employees. Under the Plan, options may be granted with
respect to a total of not more than 11,448 shares of common stock, subject to
antidilution and other adjustment provisions provided, however, that the maximum
number of shares subject to all options granted to an individual under the Plan
shall not exceed 50% of the shares of common stock authorized for issuance. No
options may be granted under the Plan after the tenth anniversary of the Plan.
The options vest over a four-year period and expire on the tenth anniversary
following the date of grant.

Immediately following the formation of the Company and the acquisition of
Action, the compensation committee granted under the Plan, ten-year options to
purchase common stock at an exercise price of $1,000 per share to numerous
employees of the Company. Additional options have been granted subsequent to
this initial grant to employees joining the Company through acquisitions or
recruitment at exercise prices per share ranging from $1,000 to $1,400. The
option exercise price is equal to the fair market value of the stock on the date
of grant, as determined by the Board of Directors. No options to purchase common
stock under the Plan are exercisable as of December 31, 1996. As of September
30, 1997, options for 1308 shares are exercisable (unaudited).

On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock
Based Compensation" (SFAS 123). As permitted by SFAS 123, the Company has chosen
to apply APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25)
and related Interpretations in accounting for its Plan. Accordingly, no
compensation cost has been recognized for options granted under the Plan. Had
compensation cost for the Company's Plan been determined based on the fair value
at the grant dates for awards under the Plan consistent with the method outlined
in SFAS 123, the Company's net loss and net loss per share would have increased
to the pro forma amounts indicated below for the year ended December 31, 1996
and the nine month periods ended September 30, 1996 and 1997 (unaudited). The
Plan had not been adopted during the years ended December 31, 1995 and 1994,
therefore, there is no pro forma amounts for those periods.

<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------------- ------------------------- -------------------------
PRO FORMA SFAS 123 PRO FORMA SFAS 123 PRO FORMA SFAS 123
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Pro forma net loss................... $(2,722,136) $(3,038,767) $ (274,836) $(1,474,752) $(2,875,426) $(3,900,926)
Pro forma net loss per share......... $ (44.83) $ (50.04) $ (6.77) $ (36.30) $ (23.78) $ (32.26)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model using the following assumptions for
grants in 1996 and for the nine months ended September 30, 1996 and 1997:

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE FOR THE NINE
ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Expected dividend rate............ 0% 0% 0%
Volatility rate................... 0% 0% 0%
Risk-free interest rate........... 6.30% 6.00% 6.00%
Expected life..................... 5.5 years 5 years 5 years
</TABLE>

F-68
<PAGE> 181

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Plan as of December 31, 1996 and as of
September 30, 1997 (unaudited) and changes during the periods are presented
below:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------- --------
<S> <C> <C>
Outstanding as of January 1, 1996........................... -- $ --
Granted..................................................... 6,991 1,011
Exercised................................................... -- --
Forfeited................................................... (298) 1,000
------- ------
Outstanding as of December 31, 1996......................... 6,693 1,012
Granted (unaudited)......................................... 5,610 1,361
Exercised (unaudited)....................................... -- --
Forfeited (unaudited)....................................... (970) 1,133
------- ------
Outstanding as of September 30, 1997 (unaudited)............ 11,333 $1,170
======= ======
Options exercisable at December 31, 1996.................... None
Options exercisable at September 30, 1997 (unaudited)....... 1,308
=======
Weighted-average fair value of options granted during the
year ended December 31, 1996.............................. $ 237
=======
Weighted-average fair value of options granted during the
nine months ended September 30, 1997 (unaudited).......... $ 477
=======
</TABLE>

The following table summarizes information about the Plan's stock options
at December 31, 1996 and September 30, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE
RANGE OF EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- ----------------------- ----------- ---------------- --------------
<S> <C> <C> <C>
December 31, 1996
$1,000........................................ 6,382 9.64 years $1,000
1,250........................................ 311 9.89 years 1,250
------
6,693
======
September 30, 1997 (unaudited)
$1,000........................................ 5,906 8.80 years $1,000
1,250........................................ 1,561 9.26 years 1,250
1,400........................................ 3,866 9.59 years 1,400
------
11,333
======
</TABLE>

The Company has also adopted the 1996 Stock Option Plan for Non-Employee
Directors that provides for the granting to non-employee directors of stock
options to purchase up to 5,000 shares of the Company's common stock. The
Company has granted 564 shares at $1,400 per share, which vest over one year.

F-69
<PAGE> 182

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. INCOME TAXES

The income tax expense (benefit) is comprised of the following components:

<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED DECEMBER 31, NINE MONTHS
--------------------------------- ENDED
1994 1995 1996 SEPTEMBER 30, 1997
------- --------- ----------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal............................ $ 5,116 $ 108,086 $ 83,010 $ --
State.............................. 38,131 31,607 216,086 (812)
------- --------- ----------- --------
Total current.............. 43,247 139,693 299,096 (812)
Deferred............................. (8,016) (129,577) (1,585,178) (77,697)
------- --------- ----------- --------
Total...................... $35,231 $ 10,116 $(1,286,082) $(78,509)
======= ========= =========== ========
</TABLE>

As of the effective date of the acquisition of various S corporations (Note
3), these entities became subject to federal and state income taxes and a
$137,070 deferred income tax liability was recognized through a one-time charge
to income tax expense for the nine months ended September 30, 1997 as required
by SFAS No. 109 (unaudited).

Significant components of the Company's deferred income taxes are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carry-forwards................ $ 40,726 $1,272,439 $ 301,620
Rental merchandise............................... 25,825 494,133 620,607
Property and equipment........................... -- 282,000 340,984
Intangibles...................................... -- 454,000 1,075,581
Accrued expenses................................. -- -- 240,605
Other............................................ 126,788 3,239 264,389
Valuation allowance.............................. (76,607) (90,563) (90,563)
-------- ---------- ----------
116,732 2,415,248 2,753,223
-------- ---------- ----------
Deferred tax liabilities:
Customer rental agreements....................... -- 308,000 413,026
Other............................................ 3,630 14,000 143,803
-------- ---------- ----------
3,630 322,000 556,829
-------- ---------- ----------
$113,102 $2,093,248 $2,196,394
======== ========== ==========
</TABLE>

In 1996, a net deferred tax asset of approximately $400,000 was established
upon the acquisition of Action for the difference in the tax and book basis of
the net assets acquired. In 1997, a net deferred tax asset of $25,449 was
established upon the acquisition of Instant for the difference in the tax and
book basis of the net assets acquired.

As of September 30, 1997 the Company had a total of $1,178,000 of net
operating loss carry forwards for federal tax purposes, expiring 2007 to 2010.
The utilization may be subject to limitations under IRC Section 382 (unaudited).

F-70
<PAGE> 183

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The income tax expense (benefit) reconciled to the tax computed at the
statutory Federal rate (34%) is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
--------- --------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal income tax at the statutory
rate................................ $ 428,841 $ 237,177 $(1,294,565) $(1,077,082)
State income tax...................... 108,431 73,643 (63,776) (34,829)
Nondeductible goodwill amortization
and acquisitions cost............... -- -- 224,017 820,769
Deferred income taxes recorded upon
conversion of S corporation to C
corporation......................... -- -- -- 137,070
Loss (income) from Subchapter S
corporations, net................... (505,758) (290,000) (200,674) 76,763
Other................................. 3,717 (10,704) 48,916 (1,200)
--------- --------- ----------- -----------
$ 35,231 $ 10,116 $(1,286,082) $ (78,509)
========= ========= =========== ===========
</TABLE>

13. BENEFIT PLANS

The Company has a defined contribution profit sharing plan covering
substantially all employees. The plan provides for Company contributions to be
determined annually by the Board of Directors. The Company contributed $50,000
to the plan during 1996.

The Company also has a qualified, tax deferred retirement savings plan
under the provisions of Section 401(k) of the Internal Revenue Code. The Plan
covers all full-time employees who have completed six months of service with the
Company. The first 4% of an eligible employee's elective contributions are
matched by the Company. Additional contributions are made to the Plan at the
discretion of the Board of Directors. The Company contributed approximately
$79,000 to the Plan for 1996.

14. COMMITMENTS AND CONTINGENCIES

The Company leases its office and store facilities and transportation
equipment under operating leases expiring in various years through 2010. Rental
expense was $2,379,527, $2,334,640 and $5,349,765 for the years ended December
31, 1994, 1995 and 1996, respectively. Rent expense was $1,996,629 and
$6,652,780 for the nine months ended September 30, 1996 and 1997, respectively
(unaudited). The Company also leases certain transportation equipment under
capital leases expiring in various years through 2002. Future minimum rental
payments under operating and capital leases with remaining noncancelable lease
terms in excess of one year at September 30, 1997 are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
1997........................................................ $ 2,253,982 $ 130,669
1998........................................................ $ 7,563,068 90,746
1999........................................................ 5,573,918 373,533
2000........................................................ 3,712,073 319,781
2001........................................................ 2,100,726 284,316
2002........................................................ 602,478 --
Thereafter.................................................. 421,690 --
----------- ----------
$22,227,935 1,199,045
===========
Amounts representing interest............................... $ 170,000
----------
$1,029,045
==========
</TABLE>

F-71
<PAGE> 184

RTO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company from time to time on an as needed basis charters an airplane
from a company owned by one of its shareholders. Fees charged during the year
ended December 31, 1996 and for the nine months ended September 30, 1997 under
this arrangement were $106,650 and $29,100, respectively.

The Company is a defendant in various lawsuits arising in the normal course
of business. In the opinion of management, the ultimate outcome of these
lawsuits will not have a material impact on the Company's financial position.

15. UNAUDITED QUARTERLY DATA

Summarized quarterly financial data for 1995 and 1996 is as follows:

<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Revenue........................... $ 9,445,460 $ 9,114,577 $18,689,813 $23,055,702
=========== =========== =========== ===========
Operating income (loss)........... $ 849,143 $ 301,050 $(1,899,177) $(3,804,665)
=========== =========== =========== ===========
Pro forma net income (loss)....... $ 413,551 $ 171,389 $ (859,776) $(2,447,300)
=========== =========== =========== ===========
Pro forma net income (loss) per
share.......................... $ 25.76 $ 10.68 $ (20.29) $ (9.64)
=========== =========== =========== ===========
Year ended December 31, 1995
Revenue........................... $10,299,035 $10,690,435 $10,094,507 $ 8,869,108
=========== =========== =========== ===========
Operating income (loss)........... $ 226,856 $ 291,915 $ 236,635 $ 269,877
=========== =========== =========== ===========
Income before extraordinary
item........................... $ 110,724 $ 131,743 $ 79,465 $ 75,531
Extraordinary item................ -- -- 3,335,851 --
----------- ----------- ----------- -----------
Pro forma net income.............. $ 110,724 $ 131,743 $ 3,415,316 $ 75,531
=========== =========== =========== ===========
Income before extraordinary item
per share...................... $ 7.22 $ 8.54 $ 4.95 $ 4.71
Extraordinary item per share...... -- -- 207.80 --
----------- ----------- ----------- -----------
Pro forma net income per share.... $ 7.22 $ 8.54 $ 212.75 $ 4.71
=========== =========== =========== ===========
</TABLE>

16. PENDING MERGER

On September 29, 1997 the Company and RTO, Inc. announced the signing of a
definitive merger agreement. Under the terms of the agreement, RTO shareholders
will receive approximately 10.9 million shares of Alrenco's common stock in
exchange for all of the outstanding common stock of RTO, Inc. The merger
agreement is subject to customary consents and approvals, including approval by
shareholders of Alrenco and RTO. Closing of the merger is expected in the first
quarter of 1998.

F-72
<PAGE> 185

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Action TV & Appliance Rental, Inc.
Mesquite, Texas

We have audited the accompanying balance sheet of Action TV & Appliance
Rental, Inc., (the "Company") as of July 31, 1996, and the related statements of
operations, shareholders' equity and cash flows for the seven month period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Action TV & Appliance
Rental, Inc. as of July 31, 1996, and the results of its operations and its cash
flows for the seven month period then ended, in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina
January 31, 1997

F-73
<PAGE> 186

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Action TV & Appliance Rental, Inc.

We have audited the accompanying balance sheets of Action TV & Appliance
Rental, Inc., as of December 31, 1995 and 1994, and the related statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Action TV & Appliance
Rental, Inc., at December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Dallas, Texas
November 4, 1996

F-74
<PAGE> 187

ACTION TV & APPLIANCE RENTAL, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JULY 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 3,344,865 $ 1,302,135 $ 747,248
Prepaid expenses...................................... 489,616 1,020,478 1,108,273
Rental merchandise, net............................... 14,093,165 19,829,766 19,831,711
Property and equipment, net........................... 2,618,667 3,520,246 3,326,743
Intangible assets, net................................ 91,499 4,573,886 4,336,737
Premiums paid under split-dollar life insurance
agreements.......................................... 899,772 1,289,335 --
Note receivable....................................... -- 2,561,282 2,222,952
Other assets.......................................... 33,031 135,946 56,612
----------- ----------- -----------
Total assets................................ $21,570,615 $34,233,074 $31,630,276
=========== =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable...................................... $ 1,458,432 $ 1,860,704 $ 1,249,166
Accrued expenses...................................... 692,639 1,741,131 2,083,124
State income taxes payable............................ 150,000 120,000 169,646
Notes payable......................................... 6,000,000 16,555,213 13,706,958
Notes payable to related parties...................... 2,630,000 480,000 --
----------- ----------- -----------
Total liabilities........................... 10,931,071 20,757,048 17,208,894
----------- ----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock par value $1.00, 10,000 shares
authorized; 1,000 shares issued and outstanding..... 1,000 1,000 1,000
Additional paid-in capital.......................... 72,173 72,173 72,173
Retained earnings................................... 10,566,371 13,402,853 14,348,209
----------- ----------- -----------
Total shareholders' equity.................. 10,639,544 13,476,026 14,421,382
----------- ----------- -----------
Total liabilities and shareholders'
equity.................................... $21,570,615 $34,233,074 $31,630,276
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-75
<PAGE> 188

ACTION TV & APPLIANCE RENTAL, INC.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE SEVEN
MONTHS ENDED JULY 31, 1996

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JULY 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Rental and fee revenue................................ $39,058,678 $46,116,265 $32,953,994
Cash sales and other revenue.......................... 821,255 1,000,107 755,821
----------- ----------- -----------
Total revenue................................. 39,879,933 47,116,372 33,709,815
----------- ----------- -----------
Operating expenses:
Depreciation and disposition of rental merchandise.... 11,786,071 14,042,103 9,456,141
Salaries and wages.................................... 9,747,998 12,025,207 8,255,090
Occupancy............................................. 3,318,436 4,421,948 3,203,248
Advertising........................................... 2,660,004 2,896,423 1,793,889
Other direct store expenses........................... 4,438,542 5,260,402 3,763,668
----------- ----------- -----------
Total direct store expenses................... 31,951,051 38,646,083 26,472,036
Corporate expenses.................................... 3,141,042 3,939,894 2,735,276
Amortization of intangibles........................... 162,250 391,835 331,472
----------- ----------- -----------
Total operating expenses...................... 35,254,343 42,977,812 29,538,784
----------- ----------- -----------
Operating income.............................. 4,625,590 4,138,560 4,171,031
Other income (expense):
Interest expense...................................... (497,042) (759,133) (740,969)
Interest income....................................... 29,867 90,276 147,440
Other non-operating income (net)...................... 70,561 50,689 152,989
----------- ----------- -----------
Income before state income taxes.............. 4,228,976 3,520,392 3,730,491
State income tax expense................................ 150,000 120,000 147,000
----------- ----------- -----------
Net income.................................... $ 4,078,976 $ 3,400,392 $ 3,583,491
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-76
<PAGE> 189

ACTION TV & APPLIANCE RENTAL, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE SEVEN
MONTHS ENDED JULY 31, 1996

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1993........................... 1,000 $1,000 $72,173 $ 9,897,894 $ 9,971,067
Shareholder distributions................... -- -- -- (3,410,499) (3,410,499)
Net income.................................. -- -- -- 4,078,976 4,078,976
----- ------ ------- ----------- -----------
December 31, 1994........................... 1,000 1,000 72,173 10,566,371 10,639,544
Shareholder distributions................... -- -- -- (563,910) (563,910)
Net income.................................. -- -- -- 3,400,392 3,400,392
----- ------ ------- ----------- -----------
December 31, 1995........................... 1,000 1,000 72,173 13,402,853 13,476,026
Shareholder distributions................... -- -- -- (2,638,135) (2,638,135)
Net income.................................. -- -- -- 3,583,491 3,583,491
----- ------ ------- ----------- -----------
July 31, 1996............................... 1,000 $1,000 $72,173 $14,348,209 $14,421,382
===== ====== ======= =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-77
<PAGE> 190

ACTION TV & APPLIANCE RENTAL, INC.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE SEVEN
MONTHS ENDED JULY 31, 1996

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JULY 31,
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 4,078,976 $ 3,400,392 $ 3,583,491
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and disposition of rental
merchandise.................................... 11,786,071 14,042,103 9,456,141
Amortization of intangibles...................... 162,250 391,835 331,472
Depreciation of property and equipment........... 574,883 752,783 566,266
Loss on disposals of property and equipment...... 59,049 97,802 361,417
Changes in operating assets and liabilities,
net of effects of acquisitions of businesses:
Prepaid expenses............................... 20,393 (456,184) (87,795)
Purchases of rental merchandise................ (12,246,085) (16,008,767) (9,031,298)
Other assets................................... -- -- 79,135
Accounts payable and accrued expenses.......... 150,425 1,050,763 (269,545)
State income taxes payable..................... 150,000 (30,000) 49,646
------------ ------------ -----------
Net cash provided by operating activities... 4,735,962 3,240,727 5,038,930
------------ ------------ -----------
Cash flows from investing activities:
Purchases of property and equipment................. (686,513) (1,124,300) (720,172)
Acquisition of businesses, net of cash acquired..... -- (8,754,273) (552,536)
Payments of split-dollar life insurance premiums.... (327,570) (389,563) (177,699)
Purchase of note receivable......................... -- (2,700,000) --
Payments received on note receivable................ 20,369 138,716 338,330
Payments on noncompetition agreements............... (15,000) (560,000) --
Proceeds from sale of property and equipment........ 16,207 64,660 17,616
------------ ------------ -----------
Net cash used in investing activities....... (992,507) (13,324,760) (1,094,461)
------------ ------------ -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable to related
parties.......................................... 2,945,000 -- --
Payments on notes payable to related parties........ (1,360,000) (2,150,000) (480,000)
Proceeds from issuance of notes payable............. 4,500,000 13,400,000 2,766,767
Payments on notes payable to bank................... (3,600,000) (2,644,787) (5,615,022)
Distributions to shareholders....................... (3,410,499) (563,910) (1,171,101)
------------ ------------ -----------
Net cash provided by (used in) financing
activities................................ (925,499) 8,041,303 (4,499,356)
------------ ------------ -----------
Net increase (decrease) in cash....................... 2,817,956 (2,042,730) (554,887)
Cash at beginning of period........................... 526,909 3,344,865 1,302,135
------------ ------------ -----------
Cash at end of period................................. $ 3,344,865 $ 1,302,135 $ 747,248
============ ============ ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest......................................... $ 478,858 $ 702,273 $ 724,718
============ ============ ===========
State income taxes............................... $ 163,485 $ 152,395 $ 97,354
============ ============ ===========
Non-cash investing and financing activity:
Cash value of split-dollar life insurance
agreement distributed to shareholders....... $ 1,467,034
===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-78
<PAGE> 191

ACTION TV & APPLIANCE RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Action TV & Appliance Rentals, Inc. (the "Company") was incorporated in
1978 in the State of Texas to develop, own, and operate a chain of stores that
rent durable household products such as consumer electronics, appliances,
furniture, jewelry and home furnishings accessories to consumers under
cancellable rental-purchase agreements renewable on a weekly or monthly basis.
At December 31, 1994 and 1995 and July 31, 1996, the Company operated 71, 100,
and 102 stores in six states, respectively. Effective July 31, 1996, all of the
Company's stock was acquired by RTO, Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

RENTAL MERCHANDISE

Rental merchandise is carried at the lower of cost or net realizable value.
Depreciation is provided using the income forecasting method which is intended
to match as closely as practicable the recognition of depreciation expense with
the consumption of the rental merchandise. The consumption of rental merchandise
occurs during periods of rental and directly coincides with the receipt of
rental revenue over the rental-purchase agreement period, generally 18 to 24
months. Under the income forecasting method, merchandise held for rent is not
depreciated, and merchandise on rent is depreciated in the proportion of rents
received to total rents required to obtain ownership as provided in the rental
agreement. The income forecasting method is an activity-based method similar to
the units of production method.

RENTAL REVENUE

Merchandise is rented to customers pursuant to rental-purchase agreements
which provide for predominantly weekly rental terms with non-refundable rental
payments. Rental revenue is recognized as collected since at the time of
collection the rental merchandise has been placed in service and costs of
installation and delivery have been incurred. Generally, the customer has the
right to acquire title through either a purchase option or through payment of
all rentals required to obtain ownership as provided in the rental-purchase
agreement. Rental-purchase agreements may be terminated at any time by the
customers, and if terminated, the rental merchandise is returned to the Company.

PERVASIVENESS OF ESTIMATES

CONCENTRATION OF CREDIT RISKS

The Company maintained deposits totaling $3,344,865, $1,302,135, and
$747,248 at December 31, 1994 and 1995 and July 31, 1996, with various banks.
Deposits in excess of $100,000 are not insured by the Federal Deposit Insurance
Corporation.

CASH AND CASH EQUIVALENTS

F-79
<PAGE> 192

ACTION TV & APPLIANCE RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION

Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred and additions and improvements
that significantly extend the lives of depreciable assets are capitalized. Upon
sale or other retirement of depreciable property, the cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
reflected in the results of operations. Depreciation of furniture and fixtures,
signs and vehicles is provided over the estimated useful lives of the respective
assets (three to seven years) on an accelerated basis. Leasehold improvements
are amortized over the shorter of the useful life of the asset or the term of
the lease and renewal period, if applicable.

INTANGIBLE ASSETS AND AMORTIZATION

Intangible assets are stated at cost less accumulated amortization
calculated by straight-line and accelerated methods. See Note 5.

INCOME TAXES

On January 1, 1993, the shareholders of the Company elected to be taxed as
a small business corporation, under Subchapter S of the Internal Revenue Code,
whereby income is taxed directly to the shareholders for federal income tax
purposes. Accordingly, only state income taxes have been reflected in the
statements of operations and no provision for federal income tax has been made.

ADVERTISING COSTS

Advertising costs amounting to $2,606,000, $2,652,000, and $1,805,000 for
the years ended December 31, 1994 and 1995 and the seven months ended July 31,
1996, respectively, are expensed as incurred.

RECLASSIFICATIONS

Certain 1994 and 1995 balances have been reclassified to conform to the
1996 presentation.

3. RENTAL MERCHANDISE

Cost and accumulated depreciation of rental merchandise are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JULY 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cost......................................... $ 25,296,019 $ 31,244,144 $ 31,679,592
Less accumulated depreciation................ (11,202,854) (11,414,378) (11,847,881)
------------ ------------ ------------
Rental merchandise, net............ $ 14,093,165 $ 19,829,766 $ 19,831,711
============ ============ ============
</TABLE>

F-80
<PAGE> 193

ACTION TV & APPLIANCE RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DEPRECIATION DECEMBER 31, DECEMBER 31, JULY 31,
PERIOD 1994 1995 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Furniture and equipment.............. 3-7 years $ 3,321,906 $ 4,614,385 $ 4,595,027
Leasehold improvements............... 8-10 years 1,089,120 1,332,339 1,640,632
----------- ----------- -----------
4,411,026 5,946,724 6,235,659
Less accumulated depreciation and
amortization....................... (1,792,359) (2,426,478) (2,908,916)
----------- ----------- -----------
Property and equipment,
net...................... $ 2,618,667 $ 3,520,246 $ 3,326,743
=========== =========== ===========
</TABLE>

5. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
AMORTIZATION DECEMBER 31, DECEMBER 31, JULY 31,
PERIOD 1994 1995 1996
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Noncompetition agreements............. 2 - 5 years $ 291,667 $ 575,000 $ 625,343
Customer rental agreements............ 1 - 2 years -- 284,000 300,000
Goodwill.............................. 20 years -- 4,030,071 4,058,306
--------- ---------- ----------
291,667 4,889,071 4,983,649
Less accumulated amortization....... (200,168) (315,185) (646,912)
--------- ---------- ----------
Intangible assets, net...... $ 91,499 $4,573,886 $4,336,737
========= ========== ==========
</TABLE>

Customer rental agreements represent the fair value of active customer
agreements of acquired stores at the acquisition date and are amortized in
proportion to and over the period of related estimated rental income on an
accelerated basis. The noncompetition agreements are amortized on the
straight-line method. Goodwill is amortized by the straight-line method.

6. NOTE RECEIVABLE

The note receivable is due in monthly installments of $68,479, with
interest at 10% per annum and matures September 15, 1999. The note is
collateralized by certain assets of the debtor's rental-purchase business.

7. SPLIT-DOLLAR LIFE INSURANCE AGREEMENT

Effective December 31, 1992, the Company entered into split-dollar life
insurance agreements with two affiliates of its shareholders. The agreements
provide for the Company to pay all premiums which the beneficiaries elect not to
pay, estimated to be approximately $325,000 annually, for a period of ten years.
During 1996 the policies were distributed to the affiliates at book value.

F-81
<PAGE> 194

ACTION TV & APPLIANCE RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JULY 31,
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Accrued salaries, wages and payroll taxes......... $370,067 $ 573,060 $ 987,437
Accrued property taxes............................ 26,143 4,227 328,660
Sales and use taxes payable....................... 55,404 392,740 389,820
Accrued interest.................................. -- 60,614 --
Accrued bonuses................................... 241,025 328,233 165,123
Other............................................. -- 382,257 212,084
-------- ---------- ----------
Accrued expenses........................ $692,639 $1,741,131 $2,083,124
======== ========== ==========
</TABLE>

9. NOTES PAYABLE TO BANK

The Company has entered into a loan and security agreement (the Agreement)
with a bank which provides for a fixed rate loan and a revolving line of credit.
The fixed rate loan ($5,000,000 outstanding at December 31, 1994 and 1995, and
July 31, 1996) is payable on demand but not later than October 1, 1998, and
bears interest at 7% per annum on the first $3,500,000 and 8% per annum on the
next $1,500,000. On April 30, 1996, interest was adjusted to bear a fixed rate
of 9.5% per annum. Interest is due and payable monthly.

The revolving line of credit provides for maximum borrowings of $16,500,000
less any outstanding principal balance of the fixed rate loan. Borrowings
available under the revolving line of credit may also be limited based on
multiples of average monthly receipts and rental income value, as defined. At
December 31, 1994 and 1995, and at July 31, 1996, the Company had outstanding
borrowings under the revolving line of credit of $1,000,000, $9,000,000, and
$6,500,000, respectively. The revolving line of credit is payable on demand,
matures October 1, 1998, and bears interest at a floating rate based on the
prime rate plus 1% (9.5% at July 31, 1996) payable monthly.

Borrowings under the Agreement are collateralized by the rental units,
property and equipment and substantially all other assets of the Company and the
personal guarantees of the majority shareholder. The agreement also requires the
maintenance of minimum levels of life insurance on the president and of tangible
net worth, as defined, and a maximum ratio of total liabilities to tangible net
worth.

In September 1995, the Company also entered into a term loan with a bank
($2,555,213 and $2,206,958 outstanding at December 31, 1995 and July 31, 1996,
respectively) bearing interest at a fixed rate of 9.5% with principal and
interest payable in monthly installments. The term loan matures on the earlier
of October 1, 1999 or expiration of the Agreement and is collateralized by the
note receivable (see Note 6).

These notes were retired subsequent to July 31, 1996 by RTO, the Company's
parent company.

Based on current interest rates and the floating rates provided in the
majority of its debt, management believes that the carrying amount of its notes
payable to bank approximate fair value.

F-82
<PAGE> 195

ACTION TV & APPLIANCE RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. NOTES PAYABLE TO RELATED PARTIES

Notes payable to related parties consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Notes payable to affiliates due April 14, 1996, bearing
interest at 10%, payable monthly, collateralized by rental
units, property and equipment, and substantially all other
assets of the Company but subordinated to notes payable to
bank...................................................... $1,360,000 $280,000
Unsecured note payable to shareholder due April 14, 1995,
bearing interest at 10%, payable monthly.................. 965,000 --
Unsecured notes payable to shareholder and affiliates due
January 14, 1996, bearing interest at 10%, payable
monthly................................................... 210,000 200,000
Unsecured note payable to affiliate due February 21, 1995,
bearing interest at 10%, payable monthly.................. 55,000 --
Unsecured note payable to affiliate due April 1, 1995,
bearing interest at 10%, payable monthly.................. 40,000 --
---------- --------
$2,630,000 $480,000
========== ========
</TABLE>

Interest expense on the above notes was $122,202, $97,802 and $2,940 for
the periods ended December 31, 1994 and 1995 and July 31, 1996, respectively.

11. ACQUISITIONS

Throughout 1995, the Company acquired in various transactions 43 existing
stores, 13 of which were merged with other stores owned by the Company, from
unrelated parties. These acquisitions were accounted for as purchases and,
accordingly, results of operations are included from the date of acquisition.

12. BENEFIT PLANS

The Company has a profit sharing plan covering substantially all employees.
The plan provides for Company contributions to be determined annually by the
Board of Directors. The Company contributed $330,000, $330,000 and $70,000 for
the periods ended December 31, 1994 and 1995 and July 31, 1996.

Effective January 1, 1996, the Company initiated a qualified, tax deferred
retirement savings plan under the provisions of Section 401(k) of the Internal
Revenue Code. The Plan covers all full-time employees who have completed one
year of service with the Company. The first 4% of an eligible employee's
elective contributions are matched by the Company. Additional contributions are
made to the Plan at the discretion of the Board of Directors. The Company
contributed approximately $116,000 to the Plan for 1996.

13. COMMITMENTS AND CONTINGENCIES

The Company leases its office, store facilities and transportation
equipment under operating leases expiring in various years through 2002. Rental
expense was $2,791,000, $3,670,571 and $3,468,366 for the periods ended December
31, 1994 and 1995 and July 31, 1996, respectively, of which approximately
$174,000 was paid to an affiliate of the CEO/shareholder in 1994 and 1995 and
$110,500 during the seven months

F-83
<PAGE> 196

ACTION TV & APPLIANCE RENTAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ended July 31, 1996. Future minimum rental payments under operating leases with
remaining noncancelable lease terms in excess of one year at July 31, 1996 are
as follows:

<TABLE>
<S> <C>
1997........................................................ 3,227,052
1998........................................................ 2,261,530
1999........................................................ 1,294,216
2000........................................................ 704,331
2001........................................................ 151,612
Thereafter.................................................. 7,029
----------
$7,645,770
==========
</TABLE>

The Company is a defendant in certain lawsuits arising in the normal course
of business. In the opinion of management, the ultimate outcome of these
lawsuits will not have a material impact on the Company's financial position or
results of operations.

