<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Form S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
ALRENCO, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <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>
714 E. KIMBROUGH STREET
MESQUITE, TEXAS 75149
(972) 288-9327
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
BILLY W. WHITE, SR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALRENCO, INC.
714 E. KIMBROUGH STREET
MESQUITE, TEXAS 75149
(972) 288-9327
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------------
COPIES TO:
JOHN D. CAPERS, JR.
KING & SPALDING
191 PEACHTREE STREET
ATLANTA, GEORGIA 30303
(404) 572-4600
------------------------------------
Approximate date of commencement of proposed sale to the public: From time
to time following the effectiveness of this Registration Statement.
If any 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(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. [ ]
------------------------.
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, no par value................... 5,000,000 $15.0625 $75,312,500 $22,217.19
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) based upon the average of the high and low
reported prices of the Registrant's Common Stock on the Nasdaq National
Market on March 5, 1998.
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 this Registration Statement shall become
effective as of such date as the Commission, acting pursuant to said Section
8(a), may determine.
================================================================================
<PAGE> 2
------------------------
PROSPECTUS
5,000,000 SHARES
ALRENCO, INC.
COMMON STOCK
------------------------
This prospectus (the "Prospectus") relates to the issuance of 5,000,000
shares of common stock, no par value ("Common Stock"), of Alrenco, Inc., an
Indiana corporation ("Alrenco" or the "Company"), which may be offered by the
Company from time to time in connection with acquisitions of other businesses or
properties ("Acquisitions"). The consideration for such Acquisitions will
consist of shares of Common Stock, cash, notes or other evidences of
indebtedness, guarantees, assumptions of liabilities or a combination thereof,
as determined from time to time by negotiations between the Company and the
owners, controlling persons or management of the businesses or properties to be
acquired. In addition, the Company may lease property from and enter into
employment or consulting agreements and noncompetition agreements with the
former owners and key employees of the businesses to be acquired.
The terms of an Acquisition will be determined through arms' length
negotiations between the Company and the owners, controlling person or
management of the businesses or properties to be acquired. Factors to be taken
into account in the Acquisitions include, but are not limited to, the quality
and reputation of the business, its management, earning power, cash flow, growth
potential, markets and markets under development, licenses, locations of the
business to be acquired and the market value of the Common Stock. It is
anticipated that the Common Stock issued in an Acquisition will be valued at a
price reasonably related to the market value of shares of Common Stock either at
the time the terms of the Acquisition are tentatively agreed upon or at about
the time of the closing of such Acquisition.
It is not expected that underwriting discounts or commissions will be paid
by the Company in connection with the offering or issuance of the shares of
Common Stock covered by this Prospectus.
Alrenco Common Stock is quoted on the Nasdaq National Market under the
Symbol "RNCO". On March 5, 1998, the last reported sales price per share on the
Nasdaq National Market was $15.06.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN THE SHARES
OF 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 Prospectus is March 6, 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company 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 Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the Common Stock, reference
is made to such Registration Statement. Statements contained in this 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.
The Company 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 the
Company 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 Common Stock is listed on the Nasdaq National Market System. Reports,
proxy statements and other information about the Company 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the Company
are incorporated by reference into this Prospectus:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 filed on March 31, 1997;
(ii) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997; June 30, 1997; and September 30, 1997 filed on May
14, 1997; August 12, 1997; and November 14, 1997(as amended by Form 10-Q/A
filed on January 9, 1998), respectively;
(iii) The Company's Current Reports on Form 8-K filed on January 15,
1997 (as amended by Form 8-K/A filed with the Commission on March 14,
1997); August 8, 1997; October 9, 1997; February 10, 1998; and March 5,
1998;
(iv) The description of the Common Stock in the Company's Registration
Statement on Form 8-A filed on January 9, 1996; and
(v) The financial statements of (i) RTO, Inc. for each of the three
years in the period ended December 31, 1996 and for the nine months ended
September 30, 1996 and 1997 (unaudited), (ii) Action TV and Appliance
Rental, Inc. for the years ended December 31, 1994 and 1995 and for the
seven months ended July 31, 1996, and (iii) B&L Concepts, Inc. for the
years ended December 23, 1995
(i)
<PAGE> 4
and December 28, 1996, each contained in the Company's Registration
Statement on Form S-4 (File No. 333-44451) filed on January 16, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained in this Prospectus, or in any other
subsequently filed document which is also incorporated herein by reference,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part of this Prospectus except as
so modified or superseded.
No person is authorized to give any information or to make any
representation other than those contained in this Prospectus, and if given or
made, such information or representation should not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, the securities offered by this
Prospectus, in any jurisdiction, to or from any person to whom or from whom it
is unlawful to make such offer, solicitation of an offer in such jurisdiction.
Neither the delivery of this Prospectus nor any distribution of securities
pursuant to this Prospectus shall, under any circumstances, create an
implication that there has been no change in the affairs of the Company or that
the information contained herein is correct as of any time subsequent to the
date of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE, UPON REQUEST FROM PATRICIA
DISBROW, ALRENCO, INC., 714 E. KIMBROUGH STREET, MESQUITE, TEXAS 75149;
TELEPHONE NUMBER (972) 288-9327. IN ORDER TO ENSURE TIMELY DELIVERY OF THESE
DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE FIVE (5) BUSINESS DAYS BEFORE FINAL
ACTION IS TO BE TAKEN WITH RESPECT TO A PROPOSED ACQUISITION INVOLVING THE
ISSUANCE OF SECURITIES COVERED BY THIS PROSPECTUS.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this 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 the Company. Readers are cautioned that
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors may affect the 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 Company's actual results to differ materially from those
contemplated in any forward-looking statements include, among others, the
following: general economic and business conditions; changes in the competitive
environment within the rental-purchase industry; the ability of the Company to
integrate its operations following the consummation of the merger (the "RTO
Merger") between the Company and RTO, Inc. ("RTO") in February 1998; 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 the Company to implement and to obtain the
anticipated cost savings related to the RTO Merger and acquisitions of other
acquired businesses and to realize anticipated cost savings therefrom; the
actual costs required to realize synergies and cost savings from the RTO Merger
and future acquired businesses; and changes in business strategy or development
plans.
(ii)
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................ 1
THE COMPANY............................ 1
MARKETS AND MARKET PRICES.............. 1
SELECTED FINANCIAL DATA................ 2
SELECTED SUPPLEMENTAL CONSOLIDATED
FINANCIAL DATA OF ALRENCO............ 3
SELECTED HISTORICAL FINANCIAL DATA OF
ALRENCO.............................. 4
SELECTED HISTORICAL FINANCIAL DATA OF
RTO.................................. 5
SELECTED HISTORICAL FINANCIAL DATA OF
ACTION............................... 6
RISK FACTORS........................... 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................... 10
General.............................. 10
Certain Components of Net Earnings... 12
Results of Operations -- Supplemental
Consolidated Results of Operations
of the Company.................... 13
Comparison of Nine Months Ended
September 30, 1997 and 1996..... 13
Comparison of Years Ended December
31, 1996 and 1995............... 15
Comparison of Years Ended December
31, 1995 and 1994............... 16
Results of Operations -- Alrenco..... 18
Comparison of Nine Months Ended
September 30, 1997 and 1996..... 18
Comparison of Years Ended December
31, 1996 and 1995............... 19
Comparison of Years Ended December
31, 1995 and 1994............... 20
Results of Operations -- RTO......... 21
Comparison of Nine Months Ended
September 30, 1997 and 1996..... 21
Comparison of Years Ended December
31, 1996 and 1995............... 23
Comparison of Years Ended December
31, 1995 and 1994............... 25
Results of Operations -- Action...... 26
Comparison of Years Ended December
31, 1995 and 1994............... 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Liquidity and Capital Resources...... 27
Seasonality and Inflation............ 29
Depreciation Issues; Income Tax
Consequences...................... 30
Other Matters........................ 30
BUSINESS............................... 31
General.............................. 31
RTO Merger........................... 31
Rental-Purchase Industry............. 31
Merchandising........................ 32
Store Operations..................... 32
Purchasing and Distribution.......... 34
Marketing and Advertising............ 35
Service Marks........................ 35
Competition.......................... 36
Government Regulation................ 36
Employees............................ 37
Properties........................... 37
Legal Proceedings.................... 37
MANAGEMENT............................. 38
Directors............................ 38
Executive Officers................... 39
Director Compensation................ 39
Executive Compensation............... 40
1998 Alrenco Stock Incentive Plan.... 41
1995 Alrenco Stock Incentive Plan.... 42
RTO Employee Stock Option Plan....... 42
RTO Non-Employee Director Stock
Option Plan....................... 43
Shares of Common Stock Issuable Under
Plans............................. 43
Certain Transactions................. 43
PRINCIPAL SHAREHOLDERS OF ALRENCO...... 45
DESCRIPTION OF ALRENCO CAPITAL STOCK... 46
Common Stock......................... 46
Preferred Stock...................... 46
Certain Anti-Takeover Matters........ 46
Indiana Anti-Takeover Statutes....... 47
LEGAL MATTERS.......................... 47
EXPERTS................................ 48
PART II INFORMATION NOT REQUIRED IN
PROSPECTUS........................... II-1
SIGNATURES............................. II-5
POWER OF ATTORNEY...................... II-5
</TABLE>
(iii)
<PAGE> 6
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. This summary is not intended to be a complete description of
the matters covered in this Prospectus or all material facts regarding the
Company and is subject to and qualified in its entirety by reference to the more
detailed information and financial statements contained elsewhere or
incorporated by reference in this Prospectus.
THE COMPANY
The Company currently operates 440 rental-purchase stores in 23 states,
primarily located in the midwestern, southeastern and southwestern United
States. The Company's stores offer high quality, brand-name consumer merchandise
under flexible, renewable rental-purchase agreements, also known as rent-to-own
agreements. The Company'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. The Company'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. The Company also provides its products to consumers who desire only
temporary rental of a product. The Company's products include consumer
electronics, appliances, furniture, jewelry and home furnishing accessories.
On February 26, 1998, the Company consummated the RTO Merger pursuant to an
Agreement and Plan of Merger dated September 28, 1997, as amended (the "RTO
Merger Agreement"). Under the terms of the RTO Merger Agreement, RTO merged with
and into the Company, and the Company was the surviving corporation. At the time
of the RTO Merger, RTO operated 275 rental-purchase stores in 16 states. The RTO
Merger was accounted for as a "pooling-of-interests" transaction as set forth in
Accounting Principles Board Opinion No. 16 ("APB 16").
The Company was incorporated in 1980 under the laws of the State of
Indiana. Common Stock is listed on the Nasdaq National Market under the symbol
"RNCO." The Company's principal executive offices are located at 714 E.
Kimbrough St., Mesquite, Texas 75149, and its telephone number is (972)
288-9327.
MARKETS AND MARKET PRICES
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 Common Stock for the quarterly periods indicated as reported on the Nasdaq
National Market since January 23, 1996 (the date the Company completed its
initial public offering).
<TABLE>
<CAPTION>
HIGH LOW
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<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
FISCAL YEAR 1998
First Quarter (through March 5, 1998).................... $18.38 $14.50
</TABLE>
On March 5, 1998, the last reported sale price per share of Common Stock on
the Nasdaq National Market was $15.06. The market price of Common Stock is
subject to fluctuation.
As of March 5, 1998, there were 217 holders of record of Common Stock.
1
<PAGE> 7
The Company has never paid any cash dividends on its Common Stock. It is
expected that the Company will retain all available earnings generated by its
operations for the development and growth of its business, and the Company does
not anticipate paying any cash dividends on the Common Stock in the foreseeable
future. Under the Company's credit facility, the Company is subject to certain
restrictions on its ability to declare or pay dividends. Any future change in
the Company's dividend policy will be made at the discretion of the Alrenco
Board of Directors (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 the Company and such other factors
as the Alrenco Board may deem relevant.
SELECTED FINANCIAL DATA
Financial statements for the period encompassing the RTO Merger have not
yet been issued. Accordingly, pursuant to APB 16, set forth below is certain
selected historical financial data relating to the Company, RTO and Action TV &
Appliance Rental, Inc. ("Action"). In addition, also set forth below are
Supplemental Consolidated Financial Data of the Company that reflect the effects
of the RTO Merger on the Company's reported financial position and results of
operations for the periods indicated. This information should be read in
conjunction with the supplemental consolidated financial statements of Alrenco
and the historical financial statements of the Company, RTO and Action,
including the respective notes thereto, incorporated by reference herein.
2
<PAGE> 8
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA OF ALRENCO
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The table below presents selected supplemental consolidated financial
information for the Company for each of the five fiscal years in the period
ended December 31, 1996, and for the nine months ended September 30, 1996 and
1997 after retroactive restatement for the 1998 pooling of interests with RTO,
Inc. The selected supplemental consolidated financial data of the Company for
and as of the fiscal years ended December 31, 1994, 1995 and 1996 has been
derived from the supplemental consolidated financial statements of the Company
audited by Coopers & Lybrand L.L.P., independent accountants which give
retroactive effect to the RTO Merger. The report of Coopers & Lybrand L.L.P.
makes reference to the report of other auditors. These financial statements and
Coopers & Lybrand L.L.P.'s report thereon and the unaudited financial statements
for the nine months ended September 30, 1996 and 1997 are incorporated herein by
reference. The selected supplemental consolidated financial data of the Company
for and as of the fiscal years ended December 31, 1992 and 1993 and for and as
of the nine months ended September 30, 1996 and 1997 has been derived from the
unaudited supplemental financial statements of the Company, which give
retroactive effect to the RTO Merger. The selected supplemental consolidated
financial data set forth below should be read in conjunction with the
supplemental consolidated financial statements of the Company and the notes
thereto incorporated herein by reference, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" -- Supplemental
Consolidated Results of Operations of Alrenco" included elsewhere in this
Prospectus. The information for the years ended December 31, 1992 and 1993 and
for the nine-month periods ended September 30, 1996 and 1997 is unaudited, but,
in the opinion of management of the Company, includes all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial position and results of operations for the periods presented.
The interim results for the nine-month period ending 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:
Total revenue..................................... $57,457 $61,752 $68,781 $77,529 $124,161 $ 81,421 $169,427
Operating expenses:
Direct store expenses........................... 46,921 48,982 56,462 65,021 104,181 66,656 139,793
Corporate expenses.............................. 5,361 6,515 7,064 7,988 10,711 6,933 16,086
Cost of business combinations................... -- -- -- -- 1,743 49 864
Litigation settlement........................... -- 625 -- -- -- -- --
Amortization of intangibles..................... 529 476 329 569 3,981 1,814 8,108
Key executive signing bonuses................... -- -- -- -- 1,486 1,486 400
------- ------- ------- ------- -------- -------- --------
Total operating expenses...................... 52,811 56,598 63,855 73,578 122,102 76,938 165,251
------- ------- ------- ------- -------- -------- --------
Operating income.............................. 4,646 5,154 4,926 3,951 2,059 4,483 4,176
Interest expense.................................. (2,437) (2,206) (2,144) (2,468) (1,572) (1,317) (1,602)
Interest income................................... 29 25 39 35 645 237 194
Other non-operating income, net................... 161 163 115 1,311 1,154 984 944
------- ------- ------- ------- -------- -------- --------
Income before income taxes and extraordinary
item........................................ 2,399 3,136 2,936 2,829 2,286 4,387 3,712
Income tax expense................................ 497 722 764 877 1,188 1,580 2,688
------- ------- ------- ------- -------- -------- --------
Income before extraordinary item.............. $ 1,902 $ 2,414 $ 2,172 $ 1,952 $ 1,098 $ 2,807 $ 1,024
======= ======= ======= ======= ======== ======== ========
PRO FORMA INFORMATION(1)(UNAUDITED):
Income before extraordinary item................ $ 1,902 $ 2,414 $ 2,172 $ 1,952 $ 1,098 $ 2,807 $ 1,024
Pro forma income tax expense (benefit) before
extraordinary item............................ 417 590 505 290 201 356 (214)
------- ------- ------- ------- -------- -------- --------
Pro forma income before extraordinary item...... $ 1,485 $ 1,824 $ 1,667 $ 1,662 $ 897 $ 2,451 $ 1,238
======= ======= ======= ======= ======== ======== ========
Pro forma income before extraordinary item per
share......................................... .34 .41 $ .37 $ .37 $ .09 $ .31 $ .07
======= ======= ======= ======= ======== ======== ========
Pro forma weighted average number of shares
outstanding................................... 4,428 4,428 4,456 4,517 10,240 8,014 16,939
======= ======= ======= ======= ======== ======== ========
BALANCE SHEET DATA:
Rental merchandise, net........................... $13,984 $15,636 $20,450 $21,742 $ 58,724 $ 52,107 $ 80,552
Total assets...................................... 23,279 25,499 30,282 35,341 169,131 173,728 200,604
Total debt........................................ 21,935 20,308 23,152 23,064 6,772 9,767 34,460
Stockholders' equity (deficit).................... (4,140) (2,673) (534) 3,449 146,344 145,307 148,042
</TABLE>
- ---------------
(1) Proforma information presents the results of Alrenco as if the S
corporations acquired by Alrenco were fully-taxable entities for each of the
periods presented.
3
<PAGE> 9
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, prior to
the restatement for the 1998 pooling of interests with RTO, 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 unaudited 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,
and the unaudited financial statements for the nine months ended September 30,
1996 and 1997 are incorporated herein by reference. The selected financial data
should be read in conjunction with the financial statements of Alrenco and the
related notes thereto incorporated herein by reference and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Alrenco" included elsewhere in this Prospectus. The information for the years
ended December 31, 1992 and 1993 and for the nine-month periods ended September
30, 1996 and 1997 is unaudited, but, in the opinion of management of the
Company, includes all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations 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)
------- ------- ------- ------- ------- ------- -------
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>
4
<PAGE> 10
SELECTED HISTORICAL FINANCIAL DATA OF RTO
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARES OUTSTANDING)
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 incorporated herein by reference. The
selected financial data should be read in conjunction with the consolidated
financial statements of RTO and the related notes thereto incorporated herein by
reference and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of RTO" included elsewhere in this Prospectus. The
information for the years ending December 31, 1992 and 1993 and nine-month
periods ended September 30, 1996 and 1997 is unaudited, but, in the opinion of
management of the Company, includes all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial position
and results of operations 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 expense... -- -- -- 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
expense..................................... -- -- -- 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 S Corporations
acquired by RTO were fully-taxable entities for each of the periods
presented.
5
<PAGE> 11
SELECTED HISTORICAL FINANCIAL DATA OF ACTION
(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 incorporated herein by reference. The
selected financial data should be read in conjunction with the financial
statements of Action and the related notes thereto incorporated herein by
reference and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Action" included elsewhere in
this Prospectus. The information for the years ended December 31, 1992 and 1993
is unaudited, but, in the opinion of management, includes all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial position and results of operations for the years presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------- SEVEN MONTHS ENDED
1992 1993 1994 1995 JULY 31, 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>
6
<PAGE> 12
RISK FACTORS
An investment in the shares of 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 Prospectus, in evaluating an investment in the shares of
Common Stock offered hereby.
Acquisition Risks. The Company has 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 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 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. The Company may compete for acquisition and expansion
opportunities with companies that have significantly greater financial and other
resources. There can be no assurance that the Company will be able to locate or
acquire suitable acquisition candidates, or that any operations that are
acquired can be effectively and profitably integrated into the Company's
existing operations. Additionally, although acquisitions will be designed to
increase the Company's long-term profitability, they may negatively impact the
Company's operating results, particularly during the periods immediately
following an acquisition. 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 their 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 acquired stores may also suffer
because of disruptions associated with integrating their operations into the
existing operations of the Company. The inability to improve the profitability
of such acquired stores could have a material adverse effect on the Company's
results of operations or financial condition. Because of the above factors, the
Company's quarterly results may vary from quarter to quarter, and the market
price of Common Stock may fluctuate substantially. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Development of New Rental-Purchase Stores. The continued growth and
financial performance of the 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 the Company's operations. There can be no
assurance that the Company 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 the Company's existing operations. Additionally, although new
stores will be designed to contribute to the Company's long-term profitability,
they may negatively impact the Company's operating results, particularly during
the period immediately following the opening of a new store. The Company may
open new rental-purchase stores that are unprofitable or have inconsistent
profitability. Currently, the Company expects to open 50 new stores during 1998,
including eight stores opened to date. New stores opened during 1998 are
expected to operate at a loss for a period of six to nine months. The opening of
an unprofitable store or a store that has inconsistent profitability could have
a material adverse effect on the Company's results of operations and financial
condition. Because of these factors, quarterly results may vary from quarter to
quarter, and the market price of Common Stock may fluctuate substantially. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The RTO Merger. The success of the RTO Merger will be determined by
various factors, including the financial performance of the Company's operations
after the RTO Merger and management's ability to effectively integrate the
operations of the Company and RTO. The integration of the operations of the
Company and RTO may be negatively affected if costs or difficulties related to
the integration are greater than the Company expects. In addition, there can be
no assurance that the anticipated benefits of the RTO Merger will be realized by
the Company or that the RTO Merger will not adversely affect the future
operating results of the Company.
Management of Growth. The rapid growth experienced by the Company has
placed significant demands on the Company's management and operations. In
addition, certain of the officers and other key employees of
7
<PAGE> 13
the Company have recently joined the Company in connection with the RTO Merger,
and certain of the Company's current 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. The Company's
ability to support the growth of its business will be substantially dependent
upon its ability to attract and retain highly-trained management personnel. In
addition, the Company'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 the Company's products. There can be
no assurance that the Company 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 the Company's results of operations or financial condition.
Financing Growth Strategy. It is anticipated that 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
the Company cannot make such acquisitions with its equity securities and does
not have sufficient cash from operations, the ability to borrow under these
credit facilities or the ability to raise cash through the sale of debt or
equity securities, the Company will be unable to pursue its growth strategy,
which would have a material adverse effect on the Company's ability to increase
its revenue and net income and could have a material adverse effect on the
Company'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 the
Company include national, regional and local operators of rental-purchase
stores. Some of these competitors may have significantly greater financial and
operating resources and, in certain markets, greater name recognition than the
Company. Because barriers to entry in the rental-purchase industry are
relatively low, competition may arise from new sources not currently competing
with the Company. As a result of these competitive conditions, the Company may
not be able to sustain past levels of revenue or continue the recent revenue
growth or profitability of the Company. See "Business -- 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. The Company operates in North Carolina but does
not operate in the other three states. Twenty-two of the 23 states in which the
Company 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.
The management of the Company believes that its operations 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 the Company does not believe that this bill, if
enacted, would have a material adverse effect upon the Company's operations. The
other bill would regulate rental-purchase transactions as credit sales. The
Company believes that in the event federal legislation is enacted regulating
rental-purchase transactions as credit sales, the Company 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 Company's results of
operation and financial condition. See "Business -- Government Regulation."
Dividend Policy. The Company expects to retain earnings to finance the
growth and development of its business and does not anticipate paying cash
dividends on Common Stock in the foreseeable future. Under the
8
<PAGE> 14
Company's current credit facility, the Company is subject to certain
restrictions on its ability to declare or pay dividends. See "Management
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Risks Associated with the Rental-Purchase Industry. The operating success
of the Company, 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
Company.
Anti-Takeover Provisions. Certain provisions of the Amended and Restated
Articles of Incorporation of the Company (the "Articles") and the Amended and
Restated Bylaws of the Company (the "Bylaws") and certain sections of the
Indiana Business Corporation Law (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 the shareholders of the Company (the
"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 Capital Stock -- Preferred Stock;"
" -- Certain Anti-Takeover Matters;" and " -- Indiana Anti-Takeover Statutes."
Volatility of Stock Price. From time to time, there may be significant
volatility in the market price for the Common Stock. Quarterly operating results
of the Company 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 the Common Stock to fluctuate
substantially.
Control by Principal Shareholders. George D. Johnson, Jr., Chairman of the
Alrenco Board, together with his affiliates, and Michael D. Walts, a director of
the Company, own approximately 14.0% and 13.2%, respectively, of the outstanding
shares of Common Stock. As a result, Messrs. Johnson and Walts may be in a
position to control or significantly influence the management and policies of
the Company through their ability to influence the outcome of elections of the
Alrenco Board and certain other matters requiring the vote or consent of the
Shareholders. See "Principal Shareholders."
Shares Eligible for Future Sale in Connection with RTO Merger. The Company
issued a substantial number of shares of Common Stock to the stockholders of RTO
in the RTO Merger. All of the Common Stock issued to such stockholders, other
than to affiliates of RTO or to those persons who are now affiliates of the
Company, are freely tradeable. Sales of a substantial number of shares of Common
Stock in the public market by former stockholders of RTO, or the perception that
such sales could occur, could adversely affect the prevailing market price of
shares of Common Stock and could impair the Company's ability to use shares of
Common Stock to raise additional equity capital or to make future acquisitions
of rental-purchase businesses.
9
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the supplemental consolidated financial statements of the Company, the
historical financial statements of Alrenco, RTO and Action and the accompanying
notes thereto incorporated by reference herein and in conjunction with the
selected supplemental consolidated financial data of the Company and the
selected historical financial data of Alrenco, RTO and Action and the
accompanying notes thereto included elsewhere in this Prospectus.
GENERAL
On February 26, 1998, Alrenco merged with RTO in the RTO Merger. Alrenco
began operations in 1980 and RTO began operations in 1996. Prior to the RTO
Merger the management of both Alrenco and RTO grew their operations through
diverse strategies which are described below.
Alrenco Acquisitions. 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 1994, Alrenco acquired 18 rental-purchase stores (the "1994 Alrenco
Acquisition"). The purchase price for the stores was $3.5 million, all of which
was borrowed under Alrenco's then existing bank loan agreement (the "Loan
Agreement").
In September 1995, Alrenco acquired 15 stores (the "1995 Alrenco
Acquisition"). The purchase price for the stores was $5.9 million, all of which
was borrowed under the Loan Agreement.
In 1996, Alrenco acquired 75 stores (the "1996 Alrenco Acquisitions") in 23
separate transactions, for an aggregate purchase price of $25 million. Alrenco
utilized borrowings under the Loan Agreement and Alrenco's cash reserves.
In 1997, Alrenco acquired 54 stores and 13 rental-purchase portfolios in 19
separate transactions for an aggregate purchase price of $25.5 million. Alrenco
purchased the stores through borrowings under the Loan Agreement and use of cash
reserves. These 1997 acquisitions are collectively referred to as the "1997
Alrenco Acquisitions."
On February 26, 1998, the Company acquired 275 stores as a result of the
RTO Merger. The Merger Agreement provided that each of the 120,960 outstanding
shares of RTO Common Stock was to be converted into the right to receive 89.795
shares of Common Stock. As a result of the RTO Merger, the Company now operates
the 275 stores formerly operated by RTO.
RTO Acquisitions. RTO was incorporated on June 20, 1996 and since that
time has aggressively sought to establish its store base through multiple
significant store acquisitions, new store openings and smaller store
acquisitions.
In July and August of 1996, RTO purchased 109 stores (the "1996 RTO
Purchase Acquisitions") in two separate transactions which included the purchase
of Action's 102 store chain (the "Action Acquisition"). The 1996 RTO Purchase
Acquisitions were accounted for under "purchase" accounting as defined by APB
16. During the first nine months of 1997, RTO purchased, in transactions
accounted for as purchases, an additional 69 stores in a series of transactions
for cash, notes payable and convertible debt (the "1997 RTO Purchase
Transactions"). Finally, during the last three months of 1996 and the first nine
months of 1997, RTO acquired 59 stores in transactions accounted for as
pooling-of-interests (the "1996 RTO Pooling Acquisitions" and the "1997 RTO
Pooling Acquisitions").
RTO's consolidated financial statements reflect the financial position and
results of operations of the 1996 RTO Purchase Acquisitions and the 1997 RTO
Purchase Acquisitions from the date of acquisition by RTO through September 30,
1997, consistent with the requirements of APB 16 for purchase acquisitions. In
10
<PAGE> 16
addition, RTO's consolidated financial statements reflect the financial position
and results of operations of the 1996 RTO Pooling Acquisitions and the 1997 RTO
Pooling Acquisitions as though RTO and the 1996 RTO Pooling Acquisitions and the
1997 RTO 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 and 1995 and for the portion of 1996 prior to July 1, 1996
(the date of RTO's first purchase acquisition) reflect the financial position
and results of operations of the 1996 RTO Pooling Acquisitions and the 1997 RTO
Pooling Acquisitions only.
The operating results of certain of the 1996 RTO Pooling Acquisitions and
the 1997 RTO Pooling Acquisitions declined substantially during the last half of
1996 and the first half of 1997. Management 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 the Company continues to believe that the 1996 RTO Pooling
Acquisitions and the 1997 RTO Pooling Acquisitions can be operated profitably.
The 1996 RTO Pooling Acquisitions and the 1997 RTO 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 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. As a result of these steps, results
of operations of the 1996 RTO Pooling Acquisitions and the 1997 RTO Pooling
Acquisitions improved significantly during the third and fourth quarters of
1997.
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 the
Company 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 seller to operate the business in
accordance with sound business practices may adversely affect the operating
results of such business.
During the nine months ended September 30, 1997, RTO opened 16 new stores.
From September 30, 1997 until February 26, 1998, RTO opened 26 additional
stores. Management of the Company expects to open 50 new stores during 1998,
including eight stores opened to date. New stores opened during 1998 are
expected to operate at a loss for a period of six to nine months. 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 the
Company. Because of these factors, the growth of the Company's business through
new store openings and acquisitions of existing stores is likely to affect the
Company's results of operations and financial condition. Such factors may also
cause results to vary from quarter to quarter and may cause the market price of
Common Stock to fluctuate substantially. See "Risk Factors -- Acquisition Risks"
and "-- Development of New Rental-Purchase Stores."
11
<PAGE> 17
CERTAIN COMPONENTS OF NET EARNINGS
Except as otherwise indicated, the following description of the components
of net earnings is applicable to the historical results of operations of each of
Alrenco, RTO and Action, as well as to the supplemental consolidated results of
operations of Alrenco.
Total Revenue. The Company 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 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 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. Rental merchandise acquired by Alrenco 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. The effect
of the change in accounting method was to increase Alrenco's net earnings by
approximately $470,000 for the year ended December 31, 1995. 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 increase net income by approximately
$400,000. The Company's supplemental consolidated financial statements do not
include depreciation and disposition of rental merchandise as a separate
component of income. These expenses are consolidated with other direct store
expenses in a single component entitled "Direct Store Expenses."
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 cost and
other direct store-level expenses, including general and administrative
expenses, delivery and collection expenses and non-rental depreciation. The
Company's supplemental consolidated financial statements do not include other
direct store expenses as a separate component of income. These expenses are
consolidated with depreciation and disposition of rental merchandise in a single
component entitled "Direct Store Expenses."
Corporate Expenses. Corporate expenses include all overhead expenses
related to corporate and division offices such as salaries, taxes and benefits,
occupancy, training, travel expenses and certain performance bonuses to regional
managers and store personnel. Regional costs are included in "Direct Store
Expenses". See "Store Operations -- Management and Supervision".
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 Expense. Except with respect to Action, income taxes 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
12
<PAGE> 18
be in effect at the date such temporary differences are expected to reverse.
Action was a nontaxable enterprise (i.e., an S corporation).
Since certain of RTO's business combinations involved companies which were
nontaxable enterprises, unaudited pro forma tax expense (benefit) has been
presented for the nontaxable enterprises as if they had been taxable enterprises
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, upon consummation of the business
combinations.
RESULTS OF OPERATIONS -- SUPPLEMENTAL CONSOLIDATED RESULTS OF OPERATIONS OF THE
COMPANY
The discussion of Results of Operations below is based on the supplemental
consolidated financial statements of the Company incorporated by reference
herein. The supplemental consolidated financial statements of the Company have
been prepared to give retroactive effect to the RTO Merger. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests methods in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of the Company after
financial statements covering the date of the RTO Merger are issued. As such,
the respective impact of the Company and RTO on the Supplemental Consolidated
results of operations is also discussed individually.
The following table sets forth, for the periods indicated, certain
supplemental consolidated Statement of Operations 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:
Total revenue............................... 100.0% 100.0% 100.0% 100.0% 100.0%
OPERATING EXPENSES:
Direct store expenses....................... 82.1 83.9 83.9 81.9 82.5
Corporate expenses.......................... 10.3 10.3 8.6 8.5 9.5
Amortization of intangibles................. 0.5 0.7 3.2 2.2 4.8
Operating profit............................ 7.2 5.1 1.7 5.5 2.5
Interest income............................. 0.1 0.1 0.5 0.3 0.1
Interest expense............................ 3.1 3.2 1.3 1.6 0.9
Other non-operating income.................. 0.2 1.7 0.9 1.2 0.6
Earnings before income taxes................ 4.3 3.6 1.8 5.4 2.2
Income tax expense.......................... 1.1 1.1 1.0 1.9 1.6
----- ----- ----- ----- -----
Net earnings................................ 3.2% 6.8% 0.9% 3.4% 0.6%
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The portion of the Company's consolidated results of operations consisting
of RTO's results of operations for the nine months ended September 30, 1996
represents the combined results of the 1996 RTO Pooling Acquisitions and the
1997 RTO Pooling Acquisitions and the 1996 RTO 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 RTO Pooling
Acquisitions, the 1997 RTO Pooling Acquisitions and the 1996 RTO Purchase
Acquisitions and the results of the 1997 RTO Purchase Acquisitions from the
respective dates of acquisition.
Revenue. Revenue increased $88.0 million, or 108%, to $169.4 million for
the nine months ended September 30, 1997 from $81.4 million for the comparable
period in 1996. Revenue growth from Alrenco same store operations accounted for
$581,300 of the increase for the period, and revenue from stores acquired by the
Company subsequent to December 31, 1996 accounted for $31.4 million of the
increase. Revenue increased by $58.9 million due to the inclusion of revenue of
the 1997 RTO Purchase Acquisitions from the
13
<PAGE> 19
respective dates of acquisition, and the inclusion of revenue of the 1996 RTO
Purchase Acquisitions for a full nine-month period in 1997. The aforementioned
revenue increases were offset in part by a $2.9 million decrease in revenue from
the 1996 RTO Pooling Acquisitions and the 1997 RTO Pooling Acquisitions.
Direct Store Expenses. Direct store expenses increased $73.1 million, or
110%, to $139.8 million for the nine months ended September 30, 1997 from $66.7
million for the comparable period in 1996 primarily as a result of the inclusion
of other direct store expenses of the 1997 RTO Purchase Acquisitions and the
1997 Alrenco Acquisitions from the respective dates of acquisition and the
inclusion of other direct store expenses of the 1996 RTO Purchase Acquisitions
and the 1996 Alrenco Acquisitions for a full nine-month period, offset in part
by a decrease in other direct store expenses of the 1996 RTO Pooling
Acquisitions and 1997 RTO Pooling Acquisitions of $0.2 million. As a percentage
of revenue, direct store expenses increased to 82.5% from 81.9% for the nine
months ended September 30, 1996 primarily as a result of as a result of (i)
higher proportionate other direct store expenses associated with 16 new
locations opened by RTO during the nine months ended September 30, 1997, (ii) a
higher percentage of other direct store expenses for the 1996 RTO Purchase
Acquisitions and the 1997 RTO Purchase Acquisitions and (iii) a higher
percentage of other direct store expenses for the 1996 RTO Pooling Acquisitions
and the 1997 RTO Pooling Acquisitions for the reasons discussed under
" -- Results of Operations" above; offset by (i) the decline in depreciation of
rental merchandise as a percentage of revenue from 31.8% in 1996 to 25.5% in
1997 in the 1996 RTO Pooling Acquisitions and 1997 RTO 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 RTO Pooling Acquisitions and 1997 RTO Pooling Acquisitions to replenish
rental merchandise during the last quarter of 1996 and first quarter of 1997, as
discussed under " -- General" 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 RTO Pooling Acquisitions and
1997 RTO 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 RTO Pooling Acquisitions and 1997 RTO 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, (ii) the use by one of the 1997 RTO Purchase
Acquisitions of a more aggressive pricing strategy, thereby producing greater
revenues as a multiple of rental merchandise cost and (iii) the offsetting of
the above factors by increase in depreciation of rental merchandise as a
percentage of income of Alrenco 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, (iv) a decrease in other direct store expenses as a
percentage of revenue for the Company due to increased revenue from the stores
acquired in the 1996 and 1997 Alrenco Acquisitions. The factors contributing to
the decline in depreciation of rental merchandise as a percentage of revenue
described in clauses (i)(a) and (i)(d) above 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 for the Company
believes is sustainable. Management for the Company believes that, on an ongoing
basis, depreciation and disposition of rental merchandise as a percentage of
revenue for the Company will average between 28% and 29%.
Corporate expenses increased $9.2 million, or 133%, to $16.1 million for
the nine months ended September 30, 1997 from $6.9 million for the corresponding
period in 1996. The increase is attributable to (i) expenses related to the 1996
RTO Purchase Acquisitions and the 1996 Alrenco Acquisitions are included for the
full nine-month period in 1997 as opposed to the shorter period of expenses
incurred in 1996 and (ii) RTO and Alrenco increased staff to accommodate the
increased stores managed by the Company in 1997 as a result of the integration
of stores acquired in the 1996 and 1997 RTO and Alrenco Acquisitions. As a
percentage of revenue, corporate expenses increased to 9.5% from 8.5% for the
comparable period in 1996. This percentage increase was due primarily to the
duplication of certain corporate expenses during the transition periods
subsequent to the integration of the 1996 and 1997 RTO Pooling Acquisitions
offset by advertising and vendor co-op reimbursements received by Alrenco in the
third quarter.
14
<PAGE> 20
Amortization of Intangibles. Amortization of intangibles increased $6.3
million, or 350%, to $8.1 million for the nine months ended September 30, 1997,
from $1.8 million for the nine months ended September 30, 1996. This increase
was primarily attributable to intangible assets created by the 1996 and 1997
Alrenco Acquisitions and the 1996 and 1997 RTO Purchase Acquisitions. As a
percentage of revenue, amortization of intangibles increased to 4.8% for the
nine months ended September 30, 1997 from 2.2% for the nine months ended
September 30, 1996. The increase was primarily a result of the amortization of
noncompetition agreements, customer rental agreements and goodwill from certain
of the 1996 and 1997 RTO Purchase Acquisitions and certain of the 1996 and 1997
RTO Pooling Acquisitions.
Gain on Sale of Assets. In August 1997, Alrenco 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 Income (loss). Net income decreased $1.8 million, or 64.3%, to $1.0
million for the nine months ended September 30, 1997, from $2.8 million for the
comparable period in 1996. As a percentage of revenue, net earnings decreased to
0.6% from 3.4% for the comparable period in 1996. These decreases occurred
primarily as a result of higher amortization of intangibles and operating losses
attributable to the 16 new stores opened by RTO during the nine months ending
September 30, 1997, and increased corporate expenses related to integration of
1996 and 1997 Alrenco and RTO acquisitions.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenue. Revenue increased $46.6 million, or 60.1%, to $124.2 million for
the year ended December 31, 1996, from $77.6 million in 1995. Revenue from
Alrenco's same store operations accounted for $1.3 million of the increase, and
the addition of revenue from 1995 and 1996 Alrenco Acquisitions accounted for
$25.0 million of the increase for the year. The increase in Alrenco's same store
revenue for the period was mainly attributable to improved performance of the
stores acquired in the 1994 and 1995 Alrenco Acquisitions, and an increase in
the number of items on rent and in revenue earned per item on rent and improved
collections. The remainder of the increase consisted of the addition of revenue
of $25.2 million from the 1996 RTO Purchase Acquisitions, offset in part by a
$4.6 million decrease in revenue resulting from the sale by RTO of thirteen
stores in September 1995 and four stores in September 1996. RTO's same store
revenue (not including the results of stores sold, closed, opened or bought
during the periods) for the 1996 RTO Pooling Acquisitions and 1997 RTO Pooling
Acquisitions decreased by $1.5 million, or 4.5%, compared to 1995 due to the
reasons discussed under " -- General" above. Revenue from new stores acquired in
1995 and opened on various dates in 1995 and 1996 increased by $1.3 million.
Direct Store Expenses. Direct store expenses increased $39.2 million, or
60.3%, to $104.2 million for the year ended December 31, 1996, from $65.0
million in 1995, primarily as a result of the addition of direct store expenses
of the 1996 RTO Purchase Acquisitions and the 1996 Alrenco Acquisitions from
their respective dates of acquisition and the inclusion of direct store expenses
of the 1995 Alrenco Acquisition for a full year, offset in part by a $2.4
million decrease in depreciation and disposition of rental merchandise for the
1996 RTO Pooling Acquisitions and 1997 RTO Pooling Acquisitions resulting
primarily from the sale of thirteen stores in September 1995 and four stores in
September 1996 and a $2.3 million decrease in other direct store expenses for
the 1996 RTO Pooling Acquisitions and the 1997 RTO Pooling Acquisitions
resulting primarily from the sale by RTO of thirteen stores in September 1995
and four stores in September 1996. As a percentage of revenue, direct store
expenses remained unchanged at 83.9% for the year ended December 31, 1996, as
compared to the year ended December 31, 1995, as a result of a decrease in
depreciation of rental merchandise as a percentage of revenue for Alrenco offset
by an increase in other direct store expenses as a percentage of revenue. The
decrease in depreciation of rental merchandise as a percentage of revenues was
partly a continuing result of the change in Alrenco's depreciation method for
new inventory additions. In addition, the decrease was a result of (i) a
reduction in the percentage of total RTO 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) as a result of RTO's 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.
This decrease was offset by an
15
<PAGE> 21
increase in other direct store expenses, which was was partly attributable to
the fact that the stores acquired in the 1996 Alrenco Acquisitions operated at
lower average revenue per store and therefore had higher operating costs as a
percentage of revenue than the Company's existing stores. In addition, the
increase in other direct store expense as a percentage of revenue resulted from:
(i) higher other direct store expenses of the 1996 RTO Purchase Acquisitions;
(ii) higher other direct store expenses as a percentage of revenue for the 1996
RTO Pooling Acquisitions and 1997 RTO Pooling Acquisitions attributable to the
reasons discussed above; and (iii) higher proportionate direct store expenses
associated with six new locations opened by RTO on various dates in 1995 and
1996.
Corporate Expenses. For the year ended December 31, 1996, corporate
expenses increased $2.7 million to $10.7 million from $8.0 million for the year
ended December 31, 1995 primarily as a result of the inclusion of corporate
expenses for the 1996 RTO Purchase Acquisitions and the hiring of additional
corporate and administrative personnel to support the 1996 Alrenco Acquisitions
and future store acquisitions. As a percentage of revenue, corporate expenses
decreased to 8.6% for the year ended December 31, 1996 from 10.3% for the year
ended December 31, 1995 primarily as a result of increased revenue from stores
acquired by Alrenco in 1996, greater operating efficiencies achieved through
higher rental revenue and lower corporate expenses as a percentage of revenue
for the 1996 RTO Purchase Acquisitions, partially offset by higher corporate
expenses as a percentage of revenue for the 1996 and 1997 RTO Pooling
Acquisitions.
Amortization of Intangibles. Amortization of intangibles increased $3.4
million, to $4.0 million for the year ended December 31, 1996, from $569,000 in
1995. This increase was attributable to intangible assets created by the 1995
and 1996 Alrenco Acquisitions and the 1996 RTO Purchase Acquisitions. As a
percentage of revenue, amortization of intangibles increased to 3.2% for the
year ended December 31, 1996, from 0.7% in 1995 for the same reasons.
Interest Income. Interest income increased $610,000 to $645,000 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 RTO Purchase Acquisitions and
the investment of the cash proceeds of the public offerings of Common Stock by
Alrenco.
Interest Expense. Interest expense decreased $0.9 million, or 36.0%, to
$1.6 million for the year ended December 31, 1996, from $2.5 million in 1995. As
a percentage of revenue, interest expense decreased to 1.3% for the year ended
December 31, 1996, from 3.2% in 1995, partly as a result of using the capital
raised by the public offerings of Common Stock to repay all then outstanding
indebtedness under the Loan Agreement and partly due to the use of proceeds by
Alrenco from the issuance of RTO Common Stock to reduce the debt of the 1996 RTO
Purchase Acquisitions and the 1996 RTO Pooling Acquisitions, and the forgiveness
of $2.9 million of RTO's debt of one of the 1997 RTO Pooling Acquisitions and
$0.4 million of related accrued interest by a secured lender in 1995.
Net Income. Net earnings decreased $4.1 million, or 77.4%, to $1.1 million
for the year ended December 31, 1996, from $5.3 million in 1995, primarily as a
result of (i) costs of RTO's business combinations of $1.7 million, primarily
representing the professional fees incurred with respect to the 1996 and 1997
RTO Pooling Acquisitions, (ii) nonrecurring 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 six new RTO locations on various dates in 1995 and 1996, (v) the
decrease in same store revenue of $1.5 million for the 1996 RTO Pooling
Acquisitions and the 1997 RTO Pooling Acquisitions; offset by (vi) increased
revenues and operating margins in 1996 for the stores acquired in the 1994 and
1995 Alrenco Acquisitions. As a percentage of revenue, net earnings decreased to
0.97% for the year ended December 31, 1996, from 6.8% in 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue. Revenue increased $8.8 million, or 12.8%, to $77.6 million for
the year ended December 31, 1995, from $68.8 million in 1994. Revenue from
Alrenco's same store operations accounted for $779,300 of the increase, and the
addition of revenue from stores acquired in the 1994 and 1995 Alrenco
Acquisitions accounted for $8.4 million of the increase. The increase in
Alrenco's same store revenue was primarily
16
<PAGE> 22
attributable to improved performance of the stores acquired in the 1994 Alrenco
Acquisition, an increase in the number of items on rent and in revenue earned
per item on rent and improved collections. The increase in revenue earned per
item on rent was primarily attributable to the purchase and subsequent rental of
higher priced merchandise by the Company. The revenue increase was offset by a
decrease of $1.0 million in RTO's revenues for the year ended December 31, 1995,
from the year ended December 31, 1994, representing revenue reductions of $2.9
million resulting from the sale of RTO stores in September 1995 and the closing
of RTO stores in 1994, offset in part by $1.0 million of additional revenue from
four RTO stores opened or acquired in 1994 and 1995 and RTO same store revenue
increases of $900,000.
Direct Store Expenses. Direct store expenses increased $8.5 million, or
15.0%, to $65.0 million for the year ended December 31, 1995, from $56.5 million
in 1994, primarily as a result of the addition of direct store expenses for the
1995 Alrenco Acquisition from the acquisition date, and the inclusion of direct
store expenses of the 1994 Alrenco Acquisition for a full year. As a percentage
of revenue, direct store expenses increased to 83.9% for the year ended December
31, 1995, from 82.1% in 1994. This increase was primarily attributable to the
fact that (i) the stores acquired in the 1994 Alrenco Acquisition operated at
lower average revenue per store and therefore had higher operating costs as a
percentage of revenue than the Company's existing stores, (ii) the fact that RTO
experienced decreases in total revenue not totally offset by corresponding
reductions in other direct store expenses for one of the 1997 RTO Pooling
Acquisitions and (iii) the higher percentage of other direct store expenses
incurred by RTO inherent in new store opening results; offset in part by a
decrease in depreciation of rental merchandise which was primarily 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 Alrenco's 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." This lowering of
depreciation of rental merchandise as a percentage of revenue was offset by an
increase in RTO's depreciation and disposition of rental merchandise as a result
of new RTO 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.
Corporate Expenses. For the year ended December 31, 1995, corporate
expenses increased $0.9 million, or 12.7%, to $8.0 million from $7.1 million for
the year ended December 31, 1994 primarily due to the hiring of additional
corporate and administrative personnel to support the 1994 and 1995 Alrenco
Acquisitions and future acquisitions. As a percentage of revenue, corporate
expenses remained constant at 10.3% due to the fact that a decrease in corporate
expenses as a percentage of revenue for Alrenco due to increased revenue from
stores acquired by Alrenco in 1994 was offset by an increase in corporate
expenses as a percentage of revenue for RTO due to increases in salaries
combined with the effect of failing to downsize corporate structures in
proportion to the reduction in the number of stores and the corresponding
revenue reductions.
Amortization of Intangibles. Amortization of intangibles increased
$240,000 to $569,000 for the year ended December 31, 1995, as a result of
intangible assets created by the 1994 and 1995 Alrenco Acquisitions and the
acquisition of a store by RTO in 1995.
Interest Expense. Interest expense increased $324,000 to $2.5 million for
the year ended December 31, 1995, from $2.1 million in 1994 primarily as a
result of the debt incurred in connection with the 1994 and 1995 Alrenco
Acquisitions offset by a debt reduction relating to the sale of stores by RTO in
September 1995.
Net Income(Loss). Net income increased $3.1 million, or 140.9%, to $5.3
million for the year ended December 31, 1995, from $2.2 million in 1994. As a
percentage of revenue, net income increased to 6.8% for the year ended December
31, 1995, from 3.2% for the 1994 comparable period as a result of a $1.0 million
gain on the sale of stores by RTO in September 1995, and an extraordinary item,
net of income tax benefit, in the amount of $3.3 million resulting from the
forgiveness of debt of 1997 RTO Pooling Acquisition by a secured lender, offset
in part by the increase in RTO operating expenses and increased interest expense
and lower operating margins for the stores acquired in the 1994 Alrenco
Acquisition.
17
<PAGE> 23
RESULTS OF OPERATIONS -- ALRENCO
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
Corporate 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
Alrenco Acquisitions.
Corporate Expenses. Corporate 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,
corporate 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
Alrenco Acquisitions. As a percentage of revenue, amortization of intangibles
increased to 3.2% for the nine
18
<PAGE> 24
months ended 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 Alrenco
Acquisitions become fully amortized, amortization expense for these acquisitions
will correspondingly decrease.
Gain on Sale of Assets. In August 1997, Alrenco 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 Alrenco 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 Alrenco Acquisitions operated at lower average revenue per store and
therefore had higher operating costs as a percentage of revenue than Alrenco's
existing stores.
Corporate Expenses. Corporate 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 Alrenco Acquisitions and
future store acquisitions. As a percentage of revenue, corporate 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 Alrenco 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
Alrenco 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 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
19
<PAGE> 25
public offerings of 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 Alrenco 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 Alrenco 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 Alrenco 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 Alrenco 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
Alrenco Acquisition operated at lower average revenue per store and therefore
had higher operating costs as a percentage of revenue than Alrenco's existing
stores.
Corporate Expenses. Corporate 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 Alrenco Acquisitions and
future store acquisitions. As a percentage of revenue, corporate 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 Alrenco 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 Alrenco 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
20
<PAGE> 26
increased interest expense and lower operating margins for the stores acquired
in the 1994 Alrenco Acquisition.
RESULTS OF OPERATIONS -- RTO
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 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>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
RTO's results of operations for the nine months ended September 30, 1996
represent the combined results of the 1996 RTO Pooling Acquisitions and the 1997
RTO Pooling Acquisitions and the 1996 RTO 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 RTO Pooling
Acquisitions, the 1997 RTO Pooling Acquisitions and the 1996 RTO Purchase
Acquisitions and the results of the 1997 RTO 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
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<PAGE> 27
result of an additional $58.9 million in revenue due to the inclusion of revenue
of the 1997 RTO Purchase Acquisitions from the respective dates of acquisition,
and the inclusion of revenue of the 1996 RTO Purchase Acquisitions for a full
nine-month period in 1997, offset in part by a net decrease in revenue from the
1996 RTO Pooling Acquisitions and 1997 RTO Pooling Acquisitions of $2.9 million,
or 10.7%, for the reasons described under "-- General" above, including a
decrease of $1.2 million related to the sale of four stores 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
disposition of rental merchandise of the 1997 RTO Purchase Acquisitions from the
respective dates of acquisition, and the inclusion of depreciation and
disposition of rental merchandise of the 1996 RTO 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 RTO Pooling Acquisitions and 1997 RTO 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 RTO
Pooling Acquisitions and 1997 RTO 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 RTO
Pooling Acquisitions and 1997 RTO 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 RTO Pooling Acquisitions and
1997 RTO 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 RTO 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 of the Company believes is sustainable. Management of the
Company believes that, on an ongoing basis, depreciation and disposition of
rental merchandise as a percentage of revenue for the Company 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 RTO Purchase
Acquisitions from the respective dates of acquisition and the inclusion of other
direct store expenses of the 1996 RTO Purchase Acquisitions for a full
nine-month period, offset in part by a decrease in other direct store expenses
of the 1996 RTO Pooling Acquisitions and 1997 RTO 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 RTO Purchase Acquisitions and the
1997 RTO Purchase Acquisitions and (iii) a higher percentage of other direct
store expenses for the 1996 RTO Pooling Acquisitions and the 1997 RTO Pooling
Acquisitions for the reasons discussed under "-- General" 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,
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<PAGE> 28
primarily as a result of an additional $5.9 million of corporate expenses due to
the inclusion of corporate expenses of the 1997 RTO Purchase Acquisitions from
the respective dates of acquisition and the inclusion of corporate expenses of
the 1996 RTO Purchase Acquisitions for a full nine-month period, and an increase
in corporate expenses of the 1996 RTO Pooling Acquisitions and 1997 RTO 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 RTO Pooling Acquisitions and 1997 RTO 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 September 30, 1996, due to the
acquisition of the 1996 and 1997 RTO 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 $4.5 million from the 1996 and 1997
RTO Purchase Acquisitions.
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 RTO Purchase Acquisitions and 1997 RTO 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 RTO 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 RTO
Purchase Acquisitions, the 1996 RTO Pooling Acquisitions, the 1997 RTO Purchase
Acquisitions and the 1997 RTO 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 RTO Purchase Acquisitions and
1997 RTO 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.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
As previously noted, the results of operations for the year ended December
31, 1995 represent the combined results of the 1996 RTO Pooling Acquisitions and
1997 RTO Pooling Acquisitions. The results of operations for the year ended
December 31, 1996 represent the combined results of the 1996 RTO Pooling
Acquisitions and 1997 RTO Pooling Acquisitions and the results of the 1996 RTO
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 RTO
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 RTO Pooling
Acquisitions and 1997 RTO Pooling Acquisitions decreased by $1.5 million, or
4.5%, compared to 1995 due to the reasons discussed under "-- General" 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
23
<PAGE> 29
percentage of total revenue because of the addition of the results of the 1996
RTO 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 RTO Purchase Acquisitions, offset in part by a $2.4
million decrease in depreciation and disposition of rental merchandise for the
1996 RTO Pooling Acquisitions and 1997 RTO 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 on the rental of
merchandise) as a result of the Action Acquisition, 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 RTO Purchase Acquisitions offset in
part by a $2.3 million decrease in other direct store expenses for the 1996 RTO
Pooling Acquisitions and the 1997 RTO 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 RTO Purchase Acquisitions,
(ii) higher other direct store expenses as a percentage of revenue for the 1996
RTO Pooling Acquisitions and 1997 RTO Pooling Acquisitions attributable to the
reasons discussed above and (iii) higher proportionate direct store expenses
associated with the six 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 RTO 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 RTO Purchase Acquisitions which was partially offset by
higher corporate expenses as a percentage of revenue for the 1996 RTO Pooling
Acquisitions and 1997 RTO Pooling Acquisitions due primarily to revenue
decreases during the second half of 1996 due to the reasons discussed under
"-- General."
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 RTO Pooling Acquisitions and
several of the 1997 RTO 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 Action Acquisition. 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 RTO Purchase
Acquisitions.
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<PAGE> 30
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 the issuance of RTO Common Stock to reduce the debt of the 1996
RTO Purchase Acquisitions and the 1996 RTO 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 RTO 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 six new locations on various dates in 1995 and 1996, and (v)
the decrease in same store revenue of $1.5 million for the 1996 RTO Pooling
Acquisitions and the 1997 RTO Pooling Acquisitions.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
The results of operations for the years ended December 31, 1995 and
December 31, 1994 are exclusively those of the 1996 RTO Pooling Acquisitions and
1997 RTO Pooling Acquisitions and include no results from 1996 RTO Purchase
Acquisitions or 1997 RTO 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 four 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 an RTO
acquisition due to 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 an RTO
acquisition 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.
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<PAGE> 31
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 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
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>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 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
26
<PAGE> 32
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 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
The Company's primary requirements for capital consist of the acquisition
of existing stores (including the retirement of any assumed acquisition
indebtedness), the opening of new stores, the purchase of additional rental
merchandise for new store openings and replacement of rental merchandise which
has been sold, charged-off, rented to term or is no longer suitable for rent.
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<PAGE> 33
On January 23, 1996, Alrenco completed an initial public offering of
1,800,000 shares of 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 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.
On June 20, 1996, RTO completed a private placement of 104,545 shares of
its common stock. RTO received proceeds of $93.1 million from the private
placement. Since this initial capitalization, and prior to the RTO Merger, RTO
issued an additional 16,426.47 shares of its common stock in connection with the
1996 RTO Purchase Acquisitions and the 1996 and 1997 Pooling Acquisitions.
During the nine months ended September 30, 1997, RTO purchased the equivalent of
190 shares of its Common Stock from dissenting shareholders of the 1997 Pooling
Acquisitions.
For RTO and Alrenco collectively, cash used in operating activities totaled
$2.2 million for the year ended December 31, 1996 as compared to cash provided
by operations of $3.2 million for the year ended December 31, 1995. This $5.4
million change is attributable to a significant increase in purchases of rental
merchandise, a decrease in net income offset by an increase in depreciation and
disposition of rental merchandise. Net cash used in investing activities was
$76.7 million for the year ended December 31, 1996, an increase of $71.8 million
over the year ended December 31, 1995, primarily due to funds used to acquire
businesses. Net cash provided by financing activities was $113.5 million for the
year ended December 31, 1996 which included the proceeds of the two public stock
offerings partially offset by repayments on credit facilities and capital
leases. During the nine months ended September 30, 1996 and 1997, RTO and
Alrenco purchased additional rental merchandise for aggregate amounts of $25.2
and $50.3 million, respectively. The significant increase in merchandise
purchases during the nine months ended September 30, 1997 as compared to the
periods ended in 1995 and 1996 reflects the cost of merchandising 16 new stores
openings during the period and the integration of 174 stores acquired through
purchases or poolings-of-interests during the period.
RTO and Alrenco collectively purchased businesses, net of cash acquired,
for aggregate amounts of approximately $7.2 million and $74.5 million during the
years ended December 31, 1995 and 1996, respectively. During the nine months
ended September 30, 1996 and 1997, RTO and Alrenco collectively purchased
businesses, net of cash acquired for aggregate amounts of approximately $71.5
million and $49.1 million, respectively. In relation to the purchase
acquisitions during the nine months ended September 30, 1997, $4.4 million was
paid in cash to retire assumed debt, notes in the amount of $5 million and
convertible into Common Stock at $13.92 per share were issued and a note for
$2.1 million payable in three installments of $700,000 beginning January 3, 1997
was issued.
In acquiring the RTO 1997 Pooling Acquisitions, RTO issued 1,076,193 shares
of 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 RTO 1997 Pooling
Acquisitions was paid from working capital and from $12 million in borrowings
from RTO's then existing revolving line of credit.
Historically, each of RTO's and Alrenco's growth has been financed through
internally generated working capital, borrowings under loan agreements and
issuances of common stock.
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<PAGE> 34
The Company expects to open 50 new stores during 1998, including eight
stores opened to date 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 six to nine months. 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 the Company. Because of these
factors, the growth of the Company's business through new store openings and
acquisitions of existing stores is likely to affect the Company's results of
operations and financial condition. Such factors may also cause results to vary
from quarter to quarter and may cause the market price of Common Stock to
fluctuate substantially. See "Risk Factors -- Acquisition Risks" and
"-- Development of New Rental-Purchase Stores."
On February 26, 1998, the Company consummated the RTO Merger. The Company
expects to incur expenses of approximately $7 million related to the RTO Merger
during the first quarter of 1998. The success of the RTO Merger will be
determined by various factors, including the financial performance of the
Company's operations after the RTO Merger and management's ability to
effectively integrate the operations of the Company and RTO. The integration of
the operations of the Company and RTO may be negatively affected if costs or
difficulties related to the integration are greater than the Company expects. In
addition, there can be no assurance that the anticipated benefits of the RTO
Merger will be realized by the Company or that the RTO Merger will not adversely
affect the future operating results of the Company. See "Risk Factors -- RTO
Merger."
On February 26, 1998, the Company entered into a $50 million Revolving
Credit Agreement with Comerica Bank (the "Comerica Credit Agreement") which
replaced the Loan Agreement and the then existing RTO credit facility. The
Comerica Credit Agreement 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. Under the Comerica
Credit Agreement, the Company has the option, provided that certain conditions
are satisfied, to obtain an increase in the amount available under the Comerica
Credit Agreement up to an aggregate amount of $100 million. The Comerica Credit
Agreement is for general corporate purposes including working capital and
permitted acquisition financing. As security for borrowings under the Comerica
Credit Agreement, the Company granted a first security interest from the Company
in all accounts, notes and contracts receivable, machinery and equipment, rental
units, and substantially all other assets of the Company. As additional
security, the Company pledged to Comerica the stock of all subsidiaries of the
Company. Management of the Company believes that cash flow from operations and
the Comerica Credit Agreement will be adequate to fund the operations and growth
plans through 1998.
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," as of 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 pro forma net income or pro forma net income per
share.
During June 1997, the Financial Accounting Standards Board issued SFAS No.
130 "Reporting Comprehensive Income" and SFAS 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.
SEASONALITY AND INFLATION
Management 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
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<PAGE> 35
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 the Company's expenses do not fluctuate with seasonal revenue changes, such
revenue changes may cause fluctuations in the Company's quarterly earnings.
The rate of inflation as measured by changes in the average consumer price
index has not historically had a material effect on the revenue, expenses or
operating results of the Company because the Company 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.
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, the Company used the
income forecasting method of depreciation for tax accounting, and management of
the Company 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 the Company
believes that conversion to three-year MACRS will not negatively impact the
Company's financial condition or results of operations. The potential effect of
converting to three-year MACRS cannot be accurately estimated, but management of
the Company believes that the conversion will potentially create tax benefits.
The Company was audited by the IRS for the years 1992 through 1995 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. In December
1997, the Company reached a partial settlement with the IRS. The settlement
resulted in the payment of $167,200 in additional income taxes and $50,300 in
interest. The Company is in the process of appealing the remaining unresolved
issues. The Company has converted to the MACRS method of depreciation for tax
accounting purposes only. Management of the Company believes that any such
additional taxes and interest and penalties thereon, if incurred, will not have
a material adverse effect on the Company's financial condition, liquidity or
results of operations.
OTHER MATTERS
The Company's business is subject to regulation under state rental-purchase
laws. The management of the Company believes that its operations 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. However, there can be no
assurance that the proposed legislation, if enacted, would not have a material
adverse effect on the Company's results of operation and financial condition.
See "Business -- Government Regulation."
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<PAGE> 36
BUSINESS
GENERAL
The Company currently operates 440 rental-purchase stores in 23 states,
primarily located in the midwestern, southeastern and southwestern United
States. The Company's stores offer high quality, brand-name consumer merchandise
under flexible, renewable rental-purchase agreements, also known as rent-to-own
agreements. The Company'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. The Company'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. The Company also provides its products to consumers who desire only
temporary rental of a product. The Company's products include consumer
electronics, appliances, furniture, jewelry and home furnishing accessories.
RTO MERGER
On February 26, 1998, the Company consummated the RTO Merger. RTO was
founded in June 1996 with the express goal of becoming one of the leading
rental-purchase operations in the industry. RTO primarily pursued this goal
through the strategy of acquiring existing rental-purchase stores and to a
lesser extent by opening new rental-purchase stores. At the time of the RTO
Merger, RTO operated a total of 275 rental-purchase stores in 16 states.
Management of the Company believes that the RTO Merger will allow the
Company to pursue its strategic objectives by (i) increasing the number of
rental-purchase stores operated by the Company and increasing the Company's
geographic diversity, (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 Company's ability to acquire existing rental-purchase stores and
to open new rental-purchase stores. In the current industry environment of
increased competitive conditions and industry consolidation, management believes
that the RTO Merger represented a unique opportunity for the Company to position
itself as an effective competitor and that the RTO Merger will effectively
enable the Company to improve financial results and increase long-term
shareholder value.
RENTAL-PURCHASE INDUSTRY
Based on estimates of APRO, 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.
The Company'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. Management of the
Company believes, based on APRO information, that the majority of dealers
operate fewer than 20 stores. 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.
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<PAGE> 37
MERCHANDISING
The Company's stores generally offer an assortment of quality, brand-name
merchandise, including consumer electronics, appliances, furniture, jewelry and
home furnishing accessories. The Company 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 generally feature bright colors in an atmosphere intended to make
customers feel comfortable. Corporate and regional management closely monitors
adherence to the Company's standards for cleanliness and quality of merchandise
in all stores.
Management regularly evaluates and modifies its product offerings to
reflect changing local demand. The Company frequently test markets new
merchandise items to expand the total number of items on rent and increase the
dollar value of its outstanding contracts. Customers may choose either new or
previously rented merchandise. Previously rented merchandise is marketed at the
same rental rate as new merchandise, but requires fewer consecutive rental
payments to obtain ownership. The Company, 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
The Company currently operates 440 stores in 23 states. The following table
sets forth the number of store locations in each state in which the Company
presently operates.
<TABLE>
<CAPTION>
STATE NUMBER OF STORES
----- ----------------
<S> <C>
Alabama.............................................. 16
Arizona.............................................. 14
Arkansas............................................. 34
Colorado............................................. 7
Florida.............................................. 63
Georgia.............................................. 19
Indiana.............................................. 12
Kansas............................................... 1
Kentucky............................................. 14
Louisiana............................................ 37
Mississippi.......................................... 9
Missouri............................................. 9
North Carolina....................................... 7
Ohio................................................. 16
Oklahoma............................................. 12
Nevada............................................... 3
New Mexico........................................... 11
South Carolina....................................... 12
Tennessee............................................ 6
Texas................................................ 118
Utah................................................. 3
Virginia............................................. 11
West Virginia........................................ 6
</TABLE>
The average store contains approximately 3,900 square feet. Each regional
manager maintains an office in a store within his or her region. Management of
the Company believes that suitable store space is available for lease in each
market where the Company currently operates or plans to operate. The Company
operates seven service centers but does not operate any distribution warehouses.