F-84
<PAGE> 197

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
B&L Concepts, Inc.

We have audited the accompanying balance sheets of B&L Concepts, Inc. as of
December 28, 1996 and December 23, 1995, and the related statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of B&L Concepts, Inc. at
December 28, 1996 and December 23, 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Orlando, Florida
January 16, 1997

F-85
<PAGE> 198

B&L CONCEPTS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 23,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 149,359 $ 550,982
Accounts receivable......................................... 33,436 44,299
Prepaid expenses............................................ 107,689 136,378
Rental merchandise, net..................................... 3,339,940 2,945,789
Property and equipment, net................................. 1,052,824 914,098
Intangible assets, net...................................... 12,550 23,649
Deposits.................................................... 40,123 42,752
---------- ----------
Total assets...................................... $4,735,921 $4,657,947
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 640,189 $ 487,801
Accrued expenses.......................................... 297,461 131,732
Notes payable............................................. 522,389 944,222
Capital lease obligations................................. 647,553 569,731
---------- ----------
Total liabilities................................. 2,107,592 2,133,486
Stockholders' equity:
Common stock, $1 par value, 1,000 shares authorized, 500
shares issued and outstanding.......................... 500 500
Additional paid-in capital................................ 9,500 9,500
Retained earnings......................................... 2,618,329 2,514,461
---------- ----------
Total stockholders' equity........................ 2,628,329 2,524,461
---------- ----------
Total liabilities and stockholders' equity........ $4,735,921 $4,657,947
========== ==========
</TABLE>

See accompanying notes.

F-86
<PAGE> 199

B&L CONCEPTS, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
DECEMBER 28, DECEMBER 23,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Rental revenue............................................ $12,298,275 $12,397,744
Other revenue............................................. 1,937,589 1,933,303
----------- -----------
Total revenues.................................... 14,235,864 14,331,047
Direct store expenses:
Depreciation of rental merchandise........................ 3,515,176 3,607,185
Other product costs....................................... 1,462,800 1,468,148
Salaries and wages........................................ 3,086,741 2,983,573
Occupancy................................................. 883,714 835,096
Advertising............................................... 599,729 526,246
Other direct expenses..................................... 805,371 738,012
----------- -----------
Total direct store expenses....................... 10,353,531 10,158,260
Operating expenses:
General and administrative................................ 2,693,750 2,572,950
Amortization of intangibles............................... 11,099 9,356
----------- -----------
Total operating expenses.......................... 2,704,849 2,582,306
Operating income............................................ 1,177,484 1,590,481
Interest expense............................................ 119,745 171,759
----------- -----------
Net income.................................................. $ 1,057,739 $ 1,418,722
=========== ===========
</TABLE>

See accompanying notes.

F-87
<PAGE> 200

B&L CONCEPTS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 25, 1994........................ $500 $9,500 $2,112,069 $2,122,069
Net income........................................ -- -- 1,418,722 1,418,722
Stockholder distributions......................... -- -- (1,016,330) (1,016,330)
---- ------ ---------- ----------
Balance at December 23, 1995........................ 500 9,500 2,514,461 2,524,461
Net income........................................ -- -- 1,057,739 1,057,739
Stockholder distributions......................... -- -- (953,871) (953,871)
---- ------ ---------- ----------
Balance at December 28, 1996........................ $500 $9,500 $2,618,329 $2,628,329
==== ====== ========== ==========
</TABLE>

See accompanying notes.

F-88
<PAGE> 201

B&L CONCEPTS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
DECEMBER 28, DECEMBER 23,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 1,057,739 $ 1,418,722
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of rental merchandise..................... 3,515,176 3,607,185
Amortization of intangible assets...................... 11,099 9,356
Depreciation of property and equipment................. 392,671 342,831
(Gain) loss on sale of property and equipment.......... (2,232) 9,078
Changes in operating assets and liabilities:
Decrease (increase) in prepaid expenses and
deposits.......................................... 31,318 (28,358)
Increase in rental merchandise....................... (3,909,327) (3,520,678)
Decrease (increase) in accounts receivable........... 10,863 (5,219)
Increase in accounts payable and accrued expenses.... 318,117 292,830
----------- -----------
Net cash provided by operating activities......... 1,425,424 2,125,747
Cash flows from investing activities
Purchases of property and equipment....................... (176,281) (119,993)
Proceeds from sale of property and equipment.............. 12,823 35,117
----------- -----------
Net cash used in investing activities............. (163,458) (84,876)
Cash flows from financing activities
Proceeds from notes payable............................... -- 55,918
Payments on notes payable................................. (421,833) (429,357)
Payments on capital lease obligations..................... (287,885) (243,562)
Distributions to stockholders............................. (953,871) (1,016,330)
----------- -----------
Net cash used in financing activities............. (1,663,589) (1,633,331)
----------- -----------
Net increase (decrease) in cash and cash equivalents...... (401,623) 407,540
Cash and cash equivalents at beginning of year............ 550,982 143,442
----------- -----------
Cash and cash equivalents at end of year.................. $ 149,359 $ 550,982
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest.................... $ 122,381 $ 175,241
=========== ===========
Supplemental disclosure of noncash activities
Acquisition of vehicles by financing leases............... $ 355,542 $ 245,098
=========== ===========
</TABLE>

See accompanying notes.

F-89
<PAGE> 202

B&L CONCEPTS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1996

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

B&L Concepts, Inc. (the Company), organized in 1980, owns and operates
rental stores in Florida, Georgia and Alabama. The stores offer consumer
electronics, household appliances, furniture, and jewelry for rent with
ownership potential. As of December 28, 1996 and December 23, 1995, 27 and 26
stores, respectively, were owned and operated by the Company. (See Note 9.) The
Company is part of a group, affiliated through common ownership, which operates
as Champion Rent to Own. As of December 28, 1996 and December 23, 1995, 150 and
140 stores, respectively, were owned and operated under that trade name by the
affiliated group.

The nature of the Company's rental activity is rent-to-own, and is governed
in the state in which it operates by rent-to-own legislation.

The essential elements of the rent-to-own rental agreement are:

- Weekly, or sometimes monthly, rental agreements providing for no
obligation on the part of the renting party beyond each weekly or monthly
rental period.

- Provision for ownership of the rental units upon the payment of a
specified number of fixed payment amounts.

Revenues are recorded when payment is received in accordance with renewable
rental agreements. Receivables are not recorded because the customer is not
legally obligated to continue the payments. Historically, few agreements are
renewed for sufficient successive weeks or months for the customer to obtain
ownership.

ANNUAL CLOSING DATE

The Company's fiscal years are the 53 and 52 week periods ending December
28, 1996 and December 23, 1995, respectively.

CASH AND CASH EQUIVALENTS

The Company considers all highly-liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

RENTAL UNITS

Rental unit inventory is recorded at cost as determined by specific
identification. Depreciation, for financial statement purposes, is computed by
the straight-line method over the economic life of the related asset, which
ranges from 6 to 21 months. Depreciation expense was $3,515,176 and $3,607,185
for 1996 and 1995, respectively.

ACCOUNTS RECEIVABLE

The direct write-off method, rather than the allowance method, is used to
determine carrying value of receivables and the resulting bad debt expense. The
effect of this method on the financial statements is not materially different
from the allowance method.

F-90
<PAGE> 203

B&L CONCEPTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

FIXED ASSETS

Fixed assets are recorded at cost. For assets placed in service prior to
1994, depreciation is computed principally by the accelerated methods over the
estimated useful lives of the related assets. Effective December 26, 1993, the
Company began depreciating newly-acquired assets using the straight-line method,
which conforms to prevailing industry practice. Useful lives range from 3 to 7
years. Depreciation expense was $392,671 and $342,831 for 1996 and 1995,
respectively.

INTANGIBLE ASSET

Included in prepaids and other assets are loan fees incurred in connection
with the Company's financing as disclosed in Note 4. The fees are being
amortized using the straight-line method over the four year life of the term
loan. Accumulated amortization at December 28, 1996 and December 23, 1995 was
$29,166 and $18,067, respectively.

INCOME TAXES

The Company has elected by consent of its stockholders to be taxed under
the provision of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay Federal corporate income taxes on its
taxable income. Instead, the stockholders are liable for individual Federal
income taxes on the Company's taxable income.

ADVERTISING

The Company expenses the cost of advertising as incurred. For the years
ended December 28, 1996 and December 23, 1995, total advertising expense was
approximately $600,000 and $526,000, respectively.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

2. RENTAL UNITS

Rental units at December 28, 1996 and December 23, 1995, consist of the
following:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Rental units.............................................. $ 7,670,119 $ 7,163,581
Less accumulated depreciation............................. (4,330,179) (4,217,792)
----------- -----------
$ 3,339,940 $ 2,945,789
=========== ===========
</TABLE>

F-91
<PAGE> 204

B&L CONCEPTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. FIXED ASSETS

Fixed assets at December 28, 1996 and December 23, 1995, consist of the
following:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land and building......................................... $ 128,689 $ 128,689
Office furniture and equipment............................ 590,697 471,753
Automobiles and trucks.................................... 1,594,545 1,395,508
Leasehold improvements.................................... 270,449 260,960
Machinery tools and equipment............................. 320,988 285,673
----------- -----------
2,905,368 2,542,583
Less accumulated depreciation and amortization............ (1,852,544) (1,628,485)
----------- -----------
$ 1,052,824 $ 914,098
=========== ===========
</TABLE>

4. NOTES PAYABLE

Notes payable at December 28, 1996 and December 23, 1995, consist of the
following:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Senior debt
$1,500,000 term loan. Principal and interest is payable in
monthly installments at prime plus 1% (currently
9 1/4%), due January 28, 1998. The note is secured by
substantially all assets of the Company................ $437,500 $812,500
Equipment financing
$1,300,000 equipment line of credit to be used by the
Company and certain related entities. Interest is
payable monthly at prime plus 3/4% (currently 9%).
Principal payments are due monthly. The Company's
guarantee is limited to those service vehicles and
office equipment with a carrying value of $25,113
purchased for the benefit of the Company............... 27,389 45,964
$2,000,000 master floor plan line of credit used by the
Company and certain related entities. The note was
secured by equipment and vehicles...................... -- 22,036
Mortgage note payable
$123,750 promissory note with principal and interest
payable in monthly installments at prime plus 2%
(currently 10 1/4%), due August 1, 1997. The note is
secured by the home office operations building with a
carrying value of $90,533.............................. 57,500 63,722
-------- --------
Total notes payable............................... $522,389 $944,222
======== ========
</TABLE>

All principal payments on notes payable are due or were paid in 1997 (see
Note 9).

F-92
<PAGE> 205

B&L CONCEPTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. LEASE OBLIGATIONS

The Company is obligated for the rental of various store locations under
noncancellable operating leases. The leases expire at various dates through the
year 2000. The following is a schedule by year of the approximate future minimum
lease payments:

For the years ended December 28, 1996 and December 23, 1995, total rental
expenses included in the non-performance expenses were $767,323 and $710,974,
respectively. Total interest charged to operations under all capital leases was
$51,756 and $52,226 in 1996 and 1995, respectively.

The Company has entered into various vehicle leases which are 50 months in
duration. Obligations under capital leases have been recorded in the
accompanying financial statements at the present value of future minimum lease
payments. The capitalized costs of $1,350,258 and $1,007,466, less accumulated
amortization of $728,884 and $470,822, at December 28, 1996 and December 23,
1995, respectively, is included in fixed assets in the accompanying financial
statements. Amortization expense for these vehicles for the years ended December
28, 1996 and December 23, 1995 was $275,510 and $242,241, respectively.

The future minimum lease payments under capital leases and the net present
value of future minimum lease payments are as follows for the years ended
December:

<TABLE>
<S> <C>
1997........................................................ $310,352
1998........................................................ 213,904
1999........................................................ 136,556
2000........................................................ 77,241
2001........................................................ 1,789
--------
Total minimum lease payments................................ 739,842
Less amounts representing interest.......................... (92,289)
--------
Present value of net minimum lease payments................. $647,553
========
</TABLE>

6. RELATED PARTY TRANSACTIONS

A 50% stockholder of the Company is also a 47.5% to 100% stockholder in a
number of affiliated companies.

The stockholders are guarantors of certain of the Company's outstanding
loans. A 50% stockholder is also guarantor of the affiliated companies notes
payable aggregating approximately $6,828,000 and $7,757,000 for 1996 and 1995,
respectively.

Accounts payable and accrued expenses include approximately $19,000 and
$11,000 due to affiliates for 1996 and 1995, respectively.

Westgate TV Inc., an affiliate of the Company, provides accounting,
computer and various other administrative services to the Company and related
entities and charges the Company an amount which it believes allows for a
recovery of its costs for those services. Charges for such services are included
on the statements of income as home office allocation.

F-93
<PAGE> 206

B&L CONCEPTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. RETIREMENT SAVINGS PLAN

Effective January 1, 1996, the Company initiated a qualified tax deferred
retirement savings plan under the provisions of Section 401(k) of the Internal
Revenue Code. The Plan covers all full-time employees who have completed one
year of service with the Company. Elective contributions made by eligible
employees are matched by the Company on the basis of $.25 for each dollar
contributed not exceeding five percent of the employees' compensation.
Additional contributions are made to the Plan at the discretion of the Board of
Directors. The Company contributed approximately $9,474 to the Plan for 1996.

8. LITIGATION

At December 28, 1996, the Company is a defendant in two lawsuits involving
former employees. Counsel and management are unable to evaluate the likelihood
of an unfavorable outcome or estimate the amount or range of any potential loss
to the Company; however, management does not believe the ultimate disposition of
such litigation will have a materially adverse impact on the operations of the
Company or its financial position at December 28, 1996.

9. SUBSEQUENT EVENTS

On January 7, 1997, the Company (Seller) entered into an asset purchase
agreement with Action Rent-To-Own of Florida, Inc. (Purchaser) to sell
substantially all of its assets and assign substantially all of its liabilities.
The assets were purchased for approximately $13,800,000, in the form of a
$3,000,000 note and approximately $10,800,000 in cash. Substantially all
liabilities of approximately $2,000,000 were assumed, including the outstanding
balances of the senior debt and equipment lines of credit described in Note 4,
which were paid off by the purchaser on January 8, 1997.

Cash proceeds were distributed to the Company's shareholders, with the
exception of $250,000 retained by the Company to satisfy any loss resulting from
the litigation discussed in Note 8. Upon settlement of any such claims, it is
management's intent to dissolve the Company.

F-94
<PAGE> 207

ANNEX A

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

AGREEMENT AND PLAN OF MERGER

BY AND BETWEEN

ALRENCO, INC.

AND

RTO, INC.

DATED AS OF SEPTEMBER 28, 1997

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

A-1
<PAGE> 208

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of September
28, 1997, is made by and between Alrenco, Inc., an Indiana corporation
("Alrenco"), and RTO, Inc., a Delaware corporation ("RTO").

WHEREAS, the Boards of Directors of Alrenco and RTO deem it advisable and
in the best interests of their respective stockholders that RTO merge with and
into Alrenco, and such Boards of Directors have approved the merger (the
"Merger") of RTO with and into Alrenco upon the terms and subject to the
conditions set forth herein; and

WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and

WHEREAS, for accounting and financial reporting purposes, it is intended
that the Merger shall be treated as a pooling of interests; and

WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Alrenco and RTO have entered into Option Agreements dated the date
hereof as described herein.

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto (each, a "Party"), intending to be legally
bound, hereby agree as follows:

ARTICLE I

THE MERGER

Section 1.1 The Merger. At the Effective Time (hereinafter defined), RTO
shall merge with and into Alrenco in accordance with the applicable provisions
of the laws of the States of Indiana and Delaware. At the Effective Time, the
separate corporate existence of RTO shall cease and Alrenco shall be the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all of the rights and obligations of RTO in accordance with the Indiana
Business Corporation Law.

Section 1.2 Effective Time of The Merger. The Merger shall become
effective when a properly executed Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware and properly executed Articles of
Merger are filed with the Secretary of State of the State of Indiana, which
filings shall be made as soon as practicable after satisfaction or, to the
extent permitted hereunder, waiver of all of the conditions to each Party's
obligation to consummate the Merger contained in Article VIII. When used in this
Agreement, the term "Effective Time" shall mean the date and time at which such
Certificate of Merger and Articles of Merger are so filed.

ARTICLE II

THE SURVIVING CORPORATION

Section 2.1 Articles of Incorporation. The Articles of Incorporation of
the Surviving Corporation at the Effective Time shall be the Certificate of
Incorporation of Alrenco as amended and restated in accordance with Exhibit A
attached hereto.

Section 2.2 By-Laws. Subject to Section 7.9 hereof, the By-Laws of the
Surviving Corporation at the Effective Time shall be the By-Laws of Alrenco as
amended and restated in accordance with Exhibit B attached hereto.

Section 2.3 Directors of Surviving Corporation. The initial Directors of
the Surviving Corporation at the Effective Time shall be the persons specified
in Exhibit C attached hereto which persons shall hold office

A-2
<PAGE> 209

from the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Articles of Incorporation
and By-Laws of the Surviving Corporation or as otherwise provided by Applicable
Law (hereinafter defined).

Section 2.4 Name of Surviving Corporation. The name of the Surviving
Corporation shall be as agreed to between the parties prior to the Effective
Time.

ARTICLE III

CONVERSION OF SHARES

Section 3.1 Exchange Ratio. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:

(a) Each of the shares of RTO's Common Stock, par value $.01 per share
(the "Shares") issued and outstanding immediately prior to the Effective
Time (other than Shares held in the treasury of RTO) shall be converted
into the right to receive 89.795 (the "Exchange Ratio") shares of Alrenco
Common Stock, par value $.01 per share (the "Alrenco Common Stock," and
upon such conversion, the "Alrenco Shares"), issuable upon the surrender of
the certificate formerly representing such Share; and

(b) Each Share held in the treasury of RTO, if any, and each Share
held by Alrenco or any subsidiary of Alrenco in RTO immediately prior to
the Effective Time shall be canceled and retired and cease to exist.

Section 3.2 Exchange of Certificates Representing Shares.

(a) As of the Effective Time, Alrenco shall deposit, or shall cause to
be deposited, with an exchange agent selected by Alrenco and reasonably
satisfactory to RTO (the "Exchange Agent"), for the benefit of the holders
of Shares, for exchange in accordance with this Article III, (i)
certificates representing the number of Alrenco Shares issuable in the
Merger, to be issued in respect of all Shares outstanding immediately prior
to the Effective Time and which are to be exchanged pursuant to the Merger
(exclusive of Shares to be canceled pursuant to Section 3.1(b)), and (ii)
cash to be paid in lieu of the issuance of fractional shares as provided in
Section 3.4 hereof (such cash and certificates for Alrenco Shares being
hereinafter referred to collectively as the "Exchange Fund").

(b) Promptly after the Effective Time, Alrenco shall cause the
Exchange Agent to mail (or deliver at its principal office) to each holder
of record of a certificate or certificates representing Shares (i) a letter
of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to the certificates for Shares shall pass, only upon
delivery of the certificates for Shares to the Exchange Agent and shall be
in such form and have such other provisions, including appropriate
provisions with respect to back-up withholding, as Alrenco may reasonably
specify, and (ii) instructions for use in effecting the surrender of the
certificates for Shares. Upon surrender of a certificate for Shares for
cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed and completed in accordance with the
instructions thereto, the holder thereof shall be entitled to receive in
exchange therefor that portion of the Exchange Fund which such holder has
the right to receive pursuant to the provisions of this Article III, after
giving effect to any required withholding tax, and the certificate for
Shares so surrendered shall forthwith be canceled. No interest will be paid
or accrued on the cash to be paid which is in the Exchange Fund as part of
the Exchange Ratio. In the event of any transfer of ownership of Shares
which has not been registered in the transfer records of RTO, certificates
representing the proper number of Alrenco Shares, if any, together with a
check in an amount equal to the proper amount of the cash component, if
any, of the Exchange Fund, will be issued to the transferee of the
certificate representing the transferred Shares presented to the Exchange
Agent, accompanied by all documents required to evidence and effect the
prior transfer thereof and to evidence that any applicable stock transfer
taxes associated with such transfer were paid.

Section 3.3 Dividends; Transfer Taxes. No dividends that are declared on
Alrenco Shares will be paid to persons entitled to receive certificates
representing Alrenco Shares until such persons surrender their
A-3
<PAGE> 210

certificates representing Shares. Upon such surrender, there shall be paid to
the person in whose name the certificates representing such Alrenco Shares shall
be issued, any dividends which shall have become payable with respect to such
Alrenco Shares between the Effective Time and the time of such surrender. In no
event shall the person entitled to receive such dividends be entitled to receive
interest on such dividends. If any certificates for any Alrenco Shares are to be
issued in a name other than that in which the certificate representing Shares
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the issuance of
certificates for such Alrenco Shares in a name other than that of the registered
holder of the certificate surrendered or shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, (i) neither the Exchange Agent nor any Party
hereto shall be liable to a holder of Shares for any Alrenco Shares or dividends
thereon or, in accordance with Section 3.4 hereof, proceeds of the sale of
fractional interests, delivered to a public official pursuant to Applicable Law
and (ii) any Alrenco Shares held by the Exchange Agent prior to surrender of
certificates representing Shares shall not be deemed issued.

Section 3.4 No Fractional Securities. No certificates or scrip
representing fractional Alrenco Shares shall be issued upon the surrender for
exchange of certificates representing Shares pursuant to this Article III, and
no dividend, stock split or other change in the capital structure of RTO shall
relate to any fractional security, and such fractional interests shall not
entitle the owner thereof to vote or to any rights of a security holder. In lieu
of any such fractional securities, each holder of Shares who would otherwise
have been entitled to a fraction of an Alrenco Share upon surrender of stock
certificates for exchange pursuant to this Article III will be paid cash upon
such surrender in an amount equal to the product of such fraction multiplied by
the closing sale price of one share of Alrenco Common Stock on the Nasdaq
National Market on the day of the Effective Time or, if shares of Alrenco Common
Stock are not so traded on such day, the closing sale price of one such share on
the next preceding day on which such share was traded on the Nasdaq National
Market. For this purpose, Shares of any holder represented by two or more
certificates may be aggregated, and in no event shall any holder be paid an
amount in respect of more than one Alrenco Share.

Section 3.5 Closing of RTO Transfer Books. At the Effective Time, the
stock transfer books of RTO shall be closed and no transfer of Shares shall
thereafter be made. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be canceled and
exchanged for certificates representing Alrenco Shares.

Section 3.6 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of King & Spalding,
191 Peachtree Street, Suite 4900, Atlanta, Georgia 30303, at 10:00 a.m., local
time, on the later of (a) the date of the Stockholders' meetings referred to in
Section 7.4 hereof or (b) the day on which all of the conditions set forth in
Article VIII hereof are satisfied or waived, or at such other date, time and
place as Alrenco and RTO shall agree.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF ALRENCO

Except as otherwise disclosed to RTO in a letter delivered to it prior to
the execution hereof (which letter shall contain appropriate references to
identify the representations and warranties herein to which the information in
such letter relates) (the "Alrenco Disclosure Letter"), Alrenco represents and
warrants to RTO as follows:

Section 4.1 Organization. Alrenco is a corporation duly organized,
validly existing and in good standing under the laws of the State of Indiana and
has the corporate power to carry on its business as it is now being conducted or
presently proposed to be conducted. Alrenco is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified would not individually or in the aggregate have a material adverse
effect on the business, assets, liabilities, results of operations or financial
condition of Alrenco and the Alrenco Subsidiaries (hereinafter

A-4
<PAGE> 211

defined), taken as a whole (an "Alrenco Material Adverse Effect"). Alrenco has
delivered to RTO prior to the execution of this Agreement complete and correct
copies of its Certificate of Incorporation and By-Laws, as amended to date. In
all material respects, the minute books of Alrenco contain accurate records of
all meetings and accurately reflect all other actions taken by the stockholders,
the Board of Directors and all committees of the Board of Directors of Alrenco
since January 1, 1994.

Section 4.2 Capitalization. The authorized capital stock of Alrenco
consists of 20,000,000 shares of Alrenco Common Stock, and 1,000,000 shares of
preferred stock, no par value. As of August 31, 1997, (i) 6,076,892 shares of
Alrenco Common Stock were issued and outstanding, (ii) employee and non-employee
director stock options to acquire 113,803 shares of Alrenco Common Stock (the
"Alrenco Employee Stock Options") were outstanding under all Stock option plans
of Alrenco (the "Alrenco Employee Stock Option Plans"), (iii) 450,000 shares of
Alrenco Common Stock were reserved for issuance in connection with the Alrenco
Employee Stock Option Plans, and (iv) 105,000 shares of Alrenco Common Stock
were issued pursuant to the Restricted Stock Agreements. Section 4.2 of the
Alrenco Disclosure Letter sets forth a complete and correct list, as of August
31, 1997, of the number of shares of Alrenco Common Stock subject to Alrenco
Employee Stock Options, the Restricted Stock Agreements or other rights to
purchase or to receive Alrenco Common Stock granted under the Alrenco Employee
Stock Option Plans and the Restricted Stock Agreements, the dates of grant and
exercise prices thereof. As of August 31, 1997, Alrenco had no treasury shares
and no shares of Alrenco Common Stock were held by Alrenco Subsidiaries
(hereinafter defined). All of the issued and outstanding shares of Alrenco
Common Stock are validly issued, fully paid and nonassessable and free of
preemptive rights. All of the shares of Alrenco Common Stock issuable in
exchange for Shares at the Effective Time in accordance with this Agreement will
be, when so issued, duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights. Except as set forth in this
Agreement and except as provided in the Alrenco Option Agreement (hereinafter
defined), as of the date of this Agreement, there are no shares of capital stock
of Alrenco issued or outstanding or any options, warrants, subscriptions, calls,
rights, convertible securities or other agreements or commitments obligating
Alrenco to issue, transfer, sell, redeem, repurchase or otherwise acquire any
shares of its capital stock or securities. Except as set forth in this Agreement
and the Alrenco Option Agreement, after the Effective Time, Alrenco will have no
obligation to issue, transfer or sell any shares of its capital stock pursuant
to any employee benefit plan or otherwise. Except as set forth in this Agreement
and the Alrenco Option Agreement, there are not now, and at the Effective Time
there will not be, any outstanding options, warrants, subscriptions, calls,
rights, convertible securities or other agreements or commitments obligating
Alrenco to issue, transfer or sell any securities of Alrenco. Other than
agreements contemplated by this Agreement, there are not now, and at the
Effective Time there will not be, any voting trusts, standstill, stockholder or
other agreements or understandings to which Alrenco is a Party or is bound with
respect to the voting of, requiring the registration of, or granting any
preemptive rights or antidilution rights with respect to, the capital stock of
Alrenco.

Section 4.3 Subsidiaries. Section 4.3 of the Alrenco Disclosure Letter
lists all corporations, partnerships, joint ventures and other business
associations and entities, foreign and domestic, in which Alrenco has any direct
or indirect ownership or economic interest.

Section 4.4 Authority Relative To This Agreement. Alrenco has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation by Alrenco of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Alrenco and, except for the approval of Alrenco's stockholders to
be sought at the stockholders' meeting contemplated by Section 7.4(b) hereof, no
other corporate action or proceedings on the part of Alrenco are necessary to
authorize this Agreement or the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Alrenco and constitutes a
valid and binding agreement of Alrenco, enforceable against Alrenco in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights generally or to general principles of equity.

Section 4.5 Consents and Approvals; No Violations. Except for applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state laws
A-5
<PAGE> 212

relating to takeovers, if applicable, state securities or blue sky laws, and the
filing of an appropriate certificate of merger (the "Certificate of Merger") in
such form as required by, and executed in accordance with the relevant
provisions of, the Indiana Business Corporation Law, no filing with, and no
permit, authorization, consent or approval of, any Governmental Authority
(hereinafter defined) is necessary for the consummation by Alrenco of the
transactions contemplated by this Agreement, except for such filings, permits,
authorizations, consents or approvals the failure of which to be made or
obtained would not individually or in the aggregate have an Alrenco Material
Adverse Effect. Neither the execution and delivery of this Agreement by Alrenco
nor the consummation by Alrenco of the transactions contemplated hereby, nor
compliance by Alrenco with any of the provisions hereof, will (a) conflict with
or result in any breach of any provisions of the Articles of Incorporation or
By-Laws of Alrenco, (b) result in a violation or breach of, or constitute (with
or without the notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which Alrenco is a
Party or by which any of them or any of their properties or assets may be bound,
or (c) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Alrenco or any of its properties or assets, except in the case of
clauses (b) and (c) for violations, breaches or defaults which would not
individually or in the aggregate have an Alrenco Material Adverse Effect.

Section 4.6 Reports and Financial Statements. Alrenco has timely filed
all reports required to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Exchange Act since January 1, 1996 (collectively,
the "Alrenco SEC Reports"). As of their respective dates, the Alrenco SEC
Reports complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Alrenco SEC
Reports. None of such Alrenco SEC Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Each
of the audited balance sheets of Alrenco and the related audited statements of
operations, stockholders equity and cash flows and unaudited interim financial
statements included in the Alrenco SEC Reports complied as to form, as of their
respective dates of filing with the SEC in all material respects, with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and fairly presented the consolidated financial
position and the results of operations and the changes in financial position of
Alrenco and its consolidated subsidiaries as of the respective dates or for the
respective periods set forth therein, all in conformity with generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except as otherwise noted therein.

Section 4.7 Absence of Certain Changes or Events. Except as set forth in
the Alrenco SEC Reports, since December 31, 1996, Alrenco has not: (a) taken any
of the actions set forth in Section 6.2(b), 6.2(c) or 6.2(e) hereof; (b)
suffered any material adverse change in the business, financial condition,
results of operations, properties, assets or liabilities of Alrenco; or (c)
subsequent to such date, except as permitted by Section 6.2 hereof, conducted
its business and operations other than in the ordinary course of business and
consistent with past practices.

Section 4.8 Litigation. Except for litigation disclosed in (i) the notes
to the financial statements included in Alrenco's Annual Report to Stockholders
for the year ended December 31, 1996 or (ii) the Alrenco SEC Reports, there is
no suit, action or proceeding pending or, to the best of Alrenco's knowledge,
threatened against or affecting Alrenco, the outcome of which would individually
or in the aggregate have an Alrenco Material Adverse Effect; nor is there any
judgment, decree, injunction, citation, settlement agreement, rule or order of
any federal, regional, state or local political subdivision, any governmental or
administrative body, instrumentality, department or agency or any court,
administrative hearing body, commission or similar dispute resolving panel or
body, or any other body exercising the executive, legislative, judicial,
regulatory or administrative functions of a government (collectively, a
"Governmental Authority") outstanding against Alrenco having, or which, insofar
as can reasonably be foreseen, in the future may have, any such effect.

A-6
<PAGE> 213

Section 4.9 Contracts and Commitments. Except as disclosed in the Alrenco
SEC Reports, Alrenco is not a Party to and is not bound by any of the following:

(i) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC);

(ii) any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner in
which, or the localities in which, the business of Alrenco (including, for
purposes of this Section 4.9, RTO and the RTO Subsidiaries, assuming the
Merger has taken place) is or would be conducted; or

(iii) any contract or other agreement which would prohibit or
materially delay the consummation of the Merger or any of the other
transactions contemplated hereby (all such contracts of the type described
in clauses (i), (ii) and (iii) of this Section 4.9 being referred to herein
as "Alrenco Material Contracts").

Each Alrenco Material Contract is valid and binding on Alrenco and is in full
force and effect, and Alrenco has in all material respects performed all
obligations to be performed by it to date under each Alrenco Material Contract,
except where such non-performance, individually or in the aggregate, would not
have an Alrenco Material Adverse Effect. Alrenco does not know of, nor has it
received notice of, any violation or default under (nor, to the knowledge of
Alrenco, does there exist any condition which with the passage of time or the
giving of notice or both would result in such a violation or default under) any
Alrenco Material Contract.

Section 4.10 Information in Disclosure Documents and Registration
Statement. None of the information to be supplied by Alrenco for inclusion or
incorporation by reference in (a) the Registration Statement to be filed with
the SEC by Alrenco on Form S-4 under the Securities Act for the purpose of
registering the offering of the Alrenco Shares to be issued in the Merger (the
"Registration Statement") or (b) the joint proxy statement/prospectus to be
distributed in connection with Alrenco's and RTO's meetings of stockholders to
vote upon this Agreement (the "Proxy Statement") will, in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Time or, in the case of the Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto and at the time of the meetings of
stockholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, except that no
representation or warranty is made by Alrenco with respect to statements made or
incorporated by reference therein based on information supplied by RTO
specifically for inclusion or incorporation by reference in the Registration
Statement or the Proxy Statement. The Registration Statement and the Proxy
Statement will comply as to form in all material respects with the provisions of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations promulgated thereunder.

Section 4.11 Absence of Undisclosed Liabilities. Except for liabilities
or obligations which (i) are accrued or reserved against in Alrenco's financial
statements (or reflected in the notes thereto) included in the Alrenco SEC
Reports, or (ii) were incurred after December 31, 1996 in the ordinary course of
business and consistent in type and amount with past practices, Alrenco does not
have any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of a nature required by GAAP to be reflected in a corporate balance
sheet or the notes thereto.

Section 4.12 No Default. Alrenco is not in default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (a)
its Articles of Incorporation or By-Laws, (b) any note, bond, mortgage,
indenture, license, agreement, contract, lease, commitment or other obligation
to which Alrenco is a Party or by which it or any of its properties or assets
may be bound, or (c) any order, writ, injunction, decree, statute, rule or
regulation applicable to Alrenco, except in the case of clauses (b) and (c)
above for defaults or violations which would not individually or in the
aggregate have an Alrenco Material Adverse Effect.

A-7
<PAGE> 214

Section 4.13 Tax Returns; Taxes.

(a) For purposes of this Agreement, "Tax" means any federal, state,
local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duty, capital stock, franchise, profits,
withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty or addition thereto, whether
disputed or not; "Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto and any amendment thereto.

(b) Alrenco has filed all Tax Returns that it was required to file and
all such Tax Returns were correct and complete in all respects. All Taxes
owed by Alrenco (whether or not shown on any Tax Return) which are due and
payable have been paid. Except as set forth in the Alrenco Disclosure
Letter, Alrenco is not currently the beneficiary of any extension of time
within which to file any Tax Return. Except as set forth in the Alrenco
Disclosure Letter, no taxing authority in a jurisdiction where Alrenco does
not file Tax Returns has claimed in writing that Alrenco is or may be
subject to taxation by that jurisdiction.

(c) Alrenco has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.

(d) Except as set forth in the Alrenco Disclosure Letter, there is no
dispute or claim concerning any Tax liability of Alrenco either (i) claimed
or raised by any taxing authority in writing or (ii) as to which any
shareholder or employee of Alrenco responsible for Tax matters of Alrenco
has knowledge based upon personal contact with any agent of such authority.

(e) Alrenco has not waived any statute of limitations with respect to
Taxes or agreed to any extension of time with respect to assessment of
Taxes.

(f) All accounting periods and methods used by Alrenco for Tax
purposes are permissible periods and methods, and Alrenco is not required
to make any adjustments to its income under Section 481 of the Code in
taxable years for which Tax Returns have not yet been filed. Alrenco has
not filed a consent under Section 341(f) of the Code concerning collapsible
corporations. Alrenco has not made nay payments, is not obligated to make
any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code. Alrenco is not a party to any
Tax allocation or sharing agreement. Alrenco (i) has not been a member of
an affiliated group filing a consolidated federal income Tax return in any
taxable year ending after December 31, 1992 and (ii) has no liability for
the Taxes of any person other than Alrenco under Treasury Regulation
Section 1.1502-6 or any similar provision of state, local or foreign law,
as a transferee or successor, by contract, or otherwise.

(g) The unpaid Taxes of Alrenco did not, as of December 31, 1996,
exceed the reserve for Taxes (excluding any reserve for deferred taxes
attributable to differences between the timing of income or deductions for
tax and financial accounting purposes) set forth on the balance sheet as of
December 31, 1996 (excluding any nots thereto) contained in the Alrenco SEC
Reports.

(h) Neither Alrenco nor any of the Alrenco Subsidiaries has taken any
action or has notice of any fact, agreement, plan or other circumstance
that is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.

Section 4.14 Title to Properties; Encumbrances. Except as otherwise
provided in this Section 4.14, Alrenco has good, valid and marketable title to,
or a valid leasehold interest in, all of its properties and assets (real,
personal and mixed, tangible and intangible), including, without limitation, all
the properties and assets reflected in the balance sheet of Alrenco as of
December 31, 1996 included in Alrenco's Annual Report on Form 10-K for the
period ended on such date (except for properties and assets disposed of in the
ordinary

A-8
<PAGE> 215

course of business and consistent with past practices since December 31, 1996).
None of such properties or assets are subject to any liability, obligation,
claim, lien, mortgage, pledge, security interest, conditional sale agreement,
charge or encumbrance of any kind (whether absolute, accrued, contingent or
otherwise), except for (i) minor imperfections of title and encumbrances, if
any, which are not substantial in amount, do not materially detract from the
value of the property or assets subject thereto and do not impair the operations
of Alrenco, (ii) liens for Taxes that are not yet due or that are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established in accordance with GAAP, and (iii) mortgages on
real property in an aggregate amount not greater than $50,000.

Section 4.15 Compliance With Applicable Law. Alrenco is in compliance
with all applicable laws (whether statutory or otherwise), rules, regulations,
orders, ordinances, judgments or decrees of all governmental authorities
(federal, state, local, or otherwise) (collectively, "Applicable Law"), except
where the failure to be in such compliance would not individually or in the
aggregate have an Alrenco Material Adverse Effect.

Section 4.16 Labor Matters.

(a) Alrenco is not a Party to, or bound by, any collective bargaining
agreement with a labor union or labor organization;

(b) There is no unfair labor practice or labor arbitration proceeding
pending or, to the knowledge of Alrenco, threatened against Alrenco
relating to its business, except for such proceedings which would not
individually or in the aggregate have an Alrenco Material Adverse Effect;
and

(c) To the knowledge of Alrenco, there are no organizational efforts
with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of Alrenco.

Section 4.17 Employee Benefit Plans; ERISA.

(a) With respect to each material bonus, deferred compensation,
incentive compensation, stock purchase, stock option, severance or
termination pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension, or retirement
plan, program, agreement or arrangement, and each other employee benefit
plan, program, agreement (including but not limited to employment
agreements) or arrangement (the "Alrenco Plans"), currently maintained or
contributed to or required to be contributed to by (i) Alrenco or (ii) any
trade or business, whether or not incorporated (an "Alrenco ERISA
Affiliate"), that together with Alrenco is a "single employer" within the
meaning of section 4001 of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder
("ERISA"), for the benefit of any employee or former employee of Alrenco or
any Alrenco ERISA Affiliate, Alrenco has heretofore delivered to RTO true
and complete copies of each of the following documents:

(i) a copy of each Alrenco Plan that is in writing (including all
amendments thereto), including (1) all severance and employment
agreements of Alrenco with directors, executive officers or key
employees, (2) all severance programs and policies of Alrenco and (3)
all plans or arrangements of Alrenco relating to its employees which
contain change in control provisions;

(ii) a copy of the annual report and actuarial report, if required
under ERISA, with respect to each such Alrenco Plan for the last two
plan years ending prior to the date hereof;

(iii) a copy of the most recent Summary Plan Description, together
with each Summary of Material Modifications, if required under ERISA,
with respect to such Alrenco Plan;

(iv) if the Alrenco Plan is funded through a trust or any other
third Party funding vehicle, a copy of the trust or other funding
agreement (including all amendments thereto) and the latest financial
statements with respect to the last reporting period ended immediately
prior to the date hereof; and

A-9
<PAGE> 216

(v) the most recent determination letter received prior to the date
hereof from the Internal Revenue Service with respect to each Alrenco
Plan intended to qualify under section 401 of the Code.

(b) No liability under Title IV of ERISA has been incurred by Alrenco
or any Alrenco ERISA Affiliate that has not been satisfied in full when
due, and no condition exists that presents a material risk to Alrenco or
any Alrenco ERISA Affiliate of incurring a liability under such Title which
would individually or in the aggregate have an Alrenco Material Adverse
Effect or give rise to a lien under Title IV of ERISA.

(c) No Alrenco Plan subject to the minimum funding requirements of
section 412 of the Code or section 302 of ERISA or any trust established
thereunder has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and section 412 of the Code), whether or not waived,
as of the last day of the most recent fiscal year of such Alrenco Plan
ended prior to the date hereof; and all contributions required to be made
with respect thereto (whether pursuant to the terms of any such Alrenco
Plan or otherwise) on or prior to the date hereof have been timely made.

(d) No Alrenco Plan is a "multiemployer pension plan," as defined in
section 3(37) of ERISA, nor is any Alrenco Plan a plan described in Section
4063(a) of ERISA.

(e) Each Alrenco Plan intended to be "qualified" within the meaning of
section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service as to its qualification and, to the
knowledge of Alrenco, no amendment has been made to any such Alrenco Plan
since the date of such letter that is likely to result in the
disqualification of such Alrenco Plan.

(f) Each of the Alrenco Plans has been operated and administered in
all respects in accordance with Applicable Law, including, but not limited
to, ERISA and the Code, except for any failure to so operate or administer
such Alrenco Plans that would not individually or in the aggregate have an
Alrenco Material Adverse Effect.

(g) Except as expressly provided in this Agreement, any exhibit
hereto, an Alrenco Plan or as otherwise agreed in writing by Alrenco and
RTO, neither the execution and delivery of this Agreement nor the Merger
nor the consummation of any of the other transactions contemplated by this
Agreement will:

(i) entitle any current or former officer, director, employee or
consultant of Alrenco to severance pay, unemployment compensation or any
other payment, or

(ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such officer, director, employee or
consultant.

(h) With respect to each Alrenco Plan that is funded wholly or
partially through an insurance policy, Alrenco does not have any current
liability under any such insurance policy in the nature of a retroactive
rate adjustment or loss sharing arrangement arising wholly or partially out
of events occurring prior to the Closing other than any such liability that
individually or in the aggregate would not have an Alrenco Material Adverse
Effect.

(i) There are no pending or, to the knowledge of Alrenco, threatened
claims by or on behalf of any of the Alrenco Plans, by any employee or
beneficiary covered under any such Alrenco Plan involving any such Alrenco
Plan (other than routine claims for benefits), other than any such claims
that would not individually or in the aggregate have an Alrenco Material
Adverse Effect.

(j) Neither Alrenco nor, to the knowledge of Alrenco, any Alrenco
ERISA Affiliate, any of the Alrenco Plans, any trust created thereunder, or
any trustee or administrator thereof has engaged in a transaction in
connection with which Alrenco or, to the knowledge of Alrenco, any Alrenco
ERISA Affiliate, any of the Alrenco Plans, any such trust, or any trustee
or administrator thereof, or any Party dealing with the Alrenco Plans or
any such trust is likely to be subject to either a civil liability under
section 409 of ERISA or section 502(i) of ERISA, or a tax imposed pursuant
to section 4975 or 4976 of

A-10
<PAGE> 217

the Code, other than any such liability or tax that would not individually
or in the aggregate have an Alrenco Material Adverse Effect.

Section 4.18 Vote Required. Authorization of the Merger and the issuance
of the Alrenco Shares to be issued in the Merger shall require the affirmative
vote of the holders of a majority of Alrenco Common Stock voted at the
stockholders' meeting referred to in Section 7.4(b). No other vote of the
shareholders of Alrenco is required by law, the Articles of Incorporation or
By-Laws of Alrenco or otherwise in order for Alrenco to consummate the Merger
and the transactions contemplated hereby.

Section 4.19 Opinion of Financial Advisor. The Board of Directors of
Alrenco (at a meeting duly called and held) has unanimously determined that the
transactions contemplated hereby are fair to and in the best interests of
Alrenco. The Board of Directors of Alrenco has received the opinion of Equitable
Securities Corporation, Alrenco's financial advisor, substantially to the effect
that the Exchange Ratio is fair to Alrenco from a financial point of view.

Section 4.20 Takeover Status. The Board of Directors of Alrenco has taken
all appropriate action so that the execution and delivery of this Agreement and
the Alrenco Option Agreement and the consummation of the Merger and the other
transactions contemplated thereby will not be restricted by, or otherwise
subject to, the provisions of Chapter 43 of the Indiana Business Corporation
Law.

Section 4.21 Accounting Matters. To its knowledge, Alrenco has not taken
or agreed to take any action that would prevent the business combination to be
effected by the Merger from being accounted for as a pooling of interest and
Alrenco has no reason to believe that the Merger will not qualify for pooling of
interest accounting.

Section 4.22 Brokers. Except for Equitable Securities Corporation,
Alrenco's financial advisor, no broker, finder or financial advisor is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger or the other transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Alrenco, and Alrenco's fee arrangements
with Equitable Securities Corporation have been disclosed to RTO.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF RTO

Except as otherwise disclosed to Alrenco in a letter delivered to it prior
to the execution hereof (which letter shall contain appropriate references to
identify the representations and warranties herein to which the information in
such letter relates) (the "RTO Disclosure Letter"), RTO represents and warrants
to Alrenco as follows:

Section 5.1 Organization. RTO is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to carry on its business as it is now being conducted or
presently proposed to be conducted. RTO is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not, individually or in the aggregate, have a material adverse
effect on the business, assets, liabilities, results of operations or financial
condition of RTO and the RTO Subsidiaries (hereinafter defined), taken as a
whole (an "RTO Material Adverse Effect"). RTO has delivered to Alrenco prior to
the execution of this Agreement complete and correct copies of its Certificate
of Incorporation and By-laws, as amended to date. In all material respects, the
minute books of RTO contain accurate records of all meetings and accurately
reflect all other actions taken by the stockholders, the Board of Directors and
all committees of the Board of Directors of RTO since January 1, 1994.

Section 5.2 Capitalization. The authorized capital stock of RTO consists
of 75,000,000 Shares, and 10,000,000 shares of preferred stock, par value $.01
per share. As of August 31, 1997, (i) 120,959.47 Shares were issued and
outstanding, (ii) employee stock options to acquire 11,333 Shares (the "RTO
Employee Stock Options") were outstanding under the employee stock option plan
of RTO (the "RTO Employee Stock
A-11
<PAGE> 218

Option Plan"), (iii) 11,448 Shares were reserved for issuance in connection with
the RTO Employee Stock Option Plan, (iv) non-employee director stock options to
acquire 564 Shares (the "RTO Director Stock Options") were outstanding under the
non-employee director stock option plan (the "RTO Director Stock Option Plan"),
(v) 5,000 Shares are reserved for issuance under the RTO Director Stock Option
Plan, and (vi) convertible notes in the aggregate principal amount of $5,000,000
were outstanding which are convertible into 4,000 Shares. Section 5.2 of the RTO
Disclosure Letter sets forth a complete and correct list, as of August 31, 1997,
of the number of shares of RTO Common Stock subject to RTO Employee Stock
Options, RTO Director Stock Options or other rights to purchase or to receive
RTO Common Stock granted under the RTO Employee Stock Option Plan and the RTO
Director Stock Option Plan, the dates of grant and exercise prices thereof. As
of August 31, 1997, RTO had no treasury shares and no Shares were held by RTO
Subsidiaries (as hereinafter defined). All of the issued and outstanding Shares
are validly issued, fully paid and nonassessable and free of preemptive rights.
Except as set forth in this Agreement and except as provided in RTO Option
Agreement (hereinafter defined), there are not now, and at the Effective Time,
there will not be, any shares of capital stock of RTO issued or outstanding or
any options, warrants, subscriptions, calls, rights, convertible securities or
other agreements or commitments obligating RTO to issue, transfer, sell, redeem,
repurchase or otherwise acquire any shares of its capital stock. Except as
provided in this Agreement and the RTO Option Agreement, after the Effective
Time, RTO will have no obligation to issue, transfer or sell any shares of its
capital stock pursuant to any employee benefit plan or otherwise. Other than the
agreements contemplated by this Agreement and the RTO Option Agreement, there
are not now, and at the Effective Time there will not be, any voting trusts,
standstill, stockholder or other agreements or understandings to which RTO is a
party or is bound with respect to the voting of, requiring the registration of,
or granting any preemptive rights or antidilution rights with respect to, the
capital stock of RTO.

Section 5.3 Subsidiaries. Section 5.3 of the RTO Disclosure Letter lists
all corporations, partnerships, joint ventures and other business associations
and entities, foreign and domestic, in which RTO has any direct or indirect
ownership or economic interest. (Such corporations, partnerships, joint ventures
or other business entities of which RTO owns, directly or indirectly, greater
than 50% of the shares of capital stock or other equity interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to cast at least a majority of the votes that may be cast by all
shares or equity interests having ordinary voting power for the election of
directors or other governing body of such entity are hereinafter referred to as
the "RTO Subsidiaries".)

(a) Each RTO Subsidiary that is a corporation is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each RTO Subsidiary that is a partnership or
a limited liability company is duly formed, validly existing and in good
standing under the laws of its jurisdiction of formation.

(b) Each RTO Subsidiary has the corporate power, the partnership power
or the company power, as the case may be, to carry on its business as it is
now being conducted or presently proposed to be conducted.

(c) Each RTO Subsidiary that is a corporation is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified would not individually or in
the aggregate have an RTO Material Adverse Effect. Each RTO Subsidiary that
is a partnership is duly qualified as a foreign partnership authorized to
do business, and is in good standing, in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to
be so qualified would not individually or in the aggregate have an RTO
Material Adverse Effect. Each RTO subsidiary that is a limited liability
company is duly qualified as a foreign limited liability company authorized
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to
be so qualified would not individually or in the aggregate have an RTO
Material Adverse Effect.

A-12
<PAGE> 219

(d) All of the outstanding shares of capital stock of the RTO
Subsidiaries that are corporations are duly authorized, validly issued,
fully paid and nonassessable and are free of preemptive rights. All of the
outstanding ownership interests of the RTO Subsidiaries that are
partnerships or limited liability companies are duly authorized, validly
issued, fully paid and nonassessable and are free of preemptive rights.

(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the RTO Subsidiaries owned by RTO or an RTO
Subsidiary are owned by RTO or by an RTO Subsidiary free and clear of any
liens, claims, charges or encumbrances. Except as set forth in Section 5.2
hereof, there are not now, and at the Effective Time there will not be, any
outstanding options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating RTO or any RTO
Subsidiary to issue, transfer or sell any securities of RTO or any RTO
Subsidiary.

(f) Other than agreements contemplated by this Agreement and except as
disclosed in Schedule 5.3(f), there are not now, and at the Effective Time
there will not be, any voting trusts, standstill, stockholder or other
agreements or understandings to which RTO or any of the RTO Subsidiaries is
a Party or is bound with respect to the voting of, requiring the
registration of, or granting any preemptive rights or antidilution rights
with respect to, the capital stock of RTO or any of the RTO Subsidiaries.

Section 5.4 Authority Relative To This Agreement. RTO has the corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation by RTO of the
transactions contemplated hereby have been duly authorized by RTO's Board of
Directors and, except for the approval of RTO's stockholders to be sought at the
stockholders meeting contemplated by Section 7.4(a) hereof, no other corporate
action or proceedings on the part of RTO are necessary to authorize this
Agreement or the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by RTO and constitutes a valid and binding
agreement of RTO, enforceable against RTO in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally or to general
principles of equity.

Section 5.5 Consents and Approvals; No Violations. Except for applicable
requirements of the HSR Act, the Securities Act, the Exchange Act, state laws
relating to takeovers, if applicable, state securities or blue sky laws, and the
filing and recordation of the Certificate of Merger as required by the Delaware
General Corporation Law (the "DGCL"), no filing with, and no permit,
authorization, consent or approval of, any Governmental Authority is necessary
for the consummation by RTO of the transactions contemplated by this Agreement,
except for such filings, permits, authorizations, consents or approvals the
failure of which to be made or obtained would not individually or in the
aggregate have an RTO Material Adverse Effect. Neither the execution and
delivery of this Agreement by RTO, nor the consummation by RTO of the
transactions contemplated hereby, nor compliance by RTO with any of the
provisions hereof, will (a) conflict with or result in any breach of any
provisions of the Certificate of Incorporation or By-Laws of RTO or any of the
RTO Subsidiaries, (b) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which RTO or any of the
RTO Subsidiaries is a Party or by which any of them or any of their properties
or assets may be bound, or (c) violate any other, writ, injunction, decree,
statute, rule or regulation applicable to RTO, any of the RTO Subsidiaries or
any of their properties or assets, except in the case of clauses (b) and (c) for
violations, breaches or defaults which would not individually or in the
aggregate have an RTO Material Adverse Effect.

Section 5.6 RTO Financial Statements. Prior to the execution of this
Agreement, RTO has delivered to Alrenco true and complete copies of the audited
balance sheets of RTO and its consolidated subsidiaries at December 31,1995 and
1996 and unaudited balance sheets of RTO and its consolidated subsidiaries at
March 31, 1997, and the related audited or unaudited consolidated statements of
operations, stockholders' equity and cash flows for each of the three year
periods ended December 31, 1996, and the unaudited consolidated statements of
operations for the three months ended March 31, 1997 (the "RTO Financial

A-13
<PAGE> 220

Statements"). Each of such RTO Financial Statements fairly presents the
consolidated financial position and the results of operations and changes in
financial position of RTO and its consolidated subsidiaries as of the respective
dates or for the respective periods set forth therein, all in conformity with
GAAP consistently applied during the periods involved, except as otherwise noted
therein.

Section 5.7 Absence of Certain Changes or Events. Except as set forth in
the RTO Financial Statements or the RTO Disclosure Letter, since December 31,
1996, neither RTO nor any of the RTO Subsidiaries has: (a) taken any of the
actions set forth in Section 6.1(b), 6.1(c) or 6.1(e) hereof; (b) suffered any
material adverse change in the business, financial condition, results of
operations, properties, assets or liabilities of RTO and the RTO Subsidiaries
taken as a whole; or (c) subsequent to such date, except as permitted by Section
6.1 hereof, conducted its business and operations other than in the ordinary
course of business and consistent with past practices.

Section 5.8 Litigation. There is no suit, action or proceeding pending
or, to the best of RTO's knowledge, threatened against or affecting RTO or any
of the RTO Subsidiaries, the outcome of which would individually or in the
aggregate have an RTO Material Adverse Effect; nor is there any judgment,
decree, injunction, citation, settlement agreement, rule or order of any
Governmental Authority outstanding against RTO or any of the RTO Subsidiaries
having, or which, insofar as can reasonably be foreseen, in the future may have,
any such effect.

Section 5.9 Contracts and Commitments. Neither RTO nor any RTO Subsidiary
is a Party to or is bound by any of the following:

(i) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC);

(ii) any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner in
which, or the localities in which, the business of RTO and the RTO
Subsidiaries (including, for purposes of this Section 5.9, Alrenco and the
Alrenco Subsidiaries, assuming the Merger has taken place) is or would be
conducted; or

(iii) any contract or other agreement which would prohibit or
materially delay the consummation of the Merger or any of the other
transactions contemplated hereby (all such contracts of the type described
in clauses (i), (ii) and (iii) of this Section 5.9 being referred to herein
as "RTO Material Contracts").

Each RTO Material Contract is valid and binding on RTO (or, to the extent that
an RTO Subsidiary is a Party, such RTO Subsidiary) and is in full force and
effect, and RTO and each RTO Subsidiary have in all material respects performed
all obligations to be performed by them to date under each RTO Material
Contract, except where such non-performance, individually or in the aggregate,
would not have an RTO Material Adverse Effect. Neither RTO nor any RTO
Subsidiary knows of, or has received notice of, any violation or default under
(nor, to the knowledge of RTO, does there exist any condition which with the
passage of time or the giving of notice or both would result in such a violation
or default under) any RTO Material Contract.

Section 5.10 Information in Disclosure Documents and Registration
Statement. None of the information to be supplied by RTO for inclusion or
incorporation by reference in the Proxy Statement or the Registration Statement
will, in the case of the Registration Statement, at the time it becomes
effective and at the Effective Time or, in the case of the Proxy Statement or
any amendments or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto and at the time of the
meetings of stockholders to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they made, not misleading, except that no
representation or warranty is made by RTO with respect to statements made or
incorporated by reference therein based on information supplied by Alrenco
specifically for inclusion or incorporation by reference in the Registration
Statement or the Proxy Statement.

A-14
<PAGE> 221

Section 5.11 Absence of Undisclosed Liabilities. Except for liabilities
or obligations which (i) are accrued or reserved against in RTO's Financial
Statements (or reflected in the notes thereto), or (ii) were incurred after
December 31, 1996 in the ordinary course of business and consistent in type and
amount with past practices, neither RTO nor any RTO Subsidiary has any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of a nature required by GAAP to be reflected in a corporate balance sheet or the
notes thereto.

Section 5.12 No Default. Neither RTO nor any of the RTO Subsidiaries is
in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (a) its Certificate of Incorporation or By-Laws, (b)
any note, bond, mortgage, indenture, license, agreement, contract, lease,
commitment or other obligation to which RTO or any of the RTO Subsidiaries is a
Party or by which it or any of its properties or assets may be bound, or (c) any
order, writ, injunction, decree, statute, rule or regulation applicable to RTO
or any of the RTO Subsidiaries, except in the case of clauses (b) and (c) above
for defaults or violations which would not individually or in the aggregate have
an RTO Material Adverse Effect.

Section 5.13 Tax Returns; Taxes.

(b) RTO has filed all Tax Returns that it was required to file and all
such Tax Returns were correct and complete in all respects. All Taxes owed
by RTO (whether or not shown on any Tax Return) which are due and payable
have been paid. Except as set forth in the RTO Disclosure Letter, RTO is
not currently the beneficiary of any extension of time within which to file
any Tax Return. Except as set forth in the RTO Disclosure Letter, no taxing
authority in a jurisdiction where RTO does not file Tax Returns has claimed
in writing that RTO is or may be subject to taxation by that jurisdiction.

(c) RTO has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.

(d) Except as set forth in the RTO Disclosure Letter, there is no
dispute or claim concerning any Tax liability of RTO either (i) claimed or
raised by any taxing authority in writing or (ii) as to which any
shareholder or employee of RTO responsible for Tax matters of RTO has
knowledge based upon personal contact with any agent of such authority.

(e) RTO has not waived any statute of limitations with respect to
Taxes or agreed to any extension of time with respect to assessment of
Taxes.

(f) All accounting periods and methods used by RTO for Tax purposes
are permissible periods and methods, and RTO is not required to make any
adjustments to its income under Section 481 of the Code in taxable years
for which Tax Returns have not yet been filed. RTO has not filed a consent
under Section 341(f) of the Code concerning collapsible corporations. RTO
has not made nay payments, is not obligated to make any payments, and is
not a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Section
280G of the Code. RTO is not a party to any Tax allocation or sharing
agreement. RTO (or its predecessors) (i) has not been a member of an
affiliated group filing a consolidated federal income Tax return in any
taxable year ending after December 31, 1992 and (ii) has no liability for
the Taxes of any person other than RTO under Treasury Regulation Section
1.1502-6 or any similar provision of state, local or foreign law, as a
transferee or successor, by contract, or otherwise.
A-15
<PAGE> 222

(g) The unpaid Taxes of RTO did not, as of December 31, 1996, exceed
the reserve for Taxes (excluding any reserve for deferred taxes
attributable to differences between the timing of income or deductions for
tax and financial accounting purposes) set forth on the balance sheet as of
December 31, 1996 (excluding any nots thereto) contained in the RTO
Financial Statements.

(h) Neither RTO nor any of the RTO Subsidiaries has taken any action
or has notice of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.

Section 5.14 Title To Properties; Encumbrances. Except as otherwise
provided in this Section 5.14, each of RTO and the RTO Subsidiaries has good,
valid and marketable title to, or a valid leasehold interest in, all of its
properties and assets (real, personal and mixed, tangible and intangible),
including, without limitation, all the properties and assets reflected in the
consolidated balance sheet of RTO and the RTO Subsidiaries as of December 31,
1996 for the period ended on such date (except for properties and assets
disposed of in the ordinary course of business and consistent with past
practices since December 31, 1996). None of such properties or assets are
subject to any liability, obligation, claim, lien, mortgage, pledge, security
interest, conditional sale agreement, charge or encumbrance of any kind (whether
absolute, accrued, contingent or otherwise), except for (i) minor imperfections
of title and encumbrances, if any, which are not substantial in amount, do not
materially detract from the value of the property or assets subject thereto, and
do not impair the operations of RTO and the RTO Subsidiaries, (ii) liens for
Taxes that are not yet due or that are being contested in good faith by
appropriate proceedings and for which adequate reserves have been established in
accordance with GAAP, and (iii) mortgages on real property in an aggregate
amount not greater than $50,000.

Section 5.15 Compliance with Applicable Laws. Each of RTO and the RTO
Subsidiaries is in compliance with Applicable Law, except where the failure to
be in such compliance would not individually or in the aggregate have an RTO
Material Adverse Effect.

Section 5.16 Labor Matters.