Management and Supervision. The Company's strategy is to limit the number
of stores supervised by each regional manager to assure adequate monitoring of
operations. The Company expects to employ
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<PAGE> 38
additional regional managers as the number of stores increases. The Company's
440 stores are presently organized into four divisions. The Company has
Directors of Store Operations, each of whom directs six to ten regional managers
who are, in turn, responsible for six to ten stores each. Directors of Store
Operations are experienced managers who report directly to a Vice President of
Store Operations. Regional managers reside in the regions that they supervise
and monitor individual store performance and rental merchandise on a daily
basis.
Each mature Company store requires a staff of three to ten employees,
including a store manager, assistant manager and sales, delivery and collection
personnel. Each Company 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.
Management at the Company'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.
The Company 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. Management believes that total revenue and profits for rental-purchase
stores can be managed by focusing on a few key operational ratios. The Company
also seeks to enforce profit and loss accountability at each level of management
through profit-based incentive compensation programs. Store managers receive
monthly and annual bonuses based upon the store's performance. Directors of
Store Operations and regional managers receive annual bonuses based on the
profitability of the group of stores for which they are responsible. Strict
rental merchandise controls allow management to monitor the status and income
production of each individual piece of rental merchandise until its disposal.
The Company seeks to attract and retain qualified store managers and other
store-level personnel. Management personnel are required to complete a training
program when assigned to a store. In addition, the Company has developed a
comprehensive training manual for its employees which outlines all of the
Company's procedures and operational practices.
Customer Service. Management of the Company believes that the quality and
timeliness of its customer service provide the Company with a competitive
advantage. The Company provides same day delivery of in-stock merchandise and
installation of its merchandise at no additional cost to the customer. The
Company 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 the Company 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.
The Company's customers generally obtain rental merchandise at the store
although they may also do so by telephone. 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.
The Company monitors customer relations at the store level and encourages
customer feedback. Company policy requires employees to provide all customers,
upon request, with the telephone number of the Company'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. Management believes that good collection practices
are critical to the Company's profitability and continued success. The Company
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. Management of the Company
believes that the Company's "preventive maintenance" approach to collection
practices increases total revenue per product while controlling collection and
pickup costs, decreases the likelihood of customer default and improves customer
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<PAGE> 39
relations and reduces chargeoffs. The Company has adopted and closely monitors
compliance with standardized collection procedures. Information on delinquent
accounts is reported in detail each day, and the Company's collection procedures
are monitored by store managers and reviewed routinely by their regional
managers.
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, an account manager will arrange
for the return of the merchandise to the store. Substantially all recoveries of
merchandise are voluntary. In a small number of cases, the Company 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. The Company'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 the Company's management with on demand access to operating and
financial information about any store. The Company'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. Store reports are reviewed daily by store and regional
managers. Directors of Store Operations and senior executives review group
summaries, and exceptions to Company standards are addressed each day. Daily
store activity is electronically transmitted to home office computers each
night. The systems have enabled the Company to expand its operations while
maintaining a high degree of control over cash receipts, rental merchandise and
customer transactions.
Rental-Purchase Agreements. The Company extends renewable week-to-week or
month-to-month rental-purchase agreements that can be canceled at any time. 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 the Company 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. The Company retains title to the merchandise during the term
of the agreement. Ownership of the merchandise may transfer to the customer
after continuous renewal of the agreement for a stated period.
The Company has developed and used its own standard form rental-purchase
agreements based upon APRO model documents. Management believes that the
Company's agreements materially comply with the legal requirements of the states
in which they are used. See "-- Government Regulation."
Although the Company 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 telephone numbers and addresses of relatives or
neighbors. Subsequent rental payments are required to be mailed to or made at
the store. Where permitted by law, the Company 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.
PURCHASING AND DISTRIBUTION
The Company's product mix is determined by senior management, based on
promotional requirements and on customer demand as determined from store rental
merchandise analysis reports. Store managers order rental merchandise 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
34
<PAGE> 40
directly from a manufacturer but may order fill-in quantities from local
distributors with prior approval from the purchasing department. The Company
seeks to maximize return on rental merchandise investment by maintaining
merchandise held for rent but not rented at a level no greater than 25% of total
rental merchandise. Adjusted for seasonal fluctuations, the Company is currently
maintaining merchandise held for rent at the targeted level. The Company does
not maintain a centralized warehouse or distribution facility, since the
Company's suppliers make direct shipments to its stores. Management believes
that such an arrangement minimizes rental merchandise costs and overhead
expenses while allowing the Company to structure reasonably competitive terms
and prices with its suppliers.
The Company purchases the majority of its electronics and appliance
merchandise directly from manufacturers. The Company purchases its furniture
from various manufacturers and distributors. Management generally does not sign
contracts with suppliers, but the Company does enter into contracts with
dealers. The Company currently expects to continue relationships with its
existing suppliers, but believes there are numerous sources of products
available to the Company. Management of the Company does not believe that the
Company's success is dependent on any one or more of its present suppliers.
Executive officers and key managers regularly attend national and regional trade
shows to identify new products, negotiate prices and initiate contacts with
potential new suppliers.
MARKETING AND ADVERTISING
The Company promotes its products and services primarily through television
and direct mail advertising. The Company's television advertising and
promotional literature emphasize the Company's credibility, quality of service
and competitive weekly rental rates. The Company also markets its products and
services through direct customer solicitation by the Company's store employees.
Each store manager is required to generate additional business from the
Company's active and inactive customer base.
The Company utilizes television advertising in each of multiple store
markets. The commercials generally promote a special price for a particular
product for a limited time period. Four-color direct mail brochures are mailed
several times a year to selected zip codes within a local radius of each of the
Company's stores. The Company utilizes extensive point-of-sale materials in each
store.
SERVICE MARKS
The Company or a subsidiary within its corporate group owns the registered
service marks "Home Choice," "Working To Be Your First Choice," "Alrenco Rent To
Own For The Home," "Alrenco Rent To Own For The Home -- The Only Way To Go,"
"Bring it all Home," "We Deliver the Difference" and "Action." The products held
for rent by the Company also bear trademarks and service marks held by their
manufacturers.
35
<PAGE> 41
COMPETITION
The rental-purchase industry is highly competitive. As the following table
illustrates, the eight largest rental-purchase chains accounted for 50.2% 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 766 10.2
Alrenco.................................. Public 440 5.9
Aaron Rents, Inc.(4)..................... Public 391 5.2
Rent-Way, Inc............................ Public 382 5.1
Central Rents............................ Private 168 2.2
Rainbow Rentals.......................... Private 62 0.8
Bestway Rental, Inc...................... Public 60 0.8
----- -----
Totals................................. 3,769 50.2%
===== =====
</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.
The Company 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. The Company believes, however,
that its most direct competition comes from national firms such as
Rent-A-Center, Renter's Choice, Aaron Rents and Rent-Way, Inc. Competition
within the rental-purchase industry is based primarily on store location,
product selection and availability, customer service and rental rates and terms.
Some of the Company's largest national competitors have significantly greater
resources than the Company.
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 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. The Company operates in North Carolina, but does
not operate in the other three states. All but one of the 23 states in which the
Company operates impose some type of disclosure requirements, either in
advertising or in the rental-purchase agreement, or both. Management believes
that the operations of the Company 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. The Company does not
believe that this bill, if enacted, would have a material adverse effect upon
the Company's operations.
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<PAGE> 42
The second 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. The
Company believes that in the event federal legislation is enacted regulating
rental-purchase transactions as credit sales, the Company 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 the
Company.
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, the Company used the income forecasting method of
depreciation for tax accounting, and management of the Company 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 the Company believes that conversion to
three-year MACRS will not negatively impact the Company's financial condition or
results of operations. The potential effect of conversion to three-year MACRS
cannot be accurately estimated, but management of the Company believes that the
conversion will potentially create tax benefits. The Company was audited by the
IRS for the years 1992 through 1995 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. In December 1997, the Company
reached a partial settlement with the IRS. The settlement resulted in the
payment of $167,200 in additional income taxes and $50,300 in interest. The
Company is in the process of appealing the remaining unresolved issues. The
Company has the MACRS method of depreciation for tax accounting purposes only.
Management of the Company 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 the Company's financial
condition, liquidity or results of operations.
EMPLOYEES
As of March 5, 1998, the Company employed approximately 2,800 people, 170
of whom are assigned to the Company's corporate office and the balance of whom
are directly involved in the management and operation of the Company's stores.
None of the Company's employees are covered by a collective bargaining
agreement. The Company provides numerous employee benefits, including a 401(k)
plan and group life and health insurance plans. Management believes that
relationships between the Company and its employees are good.
PROPERTIES
The Company 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. The Company's corporate offices in
Mesquite, Texas consist of approximately 28,500 square feet and an 8,400 square
foot regional service center. The corporate office building and service center
are leased from White Property Company No. 2, Ltd., a company controlled by
Billy W. White, Sr., the President, Chief Executive Officer and a director of
the Company. The Company also leases one store location from White Property
Company No. 2, Ltd. See "Management -- Certain Transactions." The former
corporate office of Alrenco prior to the RTO Merger, which has become a division
office of the Company, consists of approximately 11,600 square feet and is
leased from Kentuckiana Outfitting Company ("Kentuckiana"), a corporation owned
by Michael D. Walts, a director of the Company.
LEGAL PROCEEDINGS
From time to time the Company has been a party to various legal proceedings
arising in the ordinary course of its business. The Company is not currently a
party to any litigation, and is not aware of any litigation threatened against
it, that could have a material adverse effect on its business.
37
<PAGE> 43
MANAGEMENT
DIRECTORS
The Company's current directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George D. Johnson, Jr.................. 55 Chairman of the Board
Michael D. Walts....................... 57 Director
Billy W. White, Sr..................... 64 President, Chief Executive Officer and
Director
Edward W. Phifer, III.................. 56 Director
John S. Rainey......................... 56 Director
</TABLE>
George D. Johnson, Jr. Mr. Johnson has been Chairman of the Board and a
director of the Company since February 1998. Mr. Johnson was Chairman of the
Board of RTO, Inc. from June 1996 to February 1998. 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 the
Company.
Michael D. Walts. Mr. Walts has been a director of the Company since 1980.
Mr. Walts served as Chairman of the Board of Directors and President of the
Company from 1980 to 1998. He has worked in the rental-purchase industry for
more than 17 years since founding the Company in 1980. Prior to 1980, Mr. Walts
owned and operated Kentuckiana, a door-to-door weekly installment sales retailer
which he acquired in 1964. Kentuckiana is currently a real estate holding
company which, among other things, leases certain properties to the Company. See
"-- Certain Transactions."
Billy W. White, Sr. Mr. White has been a director of the Company since
February 1998. Mr. White was President, Chief Executive Officer and a director
of RTO from August 1996 to February 1998. Prior to August 1996, Mr. White was
President and Chief Executive Officer of Action, which he founded 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 the Company.
Edward W. Phifer, III. Mr. Phifer has been a director of the Company since
February 1998. Mr. Phifer was a director of RTO from December 1996 to February
1998. Mr. Phifer is a founding shareholder, director and Senior Vice President
of E.J. Victor, Inc., a furniture manufacturer located in Morganton, North
Carolina. Mr. Phifer's prior experience includes nine years in sales at Henredon
Furniture Company 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 the Company.
38
<PAGE> 44
John S. Rainey. Mr. Rainey has been a director of the Company since
February 1998. Mr. Rainey was a director of RTO from December 1996 to February
1998. 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.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Billy W. White, Sr..................... 64 President and Chief Executive Officer
James G. Steckart...................... 50 Chief Operating Officer
K. David Belt.......................... 43 Chief Financial Officer, Treasurer and
Assistant Secretary
Tracy A. Schrader...................... 31 Secretary and General Counsel
</TABLE>
James G. Steckart. Mr. Steckart has been Chief Operating Officer of the
Company since February 1998. Mr. Steckart was Chief Operating Officer of RTO
from October 1997 to February 1998. 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, Treasurer and
Assistant Secretary of the Company since February 1998. Mr. Belt was Chief
Financial Officer of RTO from August 1996 to February 1998. From July 1983 to
August 1996, Mr. Belt was Vice President and Chief Financial Officer of Action.
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 the Company.
Tracy A. Schrader. Mr. Schrader has been Secretary of the Company since
March 1998. Mr. Schrader has been General Counsel of the Company since February
1998. Mr. Schrader was General Counsel of RTO from October 1997 to February
1998. From June 1996 to October 1997, he was Corporate Counsel to Unisite, Inc.,
a company engaged in providing infrastructure services to the wireless
telecommunications industry, and from 1992 to June 1996, he was an attorney at
the law firm of Gardere & Wynne, L.L.P., Dallas, Texas.
DIRECTOR COMPENSATION
Directors of the Company do not receive any fee for attending meetings of
the Alrenco Board or any of its committees. However, all directors are
reimbursed for travel and lodging expenses incurred in connection with their
attendance at the Alrenco Board, shareholder and committee meetings. Directors
who are not employees of the Company ("Nonemployee Directors") are entitled to
receive nondiscretionary awards of stock options under the RTO Non-Employee
Director Stock Option Plan (as defined below) or the 1998 Alrenco Plan (as
defined below).
On February 26, 1998, the Company entered into a noncompetition and
consulting agreement with Michael D. Walts, a current director of the Company
and its former Chairman and President. Under the terms of the agreement, the
Company agreed to pay Mr. Walts $400,000 for each of the five twelve-month
periods following the date the agreement was signed. In exchange, Mr. Walts
agreed, among other things, that during the period of the agreement, he will
provide consulting services to the Company and he will not
39
<PAGE> 45
(i) directly or indirectly engage in or have an interest in any business that
competes with the Company's rent-to-own business or (ii) disclose material and
confidential information concerning the Company's business.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth summary
compensation information for the Chief Executive Officer and each other
executive officer of the Company whose aggregate salaries and bonuses exceeded
$100,000 (collectively, the "Named Executive Officers") for services rendered in
all capacities during the fiscal years ended December 31, 1996 and 1997. The
compensation shown reflects compensation received by each of the executive
officers as executive officers of RTO prior to the RTO/Merger.
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)(2)
--------------------------- ---- -------- --------------- -------------
<S> <C> <C> <C> <C>
Billy W. White, Sr................................ 1997 $300,000 -- 64,113
President and Chief Executive Officer........... 1996 300,000 $982,851(3) 89,795
K. David Belt..................................... 1997 $150,000 -- 32,056
Chief Financial Officer......................... 1996 105,815(4) $255,085(5) 52,081
</TABLE>
- ---------------
(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) Stock Option awards reflect options to purchase RTO stock converted into
options to purchase the Company stock pursuant to the Alrenco/RTO Merger
Agreement.
(3) 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.
(4) Includes $1,042 of Excess Group Term Life Insurance.
(5) 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)
$6,969 for use of company-owned automobiles.
Option Grants. The following table sets forth information regarding option
grants during fiscal 1997 to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION -------------------------
NAME (# SHARES)(2) YEAR ($/SHARE)(3) DATE 5% 10%
---- ------------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Billy W. White, Sr........... 64,113 14.0% $15.59 4/01/07 $628,594 $1,592,980
K. David Belt................ 32,056 7.0% 15.59 4/01/07 314,292 796,477
</TABLE>
- ---------------
(1) Options granted in 1997 to each of the named individuals become exercisable
25% per year over 4 years.
(2) Reflects securities underlying each officer's options to purchase RTO stock
converted into options to purchase Common Stock pursuant to the RTO Merger
Agreement.
(3) Reflects exercise price as adjusted pursuant to the RTO Merger Agreement.
40
<PAGE> 46
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
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(1) DECEMBER 31, 1997(2)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Billy W. White, Sr........................... 22,448 131,459 $117,515 $402,885
K. David Belt................................ 13,020 71,117 63,167 214,668
</TABLE>
- ---------------
(1) Reflects options to purchase RTO stock converted into options to purchase
Company stock pursuant to the Alrenco/RTO Merger Agreement.
(2) Based on a closing price of $16.375 per share of Common Stock on December
31, 1997.
1998 ALRENCO STOCK INCENTIVE PLAN
On February 26, 1998, the Alrenco Board adopted the 1998 Alrenco Stock
Incentive Plan (the "1998 Alrenco Plan"). Except as otherwise provided below,
stock options, stock appreciation rights ("SAR's") and restricted stock granted
to the Company's employees and stock options granted to non-employee directors
after February 26, 1998 will be granted under and governed by the 1998 Alrenco
Plan. The 1998 Alrenco Plan will be administered by a committee of two or more
outside directors serving on the Alrenco Board.
There are 1,000,000 shares of Common Stock available for issuance under the
1998 Alrenco Plan. However, no stock option may be granted in any calendar year
to any key employee for more than 250,000 shares of stock.
Under the 1998 Alrenco Plan, either incentive stock options ("ISOs"), which
are intended to qualify under Section 422 of the Code or non-incentive stock
options ("Non-ISOs") may be granted to key employees by the committee. In
addition, Non-ISOs may be granted by the Alrenco Board to outside directors.
All stock options will be granted at an exercise price which is no less
than the fair market value of the stock on the grant date (determined by
reference to the closing price of the Common Stock at the end of the prior
trading day) and an option will be exercisable no earlier than six months after
the grant date and no later than ten years after the grant date.
Stock appreciation rights and restricted stock may also be granted to key
employees under the 1998 Alrenco Plan by the committee. SARs may be granted as
part of a stock option or as stand alone SARs. Restricted stock may be granted
subject to such terms and conditions, if any, as the committee acting in its
absolute discretion deems appropriate.
All stock options, SARs, and restricted stock granted under the 1998
Alrenco Plan will be evidenced by a certificate that will incorporate such terms
and conditions as the committee deems necessary or appropriate.
No stock option, SAR or restricted stock will be transferable by a key
employee or an outside director other than by will or by the laws of descent and
distribution, and any stock option or SAR will be exercisable during a key
employee's or outside director's lifetime only by the key employee or outside
director.
Upon a change in control, the terms and conditions of all stock options,
SARs and restricted stock granted under the 1998 Alrenco Plan may be adjusted as
determined by the Alrenco Board at its discretion.
If approved by the committee, Alrenco may lend money to, or guarantee loans
by a third party to, any key employee or outside director to finance the
exercise of any stock option granted under the 1998 Alrenco Plan.
The 1998 Alrenco Plan may be amended by the committee to the extent it
deems necessary or appropriate, and the 1998 Alrenco Plan may be terminated by
the committee at any time. The committee may not modify, amend or cancel any
option, SAR or restricted stock previously granted without the consent of the
holder of such option, SAR or restricted stock.
41
<PAGE> 47
1995 ALRENCO STOCK INCENTIVE PLAN
Stock options and grants of restricted and unrestricted stock granted by
the Company prior to the RTO Merger are and will be governed by the Stock
Incentive Plan of the Company adopted in November 1995 (the "1995 Alrenco
Plan"). Except as otherwise provided below, all future grants by the Company of
such stock options, SARs and restricted and unrestricted stock will be made
under the 1998 Alrenco Plan.
Each stock option granted under the 1995 Alrenco Plan entitles the holder
thereof to purchase the number of shares of Common Stock specified in the grant
at the purchase price specified therein. The terms and conditions of each stock
option granted under the 1995 Alrenco Plan were determined by a committee of the
Alrenco Board (the "1995 Alrenco Plan Committee").
Both incentive and nonqualified stock options were granted to employees of
the Company under the 1995 Alrenco Plan. The purchase price for shares subject
to an incentive stock option was not less than 100% of the fair market value of
the Common Stock at the time of the grant. No incentive stock option was granted
to any employee of the Company who owned at the date of grant shares of stock
representing in excess of 10% of the voting power of all classes of stock of the
Company unless the exercise price for stock subject to such option was at least
equal to 110% of the fair market value of the stock at the time of grant and the
option term did not exceed five years. The terms of any nonqualified stock
option, including without limitation the exercise price and period of exercise,
were determined by the 1995 Alrenco Plan Committee in its sole discretion at the
time of grant.
The 1995 Alrenco Plan also provided for the granting to non-employee
directors of stock options to purchase up to 5,000 shares of Common Stock. Such
options granted under the plan were non-qualified stock options. Option exercise
prices were required to be the fair market value of the Common Stock as
determined by the Alrenco Board at the time of the grant.
Incentive and nonqualified stock options to purchase 120,800 shares of
Common Stock were granted to employees of the Company under the 1995 Alrenco
Plan that are still outstanding.
No SARs or restricted or nonrestricted stock grants under the 1995 Alrenco
Plan are currently outstanding.
RTO EMPLOYEE STOCK OPTION PLAN
Stock options granted to employees of RTO prior to the RTO Merger are and
will be subject to the RTO Employee Stock Option Plan adopted by RTO in 1996
(the "RTO Employee Plan"). Except as otherwise provided below, all future grants
of stock options will be made under the 1998 Alrenco Plan.
Each stock option granted under the RTO Employee Plan entitles the holder
thereof to purchase the number of shares of Common Stock specified in the grant
at the purchase price specified therein (adjusted to reflect the RTO Merger).
The terms and conditions of each stock option granted under the RTO Employee
Plan were determined by a committee of the RTO Board (the "RTO Stock Option
Committee").
Options granted under the RTO Employee Plan are non-qualified stock
options. Option exercise prices were required to be the fair market value of the
Company's Common Stock as determined by the RTO Stock Option Committee at the
time of the grant. Options have a term of up to ten years and become exercisable
with respect to one-fourth of the total number of shares subject to the option
twelve months after the date of grant and with respect to an additional
one-fourth of the total number of shares subject to the option at the end of
each twelve-month period thereafter during the succeeding three years.
Pursuant to the RTO Merger Agreement, each option outstanding and
unexercised at the effective time of the RTO Merger (the "Effective Time"),
including options granted pursuant to the RTO Employee Plan, was converted into
an option to purchase Common Stock of the Company. There are currently
outstanding options to purchase 962,872 shares of Common Stock outstanding under
the RTO Employee Plan.
42
<PAGE> 48
RTO NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The RTO Non-Employee Director Stock Option Plan (the "RTO Director Plan"
and, together with the RTO Employee Plan, the "Prior RTO Plans") governs options
that were granted to three former non-employee directors of RTO prior to the RTO
Merger. Two of such directors, Edward W. Phifer, III and John S. Rainey,
currently serve on the Alrenco Board.
Under the RTO Director Plan, non-employee directors of RTO were granted
options to purchase up to 376 shares of RTO Common Stock. The options granted
under the RTO Director Plan were non-qualified stock options. Option exercise
prices were required to be the fair market value of the RTO Common Stock as
determined by the RTO Board at the time of the grant. Options with respect to
188 shares of RTO Common Stock were granted on the date each such director took
office, and as to the remaining 188 shares subject to such options to which each
such director was entitled, options with respect to 47 shares were 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 RTO Merger Agreement, each option granted pursuant to the
RTO Director Plan that was outstanding and unexercised at the Effective Time of
the RTO Merger, including each option granted pursuant to the RTO Director Plan,
was converted into an option to purchase Common Stock, and the Company assumed
the obligations of RTO to grant any additional options to which any RTO director
is entitled under the RTO Director Plan.
Three former RTO non-employee directors, including Edward W. Phifer, III
and John S. Rainey, were each granted options to purchase 188 shares of RTO
Common Stock pursuant to the RTO Director Plan. One of the former RTO directors
is deceased and his estate is not entitled to any additional options under the
RTO Director Plan. Directors Phifer and Rainey were subsequently granted options
to purchase 94 shares of RTO Common Stock. At the Effective Time, the options of
these directors were converted into options to purchase 59,085 shares of Alrenco
Common Stock in accordance with the RTO Merger Agreement. Directors Phifer and
Rainey will be granted the remaining options to which they are entitled under
the RTO Director Plan in the form of options to purchase Common Stock as
provided in the Merger Agreement. Directors Phifer and Rainey were not, however,
granted any options to purchase Common Stock pursuant to the 1998 Alrenco Plan
upon taking office as directors of the Company. Options granted to any future
outside directors of the Company will be granted pursuant to the 1998 Alrenco
Plan.
SHARES OF COMMON STOCK ISSUABLE UNDER PLANS
2,168,079 shares of Common Stock are reserved for issuance under the 1998
Alrenco Plan, the 1995 Alrenco Plan and the Prior RTO Plans. Of this amount,
1,000,000 shares of Common Stock are reserved for issuance under the 1998
Alrenco Plan.
CERTAIN TRANSACTIONS
During the years ended December 31, 1995, 1996 and 1997, the Company, RTO
and Action engaged in the following transactions:
The Company leases a corporate office building, located in New Albany,
Indiana, from Kentuckiana, a corporation owned by Michael D. Walts, a director
of the Company. The rent under this lease is payable in monthly installments of
$8,300 per month, for an aggregate annual rent of $99,610. The ten-year term of
this lease expires December 31, 2004. The Company also leases a store location
in Louisville, Kentucky, from Kentuckiana. The rent under this lease is payable
in monthly installments of $2,200, for an aggregate annual rent of $26,400. The
ten-year term of this lease expires December 31, 2004.
In connection with a life insurance policy insuring the life of Michael D.
Walts, a director of the Company, the Company has made a loan to Mr. Walts each
year beginning in 1988. Mr. Walts has used the proceeds of these loans to pay
his portion of the annual premium due under such policy. Interest on each such
loan has been calculated at the prevailing applicable federal rate. The balance
outstanding as of November 30, 1997 was approximately $78,654.
43
<PAGE> 49
During fiscal years 1995, 1996 and 1997, RTO paid $174,000, $196,000 and
$207,000, respectively, to White Property Company No. 2, Ltd., a company
controlled by Billy W. White, Sr. President, Chief Executive Officer and a
director of the Company, for lease payments related to RTO's corporate office
building and regional service center in Mesquite, Texas and a store in
Greenville, Texas.
In fiscal years 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
Alrenco Board.
In connection with RTO's acquisition of Action in August 1996, Billy W.
White, Sr., K. David Belt and R. Daniel Matthews received $45,451,231,
$1,896,969 and $200,000, respectively, from RTO in exchange for their stock in
Action and certain noncompetition and employment agreements. Billy W. White, Sr.
is President, Chief Executive Officer and a director of the Company and K. David
Belt is the Chief Financial Officer of the Company. R. Daniel Matthews was an
executive officer of RTO.
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., President, Chief
Executive Officer and a director of the Company.
44
<PAGE> 50
PRINCIPAL SHAREHOLDERS OF ALRENCO
The following table sets forth information with respect to the beneficial
ownership of Common Stock by (i) each current director and executive officer of
the Company, (ii) each person known to management of the Company to own of
record or beneficially more than 5% of the outstanding shares of Common Stock,
and (iii) all directors and named executive officers of the Company as a group.
The table reflects share ownership and the percentage of such ownership as of
March 5, 1998. Except as otherwise indicated, each person or entity shown has
sole voting and investment power with respect to the shares of Common Stock
owned by him or it.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME(1) SHARES CLASS(2)
------- --------- ----------
<S> <C> <C>
George D. Johnson, Jr.(3)................................... 2,374,898(4) 13.9%
Michael D. Walts (5)........................................ 2,230,000 13.1%
Billy W. White, Sr.......................................... 38,477(6) *
John S. Rainey.............................................. 110,795(7) *
Edward W. Phifer, III....................................... 22,481(8) *
James G. Steckart........................................... 0 *
K. David Belt............................................... 312,868(9) 1.8%
Tracy Schrader.............................................. 0 *
All directors and executive officers as a group (8
persons).................................................. 5,089,519 29.8%(10)
</TABLE>
- ---------------
* Less than 1%.
(1) Unless specifically noted, the address for the above shareholders is 714 E.
Kimbrough Street, Mesquite, Texas 75149.
(2) Based on 16,962,921 shares of Common Stock outstanding as of March 5, 1998
plus, for each individual, the number of shares of Common Stock that may be
acquired upon the exercise of stock options exercisable within 60 days.
(3) George D. Johnson, Jr. is the Chairman of the Board of Directors of the
Company. 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) Michael D. Walts' address is 1736 East Main Street, New Albany, Indiana
47150.
(6) Represents 38,477 shares of Common Stock issuable upon exercise of
outstanding stock options.
(7) Includes 16,881 shares of Common Stock issuable upon exercise of
outstanding stock options. Includes 44,897 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.
(8) Includes 16,881 shares of Common Stock issuable upon exercise of
outstanding stock options.
(9) Includes 112,243 shares of Common Stock owned by the Billy W. White, Sr.
Annuity Trust and 112,243 shares of Common Stock held by the Lillie B.
White Annuity Trust, for which Mr. Belt's wife, Debra Belt, shares voting
and investment power. Includes 21,034 shares of Common Stock issuable upon
exercise of outstanding stock options.
(10) The percentage of shares owned by all directors and officers as a group is
based on the applicable number of shares of Common Stock outstanding plus
93,273 shares of Common Stock that may be acquired by such officers and
directors upon the exercise of stock options exercisable within 60 days.
45
<PAGE> 51
DESCRIPTION OF ALRENCO CAPITAL STOCK
The authorized capital stock of the Company consists of 75,000,000 shares
of Common Stock, no par value, and 10,000,000 shares of Preferred Stock. As of
the close of business on March 5, 1998 there were 16,962,921 shares of Common
Stock outstanding. There are no shares of the Company Preferred Stock
outstanding. The Company has reserved 2,168,079 shares of its authorized Common
Stock for issuance from time to time pursuant to the 1998 Alrenco Plan, the 1995
Alrenco Plan and the Prior RTO Plans. Except for additional options to be issued
under the RTO Director Plan, the Company will only issue options in the future
under the 1998 Alrenco Plan. The following description of the capital stock of
the Company is qualified in its entirety by reference to the Articles and the
Bylaws, which have been incorporated by reference as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
Each Shareholder is entitled to one vote per share on all matters submitted
to a vote of Shareholders. Shareholders do not have cumulative voting rights.
Holders of 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 the Company, holders
of Common Stock will be entitled to share ratably in all assets of the Company
remaining after payment or provision for payment of all debts, liabilities and
preferences, if any. Holders of Common Stock have no preemptive rights and no
right to convert their Common Stock into any other securities. The shares of
Common Stock are not redeemable.
PREFERRED STOCK
The Alrenco Board may, without further action by the Shareholders,
designate and issue from time to time up to 10,000,000 shares of the 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 Articles or the
IBCL. Such Preferred Stock could rank prior to the Common Stock with respect to
dividend rights and rights upon liquidation and could have rights which would
dilute the voting power of the Common Stock. Shares of the Preferred Stock may
also be issued to deter or delay an attempted takeover of the Company that may
be opposed by management of the Company. The Company currently has no plans to
issue any Preferred Stock.
CERTAIN ANTI-TAKEOVER MATTERS
Certain provisions of the Articles and the 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 Shareholders may
deem to be in their best interests). These provisions and the ability of the
Alrenco Board to issue the Preferred Stock without further shareholder action,
also could delay or frustrate the removal of incumbent directors or the
assumption of control by the Shareholders, even if such removal or assumption
would be beneficial to the 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 the Shareholders, and
could potentially depress the market price of the Common Stock. The Alrenco
Board believes that these provisions are appropriate to protect the interests of
the Company and the 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 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 Bylaws. Following their initial terms each
class will be elected for a three-year term. Beginning with the 1996 annual
meeting, one class will be elected each year with
46
<PAGE> 52
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 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 the Company or the 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 Bylaws impose certain advance notice
requirements on a Shareholder nominating a director or submitting a proposal to
a shareholder meeting. This notice must be submitted to the Secretary of the
Company between 60 and 90 days before a meeting, and must contain the
information prescribed by the Bylaws.
Amendment of the Company Articles. Under the Articles and the IBCL,
amendments to the Articles must generally be approved by the Alrenco Board and
by the holders of at least 67% of the outstanding shares voting thereon at a
meeting of the Shareholders. Article VI of the Articles requires that any
amendment or repeal of those provisions be approved by the 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 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.
LEGAL MATTERS
The legality of the shares of Common Stock being registered under the
Registration Statement of which this Prospectus is a part will be passed upon
for the Company by King & Spalding, Atlanta, Georgia.
47
<PAGE> 53
EXPERTS
The supplemental consolidated balance sheets of Alrenco, Inc. as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996 after restatement for the 1998
pooling of interests with RTO, Inc., included in Alrenco's Current Report on
Form 8-K filed on March 5, 1998 and incorporated by reference in this
Prospectus, have been incorporated herein in reliance (i) on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing and (ii) on the report of Grant
Thornton LLP, independent certified public accountants, on the balance sheets of
Alrenco, Inc. 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 prior to the restatement for the 1998 pooling of
interests with RTO, Inc., given on the authority of that firm as experts in
accounting and auditing. The report of Coopers & Lybrand L.L.P. incorporated
herein makes reference to the report of Grant Thornton LLP.
The financial statements of Alrenco included in Alrenco's Annual Report on
Form 10-K for the year ended December 31, 1996, and of Fastway, Inc. included in
Alrenco's Current Report on Form 8-K/A filed March 14, 1997, all as incorporated
herein by reference, have been audited by the following firms, as stated in
their reports thereon included in Alrenco's Annual Report on Form 10-K for the
year ended December 31, 1996, and Alrenco's Current Report on Form 8-K/A filed
on March 14, 1997 and incorporated herein by reference: (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; and (ii) 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 have been incorporated herein in reliance on such reports given upon
the authority of said firms as experts in accounting and auditing.