(a) Neither RTO nor any of the RTO Subsidiaries is a Party to, or
bound by, any collective bargaining agreement with a labor union or labor
organization;

(b) There is no unfair labor practice or labor arbitration proceeding
pending or, to the knowledge of RTO, threatened against RTO or any of the
RTO Subsidiaries relating to their business, except for any such proceeding
which would not individually or in the aggregate have an RTO Material
Adverse Effect; and

(c) To the knowledge of RTO, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being
made or threatened involving employees of RTO or any of the RTO
Subsidiaries.

Section 5.17 Employee Benefit Plans; ERISA.

(a) With respect to each material bonus, deferred compensation,
incentive compensation, stock purchase, stock option, severance or
termination pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension, or retirement
plan, program, agreement or arrangement, and each other employee benefit
plan, program, agreement (including, but not limited to, employment
agreements) or arrangement (the "RTO Plans"), currently maintained or
contributed to or required to be contributed to by (i) RTO, (ii) any RTO
Subsidiary or (iii) any trade or business, whether or not incorporated (a
"RTO ERISA Affiliate"), that together with RTO or any RTO Subsidiary is a
"single employer" within the meaning of section 4001 of ERISA, for the
benefit of any employee or former employee of RTO, any RTO Subsidiary or
any RTO ERISA Affiliate, RTO has heretofore delivered to Alrenco true and
complete copies of each of the following documents:

(i) a copy of each RTO Plan that is in writing (including all
amendments thereto), including (1) all severance and employment
agreements of RTO with directors, executive officers or key employees,
(2) all severance programs and policies of RTO and each RTO Subsidiary,
and (3) all
A-16
<PAGE> 223

plans or arrangements of RTO and each RTO Subsidiary relating to its
employees which contain change in control provisions;

(ii) a copy of the annual report and actuarial report, if required
under ERISA, with respect to each such RTO Plan for the last two plan
years ending prior to the date hereof;

(iii) a copy of the most recent Summary Plan Description, together
with each Summary of Material Modifications, if required under ERISA,
with respect to such RTO Plan;

(iv) if the RTO Plan is funded through a trust or any other third
Party funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements
with respect to the last reporting period ended immediately prior to the
date hereof; and

(v) the most recent determination letter received prior to the date
hereof from the Internal Revenue Service with respect to each RTO Plan
intended to qualify under section 401 of the Code.

(b) No liability under Title IV of ERISA has been incurred by RTO, any
RTO Subsidiary or any RTO ERISA Affiliate that has not been satisfied in
full when due, and no condition exists that presents a material risk to RTO
or any RTO Subsidiary or any RTO ERISA Affiliate of incurring a liability
under such Title which would individually or in the aggregate have an RTO
Material Adverse Effect, or give rise to a lien under Title IV of ERISA.

(c) No RTO Plan subject to the minimum funding requirements of section
412 of the Code or section 302 of ERISA or any trust established thereunder
has incurred any "accumulated funding deficiency" (as defined in section
302 of ERISA and section 412 of the Code), whether or not waived, as of the
last day of the most recent fiscal year of such RTO Plan ended prior to the
date hereof; and all contributions required to be made with respect thereto
(whether pursuant to the terms of any such RTO Plan or otherwise) on or
prior to the date hereof have been timely made.

(d) No RTO Plan is a "multiemployer pension plan," as defined in
section 3(37) of ERISA, nor is any RTO Plan a plan described in section
4063(a) of ERISA.

(e) Each RTO Plan intended to be "qualified" within the meaning of
section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service as to its qualification and, to the
knowledge of RTO, no amendment has been made to any such RTO Plan since the
date of such letter that is likely to result in the disqualification of
such RTO Plan.

(f) Each of the RTO Plans has been operated and administered in all
respects in accordance with Applicable Law, including, but not limited to,
ERISA and the Code, except for any failure to so operate or administer such
RTO Plans that would not individually or in the aggregate have an RTO
Material Adverse Effect.

(g) Except as expressly provided in this Agreement, any exhibit
hereto, a RTO Plan or as otherwise agreed in writing by Alrenco and RTO,
neither the execution and delivery of this Agreement nor the Merger nor the
consummation of any of the transactions contemplated by this Agreement
will:

(i) entitle any current or former officer, director, employee or
consultant of RTO or any RTO Subsidiary to severance pay, unemployment
compensation or any other payment, or

(ii) accelerate the time of payment or vesting or increase the
amount of compensation due any such officer, director, employee or
consultant.

(h) With respect to each RTO Plan that is funded wholly or partially
through an insurance policy, RTO and the RTO Subsidiaries do not have any
current liability under any such insurance policy in the nature of a
retroactive rate adjustment or loss sharing arrangement arising wholly or
partially out of events occurring prior to the Closing other than any such
liability that individually or in the aggregate would not have an RTO
Material Adverse Effect.

(i) There are no pending or, to the knowledge of RTO, threatened
claims by or on behalf of any of the RTO Plans, by any employee or
beneficiary covered under any such RTO Plan involving any such
A-17
<PAGE> 224

RTO Plan (other than routine claims for benefits), other than any such
claims that would not individually or in the aggregate have an RTO Material
Adverse Effect.

(j) Neither RTO nor any RTO Subsidiary or, to the knowledge of RTO,
any RTO ERISA Affiliate, any of the RTO Plans, any trust created
thereunder, or any trustee or administrator thereof has engaged in a
transaction in connection with which RTO or any RTO Subsidiary or, to the
knowledge of RTO, any RTO ERISA Affiliate, any of the RTO Plans, any such
trust or trustee or administrator thereof, or any Party dealing with the
RTO Plans or any such trust is likely to be subject to either a civil
liability under section 409 of ERISA or section 502(i) of ERISA, or a tax
imposed pursuant to section 4975 or 4976 of the Code other than any such
liability or tax that would not individually or in the aggregate have an
RTO Material Adverse Effect.

Section 5.18 Vote Required. Approval of the Merger by the stockholders of
RTO shall require the affirmative vote of the holders of a majority of the
outstanding Shares at the stockholders' meeting referred to in Section 7.4(a).
No other vote of the stockholders of RTO is required by law, the Certificate of
Incorporation or By-Laws of RTO or otherwise in order for RTO to consummate the
Merger and the transactions contemplated hereby.

Section 5.19 Vote of Board. The Board of Directors of RTO (at a meeting
duly called and held) has unanimously determined that the transactions
contemplated hereby are fair to and in the best interests of RTO.

Section 5.20 Takeover Status. The Board of Directors of RTO has taken all
appropriate action so that Alrenco will not be an "interested stockholder"
within the meaning of Section 203 of the DGCL by virtue of the execution and
delivery of this Agreement or the RTO Option Agreement or the consummation of
the Merger or any of the other transactions contemplated hereby.

Section 5.21 Accounting Matters. To its knowledge, neither RTO nor any of
the RTO Subsidiaries has taken or agreed to take any action that would prevent
the business combination to be effected by the Merger from being accounted for
as a pooling of interest and RTO has no reason to believe that the Merger will
not qualify for pooling of interest accounting.

Section 5.22 Brokers. Except for Stephens Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation, RTO's financial advisors, no broker, finder or
financial advisor is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of RTO, and RTO's
fee arrangements with Stephens Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation have been disclosed to Alrenco.

ARTICLE VI

CONDUCT OF BUSINESS PENDING THE MERGER

Section 6.1 Conduct of Business by RTO Pending the Merger. From the date
of this Agreement to the Effective Time, unless Alrenco shall otherwise agree in
writing, or as otherwise contemplated by this Agreement, or any Exhibit hereto,
or the RTO Disclosure Letter:

(a) the respective businesses of RTO and the RTO Subsidiaries shall be
conducted only in the ordinary and usual course of business and consistent
with past practices, and there shall be no material changes in the conduct
of the operations of RTO or any RTO Subsidiary.

(b) RTO shall not (i) sell or pledge or agree to sell or pledge any
stock owned by it in any of the RTO Subsidiaries; (ii) amend its
Certificate of Incorporation or By-Laws; or (iii) split, combine or
reclassify any shares of its outstanding capital stock or declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property, or redeem or otherwise acquire any shares of its capital stock or
shares of the capital stock of any of the RTO Subsidiaries;

(c) neither RTO nor any of the RTO Subsidiaries shall (i) authorize
for issuance, issue or sell any additional shares of, or rights of any kind
to acquire any shares of, its capital stock of any class (whether
A-18
<PAGE> 225

through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise); (ii) acquire, dispose of,
transfer, lease, license, mortgage, pledge or encumber any fixed or other
assets in excess of $50,000 in any one or a series of related transactions
other than in the ordinary course of business and consistent with past
practices; (iii) incur, assume or prepay any indebtedness or any other
material liabilities other than in the ordinary course of business and
consistent with past practices; (iv) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any person other than an RTO Subsidiary
in the ordinary course of business and consistent with past practices; (v)
make any loans, advances or capital contributions to, or investments in,
any other person, other than to RTO Subsidiaries and other than in the
ordinary course of business and consistent with past practices; (vi)
authorize capital expenditures substantially in excess of the amount
currently budgeted therefor; (vii) permit any insurance policy naming RTO
or any RTO Subsidiary as a beneficiary or a loss payee to be canceled or
terminated other than in the ordinary course of business; or (viii) enter
into any contract, agreement, commitment or arrangement with respect to any
of the foregoing;

(d) RTO shall use commercially reasonable efforts to preserve intact
the business organization of RTO and the RTO Subsidiaries, to keep
available the services of its and their present officers and key employees,
and to preserve the goodwill of those having business relationships with it
and the RTO Subsidiaries;

(e) neither RTO nor any of the RTO Subsidiaries shall make any change
in the compensation payable or to become payable to any of its officers,
Directors or employees, enter into or amend any employment, severance,
termination or other similar agreement, adopt any new RTO Plan or amend in
any material respect any existing RTO Plan, or make any loans to any of its
officers, Directors or employees or make any changes in its existing
borrowing or lending arrangement for or on behalf of any of such persons,
whether contingent on consummation of the Merger or otherwise, other than
(i) in the ordinary course of business and consistent with past practices
and (ii) as may be required under Applicable Law or the terms of any
existing RTO Plan; and

(f) neither RTO nor any of the RTO Subsidiaries shall (i) knowingly
take or allow to be taken any action which would jeopardize the treatment
of the Merger as a pooling of interests for accounting purposes; or (ii)
knowingly take any action that would jeopardize qualification of the Merger
as a reorganization within the meaning of section 368(a) of the Code.

Section 6.2 Conduct of Business by Alrenco Pending the Merger. From the
date of this Agreement to the Effective Time, unless RTO shall otherwise agree
in writing, or as otherwise contemplated by this Agreement, or any Exhibit
hereto, or the Alrenco Disclosure Letter:

(a) the business of Alrenco shall be conducted only in the ordinary
and usual course of business and consistent with past practices, and there
shall be no material changes in the conduct of the operations of Alrenco;

(b) Alrenco shall not (i) amend its Articles of Incorporation or
By-Laws or (ii) split, combine or reclassify any shares of its outstanding
capital stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property, or redeem or otherwise
acquire any shares of its capital stock;

(c) Alrenco shall not (i) authorize for issuance, issue or sell any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise); (ii) acquire, dispose of, transfer, lease, license, mortgage,
pledge or encumber any fixed or other assets in excess of $50,000 in any
one or a series of related transactions other than in the ordinary course
of business and consistent with past practices; (iii) incur, assume or
prepay any indebtedness or any other material liabilities other than in the
ordinary course of business and consistent with past practices; (iv)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
person in the ordinary course of business and consistent with past
practices; (v) make any loans,

A-19
<PAGE> 226

advances or capital contributions to, or investments in, any other person,
other than in the ordinary course of business and consistent with past
practices; (vi) authorize capital expenditures substantially in excess of
the amount currently budgeted therefor; (vii) permit any insurance policy
naming Alrenco as a beneficiary or a loss payee to be canceled or
terminated other than in the ordinary course of business; or (viii) enter
into any contract, agreement, commitment or arrangement with respect to any
of the foregoing;

(d) Alrenco shall use commercially reasonable efforts to preserve
intact the business organization of Alrenco, to keep available the services
of its and their present officers and key employees, and to preserve the
goodwill of those having business relationships with it;

(e) Alrenco shall not make any change in the compensation payable or
to become payable to any of its officers, Directors or employees, enter
into or amend any employment, severance, termination or other similar
agreement, adopt any new Alrenco Plan or amend in any material respect any
existing Alrenco Plan, or make any loans to any of its officers, Directors
or employees or make any changes in its existing borrowing or lending
arrangement for or on behalf of any of such persons, whether contingent on
consummation of the Merger or otherwise, other than (i) in the ordinary
course of business and consistent with past practices and (ii) as may be
required under Applicable Law or the terms of any existing Alrenco Plan;
and

(f) Alrenco shall not (i) knowingly take or allow to be taken any
action which would jeopardize the treatment of the Merger as a pooling of
interests for accounting purposes; or (ii) knowingly take any action that
would jeopardize qualification of the Merger as a reorganization within the
meaning of section 368(a) of the Code.

ARTICLE VII

ADDITIONAL AGREEMENTS

Section 7.1 Access and Information. RTO and Alrenco shall each afford to
the other and to the other's financial advisors, legal counsel, accountants,
consultants and other agents and representatives full access at all reasonable
times throughout the period prior to the Effective Time to all of its books,
records, properties and personnel and, during such period, each shall furnish
promptly to the other (a) a copy of each report, schedule and other document
filed or received by it pursuant to the requirements of federal or state
securities laws, and (b) all other information as such other Party may
reasonably request, provided that no investigation pursuant to this Section 7.1
shall affect any representations or warranties made herein or the conditions to
the obligations of the respective Parties to consummate the Merger. Each Party
and its affiliates, advisors, legal counsel, accountants, consultants and other
agents and representatives shall hold in confidence all nonpublic information in
accordance with the terms of the Confidentiality Agreement dated September 9,
1997 (the "Confidentiality Agreement") between RTO and Alrenco and, if this
Agreement is terminated, each Party will deliver to the other documents, work
papers and other material (including copies) obtained by such Party or on its
behalf from the other Party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof, in
accordance with the Confidentiality Agreement.

Section 7.2 Acquisition Proposals.

(a) Neither Party shall, nor shall they authorize or permit any
officer, director or employee of, or investment banker, attorney or other
advisor or representative or agent of, such Party or any subsidiary of such
Party to, directly or indirectly, (i) solicit, initiate or encourage the
submission of any Acquisition Proposal (as hereinafter defined) or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal; provided,
however, that nothing contained in this Section 7.2(a) shall prohibit
either Party's Board of Directors (and its authorized representatives) from
furnishing information to, or entering into discussions or negotiations
with, any person or entity that makes an unsolicited Acquisition Proposal
if, and only to the extent that (A) such Party's Board of Directors, after
consultation with and based on the
A-20
<PAGE> 227

written opinion of outside legal counsel, determines in good faith that in
order for such Party's Board of Directors to comply with its fiduciary
duties to stockholders under Applicable Law it should take such action, (B)
prior to taking such action, such Party receives from such person or entity
an executed agreement in reasonably customary form relating to the
confidentiality of information to be provided to such person or entity, and
(C) the Acquisition Proposal contains an offer of consideration that is
superior to the consideration represented by the Exchange Ratio.
Notwithstanding anything in this Agreement to the contrary, each Party
shall (i) promptly advise the other Party orally and in writing of (A) the
receipt by it (or any of the other entities or other persons referred to
above) after the date hereof of any Acquisition Proposal, or any inquiry
which could reasonably be expected to lead to any Acquisition Proposal, (B)
the material terms and conditions of such Acquisition Proposal or inquiry
and (C) the identity of the person making any such Acquisition Proposal or
inquiry, (ii) keep the other Party reasonably informed of the status and
details of any such Acquisition Proposal or inquiry, and (iii) negotiate
with the other Party to make such adjustments in the terms and conditions
of this Agreement as would enable such Party to proceed with the
transactions contemplated herein; provided, however, that nothing in this
Section 7.2(a) shall require that such Party negotiate exclusively with the
other Party. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the first sentence of this
Section 7.2 by any officer, director or employee of either Party or its
subsidiaries or any investment banker, attorney or other advisor,
representative or agent of such Party or its subsidiaries, whether or not
such person is purporting to act on behalf of such Party or otherwise,
shall be deemed to be a breach of this Section 7.2 by such Party. For
purposes of this Agreement, "Acquisition Proposal" means any bona fide
proposal with respect to a merger, consolidation, share exchange or similar
transaction involving Alrenco or RTO and the RTO Subsidiaries, or any
purchase of all or any significant portion of the assets of Alrenco or of
RTO and the RTO Subsidiaries other than the transactions contemplated
hereby.

(b) Except as set forth below, neither Party's Board of Directors
shall (i) withdraw, or modify in a manner materially adverse to the other
Party, the approval or recommendation by such Party's Board of Directors of
this Agreement or the Merger, or (ii) approve, recommend or cause such
Party to enter into any agreement with respect to any Acquisition Proposal.
Notwithstanding the foregoing, if either Party receives an unsolicited
Acquisition Proposal and such Party's Board of Directors determines in good
faith, following consultation with and based on the written opinion of
outside legal counsel, that it is necessary to do so in order to comply
with its fiduciary duties to stockholders under Applicable Law, such
Party's Board of Directors may (w) withdraw or modify its approval or
recommendation of this Agreement and the Merger, (x) approve or recommend
such Acquisition Proposal, (y) cause such Party to enter into an agreement
with respect to such Acquisition Proposal or (z) terminate this Agreement
pursuant to Section 9.3(c) or 9.4(c), as applicable; provided, however,
that prior to taking such action, such Party shall, and shall cause its
respective financial and legal advisors to, negotiate with the other Party
to make such adjustments in the terms and conditions of this Agreement as
would enable such Party to proceed with the transactions contemplated
herein on such adjusted terms; provided, however, that nothing in this
Section 7.2(b) shall require that such Party negotiate exclusively with the
other Party. Notwithstanding anything contained in this Agreement to the
contrary, any action by the Board of Directors of either Party permitted by
this Section 7.2(b) shall not constitute a breach of this Agreement by such
Party.

(c) If the Board of Directors of either Party (such Party, the
"Withdrawing Party") takes any action described in clause (y) or (z) of
Section 7.2(b) or the other Party exercises its right to terminate this
Agreement under Section 9.3(d) or 9.4(d), as applicable, based on the Board
of Directors of the Withdrawing Party having taken any action described in
clause (w) or (x) of Section 7.2(b), the Withdrawing Party shall,
simultaneously with the taking of such action or upon such termination pay
to the other Party upon demand the sum of $3,000,000 plus all fees and
expenses incurred by such other Party in connection with the transactions
contemplated by this Agreement (including without limitation, investment
bankers' fees and expenses), payable in same-day funds, as liquidated
damages and not as a penalty. If the Withdrawing Party fails to pay to the
other Party any amounts due under this Section 7.2(c), the Withdrawing
Party shall pay the costs and expenses (including reasonable legal fees and
expenses) in connection with any action, including the filing of any
lawsuit or other action, taken by
A-21
<PAGE> 228

the other Party to collect payment, together with interest on the amount of
any unpaid fee at the publicly announced prime rate of Citibank, N.A. in
effect from time to time from the date such fee was required to be paid.

Section 7.3 Registration Statement; Listing Application.

(a) As promptly as practicable, Alrenco shall prepare and file with
the SEC the Proxy Statement and the Registration Statement. Alrenco shall
use commercially reasonable efforts to have the Registration Statement
declared effective as promptly as practicable. Alrenco shall use
commercially reasonable efforts to take any action required to be taken
under state securities or blue sky laws in connection with the issuance of
the Alrenco Shares pursuant hereto. RTO shall furnish Alrenco with all
information concerning RTO and the holders of its capital stock and shall
take such other action as Alrenco may reasonably request in connection with
such Proxy Statement and Registration Statement and issuance of Alrenco
Shares.

(b) Alrenco shall promptly prepare and submit to the Nasdaq National
Market a listing application covering the Alrenco Shares to be issued in
connection with the Merger and this Agreement and shall use commercially
reasonable efforts to obtain, prior to the Effective Time, approval for the
listing of such Alrenco Shares, subject to official notice of issuance.

Section 7.4 Proxy Statements; Stockholder Approvals.

(a) RTO, acting through its Board of Directors, shall, in accordance
with Applicable Law and its Certificate of Incorporation and By-Laws:

(i) (A) promptly and duly call, give notice of, convene and hold as
soon as practicable following the date upon which the Registration
Statement becomes effective a meeting of its stockholders for the
purpose of voting to approve and adopt this Agreement and shall use
commercially reasonable efforts to obtain such stockholder approval or
(B) obtain, as soon as practicable following the date upon which the
Registration Statement becomes effective, delivery to RTO's principal
place of business (or other method of delivery approved by Section 228
of the DGCL) of the consent or consents in writing, setting forth the
approval of this Agreement and the Merger, signed by the holders of
outstanding Shares having not less than the minimum number of votes that
would be necessary to authorize this Agreement and the Merger at a
meeting at which all Shares entitled to vote thereon were present and
voted; and

(ii) recommend approval and adoption of this Agreement by the
stockholders of RTO and take all lawful action to solicit such approval.

(b) Alrenco, acting through its Board of Directors, shall, in
accordance with Applicable Law and its Certificate of Incorporation and
By-Laws:

(i) promptly and duly call, give notice of, convene and hold as
soon as practicable following the date upon which the Registration
Statement becomes effective a meeting of its stockholders for the
purpose of voting to authorize the issuance of the Alrenco Shares to be
issued in the Merger and shall use commercially reasonable efforts to
obtain such stockholder approval; and

(ii) recommend authorization of the issuance of the Alrenco Shares
to be issued in the Merger by the stockholders of Alrenco and include in
the Proxy Statement such recommendation and take all lawful action to
solicit such approval.

(c) Alrenco and RTO, as promptly as practicable, shall cause the
definitive Proxy Statement to be mailed to their respective stockholders.
At the stockholders' meetings, each of Alrenco and RTO shall vote or cause
to be voted in favor of approval and adoption of this Agreement all capital
stock entitled to vote as to which it holds proxies at such time.

(d) Each of RTO's and Alrenco's obligations under this Section 7.4
shall at all times remain subject to their fiduciary duties imposed under
Applicable Law, in the event that, if required by such fiduciary duties as
advised in writing by outside counsel, the Board of Directors of RTO or
Alrenco, as the case
A-22
<PAGE> 229

may be, shall have withdrawn or modified its recommendation that
stockholders approve and adopt this Agreement, in the case of Alrenco and
RTO, or that stockholders authorize the issuance of the Alrenco Shares to
be issued in connection with the Merger, in the case of Alrenco.

Section 7.5 Antitrust Laws. As promptly as practicable, RTO and Alrenco
shall make all filings and submissions under the HSR Act as may be reasonably
required to be made in connection with this Agreement and the transactions
contemplated hereby. Subject to Section 7.1 hereof, RTO will furnish to Alrenco,
and Alrenco will furnish to RTO, such information and assistance as the other
may reasonably request in connection with the preparation of any such filings or
submissions. Subject to Section 7.1 hereof, RTO will provide Alrenco, and
Alrenco will provide RTO, with copies of all correspondence, filings or
communications (or memoranda setting forth the substance thereof) between such
Party or any of its representatives, on the one hand, and any Governmental
Authority or members of its staff, on the other hand, with respect to this
Agreement and the transactions contemplated hereby.

Section 7.6 Voting Agreements and Option Agreements. Concurrently
herewith, RTO is entering into voting agreements with Michael D. Walts and
Michael D. Walts, Jr. substantially in the form attached hereto as Exhibit D
(together, the "Walts Voting Agreements"); Alrenco is entering into voting
agreements with each of GDJ, Jr. Investments, L.P., GD Johnson, III ESA Trust,
EW Johnson, II Trust, A. Foster Chapman, SP Johnson ESA Trust, DC Breeden, Jr.
Trustee for EW Phifer, III Trust, DC Breeden, Jr. Trustee for AP Armfield Trust,
DC Breeden, Jr. Trustee for MP de La Torre Trust, DC Breeden, Jr. Trustee for NW
Phifer Trust, Dan C. Breeden, Jr., Stewart H. Johnson, C&J Investing Partners,
John S. Rainey, Billy W. White, Sr. Annuity Trust, Lillie B. White Annuity
Trust, Belt Family Partnership and B&R Partnership substantially in the form
attached hereto as Exhibit E (collectively, the "RTO Voting Agreements" and
together with the Walts Voting Agreements referred to herein as the "Voting
Agreements"); RTO and Alrenco are entering into an option agreement
substantially in the form attached hereto as Exhibit F (the "RTO Option
Agreement"); and Alrenco and RTO are entering into an option agreement
substantially in the form attached hereto as Exhibit G (the "Alrenco Option
Agreement," and together with the RTO Option Agreement referred to herein as the
"Option Agreements").

Section 7.7 RTO Employee Stock Options and RTO Director Stock
Options. Except as provided in this Agreement or pursuant to the provisions of
the RTO Employee Stock Option Plan or the RTO Director Stock Option Plan as in
effect on the date hereof, from the date hereof RTO will not accelerate the
vesting or exercisability of or otherwise modify the terms and conditions
applicable to the RTO Employee Stock Options or RTO Director Stock Options.
Except as provided in this Agreement, Alrenco will not exercise any right under
any of the Alrenco Employee Stock Option Plans from the date hereof to
accelerate the vesting or exercisability of or otherwise modify the terms and
conditions applicable to the Alrenco Employee Stock Options. At the Effective
Time, each of the RTO Employee Stock Options and RTO Director Stock Options
which is outstanding and unexercised at the Effective Time shall be converted
automatically into an option to purchase Alrenco Shares in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
of the RTO Employee Stock Option Plan and the RTO Director Stock Option Plan
governing the RTO Employee Stock Options and RTO Director Stock Options):

(1) The number of Alrenco Shares to be subject to the new option shall
be equal to the product of the number of Shares subject to the original
option and the Exchange Ratio, provided that any fractional Alrenco Shares
resulting from such multiplication shall be rounded down to the nearest
share and Alrenco shall pay an amount in cash to the holder of such RTO
Employee Stock Option or RTO Director Stock Option equal to the fair market
value immediately prior to the Effective Time of such fractional Alrenco
Shares calculated based on the average closing price on the Nasdaq National
Market for the last five trading days immediately preceding the day prior
to the Effective Time; and

(2) The exercise price per Alrenco Share under the new option shall be
equal to the aggregate exercise price of the original option divided by the
total number of full Alrenco Shares subject to the new option (as
determined under (1) immediately above), provided that such exercise price
shall be rounded up the nearest cent.

A-23
<PAGE> 230

Alrenco shall assume the obligations of RTO under the RTO Employee Stock Option
Plan and the RTO Director Stock Option Plan in respect of each such new option.
The duration and other terms of the new option shall be the same as that of the
original option, except that all references to RTO shall be deemed to be
references to Alrenco. Alrenco shall file with the SEC a registration statement
on Form S-8 (or other appropriate form) or a post-effective amendment to the
Registration Statement as promptly as practicable after the Effective Time for
purposes of registering all Alrenco Shares issuable after the Effective Time
upon exercise of the RTO Employee Stock Options and RTO Director Stock Options,
and shall have such registration statement or post-effective amendment become
effective and comply, to the extent applicable, with state securities or blue
sky laws with respect thereto at the Effective Time.

Section 7.8 Public Announcements. Alrenco, on the one hand, and RTO, on
the other hand, agree that they will not issue any press release or otherwise
make any public statement or respond to any press inquiry with respect to this
Agreement or the transactions contemplated hereby without the prior approval of
the other Party, except as may be required by Applicable Law.

Section 7.9 Continuance of Existing Indemnification Rights.

(a) From and after the Effective Time, Alrenco shall indemnify, defend
and hold harmless to the fullest extent permitted under Applicable Law each
person who is now, or has been at any time prior to the date hereof, an
officer or director of Alrenco or RTO (individually, an "Indemnified Party"
and collectively, the "Indemnified Parties"), against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees and
expenses), judgments, fines, penalties and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation
arising out of or pertaining to acts or omissions, or alleged acts or
omissions, by them in their capacities as such occurring at or prior to the
Effective Time. In the event of any such claim, action, suit, proceeding or
investigation (an "Action"), (i) any Indemnified Party wishing to claim
indemnification shall promptly notify Alrenco thereof, (ii) Alrenco shall
pay the reasonable fees and expenses of counsel selected by the Indemnified
Party, which counsel shall be reasonably acceptable to Alrenco, in advance
of the final disposition of any such Action to the full extent permitted by
Applicable Law, upon receipt of any undertaking required by Applicable Law,
and (iii) Alrenco will cooperate in the defense of any such matter;
provided, however, that Alrenco shall not be liable for any settlement
effected without its written consent and provided, further, that Alrenco
shall not be obligated pursuant to this Section 7.9 to pay the fees and
disbursements of more than one counsel for all Indemnified Parties in any
single Action except to the extent that, in the opinion of counsel for the
Indemnified Parties, two of more of such Indemnified Parties have
conflicting interests in the outcome of such action.

(b) Alrenco shall keep in effect provisions in its Certificate of
Incorporation and Bylaws providing for exculpation of director and officer
liability and its indemnification of the Indemnified Parties to the fullest
extent permitted under Applicable Law, which provisions shall not be
amended except as required by Applicable Law or except to make changes
permitted by law that would enlarge the Indemnified Parties' right of
indemnification.

(c) Alrenco shall cause to be maintained in effect for a period ending
not sooner than the sixth anniversary of the Effective Time Directors' and
officers' liability insurance providing at least the same coverage with
respect to RTO's officers and Directors as the policies maintained on
behalf of Directors and officers of RTO as of the date hereof, and
containing terms and conditions which are no less advantageous, with
respect to matters occurring on or prior to the Effective Time (to the
extent such insurance is available with respect to such matters).

Section 7.10 Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby and thereby shall be paid by the Party
incurring such expenses except that (a)(i) a filing fee in connection with any
HSR Act filing and (ii) the expenses incurred in connection with the printing
and mailing of the Proxy Statement shall be shared equally by Alrenco and RTO
and (b) all transfer taxes shall be paid by RTO.

A-24
<PAGE> 231

Section 7.11 Additional Agreements. Subject to terms and conditions
herein provided, each of the Parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under Applicable Law and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using all commercially reasonable efforts to obtain
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, Alrenco and RTO shall cause their respective proper officers and/or
Directors to take all such necessary action.

Section 7.12 Affiliate Agreements.

(a) RTO shall, prior to the Effective Time, deliver to Alrenco a list
(reasonably satisfactory to counsel for Alrenco), setting forth the names
and addresses of all persons who are, at the time of the RTO stockholder's
meeting referred to in Section 7.4(a) hereof, in RTO's reasonable judgment,
"affiliates" of RTO for purposes of Rule 145 under the Securities Act or
under applicable SEC accounting releases with respect to pooling of
interests accounting treatment. RTO shall furnish such information and
documents as Alrenco may reasonably request for the purpose of reviewing
such list. RTO shall use its reasonable best efforts to cause each person
who is identified as an "affiliate" in the list furnished pursuant to this
Section 7.12 to execute a written agreement on or prior to the Effective
Time, in substantially the form of Exhibit H attached hereto (the "RTO
Affiliate Agreements").