Welenken Himmelfarb & Inc. served as the Company's independent accountants
from its inception in 1980 to 1995. On September 28, 1995, the Company engaged
Grant Thornton LLP to replace Welenken Himmelfarb & Inc. as its independent
accountants in preparation for its initial public offering. Upon the engagement
of Grant Thornton LLP, the Company dismissed Welenken Himmelfarb & Inc. as its
independent accountants. The Board of Directors ratified the engagement of Grant
Thornton LLP as the Company's new independent accountants in November 1995.
During the period Welenken Himmelfarb & Inc. was engaged by the Company, there
were no disagreements between them and the Company 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 the
Company and Welenken Himmelfarb & Co.
On February 26, 1998, immediately following the RTO Merger, the Alrenco
Board of Directors of Alrenco replaced Grant Thornton LLP as the principal
independent auditor of Alrenco. Effective February 26, 1998, Coopers and Lybrand
L.L.P., previously the principal independent auditor for RTO, was engaged by
Alrenco to serve as the independent auditor of Alrenco's financial statements
for the 1998 fiscal year. Grant Thornton LLP will continue to serve as the
independent auditor with respect to Alrenco's financial statements for the
fiscal year ended December 31, 1997. Neither of the reports of Grant Thornton
LLP on the financial statements of Alrenco for the fiscal years ended December
31, 1995 and 1996 contained an adverse opinion or a disclaimer of an opinion or
was qualified or modified as to uncertainty, audit scope or accounting
principles. The report of Grant Thornton LLP with respect to the fiscal year
ended December 31, 1997 has not yet been issued, but Grant Thornton LLP has
informed Alrenco that such report will not contain an adverse opinion or a
disclaimer of an opinion, nor will such report be qualified or modified as to
uncertainty, audit scope or accounting principles. During the two fiscal years
ended December 31, 1997, and during the interim periods preceding February 26,
1998, (i) there were no disagreements with Grant Thornton LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure and (ii) there were no "reportable events" (as defined in
Item 304(a)(1)(v) of Regulation S-K).
48
<PAGE> 54
The financial statements of RTO, Action and B&L Concepts, Inc. included in
the Company's Registration Statement on Form S-4 (SEC File No. 333-44451) and
incorporated by reference herein have been audited by the following firms, as
stated in their reports included in such Registration Statement on Form S-4: (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 auditors. All such financial
statements have been incorporated herein in reliance on such reports given upon
the authority of said firms as experts in accounting and auditing.
49
<PAGE> 55
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
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 Michael D. Walts, a director of the Registrant,
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 RTO Merger Agreement, 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 RTO Merger directors' and
officers' liability insurance providing at least the same coverage as, and
containing terms and conditions which are no less favorable than, the insurance
policies maintained by the Registrant as of the date of the RTO Merger
Agreement.
II-1
<PAGE> 56
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
(incorporated herein by reference to Exhibit 2 to
Registrant's Current Report on Form 8-K filed on October 9,
1997 (File No. 0-27490) and to Exhibit 2.1 to Registrant's
Current Report on Form 8-K filed on March 5, 1998)
2.2 -- Stock Purchase Agreement dated July 31, 1996 by and between
RTO, Inc. and Action TV & Appliance Rental, Inc.
2.3 -- Asset Purchase Agreement dated January 7, 1997 among Action
Rent-to-Own of Florida, Inc., B&L Concepts, Inc., Bill Ogle
and Larry Sutton
3.1 -- Amended and Restated Articles of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to the Registrant's Current Report on Form 8-K filed on
March 5, 1998)
3.3 -- Amended and Restated Code of Bylaws of the Registrant
(incorporated herein by reference to Exhibit 3.2 to the
Registrant's Current Report on Form 8-K filed on March 5,
1998)
4.1 -- Specimen Stock Certificate (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)
5.1 -- Opinion of King & Spalding
10.1 -- Noncompetition and Consulting Agreement between the
Registrant and Michael D. Walts dated February 26, 1998
(incorporated herein by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.2 -- Revolving Credit Agreement dated February 26, 1998, between
the Registrant and Comerica Bank (incorporated herein by
reference to Exhibit 10.2 to Registrant's Current Report on
Form 8-K filed on March 5, 1998)
10.3 -- Guaranty Agreement dated as of February 26, 1998
(incorporated herein by reference to Exhibit 10.3 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.4 -- Security Agreement dated as of February 26, 1998
(incorporated herein by reference to Exhibit 10.4 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.5 -- Pledge Agreement of Alrenco, Inc. dated as of February 26,
1998 (incorporated herein by reference to Exhibit 10.5 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.6 -- Pledge Agreement of RTO Holding Co., Inc. dated February 26,
1998 (incorporated herein by reference to Exhibit 10.6 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.7 -- Lease Agreement dated as of January 1, 1995 between the
Registrant and Kentuckiana Outfitting Company as amended
(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)
10.8 -- Lease Agreement dated as of January 1, 1995 between the
Registrant and Kentuckiana Outfitting Company as amended
(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)
10.9 -- Life Insurance Policy for Michael D. Walts (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)
</TABLE>
II-2
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.10* -- Alrenco 1998 Stock Incentive Plan
10.11 -- Alrenco 1995 Stock Incentive Plan (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)
10.12 -- RTO, Inc. 1996 Employee Stock Option Plan
10.13 -- RTO, Inc. 1996 Stock Option Plan for Non-Employee Directors
10.14 -- The Registrant's 401(k) Salary Reduction Plan (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)
10.15 -- Form of Director Indemnification Agreement (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)
10.16 -- Lease Agreement dated January 1, 1993 by and between Billy
W. White dba White Property Co. #2 and Action TV & Appliance
Rental, Inc., as amended
10.17 -- Lease Agreement dated June 1, 1992 by and between Bill White
and Action TV & Appliance Rental, Inc.
10.18 -- Shopping Center Lease dated May 1, 1996 by and between White
Property Co. No. 2, Ltd. and Action TV & Appliance Rental,
Inc.
10.19 -- Aircraft Dry Lease dated April 8, 1997 by and between
Wyoming Associates, Inc. and RTO, Inc.
10.20 -- Aircraft Dry Lease dated April 8, 1997 by and between
Wyoming Associates, Inc. and RTO, Inc.
16.1 -- Letter of Grant Thornton LLP
23.1 -- Consent of Grant Thornton LLP
23.2 -- Consent of Travis, Wolff & Company, L.L.P.
23.5 -- Consent of Coopers & Lybrand L.L.P.
23.6 -- Consent of Ernst & Young LLP
23.7 -- Consent of King & Spalding (included in Exhibit 5.1)
24.1 -- Powers of Attorney (included in the signature page of this
Registration Statement)
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total value of securities
offered would not exceed that which was registered) and any deviation from
the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than 20
II-3
<PAGE> 58
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining liability under the Securities
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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement 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.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through the 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.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) purports to meet the requirement
s of Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as 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 Securities Act, each 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy and 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 that
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.
The undersigned registrant hereby undertakes 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.
II-4
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereto duly authorized in the city of Mesquite, state of Texas, on
March 6, 1998.
ALRENCO, INC.
By: /s/ K. DAVID BEL
----------------------------------
K. David Belt
Chief Financial Officer, Treasurer
and Assistant Secretary
POWER OF ATTORNEY
We, the undersigned directors and officers of Alrenco, Inc., do hereby
constitute and appoint George D. Johnson, Jr., Billy W. White, Sr. and K. David
Belt, and each and any of them, our true and lawful attorneys-in-fact and
agents, to do any and all acts and things in our names and on our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our name in the capacities indicated below, which said attorneys and
agents, or any of them, may deem necessary or advisable to enable said
corporation to comply with the Securities Act and any rules, regulations and
requirements of the Commission, in connection with this registration statement,
or any registration statement for this offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act including specifically,
but without limitation, power and authority to sign for us or any of us in our
names in the capacities indicated below, any and all amendments (including
post-effective amendments) hereto; and we do hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
below on March 6, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ GEORGE D. JOHNSON, JR. Chairman of the Board of Directors
- --------------------------------------------------------
George D. Johnson, Jr.
/s/ BILLY W. WHITE, SR. President, Chief Executive Officer and
- -------------------------------------------------------- Director (Principal Executive Officer)
Billy W. White, Sr.
/s/ K. DAVID BELT Chief Financial Officer, Treasurer and
- -------------------------------------------------------- Assistant Secretary (Principal Financial and
K. David Belt Accounting Officer)
/s/ EDWARD W. PHIFER, III Director
- --------------------------------------------------------
Edward W. Phifer, III
/s/ JOHN S. RAINEY Director
- --------------------------------------------------------
John S. Rainey
</TABLE>
II-5
<PAGE> 60
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
(incorporated herein by reference to Exhibit 2 to
Registrant's Current Report on Form 8-K filed on October 9,
1997 (File No. 0-27490) and to Exhibit 2.1 to Registrant's
Current Report on Form 8-K filed on March 5, 1998)
2.2 -- Stock Purchase Agreement dated July 31, 1996 by and between
RTO, Inc. and Action TV & Appliance Rental, Inc.
2.3 -- Asset Purchase Agreement dated January 7, 1997 among Action
Rent-to-Own of Florida, Inc., B&L Concepts, Inc., Bill Ogle
and Larry Sutton
3.1 -- Amended and Restated Articles of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to the Registrant's Current Report on Form 8-K filed on
March 5, 1998)
3.3 -- Amended and Restated Code of Bylaws of the Registrant
(incorporated herein by reference to Exhibit 3.2 to the
Registrant's Current Report on Form 8-K filed on March 5,
1998)
4.1 -- Specimen Stock Certificate (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)
5.1 -- Opinion of King & Spalding
10.1 -- Noncompetition and Consulting Agreement between the
Registrant and Michael D. Walts dated February 26, 1998
(incorporated herein by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.2 -- Revolving Credit Agreement dated February 26, 1998, between
the Registrant and Comerica Bank (incorporated herein by
reference to Exhibit 10.2 to Registrant's Current Report on
Form 8-K filed on March 5, 1998)
10.3 -- Guaranty Agreement dated as of February 26, 1998
(incorporated herein by reference to Exhibit 10.3 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.4 -- Security Agreement dated as of February 26, 1998
(incorporated herein by reference to Exhibit 10.4 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.5 -- Pledge Agreement of Alrenco, Inc. dated as of February 26,
1998 (incorporated herein by reference to Exhibit 10.5 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.6 -- Pledge Agreement of RTO Holding Co., Inc. dated February 26,
1998 (incorporated herein by reference to Exhibit 10.6 to
Registrant's Current Report on Form 8-K filed on March 5,
1998)
10.7 -- Lease Agreement dated as of January 1, 1995 between the
Registrant and Kentuckiana Outfitting Company as amended
(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)
10.8 -- Lease Agreement dated as of January 1, 1995 between the
Registrant and Kentuckiana Outfitting Company as amended
(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)
10.9 -- Life Insurance Policy for Michael D. Walts (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)
10.10* -- Alrenco 1998 Stock Incentive Plan
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.11 -- Alrenco 1995 Stock Incentive Plan (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)
10.12 -- RTO, Inc. 1996 Employee Stock Option Plan
10.13 -- RTO, Inc. 1996 Stock Option Plan for Non-Employee Directors
10.14 -- The Registrant's 401(k) Salary Reduction Plan (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)
10.15 -- Form of Director Indemnification Agreement (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)
10.16 -- Lease Agreement dated January 1, 1993 by and between Billy
W. White dba White Property Co. #2 and Action TV & Appliance
Rental, Inc., as amended
10.17 -- Lease Agreement dated June 1, 1992 by and between Bill White
and Action TV & Appliance Rental, Inc.
10.18 -- Shopping Center Lease dated May 1, 1996 by and between White
Property Co. No. 2, Ltd. and Action TV & Appliance Rental,
Inc.
10.19 -- Aircraft Dry Lease dated April 8, 1997 by and between
Wyoming Associates, Inc. and RTO, Inc.
10.20 -- Aircraft Dry Lease dated April 8, 1997 by and between
Wyoming Associates, Inc. and RTO, Inc.
16.1 -- Letter of Grant Thornton LLP
23.1 -- Consent of Grant Thornton LLP
23.2 -- Consent of Travis, Wolff & Company, L.L.P.
23.5 -- Consent of Coopers & Lybrand L.L.P.
23.6 -- Consent of Ernst & Young LLP
23.7 -- Consent of King & Spalding (included in Exhibit 5.1)
24.1 -- Powers of Attorney (included in the signature page of this
Registration Statement)
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
THIS AGREEMENT made and entered into effective as of the 31st day of
July, 1996, by and between RTO, INC., a Delaware corporation (hereinafter
referred to as "Purchaser"), and the persons and entities identified on Exhibit
A hereto (hereinafter referred to collectively as "Sellers" and individually as
a "Seller"), being all of the shareholders of Action TV & Appliance Rental,
Inc., a Texas corporation ("Action");
W I T N E S S E T H:
WHEREAS, Sellers own all of the outstanding capital stock of Action;
and
WHEREAS, subject to the terms and conditions of this Agreement, Sellers
desire to sell, and Purchaser desires to purchase, all of the outstanding
capital stock of Action;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
Section 1. Purchase of Shares.
1.1. Transfer of Shares. On the terms and subject to the
conditions set forth in this Agreement, each Seller hereby sells, assigns,
transfers and delivers to Purchaser, and Purchaser hereby purchases from each
Seller, the number of shares of common stock, $1.00 par value, of Action shown
opposite the name of such Seller on Schedule 3.3 hereto (all of such shares
being sold hereunder being hereinafter referred to collectively as the
"Shares").
1.2. Purchase Price. As consideration for the Shares and for
certain other agreements of the Sellers in connection with the transactions
contemplated hereby, Purchaser hereby delivers to Sellers the sum of Forty-Five
Million Four Hundred Ninety Thousand One Hundred Eighty Seven Dollars
($45,290,187) in cash to Sellers, which has been paid to the Sellers by wire
transfer of the amounts shown on Schedule 1.2 to the bank accounts of the
Sellers shown on Schedule 1.2 (such price being hereinafter referred to as the
"Purchase Price").
<PAGE> 2
Section 2. Closing.
2.1. Deliveries at Closing. Contemporaneously with the
execution and delivery of this Agreement, Sellers have delivered to Purchaser
the following:
(a) The Share Certificates, duly endorsed in blank,
evidencing all of the Shares;
(b) Written consent of Comerica Bank;
(c) Written resignations of each of the officers and
directors of Action;
(d) The Noncompetition Agreement between Action and Billy W.
White, Sr. ("White");
(e) The Noncompetition Agreement between Action and Kenneth
David Belt;
(f) The Noncompetition Agreement between Action and Billy W.
White, Jr.;
(g) The Noncompetition Agreement between Action and R. Daniel
Matthews;
(h) Evidence satisfactory to Purchaser that the Split Dollar
Agreements have been terminated and that Action has no further obligation or
liability (whether accrued, contingent or otherwise) for the payment of any
premium or other amount in respect of the insurance policies described therein
and that Action has distributed to the Shareholders of Action the promissory
notes which, prior to the date hereof, were held by Action to evidence amounts
which have been paid by Action in respect of such insurance policies;
(i) Evidence satisfactory to Purchaser that Action and each
Seller has executed and delivered a waiver of their statutory preemptive rights
and their respective rights under Article VI, Sections 5-6, of Action's Bylaws
with respect to restrictions on the transfer of the Shares to Purchaser;
(j) Evidence reasonably satisfactory to Purchaser that the
"Shareholders Agreement for Common Stock in Action TV and Appliance Rental,
Inc." by and among Action and each Seller has been irrevocably terminated;
(k) Evidence reasonably satisfactory to Purchaser that all
accounts receivable, accounts payable, loan and other indebtedness by and
between Action, on the one hand, and any Seller or any company or other entity
in which such Seller has a direct or indirect financial interest, on the other
hand, has been paid in full;
- 2 -
<PAGE> 3
(l) Evidence satisfactory to Purchaser that all real estate
owned by Action has been conveyed and transferred by Action to a third party;
and
(m) Evidence satisfactory to Purchaser that any leases for
stores currently used by Action but executed in the name of White as the tenant
have been assigned to Action.
2.2. Further Assurances. Each Seller shall, from time to time
after the date hereof at Purchaser's reasonable request and without further
consideration, execute and deliver to Purchaser such instruments of transfer,
conveyance and assignment in addition to those delivered pursuant to Section 2.1
hereof as Purchaser shall reasonably request to transfer, convey and assign more
effectively the Shares owned by such Seller to Purchaser.
Section 3. Representations and Warranties of Billy W.
White, Sr.
White, the controlling shareholder of Action, but not the
other Sellers, hereby represents and warrants to Purchaser as follows:
3.1. Corporate Existence and Power. Action is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas. Action is duly licensed or qualified to do business as a foreign
corporation and is in good standing under the laws of the states listed in
Schedule 3.1 hereto and in each other state of the United States in which the
failure to so qualify would, or could reasonably be expected to, have a material
adverse effect on the business, assets, results of operations, condition
(financial or otherwise) or prospects of Action, and has all corporate power and
all material governmental licenses, authorizations, consents and approvals
required to carry out its business as now conducted.
3.2. Enforceability of Agreement. This Agreement has been duly
executed and delivered by each Seller and constitutes the legal, valid and
binding agreement of each Seller, enforceable against each Seller in accordance
with its terms.
3.3. Ownership of Shares. Each Seller is the owner of the
number of Shares listed opposite the name of such Seller on Schedule 3.3 hereto,
free and clear of all liens, charges and other encumbrances of any nature
whatsoever except as disclosed on Schedule 3.3. Schedule 3.3 sets forth a true
and complete list of all current beneficiaries of the trusts that are listed on
Schedule 3.3 as Sellers of Shares hereunder, and such beneficiaries constitute
the only persons, other than the Sellers, with any beneficial interest in the
Shares. The Shares constitute all the issued and outstanding shares of capital
stock of Action. Each Seller has the full legal right, power and authority to
sell, assign, transfer and deliver his Shares to Purchaser, free and clear of
all liens, charges and other encumbrances of any nature whatsoever except as
reflected on Schedule 3.3. By virtue of the transfer of the Shares and the
delivery of the stock certificates to Purchaser pursuant to Section 2.1 hereof,
Purchaser has obtained full and legal title to all of the Shares, free and clear
of any lien, charge or other encumbrance whatsoever except as reflected on
Schedule 3.3.
- 3 -
<PAGE> 4
3.4. Authorizations and Approvals. Assuming the accuracy of
Purchaser's representations and warranties hereafter set out regarding no
governmental filings, and except for those licenses described in Schedule 3.5 as
being nontransferable or requiring advance notice to the relevant authority, the
execution, delivery and performance by Sellers of this Agreement and the
consummation by Sellers of the transactions contemplated by this Agreement
require no action by or in respect of or filing with any governmental body,
agency, official or authority on the part of any Seller or Action other than
compliance with any applicable requirements of federal or state securities laws.
3.5. No Conflict. Except as disclosed on Schedule 3.5, the
execution, delivery and performance by Sellers of this Agreement and the
consummation by Sellers of the transactions contemplated by this Agreement do
not and will not (a) contravene or conflict with the Certificate of
Incorporation or Bylaws of Action, (b) contravene or conflict or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Sellers or Action, (c) to the knowledge
of White, constitute a default (or an event which with notice, the lapse of time
or both would become a default) under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Action or to a loss
of any benefit to which Action is entitled under any provision of any material
agreement or contract or other material instrument binding upon Action or any
material license or permit or similar material authorization held by Action, or
(d) result in the creation or imposition of any lien, encumbrance or charge of
any kind on any asset of Action.
3.6. Capitalization. Action's authorized capital stock
consists solely of ten thousand (10,000) shares of common stock, $1.00 par
value, of which one thousand (1,000) shares are issued and outstanding. All of
the outstanding shares of capital stock of Action have been duly authorized and
are duly and validly issued and outstanding, fully paid and nonassessable and
owned of record by Sellers. There are no shares of capital stock of Action held
in the treasury of Action. Except as disclosed on Schedule 3.6, there are no
existing or outstanding (i) options, warrants, contracts, preemptive rights,
proxies, calls, commitments or demands or rights of any character obligating
Action to issue any shares of capital stock of Action or options, warrants or
rights with respect thereto, (ii) securities of any kind convertible into or
exchangeable for shares of capital stock of Action, and (iii) agreements of any
kind relating to the issuance of any capital stock of Action, or any such
convertible or exchangeable securities or obligations, or any such options,
warrants or rights. There are no outstanding obligations of Action to
repurchase, redeem or otherwise acquire any outstanding capital stock of Action.
3.7. Certificate of Incorporation. Except as noted on Schedule
3.7, the Certificate of Incorporation, Bylaws, minute books and stock books of
Action which have been furnished to Purchaser are true and complete in all
material respects and contain all amendments thereto to date (in the case of the
Certificate of Incorporation and Bylaws), a record of all proceedings of the
Board of Directors of Action (and all committees of such Board) and the
shareholders of Action (in the case of the minute books), and a record of all
stock issuances and transfers (in the case of the stock books). Schedule 3.7
hereto contains a true and complete list of all of the current officers and
-4-
<PAGE> 5
directors of Action. The minutes of the Board of Directors and shareholders from
May 1995 until present have been misplaced and cannot be located. During that
time, the Board of Directors and shareholders authorized all transactions of
Action required to be so authorized and took no action which (i) has not been
disclosed to Purchaser; (ii) to the knowledge of White, has had or will have a
material adverse effect on the business, assets, results of operations,
condition (financial or otherwise) or prospects of Action and (iii) was not in
the ordinary course of business. The officers and directors of Action listed on
Schedule 3.7 have been duly elected by the Board of Directors and shareholders
of Action, respectively.
3.8. Subsidiaries. Action does not own, directly or
indirectly, any capital stock or other security of or interest in any other
corporation or any partnership, joint venture or other association.
3.9. 1996 Financial Statements. Prior to the date hereof,
Sellers have delivered to Purchaser the following financial statements
(including the respective notes thereto) for Action (such financial statements
being hereinafter referred to collectively as the "1996 Financial Statements"):
(a) The unaudited balance sheet of Action as at June 30,
1996 (the "1996 Balance Sheet"); and
(b) The unaudited statements of income for Action for
the period ended June 30, 1996.
The 1996 Financial Statements have been internally generated by Action and have
been prepared by Action on a basis consistent with prior years' internally
generated financial statements.
3.10. Absence of Undisclosed Liabilities. Except as and to the
extent reflected and adequately reserved against in the 1996 Balance Sheet, to
the knowledge of White, Action, as of June 30, 1996, had no material liability
or obligation whatsoever, whether accrued, absolute, contingent or otherwise,
required to be reflected or disclosed in the 1996 Financial Statements in
accordance with generally accepted accounting principles, except (i) for
liabilities and obligations (including, but not limited to equipment, vehicle
and real estate leases) incurred in the usual and ordinary course of business
consistent with past practice and (ii) those matters listed on Schedule 3.10. To
the knowledge of White, since June 30, 1996, Action has not incurred any
liability or obligation whatsoever, whether accrued, absolute, contingent or
otherwise, except in the usual and ordinary course of business. As of July 31,
1996, the outstanding balance under the Seajay Note was $2,206,957.79.
3.11. Tax Matters.
(a) Certain Definitions. "Tax" means any federal, state,
local, or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation,
-5-
<PAGE> 6
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real or 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 including any amendment
thereof. "Code" means the Internal Revenue Code of 1986, as amended.
(b) Tax Returns and Liabilities. To the knowledge of
White, Action has filed all Tax Returns that it was required to file. To the
knowledge of White, all such Tax Returns were correct and complete in all
material respects. To the knowledge of White, all Taxes owed by Action (whether
or not shown on any Tax Return) have been paid other than as described on
Schedule 3.11(b). Except as set forth in Schedule 3.11(b) hereto, Action
currently is not the beneficiary of any extension of time within which to file
any Tax Return. Except as disclosed on Schedule 3.11(b), no overt claim has ever
been made against Action by an authority in a jurisdiction where Action does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
To the knowledge of White, there are no liens or other security interests on any
of the assets of Action that arose in connection with any failure or alleged
failure to pay any Tax assessed by any taxing authority against Action.
(c) Withholding. Action has withheld and paid all
material 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) Tax Disputes. Except as reflected on Schedule
3.11(d), White has no knowledge of any claim by any authority to assess any
additional Taxes against Action for any period for which Tax Returns have been
filed with such authority. Except as reflected on Schedule 3.11(d), there is no
pending dispute or claim concerning any Tax liability of Action either (i)
raised by any authority in writing or (ii) as to which White has knowledge based
upon personal contact with any agent of such authority. Schedule 3.11(d) lists
all Tax Returns since 1991 that have been audited, and indicates those Tax
Returns that currently are the subject of audit. Action has made available or
delivered to Purchaser correct and complete copies of all federal income tax and
other Tax Returns filed by Action for taxable years ending after December 31,
1991, and all examination reports and statements of deficiencies relating
thereto.
(e) Waivers of Statutes of Limitations. Action has not
waived any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
(f) Tax Elections and Filings: Tax Accounting Matters. On
or before January 1, 1993 Action elected to be treated as an S corporation for
federal income tax purposes for taxable years ending after December 31, 1992
(and for state income tax purposes in the states set forth on Schedule 3.11(f)
for taxable years so indicated) and has not terminated or revoked any such
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election. To White's knowledge, Action has not been subject to the Tax on
built-in gains imposed under Code Section 1374 in any taxable year. Action has
not filed a consent under Code ss. 341(f) concerning collapsible corporations.
Action has not made any payments, is not obligated to make any payments, and is
not a party to any agreement that could obligate it to make any payments that
will not be deductible under Code ss.280G. Action has not been a United States
real property holding corporation within the meaning of Code ss. 897(c)(2)
during the applicable period specified in Code ss. 897(c)(1)(A)(ii). To White's
knowledge, all accounting periods and methods used by Action for Tax purposes
are permissible periods and methods, and to White's knowledge, Action is not
required to take into account any adjustments to its income under Code ss. 481.
Action is not a party to any Tax allocation or sharing agreement and, except
with respect to a subsidiary of Action that was dissolved in 1992, has not been
a member of an affiliated group filing a consolidated federal income Tax Return
with any other corporation. Except as set forth on Schedule 3.11(f) hereto, to
the knowledge of White, Action is not a party to any contract other than those
listed on Schedule 3.11(f) by which it indemnifies any other party with respect
to Taxes or otherwise assumes responsibility for Taxes assessed against another
party.
3.12. Absence of Certain Changes and Events. Except as set
forth in Schedule 3.12 hereto, since June 30, 1996, the business of Action has
been operated only in the usual and ordinary course of business consistent with
past practice, and since June 30, 1996, there has not been:
(a) Any material adverse change in the financial
condition, assets, liabilities (whether absolute, accrued or
otherwise), reserves, business or results of operations of
Action;
(b) Any material damage, destruction or casualty loss
(whether or not covered by insurance) to the assets owned or
leased by Action; or
(c) Any material and adverse change in the operation of
the business of Action or any material transactions entered
into other than in the ordinary course of business consistent
with prior practice.
In addition, except as set forth in Schedule 3.12 hereto, since June
30, 1996, Action has not:
(i) Issued or sold, or granted options, warrants or
rights to purchase or to subscribe to, or entered into any
arrangement or contract with respect to, the issuance or sale
of, any of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital
stock, or made any changes in its capital stock, or made any
tax distributions to its shareholders;
(ii) Declared, paid or set aside for payment any
dividend or other distribution on or in respect of its capital
stock, or directly or indirectly redeemed, purchased or
otherwise acquired any shares of its capital stock any
securities convertible into or exchangeable for any shares of
its capital stock, or any options,
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warrants or other rights to purchase or subscribe for any of
the foregoing, or authorized the creation or issuance of or
issued, sold or committed to sell (or granted any options or
rights to purchase) any additional shares of its capital
stock, or agreed to take any such action, or sold, issued or
incurred (or agreed to sell, issue or incur) indebtedness for
borrowed money having a maturity in excess of one year;
(iii) Organized any subsidiary, acquired any capital
stock or other equity security of any entity or other business
or venture, or acquired any equity or ownership interest in
any entity or other business or venture;
(iv) To White's knowledge, other than in the ordinary
course of business consistent with past practice and not in
excess of current requirements, incurred any obligation or
liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise) or assumed, guaranteed, endorsed or
otherwise as an accommodation become responsible for the
obligations of any other entity, business or venture;
(v) Paid, discharged or satisfied any liability or
obligation (whether absolute, accrued, contingent or
otherwise), other than the payment, discharge or satisfaction
of liabilities and obligations in the usual and ordinary
course of business;
(vi) Mortgaged, pledged or subjected to a lien,
security interest, encumbrance, restriction or charge of any
kind any of its assets (real, personal or mixed, tangible or
intangible), except for involuntary statutory liens and
contractual landlord's liens under leases;
(vii) To White's knowledge, canceled or waived any
material claim against any third party or right held by any
such third party, or canceled, released or assigned any
indebtedness to any such third party, or other than rental
contracts entered into in the ordinary course of business,
sold, transferred, distributed or otherwise disposed of any
material assets or properties;
(viii) Disposed of or permitted to lapse any rights to
the use of any material patent, trademark, trade name, service
mark, license or copyright which has been used in its business
in the last five (5) years, or, except in connection with the
proposed sale of the Shares or the business of Action to
Purchaser, disclosed to any person not under any obligation of
confidentiality to the Sellers or Action, any trade secret,
formula, process or know-how not theretofore a matter of
public knowledge;
(ix) Increased the compensation payable to or to
become payable by Action to any officer, director, key
employee or agent of Action, or any commission or bonus
payable to or to become payable by Action to any such officer,
director, employee or agent, or in any insurance, pension or
other benefit plan, payment or
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<PAGE> 9
arrangement made to, for or with any such officer, director,
employee or agent of Action;
(x) Other than in the ordinary course of business
consistent with past practice and not in excess of current
requirements, made any capital expenditure in excess of
$100,000 not previously committed or made any new commitment
in excess of $100,000 for additions to property, plant or
equipment;
(xi) Been the subject of or experienced any strike or
other work stoppage or concerted slow down or threat thereof,
union election or attempted collective bargaining of
employees;
(xii) Entered into any contract limiting the right of
Action at any time on or after the date of this Agreement to
engage in, or to compete with any person in, any business;
(xiii) Other than at the request of Purchaser, changed
any method of accounting or any accounting principle or
practice used by Action, except for any such change required
by reason of a concurrent change in generally accepted
accounting principles; or
(xiv) To White's knowledge, agreed, whether in writing
or not, to do any of the foregoing.
3.13. Material Contracts. Except as set forth on Schedule
3.13 hereto, Action has no:
(a) Contract or agreement involving amounts payable
by Action or amounts payable to Action in each case during any
12-month period which will aggregate $100,000 or more, other
than those disclosed on Schedules attached to this Agreement;
(b) "Action Employee Plan or Arrangement" (as
hereinafter defined);
(c) Contract or agreement for the purchase, sale or
lease of goods, materials, equipment, supplies or capital
assets or for the rendering of services involving payments by
Action which will aggregate $100,000 or more in any 12-month
period and which require more than thirty (30) days notice in
order for such commitments to be terminated without liability
to Action, other than those disclosed on Schedules attached
hereto;
(d) Contract or agreement with any distributor,
agent, dealer or sales representative which involves amounts
payable by Action during any 12-month period which will
aggregate $100,000 or more and which will require more than
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<PAGE> 10
thirty (30) days notice in order for such contract or
agreement to be terminated without liability to Action;
(e) Contract or agreement of any nature whatsoever with
any Seller, with any director or officer of Action or with any
entity or other business or venture in which any Seller or
director or officer of Action has a direct or indirect
financial interest;
(f) Loan, factoring, credit line or subordination
agreement;
(g) Lease of real, personal or mixed property under
which Action is a lessor or lessee, other than rental
contracts pursuant to which Action leases property to
consumers in the ordinary and usual course of Action's
business and other leases reflected on Schedules attached
hereto;
(h) Joint venture or partnership agreement or other
agreement involving sharing of profits;
(i) Outstanding power of attorney empowering any person
or entity to act on behalf of Action;
(j) Outstanding offer or bid which, if accepted, would
result in a contract or agreement requiring Action to pay, or
that there be paid to Action, in the aggregate, $100,000 or
more in any 12-month period;
(k) Purchase commitment or contract for an amount which
is substantially in excess of the normal, ordinary and usual
requirements of its business, or purchase or contract
commitment or contract providing for prices substantially in
excess of the current market prices for comparable goods and
services on the date of such commitment or contract, or sales
commitment or contract providing for prices substantially
below current market prices for comparable goods and services
on the date of such sales commitment or contract;
(l) Outstanding guaranty, subordination or other similar
type of agreement; or
(m) Any material contract, commitment or obligation not
made in the usual and ordinary course of business other than
those disclosed on the Schedules attached hereto.
True and complete copies of all such contracts and agreements noted on Schedule
3.13 have been furnished or made available to Purchaser. To the knowledge of
White, Action has duly complied in all material respects with all provisions of
every contract or agreement noted on Schedule 3.13
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<PAGE> 11
to which Action is a party and is not in default in any material respect as to
any such contract or agreement. To the knowledge of White, no condition or state
of facts exists which, with notice or the passage of time or both, would
constitute a material default under any contract or agreement noted on Schedule
3.13. To the knowledge of White, all contracts and agreements noted on Schedule
3.13 which, if individually or collectively, are not in full force and effect or
enforceable, could reasonably be expected to have a material adverse effect on
Action, are in full force and effect and are enforceable by Action against all
other parties thereto.
3.14. Litigation. Except as otherwise disclosed on Schedule
3.14 hereto, there is no claim, suit, action, governmental investigation or
litigation, or legal, administrative, arbitration or other proceeding of any
kind pending or to the knowledge of White overtly threatened against Action
(whether as plaintiff or defendant) or its property or business which if
determined adversely to Action could reasonably be expected to have a material
adverse effect on the business assets, results of operations, condition
(financial or otherwise) or prospects of Action.
3.15. Employees.
(a) Action has provided or made available a list of (i)
the names, titles, annual salaries and other compensation of all officers of
Action and all other employees of Action whose annual base salary exceeds
$50,000 and (ii) the wage rates for non-salaried employees of Action (by
classification). None of the employees referred to in clause (i) and no other
key employee of Action has disclosed to White or, to the knowledge of White, any
other officer, director or shareholder of Action, that he or she intends to
resign or retire as a result of the transactions contemplated by this Agreement
or otherwise for any reason within one year after the date of this Agreement.
(b) No employees of Action are on strike or threatening
any strike or work stoppage, and there is no pending union representation
election or negotiation of a collective bargaining agreement. Action is not
involved in any material controversy with any of its employees or any
organization representing any of its employees.
(c) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (i) result in
any payment (other than the Purchase Price) or benefit (including, without
limitation, severance, unemployment compensation, golden parachute or otherwise)
becoming due to any officer, director or employee of Action, (ii) increase any
benefits otherwise payable to any such officer, director or employee, or (iii)
result in any acceleration of the time of payment or vesting of any such
benefit.
(d) The following agreements (collectively, the "Split
Dollar Agreements") constitute all of the agreements (oral or written) currently
in effect between Action and any officer, director, employee or shareholder of
Action or any affiliate of any such parties regarding the ownership by Action
of, or payment by Action of any premium with respect to, any insurance policy
(other than under Action's Group Plan) in effect on the life of any such
officer,
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<PAGE> 12
director, employee or shareholder: the Collateral Assignment Split-Dollar Life
Insurance Agreement for Action TV & Appliance Rental, Inc. and The Billy W.
White, Jr. Dynasty Trust, dated February 11, 1993; the Collateral Assignment
Split-Dollar Life Insurance Agreement for Action TV & Appliance Rental, Inc. and
The Debra Kaye Belt Dynasty Trust, dated February 11, 1993; the Collateral
Assignment Split-Dollar Life Insurance Agreement for Action TV & Appliance
Rental, Inc. and Kenneth David Belt and Debra Kaye Belt, dated October 17, 1994;
the Collateral Assignment Split-Dollar Life Insurance Agreement for Action TV &
Appliance Rental, Inc. and Billy W. White, Jr. and Rochelle T. White, dated
October 17, 1994; and the Collateral Assignment Split-Dollar Life Insurance
Agreement for Action TV & Appliance Rental, Inc. and White Grandchildren's Trust
Number Two dated December 31, 1994.
3.16. ERISA.
(a) Except as set forth in Schedule 3.16 hereto, Action
has not established or maintained and is not obligated to make contributions to
or under or otherwise participate in any bonus, compensation, employment,
severance or other agreement, contract, arrangement or policy or any plan or
arrangement (whether written or oral) providing for insurance coverage
(including any self insurance arrangement), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which covers any employee or former employee
of Action. The contracts, plans and arrangements that are set forth in Schedule
3.16, true and correct copies of all of which have been furnished or made
available to Purchaser, are referred to collectively herein as the "Action
Employee Plans and Arrangements." The Action Employee Plans and Arrangements
which are intended to qualify under Section 401(a) of the Code will be
identified separately on Schedule 3.16.
(b) Action and the members of Action's controlled group,
as that term is defined in Section 4001(a)(14) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), do not maintain and are not
obligated to contribute to and have never maintained or been obligated to
contribute to any plan subject to Title IV of ERISA.
(c) To the Knowledge of White, Schedule 3.16 fairly and
fully sets forth the assets and the current liabilities and unfunded past
service liabilities of Action with respect to any such employee benefit pension
plan within the meaning of ERISA based upon the assumption that all Action
Employee Plans and Arrangements will remain in force. Except as otherwise set
forth in Schedule 3.16, all contributions due through (or allocable to the
period ending on) the date hereof from Action have been paid in full by Action.
(d) Except as disclosed on Schedule 3.16, to the
knowledge of White, each Action Employee Plan and Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations that are
applicable to such Action Employee Plan and Arrangement, including, but not
limited to the
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<PAGE> 13
requirement to timely file Form 5500 for each year in which such Action Employee
Plan and Arrangement was required to file a Form 5500.
(e) Except as disclosed on Schedule 3.16 and except with
regard to former employees of Action and their dependents who are currently
entitled to continuation of health coverage under a group health plan of Action,
or any current employee Action and such employee's dependents who may become
entitled to such continuation of coverage in connection with the transaction
contemplated by this Agreement, to the knowledge of White, Action has no current
or projected liability in respect of any post-retirement or post-employment
health or medical or life insurance benefits for retired, former or current
employees of Action. Except with regard to former employees of Action and their
dependents who are currently entitled to continuation of health coverage under a
group health plan of Action, or any current employee Action and such employee's
dependents who may become entitled to such continuation of coverage in
connection with the transaction contemplated by this Agreement, Action is not
subject to and no facts exist that are likely to result in liability under the
continuation of health coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 with respect to its own group health plans or the
group health plans of any related employer.
(f) To the knowledge of White, Action is in compliance
in all material respects with all currently applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours and is not and has not engaged in any unfair labor practice, as
that term is defined in 29 U.S.C. ss. 158. There is no unfair labor practice
complaint pending or, to the knowledge of White, overtly threatened against
Action before the National Labor Relations Board.
(g) None of the assets of Action constitute the assets
of any employee benefit plan subject to Title I of ERISA or Section 4975 of the
Code.
(h) Action is not and has never been a party to any
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.
(i) To the knowledge of White, each of the Action
Employee Plans and Arrangements which is intended to satisfy the requirements of
Section 401(a) of the Code has at all times satisfied the applicable
qualification requirements under Section 401(a) of the Code and the related
sections of the Code and regulations thereunder.
3.17. Environmental Matters.
(a) As used in this Agreement:
(i) "Environmental Law" means federal, state and local
laws, regulations, ordinances and codes, as well as orders, decrees, judgments
or injunctions issued, promulgated, approved or entered thereunder, relating to
pollution, protection of the
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<PAGE> 14
environment or public health and safety which are applicable
to Action or its business, including, but not limited to the
emission, discharge, release or threatened release of
Hazardous Substances (as hereinafter defined) into the
environment, or otherwise relating to the presence,
manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous
Substances which are applicable to Action or its business.
(ii) "Hazardous Substance" means any pollutant,
contaminant, toxic or hazardous or extremely hazardous
substance, material, waste, constituent or chemical
(including, without limitation, petroleum or any product,
by-product, or fraction thereof, any form of natural gas,
asbestos and asbestos-containing materials, polychlorinated
biphenyls ("PCBs") and PCB-containing equipment, radon and
other radioactive elements, infectious, carcinogenic,
mutagenic or etiologic agents, pesticides, defoliants,
explosives, flammables, corrosives and urea formaldehyde) that
is regulated by, forms the basis of liability under, or the
presence of which in the environment is prohibited by or
requires notification, investigation or remediation under, any
Environmental Law or the presence of which causes or threatens
to cause a public or private nuisance.
(b) To the knowledge of White, except as set forth in
Schedule 3.17 hereto:
(i) Action has obtained all permits, licenses and
other authorizations and filed all notices which are required
to be obtained or filed by Action under any Environmental Law;
(ii) Action is in compliance in all material respects
with all terms and conditions of such required permits,
licenses and authorizations;
(iii) Action is in compliance in all material respects
with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules
and timetables contained in any Environmental Law;
(iv) there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or
plans related to the presence, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release or threatened
release into the environment, of any Hazardous Substance by
Action other than in compliance with applicable laws;
(v) the properties and plants owned or leased by
Action do not contain any asbestos, polychlorinated biphenyls,
aboveground or underground storage tanks in any form, any
surface impoundment, lagoon, landfill or other containment
facility
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<PAGE> 15
for the storage, treatment or disposal of any Hazardous
Substance, or any wetlands area; and
(vi) Action has no knowledge and has not received notice
of any violation of any Environmental Law by Action nor has it
been advised by any governmental agency of any actual or
potential claim, liability or demand pursuant to any
Environmental Law against Action, including but not limited
to, a claim, notice or demand under the Comprehensive
Environmental Response, Compensation and Liability Act, 42
U.S.C. ss.ss.9601 et. seq. ("CERCLA") or other similar state
law, brought by any governmental agency, private party or
other entity with respect to the assets or the operation of
the business of Action.
3.18. Title to Properties; Encumbrances. As of the Closing
Date, Action owns no real property. Action has good, valid and marketable title
to all properties and assets owned by Action, subject to no lien, encumbrance,
charge or other restriction except: (a) liens securing liabilities or
obligations shown on or reflected in the 1996 Financial Statements; (b) liens
incurred since June 30, 1996 in the usual and ordinary course of business
consistent with past practices and listed on Schedule 3.18 hereto; (c) in the
case of real property, building and use restrictions and other matters of record
which do not interfere with the use made of such property by Action; (d) liens
for current property taxes not yet due and delinquent; and (e) rights of third
parties (including, but not limited to, landlords and rental customers of
Action) under contracts entered into by Action in the ordinary and usual course
of business.
3.19. Plants, Inventory and Accounts Receivable. Except to the
extent set forth in Schedule 3.19 hereto:
(a) To the knowledge of White, the plants, structures
and equipment owned or leased by Action are structurally sound and in good
repair and operating condition, normal wear and tear excepted, and are fully
adequate and satisfactory for the operations for which they are being used by
Action. Action has not received notification that it is in violation of any
applicable building, zoning, anti-pollution, health, safety, environmental or
other law, ordinance or regulation in respect of its plants, structures or
equipment
(b) At least ninety-five percent (95%) in value of the
rental merchandise, parts, supplies and accessories of Action included in the
1996 Financial Statements consisted of items which are good and merchantable
within normal trade tolerances and of a quality and quantity presently rentable,
usable or saleable in the usual and ordinary course of business.
(c) Attached hereto as Schedule 3.19(c) is an Action
Consolidated Daily Report as of July 27, 1996, which is true and correct in all
material respects. Such report reflects, as of the close of business on July 27,
1996, the number of active Action rental agreements with customers of Action and
the number of such rental agreements that are delinquent. The rental
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<PAGE> 16
agreements are bona fide agreements entered into in the usual and ordinary
course of business and, to the knowledge of White, the rental agreements are not
subject to any counterclaim or setoff.
(d) The accounts receivable of Action at June 30, 1996
arose from bona fide transactions in the usual and ordinary course of business
and, after taking into consideration the write offs and reclassification of
certain accounts receivable as reflected on Schedule 3.19, at least ninety
percent (90%) were good and collectible at the recorded amounts thereof and were
not subject to any counterclaim or setoffs.
3.20. Leases. Schedule 3.20 hereto sets forth a true, correct
and complete list of all leases of Action of real or personal property other
than those included within the Action Consolidated Daily Report attached as
Schedule 3.19(c) and those customer rental contracts entered into or terminated
since July 27, 1996 in the usual and ordinary course of business. All such
leases listed on Schedule 3.20 and, subject to the delinquencies reflected
therein, all leases included within the Action Consolidated Daily Report
attached as Schedule 3.19(c), to the knowledge of White, are valid and are in
full force and effect; to the knowledge of White, there are no existing claims
of defaults by Action thereunder or any other party to such leases; and to the
knowledge of White, no event has occurred which (whether with notice, lapse of
time, both) would constitute a default by Action thereunder or by any other
party to such leases.
3.21. Patents, Trademarks, Trade Names. Action owns, or has
the right to use, all trademarks and trade names, used in or necessary for the
ordinary conduct of its business, and the consummation of the transactions
contemplated hereby will not alter or impair the use of any such rights by
Action. Action has sufficient rights to use all patents and copyrights used in
or necessary for the ordinary conduct of its business without the payment of any
amount to third parties, and the consummation of the transactions contemplated
hereby will not alter or impair the use of any such rights by Action. All
material patents, trademarks, trade names and copyrights currently used or
proposed to be used by Action and all applications or registrations therefor are
set forth and fully disclosed on Schedule 3.21 hereto. No claims have been
asserted during the past year by any person against the use by Action of any
patents, trademarks, trade names, copyrights, technology, know-how or processes
used by Action, or any license or agreement related thereto, except as disclosed
on Schedule 3.21, and Action's management does not know of any valid basis for
any such claim.
3.22. Insurance. All policies of fire, liability, workers'
compensation, life and all other forms of insurance owned or held by Action are
described on Schedule 3.22 hereto. All such policies are in full force and
effect.
3.23. Suppliers. Schedule 3.23 hereto sets forth a true,
complete and correct list of the ten largest suppliers of Action in terms of
purchases during the fiscal year ended December 31, 1995 and for fiscal year
1996 through June 30, 1996, showing the total purchases by Action from each such
supplier during each such fiscal period. There has not been any material adverse
change in the business relationship of Action with any supplier named in
Schedule 3.23 hereto
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<PAGE> 17
3.24. Disclosure. To the knowledge of White, no
representations or warranties by White contained in this Agreement, and no
certificate, agreements, schedule, list, exhibit, instrument or other writing
furnished or to be furnished by Action or any Seller to Purchaser pursuant to
the provisions hereof contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
3.25. Acquisitions. Schedule 3.25 hereto sets forth a complete
list of acquisition agreements involving the acquisition by Action of
rent-to-own businesses entered into by Action in the past five years (the
"Acquisition Agreements') whether by way of an asset or a stock purchase, merger
or consolidation. White has no knowledge of facts or circumstances which could
reasonably give Action or any other party to the Acquisition Agreements (or
other agreements contemplated by the Acquisition Agreements) a right to seek
indemnification under the terms and conditions of the Acquisition Agreements
(and the other agreements contemplated by the Acquisition Agreements). To the
knowledge of White, Action has not cancelled, waived or released any of its
rights to indemnification under the Acquisition Agreements.
3.26. Seajay. Attached as Schedule 3.26 is the most recent
financial information provided to Action by Seajay Investment Group. White makes
no representation or warranty concerning the accuracy of such information or the
financial condition or solvency of Seajay Investment Group.
3.27. Brokers' and Finders' Fees. Neither Sellers nor Action
nor anyone acting on their behalf has done anything to cause or incur any
liability to any party for any brokers' or finders' fees or the like in
connection with this Agreement or any transaction contemplated hereby.
Section 4. Representations and Warranties by Purchaser.
Purchaser represents and warrants to Sellers as follows:
4.1. Corporate Existence and Power. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary corporate power and authority to
execute and deliver and perform its obligations under this Agreement.
4.2. Authorization; Enforceability of Agreement. This
Agreement and its execution, delivery and performance have been duly authorized
by all necessary corporate action on the part of Purchaser. This Agreement has
been duly executed and delivered by Purchaser and constitutes the legal, valid
and binding agreement of Purchaser, enforceable against Purchaser in accordance
with its terms.
4.3. Authorizations and Approvals. The execution, delivery
and performance by Purchaser of this Agreement and the consummation by Purchaser
of the transactions contemplated
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by this Agreement require no action by or in respect of or filing with any
governmental body, agency, official or authority or any third party on the part
of Purchaser other than compliance with any applicable requirements of federal
or state securities laws.
4.4. No Conflict. The execution, delivery and performance by
Purchaser of this Agreement and the consummation by Purchaser of the
transactions contemplated by this Agreement do not and will not (a) contravene
or conflict with the Certificate of Incorporation or Bylaws of Purchaser or (b)
assuming compliance with the laws referred to in Section 4.3, contravene or
conflict or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to Purchaser.
4.5. Brokers' and Finders' Fees. Neither Purchaser nor anyone
acting on its behalf has done anything to cause or incur any liability to any
party for any brokers' or finders' fees or the like in connection with this
Agreement or any transaction contemplated hereby.
4.6. Investment.
(a) Purchaser is acquiring the Shares for its own
account and not with a view to, or for sale in connection with, the
"distribution," as such term is used in Section 2(11) of the Securities Act of
1933, as amended (the "Securities Act"), of any of the Shares in violation of
the Securities Act; and
(b) Purchaser is an "accredited investor," as that term
is defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
Section 5. Covenants of the Parties.
5.1. Public Announcements. White and Purchaser will (i)
mutually agree on the text of any press release and (ii) consult with each other
before making any other public statement with respect to this Agreement and the
transactions consummated pursuant to this Agreement.
5.2. Indemnity of Directors, Officers and Key Employees.
Purchaser, as the sole shareholder of Action immediately following the Closing,
will amend the Bylaws of Action to provide as follows: "Officers and directors
of the corporation shall be indemnified to the fullest extent permitted by law."
Purchaser agrees that (i) such amendment shall be promptly adopted and such
indemnification shall apply to and extend to, and inure to the benefit of, those
officers, directors and key employees of Action in office or employed as of the
day immediately preceeding the effective date of this Agreement as fully as if
such Bylaw amendment had been in effect prior to the Closing; (ii) such
indemnification shall extend to such key employees notwithstanding that they are
not technically officers or directors; and (iii) such Bylaw provision shall
continue and no amendment or change shall be made thereto unless the effect of
such change or amendment is to expand the indemnification rights applicable to
such officers, directors and key employees.
-18-
<PAGE> 19
Section 6. Indemnification.
6.1. Sellers.
(a) Indemnity. White shall defend and indemnify
Purchaser and hold Purchaser wholly harmless from and against any and all
losses, liabilities, damages, costs (including, without limitation, court costs)
and expenses (including, without limitation, reasonable attorneys fees) which
Purchaser incurs as a result of, or with respect to, any inaccuracy in or breach
of any representation, warranty, covenant or agreement of any Seller contained
in this Agreement.
(b) Claims. In the event that Purchaser shall receive
written notice of any claim or proceeding that, if successful, might result in a
claim under this Section 6.1 by Purchaser, Purchaser shall give White written
notice of such claim or proceeding and shall permit White to participate in the
defense of such claim or proceeding by one counsel selected by White and at the
expense of White. White and Purchaser shall cooperate in the defense or
prosecution thereof and shall furnish such records, information and testimony,
and attend such conferences, discovery proceedings, hearings, trials and
appeals, as may be reasonably requested in connection therewith.
6.2. Purchaser.
(a) Indemnity. Purchaser shall defend and indemnify
Sellers and hold Sellers wholly harmless from and against any and all losses,
liabilities, damages, costs (including, without limitation, court costs) and
expenses (including, without limitation, reasonable attorneys fees) which
Sellers or any of them incur as a result of, or with respect to, any inaccuracy
in or breach of any representation, warranty, covenant or agreement by or on
behalf of Purchaser contained in this Agreement.
(b) Claims. In the event that Sellers shall receive
written notice of any claim or proceeding that, if successful, might result in a
claim under this Section 6.2 by Sellers, Sellers shall give Purchaser written
notice of such claim or proceeding and shall permit Purchaser to participate in
defense of such claim or proceedings by counsel selected by the Purchaser and at
the expense of Purchaser. Sellers and Purchaser shall cooperate in the defense
or prosecution thereof and shall furnish such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
and appeals, as may be reasonably requested in connection therewith.
6.3. Notice of Claim. Purchaser or White (individually or as
the representative of any Seller), as the case may be (the "Indemnified Party"),
shall promptly notify the other (the "Indemnifying Party") in writing of any
claim for indemnification hereunder, specifying in reasonable detail the basis
of such claim, the facts pertaining thereto and, if known, the amount, or an
estimate of the amount, of the liability arising therefrom. The Indemnified
Party shall provide
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<PAGE> 20
to the Indemnifying Party, as promptly as practicable thereafter, information
and documentation reasonably requested by the Indemnifying Party to support and
verify the claim asserted.
6.4. Limitations. Notwithstanding anything to the contrary
contained herein:
(a) Purchaser shall not assert any claim against White
or any Seller under or pursuant to this Agreement unless and until the amount of
Purchaser's losses, liabilities, damages, costs and expenses resulting from
inaccuracy in or breach of any representation, warranty, covenant or agreement
of Sellers, or any of them, contained in this Agreement (collectively,
"Damages") exceeds Seventy-Five Thousand Dollars ($75,000) in the aggregate (the
"Indemnification Threshold") and then Purchaser shall only be entitled to seek
and recover its Damages in excess of, but not those below, the Indemnification
Threshold;
(b) the maximum aggregate liability of White and the
other Sellers for all claims made by Purchaser pursuant to or under this
Agreement is Five Million Dollars ($5,000,000). Such limit shall apply
notwithstanding that such claims are asserted by a cause of action or legal
theory other than breach of contract;
(c) Purchaser acknowledges and agrees that it shall
look solely to White, and not the other Sellers, for indemnification with
respect to inaccuracy in or breach of any representation, warranty, covenant or
agreement contained in Articles 1, 2, 3, 5, 6 or 7 of this Agreement; and
(d) Except for the remedy of specific performance, the
rights and remedies of the parties hereto set forth in this Article 6 shall be
the exclusive rights or remedies available to Purchaser or the Sellers with
respect to claims for which indemnification is provided or authorized pursuant
to this Article.
Section 7. Miscellaneous.
7.1. Binding Effect. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors and permitted assigns and, in the case of Sellers, upon their
respective heirs and legatees and may not be assigned, in whole or in part, by
any party without the prior written consent of each other party.
7.2. Governing Law. This Agreement shall be deemed to be made
in, and in any and all respects shall be interpreted, construed and governed by
and in accordance with, the laws of the State of Texas (without regard to
principles of conflict of laws).
7.3. Expenses. Except as otherwise expressly provided herein,
Sellers shall pay the expenses incurred by Sellers in connection with the
preparation and execution of this Agreement and in connection with the
transactions contemplated hereby, and Purchaser shall pay the expenses so
incurred by Purchaser.
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<PAGE> 21
7.4. Headings. The section and paragraph headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
7.5. Notices. All communications provided for hereunder shall
be in writing and shall be deemed to be given when delivered in person or three
(3) business days after being deposited in the United States mail, first class,
registered or certified, return receipt requested, with proper postage prepaid
and,
(a) If to Sellers, addressed to:
Addresses of Sellers
on Exhibit A
with a copy to:
Gardere & Wynne, LLP
3000 Thanksgiving Tower
Dallas, TX 75201-4781
Attn: Cal L. Donsky
Telephone: 214/999-3000
Telecopy: 214/999-4828
(b) If to Purchaser, addressed to:
RTO, Inc.
P.O. Box 3524
Spartanburg, South Carolina 29304
Attn.: Dan C. Breeden, Jr.
Telephone: 864/594-5808
Telecopy: 864/594-5856
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<PAGE> 22
with a copy to:
King & Spalding
191 Peachtree Street
Suite 4900
Atlanta, Georgia 30303
Attn.: John D. Capers, Jr.
Telephone: 404/572-4658
Telecopy: 404/572-5145
or at such other place or places or to such other person or persons as shall be
designated in writing by the parties hereto.
7.6. Schedules and Exhibits. The following schedules and
exhibits are attached hereto and are hereby made a part of this Agreement by
this reference:
<TABLE>
<S> <C> <C>
Schedule 1.2 - Purchase Price
Schedule 3.1 - Corporate Existence and Power
Schedule 3.3 - Ownership of Shares; Liens or Encumbrances on Shares
Schedule 3.5 - Conflicting Agreements
Schedule 3.6 - Capitalization
Schedule 3.7 - Officers and Directors of Action
Schedule 3.10 - Undisclosed Liabilities
Schedule 3.11 - Tax Returns and Liabilities
Schedule 3.12 - Changes or Events Occurring Subsequent
to June 30, 1996
Schedule 3.13 - Material Contracts
Schedule 3.14 - Litigation
Schedule 3.16 - Action Employee Plans and Arrangements; ERISA
Schedule 3.17 - Environmental Matters
</TABLE>
-22-
<PAGE> 23
<TABLE>
<S> <C> <C>
Schedule 3.18 - Liens on Properties
Schedule 3.19 - Property, Inventory and Accounts Receivable
Schedule 3.20 - Leases
Schedule 3.21 - Patents, Trademarks and Trade Names
Schedule 3.22 - Insurance
Schedule 3.23 - Suppliers
Schedule 3.25 - Acquisitions
Schedule 3.27 - Brokers' and Finders' Fees - Sellers
Exhibit A - Names and Addresses of Sellers
</TABLE>
7.7. 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 together shall constitute one and the same instrument.
7.8. Entire Agreement; Amendments. This Agreement embodies
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. This Agreement may be modified
only by written instrument signed by each of the parties hereto.
7.9. Waiver of Conditions. Any party may, at its option,
waive in writing any or all of the conditions herein contained to which its
obligations hereunder are subject. No waiver of any provision of this Agreement,
however, shall constitute a waiver of any other provision (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
7.10. Survival of Representations, Warranties and Covenants.
Each of the representations, warranties, obligations, covenants and agreements
of the parties included or provided for herein or in any schedule, certificate
or other document delivered pursuant to this Agreement shall survive the
consummation of the transactions contemplated by this Agreement, notwithstanding
any investigation heretofore or hereafter made by any of them or on behalf of
any of them; provided, however, (i) the representations and warranties of White
contained herein (other than Sections 3.3, 3.6 and 3.11 hereof) shall not lapse
or expire on the Closing Date but shall survive until the second anniversary of
the Closing Date and (ii) no claim for indemnification for any inaccuracy in, or
breach of, any such representation or warranty may be made or asserted after the
second anniversary of the Closing Date; and provided, further, that (a) the
representations and
-23-
<PAGE> 24
warranties of White under Sections 3.3, 3.6 and 3.11 shall not lapse or expire
on the Closing Date but shall survive until the applicable statute of
limitations has expired and (b) no claim for indemnification for any inaccuracy
in, or breach of, any such representation or warranty in Sections 3.3, 3.6 and
3.11 may be made or asserted after the expiration of the applicable statute of
limitations. The respective expiration and bar dates set forth in the
immediately preceding sentence shall not affect indemnification claims asserted
(i.e. the party seeking indemnification has notified the other party in writing
of its claim) prior to the respective expiration and bar dates.
7.11. Assignment. This Agreement and all of the provisions
hereof shall be binding upon, and inure to the benefit of, the Sellers and
Purchaser and their respective successors and permitted assigns and, in the case
of the Sellers, their respective personal representatives, executors, heirs,
beneficiaries and permitted assigns.
7.12. Tax Election. Purchaser and the Sellers shall consent to
and timely file the Tax election under Code Section 1362(e)(3) necessary not to
have the pro rata allocation of S Corporation items under Code Section
1362(e)(2).
7.13. Failure to Obtain Landlord Consents. Action currently
leases 106 locations from which it conducts its day-to-day rental operations. A
list of those locations is attached as Schedule 3.20. Some of those leases
provide that a transaction of the nature contemplated by this Agreement will
constitute an event of default, breach or termination under such leases unless
the landlord's prior written consent to such transaction is obtained. Purchaser
agrees that failure by Action or Sellers to obtain any or all such consents,
either prior to or after the Closing Date, shall not be deemed in and of itself
(i) a breach of this Agreement or any representation, warranty, covenant or
agreement contained herein, or (ii) a failure or nonfulfillment of a condition
precedent to Purchaser's obligation to close the transactions contemplated by
this Agreement. Purchaser has agreed to close the transactions contemplated by
this Agreement notwithstanding that all such landlord consents have not been
obtained and none of the Sellers shall have any liability or responsibility for
failure to obtain such consents; provided, however, that White shall use his
best efforts to obtain such consents before and after the Closing Date.
7.14. Severability. If any provision of this Agreement shall
be held to be invalid, illegal or unenforceable, the parties agree that such
provision shall be enforced to the maximum extent permissible so as to effect
the intent of the parties, and the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby. If necessary to effect the intent of the parties hereto, the
parties will negotiate in good faith to amend this Agreement to replace the
unenforceable language with enforceable language which as closely as possible
reflects such intent.
7.15. Effective Date. The parties agree that, notwithstanding
the actual closing date of the transactions contemplated hereby, the
transactions shall be deemed to be effective and have closed as of the close of
business on July 31, 1996.
-24-
<PAGE> 25
7.16. Imputation of Knowledge. The parties agree that, for
purposes of those representations and warranties which are limited to the
"knowledge of White" or similar wording, the knowledge of facts and
circumstances by K. David Belt shall constitute knowledge of White and
"knowledge" shall be deemed to mean actual knowledge.
7.17. Facsimile Transmissions. This Agreement and all
agreements, documents and certificates delivered pursuant to this Agreement or
in connection with the transactions consummated pursuant to this Agreement may
be executed by any party and transmitted by such party to any other party or
parties by facsimile, and any such document shall be deemed to have full force
and effect as if the facsimile signature or signatures on such document were
originals.
-25-
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SELLERS:
/s/ Billy W. White, Sr.
--------------------------------------
Billy W. White, Sr.
BILLY W. WHITE ANNUITY TRUST
By: /s/ Debra K. Belt
---------------------------------
Debra K. Belt, Trustee
LILLIE B. WHITE ANNUITY TRUST
By: /s/ Debra K. Belt
---------------------------------
Debra K. Belt, Trustee
/s/ Debra K. Belt
--------------------------------------
Debra K. Belt
/s/ K. David Belt
--------------------------------------
K. David Belt
/s/ Billy W. White, Jr.
--------------------------------------
Billy W. White, Jr.
/s/ Rochelle White
--------------------------------------
Rochelle White
-26-
<PAGE> 27
MICHAEL BLAKE BELT QSST TRUST
By: /s/ Debra K. Belt
---------------------------------
Debra K. Belt, Trustee
JAMES DAVID BELT QSST TRUST
By: /s/ Debra K. Belt
---------------------------------
Debra K. Belt, Trustee
LESLIE KAYE BELT QSST TRUST
By: /s/ Debra K. Belt
---------------------------------
Debra K. Belt, Trustee
AUBREY LYNN WHITE QSST TRUST
By: /s/ Billy W. White, Jr.
---------------------------------
Billy W. White, Jr., Trustee
AMANDA CATHERINE WHITE QSST
TRUST
By: /s/ Billy W. White, Jr.
---------------------------------
Billy W. White, Jr., Trustee
-27-
<PAGE> 28
PURCHASER:
RTO, INC.
By: /s/ Dan C. Breeden, Jr.
------------------------------------------------
Name: Dan C. Breeden, Jr.
Title: Vice President, Treasurer and Secretary
-28-
<PAGE> 1
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
among
ACTION RENT-TO-OWN OF FLORIDA, INC.
B&L CONCEPTS, INC.