(b) Alrenco shall, prior to the Effective Time, deliver to RTO a list
(reasonably satisfactory to counsel for RTO) setting forth the names and
addresses of all persons who are, at the time of the Alrenco stockholders
meeting referred to in Section 7.4(b) hereof, in Alrenco's reasonable
judgment, "affiliates" of Alrenco under applicable SEC accounting releases
with respect to pooling of interests accounting treatment. Alrenco shall
furnish such information and documents as RTO may reasonably request for
the purpose of reviewing such list. Alrenco shall use its reasonable best
efforts to cause each person who is identified as an affiliate in the list
furnished pursuant to this Section 7.12 to execute a written agreement on
or prior to the Effective Time, in substantially the form of Exhibit I
attached hereto (the "Alrenco Affiliate Agreements" and, together with the
RTO Affiliate Agreements referred to collectively herein as the "Affiliate
Agreements").

Section 7.13 Publication of Post Merger Financial Results. RTO and
Alrenco agree that the Surviving Corporation shall publish financial results
covering at least thirty (30) days of combined operations as soon as practicable
after the Effective Time; provided that if the Effective Time occurs after
February 28, 1997, RTO and Alrenco agree that upon the written request of any
person who shall have executed an Affiliate Agreement pursuant to Section 7, the
Surviving Corporation shall publish such combined financial results at the end
of the first full calendar month following the Effective Date which notice shall
be given at least thirty (30) days prior to the end of such first full calendar
month following the Effective Date.

ARTICLE VIII

CONDITIONS TO CONSUMMATION OF THE MERGER

Section 8.1 Conditions To Each Party's Obligation To Effect the
Merger. The respective obligations of each Party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:

(a) Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated, and no action
shall have been instituted by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of this
transaction, which action shall have not been withdrawn or terminated.

(b) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall be in
effect and no proceeding for such purpose shall be pending before or
threatened by the SEC.

A-25
<PAGE> 232

(c) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the stockholders of RTO
and the issuance of the Alrenco Shares in connection with the Merger shall
have been authorized by the requisite vote of the stockholders of Alrenco,
in each case in accordance with Applicable Law.

(d) No preliminary or permanent injunction or other order by any
federal or state court in the United States which prohibits the
consummation of the Merger shall have been issued and remain in effect.

(e) Each of RTO and Alrenco shall have obtained such consents from
third parties and Governmental Authorities in addition to the HSR Act as
shall be required and which are material to Alrenco and RTO and to
consummation of the transactions contemplated hereby.

(f) Each of Alrenco and RTO shall have received a letter of Coopers &
Lybrand, LLP dated the Effective Time, addressed to Alrenco and RTO stating
that the Merger will qualify as a pooling of interests transaction under
Opinion No. 16 of the Accounting Principles Board. In addition, Alrenco and
RTO shall have received a letter of Grant Thornton, LLP dated the Effective
Time, addressed to Alrenco and RTO stating that Alrenco meets the
conditions to qualify as a pooling of interests transaction under opinion
No. 16 of the Accounting Principles Board, "Business Combinations," and the
related published interpretations of the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board, and the
published rules and regulations of the Securities and Exchange Commission.

(g) Each of Alrenco and RTO shall have received an opinion of King &
Spalding, in form and substance reasonably satisfactory to Alrenco and RTO,
dated on or about the date of the mailing of the Proxy Statement to the
stockholders of Alrenco and RTO, which opinion shall be reconfirmed as of
the Effective Time, substantially to the effect that the Merger will
constitute a reorganization for federal income tax purposes within the
meaning of section 368(a) of the Code.

Section 8.2 Conditions to Obligation of RTO to Effect the Merger. The
obligation of RTO to effect the Merger shall be subject to the satisfaction at
or prior to the Effective Time of the following additional conditions:

(a) Alrenco shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior
to the Effective Time and the representations and warranties of Alrenco
contained in this Agreement shall be true and correct in all material
respects at and as of the Effective Time as if made at and as of such time,
except (i) for changes specifically permitted by this Agreement and (ii)
that those representations and warranties which address matters only as of
a particular date shall remain true and correct in all material respects as
of such date, and RTO shall have received a certificate of Michael D.
Walts, Chairman of the Board of Directors and President of Alrenco, as to
the satisfaction of this condition.

(b) RTO shall have received an opinion from Stites & Harbison, counsel
to Alrenco, dated the Effective Time, to the effect that:

(i) Alrenco is a corporation validly existing under the laws of the
State of Indiana.

(ii) Alrenco has the corporate power to enter into this Agreement
and to consummate the transactions contemplated hereby; and the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by requisite
corporate action taken on the part of Alrenco.

(iii) This Agreement has been executed and delivered by Alrenco and
is a valid and binding obligation of Alrenco, enforceable against
Alrenco in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and general principles
of equity.

(iv) Neither the execution and delivery of this Agreement by
Alrenco, nor the consummation by Alrenco of the transactions
contemplated hereby, will violate the Articles of Incorporation or

A-26
<PAGE> 233

By-Laws of Alrenco or, to the best knowledge of such counsel, and except
as set forth in the Alrenco Disclosure Letter without having made any
independent investigation, will constitute a violation of or a default
under (except for any such violation or default as to which requisite
waivers or consents either shall have been obtained by Alrenco prior to
the Effective Time or shall have been waived by RTO in writing) any
material contract, agreement or instrument to which Alrenco is subject
and which has been specifically identified to such counsel by Alrenco in
connection with rendering such opinion.

(v) The Alrenco Shares to be issued in connection with the
transactions contemplated by this Agreement are duly authorized and
reserved for issuance and, when issued as contemplated by this
Agreement, will be validly issued, fully paid and nonassessable.

(vi) While such counsel assumes no responsibility for any event,
occurrence or statement of fact relating to Alrenco or for the accuracy
completeness or fairness of any statements contained in or omitted from
the Registration Statement or the Proxy Statement, and while such
counsel expresses no opinion as to the financial statements or other
financial or statistical data contained therein with respect to
information in the Registration Statement or the Proxy Statement
relating to Alrenco, the Registration Statement complies as to form in
all material respects with the requirements of the Securities Act and
the applicable rules and regulations promulgated thereunder.

In addition, in such opinion, such counsel shall state that such
counsel has no reason to believe that the Registration Statement or the
Proxy Statement, as amended or supplemented to the date of such opinion,
insofar as it relates to Alrenco, contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein (in the light of the
circumstances in which they were made) not misleading, except such
counsel expresses no belief as to the financial statements or other
financial or statistical data contained in the Registration Statement or
the Proxy Statement.

As to any matter in such opinion which involves matters of fact or
matters relating to laws other than the laws of the United States or the
corporate laws of the State of Indiana, such counsel may rely upon the
certificates of officers and Directors of Alrenco and of public
officials and opinions of local counsel, reasonably acceptable to RTO.

(c) The listing application referred to in Section 7.3(b) shall have
been approved by the National Association of Securities Dealers for listing
on the Nasdaq National Market.

(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of Alrenco that would have or would be reasonably likely to have
a material adverse effect on Alrenco.

Section 8.3 Conditions to Obligations of Alrenco to Effect the
Merger. The obligations of Alrenco to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions:

(a) RTO shall have performed in all material respects its obligations
under this Agreement required to be performed by it at or prior to the
Effective Time and the representations and warranties of RTO contained in
this Agreement shall be true and correct in all material respects at and as
of the Effective Time as if made at and as of such time, except (i) for
changes specifically permitted by this Agreement and (ii) that those
representations and warranties which address matters only as of a
particular date shall remain true and correct in all material respects as
of such date and Alrenco shall have received a Certificate of Billy W.
White, Sr., President and Chief Executive Officer of RTO, as to the
satisfaction of this condition.

A-27
<PAGE> 234

(b) Alrenco shall have received an opinion from King & Spalding,
counsel for RTO, dated the Effective Time, to the effect that:

(i) RTO is a corporation validly existing under the laws of the
State of Delaware.

(ii) RTO has the corporate power to enter into this Agreement and
to consummate the transactions contemplated hereby; and the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by requisite corporate
action taken on the part of RTO.

(iii) This Agreement has been executed and delivered by RTO and is
a valid and binding obligation of RTO, enforceable against RTO in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and general principles of equity.

(iv) Neither the execution and delivery of this Agreement by RTO,
nor the consummation by RTO of the transactions contemplated hereby,
will violate the Certificate of Incorporation or By-Laws of RTO or, to
the best knowledge of such counsel, and except as set forth in the RTO
Disclosure Letter without having made any independent investigation,
will constitute a violation of or a default under (except for any such
violation or default as to which requisite waivers or consents either
shall have been obtained by RTO prior to the Effective Time or shall
have been waived by Alrenco in writing) any material contract, agreement
or instrument to which RTO or any of the RTO Subsidiaries is subject and
which has been specifically identified to such counsel by RTO in
connection with rendering such opinion.

In addition, in such opinion, such counsel shall state that such
counsel has no reason to believe that the Registration Statement or the
Proxy Statement, as amended or supplemented to the date of such opinion,
insofar as it relates to RTO, contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein (in the light of the
circumstances in which they were made) not misleading, except such
counsel expresses no belief as to the financial statements or other
financial or statistical data contained in the Registration Statement or
the Proxy Statement.

As to any matter in such opinion which involves matters of fact or
matters relating to laws other than the laws of the United States or the
corporate laws of the State of Delaware corporate law, such counsel may
rely upon the certificates of officers and Directors of RTO and of
public officials and opinions of local counsel, reasonably acceptable to
Alrenco.

(c) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of RTO or the RTO Subsidiaries, taken as a whole, that would
have or would be reasonably likely to have a material adverse effect on RTO
and the RTO Subsidiaries, taken as a whole.

(d) Alrenco and Michael D. Walts shall have entered into a
Noncompetition and Consulting Agreement in the form agreed to by Alrenco,
RTO and Michael D. Walts on the date hereof.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

Section 9.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Effective Time by mutual written consent of
the Parties.

Section 9.2 Termination by either Alrenco or RTO. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of Alrenco or RTO if:

(a) The Merger is not consummated on or before January 31, 1998 (or
such later date as shall have been approved by Alrenco and RTO) (the
"Termination Date"), provided, however, that the right to terminate this
Agreement under this Section 9.2(a) shall not be available to any Party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before the Termination Date, and provided, further, that if on the

A-28
<PAGE> 235

Termination Date the conditions to the Closing set forth in Section 8.1(a)
or (e) shall not have been fulfilled, but all other conditions to the
Closing shall be fulfilled or shall be capable of being fulfilled, then the
Termination Date shall automatically be extended to March 31, 1998; and
provided, further that if on the Termination Date the condition to the
Closing set forth in Section 8.1(b) shall not have been fulfilled, but all
other conditions to the Closing shall be fulfilled or shall be capable of
being fulfilled, the Termination Date shall automatically be extended to
March 31, 1998; or

(b) A court of competent jurisdiction or Governmental Authority shall
have issued an order, decree or ruling or taken any other action (which
order, decree or ruling the parties shall use their commercially reasonable
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement, and
such order, decree, ruling or other action shall have become final and
nonappealable.

Section 9.3 Termination by RTO. This Agreement may be terminated and the
Merger may be abandoned by action of the Board of Directors of RTO if:

(a) There shall have been any material adverse change in the business,
financial condition, results of operations, properties, assets or
liabilities of Alrenco since the date hereof which is not cured within
thirty (30) days after notice thereof to Alrenco, or if Alrenco shall have
breached Section 7.2, 7.4 or 7.5 and, in the case of Sections 7.4 and 7.5,
such breach has not been cured within thirty (30) days' notice thereof to
Alrenco;

(b) This Agreement and the Merger shall not have been approved and
adopted by the requisite vote of the stockholders of Alrenco;

(d) The Board of Directors of Alrenco shall have (i) withdrawn or
modified in a manner adverse to RTO its recommendation of this Agreement
and the Merger; (ii) approved or recommended an Acquisition Proposal; or
(iii) caused Alrenco to enter into an agreement with respect to an
Acquisition Proposal.

Section 9.4 Termination by Alrenco. This Agreement may be terminated and
the Merger may be abandoned by action of the Board of Directors of Alrenco if:

(a) There shall have been any material adverse change in the business,
financial condition, results of operations, properties, assets or
liabilities of RTO and the RTO Subsidiaries taken as a whole since the date
hereof which is not cured within thirty (30) days after notice thereof to
RTO, or if RTO shall have breached Section 7.2, 7.4 or 7.5 and, in the case
of Sections 7.4 and 7.5, such breach has not been cured within thirty (30)
days' notice thereof to RTO;

(b) This Agreement and the Merger shall not have been approved and
adopted by the requisite vote of the stockholders of RTO;

(d) The Board of Directors of RTO shall have (i) withdrawn or modified
in a manner adverse to Alrenco its recommendation of this Agreement and the
Merger; (ii) approved or recommended an Acquisition Proposal; or (iii)
caused RTO to enter into an agreement with respect to an Acquisition
Proposal.

Section 9.5 Effect of Termination and Abandonment. In the event of the
termination and abandonment of this Agreement under this Article IX, this
Agreement shall become void and have no effect, without any liability on the
part of any Party or its Directors, officers or stockholders except (i) as
provided in

A-29
<PAGE> 236

Sections 7.1, 7.2 and 7.10 and (ii) to the extent that such termination results
from the willful breach by any Party hereto of any material representation,
warranty or covenant hereunder.

Section 9.6 Amendment. This Agreement may be amended by the Parties
pursuant to a writing adopted by action taken by all of the Parties at any time
before the Effective Time, provided, however, that after approval by the
stockholders of RTO or Alrenco, whichever shall occur first, no amendment may be
made which would (a) alter or change the amount or kinds of consideration to be
received by the holders of Shares upon consummation of the Merger, (b) alter or
change any term of the Certificate of Incorporation of RTO or the Articles of
Incorporation of Alrenco, or (c) alter or change any of the terms and conditions
of this Agreement if such alteration or change would adversely affect the
holders of any class or series of securities of RTO or Alrenco. This Agreement
may not be amended except by an instrument in writing signed by the Parties.

Section 9.7 Waiver. At any time before the Effective Time, any Party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other Parties (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a Party to any such
extension of waiver shall be valid only as against such Party and only if set
forth in an instrument in writing signed by such Party.

ARTICLE X

GENERAL PROVISIONS

Section 10.1 Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements contained herein shall survive beyond
the Effective Time, except that the representations, warranties or agreements
contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 7.1, 7.8, 7.9, 7.10, 7.11 and
7.13 and this Article X shall survive beyond the Effective Time.

Section 10.2 Notices. All notices and other communications required or
permitted by this Agreement shall be made in writing and any such notice or
communication shall be deemed delivered when delivered in person, transmitted by
telex or telecopier, or seven (7) days after it has been sent by air mail, as
follows:

<TABLE>
<S> <C>
Alrenco: Alrenco, Inc.
1736 East Main Street
New Albany, Indiana 47150
Attention: Michael D. Walts
Tel: (812) 949-3370
Fax: (812) 948-2579

with a copy to: Stites & Harbison
400 West Market Street, Suite 1800
Louisville, Kentucky 40202
Attention: C. Craig Bradley, Jr.
Tel: (502) 587-3400
Fax: (502) 587-6391

RTO: RTO, Inc.
714 East Kimbrough Street
Mesquite, Texas 75149
Attention: K. David Belt
Tel: 972/288-9327
Fax: 972/288-7753
</TABLE>

A-30
<PAGE> 237
with a copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: John D. Capers, Jr.
Tel: 404/572-4658
Fax: 404/572-5145

The Parties shall promptly notify each other in the manner provided in this
Section 10.2 of any change in its address. A notice of change of address shall
not be deemed to have been given until received by the addressee. Communications
by telex or telecopier shall also be sent concurrently by mail, but shall in any
event be effective as stated above.

Section 10.3 Assignment. No Party shall assign this Agreement or any
rights, interests or obligations hereunder, or delegate performance of any of
its obligations hereunder, without the prior written consent of the other Party.

Section 10.4 Entire Agreement. This Agreement, the Exhibits hereto, the
Alrenco Disclosure Letter, the RTO Disclosure Letter, the Voting Agreements, the
Option Agreements, the Affiliate Agreements and the Confidentiality Agreement
embody the entire agreement and understanding of the Parties in respect of the
subject matter contained herein. This Agreement supersedes all prior agreements
and understandings between the Parties with respect to such subject matter.

Section 10.5 Waiver, Amendment, etc. This Agreement may not be amended or
supplemented, and no waivers of or consents to departures from the provisions
hereof shall be effective, unless set forth in a writing signed by, and
delivered to, both Parties. No failure to delay of a Party in exercising any
power or right under this Agreement will operate as a waiver thereof, nor will
any single or partial exercise of any right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other or
further exercise thereof or the existence of any other right or power.

Section 10.6 Binding Agreement; No Third Party Beneficiaries. This
Agreement will be binding upon and inure to the benefit of the Parties and their
successors and permitted assigns. Nothing expressed or implied herein is
intended or will be construed to confer upon or to give any third Party any
rights or remedies by virtue hereof.

Section 10.7 Governing Law; Dispute Resolution; Equitable Relief.

(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF INDIANA (REGARDLESS OF THE LAWS THAT MIGHT
OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAW).

(b) EACH PARTY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION,
SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ITS OBLIGATIONS OR
LIABILITIES UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
SHALL BE BROUGHT ONLY IN THE UNITED STATES DISTRICT COURT FOR THE STATE OF
INDIANA SITTING IN THE CITY OF NEW ALBANY OR, IN THE EVENT (BUT ONLY IN THE
EVENT) SUCH COURT DOES NOT HAVE SUBJECT MATTER JURISDICTION OVER SUCH
ACTION, SUIT OR PROCEEDING, IN THE COURTS OF THE STATE OF INDIANA SITTING
IN THE CITY OF JEFFERSONVILLE, AND EACH PARTY HEREBY IRREVOCABLY ACCEPTS
AND SUBMITS TO THE JURISDICTION OF EACH OF THE AFORESAID COURTS IN
PERSONAM, WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING (INCLUDING
CLAIMS FOR INTERIM RELIEF, COUNTERCLAIMS, ACTIONS WITH MULTIPLE DEFENDANTS
AND ACTIONS IN WHICH SUCH PARTY IS IMPLED). EACH PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A JURY TRIAL IN ANY
LEGAL ACTION, SUIT OR

A-31
<PAGE> 238

PROCEEDING WITH RESPECT TO, OR ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.

(c) EACH PARTY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM (IN SUCH
CAPACITY, THE "PROCESS AGENT"), AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE, FOR AND ON ITS BEHALF, SERVICE OF PROCESS IN SUCH JURISDICTION IN
ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, AND
SUCH SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY THEREOF TO THE PROCESS
AGENT, PROVIDED THAT IN THE CASE OF ANY SUCH SERVICE UPON THE PROCESS
AGENT, THE PARTY EFFECTING SUCH SERVICE SHALL ALSO DELIVER A COPY THEREOF
TO THE OTHER PARTY IN THE MANNER PROVIDED IN SECTION 10.2. EACH PARTY SHALL
TAKE ALL SUCH ACTION AS MAY BE NECESSARY TO CONTINUE SAID APPOINTMENT IN
FULL FORCE AND EFFECT OR TO APPOINT ANOTHER AGENT SO THAT SUCH PARTY WILL
AT ALL TIMES HAVE AN AGENT FOR SERVICE OF PROCESS FOR THE ABOVE PURPOSES IN
THE STATE OF INDIANA. IN THE EVENT OF THE TRANSFER OF ALL OR SUBSTANTIALLY
ALL OF THE ASSETS AND BUSINESS OF THE PROCESS AGENT TO ANY OTHER
CORPORATION BY CONSOLIDATION, MERGER, SALE OF ASSETS OR OTHERWISE, SUCH
OTHER CORPORATION SHALL BE SUBSTITUTED HEREUNDER FOR THE PROCESS AGENT WITH
THE SAME EFFECT AS IF NAMED HEREIN IN PLACE OF CT CORPORATION SYSTEM. EACH
PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION, SUIT OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED AIR MAIL, POSTAGE PREPAID, TO SUCH
PARTY AT ITS ADDRESS SET FORTH IN THIS AGREEMENT, SUCH SERVICE OF PROCESS
TO BE EFFECTIVE UPON ACKNOWLEDGMENT OF RECEIPT OF SUCH REGISTERED MAIL.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY APPLICABLE LAW. EACH PARTY EXPRESSLY ACKNOWLEDGES
THAT THE FOREGOING WAIVER IS INTENDED TO BE IRREVOCABLE UNDER THE LAWS OF
THE STATE OF INDIANA AND OF THE UNITED STATES OF AMERICA.

(d) EACH PARTY AGREES THAT MONEY DAMAGES WOULD NOT BE A SUFFICIENT
REMEDY FOR THE OTHER PARTY FOR ANY BREACH OF THIS AGREEMENT BY IT, AND THAT
IN ADDITION TO ALL OTHER REMEDIES THE OTHER PARTY MAY HAVE, SUCH OTHER
PARTY SHALL BE ENTITLED TO SPECIFIC PERFORMANCE AND TO INJUNCTIVE OR OTHER
EQUITABLE RELIEF AS A REMEDY FOR ANY SUCH BREACH. EACH PARTY AGREES NOT TO
OPPOSE THE GRANTING OF SUCH RELIEF IN THE EVENT A COURT DETERMINES THAT A
BREACH HAS OCCURRED, AND AGREES TO WAIVE ANY REQUIREMENT FOR THE SECURING
OR POSTING OF ANY BOND IN CONNECTION WITH SUCH REMEDY.

Section 10.8 Severability. The invalidity or unenforceability of any
provision hereof in any jurisdiction will not affect the validity or
enforceability of the remainder hereof in that jurisdiction or the validity or
enforceability of this Agreement, including that provision in any other
jurisdiction. To the extent permitted by Applicable Law, each Party waives any
provision of Applicable Law that renders any provision hereof prohibited or
unenforceable in any respect. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than avoided, if
possible, in order to achieve the intent of the Parties to the extent possible.

Section 10.9 Counterparts. This Agreement may be executed in one or more
counterparts each of which when so executed and delivered will be deemed an
original but all of which will constitute one and the same Agreement.

A-32
<PAGE> 239

Section 10.10 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.

Section 10.11 Incorporation of Exhibits. The Alrenco Disclosure Letter,
the RTO Disclosure Letter, the Voting Agreements, the Option Agreements, the
Affiliate Agreements and the Confidentiality Agreement attached hereto or
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.

IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.

<TABLE>
<S> <C> <C> <C>
ALRENCO, INC.

By: /s/ MICHAEL D. WALTS
--------------------------------------------
Name: Michael D. Walts
Title: Chairman of the Board and President

RTO, INC.

By: /s/ BILLY W. WHITE, SR.
--------------------------------------------
Name: Billy W. White, Sr.
Title: President and Chief Executive Officer
</TABLE>

A-33
<PAGE> 240

FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER

FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of January 8,
1998 (the "First Amendment"), by and between ALRENCO, INC., an Indiana
corporation ("Alrenco"), and RTO, INC., a Delaware corporation ("RTO").

WHEREAS, pursuant to the terms of that certain Agreement and Plan of
Merger, dated September 28, 1997, by and between Alrenco and RTO (the "Merger
Agreement"), RTO will merge with and into Alrenco, with Alrenco as the surviving
corporation (the "Surviving Corporation"), and the stockholders of RTO will
receive shares of common stock of Alrenco at the ratio of 89.795 shares of
common stock of Alrenco for each share of common stock of RTO; and

WHEREAS, the parties wish to amend the Merger Agreement to modify certain
provisions;

NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Section 5.2(ii) of the Merger Agreement is hereby amended by
deleting the words "employee stock options to acquire 11,333 Shares" and
substituting in lieu thereof the words "employee stock options to acquire
11,236 Shares".

2. Section 9.2(a) of the Merger Agreement is hereby amended by
deleting the words "The Merger is not consummated on or before January 31,
1998" and substituting in lieu thereof the words "The Merger is not
consummated on or before February 28, 1998".

3. Section 10.7(b) of the Merger Agreement is hereby amended by
deleting the words "IN THE EVENT (BUT ONLY IN THE EVENT) SUCH COURT DOES
NOT HAVE SUBJECT MATTER JURISDICTION OVER SUCH ACTION, SUIT OR PROCEEDING,
IN THE COURTS OF THE STATE OF INDIANA SITTING IN THE CITY OF
JEFFERSONVILLE" and substituting in lieu thereof the words "IN THE EVENT
(BUT ONLY IN THE EVENT) SUCH COURT DOES NOT HAVE SUBJECT MATTER
JURISDICTION OVER SUCH ACTION, SUIT OR PROCEEDING, IN THE COURTS OF THE
STATE OF INDIANA SITTING IN THE CITY OF NEW ALBANY".

4. Exhibit A of the Merger Agreement is hereby amended by deleting
such Exhibit A in its entirety and substituting in lieu thereof Exhibit A
to this First Amendment.

5. Except as amended hereby, the terms, conditions, covenants,
agreements, representations and warranties contained in the Merger
Agreement shall remain unaffected hereby and shall continue in full force
and effect.

6. This First Amendment may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

A-34
<PAGE> 241

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed as of the date first written above by their respective officers
thereunto duly authorized.

ALRENCO, INC.

By: /s/ MICHAEL D. WALTS
------------------------------------
Name: Michael D. Walts
Title: Chairman of the Board and
President

RTO, INC.

By: /s/ BILLY W. WHITE, SR.
------------------------------------
Name: Billy W. White, Sr.
Title: President and Chief Executive
Officer

A-35
<PAGE> 242

ANNEX B

STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT, dated as of September 28, 1997 (this
"Agreement"), by and between ALRENCO, INC., an Indiana corporation ("Issuer"),
and RTO, INC., a Delaware corporation ("Grantee").

WITNESSETH:

WHEREAS, Grantee and Issuer propose to enter into an Agreement and Plan of
Merger dated as of September 28, 1997 (the "Merger Agreement"; capitalized terms
not defined herein shall have the meanings set forth in the Merger Agreement),
providing for, among other things, the merger of Grantee with and into Issuer
with Issuer as the surviving corporation; and

WHEREAS, as a condition and inducement to Grantee's willingness to enter
into the Merger Agreement, Grantee has requested that Issuer agree, and Issuer
has agreed, to grant Grantee the Option (as defined below).

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Merger
Agreement, and for other good and valuable consideration, the receipt of which
is hereby acknowledged, Issuer and Grantee agree as follows:

1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 600,000 (as adjusted as set forth herein) shares (the "Option Shares") of
Common Stock, no par value ("Issuer Common Stock"), of Issuer at a purchase
price of $15.50 per Option Share (the "Purchase Price").

2. Exercise of Option. (a) Grantee may exercise the Option, in whole or
in part, at any time and from time to time following the occurrence of a
Purchase Event (as defined below); provided that, except as provided in the last
sentence of this Section 2(a), the Option shall terminate and be of no further
force and effect upon the earliest to occur of (i) the Effective Time, (ii)
twelve (12) months after the first occurrence of a Purchase Event or (iii)
termination of this Option Agreement in accordance with Section 11(k) hereof;
and provided, further that any purchase of shares upon exercise of the Option
shall be subject to compliance with Applicable Law. The rights set forth in
Sections 7 and 8 shall not terminate when the right to exercise the Option
terminates as set forth herein, but shall extend to such time as is provided in
Sections 7 and 8 respectively. Notwithstanding the termination of the Option,
Grantee shall be entitled to purchase those Option Shares with respect to which
it has exercised the Option in accordance with the terms hereof prior to the
termination of the Option.

(b) As used herein, a "Purchase Event" means any of the following
events:

(i) any person (other than Grantee or any subsidiary of Grantee)
shall have commenced (as such term is defined in Rule 14d-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), or
shall have filed a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to, a tender offer
or exchange offer to purchase any shares of Issuer Common Stock such
that, upon consummation of such offer, such person would own or control
10% or more of the then outstanding Issuer Common Stock;

(ii) Issuer or any subsidiary of Issuer, without having received
Grantee's prior written consent or except as permitted by the Merger
Agreement, shall have authorized, recommended, proposed or publicly
announced an intention to authorize, recommend or propose, or entered
into, an agreement with any person (other than Grantee or any subsidiary
of Grantee) to (A) effect a merger, consolidation or similar transaction
involving Issuer or any subsidiary of Issuer, (B) sell, lease or
otherwise dispose of assets of Issuer or its subsidiaries representing
15% or more of the consolidated assets of Issuer and its subsidiaries or
(C) issue, sell or otherwise dispose of (including by way of

B-1
<PAGE> 243

merger, consolidation, share exchange or any similar transaction)
securities representing 10% or more of the voting power of Issuer or any
of its Significant Subsidiaries (any of the foregoing an "Acquisition
Transaction");

(iii) any person (other than Michael D. Walts, Grantee, any
subsidiary of Grantee or Issuer or any of its subsidiaries in a
fiduciary capacity) shall have acquired beneficial ownership (as such
term is defined in Rule 13d-3 under the Exchange Act) or the right to
acquire beneficial ownership of, or any "group" (as such term is defined
under the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of, 10% or more of the
then outstanding Issuer Common Stock; or

(iv) the holders of Issuer Common Stock shall not have approved and
adopted the Merger Agreement at the meeting of such stockholders held
for the purpose of voting on the Merger Agreement, such meeting shall
not have been held or shall have been canceled prior to termination of
the Merger Agreement or Issuer's Board of Directors shall have withdrawn
or modified in a manner adverse to Grantee the recommendation of
Issuer's Board of Directors with respect to the Merger Agreement, in
each case after any person (other than Grantee or any subsidiary of
Grantee) shall have publicly announced a proposal, or publicly disclosed
an intention to make a proposal, to engage in an Acquisition
Transaction. As used in this Agreement, "person" shall have the meaning
specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.

(c) In the event Grantee wishes to exercise the Option, it shall send
to Issuer a written notice (the date of which being herein referred to as
the "Notice Date") specifying (i) the total number of Option Shares it
intends to purchase pursuant to such exercise and (ii) a place and date not
earlier than three (3) business days nor later than fifteen (15) business
days from the Notice Date for the closing of such purchase (the "Closing
Date"); provided that if the closing of the purchase and sale pursuant to
the Option cannot be consummated by reason of any Applicable Law, the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which such restriction on consummation has expired
or been terminated.

(d) Notwithstanding Section 2(c), in no event shall any Closing Date
be more than eighteen (18) months after the related Notice Date, and if the
Closing Date shall not have occurred within eighteen (18) months after the
related Notice Date the exercise of the Option effected on the Notice Date
shall be deemed to have expired. The provisions of this Section 2 and
Section 3 shall apply with appropriate adjustments to any such exercise.