BILL OGLE
and
LARRY SUTTON
January 7, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I PURCHASE OF ASSETS..........................................................................1
1.1. Transfer of Assets..........................................................................1
1.2. Assumption of Liabilities...................................................................3
1.3. Purchase Price..............................................................................4
1.4. Payment of Purchase Price...................................................................4
1.5. Closing.....................................................................................5
1.6. Instruments of Conveyance and Assumption....................................................5
1.7. Further Assurances..........................................................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PURCHASER.................................................6
2.1. Organization and Good Standing..............................................................6
2.2. Authorization and Validity..................................................................7
2.3. No Violation................................................................................7
2.4. Finder's Fee................................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS............................................................................7
3.1. Organization and Good Standing..............................................................7
3.2. Capitalization..............................................................................7
3.3. Power and Authority; Authorization and Validity.............................................7
3.4. Financial Statements........................................................................8
3.5. Absence of Undisclosed Liabilities..........................................................8
3.6. Benefit Matters.............................................................................9
3.7. Absence of Certain Changes.................................................................10
3.8. Title; Leased Assets; Environmental Conditions.............................................11
3.9. Insurance..................................................................................11
3.10. Patents, Trademarks and Copyrights.........................................................12
3.11. No Violation...............................................................................13
3.12. Taxes......................................................................................13
3.13. Consents...................................................................................14
3.14. Labor Relations............................................................................14
3.15. Compliance with Laws.......................................................................14
3.16. Finder's Fee...............................................................................14
3.17. Litigation or Warranties...................................................................14
3.18. Employees and Consultants..................................................................14
3.19. Condition of Assets........................................................................15
3.20. Suppliers..................................................................................15
3.21. Contracts and Commitments..................................................................15
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
3.22. Accounts Receivable........................................................................17
3.23. Investment Representations.................................................................17
3.24. Accuracy of Information Furnished..........................................................18
ARTICLE IV PURCHASER'S COVENANTS......................................................................18
4.1. Consummation of Agreement..................................................................18
4.2. Retention of Records.......................................................................18
4.3. Employment Arrangements....................................................................18
ARTICLE V SHAREHOLDERS' COVENANTS....................................................................18
5.1. Business Operations........................................................................18
5.2. Access.....................................................................................19
5.3. Material Change............................................................................19
5.4. Approvals of Third Parties.................................................................19
5.5. Employee Compensation......................................................................19
5.6. Contracts..................................................................................19
5.7. Capital Assets; Payments of Liabilities....................................................20
5.8. Mortgages, Liens...........................................................................20
5.9. Changes in Inventory.......................................................................20
5.10. No Disclosure or Negotiation with Others...................................................20
5.11. Other Agreements...........................................................................20
5.12. Post-Closing Access........................................................................21
ARTICLE VI PURCHASER'S CONDITIONS PRECEDENT...........................................................21
6.1. Representations and Warranties.............................................................21
6.2. Covenants..................................................................................21
6.3. Opinion....................................................................................21
6.4. Proceedings................................................................................21
6.5. No Material Adverse Change.................................................................21
6.6. Due Diligence and Review...................................................................22
6.7. Approval by Board..........................................................................22
6.8. Accounting.................................................................................22
6.9. Employment Arrangements....................................................................22
ARTICLE VII SHAREHOLDERS' CONDITIONS PRECEDENT.........................................................22
7.1. Representations and Warranties.............................................................22
7.2. Covenants..................................................................................22
7.3. Proceedings................................................................................22
7.4. Employment Arrangements....................................................................22
ARTICLE VIII INDEMNIFICATION............................................................................23
8.1. Shareholders' Indemnity....................................................................23
8.2. Purchaser's Indemnity......................................................................23
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
8.3. Conditions of Indemnification..............................................................23
8.4. Exclusive Nature of Remedies...............................................................24
ARTICLE IX MISCELLANEOUS..............................................................................24
9.1. Amendment..................................................................................24
9.2. Assignment.................................................................................24
9.3. Notice.....................................................................................24
9.4. Confidentiality and Public Announcements...................................................25
9.5. Entire Agreement...........................................................................26
9.6. Costs, Expenses and Legal Fees.............................................................26
9.7. Severability...............................................................................26
9.8. Survival of Representations and Warranties.................................................26
9.9. Governing Law and Venue....................................................................26
9.10. Captions...................................................................................27
9.11. Counterparts...............................................................................27
9.12. Number and Gender..........................................................................27
9.13. Facsimile Transmissions....................................................................27
ARTICLE X TERMINATION................................................................................27
10.1. Termination by Purchaser...................................................................27
10.2. Termination by Shareholders................................................................27
10.3. Effect of Termination......................................................................28
10.4. Return of Information......................................................................28
EXHIBITS
A -- Form of Convertible Note
B -- Form of Assumption Agreement
C -- Form of Sutton Noncompetition Agreement
D -- Form of Ogle Noncompetition Agreement
E -- Form of License
</TABLE>
- iii -
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of January 7, 1996, is by and among Bill Ogle
("Ogle") and Larry Sutton ("Sutton"), individual residents of the State of
Florida (collectively, "Shareholders"), B&L Concepts, Inc. dba Champion Rent To
Own, a Florida corporation (the "Company") and Action Rent-To-Own of Florida,
Inc., a Florida corporation, ("Purchaser").
W I T N E S S E T H:
WHEREAS, RTO, Inc., a Delaware corporation ("RTO") desires to purchase
certain assets of the Company and to assume certain of the debts, obligations
and liabilities of the Company, and the Company desires to sell such assets to
RTO and to assign such debts, obligations and liabilities to RTO; and
WHEREAS, Purchaser is a wholly owned subsidiary of RTO;
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties to this Agreement, intending to be
legally bound, hereby agree as follows:
ARTICLE I
PURCHASE OF ASSETS
1.1. Transfer of Assets.
(a) Included Assets. On the terms and subject to the
conditions set forth in this Agreement, the Company hereby agrees to
sell, assign, transfer and deliver to Purchaser on the "Closing Date"
(as hereinafter defined), and Purchaser agrees to purchase from the
Company on the Closing Date, all of the rights, title and interest of
the Company in and to any and all assets owned by the Company on the
Closing Date, other than the assets described in Section 1.1(b)
hereof. The assets being transferred by the Company to Purchaser
hereunder (such assets being hereinafter collectively referred to as
the "Assets") shall include all the assets (other than the assets
described in Section 1.1(b) hereof) of every kind, nature and
description whatsoever, whether real, personal or mixed, tangible or
intangible, and wherever situated, which are owned by the Company on
the Closing Date, and shall include, without limitation:
(i) All cash, cash equivalents, marketable securities,
accounts receivable and prepaid expenses of the Company;
(ii) All notes receivable, deposits and advances of the
Company;
<PAGE> 6
(iii) All finished products, work-in-process, raw
materials, spare parts, stores and supplies, and other
inventory items;
(iv) All machinery, equipment, business machines,
vehicles, furniture, fixtures, leasehold and building
improvements and other tangible property of the Company of
every kind utilized in connection with the operations of the
Company's business, whether or not carried on the Company's
books;
(v) All right, title and interest of the Company in all
contracts, agreements, or other instruments relating to the
Company's business, including, without limitation, all
contracts listed on Schedule 3.21 hereto, any purchase orders
for machinery, equipment, inventory, supplies and all other
items, and all sales contracts, broker agreements, leases of
real and personal property and licenses;
(vi) All books and records, customer lists, customer
credit information, technical data, sales literature,
correspondence and computer printouts;
(vii) All patents, copyrights, know-how, technical
documentation, trade secrets, trademarks and trade names (and
all applications therefor) owned by the Company, including,
without limitation, those set forth on Schedule 3.20 hereto;
(viii) All other rights of the Company with respect to
any patents, copyrights, know-how, technical documentation,
trade secrets, trademarks and tradenames; and
(ix) All other intangibles of any kind or description,
wherever located , that are carried on the books of the
Company or which are owned by the Company and utilized in the
operations of the Company's business.
(b) Excluded Assets. Notwithstanding anything in this
Agreement to the contrary, there shall not be included in the Assets, and the
Company shall retain as its property, the following assets:
(i) The stock record books and minute books of the
Company;
(ii) Shares of capital stock of the Company held in the
treasury of the Company;
(iii) All rights to and claims for refunds of any
federal, state, local and foreign income taxes paid by the
Company, all tax returns and tax reports of the Company with
respect thereto and any amounts deposited with the Internal
Revenue Service pursuant to Section 7519 of the Internal
Revenue Code of 1986, as amended (the "Code");
- 2 -
<PAGE> 7
(iv) Any licenses, permits or other intangibles
(including federal and state tax and employment
identification numbers) which by their nature are
nonassignable and contracts or contact rights which are
assignable only with the consent of another party, and which
consent is not obtained by the Company pursuant to Section
5.4 hereof;
(v) The personal and real property set forth on
Schedule 1.1(b)(v) hereto;
(vi) All rights of the Company under contracts,
agreements or commitments which give rise to, which were
entered into in connection with the creation of, or which
otherwise pertain to "Excluded Liabilities" (as hereinafter
defined); and
(vii) This Agreement and all rights of the Company
hereunder including, without limitation, the right of the
Company to receive the "Purchase Price" (as hereinafter
defined).
1.2. Assumption of Liabilities.
(a) Assumed Liabilities. On the terms and subject to the
conditions set forth in this Agreement, Purchaser agrees that, on the
Closing Date, Purchaser shall assume and agree to pay, perform and
discharge the "Assumed Liabilities" (as hereinafter defined). For the
purposes of this Agreement, the term "Assumed Liabilities" shall
include, and shall be limited to (i) all debts, obligations and
liabilities of the Company (other than the debts and liabilities
described in Section 1.2(b) hereof) which arose out of the business
operations of the Company conducted on or prior to the Closing Date
and (ii) the benefits payable to current and former employees of the
Company set forth on Schedule 1.2(a) hereto.
(b) Excluded Liabilities. Notwithstanding anything in this
Agreement to the contrary, the term "Assumed Liabilities" shall not
include any of the following debts, obligations or liabilities of the
Company and, therefore, Purchaser shall not be obligated to assume
hereunder or to pay, perform or discharge any of such debts,
obligations and liabilities (the "Excluded Liabilities") (it being
understood that all such debts, obligations and liabilities shall
continue to be debts, obligations and liabilities of the Company):
(i) Any federal, state, local or foreign income taxes
payable by the Company or any Shareholder or any interest or
penalties with respect thereto;
(ii) Any liability of the Company under any employee
benefit plan (including, without limitation, any profit
sharing plan or any pension plan);
- 3 -
<PAGE> 8
(iii) Any liability of the Company for any finder's,
broker's or advisor's fee and expenses or the like incurred
in connection with the transactions contemplated by this
Agreement;
(iv) Any liability of the Company arising under this
Agreement or the transactions contemplated hereby;
(v) Any debt, obligation or liability of the Company or
to either Shareholder or any former shareholder;
(vi) Any debt, obligation or liability of the Company
under commitments to make charitable contributions;
(vii) Those debts, obligations and liabilities of the
Company to current and former employees of the Company set
forth on Schedule 1.2(b)(vii) hereto; and
(viii) Any liability of the Company arising under the
contacts, agreements or licenses set forth in Schedule
1.2(b)(viii) hereto which contracts, agreements and licenses
are not being purchased or assumed hereunder.
1.3. Purchase Price.
(a) On the terms and subject to the conditions set forth in
this Agreement, Purchaser shall, on the Closing Date, pay Thirteen
Million Seven Hundred Sixty One Thousand Eight Hundred Seventy Eight
Dollars ($13,761,878) to the Company in exchange for the Assets (such
consideration being referred to herein as the "Purchase Price"). The
parties hereto further agree that both Purchaser and the Company will
use said allocations for all federal and state income tax reporting
purposes that may affect the federal and state income tax liability of
any party to this Agreement.
(b) Purchaser and Seller agree that the Purchase Price shall
be allocated as required by Section 1060 of the Code. Such allocation
shall be prepared by Purchaser and shall be submitted to Seller within
ninety (90) days after the Closing Date. Seller shall have thirty (30)
days after receipt of Purchaser's allocation of consideration to
object by written notice to Purchaser. The parties shall attempt to
resolve any objections made by Seller as promptly as possible. All tax
returns and reports filed by Purchaser, Seller and Shareholders with
respect to the transactions contemplated by this Agreement shall be
consistent with such allocation.
1.4. Payment of Purchase Price. On the Closing Date, Purchaser
shall pay the Purchase Price to the Company, in exchange for the Assets, in the
following manner:
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(a) Purchaser shall pay to the Company, by wire transfer of
federal funds to an account at Barnett Bank, ABA No. 063000047
(Account No. 1000005238), Florida, an amount equal to Ten Million
Seven Hundred Sixty One Thousand Eight Hundred Seventy Eight Dollars
($10,761,878); and
(b) Purchaser shall deliver to the Company a convertible note
in the form attached hereto as Exhibit A (the "Note") in the aggregate
principal amount of Three Million Dollars ($3,000,000), which shall be
convertible into shares of common stock of RTO (the "RTO Stock").
Shareholders and the Company have advised Purchaser that simultaneously
with the delivery of the Purchase Price to the Company, the Company will
distribute (a) $6,755,939 of the cash portion of the Purchase Price delivered
pursuant to Section 1.4(a)(i) to Ogle and (b) (i) $3,755,939 of the cash
portion of the Purchase Price delivered pursuant to Section 1.4(a)(i) and (ii)
the Note delivered pursuant to Section 1.4(a)(ii) to Sutton. In addition, the
Company shall retain $250,000 of the Purchase Price to cover residual debts,
obligations and liabilities of the Company.
1.5. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m., Atlanta, Georgia
time, at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia
30303, on January 7, 1997, or on such other date as may be agreed upon by the
parties, in writing. The day on which the Closing occurs is hereinafter
referred to as the "Closing Date."
1.6. Instruments of Conveyance and Assumption.
(a) Transfer of Assets. On the Closing Date, the Company
shall execute and deliver to Purchaser all such instruments and
documents (the "Conveyance Documents") (including, without limitation,
bills of sale, assignments, certificates of title) as shall be
requested by Purchaser to effectuate the sale, assignment, transfer
and delivery of the Assets from the Company to Purchaser, provided,
however, that such instruments and documents shall not be inconsistent
with the terms hereof.
(b) Assumption of Liabilities. On the Closing Date, Purchaser
shall execute and deliver to the Company an assumption agreement (the
"Assumption Agreement"), substantially in the form of Exhibit B
hereto, pursuant to which Purchaser will assume and agree to pay,
perform and discharge the Assumed Liabilities.
(c) Further Assurances. The Company shall on the Closing Date
and from time to time thereafter at Purchaser's request and without
further consideration execute and deliver to Purchaser such
instruments of transfer, conveyance and assignment in addition to
those delivered pursuant to Section 1.6(a) hereof as Purchaser shall
request to transfer, convey and assign more effectively the Assets to
Purchaser. Similarly, Purchaser shall on the Closing Date and from
time to time thereafter at the Company's request and without further
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consideration execute and deliver to the Company such instruments of
assumption in addition to the Assumption Agreement delivered pursuant
to Section 1.6(b) hereof as the Company shall request to evidence more
fully Purchaser's assumption of the Assumed Liabilities. The Company
shall deliver to Purchaser at the Closing a list of the material
suppliers of the Company.
(d) Other Closing Deliveries. In addition, at the Closing,
Shareholders shall execute and/or deliver to Purchaser the following:
(A) the Noncompetition Agreements as described in Section
5.11(a) of this Agreement (the "Sutton Noncompetition
Agreements");
(B) the Noncompetition Agreement as described in Section
5.11(b) of this Agreement (the "Ogle Noncompetition
Agreement"); and
(C) the License as described in Section 5.11(c) of this
Agreement.
At the Closing, each party also shall execute and deliver, or cause to be
executed and delivered, such other documents as may be required of such party
pursuant to this Agreement as well as such other appropriate and customary
documents as any other party or its counsel reasonably may request for the
purpose of consummating the transactions contemplated by this Agreement. All
actions taken at the Closing shall be deemed to have been taken simultaneously
at the time the last of any such actions is taken or completed.
1.7. Further Assurances. After the Closing, the parties shall
execute and deliver such additional documents and take such additional actions
as any party or its or his counsel may reasonably deem to be practical and
necessary or advisable in order to consummate the transactions contemplated by
this Agreement and to vest more fully in Purchaser the ownership of certain
assets of the Company as they existed immediately prior to the Closing, except
as otherwise provided in this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants that the following are true and
correct as of this date and will be true and correct through the Closing Date
as if made on that date:
2.1. Organization and Good Standing. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with all requisite power and authority to carry on the
business in which it is engaged, to own the properties it owns and to execute
and deliver this Agreement to consummate the transactions contemplated hereby.
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<PAGE> 11
2.2. Authorization and Validity. The execution, delivery and
performance of this Agreement and the other agreements contemplated hereby by
Purchaser, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by Purchaser. This Agreement and each other
agreement contemplated hereby have been or will be prior to Closing duly
executed and delivered by Purchaser and constitute or will constitute legal,
valid and binding obligations of Purchaser, enforceable against Purchaser in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
2.3. No Violation. Neither the execution and performance of this
Agreement or the other agreements contemplated hereby, nor the consummation of
the transactions contemplated hereby or thereby, will (a) conflict with, or
result in a breach of the terms, conditions and provisions of, or constitute a
default under, the Certificate of Incorporation or Bylaws of Purchaser or any
agreement, indenture or other instrument under which Purchaser is bound, or (b)
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over Purchaser or the properties or assets of
Purchaser.
2.4. Finder's Fee. Purchaser has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, represent and
warrant that the following are true and correct as of this date and will be
true and correct through the Closing Date as if made on that date:
3.1. Organization and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida with all requisite power and authority to carry on the
business in which it is engaged and to own the properties it owns. The Company
is, and always has been, duly qualified and licensed to do business and is in
good standing in all jurisdictions where the nature of its business makes such
qualification necessary, which jurisdictions are listed on Schedule 3.1 hereto,
except where the failure to be so qualified or licensed would not have a
material adverse effect on the business or assets of the Company. The Company
does not have any assets, employees or offices in any state other than the
States of Florida, Georgia and Alabama. The Company does not own, directly or
indirectly, any of the capital stock of any other corporation or any equity,
profit sharing, participation or other interest in any corporation,
partnership, joint venture or other entity.
3.2. Capitalization. The authorized capital stock of the Company
consists of 1,000 shares of common stock, $1.00 par value (the "B&L Stock"), of
which 500 shares are issued and
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outstanding at the date hereof. Shareholders are the lawful record and
beneficial owners of all of the shares of B&L Stock outstanding.
3.3. Power and Authority; Authorization and Validity. The Company
and each Shareholder has full legal capacity to execute, deliver and perform
its or his obligations under this Agreement and all other agreements and
documents it or he is or will be executing in connection with this Agreement
and the transactions contemplated hereby. This Agreement and each other
agreement contemplated by this Agreement have been or will be duly executed and
delivered by the Company and each Shareholder and constitute or will constitute
legal, valid and binding obligations of the Company and each Shareholder,
enforceable against each of them in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable
remedies.
3.4. Financial Statements. The Company and Shareholders have
furnished to Purchaser an audited balance sheet as of December 31, 1995 and
unaudited balance sheets and related unaudited statements of income,
shareholders' equity and changes in financial position of the Company for the
fiscal years ending December 31, 1993 and 1994, including the notes thereto, as
well as the Company's unaudited balance sheets (the "Interim Balance Sheet")
and related unaudited statements of income, shareholders' equity and changes in
financial position for the ten month period ended October 31, 1996 (the
"Unaudited Financial Statements") (collectively, the "Financial Statements").
The Financial Statements have been prepared from, and are in accordance with,
the books and records of the Company and are true, correct and complete, fairly
reflect the financial condition and results of operations of the Company as of
the dates and for the periods indicated (subject to year-end adjustments
consistent with generally accepted accounting principles with respect to the
Unaudited Financial Statements) and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis with
prior periods. Since December 31, 1995 there has been no change in accounting
principles applicable to, or methods of accounting utilized by, the Company
except as noted in the Financial Statements.
3.5. Absence of Undisclosed Liabilities. Schedule 3.5 hereto sets
forth a complete and accurate list of the liabilities, contracts, commitments
and obligations of the Company of any nature, whether absolute, accrued,
contingent or otherwise as of the date of this Agreement which individually
exceeds $5,000 in value or in the aggregate exceed $20,000 in value. Each of
such liabilities, contracts, commitments or obligations is fully reflected,
accrued and reserved against, to the extent required by generally accepted
accounting principles, on the Unaudited Financial Statements that have been
given to Purchaser. Other than as set forth on Schedule 3.5, the Company is not
liable upon or with respect to, or obligated in any other way to provide funds
in respect of or to guarantee or assume in any manner, any debt, obligation or
liability of any person, corporation or other entity which individually exceeds
$5,000 or in the aggregate exceed $20,000. Shareholders, after due inquiry,
know of no basis for the assertion of any claims, liabilities or obligations
which if asserted and proven would be required to be listed on Schedule 3.5.
There are no defaults, events of default or events, occurrences or acts that,
with the giving of notice or lapse of time or both, would constitute defaults
or events of default by the Company or any other party thereto under any
contract,
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<PAGE> 13
commitment or obligation of the Company. Such contracts, commitments and
obligations are in full force and effect and are the valid and enforceable
obligations of the parties thereto in accordance with their terms, and no
defenses, off-sets or counterclaims have been asserted or may be asserted by
any party thereto, nor has the Company waived any rights thereunder.
3.6. Benefit Matters.
(a) Except as listed on Schedule 3.6 hereto, neither the
Company, nor any other corporation or trade or business under common
control with the Company (an "ERISA Affiliate") as determined under
Section 414(b), (c) or (m) of the Internal Revenue Code of 1986, as
amended (the "Code"), sponsors, maintains, or otherwise is a party to,
or has any accrued obligations under any pension, profit sharing or
other retirement plan, fringe benefit plan (including, but not limited
to, bonus, deferred compensation, severance, leave or other employee
benefit plan or program), health, group insurance or other welfare
benefit plan, or other similar plan, agreement, policy or
understanding, including, without limitation, any "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether formal or
informal under which the Company or an ERISA Affiliate has any current
or future obligation or liability or under which any present or former
employee of the Company or an ERISA Affiliate, or such present or
former employee's dependants or beneficiaries, has any current or
future right to benefits (each such plan, agreement, policy or
understanding being hereinafter referred to individually as a "Plan").
(b) Each Plan has been maintained, administered and operated
in all material respects in accordance with its terms and applicable
law and all reports required under ERISA or other applicable law to be
filed with any governmental agency with respect to each Plan have been
timely filed. No liability under ERISA or similar statute has been
incurred or, based upon existing facts, may be expected to be incurred
with respect to any Plan, that would, individually or in the
aggregate, be material in amount.
(c) The Company has not engaged in any transaction in
connection with which it, directly or indirectly, will be subject to
either a civil penalty assessed pursuant to Section 502(i) of ERISA or
a tax imposed by Section 4975 of the Code. The Company does not have
any current or project liability in respect of post-employment or
post-retirement benefits for any retired or former employee of the
Company, or such present or former employee's dependents or
beneficiaries, except as required to avoid excise tax under Section
4980B of the Code. With respect to each Plan that is funded wholly or
partially through an insurance policy, there will be no liability of
the Company, as of the Closing Date, under any such insurance policy
or ancillary agreement with respect to such insurance policy. The
consummation of the transactions contemplated hereby will not
accelerate the time of payment or vesting, or increase the amount of
compensation or benefits, of any director, employee or former employee
of the Company under a Plan.
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<PAGE> 14
(d) The Company has made or will make all contributions
required to be made by the Company under each Plan for all periods
through and including the Closing Date or adequate accruals therefore
have been or will be provided.
(e) There are no actions, suits, claims or proceedings
(including any investigation or audit by any governmental authority)
pending or, to the knowledge of the Company or Shareholders,
threatened, nor does there exist any basis therefor, with respect to
any Plan or trust maintained in connection therewith that would result
in any liability to the Company which would, individually or in the
aggregate, be material in amount.
(f) Neither the Company nor any ERISA Affiliate has ever
sponsored, adopted, maintained or been obligated to contribute to a
single employer, multiple employer or multi-employer defined benefit
pension plan which is, or ever was, subject to the provisions of Title
IV of ERISA. Neither the Company nor any ERISA Affiliates has ever
sponsored, adopted, maintained or been obligated to contribute to a
Plan which is or ever was subject to the minimum funding standards of
Section 302 of ERISA and Section 412 of the Code. The Company does not
have any obligation in connection with any Plan pursuant to the terms
of a collective bargaining agreement.
(g) No termination or partial termination of any Plan in
accordance with its terms will result in any liability to the Company.
3.7. Absence of Certain Changes. Except as set forth in Schedule
3.7 hereto or reflected in the Financial Statements, since January 1, 1996, the
Company has not (a) suffered any material adverse change in its financial
condition, assets, liabilities or business; (b) contracted for or paid any
capital expenditures in excess of $5,000 other than in the ordinary course of
business consistent with past practice both as to type and amount; (c) incurred
any indebtedness for borrowed money, issued or sold any debt securities or
discharged any liabilities or obligations other than in the ordinary course of
business consistent with past practice both as to type and amount; (d) paid any
material amount on any indebtedness prior to the due date, forgiven or canceled
any material debts or claims or released or waived any material rights or
claims, other than in the ordinary course of business consistent with past
practice both as to type and amount; (e) suffered any damage or destruction to
or loss of any assets (whether or not covered by insurance) that could or does
materially and adversely affect its business; (f) acquired or disposed of any
material assets or incurred any material liabilities or obligations, except the
rental and/or sale of inventory and trade debt incurred in the ordinary course
of business; (g) written up or written down the carrying value of any of its
assets other than in the ordinary course of business consistent with past
practice both as to type and amount and which, in the aggregate, are not
material to the Company; (h) changed the costing system or depreciation methods
of accounting for its assets; (i) waived any material rights or forgiven any
material claims; (j) lost or terminated employees, customers or suppliers that
could or does materially and adversely affect its business or assets; (k)
increased the compensation of any employee, other than in the ordinary course of
business consistent with past practice both as to type and amount; (l) made any
payments to or loaned any money to its affiliates; (m) formed or acquired or
disposed of any
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<PAGE> 15
interest in any corporation, partnership, joint venture or other entity; (n)
redeemed, purchased or otherwise acquired, or sold, granted or otherwise
disposed of, directly or indirectly, any of its capital stock or securities or
any rights to acquire such capital stock or securities, or agreed to change
terms and conditions of any such rights; or (o) entered into any other
commitment or transaction or experienced any other event that is material to
this Agreement or to any of the other agreements and documents executed or to be
executed pursuant to this Agreement or to the transactions contemplated hereby
or thereby, or that has affected, or could reasonably be expected to affect,
materially and adversely, the Company's business, operations, assets,
liabilities or financial condition.
3.8. Title; Leased Assets; Environmental Conditions.
(a) Except as described in the Financial Statements and
Schedule 3.8 hereto, the Company owns all assets used by the Company
used in or necessary to its business, including, its real and personal
property leaseholds, free and clear of all liens, claims and
encumbrances. The Company owns or validly leases and has good and
indefeasible record and beneficial title to all assets used in or
necessary to the conduct of the business of the Company as conducted
immediately before the date of this Agreement. Upon consummation of
the transactions contemplated by this Agreement, the Company shall be
entitled to continue to use all assets, leased or owned, used in or
necessary to its business, free and clear of all liens, claims and
encumbrances other than those described on Schedule 3.8.
(b) Except for those assets acquired or disposed of since
October 31, 1996 in the ordinary course of business consistent with
past practices both as to type and amount, all tangible properties and
assets material or necessary to the present operations of the Company
are reflected in the Financial Statements and the notes thereto in a
manner and to the extent required by generally accepted accounting
principles.
(c) Except as set forth on Schedule 3.8, no hazardous or
toxic material (as hereinafter defined) exists or has existed in any
structure located on, or exists or has existed on or under the surface
of, any real property owned, leased or otherwise used by the Company,
any predecessor or successor to the Company or affiliate of the
Company in its business. The Company has never been in violation of
any environmental law (as hereinafter defined). For purposes of this
section "hazardous or toxic material" shall mean waste, substance,
materials, smoke, gas or particulate matter designated as hazardous,
toxic or dangerous under any environmental law. For purposes of this
section, "environmental law" shall include the Comprehensive
Environmental Response Compensation and Liability Act, the Clean Air
Act, the Clean Water Act, and any other applicable federal, state or
local environmental, health or safety law, rule or regulation relating
to or imposing liability or standards concerning or in connection with
hazardous, toxic or dangerous waste, substance, materials, smoke, gas
or particulate matter. Except as set forth on Schedule 3.8, there are
no environmental assessments or audits of the Company or any of its
assets.
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<PAGE> 16
3.9. Insurance. Schedule 3.9 attached hereto contains a true,
complete and correct description (including type of insurance, named insured,
issuer name, policy limits, deductibles, premiums and expiration dates) of all
insurance policies currently owned by the Company or any other person or entity
for the benefit of the Company (the "Insurance Policies"). All of the Insurance
Policies have been issued by insurers of recognized responsibility in amounts
and against such risks and losses as are required by law or agreements to which
the Company is a party, or which are otherwise customary in the Company's
industry. All of the Insurance Policies are valid and enforceable, no notice of
termination or threatened termination of any of the Insurance Policies has been
received by the Company and all payments of premiums under the Insurance
Policies are current. The Company has not received any notice from any
insurance company of any defects or inadequacies in any real or personal
property owned or leased by the Company, or any part thereof, that would
adversely affect the insurability of such property or the premiums for the
insurance thereof. True, complete and correct copies of all of the Insurance
Policies have been delivered to Purchaser.
3.10. Patents, Trademarks and Copyrights.
(a) The Company owns all patents, trademarks and copyrights,
if any, necessary to conduct its business, or possesses adequate
licenses or other rights, if any, therefor, without conflict with the
rights of others. Set forth in Schedule 3.10 hereto is a true and
correct description of the following ("Proprietary Rights"):
(i) All trademarks, trade names, service marks and
other trade designations, including common law rights,
registrations and applications for registration, and all
patents, copyrights and applications currently owned, in
whole or in part, by the Company, and all licenses,
royalties, assignments and other similar agreements relating
to the foregoing to which the Company is a party (including
expiration dates if applicable); and
(ii) All agreements relating to technology, know-how
or processes that the Company is licensed or authorized to
use by others, or which it licenses or authorizes others to
use.
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any
third parties. No claim has been asserted by any person to the
ownership of or right to use any Proprietary Right or challenging or
questioning the validity or effectiveness of any such license or
agreement, and neither the Company nor Shareholders know of any valid
basis for any such claim. Each of the Proprietary Rights is valid and
subsisting, has not been canceled, abandoned or otherwise terminated
and, if applicable, has been duly issued or filed.
(c) The Company and Shareholders have no knowledge of any
claim that, or inquiry as to whether, any product, activity or
operation of the Company infringes upon or involves, or has resulted in
the infringement of, any Proprietary Right of any other person,
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<PAGE> 17
corporation or other entity; and no proceedings have been instituted,
are pending or, to the knowledge of Shareholders or the Company, are
threatened which challenge the rights of the Company with respect
thereto. The Company has not given and is not bound by any agreement of
indemnification for any Proprietary Right.
3.11. No Violation. Neither the execution and performance of this
Agreement or the agreements contemplated hereby nor the consummation of the
transactions contemplated hereby or thereby will (a) result in a violation or
breach of the Articles of Incorporation or Bylaws of the Company or any
agreement or other instrument under which the Company or any Shareholder is
bound or to which any of the assets of the Company or Shareholders are subject,
or result in the creation or imposition of any lien, charge or encumbrance upon
any of such assets, or (b) violate any applicable law or regulation or any
judgment or order of any court or governmental agency. The Company complied
with all applicable laws, regulations and licensing requirements, and has filed
with the proper authorities all necessary statements and reports related, or
required with respect, to the business of the Company. The Company possesses
all licenses, franchises, permits and governmental authorizations necessary to
conduct its business.
3.12. Taxes. Except as set forth on Schedule 3.12, the Company has
duly and timely filed all income, excise, corporate, franchise, property, sales,
payroll, withholding and other tax returns and reports required to be filed by
it as of the date hereof by the United States of America or any state or any
political subdivision thereof and has paid or established adequate reserves for
all taxes (including penalties and interest) which have or may become due
pursuant to such returns and any assessments which have been received by it or
otherwise. All such tax returns or reports fairly and correctly reflect the
taxes of the Company for the periods covered thereby. The Company is not
delinquent in the payment of any tax, charge or assessment or governmental
charge; there is no tax deficiency or delinquency asserted against the Company;
and there is no unpaid assessment, proposal for additional taxes, deficiency or
delinquency in the payment of any of the taxes of the Company that could be
asserted by any taxing authority. No federal, state or local audit of the
Company by any taxing authority is pending or threatened, and the results of any
completed audits are properly reflected in the Financial Statements. The Company
has not granted to any taxing authority any extension of the limitation period
during which any tax liability may be asserted. The Company has not committed a
violation of any federal, state, local or foreign tax laws. All taxes required
to be withheld or collected by the Company and the portion of any such taxes to
be paid by the Company to governmental agencies, have been collected or withheld
and either paid to the respective governmental agencies or set aside in accounts
for such purpose, or such monies have been approved, reserved against and
entered upon the books of the Company. The Company has never been a member of
any affiliated, consolidated, combined, or unitary group, or filed or been
included in a combined, consolidated or unitary return, and the Company is
currently under no contractual obligation to indemnify any other person with
respect to taxes. The Company is not and never has been a party to or bound by
any tax sharing, tax allocation, or similar agreement or arrangement. The
Company has never been a member of, or had an interest in, any partnership,
joint venture, trust, limited liability company or other entity, the taxable
income of which is or was required to be taken into account by the Company on
its tax returns, in whole or in part. Schedule 3.12 sets forth all
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<PAGE> 18
foreign, state and local jurisdictions where the Company has filed tax returns,
and no claim has ever been made by any taxing authority against the Company.
3.13. Consents. Except for the consents of the persons and entities
set forth on Schedule 3.13, no authorization, consent, permit or license of, or
filing with, any governmental or public body or authority, any lender or
lessor, any franchisor or any other person or entity is required or advisable
to authorize, or is required in connection with, the execution, delivery and
performance of this Agreement or the agreements contemplated hereby on the part
of the Company or Shareholders.
3.14. Labor Relations. The Company has not experienced and is not
currently experiencing, nor do the Company or Shareholders know of any reason
to expect, any labor troubles or strikes, work stoppages, slow-downs or other
material interference with or impairment of the business of the Company by
labor, nor has the Company committed any unfair labor practice. The Company is
not currently experiencing, nor do the Company or Shareholders know of, any
current or contemplated union organization efforts or negotiations, or requests
for negotiations, for any representation or any labor contract relating to the
employees of the Company.
3.15. Compliance with Laws. The Company and Shareholders have
complied in all materials respects with each, and there are no existing or past
violations of, or, to the Company's or Shareholders' knowledge, any proposed
change contemplated in, any applicable federal, state or local law or
regulation that could adversely affect the Company, Shareholders, their
property or business.
3.16. Finder's Fee. The Company and Shareholders have not incurred
any obligation for any finder's, broker's or agent's fee in connection with the
transactions contemplated hereby.
3.17. Litigation or Warranties. Except as described in Schedule
3.17, neither the Company nor Shareholders have had any legal action or
administrative proceeding or investigation instituted or, to the best of the
knowledge of the Company and Shareholders, threatened, against or affecting, or
that could affect, any of the Company, Shareholders or their assets or
business. The Company and Shareholders are not (a) subject to any continuing
court or administrative order, judgment, writ, injunction or decree applicable
specifically to the Company or to its business, assets, operations or
employees, or (b) in default with respect to any such order, judgment, writ,
injunction or decree. The Company and Shareholders know of no basis for any
such action, proceeding or investigation. There is no claim against or
liability of the Company on account of product warranties or with respect to
the manufacture, sale or rental of defective products, and to the knowledge of
the Company and Shareholders, there is no basis for any such claim.
3.18. Employees and Consultants. Set forth on Schedule 3.18 hereto
is a complete and accurate list of all employees of the Company as of the date
of this Agreement, together with their positions and their annual salaries and
other compensation, including accruals for vacations through such date. Except
as set forth in Schedule 3.18, the Company has not granted or become obligated
to grant any increases in the wages or salary of, or paid or become obligated to
pay any bonus or
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<PAGE> 19
made or become obligated to make any similar payment to or grant any benefit to
or on behalf of, any officer, employee or agent. Except as set forth in Schedule
3.18, the Company has no direct or indirect, express or implied, obligation to
pay severance or termination pay to any officer or employee of the Company, or
to pay any amounts to any consultant, agent or similar person or entity. No
employee has any material claim against the Company, whether under federal or
state law, any employment agreement or otherwise. The Company and Shareholders
have no knowledge of any facts which would indicate that following the Closing
any employee of the Company will not continue employment with the Company on a
basis no less favorable than that upon which such employee is currently employed
by the Company.
3.19. Condition of Assets.
(a) All of the assets owned or leased by the Company are in
good condition and repair and are suitable for their intended use
(subject to normal wear and tear and obsolescence) in the ordinary
course of business and have been properly serviced and maintained and
conform in all material respects with all applicable ordinances,
regulations and other laws and there are no known structural or latent
defects therein.
(b) At least ninety-five percent (95%) in value of the rental
merchandise, parts, supplies and accessories of the Company included
in the Unaudited Financial Statements of the Company consisted of
items which are good and merchantable, within normal trade tolerances
and of a quality and quantity presently rentable, usable or saleable
in the usual and ordinary course of business of the Company.
(c) Attached as Schedule 3.19 is a report as of December 21,
1996 which is true and correct in all material respects. Such report
reflects, as of the close of business on December 21, 1996, the number
of active rental agreements with customers of the Company and the
number of such rental agreements that are delinquent. The rental
agreements are bona fide agreements entered into in the usual and
ordinary course of business and, to the knowledge of the Company and
Shareholders, the rental agreements are not subject to any
counterclaim or set-off.
3.20. Suppliers. Set forth on Schedule 3.20 is a complete and
accurate list of the top ten suppliers of the Company in terms of purchases
during the fiscal year ending December 31, 1995 and during the fiscal year 1996
through October 31, 1996 showing the total purchases by the Company from each
supplier during each such fiscal period. There has not been any material
adverse change in the business relationship of the Company with any supplier
named in Schedule 3.20.
3.21. Contracts and Commitments. Schedule 3.21 hereto lists all of
the following types of contracts to which the Company is a party or which the
Company is subject to:
(a) requirements contracts (which do not terminate, or is not
terminable by the Company, prior to December 31, 1996) under which
sales or purchases are made;
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<PAGE> 20
(b) joint venture agreements or arrangements or other
agreements involving the sharing of profits;
(c) other "Material Contracts" (as hereinafter defined);
(d) contracts or agreements for the sale of its products or
the furnishing of services, or any sales agency, broker, distribution
or similar contracts, except contracts made in the ordinary and
regular course of business;
(e) (i) employment contracts with any officer, consultant,
director or employee, or (ii) plans, arrangements or contracts
providing for options, bonuses, stock purchases, pensions, deferred
compensation, retirement payments, profit-sharing or the like;
(f) collective bargaining or union contracts or agreements;
(g) contracts or agreements restricting it or otherwise
limiting its freedom to compete in any line of business or with any
person, or from otherwise carrying on its business anywhere in the
world;
(h) agreements or contracts setting forth liability or
obligation with respect to the return of inventory or merchandise in
the possession of wholesalers, distributors, retailers or other
customers;
(i) debt obligations, including guarantees of or agreements
to acquire any debt obligation of others;
(j) Except as set forth on the 1995 Balance Sheet, and except
for reasonable travel advances, agreements or contracts pursuant to
which there exists any outstanding loan to any person or entity; and
(k) powers of attorney from the Company.
The Company is not in default in any material respect of any contract,
agreement, lease, license, permit or concession described in Schedule 3.21. As
used herein, "Material Contract" shall mean any contract or agreement that could
reasonably be anticipated to involve sales or purchases by the Company in any
twelve (12) month period in excess of an aggregate of $50,000, or any contract
or agreement that by its terms requires the Company to make payments thereunder
in any twelve (12) month period in excess of an aggregate of $50,000.
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<PAGE> 21
3.22. Accounts Receivable. Except as and to the extent set forth in
Schedule 3.22 hereto, the accounts receivable of the Company at November 30,
1996, to Shareholders' knowledge, were good and collectible at the recorded
amounts thereof, were not subject to any counterclaims or setoffs (less the
amount of any applicable existing reserves for uncollectibility, counterclaims
or setoffs reflected or reserved against as set forth on the 1995 Balance Sheet)
and arose from bona fide transactions in the ordinary course of business. The
accounts receivable of the Company which will be included as a part of the
Assets will be , to Shareholders' knowledge, good and collectible at the
recorded amounts thereof, will not be subject to any counterclaims or setoffs
(other than the amount of any applicable existing reserves for uncollectibility,
counterclaims or setoffs) and shall have arisen from bona fide transactions in
the ordinary course of business.
3.23. Investment Representations. Each of the Company and Sutton
(a) is acquiring the Note and, when it is converted, will
acquire the RTO Stock, for his own account, for investment, and not
with a view to the resale or distribution thereof in violation of the
Securities Act;
(b) has the ability to, and understands that it or he must,
bear the economic risk of its or his investment in RTO Stock
indefinitely, because (i) the issuance of RTO Stock will not be
registered under the Securities Act or any applicable state securities
laws, and (ii) RTO Stock may not be resold unless subsequently
registered under the Securities Act and such other laws or unless an
exemption from such registration is available;
(c) will not pledge, transfer, convey, or otherwise dispose
of any of RTO Stock, except (i) subject to an effective registration
statement under the Securities Act and any applicable state securities
laws, or (ii) after delivery to Purchaser of an opinion of counsel to
the effect that such registration is not required (which opinion and
counsel must be satisfactory to Purchaser and may be relied on by
Purchaser in making such determination);
(d) has had the opportunity to ask the management of
Purchaser questions regarding the business and financial condition of
Purchaser and the Note and the RTO Stock;
(e) has such knowledge and experience in financial and
business matters that it or he is capable of evaluating the merits and
risks of its or his investment in the Note and the RTO Stock;
(f) is an "accredited investor" as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act;
(g) has received no representation, commitment or indication
from Purchaser or its representatives that Purchaser will register the
Note or the RTO Stock (including that received by Shareholders) under
federal or state securities laws at any time in the future; and
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<PAGE> 22
(h) acknowledges that Sutton recognizes that the provisions
of Rule 144 promulgated under the Securities Act are not available for
the public resale of the Note or the RTO Stock received by Sutton,
that Sutton has no right to have the Note or such shares of RTO Stock
registered under the Securities Act to permit them to be resold, and
that there is no established market for such shares and no likelihood
that one will develop.
3.24. Accuracy of Information Furnished. All information furnished
to Purchaser by the Company or Shareholders herein or in any schedule hereto is
true, correct and complete in all material respects. Such information states all
material facts required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements are made,
true, correct and complete in all material respects.
ARTICLE IV
PURCHASER'S COVENANTS
4.1. Consummation of Agreement. Purchaser agrees to use its best
efforts to cause the consummation of the transactions contemplated by this
Agreement in accordance with their terms and conditions.
4.2. Retention of Records. Purchaser shall retain all books and
records of the Company which Purchaser receives from the Company for the entire
period required by the Internal Revenue Service, the Department of Labor, or
other authorities or agencies for which the Company is required to retain
records. After the Closing, the Company and its representatives shall have
reasonable access to all such books and records during normal business hours. In
addition, Purchaser shall, upon reasonable request of the Company, furnish to
the Company, without charge, copies of any such books or records.
4.3. Employment Arrangements. Purchaser shall use its best efforts
to enter into employment arrangements with Larry Sutton which shall contain the
terms described in Schedule 4.3.
ARTICLE V
SHAREHOLDERS' COVENANTS
Shareholders, jointly and severally, agree that from the execution
hereof and on or prior to the Closing:
5.1. Business Operations. The Company shall conduct its business
only in the ordinary and usual course of business consistent with past and
current practices, will not introduce any new method of management or operation,
and Shareholders shall use their best efforts to maintain and preserve the
business organization and goodwill of the Company intact, to retain the services
of its key officers and employees and retain its present customers and suppliers
so that they will be available to Purchaser after the Closing and to cause
consummation of the transactions contemplated by this
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<PAGE> 23
Agreement in accordance with its terms and conditions. Shareholders shall not
take any action that might impair the business or assets of the Company without
the prior consent of Purchaser or take or fail to take any action that would
cause or permit the representations made in Article III hereof to be inaccurate
at the time of Closing or preclude Shareholders from making such representations
and warranties at the Closing. The Company shall not declare, pay or set aside
for payment any dividends or distributions of any kind, other than normal S
Corporation or distributions not to exceed in the aggregate $62,000. The Company
shall not make any loan or advance to any shareholder, officer, director, or
employee or redeem, purchase, or otherwise acquire or sell or grant any of its
shares or any right to acquire such shares.
5.2. Access. The Company and Shareholders shall permit Purchaser
and its authorized representatives full access to, and make available for
inspection, all of the assets and business of the Company, including the
Company's employees, customers and suppliers, and furnish Purchaser all
documents, records and information relating thereto and with respect to the
affairs of the Company as Purchaser and its representatives may reasonably
request, all for the sole purpose of permitting Purchaser to become familiar
with the business and assets and liabilities of the Company.
5.3. Material Change. Prior to the Closing, the Company and
Shareholders shall promptly inform Purchaser in writing of any material adverse
change in the condition of the assets or business of the Company.
Notwithstanding the disclosure to Purchaser of any such material adverse change,
Shareholders shall not be relieved of any liability for, nor shall the providing
of such information by the Company and Shareholders to Purchaser be deemed a
waiver by Purchaser of, the breach of any representation or warranty of
Shareholders contained in this Agreement.
5.4. Approvals of Third Parties. As soon as practicable after the
execution of this Agreement, but in any event prior to the Closing Date, the
Company and Shareholders will use their best efforts to secure all necessary
approvals and consents of third parties to the consummation of the transactions
contemplated by this Agreement.
5.5. Employee Compensation. Except with Purchaser's prior written
consent or pursuant to contracts in existence as of the date hereof, no increase
will be made in the compensation or rate of compensation payable or to become
payable to the officers or employees of the Company, and no bonus (other than
those described in Schedule 3.18), profit sharing, retirement, insurance, death,
fringe benefit or other extraordinary or indirect compensation shall accrue, be
set aside or be paid to, for or on behalf of any of such officers or employees
other than as required by presently existing pension, profit sharing, bonus and
similar benefit plans as presently constituted, and no agreement or plan other
than those now in effect shall be adopted or committed for.
5.6. Contracts. Except with Purchaser's prior written consent, the
Company shall not waive any right or cancel any contract, debt or claim nor will
it assume or enter into any contract, lease, license, obligation, indebtedness,
commitment, purchase or sale, except for rental contracts executed in the
ordinary course of business.
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<PAGE> 24
5.7. Capital Assets; Payments of Liabilities. Except with
Purchaser's prior written consent, the Company will not acquire or dispose of
any capital asset having an initial cost of $5,000 or more, nor will the Company
discharge or satisfy any lien or encumbrance or pay or perform any obligation or
liability other than (i) liabilities and obligations reflected in the Financial
Statements, and (ii) current liabilities and obligations incurred in the usual
and ordinary course of business and, in either such case, only as required by
the express terms of the agreement or other instrument pursuant to which the
obligation or liability was incurred.
5.8. Mortgages, Liens. Except with Purchaser's prior written
consent, the Company will not enter into or assume any mortgage, pledge,
conditional sale or other title retention agreement, permit any lien,
encumbrance or claim of any kind to attach to any of its assets, whether now
owned or hereafter acquired, or guarantee or otherwise become contingently
liable for any stock or dividends of any corporation, business or other person
or obligations of another except obligations arising by reason of endorsement
for collection and other similar transactions in the usual and ordinary course
of business, or make any capital contributions or investments in any
corporation, business or other person.
5.9. Changes in Inventory. The Company will not alter the physical
contents or character of any of its inventories so as to affect the nature of
its business or result in a change in the total dollar valuation thereof.
5.10. No Disclosure or Negotiation with Others. The Company and
Shareholders will prevent the disclosure of any of the terms or conditions
hereof to any other person, other than to its employees, legal counsel and
accountants. Until this Agreement is terminated in accordance with its terms
without any breach by the Shareholders, Shareholders may not, nor will they
permit the Company to, directly or indirectly seek, solicit, encourage, or
consider indications of interest, or offers from, or negotiate or enter into any
letter of intent, memorandum of understanding, agreement or arrangement with,
any person with respect to any sale or transfer of any of the capital stock or
(other than in the ordinary course of business consistent with past practice)
the assets of the Company, or any merger or consolidation of the Company, that
is inconsistent with this Agreement or the transactions contemplated hereby. No
Shareholder will vote any shares of B&L Stock in favor of any such inconsistent
transaction. The Shareholders will promptly notify Purchaser of any proposal,
offer, inquiry, or contact by any person with respect to any such inconsistent
transaction.
5.11. Other Agreements.
(a) At the Closing, Sutton shall enter into a Noncompetition
Agreement in the form attached hereto as Exhibit C.
(b) At the Closing, Ogle shall enter into a Noncompetition
Agreement in the form attached hereto as Exhibit D.
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<PAGE> 25
(c) At the Closing, Shareholders shall deliver the license in the
form attached hereto as Exhibit E (the "License") relating to the right to use
the Champion trade name, computer system, and all other intellectual property
necessary to operate the business as it is currently being operated.
5.12. Post-Closing Access. The Company and Shareholders acknowledge
that Purchaser will assist Seller in the preparation of consolidated financial
statements of the Company's business, including results of the operations of the
Company prior to the consummation of the transactions contemplated herein. To
facilitate the preparation of such financial statements, the Company and
Shareholders shall permit Purchaser and its authorized representatives,
including any accounting firm designated thereby, full access to all books,
records, employees and information from and after the Closing. In addition, the
Company and Shareholders covenant and agree to prepare financial statements for
the Company for the year ended December 31, 1996 on an expedited basis and to
cooperate with the Purchaser and its authorized representatives, including any
accounting firm designated thereby, and, if requested, to provide a customary
letter of representation relating to the financial records of the Company prior
to the Closing.
ARTICLE VI
PURCHASER'S CONDITIONS PRECEDENT
Except as may be waived in writing by Purchaser, the obligations of
Purchaser hereunder are subject to the fulfillment at or prior to the Closing of
each of the following conditions:
6.1. Representations and Warranties. The representations and
warranties of Shareholders contained herein shall be true and correct in all
material respects as of the Closing, and Purchaser shall not have discovered any
material error, misstatement or omission therein.
6.2. Covenants. Shareholders shall have performed and complied in
all material respects with all covenants or conditions required by this
Agreement to be performed and complied with by them prior to the Closing.
6.3. Opinion. Counsel to the Company and Shareholders shall have
delivered to Purchaser its opinion, dated the Closing Date, in form and
substance reasonably satisfactory to Purchaser.
6.4. Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement.
6.5. No Material Adverse Change. No material, adverse change in
the assets, business, properties, results of operations, financial condition or
prospects of the Company shall have occurred after the date hereof and prior to
the Closing.
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<PAGE> 26
6.6. Due Diligence and Review. Completion to the satisfaction of
Purchaser of diligence review and examination of the Company by Purchaser and a
favorable report by Purchaser's advisors satisfactory to Purchaser concerning
the corporate status and proceedings of the Company and the other aspects of the
Company's business and operations as Purchaser may reasonably deem relevant.
6.7. Approval by Board. This Agreement has been approved by the
Board of Directors of Purchaser.
6.8. Accounting. A favorable review by Purchaser's independent
accountants of the Financial Statements and the absence of any absolute or
contingent liabilities of the Company, except
as reflected therein.
6.9. Employment Arrangements. Sutton shall have entered into the
employment arrangements with Purchaser as described in Section 4.3.
ARTICLE VII
SHAREHOLDERS' CONDITIONS PRECEDENT
Except as may be waived in writing by Shareholders, the obligations of
Shareholders hereunder are subject to fulfillment at or prior to the Closing of
each of the following conditions:
7.1. Representations and Warranties. The representations and
warranties of Purchaser contained herein shall be true and correct in all
material respects as of the Closing and Shareholders shall not have discovered
any material error, misstatement or omission therein.
7.2. Covenants. Purchaser shall have performed and complied in all
material respects with all covenants or conditions required by this Agreement to
be performed and complied with by it prior to the Closing.
7.3. Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement.
7.4. Employment Arrangements. Sutton shall have entered into the
employment arrangements as described in Section 4.3.
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<PAGE> 27
ARTICLE VIII
INDEMNIFICATION
8.1. Shareholders' Indemnity. Subject to the terms and conditions
of this Article VIII, the Company and Shareholders, jointly and severally,
hereby agree to indemnify, defend and hold Purchaser and its officers,
directors, agents, attorneys and affiliates ("Purchaser Affiliates") harmless
from and against all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs, damages, reasonable attorneys' fees and expenses
(collectively, "Damages"), asserted against or incurred by Purchaser and/or any
Purchaser Affiliate by reason of, resulting from, or related to, any inaccuracy
in or breach of any representation, warranty, covenant or agreement of any
Shareholder contained in this Agreement or in any agreement executed at the
Closing by any of Shareholders.
8.2. Purchaser's Indemnity. Subject to the terms and conditions of
this Article VIII, Purchaser hereby agrees to indemnify, defend and hold
Shareholders, and each of them, harmless from and against all Damages asserted
against or incurred by any or all of the Shareholders by reason of, resulting
from, or related to, any inaccuracy in or breach of any representation,
warranty, covenant or agreement of Purchaser contained in this Agreement or in
any agreement executed at the Closing by Purchaser.
8.3. Conditions of Indemnification. The respective obligations and
liabilities of Shareholders and Purchaser (the "indemnifying party") to any
person to be indemnified (the "person to be indemnified") under Sections 8.1 and
8.2 hereof with respect to claims resulting from the assertion of liability by
third parties shall be subject to the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required
to avoid prejudicing the indemnifying party's position) after receipt
of notice of commencement of any action evidenced by service of
process or other legal pleading, or with reasonable promptness after
the assertion in writing of any claim by a third party, the person to
be indemnified shall give the indemnifying party written notice
thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake
the defense thereof by representatives of its own choosing and at its
own expense; provided, however, that the person to be indemnified may
participate in the defense with counsel of its own choice and its own
expense and, provided further, that the failure of the person to be
indemnified to give timely notice shall not affect the right to
indemnification hereunder except to the extent (and then only to the
extent) the indemnifying party proves actual damages caused by such
failure.
(b) In the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the 10th
day preceding the day on which an answer or other pleading must be
served in order to prevent judgment by default in favor of the person
asserting such claim), does not elect to defend against such claim,
the person to be indemnified will (upon further notice to the
indemnifying party) have the right, but not the
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<PAGE> 28
obligation, to undertake the defense, compromise or settlement of such
claim on behalf of and for the account and risk of the indemnifying
party and at the indemnifying party's expense, subject to the right of
the indemnifying party to assume the defense of such claims at any
time prior to settlement, compromise or final determination thereof.
(c) Anything in this Section 8.3 to the contrary
notwithstanding, the indemnifying party shall not settle any claim
without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant
provides to the person to be indemnified a release from all liability
in respect of such claim. If the settlement of the claim involves more
than the payment of money, the indemnifying party shall not settle the
claim without the prior consent of the person to be indemnified, which
consent shall not be unreasonably withheld.
(d) The person to be indemnified and the indemnifying party
will each cooperate with all reasonable requests of the other.
8.4. Exclusive Nature of Remedies. Except for the remedy of
specific performance and other equitable remedies and except to the extent that
any of the parties shall have engaged in fraud in connection with this
Agreement, the rights and remedies set forth in this Article VIII shall be the
exclusive rights or remedies available to the persons to be indemnified with
respect to claims for which indemnification is authorized or provided pursuant
to this Article. Such limitation shall apply notwithstanding that such claims
are asserted by a cause of action or legal theory other than breach of contract.
ARTICLE IX
MISCELLANEOUS
9.1. Amendment. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all of the parties
hereto or, in case of an asserted waiver, signed by the party against which
enforcement of the waiver is sought.
9.2. Assignment. Neither this Agreement nor any right created
hereby shall be assignable by any party hereto, except by Purchaser to a
wholly-owned subsidiary of Purchaser.
9.3. Notice. Any notice or communication must be in writing and
given by depositing the same in the United States mail, addressed to the party
to be notified, postage prepaid and registered or certified with return receipt
requested, or by delivering the same in person. Such notice shall be deemed
received on the date on which it is hand-delivered or on the third business day
following the date on which it is so mailed. For purposes of notice, the
addresses of the parties shall be:
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<PAGE> 29
If to the Company or to Bill Ogle:
661 Belville Road, Suite 206
South Daytona, Florida 32119
If to Larry Sutton: 14620 N. Nebraska Avenue
Building B - Suite 102
Tampa, Florida 33613-1431
If to Purchaser: Action TV & Appliance Rental, Inc.
Attn: K. David Belt, CFO
714 East Kimbrough
Mesquite, Texas 75149
with a copy to: John D. Capers, Jr., Esquire
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Any party may change its address for notice by written notice given to the
other parties in accordance with this Agreement.
9.4. Confidentiality and Public Announcements.
(a) The parties shall keep this Agreement and its terms
(including, but not limited to, the price paid by Purchaser for the
B&L Stock) confidential, but any party may make such disclosures after
the Closing as it reasonably considers are required by law, but each
party will notify the other parties in advance of any such disclosure.
In the event that the transactions contemplated by this Agreement are
not consummated for any reason whatsoever, the parties hereto agree
not to disclose or use any confidential information they may have
concerning the affairs of the other parties, except for information
which is required by law to be disclosed. Confidential information
includes, but is not limited to: customer lists and files, prices and
costs, business and financial records, surveys, reports, plans,
proposals, financial information relating to personnel contracts,
stock ownership, liabilities and litigation. Should the transactions
contemplated hereby not be consummated, nothing contained in this
Section shall be construed to prohibit the parties hereto from
operating a business in competition with each other.
(b) Purchaser and Shareholders will (i) mutually agree on the
text of any press release and (ii) consult with each other before
making any other public statement with respect to this Agreement and
the transactions consummated pursuant to this Agreement.
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<PAGE> 30
9.5. Entire Agreement. This Agreement and the schedules and
exhibits hereto supersede all prior agreements and understandings relating to
the subject matter hereof, except that the obligations of any party under any
agreement executed pursuant to this Agreement shall not be affected by this
Section.
9.6. Costs, Expenses and Legal Fees.
(a) Whether or not the transactions contemplated hereby are
consummated, each party hereto shall bear its own costs and expenses
(including attorneys' fees).
(b) Notwithstanding anything to the contrary contained
herein, Shareholders are responsible for payment of all stock transfer
and other taxes (and expenses relating thereto) imposed or incurred in
connection with the consummation of the transactions contemplated
hereby.
9.7. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present of future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
9.8. Survival of Representations and Warranties. The
representations and warranties contained herein shall survive the Closing for a
period of one (1) year, except for those statements contained in Sections 3.4,
3.5, 3.6, 3.7 and 3.12 herein which shall survive the Closing for a period of
two (2) years, and except for those statements contained in Section 3.2 shall
survive until the expiration of the applicable statute of limitations and all
statements contained in any certificate, exhibit or other instrument delivered
by or on behalf of Shareholders or Purchaser pursuant to this Agreement shall be
deemed to have been representations and warranties by Shareholders or Purchaser,
as the case may be, and shall survive the Closing for a period of one (1) year.
Notwithstanding the foregoing, any claim for indemnification as a result of
fraud in the making of such representation or warranty shall not be required to
be made within one (1) year of the Closing. No investigation by any party hereto
or on its behalf of any matter covered by the representations and warranties
included in this Agreement shall affect the right of the party to make a claim
for indemnification during the one year claims period described above.
9.9. Governing Law and Venue. THE PARTIES ACKNOWLEDGE AND AGREE
THAT THIS AGREEMENT AND THE OBLIGATIONS AND UNDERTAKINGS OF THE PARTIES
HEREUNDER WILL BE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS. THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
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<PAGE> 31
WITH, THE LAWS OF THE STATE OF TEXAS. IF ANY ACTION IS BROUGHT TO ENFORCE OR
INTERPRET THIS AGREEMENT, EXCLUSIVE VENUE FOR SUCH ACTION SHALL BE IN DALLAS
COUNTY, TEXAS AND THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO
THE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS
FOR SUCH PURPOSE.
9.10. Captions. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
9.11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
9.12. Number and Gender. Whenever the context requires, references
in this Agreement to the singular number shall include the plural, the plural
number shall include the singular and words denoting gender shall include the
masculine, feminine and neuter.
9.13. Facsimile Transmissions. This Agreement and all agreements,
documents and certificates delivered pursuant to this Agreement or in connection
with the transactions consummated pursuant to this Agreement may be executed by
any party and transmitted by such party to any other party or parties by
facsimile, and any such document shall be deemed to have full force and effect
as if the facsimile signature or signatures on such documents were originals.
ARTICLE X
TERMINATION
10.1. Termination by Purchaser. Purchaser may terminate this
Agreement by written notice to Shareholders prior to Closing if (a) any of the
conditions precedent to its obligation to close stated in Article VI has not
been fulfilled at or prior to the Closing Date; (b) in Purchaser's reasonable
opinion Shareholders have materially failed to comply with any term or condition
of this Agreement, or the Company, Shareholders or any of the Company's officers
has provided Purchaser with materially inaccurate information or has failed to
disclose fully to Purchaser any materially unfavorable information about the
business or assets of the Company; (c) there has been a materially adverse
change in the business or assets of the Company or in the ability of the Company
or Shareholders to carry out any obligation under this Agreement; or (d) for any
reason other than a default by Purchaser the Closing has not occurred by January
31, 1997.
10.2. Termination by Shareholders. The Company or the Shareholders
may terminate this Agreement by written notice to Purchaser prior to Closing if
(a) any of the conditions precedent to their obligation to close stated in
Article VII has not been fulfilled at or prior to the Closing Date; (b) in the
Company's or Shareholders' reasonable opinion Purchaser has materially failed to
comply with any term or condition of this Agreement; or (c) if for any reason
other than a default by the Company or the Shareholders the Closing has not
occurred by January 31, 1997.
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<PAGE> 32
10.3. Effect of Termination. In the event of termination of this
Agreement pursuant to this Article X, no party hereto (or any of its
shareholders, directors, officers or affiliates) shall have any liability or
further obligation to any other party to this Agreement except that nothing
herein will relieve any party from any breach of this Agreement, and Sections
9.3, 9.4, 9.5, 9.6, 9.7, 9.8, 9.9, this Section 10.3 and Section 10.4 shall
remain in full force and effect.
10.4. Return of Information. If this Agreement is terminated
pursuant to this Article X or for any other reason, each party will redeliver
all documents, work papers and other materials (inclusive of excerpts and all
copies thereof), of any other party relating to the transaction contemplated
hereby, whether so obtained before or after execution hereof, to the party
furnishing the same, and all information received by any party hereto with
respect of any other party shall not at any time be used for the advantage of,
or disclosed to third parties by such party, provided, however, that this
Section 10.4 shall not apply to any documents, work papers, material or
information which is a matter of public knowledge or which has heretofore been
published in any publication for public distribution or filed as public
information with any governmental authority by the party furnishing the same to
the other party.
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<PAGE> 33
PURCHASER
ACTION RENT-TO-OWN OF FLORIDA, INC.
/s/ Billy W. White Sr.
------------------------------------
Billy W. White, Sr.
President and CEO
COMPANY
B&L CONCEPTS, INC.
/s/ Thomas O'Keefe
------------------------------------
Thomas O'Keefe
Vice President and Chief Financial Officer
SHAREHOLDERS
/s/ Bill Ogle
---------------------------------------
Bill Ogle
/s/ Larry Sutton
---------------------------------------
Larry Sutton
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<PAGE> 34
EXHIBIT A
CONVERTIBLE PROMISSORY NOTE
Dallas, Texas
January ___, 1997
$3,000,000
FOR VALUE RECEIVED, RTO, INC., a Delaware corporation ("Maker"), promises
to pay to B&L CONCEPTS, INC. dba Champion Rent To Own, a Florida corporation
("Holder"), or its registered assigns (Holder and its registered assigns being
referred to herein as "Payee"), at Dallas, Texas, or at such other place as
Payee may from time to time designate in writing, the principal sum of Three
Million Dollars ($3,000,000), together with interest on the principal balance
hereof at the rate hereinafter provided, in accordance with the terms and
conditions hereof. Maker acknowledges that it is receiving consideration for
this Note by its acquisition, through a wholly owned subsidiary, of
substantially all of the assets of Holder pursuant to that certain Asset
Purchase Agreement dated as of January _, 1997 by and among Maker, Holder, Bill
Ogle and Larry Sutton (the "Asset Purchase Agreement").
1. Principal and Interest. Commencing on the date hereof and continuing
until repayment of the sums due hereunder in full, the principal amount due
hereunder shall bear interest at a rate equal to 6% per annum. Interest on the
principal balance of this Note shall be payable quarterly on April 1, July 1,
October 1 and January 1, commencing April 1, 1997, and shall be computed on the
basis of a 360-day year for the actual number of days elapsed. Unless sooner
accelerated in accordance with the terms of this Note, the entire principal
amount due hereunder, together with all accrued but unpaid interest thereon,
shall be due and payable in full on January _, 1999.
2. Conversion. The Note shall be convertible into common stock of Maker
(the "RTO Stock") at a conversion rate of $ 1,250 per share of RTO Stock, which
shall be adjusted for any stock splits, stock dividends or recapitalizations
affecting the capital stock of Maker. Maker shall have the right to demand
conversion of the Note, in whole or in part, (a) concurrently with the
consummation of an initial public offering of the RTO Stock, (b) upon such time
as Maker is merged with, or a majority of Maker's outstanding common stock
is acquired by, an unrelated third party and (c) upon such time as Maker sells
all or substantially all of its assets to an unrelated third party. In such
event, Maker shall give Payee at least five business days written notice of
such conversion. Payee shall have the right, at any time, to demand conversion
of the Note, in whole or in part. In such event, Payee shall give Maker at
least five business days written notice of such conversion. At the time of any
such conversion, Payee shall enter into the Shareholders Agreement which shall
be in place at such time among the shareholders of Maker.
3. Adjustment. If 1997 actual annual gross revenues from the 27 stores
operated by B&L Concepts, Inc. as of November 14, 1996 (the "1997 Revenues")
are less than $15,000,000, then the Note shall be reduced by an amount (rounded
to the nearest multiple of $ 1,250) determined by multiplying (x) the
difference between $15,000,000 and the 1997 Revenues (stated as a
<PAGE> 35
percentage of $15,000,000) by (y) $888,000; provided that such adjustment will
not exceed in any event $138,000. If the Note is converted into RTO Stock as
provided in Section 2 prior to the availability of the 1997 Revenues and the
calculation of any adjustment in the principal amount of the Note, at the time
of such conversion Maker shall deposit in an escrow account for Payee that
number of shares of RTO Stock having a value (calculated on the basis of $1,250
per share) of at least $138,000 and such shares shall remain in the escrow
account until calculation of any adjustment in the principal amount of the
Note. If any adjustment is required in the principal amount of the Note, Maker
shall withdraw from the escrow that number of shares of RTO stock having a
value (calculated on the basis of $1,250 per share) equal to the adjustment
amount and all other shares of RTO Stock in the escrow (if any) shall be
released to Payee.
4. Maximum Lawful Rate. This Note is hereby expressly limited so that in
no contingency or event whatsoever, whether by acceleration of maturity of the
indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to
be paid to Payee for the use, forbearance or detention of money exceed the
highest lawful rate permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision hereof, at the time performance of such
provision occurs, shall involve payment of interest in excess of that authorized
by law, the obligation to be fulfilled shall be reduced to the limits so
authorized by law, and if, from any circumstances, Payee shall ever receive as
interest an amount which would exceed the highest lawful rate applicable to
Maker, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance hereof and not to the payment of
interest.