3. Payment and Delivery of Certificates. (a) On each Closing Date,
Grantee shall pay to Issuer in immediately available funds by wire transfer to a
bank account designated by Issuer an amount equal to the Purchase Price
multiplied by the Option Shares to be purchased on such Closing Date.

(b) At each closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to
Grantee a certificate or certificates representing the Option Shares to be
purchased at such closing, which Option Shares shall be free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever, and
Grantee shall deliver to Issuer a letter agreeing that Grantee shall not
offer to sell or otherwise dispose of such Option Shares in violation of
Applicable Law or the provisions of this Agreement.

(c) Certificates for the Option Shares delivered at each closing shall
be endorsed with a restrictive legend which shall read substantially as
follows:

THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF SEPTEMBER
28, 1997. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.

B-2
<PAGE> 244

It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act.

4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:

(a) Due Authorization. Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer. This Agreement has been duly
executed and delivered by Issuer and constitutes a valid and binding
obligation of Issuer, enforceable in accordance with its terms.

(b) Authorized Stock. Issuer has taken all necessary corporate and
other action to authorize and reserve and, subject to obtaining the
governmental and other approvals and consents referred to herein, to permit
it to issue, and, at all times from the date hereof until the obligation to
deliver Issuer Common Stock upon the exercise of the Option terminates,
will have reserved for issuance, upon exercise of the Option, shares of
Issuer Common Stock necessary for Grantee to exercise the Option, and
Issuer will take all necessary corporate action to authorize and reserve
for issuance all additional shares of Issuer Common Stock or other
securities which may be issued pursuant to Section 6 upon exercise of the
Option. The shares of Issuer Common Stock to be issued upon due exercise of
the Option, including all additional shares of Issuer Common Stock or other
securities which may be issuable pursuant to Section 6, upon issuance
pursuant hereto, shall be duly and validly issued, fully paid and
nonassessable, and shall be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any stockholder of Issuer.

(c) No Conflicts. Except as disclosed pursuant to the Merger
Agreement, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation pursuant to any provision of the Articles
of Incorporation or By-laws of Issuer or any subsidiary of Issuer or,
subject to obtaining any approvals or consents contemplated hereby, result
in any violation of any loan or credit agreement, note, mortgage,
indenture, lease or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Issuer or any subsidiary of
Issuer or their respective properties or assets which violation would have
an Alrenco Material Adverse Effect (as defined in the Merger Agreement).

(d) Board Action. The Board of Directors of Issuer has taken all
necessary action to approve this Agreement and the consummation of the
transactions contemplated hereby and the provisions of Chapters 42 and 43
of the Indiana Business Corporation Law will not apply to this Agreement or
the purchase of shares of Issuer Common Stock pursuant to this Agreement.

5. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:

(a) Due Authorization. Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or
consents referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Grantee. This Agreement has been
duly executed and delivered by Grantee and constitutes a valid and binding
obligation of Grantee, enforceable in accordance with its terms.

(b) No Conflicts. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not
result in any violation pursuant to any provision of the Certificate of
Incorporation or By-laws of Grantee or any subsidiary of Grantee or,
subject to obtaining any approvals or consents contemplated hereby, result
in any violation of any loan or credit agreement, note, mortgage,
indenture, lease or other agreement, obligation, instrument permit,
concession, franchise,
B-3
<PAGE> 245

license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Grantee or any subsidiary of Grantee or their
respective properties or assets which violation would have an RTO Material
Adverse Effect (as defined in the Merger Agreement).

(c) Purchase Not for Distribution. Any Option Shares or other
securities acquired by Grantee upon exercise of the Option will not be
taken with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.

6. Adjustment upon Changes in Capitalization, etc. (a) In the event of
any change in Issuer Common Stock by reason of a stock dividend, split-up,
recapitalization, combination, exchange of shares or similar transaction, the
type and number of shares or securities subject to the Option shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction, so that Grantee shall receive upon exercise of the Option and
payment of the aggregate Purchase Price hereunder the number and class of shares
or other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised in full immediately prior
to such event, or the record date therefor, as applicable. Whenever the number
of shares of Issuer Common Stock purchasable upon exercise of the Option is
adjusted as provided in this Section 6, the Purchase Price shall be adjusted by
multiplying the Purchase Price by a fraction, the numerator of which shall be
equal to the number of shares of Issuer Common Stock purchasable prior to the
adjustment and the denominator of which shall be equal to the number of shares
of Issuer Common Stock purchasable after the adjustment. If any additional
shares of Issuer Common Stock are issued after the date of this Agreement (other
than pursuant to an event described in the first sentence of this Section 6(a)
and other than in connection with the exercise of stock options of Issuer
outstanding on the date hereof), the number of shares of Issuer Common Stock
subject to the Option shall be adjusted so that, after such issuance, it equals
9.9% of the number of shares of Issuer Common Stock then issued and outstanding,
without giving effect to any shares subject to or issued pursuant to the Option.

(b) In the event that Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of the
subsidiaries of Grantee, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person,
other than Grantee or one of the RTO Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection
with such merger, the then outstanding shares of Issuer Common Stock shall
be changed into or exchanged for stock or other securities of Issuer or any
other person or cash or any other property or then outstanding shares of
Issuer Common Stock shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company, or (iii) to
sell or otherwise transfer all or substantially all of its assets to any
person, other than Grantee or one of its Subsidiaries, then, and in each
such case, the agreement governing such transaction shall make proper
provisions so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at
the election of Grantee, of either (X) the Acquiring Corporation (as
defined below) or (Y) any person that controls the Acquiring Corporation.

(i) "Acquiring Corporation" shall mean (A) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (B) Issuer in a merger in which Issuer is the continuing
or surviving person, and (C) the transferee of all or substantially all
of Issuer's assets.

(ii) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute
Option.

(iii) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of Substitute Common Stock
on the day preceding such consolidation, merger or sale; provided that
if Issuer is the issuer of the Substitute Option, the Average Price
shall be computed with respect to a share of common stock issued by the

B-4
<PAGE> 246

person merging into Issuer or by any company which controls or is
controlled by such person, as the Grantee may elect.

(d) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to the Grantee. The issuer of
the Substitute Option shall also enter into an agreement with the Grantee
of the Substitute Option in substantially the same form as this Agreement,
which shall be applicable to the Substitute Option. Without limiting the
generality of the foregoing, the provisions of Sections 7, 8, 9 and 10
shall apply with respect to the Substitute Option and any securities for
which the Substitute Option becomes exercisable with the same effect as if
all references to "Issuer" in such Sections were references to the
"Substitute Option Issuer," all references to "Issuer Common Stock" were
references to "Substitute Common Stock," and all references to the "Option"
were references to the "Substitute Option."

(e) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Applicable Price (as
defined below) multiplied by the number of shares of Common Stock for which
the Option is then exercisable, divided by the Average Price. The exercise
price of the Substitute Option per share of Substitute Common Stock shall
then be equal to the Purchase Price multiplied by a fraction, the numerator
of which shall be the number of shares of Common Stock for which the Option
is then exercisable and the denominator of which shall be the number of
shares of Substitute Common Stock for which the Substitute Option is
exercisable.

(f) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 9.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 9.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this clause (f), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to Grantee equal
to the excess of (i) the value of the Substitute Option without giving
effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (f).
This difference in value shall be determined by a nationally recognized
investment banking firm selected by the Grantee.

(g) Issuer shall not enter into any transaction described in
subsection (b) of this Section 6 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder.

7. Repurchase at the Option of Grantee. (a) At the request of Grantee at
any time during the period commencing upon the first occurrence of a Repurchase
Event (as defined below) and ending twelve (12) months immediately thereafter,
Issuer (or any successor entity thereof) shall repurchase from Grantee (x) the
Option, unless the Option shall have expired or been terminated in accordance
with the terms hereof, and (y) all shares of Issuer Common Stock purchased by
Grantee pursuant hereto with respect to which Grantee then has beneficial
ownership. The date on which Grantee exercises its rights under this Section 7
is referred to as the "Request Date". Such repurchase shall be at an aggregate
price (the "Section 7 Repurchase Consideration") equal to the sum of:

(i) the aggregate exercise price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to
which Grantee then has beneficial ownership;

(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 6), multiplied by the number
of shares of Issuer Common Stock with respect to which the Option has
not been exercised; and

(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 6) paid (or, in the
case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred, payable) by Grantee for
each share of Issuer

B-5
<PAGE> 247

Common Stock with respect to which the Option has been exercised and
with respect to which Grantee then has beneficial ownership, multiplied
by the number of such shares.

(b) If Grantee exercises its rights under this Section 7, Issuer
shall, within ten (10) business days after the Request Date, pay the
Section 7 Repurchase Consideration to Grantee in immediately available
funds, and Grantee shall surrender to Issuer the Option and the
certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Grantee then has beneficial ownership, and
Grantee shall warrant that it has sole record and beneficial ownership of
such shares and that the same are then free and clear of all liens, claims,
charges and encumbrances of any kind whatsoever. If any regulatory
authority disapproves of any part of Issuer's proposed repurchase pursuant
to this Section 7, Issuer shall promptly give notice of such fact to
Grantee and redeliver to Grantee the Option Shares it is then prohibited
from repurchasing, and Grantee shall have the right to exercise the Option
as to the number of Option Shares for which the Option was exercisable at
the Request Date less the number of shares as to which payment has been
made pursuant to Section 7(a)(ii); provided that if the Option shall have
terminated prior to the date of such notice or shall be scheduled to
terminate at any time before the expiration of a period ending on the
thirtieth business day after such date, Grantee shall nonetheless have the
right so to exercise the Option or exercise its rights under Section 8
until the expiration of such period of thirty (30) business days.

(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share at which a tender or exchange
offer has been made for shares of Issuer Common Stock after the date hereof
and on or prior to the Request Date, (ii) the price per share to be paid by
any third party for shares of Issuer Common Stock or the consideration per
share to be received by holders of Issuer Common Stock, in each case
pursuant to an agreement for a merger or other business combination
transaction with Issuer entered into on or prior to the Request Date or
(iii) the highest closing sales price per share of Issuer Common Stock
quoted on the New York Stock Exchange (or, if Issuer Common Stock is not
quoted on the New York Stock Exchange, the highest bid price per share as
quoted on the National Association of Securities Dealers Automated
Quotations System or, if the shares of Issuer Common Stock are not quoted
thereon, on the principal trading market on which such shares are traded as
reported by a recognized source) during the sixty (60) business days
preceding the Request Date. If the consideration to be offered, paid or
received pursuant to either of the foregoing clauses (i) or (ii) shall be
other than in cash, the value of such consideration shall be determined in
good faith by an independent nationally recognized investment banking firm
selected by Grantee and reasonably acceptable to Issuer, which
determination shall be conclusive for all purposes of this Agreement.

(d) As used herein, a "Repurchase Event" means any of the following
events:

(i) the occurrence of any of the Purchase Events specified in
Section 2(b)(ii), (iii) or (iv); or

(ii) there shall have occurred any of the Purchase Events specified
in Section 2(b)(i) and thereafter the holders of Issuer Common Stock
shall not have approved the Merger Agreement at the meeting of such
stockholders held for the purpose of voting on the Merger Agreement or
such meeting shall not have been held or shall have been canceled prior
to termination of the Merger Agreement.

8. Registration Rights. Issuer shall, if requested by Grantee at any time
and from time to time within three (3) years of the first exercise of the
Option, as expeditiously as possible prepare and file up to two registration
statements under the Securities Act if such registration is necessary in order
to permit the sale or other disposition of any or all shares of Issuer Common
Stock or other securities that have been acquired by or are issuable to Grantee
upon exercise of the Option in accordance with the intended method of sale or
other disposition stated by Grantee, including a "shelf" registration statement
under Rule 415 under the Securities Act or any successor provision, and Issuer
shall use its best efforts to qualify such shares or other securities under any
applicable state securities laws. Grantee agrees to use all reasonable efforts
to cause, and to cause any underwriters of any sale or other disposition to
cause, any sale or other disposition pursuant to such registration statement to
be effected on a widely distributed basis so that upon consummation thereof no
purchaser or transferee shall own beneficially more than 2% of the then
outstanding voting power of Issuer.
B-6
<PAGE> 248

Issuer shall use all reasonable efforts to cause each such registration
statement to become effective, to obtain all consents or waivers of other
parties which are required therefor and to keep such registration statement
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective as may be reasonably necessary to
effect such sale or other disposition. The obligations of Issuer hereunder to
file a registration statement and to maintain its effectiveness may be suspended
for one or more periods of time not exceeding sixty (60) days in the aggregate
if the Board of Directors of Issuer shall have determined that the filing of
such registration statement or the maintenance of its effectiveness would
require disclosure of nonpublic information that would materially and adversely
affect Issuer. Any registration statement prepared and filed under this Section
8, and any sale covered thereby, shall be at Issuer's expense except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto. Grantee shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If during the time period referred to in the
first sentence of this Section 8 Issuer effects a registration under the
Securities Act of Issuer Common Stock for its own account or for any other
stockholders of Issuer (other than on Form S-4 or Form S-8, or any successor
form), it shall allow Grantee the right to participate in such registration, and
such participation shall not affect the obligation of Issuer to effect two
registration statements for Grantee under this Section 8; provided that, if the
managing underwriters of such offering advise Issuer in writing that in their
opinion the number of shares of Issuer Common Stock requested to be included in
such registration exceeds the number which can be sold in such offering, Issuer
shall include the shares requested to be included therein by Grantee pro rata
with the shares intended to be included therein by Issuer. In connection with
any registration pursuant to this Section 8, Issuer and Grantee shall provide
each other and any underwriter of the offering with customary representations,
warranties, covenants, indemnification and contribution in connection with such
registration.

9. Listing. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the New York Stock Exchange or
the National Association of Securities Dealers Automated Quotation System,
Issuer, upon the request of Grantee, will promptly file an application to list
the shares of Issuer Common Stock or other securities to be acquired upon
exercise of the Option on the New York Stock Exchange or the National
Association of Securities Dealers Automated Quotation System, as applicable, and
will use its best efforts to obtain approval of such listing as soon as
practicable.

10. Division of Option. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of Grantee, upon presentation
and surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.

11. Miscellaneous. (a) Expenses. Except as otherwise provided in
Sections 7 and 8, each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.

(b) Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.

(c) Entire Agreement; No Third-Party Beneficiary; Severability,
Etc. Except as otherwise set forth in the Merger Agreement, this Agreement
(including the Merger Agreement and the other

B-7
<PAGE> 249

documents and instruments referred to herein and therein) (a) constitutes
the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter hereof and (b) is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction or a Federal or state regulatory agency to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. If for any
reason such court or regulatory agency determines that the Option does not
permit Grantee to acquire, or does not require Issuer to repurchase, the
full number of shares of Issuer Common Stock as provided in Sections 2 and
7 (as adjusted pursuant to Section 6), it is the express intention of
Issuer to allow Grantee to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible without any amendment or
modification hereof.

(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Indiana without regard to any
applicable conflicts of law rules.

(e) Descriptive Headings. The descriptive headings contained herein
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.

(f) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied
(with confirmation) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):

<TABLE>
<S> <C>
If to Grantee to: RTO, Inc.
714 East Kimbrough Street
Mesquite, Texas 75149
Attention: K. David Belt

with copies to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: John D. Capers, Jr., Esq.

If to Issuer to: Alrenco, Inc.
1736 East Main Street
New Albany, Indiana 47150
Attention: Michael D. Walts

with a copy to: Stites & Harbison
400 West Market Street, Suite 1800
Louisville, Kentucky 40202
Attention: C. Craig Bradley, Jr., Esq.
</TABLE>

(g) Counterparts. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the
same agreement and shall become effective when both counterparts have been
signed by each of the parties and delivered to the other party, it being
understood that both parties need not sign the same counterpart.

(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be assigned by
any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party, except that Grantee
may assign this Agreement to a wholly owned subsidiary of Grantee. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to
the benefit of and be enforceable by the parties and their respective
successors and assigns.

B-8
<PAGE> 250

(i) Further Assurances. In the event of any exercise of the Option
by Grantee, Issuer and Grantee shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such
exercise.

(j) Specific Performance. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection
with the obtaining of any such equitable relief and that this provision is
without prejudice to any other rights that the parties hereto may have for
any failure to perform this Agreement.

(k) Termination. This Agreement and all rights and obligations
hereunder shall terminate upon the termination of the Merger Agreement in
accordance with Section 9.1, 9.2, 9.3(a) (but not in the event of
termination by RTO under such Section 9.3(a) because of a breach by Issuer
of Section 7.2 of the Merger Agreement), 9.3(b) (but only in the event that
the Merger Agreement and the Merger shall not have been approved and
adopted under circumstances that would not constitute a Purchase Event
under Section 2(b)(iv) of this Agreement), 9.3(c), 9.4(a), 9.4(b) or 9.4(c)
thereof; provided, however, that notwithstanding the foregoing, this
Agreement shall not terminate as provided in this Section 11(k) if a
Purchase Event occurs prior to or concurrently with the occurrence of the
event that under this Section 11(k) would have caused a termination of this
Agreement.

IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.

ALRENCO, INC.

By: /s/ MICHAEL D. WALTS
------------------------------------
Name: Michael D. Walts
Title: Chairman and President

RTO, INC.

By: /s/ BILLY W. WHITE, SR.
------------------------------------
Name: Billy W. White, Sr.
Title: President and Chief
Executive Officer

B-9
<PAGE> 251

ANNEX C

STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT, dated as of September 28, 1997 (this
"Agreement"), by and between RTO, INC., a Delaware corporation ("Issuer"), and
ALRENCO, INC., an Indiana corporation ("Grantee").

WITNESSETH:

1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 11,943 (as adjusted as set forth herein) shares (the "Option Shares") of
Common Stock, no par value ("Issuer Common Stock"), of Issuer at a purchase
price of $1,400.00 per Option Share (the "Purchase Price").

2. Exercise of Option. (a) Grantee may exercise the Option, in whole or
in part, at any time and from time to time following the occurrence of a
Purchase Event (as defined below); provided that, except as provided in the last
sentence of this Section 2(a), the Option shall terminate and be of no further
force and effect upon the earliest to occur of (i) the Effective Time, (ii)
twelve (12) months after the first occurrence of a Purchase Event or (iii)
termination of this Agreement in accordance with Section 11(k); and provided,
further that any purchase of shares upon exercise of the Option shall be subject
to compliance with Applicable Law. The rights set forth in Sections 7 and 8
shall not terminate when the right to exercise the Option terminates as set
forth herein, but shall extend to such time as is provided in Sections 7 and 8
respectively. Notwithstanding the termination of the Option, Grantee shall be
entitled to purchase those Option Shares with respect to which it has exercised
the Option in accordance with the terms hereof prior to the termination of the
Option.

(b) As used herein, a "Purchase Event" means any of the following
events:

(ii) Issuer or any subsidiary of Issuer, without having received
Grantee's prior written consent or except as permitted by the Merger
Agreement, shall have authorized, recommended, proposed or publicly
announced an intention to authorize, recommend or propose, or entered
into, an agreement with any person (other than Grantee or any subsidiary
of Grantee) to (A) effect a merger, consolidation or similar transaction
involving Issuer or any Subsidiary of Issuer, (B) sell, lease or
otherwise dispose of assets of Issuer or its subsidiaries representing
15% or more of the consolidated assets of Issuer and its subsidiaries or
(C) issue, sell or otherwise dispose of (including by way of

C-1
<PAGE> 252

(iii) any person (other than any person or "group" (as such term is
defined under the Exchange Act) that, at the date hereof, beneficially
owns or has the right to acquire beneficial ownership (as such term is
defined in Rule 13d-3 under the Exchange Act) of 10% or more of the
outstanding shares of Issuer Common Stock, Michael D. Walts, Grantee,
any subsidiary of Grantee or Issuer or any of its subsidiaries in a
fiduciary capacity) shall have acquired beneficial ownership or the
right to acquire beneficial ownership of, or any group shall have been
formed which beneficially owns or has the right to acquire beneficial
ownership of, 10% or more of the then outstanding Issuer Common Stock;
or

(c) In the event Grantee wishes to exercise the Option, it shall send
to Issuer a written notice (the date of which being herein referred to as
the "Notice Date") specifying (i) the total number of Option Shares it
intends to purchase pursuant to such exercise and (ii) a place and date not
earlier than three (3) business days nor later than fifteen (15) business
days from the Notice Date for the closing of such purchase (the "Closing
Date"); provided, that if the closing of the purchase and sale pursuant to
the Option cannot be consummated by reason of any Applicable Law, the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which such restriction on consummation has expired
or been terminated.

(c) Certificates for the Option Shares delivered at each closing shall
be endorsed with a restrictive legend which shall read substantially as
follows:

C-2
<PAGE> 253

HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN
REQUEST THEREFOR.

4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:

(c) No Conflicts. Except as disclosed pursuant to the Merger
Agreement, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation pursuant to any provision of the
Certificate of Incorporation or By-laws of Issuer or any subsidiary of
Issuer or, subject to obtaining any approvals or consents contemplated
hereby, result in any violation of any loan or credit agreement, note,
mortgage, indenture, lease or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Issuer or any subsidiary
of Issuer or their respective properties or assets which violation would
have an RTO Material Adverse Effect (as defined in the Merger Agreement).

(d) Board Action. The Board of Directors of Issuer has taken all
necessary action to approve this Agreement and the consummation of the
transactions contemplated hereby and the provisions of Section 243 of the
Delaware General Corporation Law will not apply to this Agreement or the
purchase of shares of Issuer Common Stock pursuant to this Agreement.

5. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:

(b) No Conflicts. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not
result in any violation pursuant to any provision of the

C-3
<PAGE> 254

Articles of Incorporation or By-laws of Grantee or, subject to obtaining
any approvals or consents contemplated hereby, result in any violation of
any loan or credit agreement, note, mortgage, indenture, lease or other
agreement, obligation, instrument permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Grantee or its properties or assets which violation would
have an Alrenco Material Adverse Effect (as defined in the Merger
Agreement).

(b) In the event that Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or a
subsidiary of Grantee, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person,
other than Grantee or a subsidiary of Grantee, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection
with such merger, the then outstanding shares of Issuer Common Stock shall
be changed into or exchanged for stock or other securities of Issuer or any
other person or cash or any other property or the then outstanding shares
of Issuer Common Stock shall after such merger represent less than 50% of
the outstanding shares and share equivalents of the merged company, or
(iii) to sell or otherwise transfer all or substantially all of its assets
to any person, other than Grantee or a subsidiary of Grantee, then, and in
each such case, the agreement governing such transaction shall make proper
provisions so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at
the election of Grantee, of either (X) the Acquiring Corporation (as
defined below) or (Y) any person that controls the Acquiring Corporation.

(ii) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute
Option.

C-4
<PAGE> 255

preceding such consolidation, merger or sale; provided that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by the person merging
into Issuer or by any company which controls or is controlled by such
person, as the Grantee may elect.

(d) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to the Grantee. The issuer of
the Substitute Option shall also enter into an agreement with the Grantee
of the Substitute Option in substantially the same form as this Agreement,
which shall be applicable to the Substitute Option. Without limiting the
generality of the foregoing, the provisions of Sections 7, 8, 9 and 10
shall apply with respect to the Substitute Option and any securities for
which the Substitute Option becomes exercisable with the same effect as if
all references to "Issuer" in such Sections were references to the
"Substitute Option Issuer," all references to Issuer Common Stock were
references to "Substitute Common Stock," and all references to the "Option"
were references to the "Substitute Option."

(i) the aggregate exercise price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to
which Grantee then has beneficial ownership;

been exercised but the Closing Date has not occurred, payable) by
Grantee for each share of Issuer Common Stock with respect to which the
Option has been exercised and with respect to which Grantee then has
beneficial ownership, multiplied by the number of such shares.

(d) As used herein, a "Repurchase Event" means any of the following
events:

(i) the occurrence of any of the Purchase Events specified in
Section 2(b)(ii), (iii) or (iv); or

purchaser or transferee shall own beneficially more than 2% of the then
outstanding voting power of Issuer. Issuer shall use all reasonable efforts to
cause each such registration statement to become effective, to obtain all
consents or waivers of other parties which are required therefor and to keep
such registration statement effective for such period not in excess of 180 days
from the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition. The obligations
of Issuer hereunder to file a registration statement and to maintain its
effectiveness may be suspended for one or more periods of time not exceeding
sixty (60) days in the aggregate if the Board of Directors of Issuer shall have
determined that the filing of such registration statement or the maintenance of
its effectiveness would require disclosure of nonpublic information that would
materially and adversely affect Issuer. Any registration statement prepared and
filed under this Section 8, and any sale covered thereby, shall be at Issuer's
expense except for underwriting discounts or commissions, brokers' fees and the
fees and disbursements of Grantee's counsel related thereto. Grantee shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If during the time period referred
to in the first sentence of this Section 8 Issuer effects a registration under
the Securities Act of Issuer Common Stock for its own account or for any other
stockholders of Issuer (other than on Form S-4 or Form S-8, or any successor
form), it shall allow Grantee the right to participate in such registration, and
such participation shall not affect the obligation of Issuer to effect two
registration statements for Grantee under this Section 8; provided that, if the
managing underwriters of such offering advise Issuer in writing that in their
opinion the number of shares of Issuer Common Stock requested to be included in
such registration exceeds the number which can be sold in such offering, Issuer
shall include the shares requested to be included therein by Grantee pro rata
with the shares intended to be included therein by Issuer. In connection with
any registration pursuant to this Section 8, Issuer and Grantee shall provide
each other and any underwriter of the offering with customary representations,
warranties, covenants, indemnification and contribution in connection with such
registration.

C-7
<PAGE> 258

(c) Entire Agreement; No Third-Party Beneficiary; Severability,
Etc. Except as otherwise set forth in the Merger Agreement, this Agreement
(including the Merger Agreement and the other documents and instruments
referred to herein and therein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and (b) is
not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
or a Federal or state regulatory agency to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated. If for any reason
such court or regulatory agency determines that the Option does not permit
Grantee to acquire, or does not require Issuer to repurchase, the full
number of shares of Issuer Common Stock as provided in Sections 2 and 7 (as
adjusted pursuant to Section 6), it is the express intention of Issuer to
allow Grantee to acquire or to require Issuer to repurchase such lesser
number of shares as may be permissible without any amendment or
modification hereof.

(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Indiana without regard to any
applicable conflicts of law rules.

(e) Descriptive Headings. The descriptive headings contained herein
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.

(f) Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):

<TABLE>
<S> <C>
If to Issuer to: RTO, Inc.
714 East Kimbrough Street
Mesquite, Texas 75149
Attention: K. David Belt

with copies to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: John D. Capers, Jr., Esq.

If to Grantee to: Alrenco, Inc.
1736 East Main Street
New Albany, Indiana 47150
Attention: Michael D. Walts

with a copy to: Stites & Harbison
400 West Market Street, Suite 1800
Louisville, Kentucky 40202
Attention: C. Craig Bradley, Jr., Esq.
</TABLE>

C-8
<PAGE> 259

(k) Termination. This Agreement and all rights and obligations
hereunder shall terminate upon the termination of the Merger Agreement in
accordance with Section 9.1, 9.2, 9.3(a), 9.3(b), 9.3(c), 9.4(a) (but not
in the event of termination by Alrenco under such Section 9.4(a) because of
a breach by Issuer of Section 7.2 of the Merger Agreement), 9.4(b) (but
only in the event that the Merger Agreement and the Merger shall not have
been approved and adopted under circumstances that would not constitute a
Purchase Event under Section 2(b)(iv) of this Agreement) or 9.4(c) thereof;
provided, however, that notwithstanding the foregoing, this Agreement shall
not terminate as provided in this Section 11(k) if a Purchase Event occurs
prior to or concurrently with the occurrence of the event that under this
Section 11(k) would have caused a termination of this Agreement.

IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.

RTO, INC.

By: /s/ BILLY W. WHITE, SR.
------------------------------------
Name: Billy W. White, Sr.
Title: President and Chief
Executive Officer

ALRENCO, INC.

By: /s/ MICHAEL D. WALTS
----------------------------------
Name: Michael D. Walts
Title: Chairman and President

C-9
<PAGE> 260

ANNEX D

FORM OF
STOCKHOLDER VOTING AGREEMENT

THIS STOCKHOLDER VOTING AGREEMENT (this "Agreement") dated as of September
28, 1997, is made by and between RTO, Inc., a Delaware corporation ("RTO"), and
the stockholder named on the signature page hereto ("Stockholder"). On the date
hereof the Stockholder Beneficially Owns (as defined in Section 11(a) hereof)
the number of shares of common stock, par value $.01 per share (the "Alrenco
Shares"), of Alrenco, Inc., an Indiana corporation ("Alrenco"), set forth next
to the Stockholder's name on the signature page hereto.

WITNESSETH:

WHEREAS, RTO and Alrenco concurrently herewith are entering into an
Agreement and Plan of Merger, dated as of September 28, 1997 (the "Merger
Agreement"), providing for, among other things, the merger (the "Merger") of RTO
with and into Alrenco, with Alrenco as the surviving corporation; and

WHEREAS, as an essential condition and inducement to RTO's execution of the
Merger Agreement, RTO has requested that the Stockholder agree, and the
Stockholder has agreed, to vote (or consent with regard to) all Alrenco Shares
as to which the Stockholder has voting power in favor of the Merger as provided
herein.

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Merger
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto (each, a
"Party"), intending to be legally bound hereby, agree as follows:

1. Voting Agreement. The Stockholder agrees that at any time the Merger
Agreement remains in effect, he will vote all Stockholder Shares (as defined
below) on matters as to which the Stockholder is entitled to vote at any annual,
special or other meeting of the Stockholders of Alrenco, and at any adjournment
or adjournments thereof, or by written consent without a meeting, with respect
to all Stockholder Shares, as follows: (i) in favor of approval and adoption of
the Merger Agreement, the terms thereof and each of the other transactions
contemplated by the Merger Agreement; and (ii) against any action or agreement
(other than the Merger Agreement or the transactions contemplated thereby) that
would impede, interfere with, delay, postpone or attempt to discourage the
Merger, including without limitation: (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving Alrenco and its subsidiaries; or (B) a sale or transfer of a material
amount of assets of Alrenco and its subsidiaries or a reorganization,
recapitalization or liquidation of Alrenco and its subsidiaries.

"Stockholder Shares" shall mean the shares of capital stock of Alrenco
(including without limitation the Alrenco Shares) Beneficially Owned by such
Stockholder as of the date hereof, or Beneficially Owned by such Stockholder at
any time hereafter (including, without limitation, by way of exercise of options
or by way of dividend, distribution, exchange, merger, consolidation,
recapitalization, reorganization, stock split, grant of proxy or otherwise) by
such Stockholder (as adjusted as set forth herein). The Stockholder hereby
agrees to promptly notify RTO of the number of any new Stockholder Shares
acquired by the Stockholder, if any, after the date hereof. In the event of any
change in the Alrenco Shares by reason of a stock dividend, stock split, split
up, recapitalization, combination, exchange of shares or similar transaction,
the type and number of shares or securities that constitute Stockholder Shares
hereunder shall be adjusted appropriately.

D-1
<PAGE> 261

2. Termination.

(a) This Agreement shall terminate upon the earlier to occur of (i)
the termination of the Merger Agreement in accordance with its terms
pursuant to Section 9.1, 9.2, 9.3(a), 9.3(b), 9.3(c), 9.4(a), 9.4(b) or
9.4(d) thereof, or (ii) the Effective Time (as defined in the Merger
Agreement).

(b) Upon termination, this Agreement shall have no further force or
effect, except for Section 7 which shall continue to apply to any case,
action or proceeding relating to the enforcement of this Agreement.

3. Representations and Warranties of Stockholder. The Stockholder hereby
represents and warrants to RTO as follows:

(a) Due Authorization. The Stockholder has the legal capacity and
all necessary power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. As of the date hereof,
the Stockholder Beneficially Owns the number of the Stockholder Shares
listed on the signature page hereof and specified as so owned with no
restrictions on the voting rights (except as specified in this Agreement)
or rights of disposition pertaining thereto, which constitute all Alrenco
Shares Beneficially Owned by such Stockholder. Assuming this Agreement has
been duly and validly authorized, executed and delivered by RTO, this
Agreement constitutes a valid and binding agreement of the Stockholder,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by the principles governing the
availability of equitable remedies.

(b) No Conflicts. Neither the execution and delivery of this
Agreement nor the consummation by the Stockholder of the transactions
contemplated hereby will conflict with or constitute a violation of or
default under any contract, commitment, agreement, arrangement or
restriction of any kind to which the Stockholder is a party or by which the
Stockholder is bound.

4. Representations and Warranties of RTO. RTO hereby represents and
warrants to the Stockholder as follows:

(a) Due Authorization. RTO has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of RTO and this
Agreement has been duly executed by a duly authorized officer of RTO.
Assuming this Agreement has been duly and validly executed and delivered by
the Stockholder, this Agreement constitutes a valid and binding agreement
of RTO, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally or by the
principles governing the availability of equitable remedies.

(b) No Conflicts. Neither the execution and delivery of this
Agreement nor the consummation by RTO of the transactions contemplated
hereby will conflict with or constitute a violation of or default under any
contract, commitment, agreement, arrangement or restriction of any kind to
which RTO is a party or by which RTO is bound.

5. No Transfer. Except as provided in this Agreement or the Merger
Agreement, the Stockholder hereby agrees, without the prior written consent of
RTO, except pursuant to the terms hereof, not to (i) sell, transfer, assign,
pledge or otherwise dispose of or hypothecate any of his Stockholder Shares
other than to a "Permitted Transferee" (as defined below) and except that the
Stockholder may transfer Stockholder Shares to Alrenco in order to pay the
exercise price or withholding taxes applicable in connection with the exercise
of employee stock options; (ii) grant any proxies, deposit any Stockholder
Shares into a voting trust or enter into a voting agreement with respect to any
Stockholder Shares; (iii) take any action that would make any representation or
warranty of the Stockholder contained herein untrue or incorrect or have the
effect of preventing or disabling the Stockholder from performing his
obligations under this Agreement; or (iv) take any action which would jeopardize
the treatment of the Merger as a pooling of interests for accounting

D-2
<PAGE> 262

purposes. For purposes of this Agreement, "Permitted Transferee" shall mean an
organization that qualifies for treatment under section 501(c)(3) of the
Internal Revenue Code of 1986, as amended. Any Permitted Transferee of
Stockholder Shares must become a party to this Agreement and any purported
transfer of Stockholder Shares to a person or entity that has not become a party
hereto shall be null and void. In furtherance of this Agreement, concurrently
herewith the Stockholder shall and hereby does hereby agree to authorize Alrenco
to notify the Alrenco transfer agent that there is a stop transfer order with
respect to all of the Stockholder Shares (and that this Agreement places limits
on the voting and transfer of such shares).

6. Entire Agreement. Other than the Merger Agreement (including the
exhibits, schedules and other documents and instruments referred to therein),
this Agreement (including the documents and instruments referred to herein) (a)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof; (b) shall not be assigned by operation of
law or otherwise without the prior written consent of the other parties hereto;
(c) shall not be amended, altered or modified in any manner whatsoever, except
by a written instrument executed by the parties hereto; and (d) shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the State of Delaware (without giving effect to the provisions thereof
relating to conflicts of law).

7. Remedies. The parties acknowledge that it would be impossible to fix
money damages for violations of this Agreement and that such violations will
cause irreparable injury for which adequate remedy at law is not available and,
therefore, this Agreement must be enforced by specific performance or injunctive
relief. The parties hereto agree that any party may, in its sole discretion,
apply to any court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper in order
to enforce this Agreement or prevent any violation hereof and, to the extent
permitted by applicable law, each party waives any objection or defense to the
imposition of such relief. Nothing herein shall be construed to prohibit any
party from bringing any action for damages in addition to an action for specific
performance or an injunction for a breach of this Agreement.

8. Legends on Certificates. Until such time as this Agreement shall
terminate pursuant to Section 2 hereof, all certificates representing
Stockholder Shares shall bear the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A
STOCKHOLDER VOTING AGREEMENT, DATED AS OF SEPTEMBER 28, 1997, BY AND
BETWEEN RTO, INC. AND THE STOCKHOLDER. ANY TRANSFEREE OF THESE SHARES TAKES
SUBJECT TO THE TERMS OF SUCH AGREEMENT, COPIES OF WHICH ARE ON FILE AT THE
OFFICES OF ALRENCO, INC.

9. Parties in Interest. Subject to the provisions of Sections 5 and 6(b)
hereof, this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, permitted
assigns, heirs, executors, administrators and other legal representatives, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.

10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.

11. Definitions. The following terms shall have the following respective
meanings:

(a) "Beneficial Owner" has the meaning set forth in Rule 13d-3 of the
Rules and Regulations to the Exchange Act, and "Beneficially Owned" and
"Beneficially Owns" shall have correlative meanings; provided, however,
that for purposes of this Agreement a person shall be deemed to be the
Beneficial Owner of Alrenco Shares that may be acquired pursuant to the
exercise of an option or other right regardless of when such option is
exercisable.

(b) "Person" shall mean a corporation, association, partnership,
joint venture, organization, business, individual, trust, estate or any
other entity or group (within the meaning of Section 13(d)(3) of the
Exchange Act).

D-3
<PAGE> 263

12. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):

(a) If to RTO to: RTO, Inc.
714 E. Kimbrough Street
Mesquite, Texas 75149
Telecopy No.: 972/288-7753
Attention: K. David Belt

with a copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Telecopy No.: 404/572-5145
Attention: John D. Capers, Jr.

(b) If to the Stockholder, to the address set forth on the signature page
hereto.

13. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

14. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.

15. Further Assurances. The Stockholder further agrees to execute all
additional writings, consents and authorizations as may be reasonably requested
by RTO to evidence the agreements herein.

D-4
<PAGE> 264

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.

RTO, INC.

By:
------------------------------------
Name:
Title:

STOCKHOLDER

--------------------------------------
Name

No. of Shares Beneficially Owned:

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

Address for Notices:

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

D-5
<PAGE> 265

ANNEX E

FORM OF
STOCKHOLDER VOTING AGREEMENT

THIS STOCKHOLDER VOTING AGREEMENT (this "Agreement") dated as of September
28, 1997, is made by and between Alrenco, Inc., an Indiana corporation
("Alrenco"), and the stockholder named on the signature page hereto
("Stockholder"). On the date hereof the Stockholder Beneficially Owns (as
defined in Section 11(a) hereof) the number of shares of common stock, par value
$.01 per share (the "RTO Shares"), of RTO, Inc., a Delaware corporation ("RTO"),
set forth next to the Stockholder's name on the signature page hereto.

WITNESSETH:

WHEREAS, as an essential condition and inducement to Alrenco's execution of
the Merger Agreement, Alrenco has requested that the Stockholder agree, and the
Stockholder has agreed, to vote (or consent with regard to) all RTO Shares as to
which the Stockholder has voting power in favor of the Merger as provided
herein.

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Merger
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto (each, a
"Party"), intending to be legally bound hereby, agree as follows:

1. Voting Agreement. The Stockholder agrees that at any time the Merger
Agreement remains in effect, he will vote all Stockholder Shares (as defined
below) on matters as to which the Stockholder is entitled to vote at any annual,
special or other meeting of the Stockholders of RTO, and at any adjournment or
adjournments thereof, or by written consent without a meeting, with respect to
all Stockholder Shares, as follows: (i) in favor of approval and adoption of the
Merger Agreement, the terms thereof and each of the other transactions
contemplated by the Merger Agreement; and (ii) against any action or agreement
(other than the Merger Agreement or the transactions contemplated thereby) that
would impede, interfere with, delay, postpone or attempt to discourage the
Merger, including without limitation: (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving RTO and its subsidiaries; or (B) a sale or transfer of a material
amount of assets of RTO and its subsidiaries or a reorganization,
recapitalization or liquidation of RTO and its subsidiaries.

"Stockholder Shares" shall mean the shares of capital stock of RTO
(including without limitation the RTO Shares) Beneficially Owned by such
Stockholder as of the date hereof, or Beneficially Owned by such Stockholder at
any time hereafter (including, without limitation, by way of exercise of options
or by way of dividend, distribution, exchange, merger, consolidation,
recapitalization, reorganization, stock split, grant of proxy or otherwise) by
such Stockholder (as adjusted as set forth herein). The Stockholder hereby
agrees to promptly notify Alrenco of the number of any new Stockholder Shares
acquired by the Stockholder, if any, after the date hereof. In the event of any
change in the RTO Shares by reason of a stock dividend, stock split, split up,
recapitalization, combination, exchange of shares or similar transaction, the
type and number of shares or securities that constitute Stockholder Shares
hereunder shall be adjusted appropriately.

2. Termination.

(a) This Agreement shall terminate upon the earlier to occur of (i)
the termination of the Merger Agreement in accordance with its terms
pursuant to Section 9.1, 9.2, 9.3(a), 9.3(b), 9.3(d), 9.4(a), 9.4(b) or
9.4(c) thereof, or (ii) the Effective Time (as defined in the Merger
Agreement).

E-1
<PAGE> 266

3. Representations and Warranties of Stockholder. The Stockholder hereby
represents and warrants to Alrenco as follows:

(a) Due Authorization. The Stockholder has the legal capacity and
all necessary power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. As of the date hereof,
the Stockholder Beneficially Owns the number of the Stockholder Shares
listed on the signature page hereof and specified as so owned with no
restrictions on the voting rights (except as specified in this Agreement)
or rights of disposition pertaining thereto, which constitute all RTO
Shares Beneficially Owned by such Stockholder. Assuming this Agreement has
been duly and validly authorized, executed and delivered by Alrenco, this
Agreement constitutes a valid and binding agreement of the Stockholder,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by the principles governing the
availability of equitable remedies.

4. Representations and Warranties of Alrenco. Alrenco hereby represents
and warrants to the Stockholder as follows:

(a) Due Authorization. Alrenco has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of Alrenco and
this Agreement has been duly executed by a duly authorized officer of
Alrenco. Assuming this Agreement has been duly and validly executed and
delivered by the Stockholder, this Agreement constitutes a valid and
binding agreement of Alrenco, enforceable against it in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally or
by the principles governing the availability of equitable remedies.

(b) No Conflicts. Neither the execution and delivery of this
Agreement nor the consummation by Alrenco of the transactions contemplated
hereby will conflict with or constitute a violation of or default under any
contract, commitment, agreement, arrangement or restriction of any kind to
which Alrenco is a party or by which Alrenco is bound.

5. No Transfer. Except as provided in this Agreement or the Merger
Agreement, the Stockholder hereby agrees, without the prior written consent of
Alrenco, except pursuant to the terms hereof, not to (i) sell, transfer, assign,
pledge or otherwise dispose of or hypothecate any of his Stockholder Shares
other than to a "Permitted Transferee" (as defined below) and except that the
Stockholder may transfer Stockholder Shares to RTO in order to pay the exercise
price or withholding taxes applicable in connection with the exercise of
employee stock options; (ii) grant any proxies, deposit any Stockholder Shares
into a voting trust or enter into a voting agreement with respect to any
Stockholder Shares; (iii) take any action that would make any representation or
warranty of the Stockholder contained herein untrue or incorrect or have the
effect of preventing or disabling the Stockholder from performing his
obligations under this Agreement; or (iv) take any action which would jeopardize
the treatment of the Merger as a pooling of interests for accounting purposes.
For purposes of this Agreement, "Permitted Transferee" shall mean an
organization that qualifies for treatment under section 501(c)(3) of the
Internal Revenue Code of 1986, as amended. Any Permitted Transferee of
Stockholder Shares must become a party to this Agreement and any purported
transfer of Stockholder Shares to a person or entity that has not become a party
hereto shall be null and void. In furtherance of this Agreement, concurrently
herewith the Stockholder shall and does hereby agree to notify

E-2
<PAGE> 267

RTO that there is a stop transfer order with respect to all of the Stockholder
Shares (and that this Agreement places limits on the voting and transfer of such
shares).

8. Legends on Certificates. Until such time as this Agreement shall
terminate pursuant to Section 2 hereof, all certificates representing
Stockholder Shares shall bear the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A
STOCKHOLDER VOTING AGREEMENT, DATED AS OF SEPTEMBER 28, 1997, BY AND
BETWEEN ALRENCO, INC. AND THE STOCKHOLDER. ANY TRANSFEREE OF THESE SHARES
TAKES SUBJECT TO THE TERMS OF SUCH AGREEMENT, COPIES OF WHICH ARE ON FILE
AT THE OFFICES OF RTO, INC.

10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.

11. Definitions. The following terms shall have the following respective
meanings:

(a) "Beneficial Owner" has the meaning set forth in Rule 13d-3 of the
Rules and Regulations to the Exchange Act, and "Beneficially Owned" and
"Beneficially Owns" shall have correlative meanings; provided, however,
that for purposes of this Agreement a person shall be deemed to be the
Beneficial Owner of RTO Shares that may be acquired pursuant to the
exercise of an option or other right regardless of when such option is
exercisable.

(b) "Person" shall mean a corporation, association, partnership, joint
venture, organization, business, individual, trust, estate or any other
entity or group (within the meaning of Section 13(d)(3) of the Exchange
Act).

E-3
<PAGE> 268

<TABLE>
<S> <C> <C>
(a) If to Alrenco to: Alrenco, Inc.
1736 East Main Street
New Albany, Indiana 47150
Telecopy No.: (812) 948-2579
Attention: Michael D. Walts

with a copy to: Stites & Harbison
Suite 1800
400 West Market Street
Louisville, Kentucky 40202
Telecopy No.: (502) 587-6391
Attention: C. Craig Bradley, Jr.

(b) If to the Stockholder, to the address set forth on the signature page hereto.
</TABLE>

13. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

15. Further Assurances. The Stockholder further agrees to execute all
additional writings, consents and authorizations as may be reasonably requested
by Alrenco to evidence the agreements herein.

E-4
<PAGE> 269

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.

ALRENCO, INC.

By:

------------------------------------
Name:
Title:

RTO STOCKHOLDER

By:

------------------------------------
Name:

No. of Shares Beneficially Owned:

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

Address for Notices:

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

E-5
<PAGE> 270

ANNEX F

, 1998

Board of Directors
Alrenco, Inc.
1736 E. Main St.
New Albany, IN 47150

Gentlemen:

We understand that Alrenco, Inc. (the "Company") has entered into an
Agreement and Plan of Merger, dated September 28, 1997, as amended (the
"Agreement"), with RTO, Inc. ("RTO"). The Agreement provides that, at the
effective time of the merger (the "Merger") of RTO into the Company (the
"Effective Time"), each outstanding share of RTO common stock will be converted
into the right to receive 89.795 shares of the Company's common stock (the
"Exchange Ratio"). Assuming today's date is the closing date and the Effective
Time of the Merger, the outstanding shares of RTO common stock and all
securities convertible into common stock would be converted into an aggregate of
11,921,137 shares of the Company's common stock (the "Merger Consideration").
The terms and conditions of the Merger are more fully set forth in the Agreement
and related documents.

You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of the Company (the
"Shareholders") of the Merger Consideration.

SunTrust Equitable Securities Corporation ("SunTrust Equitable"), as part
of its investment banking business, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. SunTrust Equitable has been engaged to render financial advisory
services to the Company in connection with the Merger and will receive a fee for
rendering this opinion. In the past, SunTrust Equitable has performed investment
banking and financial advisory services for the Company from time to time for
which we have received compensation, including serving as lead managing
underwriter for the Company's initial public offering of common stock in January
1996 and an offering of common stock in September 1996 for which SunTrust
Equitable received customary underwriter's compensation. In the ordinary course
of business, we trade the equity securities of the Company for our own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in these securities.

In connection with our opinion, we have reviewed, among other things, the
Agreement and terms of related documents, certain publicly-available information
regarding the Company and certain other financial information, reports,
forecasts and other information which was provided to us regarding the Company
and RTO. We held discussions with the managements and representatives of the
Company and RTO concerning the historical and current operations of the Company
and RTO, their respective financial condition and prospects, as well as the
strategic and operating benefits anticipated from the Merger. In addition, we
(i) considered, to the extent available, the financial terms of certain other
similar transactions recently effected which we considered comparable to the
Merger, (ii) compared certain financial positions and operating results of the
Company and RTO to other companies in the rental-purchase industry, (iii)
reviewed the pro forma financial effects of the Merger to the Company and (iv)
conducted such other financial studies, analyses and investigations and reviewed
such other factors as we deemed appropriate for purposes of this opinion.

In rendering this opinion, we have relied, without assuming any
responsibility for independent verification, on the accuracy and completeness of
all financial and other information reviewed by us that was publicly available
or furnished to us by or on behalf of the Company and RTO. We have assumed that
the financial forecasts which we examined were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
the respective managements of the Company and RTO. We have also assumed, with
your consent, that: (i) the Merger will be accounted for under the
pooling-of-interests method

F-1
<PAGE> 271

of accounting, (ii) the Merger will be a tax-free reorganization and (iii) all
material liabilities (contingent or otherwise) of RTO are as set forth in the
financial statements of RTO or as otherwise disclosed to us in connection with
this engagement. We have not made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of RTO, nor were we furnished
with any such evaluations or appraisals. Our opinion is based upon economic,
market and other conditions existing of the date hereof and does not address the
fairness of the Merger Consideration to the Shareholders as of any other date.
Our opinion does not constitute a recommendation to any Shareholder of the
Company as to whether or not that Shareholder should vote to approve the Merger.
Furthermore, we express no opinion as to the price or trading range at which
shares of common stock of the Company will trade following the Merger.

It is understood that this letter is for the information of the Board of
Directors of the Company only in its evaluation of the proposed Merger and may
not be used for any other purpose without our prior written consent; however,
the opinion rendered hereby may be disclosed in the Proxy Statement relating to
the Merger to be distributed by the Company to its Shareholders, so long as each
inclusion and reference is in form and substance satisfactory to Equitable.

Based upon and subject to the foregoing, it is our opinion that the Merger
Consideration to be paid by the Company is fair, from a financial point of view,
to the Shareholders of the Company.

Very truly yours,

SunTrust Equitable Securities Corporation

F-2
<PAGE> 272

ANNEX G

AMENDED AND RESTATED
ARTICLES OF INCORPORATION

ALRENCO, INC.

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

ARTICLE I

NAME

The name of the corporation is Alrenco, Inc. (the "Corporation").

ARTICLE II

REGISTERED OFFICE AND AGENT

The address of the Corporation's registered office in the State of Indiana
is 1736 East Main Street, New Albany, Indiana 47150. The name of its registered
agent whose business office is identical with the registered office is Billy W.
White, Sr.

ARTICLE III

PURPOSES AND POWERS

The purpose of the Corporation is to transact any and all lawful business
for which corporations may be incorporated under the Indiana Business
Corporation Law, Indiana Code sec.23-1-17 et seq. (such act, as amended from
time to time, and its successors are hereinafter referred to as the "Act"). The
Corporation shall have the power to do all acts allowed under the Act.

ARTICLE IV

CAPITAL STOCK

Section 4.1 Authorized Stock. The total number of shares of capital stock
that may be issued by the Corporation is 85,000,000, consisting of (i)
75,000,000 shares of Common Stock, no par value ("Common Stock"), and (ii)
10,000,000 shares of Preferred Stock ("Preferred Stock").

Section 4.2 Common Stock Provisions. Subject to the provisions of the Act
and the preferences of any Preferred Stock then outstanding, the holders of the
Common Stock shall be entitled to receive dividends at such times and in such
amounts as may be determined by the Board of Directors of the Corporation. The
holders of the Common Stock shall have one vote for each share on each matter
submitted to a vote of the shareholders of the Corporation. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation and the preferential amounts to which the holders
of any Preferred Stock may be entitled, the holders of the Common Stock shall be
entitled to share ratably in the remaining assets of the Corporation.

Section 4.3 Preferred Stock. The Board of Directors may determine the
preferences, limitations and relative rights, to the extent permitted by the
Act, of any series of shares of Preferred Stock before the issuance of any
shares of that series. Each series shall be appropriately designated by a
distinguishing designation prior to the issuance of any shares thereof. The
shares of Preferred Stock of any series shall have preferences, limitations and
relative rights identical with those of other shares of the same series.

G-1
<PAGE> 273

Section 4.4 No Cumulative Voting. Cumulative voting of shares of any
capital stock having voting rights is prohibited.

ARTICLE V

PREEMPTIVE RIGHTS

No shareholder of the Corporation shall by reason of holding shares of any
class of capital stock of the Corporation have any preemptive or preferential
right to acquire or subscribe for any additional, unissued or treasury shares
(whether now or hereafter acquired) of any class of capital stock of the
Corporation now or hereafter to be authorized, or any notes, debentures, bonds
or other securities convertible into or carrying any right, option or warrant to
subscribe for or acquire shares of any class of capital stock of the Corporation
now or hereafter to be authorized, whether or not the issuance of any such
shares, or such notes, debentures, bonds or other securities, would adversely
affect the dividends or voting or other rights of such stockholder, and the
Board of Directors of the Corporation may issue or authorize the issuance of
shares of any class of capital stock of the Corporation, or any notes,
debentures, bonds or other securities convertible into or carrying rights,
options or warrants to subscribe for or acquire shares of any class of capital
stock of the Corporation, without offering any such shares of any such class,
either in whole or in part, to the existing shareholders of any such class.

ARTICLE VI

DIRECTORS

Section 6.1 Number. The number of directors of the Corporation shall be
fixed from time-to-time by or in the manner provided in the Bylaws, but the
number thereof shall never be less than three (3).

Section 6.2 Direction of Purpose and Exercise of Powers. The business and
affairs of the Corporation shall be managed and conducted by or under the
direction of the Board of Directors. The Board of Directors, subject to any
specific limitations or restrictions imposed by the Act or these Articles of
Incorporation, shall direct the carrying out of the purpose and exercise the
powers of the Corporation, without previous authorization or subsequent approval
by the shareholders of the Corporation.

Section 6.3 Classification of Directors. The directors shall be divided
into three classes, each class to consist, as nearly as may be, of one-third of
the number of directors constituting the whole board. The term of office of
those of the first class shall expire at the annual meeting of shareholders to
be held in 1996. The term of office of the second class shall expire at the
annual meeting of shareholders to be held in 1997. The term of office of the
third class shall expire at the annual meeting of shareholders to be held in
1998. At each annual meeting of shareholders following such initial
classification and election, directors elected to succeed those directors whose
terms have expired shall be elected for a term of office to expire at the third
succeeding annual meeting of shareholders following their election. Each
director shall be entitled to serve for the term for which he was elected or
until his successor shall be elected and qualified, whichever period is longer.

Section 6.4 Removal of Directors. At a meeting of shareholders called
expressly for that purpose, directors shall be removed, but only upon a showing
of cause, by a vote of the majority of the shareholders then entitled to vote at
the election of directors, provided that if less than the entire Board of
Directors is removed, no director may be removed unless the number of votes cast
to remove such director exceeds the number of votes cast not to remove such
director. For purposes of this Section, "cause" shall mean the participation by
a director in any transaction in which his personal financial interests are in
conflict with the financial interests of the Corporation or its shareholders;
any act or omission not in good faith or which involves intentional misconduct
or which is known to a director to be a violation of law; or the participation
by a director in any transaction from which the director derived an improper
personal benefit.

Section 6.5 Amendment. Anything contained in these Articles of
Incorporation to the contrary notwithstanding (and notwithstanding that a lesser
percentage may be specified or permitted by law), the affirmative vote of the
holders of at least 80% of the voting power of all of the then outstanding
shares of the
G-2
<PAGE> 274

Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend or repeal any
provision of this Article VI.

ARTICLE VII

INDEMNIFICATION AND CONFLICT OF INTEREST TRANSACTION

Section 7.1 Indemnification. The Corporation shall, to the fullest extent
permitted by the Act, indemnify any director, officer, employee or agent of the
Corporation from and against any and all reasonable costs and expense
(including, without limitation, attorneys' fees) and any liabilities (including,
without limitation, judgments, fines, penalties and reasonable settlements) paid
by or on behalf of, or imposed against, such person in connection with any
threatened, pending or completed claim, action, suit or proceeding, whether
civil, criminal, administrative, investigative or other (including any appeal
relating thereto), whether formal or informal, and whether made or brought by or
in the right of the Corporation or otherwise, in which such person is, was or at
any time becomes a named defendant or respondent or witness, or is threatened to
be made a named defendant or respondent or witness, or otherwise, by reason of
the fact that such person is, was or at any time becomes a director, officer,
employee or agent of the Corporation or, at the Corporation's request, a
director, officer, partner, member, manager, trustee, employee or agent of
another corporation, partnership, limited liability company, joint venture,
trust, employee benefit plan or other enterprise.

The indemnification authorized by this Section 7.1 shall not be exclusive
of any other right of indemnification which any such person may have or
hereafter acquire under any provision of these Amended and Restated Articles of
Incorporation or the Bylaws of the Corporation, agreement, vote of shareholders
or disinterested directors or otherwise. The Corporation may take such steps as
may be deemed appropriate by the board of directors to provide and secure
indemnification to any such person, including, without limitation, the execution
of agreements for indemnification between the Corporation and individual
directors, officers, employees or agents which may provide rights to
indemnification which are broader or otherwise different than the rights
authorized by this Section.

Section 7.2 Conflict of Interest Transaction. A conflict of interest
transaction, as defined in Indiana Code sec. 23-1-35-2(a), is not voidable by
the Corporation provided the conflict of interest transaction satisfies the
provisions specified in Indiana Code sec. 23-1-35-2.

ARTICLE VIII

BUSINESS AND AFFAIRS OF THE CORPORATION

Section 8.1 Bylaws. The Board of Directors shall have the power, without
the assent or vote of the shareholders, to adopt, amend or repeal any provision
of the Bylaws of the Corporation.

Section 8.2 Amendments to Articles of Incorporation. With the exception
of Article VI, notwithstanding any other provision of these Amended and Restated
Articles of Incorporation or the Bylaws of the Corporation (and notwithstanding
that some lesser percentage may be specified by law), but in addition to any
vote of the holders of any class or series of the stock of this Corporation
required by law or these Amended and Restated Articles of Incorporation, the
affirmative vote of the holders of at least sixty-seven percent (67%) of the
voting power of all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal these Amended
and Restated Articles of Incorporation.

G-3
<PAGE> 275

ANNEX H

AMENDED AND RESTATED
CODE OF BYLAWS

ALRENCO, INC.
---------------------

ARTICLE I

SHAREHOLDERS

Section 1. Annual Meeting. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place, either within or
without the State of Indiana, on such date, and at such time, as the Board of
Directors may by resolution provide, or if the Board of Directors fails to
provide, then such meeting shall be held at the principal office of the
Corporation at 10:00 a.m., local time, on the second Wednesday in May of each
year, if not a legal holiday under the laws of the State of Indiana, and if a
legal holiday, on the next succeeding business day. The Board of Directors may
specify by resolution prior to any special meeting of shareholders held within
the year that such meeting shall be in lieu of the annual meeting.

Section 2. Special Meetings. Special meetings of the shareholders may be
called by the Board of Directors or by the Chairman of the Board. Such meeting
may be held at such place, either within or without the State of Indiana, as is
stated in the call and notice thereof.

Section 3. Notice of Meetings. A written or printed notice stating the
place, day and hour of the meeting, and in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered or
mailed by the Secretary of the Corporation to each holder of record of stock of
the Corporation at the time entitled to vote, at his address as it appears upon
the records of the Corporation, not less than 10 nor more than 60 days prior to
such meeting. Notice of such meeting may be waived in writing by any
shareholder. Notice of any adjourned meeting of the shareholders shall not be
required if the time and place to which the meeting is adjourned are announced
at the meeting at which the adjournment is taken, unless the Board of Directors
sets a new record date for such meeting in which case notice shall be given in
the manner provided in this Section 3.

Section 4. Quorum and Shareholder Vote. A quorum for action on any
subject matter at any annual or special meeting of shareholders shall exist when
the holders of shares entitled to vote a majority of the votes entitled to be
cast on such subject matter are represented in person or by proxy at such
meeting. If a quorum is present, the affirmative vote of such number of shares
as is required by the Indiana Business Corporation Law (as in effect at the time
the vote is taken), for approval of the subject matter being voted upon, shall
be the act of the shareholders, unless a greater vote is required by the
Articles of Incorporation or these Bylaws. If a quorum is not present, a meeting
of shareholders may be adjourned from time to time by the vote of shares having
a majority of the votes of the shares represented at such meeting, until a
quorum is present. When a quorum is present at the reconvening of any adjourned
meeting, and if the requirements of Section 3 of this Article I have been
observed, then any business may be transacted at such reconvened meeting in the
same manner and to the same extent as it might have been transacted at the
meeting as originally noticed.

Section 5. Proxies. A shareholder may vote either in person or by proxy
duly executed in writing by the shareholder. Unless written notice to the
contrary is delivered to the Corporation by the shareholder, a proxy for any
meeting shall be valid for any reconvention of any adjourned meeting.

Section 6. Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of

H-1
<PAGE> 276

Directors shall have the power to fix a date, not more than 70 days prior to the
date on which the particular action requiring a determination of shareholders is
to be taken, as the record date for any such determination of shareholders. A
record date for the determination of shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof shall not be set
less than 10 days prior to such meeting. In any case where a record date is set,
under any provision of this Section 6, only shareholders of record on the said
date shall be entitled to participate in the action for which the determination
of shareholders of record is made, whether the action is payment of a dividend,
allotment of any rights or any change or conversion or exchange of capital stock
or other such action, and, if the record date is set for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders, only
such shareholders of record shall be entitled to such notice or vote,
notwithstanding any transfer of any shares on the books of the Corporation after
such record date.

Section 7. Notice of Shareholder Business. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the Board of Directors or (b)
by any shareholder of the Corporation who complies with the notice procedures
set forth in this Section 7 and only to the extent that such business is
appropriate for shareholder action under the provisions of the Indiana Business
Corporation Law. For business to be properly brought before an annual meeting by
a shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a shareholder's notice must
be delivered to or mailed and received at the principal executive offices of the
Corporation not later than the close of business on the 7th day following the
day on which notice of the date of the annual meeting was mailed or delivered to
such shareholder. A shareholder's notice to the Secretary shall set forth as to
each matter the shareholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business, (c) the class and number of shares of stock
of the Corporation which are beneficially owned by the shareholder, and (d) any
material interest of the shareholder in such business. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 7. At
an annual meeting, the Chairman shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 7, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.

Section 8. Notice of Shareholder Nominees. Only persons who are nominated
in accordance with the procedures set forth in this Section 8 shall be eligible
for election as Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of shareholders (a) by or
at the direction of the Board of Directors or (b) by any shareholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 8. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
later than the close of business on the 7th day following the day on which
notice of the date of the meeting was mailed or delivered to such shareholder.
Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended; and (b) as to the shareholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such shareholder and (ii)
the class and number of shares of stock of the Corporation which are
beneficially owned by such shareholder. No person shall be eligible for election
as a Director of the Corporation unless nominated in accordance with the
procedures set forth in the Bylaws. The Chairman shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the Bylaws, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.

H-2
<PAGE> 277

ARTICLE II

DIRECTORS

Section 1. Powers of Directors. The Board of Directors shall manage the
business and affairs of the Corporation and, subject to any restrictions imposed
by law, by the Articles of Incorporation, or by these Bylaws, may exercise all
the powers of the Corporation.

Section 2. Number and Term of Directors. The Board of Directors shall
consist of from three (3) to eighteen (18) natural persons, as fixed by the
Board from time to time at its discretion, divided into classes and with terms
as provided in the Articles of Incorporation. No decrease in the number of
Directors shall shorten the term of an incumbent Director.

Section 3. Meetings of the Directors. The Board of Directors shall meet
each year immediately following the annual meeting of shareholders, and the
Board may by resolution provide for the time and place of other regular
meetings. Special meetings of the Directors may be called by the Chairman of the
Board or by any two of the Directors.

Section 4. Notice of Meetings. Notice of each meeting of the Directors
shall be given by the Secretary by mailing the same at least five days before
the meeting or by telephone, telegraph or cablegram or in person at least two
days before the meeting, to each Director, except that no notice need be given
of regular meetings fixed by the resolution of the Board or of the meeting of
the Board held at the place of and immediately following the annual meeting of
the shareholders. Any Director may waive notice, either before or after the
meeting, and shall be deemed to have waived notice if he is present at the
meeting.

Section 5. Action of Directors Without a Meeting. Any action required by
law to be taken at a meeting of the Board of Directors, or any action which may
be taken at a meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if written consent, setting forth the action so
taken, shall be signed by all the Directors, or all the members of the
committee, as the case may be, and be filed with the minutes of the proceedings
of the Board or the committee. Such consent shall have the same force and effect
as a unanimous vote of the Board or the committee, as the case may be.

Section 6. Committees. The Board of Directors may, in its discretion,
appoint committees, each consisting of one or more Directors, which shall have
and may exercise such delegated powers as shall be conferred on or authorized by
the resolutions appointing them, except that no such committee may take any
action not allowed by the Indiana Business Corporation Law, including: (i)
authorize distributions, except a committee may authority or approve a
reacquisition of shares or other distribution if done according to a formula or
method, or within a range, prescribed by the Board of Directors; (ii) approve or
propose to shareholders action that the Indiana Business Corporation Law
requires to be approved by shareholders; (iii) fill vacancies on the Board or
any of its committees; (iv) except as permitted by clause (vii) below, amend the
Articles of Incorporation of the Corporation; (v) adopt, amend or repeal these
Bylaws; (vi) approve a plan of merger not requiring shareholder approval; or
(vii) authorize or approve the issuance or sale or a contract for sale of
shares, or determine the designation and relative rights, preferences, and
limitations of a class or series of shares, except the Board may authorize a
committee to take the actions described in this clause (vii) within limits
prescribed by the Board. A majority of any such committee may determine its
action, fix the time and place of its meetings, and determine its rules of
procedure. Each committee shall keep minutes of its proceedings and actions and
shall report regularly to the Board of Directors. The Board of Directors shall
have power at any time to fill vacancies in, change the membership of, or
discharge any such committee.

Section 7. Compensation. The Board of Directors shall have the authority
to determine from time to time the amount of compensation that shall be paid to
its members for attendance at meetings of, or service on, the Board of Directors
of any committee of the Board, except that no such compensation shall be paid to
Directors who are also employees of the Corporation. The Board of Directors also
shall have the power to reimburse Directors for reasonable expenses of
attendance at Directors' meetings and committee meetings.

H-3
<PAGE> 278

Section 8. Telephone Conference Meetings. Unless the Articles of
Incorporation otherwise provide, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board or committee by means of telephone conference or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 8 shall constitute presence in person at such meeting.

ARTICLE III

OFFICERS

Section 1. Officers. The officers of the Corporation shall consist of a
Chairman of the Board, a Chief Executive Officer, a President, one or more
Vice-Presidents, a Secretary and a Treasurer, and such other officers or
assistant officers as may be elected by the Board of Directors. Any two offices
may be held by the same person. The Board may designate a Vice-President as an
Executive Vice-President or a Senior Vice President, and may designate the order
in which the Vice-Presidents may act.

Section 2. Chairman of the Board. The Chairman of the Board shall under
the direction of the Board of Directors, have responsibility for the general
direction of the business, policies and affairs of the Corporation. He shall
preside at all meetings of the shareholders and all meetings of the Board of
Directors and shall have such other duties as the Board of Directors shall from
time to time prescribe.

Section 3. Chief Executive Officer. The Chief Executive Officer shall
supervise the President and other officers of the Corporation and shall be in
charge of the overall business strategy of the Corporation. He shall have such
further powers and duties as from time to time may be conferred on him by the
Board of Directors. In the absence of the Chairman of the Board, he shall
preside at all meetings of the shareholders and the Board of Directors.

Section 4. President. The President shall be the chief operating officer
of the Corporation. He shall, under the direction of the Chief Executive
Officer, supervise the management of the day-to-day business of the Corporation.
He shall have such further powers and duties as from time to time may be
conferred on him by the Board of Directors or the chief executive officer. In
the absence of the Chairman of the Board and the Chief Executive Officer, he
shall preside at all meetings of the shareholders and the Board of Directors.

Section 5. Vice-President. The Vice-President shall act in the case of
the absence or disability of the Chairman of the Board, the Chief Executive
Officer and the President. If there is more than one Vice-President, such
Vice-Presidents shall act in the order of precedence, as set out by the Board of
Directors.

Section 6. Treasurer. The Treasurer shall be responsible for the
maintenance of proper financial books and records of the Corporation.

Section 7. Secretary. The Secretary shall keep the minutes of the
meetings of the shareholders and the Directors (including any committees of the
Board of Directors) and shall have custody of and attest the seal of the
Corporation.

Section 8. Other Duties and Authorities. Each officer, employee and agent
shall have such other duties and authorities as may be conferred on them by the
Board of Directors.

Section 9. Removal. Any officer may be removed at any time by the Board
of Directors, and such vacancy may be filled by the Board of Directors. A
contract of employment for a definite term shall not prevent the removal of any
officer, but this provision shall not prevent the making of a contract of
employment with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment or upon the enforceability of any other provision of a contract of
employment.

Section 10. Compensation. The salaries of the officers shall be fixed
from time to time by the Board of Directors, subject to the provisions of any
applicable contracts of employment. No officer shall be prevented from receiving
such salary by reason of the fact that he is also a Director of the Corporation.

H-4
<PAGE> 279

ARTICLE IV

DEPOSITORIES, SIGNATURE AND SEAL

Section 1. Depositories. All funds of the Corporation shall be deposited
in the name of the Corporation in such depository or depositories as the Board
may designate and shall be drawn out on checks, drafts or other orders signed by
such officer, officers, agent or agents as the Board may from time to time
authorize.

Section 2. Contracts. All contracts and other instruments shall be signed
on behalf of the Corporation by the Chairman of the Board, the Chief Executive
Officer, the President, any Vice-President or by such other officer, officers,
agent or agents, as the Board of Directors, the Chief Executive Officer, or the
President designates from time to time or as the Board from time to time may by
resolution provide.

Section 3. Seal. The seal of the Corporation, if it elects to have one,
shall be in the form of a disc, with the name of the Corporation and "Indiana"
on the periphery thereof and the word "Seal" in the center. The seal may be
manually affixed to any document or may be lithographed or otherwise printed on
any document with the same force and effect as if it had been affixed manually.
The signature of the Secretary or Assistant Secretary shall attest the seal and
may be a facsimile if and to the extent permitted by law.

ARTICLE V

STOCK TRANSFERS

Section 1. Form and Execution of Certificates. The certificates of shares
of capital stock of the Corporation shall be in such form as may be approved by
the Board of Directors and shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President or a Vice-President and by the Secretary
or any Assistant Secretary or the Treasurer or any Assistant Treasurer, provided
that any such certificate may be signed by the facsimile signature of any of
such officers imprinted thereon if the same is countersigned by a transfer agent
of the Corporation, and provided further that certificates bearing the facsimile
of the signature of such officers imprinted thereon shall be valid in all
respects as if such person or persons were still in office, even though such
officer or officers shall have died or otherwise ceased to be officers.

Section 2. Transfers of Shares. Shares of stock in the Corporation shall
be transferable only on the books of the Corporation by proper transfer signed
by the holder of record thereof or by a person duly authorized to sign for such
holder of record. The Corporation or its transfer agent or agents shall be
authorized to refuse any transfer unless and until it is furnished such evidence
as it may reasonably require showing that the requested transfer is proper.

Section 3. Lost, Destroyed or Stolen Certificates. Where the holder of
record of a share or shares of stock of the Corporation claims that the
certificate representing said share has been lost, destroyed or wrongfully
taken, the Board shall by resolution provide for the issuance of a certificate
to replace the original if the holder of record so requests before the
Corporation has notice that the certificate has been acquired by a bona fide
purchaser, files with the Corporation a sufficient indemnity bond, and furnishes
evidence of such loss, destruction or wrongful taking satisfactory to the
Corporation, in the reasonable exercise of its discretion. The Board may
authorize such officer or agent as it may designate to determine the sufficiency
of such an indemnity bond and to determine reasonably the sufficiency of the
evidence of loss, destruction or wrongful taking.

Section 4. Transfer Agent and Registrar. The Board may (but shall not be
required to) appoint a transfer agent or agents and a registrar or registrars to
transfers, and may require that all stock certificates bear the signature of
such transfer agent or of such transfer agent and registrar.

H-5
<PAGE> 280

ARTICLE VI

INDEMNIFICATION

Section 1. Indemnification. The Corporation shall indemnify to the
fullest extent permitted by the Indiana Business Corporation Law, and to the
extent that applicable law from time to time in effect shall permit
indemnification that is broader than provided in these Bylaws, then to the
maximum extent authorized by law, any individual made a party to a proceeding
(as defined in the Indiana Business Corporation Law) because he is or was a
director, officer, employee or agent, against liability (as defined in the
Indiana Business Corporation Law), incurred in the proceeding.

Section 2. Advances for Expenses. The Corporation shall pay for or
reimburse the reasonable expenses incurred by a director or officer who is a
party to a proceeding, and shall have the authority to pay for or reimburse the
reasonable expenses of an employee or agent of the Company who is a party to a
proceeding, in each case in advance of the final disposition of a proceeding if:

(a) Such person furnishes the Corporation a written affirmation of his
good faith belief that he has met the standard set forth in Section 1
above;

(b) Such person furnishes the Corporation a written undertaking,
executed personally or on his behalf to repay any advances if it is
ultimately determined that he did not meet the standard set forth in
Section 1 above; and

(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under the Indiana
Business Corporation Law.

The written undertaking required by paragraph (b) above must be an
unlimited general obligation of such person but need not be secured and may be
accepted without reference to financial ability to make repayment.

Section 3. Indemnification Not Exclusive. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article VI shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, provision of these Bylaws,
agreement, vote of shareholders or disinterested directors or otherwise.

Section 4. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.

ARTICLE VII

AMENDMENT OF BYLAWS

Section 1. Amendment. These Bylaws may be altered, amended, repealed or
new Bylaws adopted by the Board of Directors by the affirmative vote of a
majority of all directors then holding office.

H-6
<PAGE> 281

ANNEX I

SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" means a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:

(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:

a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts in
respect thereof at the effective date of the merger or consolidation
will be either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders.

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
I-1
<PAGE> 282

of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or

(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 day prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the date next preceding the
day on which the notice is given.

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
I-2
<PAGE> 283

entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
I-3
<PAGE> 284

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
120, L. '97, eff. 7-1-97.)

I-4
<PAGE> 285

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Chapter 37 of the Indiana Business Corporation Law empowers an Indiana
corporation to indemnify an individual (including his estate or personal
representative) who was, is or is threatened to be made a named defendant or
respondent in a threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and whether formal or
informal, because he is or was a director against liability incurred in the
proceeding if: (i) he conducted himself in good faith; (ii) he reasonably
believed, in the case of conduct in his official capacity with the corporation,
that his conduct was in its best interests and, in all other cases, that his
conduct was at least not opposed to its best interests; and (iii) in the case of
any criminal proceeding, he had (A) reasonable cause to believe his conduct was
lawful, or (B) no reasonable cause to believe his conduct was unlawful.
Indemnification may be made against the obligation to pay a judgment,
settlement, penalty, fine or reasonable expenses (including counsel fees)
incurred with respect to a proceeding. Pursuant to Chapter 37, a corporation may
pay for or reimburse the reasonable expenses incurred by a director in advance
of final disposition of the proceeding if (i) the director affirms to the
corporation in writing his good faith belief that he has met the standard of
conduct required for indemnification; (ii) the director undertakes the personal
obligation to repay such advance upon an ultimate determination that he failed
to meet such standard of conduct; and (iii) the corporation determines that the
facts then known to those making the determination would not preclude
indemnification.

Unless limited by the articles of incorporation, a director who has been
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which he was a party because he is or was a director of the corporation is
entitled to indemnification against reasonable expenses incurred by him in
connection with the proceeding. Unless limited by its articles of incorporation,
an Indiana corporation may indemnify and advance expenses to an officer,
employee or agent of the corporation to the same extent that it may indemnify
and advance expenses to directors. An officer of the corporation is also
entitled to mandatory indemnification to the same extent as a director.

The indemnification provided by or granted pursuant to Chapter 37 is not
exclusive of any rights to which those seeking indemnification may otherwise be
entitled. Chapter 37 empowers an Indiana corporation to purchase and maintain
insurance on behalf of its directors, officers, employees or agents against
liability asserted against or incurred by the individuals in those capacities,
whether or not the corporation would have the power under Chapter 37 to
indemnify them against such liability. The Registrant has purchased and
maintains directors' and officers' liability insurance. The Registrant has also
entered into an agreement with each of its directors which requires the
Registrant to indemnify the director to the fullest extent permitted by Indiana
law.

The Registrant's Amended and Restated Articles of Incorporation and Amended
and Restated Code of Bylaws require the Registrant to indemnify its directors to
the fullest extent permitted by applicable state or federal laws. The Bylaws
further permit the Registrant to indemnify its officers to the same extent that
it indemnifies directors and to such further extent, consistent with law, as may
be provided by general or specific action of the Board of Directors, or
contract.

Pursuant to the terms of the Agreement and Plan of Merger, dated as of
September 28, 1997, as amended (the "Merger Agreement"), by and between the
Registrant and RTO, Inc., the Registrant is required to keep in effect
provisions of its Articles of Incorporation and Bylaws providing for
indemnification of directors and officers to the fullest extent permitted under
applicable law and is prohibited from amending such provisions except as may be
required by applicable law or except to make changes permitted by law that would
enlarge the indemnified parties' indemnification rights. The Registrant is also
obligated to maintain in effect for a period of at least six years following the
effective time of the Merger (as defined in the Merger Agreement) directors' and
officers' liability insurance providing at least the same coverage as, and
containing terms and

II-1
<PAGE> 286

conditions which are no less favorable than, the insurance policies maintained
by the Registrant as of the date of the Merger Agreement.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

The following exhibits are filed as part of this registration statement:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
2.1*** -- Agreement and Plan of Merger, dated as of September 28,
1997, by and between Alrenco, Inc. and RTO, Inc., as amended
2.2*** -- Alrenco Stock Option Agreement
2.3*** -- RTO Stock Option Agreement
2.4*** -- Form of Alrenco Stockholder Voting Agreement executed by
Michael D. Walts and Michael D. Walts, Jr.
2.5*** -- Form of RTO Stockholder Voting Agreement executed by Billy
White, Sr. Annuity Trust, Lillie B. White Annuity Trust,
Belt Family Partnership, B&R Partnership, Dan C. Breeden
Jr., John S. Rainey, C&J Investing Partners, Stewart
Johnson, NW Phifer Trust, AP Armfield Trust, MP De La Torre
Trust, SP Johnson FSA Trust, EW Phifer III Trust, A. Foster
Chapman, EW Johnson, II Trust and GD Johnson, III ESA Trust
2.6*** -- RTO Stockholder Voting Agreement executed by GDJ, Jr.
Investments, L.P.
3.1* -- Amended and Restated Articles of Incorporation of the
Registrant
3.2*** -- Form of Amended and Restated Articles of Incorporation of
the Registrant
3.3* -- Amended and Restated Code of Bylaws of the Registrant
3.4*** -- Form of Amended and Restated Code of Bylaws of the
Registrant
5.1*** -- Opinion and consent of Stites & Harbison
8.1*** -- Form of Opinion of King & Spalding regarding tax matters
10.1** -- Loan Agreement dated July 31, 1997, between the Registrant
and Bank One, Kentucky, NA
10.2* -- Lease Agreement dated as of January 1, 1995 between the
Registrant and Kentuckiana Outfitting Company as amended
10.3* -- Lease Agreement dated as of January 1, 1995 between the
Registrant and Kentuckiana Outfitting Company as amended
10.4* -- Life Insurance Policy for Michael D. Walts
10.5* -- Alrenco, Inc. 1995 Stock Incentive Plan
10.6* -- Restricted Stock Agreement between the Registrant and
Raymond C. Holladay
10.7* -- Restricted Stock Agreement between the Registrant and
Theodore H. Wilson
10.8* -- The Registrant's 401(k) Salary Reduction Plan
10.9* -- Form of Director Indemnification Agreement
23.1 -- Consent of Stites & Harbison (included in Exhibit 5.1)
23.2 -- Consent of King & Spalding (included in Exhibit 8.1)
23.3 -- Consent of Grant Thornton LLP
23.4 -- Consent of Grace & Associates, P.C.
23.5 -- Consent of Travis, Wolff & Company, L.L.P.
23.6 -- Consent of Coopers & Lybrand L.L.P.
23.7 -- Consent of Ernst & Young LLP
</TABLE>

II-2
<PAGE> 287
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
23.8 -- Consent of SunTrust Equitable Securities Corporation
23.9*** -- Consent of George D. Johnson, Jr.
23.10*** -- Consent of Billy W. White, Sr.
23.11*** -- Consent of John S. Rainey
23.12*** -- Consent of Edward W. Phifer, III
24.1*** -- Powers of attorney
99.1 -- Form of proxy for special meeting of shareholders of
Alrenco, Inc.
99.2 -- Form of proxy for special meeting of stockholders of RTO,
Inc.
99.3*** -- Form of Noncompetition and Consulting Agreement between the
Registrant and Michael D. Walts
</TABLE>

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

* Incorporated herein by reference to exhibits filed with the registrant's
registration statement on Form S-1 (File No. 33-99438) filed under the
Securities Act of 1933.

** Incorporated herein by reference to Exhibit 10 to the registrant's current
report on Form 8-K (File No. 0-27490) filed on August 8, 1997 under the
Securities Exchange Act of 1934.

*** Previously filed.

(b) Financial Statement Schedules.

All financial statement schedules are omitted, as the required information
is inapplicable or the information is presented in the financial statements and
related notes thereto included in the Joint Proxy Statement/Prospectus.

ITEM 22. UNDERTAKINGS.

The undersigned registrant hereby undertakes as follows:

(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.

(2) that every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933, as amended (the "Act"), and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

II-3
<PAGE> 288

(3) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.

(4) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

II-4
<PAGE> 289

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-Effective Amendment No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New Albany, State of Indiana, on the 6th day of February, 1998.

ALRENCO, INC.

By: /s/ MICHAEL D. WALTS
--------------------------------------
Michael D. Walts, Chairman of
the Board and President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated. Each person
whose signature appears below hereby authorizes Michael D. Walts and Theodore H.
Wilson, or either one of them, to execute in the name of each such person and to
file, any amendments to this Registration Statement (including post-effective
amendments) and any other documents as the registrant deems appropriate, and
appoints each such agent as attorney-in-fact to sign in his behalf individually
and in each capacity stated below and to file any and all amendments and
post-effective amendments to this Registration Statement and any and all such
other documents.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL D. WALTS Chairman of the Board and President February 6, 1998
- --------------------------------------------- (principal executive officer)
Michael D. Walts

/s/ THEODORE H. WILSON Executive Vice President, Chief February 6, 1998
- --------------------------------------------- Financial Officer and Director
Theodore H. Wilson (principal financial and accounting
officer)

RAYMOND C. HOLLADAY* Executive Vice President, Chief February 6, 1998
- --------------------------------------------- Operating Officer and Director
Raymond C. Holladay

ROBERT W. LANUM* Director February 6, 1998
- ---------------------------------------------
Robert W. Lanum

DONALD E. GROOT* Director February 6, 1998
- ---------------------------------------------
Donald E. Groot

W. BARRETT NICHOLS* Director February 6, 1998
- ---------------------------------------------
W. Barrett Nichols

*By: /s/ THEODORE H. WILSON
---------------------------------------
Theodore H. Wilson
Attorney-in-Fact
</TABLE>

II-5
<PAGE> 290

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
2.1*** -- Agreement and Plan of Merger, dated as of September 28,
1997, by and between Alrenco, Inc. and RTO, Inc., as amended
2.2*** -- Alrenco Stock Option Agreement
2.3*** -- RTO Stock Option Agreement
2.4*** -- Form of Alrenco Stockholder Voting Agreement executed by
Michael D. Walts and Michael D. Walts, Jr.
2.5*** -- Form of RTO Stockholder Voting Agreement executed by Billy
White, Sr. Annuity Trust, Lillie B. White Annuity Trust,
Belt Family Partnership, B&R Partnership, Dan C. Breeden
Jr., John S. Rainey, C&J Investing Partners, Stewart
Johnson, NW Phifer Trust, AP Armfield Trust, MP De La Torre
Trust, SP Johnson ESA Trust, EW Phifer III Trust, A. Foster
Chapman, EW Johnson II Trust and GD Johnson III ESA Trust
2.6*** -- RTO Stockholder Voting Agreement executed by GDJ, Jr.
Investments, L.P.
3.1* -- Amended and Restated Articles of Incorporation of the
Registrant
3.2*** -- Form of Amended and Restated Articles of Incorporation of
the Registrant
3.3* -- Amended and Restated Code of Bylaws of the Registrant
3.4*** -- Form of Amended and Restated Code of Bylaws of the
Registrant
5.1*** -- Opinion and consent of Stites & Harbison
8.1*** -- Form of Opinion of King & Spalding regarding tax matters
10.1** -- Loan Agreement dated July 31, 1997, between the Registrant
and Bank One, Kentucky, NA
10.2* -- Lease Agreement dated as of January 1, 1995 between the
Registrant and Kentuckiana Outfitting Company as amended
10.3* -- Lease Agreement dated as of January 1, 1995 between the
Registrant and Kentuckiana Outfitting Company as amended
10.4* -- Life Insurance Policy for Michael D. Walts
10.5* -- Alrenco, Inc. 1995 Stock Incentive Plan
10.6* -- Restricted Stock Agreement between the Registrant and
Raymond C. Holladay
10.7* -- Restricted Stock Agreement between the Registrant and
Theodore H. Wilson
10.8* -- The Registrant's 401(k) Salary Reduction Plan
10.9* -- Form of Director Indemnification Agreement
23.1 -- Consent of Stites & Harbison (included in Exhibit 5.1)
23.2 -- Consent of King & Spalding (included in Exhibit 8.1)
23.3 -- Consent of Grant Thornton LLP
23.4 -- Consent of Grace & Associates, P.C.
23.5 -- Consent of Travis, Wolff & Company, L.L.P.
23.6 -- Consent of Coopers & Lybrand L.L.P.
23.7 -- Consent of Ernst & Young LLP
23.8 -- Consent of SunTrust Equitable Securities Corporation
23.9*** -- Consent of George D. Johnson, Jr.
23.10*** -- Consent of Billy W. White, Sr.
23.11*** -- Consent of John S. Rainey
</TABLE>
<PAGE> 291
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
23.12*** -- Consent of Edward W. Phifer, III
24.1*** -- Powers of attorney
99.1 -- Form of proxy for special meeting of shareholders of
Alrenco, Inc.
99.2 -- Form of proxy for special meeting of stockholders of RTO,
Inc.
99.3*** -- Form of Noncompetition and Consulting Agreement between the
Registrant and Michael D. Walts
</TABLE>

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

* Incorporated herein by reference to exhibits filed with the registrant's
registration statement on Form S-1 (File No. 33-99438) filed under the
Securities Act of 1933.

** Incorporated herein by reference to Exhibit 10 to the registrant's current
report on Form 8-K (File No. 0-27490) filed on August 8, 1997 under the
Securities Exchange Act of 1934.

*** Previously filed.

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated February 7, 1997, accompanying the
financial statements of Alrenco, Inc. contained in the Registration Statement
and Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."

GRANT THORNTON LLP

Dallas, Texas
February 6, 1998

<PAGE> 1

EXHIBIT 23.4

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated July 19, 1996, accompanying the financial
statements of Network Rental, Inc. contained in the Registration Statements and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statements and Prospectus, and to the use of our name as it appears
under the caption "Experts".

GRACE & ASSOCIATES, P.C.

Atlanta, Georgia
February 6, 1998

<PAGE> 1

EXHIBIT 23.5

We have issued our report dated November 8, 1996, accompanying the
financial statements of Fastway, Inc. for the year ended August 31, 1996,
contained in the Registration Statement and Prospectus. We consent to the use of
the aforementioned report in the Registration Statement and Prospectus, and to
the use of our name as it appears under the caption "Experts".

TRAVIS, WOLFF & COMPANY, L.L.P.

Dallas, Texas
February 6, 1998

<PAGE> 1

EXHIBIT 23.6

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-4 and
related Joint Proxy Statement of Alrenco, Inc. and RTO, Inc./Prospectus of
Alrenco, Inc. and the Supplement thereto of our report dated May 28, 1997, on
our audits of the consolidated financial statements of RTO, Inc. and
subsidiaries and our report dated January 31, 1997, on our audit of the
financial statements of Action TV & Appliance Rental, Inc. as of and for the
seven month period ended July 31, 1996. We also consent to the references to our
firm under the captions "Experts," "Selected Financial Data" and "Accounting
Treatment."

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina
February 6, 1998

<PAGE> 1

EXHIBIT 23.7

CONSENT OF INDEPENDENT AUDITORS

We consent to the references to our firm under the caption "Experts" and to
the use of our reports dated November 4, 1996 with respect to the financial
statements of Action TV & Appliance Rental, Inc. and January 16, 1997 with
respect to the financial statements of B&L Concepts, Inc., each included in the
Registration Statement (Form S-4) and related Joint Proxy Statement of Alrenco,
Inc. and RTO, Inc./Prospectus of Alrenco, Inc. and the Supplement thereto for
the registration of 12,280,316 shares of its common stock.

ERNST & YOUNG LLP

Dallas, Texas
February 6, 1998

<PAGE> 1

EXHIBIT 23.8

CONSENT OF SUNTRUST EQUITABLE SECURITIES CORPORATION

We hereby consent to the reference to the opinion of our firm under the
captions "Summary -- Opinion of Financial Advisor to Alrenco," "The
Merger -- Reasons for the Merger; Recommendations of the Boards of
Directors -- Alrenco," "The Merger -- Opinion of Financial Advisor to Alrenco"
and other references to our firm and to the inclusion of a copy of our opinion
letter as Annex F to the Joint Proxy Statement/ Prospectus which is a part of
the Registration Statement filed by Alrenco, Inc. on Form S-4 under the
Securities Act of 1933, as amended.

By giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.

SunTrust Equitable Securities Corporation

By: /s/ PHILIP D. KREBS
--------------------------------
Philip D. Krebs, Managing
Director

Nashville, Tennessee
February 6, 1998

<PAGE> 1
EXHIBIT 99.1

PROXY

ALRENCO, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Michael D. Walts and Theodore H. Wilson, 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 Special Meeting
of Shareholders to be held on February ___, 1998, at 10:00 a.m., local time, at
the offices of King & Spalding, 50th Floor, 191 Peachtree Street, Atlanta,
Georgia 30305, and at any and all adjournments thereof.

The Board of Directors recommends a vote FOR the following proposal:

PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER, DATED AS OF SEPTEMBER
28, 1997, BY AND BETWEEN ALRENCO, INC. AND RTO, INC., AS AMENDED (THE
"MERGER AGREEMENT"), AND THE TRANSACTIONS CONTEMPLATED THEREBY.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

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 APPROVAL OF THE MERGER AGREEMENT.

Dated: , 1998
--------------------

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

<PAGE> 1
EXHIBIT 99.2

PROXY
RTO, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Billy W. White, Sr. and K. David Belt, 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
RTO, Inc. which the undersigned is entitled to vote at the Special Meeting of
Stockholders to be held on February ___, 1998, at 10:00 a.m., local time, at the
offices of King & Spalding which are located at 191 Peachtree Street, Atlanta,
Georgia 30305, and at any and all adjournments thereof.

The Board of Directors recommends a vote FOR the following proposal:

PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF
SEPTEMBER 28, 1997, BY AND BETWEEN ALRENCO, INC. AND RTO, INC., AS AMENDED
(THE "MERGER AGREEMENT").

[ ] FOR [ ] AGAINST [ ] ABSTAIN

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 APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.

Dated: , 1998
--------------------

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