5. Method of Making Payments; Renewal of Obligations. All payments with
respect to principal and interest hereunder shall be made by wire transfer of
immediately available funds to such account as Payee has designated in writing
to Maker. Maker hereby expressly agrees that to the extent that Maker makes a
payment or payments on this Note and such payment or payments, or any part
thereof, are subsequently invalidated, declared to be fraudulent or
preferential, set aside or are required to be repaid to a trustee, receiver, or
any other party under any bankruptcy act, state or national law, common law or
equitable cause, then to the extent of such payment or repayment, the
indebtedness evidenced hereby which is intended to be satisfied by such payment
or payments shall be revived and continued in full force and effect as if said
payment or payments had not been made.
6. Events of Default. The occurrence of any one or more of the following
conditions or events shall constitute an "Event of Default":
(a) Failure to Pay. Maker fails to pay any payment of principal or
interest when due and payable or declared due and payable in accordance with
the terms of this Note and such failure shall continue for five (5) business
days; or
(b) Bankruptcy. (i) Maker shall commence proceedings seeking either
its own bankruptcy or to be granted a suspension of payments or any other
proceeding under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution,
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<PAGE> 36
insolvency or liquidation or similar law of any jurisdiction, whether now
or hereafter in effect; (ii) any proceeding described in clause (i) of
this subsection 6(b) is commenced or applied to be commenced against
Maker, which proceeding remains undismissed for a period of sixty (60)
days or is dismissed on the ground of lack of funds sufficient to cover the
costs of such proceedings; (iii) a custodian, trustee, administrator or
similar official is appointed under any applicable law described in clause
(i) of this subsection 6(b) with respect to Maker, or such custodian,
trustee, administrator or similar official takes charge of all or any
substantial part of the property of Maker, (iv) an adjudication is made
that Maker is insolvent or bankrupt; (v) any order of relief or other
order is entered approving any case or proceeding described in clause (ii)
of this subsection 6(b); (vi) Maker makes a general assignment for the
benefit of its creditors; or (vii) Maker takes any corporate or similar
action for the purpose of effecting any of the actions, orders or events
described in the foregoing clauses of this subsection 6(b).
7. Prepayment. Maker shall have no right to prepay the Note. In the
event that Maker has not consummated an initial public offering of its common
stock prior to January 1, 1998 (the "Prepayment Date"), Payee shall have the
right to require prepayment of the Note, in full or in part, at any time after
the Prepayment Date and prior to the maturity date hereof by written notice to
Maker specifying the prepayment date, which date shall not be less than five
(5) business days after Maker's receipt of such prepayment notice. Upon the
receipt of such prepayment notice, Maker shall pay the amount of principal
specified in such prepayment notice, together with all accrued but unpaid
interest thereon, on the prepayment date specified in such prepayment notice.
8. Remedies. Upon the occurrence of an Event of Default, at the option
of Payee, all amounts payable by Maker to Payee under the terms of the Note
shall immediately become due and payable by Maker to Payee and Payee shall have
all the rights, powers and remedies available under the terms of this Note,
under applicable law or otherwise. Notwithstanding the foregoing, upon the
occurrence of an Event of Default described in Section 6(b) above the amounts
hereunder shall become automatically due and payable without presentment
protest or demand of any kind.
9. Costs of Collection. Maker agrees to pay all costs and expenses of
collection, including reasonable attorneys' fees and expenses arising in
connection with any enforcement action by Payee in which it shall prevail on
any of its rights under this Note whether by or through an attorney-at-law or
in an action in bankruptcy, insolvency or other judicial proceedings.
10. Waivers; Amendment. No delay or failure on the part of Payee to
exercise any right or remedy accruing to Payee hereunder, upon any default or
breach by Maker of any term or provision hereof, shall be held to be an
abandonment thereof. No delay on the part of Payee in exercising any of its
rights or remedies shall preclude Payee from the exercise thereof at any time
during the continuance of any default or breach. No waiver of a single default
or breach shall be deemed a waiver of any subsequent default or breach. Payee
may enforce any one or more remedies hereunder successively or concurrently, at
its option. All waivers under this Note must
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<PAGE> 37
be in writing signed by the Party entitled to enforce the right waived. All
amendments to this Note must be in writing and signed by both the Maker and the
Payee.
Maker, its successors and assigns, and all other persons liable for the
payment of this Note, waive presentment for payment, demand, protest, and
notice of demand, dishonor, protest and nonpayment, and consent to any and all
renewals, extensions or modifications that might be made by Payee and Maker as
to the time of payment of this Note from time to time.
11. 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 Note, including that provision, in any other jurisdiction. To the extent
permitted by applicable law, each party hereto waives any provision of
applicable law that renders any provision hereof prohibited or unenforceable in
any respect. If any provision of this Note is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties hereto to the extent possible.
12. Notices. All notices and other communications required or permitted
under this Note shall be made in writing in accordance with Section 9.3 of the
Asset Purchase Agreement.
13. Captions. The captions herein set forth are for convenience only and
should not be deemed to define, limit or describe the scope or intent of this
Note.
14. Successors; Assignment. The terms and provisions of this Note shall
be binding upon and inure to the benefit of the successors and assigns of the
Maker and the successors and registered assigns of the Payee. This Note may not
be transferred or assigned by the Payee. Any purported transfer in violation of
the foregoing provision shall be null and void and of no force and effect
whatsoever.
15. Governing Law; Submission to Jurisdiction.
(a) This Note shall be deemed to be made in and in any and all
respects shall be governed by, and construed in accordance with, the laws of
the State of Texas (without regard to principles of conflict of laws).
(b) If any action is brought to enforce or interpret this Note,
exclusive venue for such action shall be in Dallas County, Texas and the
parties hereto irrevocably and unconditionally submit to the jurisdiction of
the state and federal courts located in Dallas County, Texas for such purpose.
16. Computation of Time. Whenever the last day for the exercise of any
privilege or the discharge of any duty under this Note shall fall on a day
other than a business day, the party having such privilege or duty shall have
until 5:00 p.m. (New York time) on the next succeeding business day to exercise
such privilege or to discharge such duty. For purposes of this Note, the
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<PAGE> 38
term "business day" shall mean any day other than a day which is a Saturday or
Sunday or other day on which commercial banks in the City of New York are
authorized or required to remain closed
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<PAGE> 39
IN WITNESS WHEREOF, Maker has caused this Note to be executed by its duly
authorized officer under its corporate seal as of the date first above written.
RTO, INC.
By:
-----------------------------------
By: K. David Belt
Title: Chief Financial Officer
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<PAGE> 40
EXHIBIT B
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into this ____ day of
January, 1997, by and between B&L Concepts, Inc. dba Champion Rent To Own, a
Florida corporation ("Assignor"), and Action Rent-To-Own of Florida, Inc.
("Assignee"), a Florida corporation and a wholly owned subsidiary of RTO, Inc.,
a Delaware corporation ("RTO").
WHEREAS, Assignor, Assignee and RTO are parties to an Asset Purchase
Agreement dated as of January ___, 1997 (the "Asset Purchase Agreement"),
pursuant to which Assignor has agreed to sell to Assignee and Assignee has
agreed to purchase from Assignor substantially all of the assets of Assignor
and Assignee has agreed to assume the Assumed Liabilities, all as more fully
described in the Asset Purchase Agreement, for consideration in the amount and
on the terms and conditions provided therein; and
WHEREAS, all capitalized terms used and not otherwise defined shall have
the meanings ascribed to such terms in the Asset Purchase Agreement; and
WHEREAS, all the terms and conditions precedent provided in the Asset
Purchase Agreement have been met and performed or waived by the parties
thereto, and the parties now desire to consummate the transactions contemplated
by the Asset Purchase Agreement; and
WHEREAS, in accordance with the terms of the Asset Purchase Agreement,
Assignor desires to assign to Assignee all of its rights, duties and obligations
under certain agreements and arrangements, and the Assignee desires to accept
such assignment.
NOW THEREFORE, in consideration of the premises and of other valuable
consideration to Assignor in hand paid by Assignee at or before the execution
and delivery hereof, the receipt and sufficiency of which are hereby
acknowledged by Assignor:
1. Assignor does hereby assign, bargain sell, transfer, convey and
delegate all of its interest in and rights, duties and obligations in the
contracts, documents and agreements referred to on Exhibit A hereto to Assignee.
2. Assignee does hereby undertake, agree and assume to perform, pay
punctually and faithfully or otherwise discharge the debts, obligations and
liabilities as more particularly described on Exhibit B hereto and which are to
be assumed by Assignor pursuant to the terms of the Asset Purchase Agreement.
3. Nothing contained in this Assignment and Assumption Agreement shall
reduce or otherwise affect the right of Assignor or Assignee to be indemnified
by the other in accordance with the terms of the Asset Purchase Agreement.
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this Assignment and
Assumption Agreement as of the date and year first above written.
ASSIGNEE:
ACTION RENT TO OWN, INC.
a Florida corporation
By:
----------------------
Billy W. White, Sr.
President and CEO
CORPORATE SEAL
ATTEST:
- --------------------------
Daniel C. Breeden, Jr.
Secretary ASSIGNOR:
B&L CONCEPTS, INC.
a Florida corporation
By:
-------------------
Thomas E. O'Keefe
CORPORATE SEAL Vice President and Chief Financial
Officer
ATTEST:
- --------------------------
Margo M. Tillotson
Secretary
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<PAGE> 42
EXHIBIT C
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement"), made and entered into
effective as of the _ day of January, 1997, between RTO, Inc., a Delaware
corporation ("RTO"), and Larry Sutton (hereinafter referred to as "Mr.
Sutton").
WITNESSETH:
WHEREAS, Action Rent-To-Own of Florida, Inc. ("Action"), a wholly owned
subsidiary of RTO, has agreed to purchase certain assets (the "Assets") of B&L
Concepts, Inc. dba Champion Rent To Own, a Florida corporation ("B&L") and to
assume certain of the debts, obligations and liabilities of B&L pursuant to
an Asset Purchase Agreement, dated as of the _____ day of January, 1997, between
Action B&L the shareholders of (the "Asset Purchase
WHEREAS, Mr. Sutton is a shareholder of B&L;
WHEREAS, the execution and delivery of this Agreement by Mr. Sutton is a
condition for RTO to consummate the acquisition of the Assets pursuant to the
Asset Purchase Agreement (the "Closing");
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
SECTION 1. COMPENSATION.
In consideration of Mr. Sutton's agreements hereunder, Mr. Sutton will
receive a portion of the proceeds paid to B&L pursuant to the Asset Purchase
Agreement, concurrently with the execution and delivery of this Agreement.
SECTION 2. CONFIDENTIAL INFORMATION, TRADE SECRETS AND NONCOMPETITION COVENANT.
2.1. Confidential Information. Mr. Sutton hereby agrees that, except as
otherwise required in the course of his performance of any duties he may have
as an employee of RTO or any subsidiary of RTO, during the period commencing on
the date hereof and ending on the fifth (5th) anniversary of the date on which
Mr. Sutton ceases to be employed by RTO or any such subsidiary of RTO (the
"Confidentiality Period"):
(i) Neither Mr. Sutton, Mr. Sutton's wife and children (his
"Immediate Family") nor any company or other business in which Mr. Sutton or a
member of Mr. Sutton's Immediate Family has a controlling interest (Mr. Sutton,
the members of Mr.
<PAGE> 43
Sutton's Immediate Family and each company and other business in which Mr.
Sutton or a member of Mr. Sutton's Immediate Family has or acquires a
controlling interest being hereinafter referred to as a "Related Party"),
will directly or indirectly own, manage, operate, join, control or
participate in the ownership, management, operation or control of or be
connected in any manner with, any business conducted under the corporate or
trade name of RTO, B&L or Champion Rent To Own or under any corporate or
trade name of any subsidiary of RTO or any name similar thereto without the
prior written consent of RTO; and
(ii) Each Related Party shall hold in confidence (unless and to the
extent compelled to disclose by judicial or administrative process or by
other applicable law) all knowledge and information of a material and
confidential nature with respect to the business of RTO and its
subsidiaries and will not disclose, publish or make use of same without the
prior written consent of RTO; provided, however, that this Section 2.1
shall not apply to information which is or becomes known to the public or
to the trade other than through a breach of this Agreement by Mr. Sutton;
provided, further, however, that prior to disclosure pursuant to judicial
or administrative process or as required by other applicable law, as
permitted above, of information to any third party, Mr. Sutton shall use
his best efforts to give reasonable prior notice to RTO.
2.2. Trade Secrets. Each Related Party shall hold in confidence (unless and
to the extent compelled to disclose by judicial or administrative process or as
required by other applicable law) indefinitely any and all "Trade Secrets" (as
hereinafter defined) of RTO and its subsidiaries and shall not disclose,
publish or make use of same without the prior written consent of RTO. "Trade
Secrets" shall mean all in formation relating to the business of RTO and its
subsidiaries including, but not limited to, technical or nontechnical data, a
formula, pattern, compilation, program, device, method, technique, drawing,
process, financial data, financial plan, product plan, list of actual or
potential customers or suppliers, or other information similar to any of the
foregoing, which derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can derive economic value from its disclosure or use;
provided, however, that Trade Secret does not mean (a) information that is or
becomes generally available to the public other than as a result of a
disclosure by RTO or any of its subsidiaries or Mr. Sutton subsequent to the
date of this Agreement; (b) the general business skills and experience of Mr.
Sutton; or (c) information generally known and used within the rent-to-own
industry; provided, further, however, that prior to disclosure pursuant to
judicial or administrative process or as required by other applicable law, as
permitted above, of information to any third party, Mr. Sutton shall use his
best efforts to give reasonable prior notice to RTO.
2.3. Noncompetition
(a) Coverage. RTO, directly or indirectly through its subsidiaries is
engaged in the business of owning, managing, operating and developing
rental-purchase stores (collectively, the
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<PAGE> 44
"Purchaser Activities") in the Areas of Dominant Influence in which the
rental-purchase stores owned and operated by B&L Concepts, Inc. as of January
2, 1997 are located (the "Territory"). Mr. Sutton represents and acknowledges
that the goodwill of RTO and sales and leasing of equipment and other
properties of RTO and its subsidiaries extend throughout the Territory.
Following the date hereof, RTO shall continue to conduct the Purchaser
Activities throughout the Territory. Mr. Sutton acknowledges that, to protect
adequately the interests of RTO in its businesses in the Territory, it is
essential that any noncompete with respect thereto cover the entire Territory.
(b) Covenants: In consideration of (i) the purchase of the Assets
pursuant to the Asset Purchase Agreement and (ii) the consideration paid to Mr.
Sutton pursuant to this Agreement, Mr. Sutton hereby agrees as follows:
(A) during the period commencing on the date hereof and ending on
the fifth (5th) anniversary of the date hereof (the "Noncompete Period"),
no Related Party shall (without the prior written consent of RTO) directly
or indirectly in the Territory engage in, have any equity or profit
interest in, make any loan to or guarantee any obligation of or with
respect to, or render services (of an executive, advertising, marketing,
sales, administrative, supervisory or consulting nature) to, any business
conducting Purchaser Activities, except in connection with the course of
the performance of any duties the Related Party may have as an employee of
RTO or any subsidiary of RTO; and
(B) during the Noncompete Period, no Related Party shall (without
the prior written consent of RTO) directly or indirectly offer permanent
employment, on its own behalf or on behalf of any other person, firm or
corporation, to any person who is or becomes an employee of RTO or any
subsidiary of RTO and who has not thereafter ceased to be employed by RTO
or any subsidiary of RTO for a period of at least one year.
Notwithstanding anything contained herein to the contrary, Mr Sutton shall
not be prohibited from (i) being a member, officer, director or representative
of, lobbying for or on behalf of or participating or being active in any
rent-to-own or similar trade association or (ii) owning, directly or
indirectly, up to 10% of the outstanding equity interest of any company in the
rent-to-own industry the stock of which is publicly traded on a national
securities exchange or in the over-the-counter market.
(c) Severability If a judicial determination is made that any of the
provisions of this Section 2.3 constitutes an unreasonable or otherwise
unenforceable restriction against Mr. Sutton, the provisions of this Section 2.3
shall be rendered void only to the extent that such judicial determination finds
such provisions to be unreasonable or otherwise unenforceable. In this regard,
the parties hereto hereby agree that any judicial authority construing this
Agreement shall be empowered to sever any portion of the Territory, any
prohibited business activity or any time period from the coverage of this
Section 2.3 and to apply the provisions of this Section 2.3 to the remaining
portion of the Territory, the remaining business activities or the remaining
time period
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<PAGE> 45
not so severed by such authority. The time period during which the prohibitions
set forth in this Section 2.3 shall apply shall be tolled and suspended as to
Mr. Sutton for a period equal to the aggregate quantity of time during which
Mr. Sutton violates such prohibitions in any respect.
(d) Termination Without Cause. Notwithstanding any provision in this
Agreement, this Agreement shall immediately terminate and Mr. Sutton shall have
no further obligations or be subject to any further restrictions in the event
Mr. Sutton is terminated by RTO without cause.
2.4. Injunctive Relief. Mr. Sutton hereby agrees that any remedy at law
for any breach of the provisions contained in Sections 2.1, 2.2 and 2.3 hereof
shall be inadequate and that RTO shall be entitled to injunctive relief in
addition to any other remedy they might have under this Agreement.
SECTION 3. INDEMNIFICATION.
Mr. Sutton hereby agrees to indemnify and defend RTO and to hold RTO
wholly harmless from and against any and all losses, liabilities, damages,
deficiencies, costs (including, without limitation, court costs), and expenses
(including, without limitation, attorneys' fees) incurred by RTO or any of
their affiliates and arising out of or due to any breach of any representation,
warranty, covenant or agreement of any Related Party contained in this
Agreement.
SECTION 4. MISCELLANEOUS.
4.1. Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon Mr. Sutton and RTO and their respective successors and
permitted assigns; provided, however, that Mr. Sutton may not assign or
otherwise delegate any of his obligations or rights hereunder without the prior
written consent of RTO.
4.2. Governing Law. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of Texas (without regard to the conflicts of law
principles thereof).
4.3. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
4.4. Notices. All communications provided for hereunder shall be in
writing and shall be deemed to be given when delivered in person or thirty (30)
days after being deposited in the United States mail, first class, registered
or certified, return receipt requested, with proper postage prepaid and,
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<PAGE> 46
(a) If to Mr. Sutton, addressed to:
Mr. Larry Sutton
14620 N. Nebraska Avenue
Building B - Suite 102
Tampa, Florida 33613- 1431
with a copy to:
Hoge, Evans & Holmes
13455 Noel Road, Suite 400
Dallas, Texas 75240
Attn: Mr. John Evans
Telecopy No.: (214)_______________
(b) If to RTO, addressed to:
Action TV & Appliance Rental, Inc.
714 E. Kimbrough St.
Mesquite, Texas 75149
Attn: Mr. Bill White
Telecopy No.: (972) 288-7753
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: John D. Capers, Jr.
Telecopy No.: (404) 572-5145
or at such other place or places or to such other person or persons as shall be
designated in writing by the parties hereto.
4.5. 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
together shall constitute one and the same instrument.
4.6. Entire Agreement; Amendments. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. This Agreement may be modified only by written
instrument signed by each of the parties hereto.
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<PAGE> 47
4.7. Waiver of Conditions. Any party may, at its option, waive in writing
any or all of the conditions herein contained to which its obligations
hereunder are subject. No waiver of any provision of this Agreement, however,
shall constitute a waiver of any other provision (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
4.8. Survival. Each of the representations, obligations and agreements of
the parties included or provided for herein shall survive the consummation of
the transactions contemplated by this Agreement, notwithstanding any
investigation heretofore or hereafter made by any of them or on behalf of any
of them.
4.9. Assignment. This Agreement and all of the provisions hereof shall be
binding upon, and inure to the benefit of, Mr. Sutton and RTO and their
respective successors and permitted assigns and, in the case of Mr. Sutton, his
personal representatives, executors, heirs, beneficiaries and permitted
assigns. The parties acknowledge and agree that RTO shall be a third-party
beneficiary to this Agreement.
4.10. Consent to Jurisdiction. Each of the parties hereto (i) hereby
irrevocably consents and agrees that any legal or equitable action or
proceeding arising under or in connection with this Agreement shall be brought
in any federal or state court located in the State of Texas, (ii) by execution
and delivery of this Agreement irrevocably submits to and accepts, with respect
to any such action or proceeding for such party and in respect of such party's
properties and assets, generally and unconditionally, the jurisdiction of the
aforesaid courts, and irrevocably waives any and all rights such party may have
to object to such jurisdiction under the laws of the State of Texas or
otherwise, and (iii) irrevocably consents that service of process upon such
party in any such action or proceeding shall be valid and effective against
such party if made in the manner provided in Section 4.4 hereof for delivery of
notices hereunder.
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<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the date first above written.
--------------------------------------
Larry Sutton
RTO, INC.
By:
-----------------------------------
Name: Dan C. Breeden, Jr.
Title: Vice President
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<PAGE> 49
EXHIBIT D
MUTUAL NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (Agreement) made and entered into effective
as of the day of January, 1997, between RTO Inc., a Delaware corporation
(hereinafter referred to as "RTO"), and Bill Ogle (hereinafter referred to as
"Mr. Ogle").
WITNESSETH:
WHEREAS, Action Rent-To-Own of Florida, Inc. ("Action"), a wholly owned
subsidiary of RTO, has agreed to purchase certain assets (the "Assets") of B&L
Concepts, Inc. dba Champion Rent To Own, a Florida corporation ("B&L") and to
assume certain of the debts, obligations and liabilities of B&L pursuant to an
Asset Purchase Agreement, dated as of the day of January, 1997, between
Action, B&L and the shareholders of B&L (the "Asset Purchase Agreement");
WHEREAS, Mr. Ogle is a shareholder of B&L;
WHEREAS, the execution and delivery of this Agreement by Mr. Ogle is a
condition for RTO to consummate the acquisition of the Assets pursuant to the
Asset Purchase Agreement (the "Closing");
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
SECTION 1. COMPENSATION.
In consideration of Mr. Ogle's agreements hereunder, Mr. Ogle will receive
a portion of the proceeds paid to B&L pursuant to the Asset Purchase
Agreement, concurrently with the execution and delivery of this Agreement.
SECTION 2. CONFIDENTIAL INFORMATION, TRADE SECRETS AND NONCOMPETITION COVENANT.
2.1. Confidential Information. Mr. Ogle hereby agrees that, during the
period commencing on the date hereof and ending on the date that is eighteen
(l8) months from the date hereof (the "Confidentiality Period"), Mr. Ogle, any
member of Mr. Ogle's immediate family and any company or other business in
which Mr. Ogle or a member of Mr. Ogle's immediate family has a direct or
indirect financial interest (Mr. Ogle, the members of Mr. Ogle's immediate
family and each company and other business in which Mr. Ogle or a member of Mr.
Ogle's immediate family has or acquires a direct or indirect financial interest
being hereinafter referred to as a "Related Party"), will hold in confidence
(unless and to the extent compelled to disclose by judicial or administrative
process or by other applicable law) all knowledge and information of a
<PAGE> 50
material and confidential nature with respect to the business of RTO and will
not disclose, publish or make use of same without the prior written consent of
RTO; provided, however, that this Section 2.1 shall not apply to information
which is or becomes known to the public or to the trade other than through a
breach of this Agreement by Mr. Ogle; provided, further, however, that prior to
disclosure pursuant to judicial or administrative process or as required by
other applicable law, as permitted above, of information to any third party, Mr.
Ogle shall use his best efforts to give reasonable prior notice to RTO.
2.2. Trade Secrets. Each Related Party shall hold in confidence (unless and
to the extent compelled to disclose by judicial or administrative process or as
required by other applicable law) indefinitely any and all "Trade Secrets" (as
hereinafter defined) of RTO and shall not disclose, publish or make use of same
without the prior written consent of RTO. "Trade Secrets" shall mean all
information relating to the business of RTO including, but not limited to,
technical or nontechnical data, a formula, pattern, compilation, program,
device, method, technique, drawing, process, financial data, financial plan,
product plan, list of actual or potential customers or suppliers, or other
information similar to any of the foregoing, which derives economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can derive economic value
from its disclosure or use; provided, however, that Trade Secret does not mean
(a) information that is or becomes generally available to the public other than
as a result of a disclosure by RTO or any of its subsidiaries or Mr. Ogle
subsequent to the date of this Agreement; (b) the general business skills and
experience of Mr. Ogle; or (c) information generally known and used within the
rent-to-own industry; provided, further, however, that prior to disclosure
pursuant to judicial or administrative process or as required by other
applicable law, as permitted above, of information to any third party, Mr. Ogle
shall use his best efforts to give reasonable prior notice to RTO.
2.3. Noncompetition.
(a) Covenants. In consideration of (i) the purchase of the Assets of B&L
pursuant to the Asset Purchase Agreement and (ii) the consideration paid to Mr.
Ogle pursuant to this Agreement, RTO and Mr. Ogle hereby agree as follows:
(1) During the period commencing on the date hereof and ending on
the date that is eighteen (18) months from the date hereof (the
"Noncompete Period"), Mr. Ogle shall not, and shall cause any Related
Party not to, either directly or indirectly, internally develop and open a
new rental-purchase store in any of the locations described on Schedule
2.3(a)(1) hereto which constitute the communities where the
rental-purchase stores operated by B&L are located immediately prior to
the consummation of the transactions contemplated by the Asset Purchase
Agreement. The covenants contained in this Section 2.3(a)(1) shall continue
to be applicable whether such rental-purchase stores are operated by RTO
or any subsidiary of RTO or by any nominee, successor, assign or affiliate
of either. This covenant shall not affect the right of Mr. Ogle or his
affiliates to acquire rental-purchase stores existing on the date hereof
in any location. Further, for a
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<PAGE> 51
period of six months following the expiration of the Noncompete Period Mr.
Ogle shall not and shall cause any related party not to, either directly or
indirectly, internally develop and open a new rental-purchase store in the
Tampa, St. Petersburg Area of Dominant Influence, as defined by Arbitron.
(2) During the Noncompete Period, neither RTO nor any subsidiary of
RTO shall, either directly or indirectly, internally develop and open a
new rental-purchase store in the Greater Orlando area. The covenants
contained in this Section 2.3(a)(2) shall continue to be applicable
whether the rental-purchase stores of Mr. Ogle or his affiliates in the
Greater Orlando area are owned or operated by RTO or any subsidiary of
RTO. This covenant shall not affect the right of RTO or any subsidiary of
RTO to acquire rental-purchase stores existing on the date hereof in any
location.
(b) Severability. If a judicial determination is made that any of the
provisions of this Section 2.3 constitutes an unreasonable or otherwise
unenforceable restriction against RTO or Mr. Ogle, the provisions of this
Section 2.3 shall be rendered void only to the extent that such judicial
determination finds such provisions to be unreasonable or otherwise
unenforceable. In this regard, the parties hereto hereby agree that any judicial
authority construing this Agreement shall be empowered to sever any portion of
the restricted territory any prohibited business activity or any time period
from the coverage of this Section 2.3 and to apply the provisions of this
Section 2.3 to the remaining portion of the restricted territory, the remaining
business activities or the remaining time period not so severed by such judicial
authority. The time period during which the prohibitions set forth in this
Section 2.3 shall apply shall be tolled and suspended as to RTO or Mr. Ogle, as
applicable, for a period equal to the aggregate quantity of time during which
RTO or Mr. Ogle, as applicable, violates such prohibitions in any respect.
2.4. Injunctive Relief. RTO and Mr. Ogle hereby agree that any remedy at
law for any breach of the provisions contained in Sections 2.1, 2.2 and 2.3
hereof shall be inadequate and that RTO, on the one hand, and Mr. Ogle, on the
other, shall be entitled to injunctive relief in addition to any other remedy
they might have under this Agreement.
SECTION 3. INDEMNIFICATION.
3.1 Mr. Ogle. Mr. Ogle hereby agrees to indemnify and defend RTO and to
hold RTO wholly harmless from and against any and all losses, liabilities,
damages, deficiencies, costs (including, without limitation, court costs), and
expenses (including, without limitation, attorneys' fees) incurred by RTO or
any of their affiliates and arising out of or due to any breach of any
representation, warranty, covenant or agreement of any Related Person contained
in this Agreement.
3.2 RTO. RTO hereby agree to indemnify and defend Mr. Ogle and to hold
Mr. Ogle wholly harmless from and against any and all losses, liabilities,
damages, deficiencies, costs (including, without limitation, court costs), and
expenses (including, without limitation, attorneys'
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<PAGE> 52
fees) incurred by Mr. Ogle or any Related Person and arising out of or due to
any breach of any representation, warranty, covenant or agreement of RTO
contained in this Agreement.
SECTION 4. MISCELLANEOUS.
4.1. Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon Mr. Ogle, RTO and their respective successors and
permitted assigns; provided, however, that Mr. Ogle may not assign or otherwise
delegate any of his obligations or rights hereunder without the prior written
consent of RTO.
4.2. Governing Law. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of Texas (without regard to the conflicts of law
principles thereof).
4.3. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
4.4. Notices. All communications provided for hereunder shall be in
writing and shall be deemed to be given when delivered in person or thirty (30)
days after being deposited in the United States mail, first class, registered
or certified, return receipt requested, with proper postage prepaid and,
(a) If to Mr. Ogle, addressed to:
Mr. Bill Ogle
661 Belville Road - Suite 206
South Daytona, Florida 32119
(b) If to RTO, addressed to:
Action TV & Appliance Rental, Inc.
714 E. Kimbrough Street
Mesquite, Texas 75149
Attn: Mr. Bill White
Telecopy No.: (972) 288-7753
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: John D. Capers, Jr.
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<PAGE> 53
Telecopy No. (404) 572-5145
or at such other place or places or to such other person or persons as shall be
designated in writing by the parties hereto.
4.5. 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
together shall constitute one and the same instrument.
4.6. Entire Agreement; Amendments. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. This Agreement may be modified only by written
instrument signed by each of the parties hereto.
4.7. Waiver of Conditions. Any party may, at its option, waive in
writing any or all of the conditions herein contained to which its obligations
hereunder are subject. No waiver of any provision of this Agreement, however,
shall constitute a waiver of any other provision (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
4.8. Survival. Each of the representations, obligations and agreements of
the parties included or provided for herein shall survive the consummation of
the transactions contemplated by this Agreement, notwithstanding any
investigation heretofore or hereafter made by any of them or on behalf of any
of them.
4.9. Assignment. This Agreement and all of the provisions hereof shall be
binding upon, and inure to the benefit of, Mr. Ogle RTO and their respective
successors and permitted assigns and, in the case of Mr. Ogle, his personal
representatives, executors, heirs, beneficiaries and permitted assigns. The
parties acknowledge and agree that RTO shall be a third-party beneficiary to
this Agreement.
4.10. Consent to Jurisdiction. Each of the parties hereto (i) hereby
irrevocably consents and agrees that any legal or equitable action or
proceeding arising under or in connection with this Agreement shall be brought
in any federal or state court located in the State of Texas, (ii) by execution
and delivery of this Agreement irrevocably submits to and accepts, with respect
to any such action or proceeding for such party and in respect of such party's
properties and assets, generally and unconditionally, the jurisdiction of the
aforesaid courts, and irrevocably waives any and all rights such party may have
to object to such jurisdiction under the laws of the State of Texas or
otherwise, and (iii) irrevocably consents that service of process upon such
party in any such action or proceeding shall be valid and effective against
such party if made in the manner provided in Section 4.4 hereof for delivery of
notices hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly
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<PAGE> 54
executed, as of the date first above written.
-------------------------------------------
Bill Ogle
RTO, INC.
By:
----------------------------------------
Name: Dan C. Breeden, Jr.
Title: Vice President
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<PAGE> 1
EXHIBIT 5.1
March 6, 1997
Alrenco, Inc.
714 E. Kimbrough Street
Mesquite, Texas 75149
Re: Form S-4 Registration Statement Relating to
Shares of Common Stock, No Par Value of Alrenco, Inc.
Gentlemen:
We have acted as counsel for Alrenco, Inc., an Indiana corporation
("Alrenco"), in connection with the preparation of the Registration Statement on
Form S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to 16,962,921
shares of common stock, no par value, of Alrenco (the "Alrenco Common Stock") to
be issued from time to time in connection with acquisitions entered into by
Alrenco.
As such counsel, we have examined and relied upon such records, documents,
certificates and other instruments as in our judgment are necessary or
appropriate to form the basis for the opinions hereinafter set forth. In all
such examinations, we have assumed the genuineness of signatures on original
documents and the conformity to such original documents of all copies submitted
to us as certified, conformed or photographic copies, and as to certificates of
public officials, we have assumed the same to have been properly given and to be
accurate.
Based upon the foregoing, we are of the opinion that the shares of Alrenco
Common Stock issuable in connection with the Registration Statement, will be
validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
Prospectus that is included in the Registration Statement.
Very truly yours,
KING & SPALDING
<PAGE> 1
EXHIBIT 10.12
RTO, INC.
1996 EMPLOYEE STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. The purpose of this Stock Option Plan (the
"Plan") is to benefit RTO, Inc. (the "Company") and its subsidiaries by
offering certain present and future key individuals a favorable opportunity to
become holders of stock in the Company over a period of years, thereby giving
them a stake in the growth and prosperity of the Company and encouraging the
continuance of their services with the Company or its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee (the "Committee") of the board of directors of the Company (the
"Board of Directors"), whose interpretation of the terms and provisions of the
Plan and whose determination of matters pertaining to options granted under the
Plan shall be final and conclusive.
3. ELIGIBILITY. Options shall be granted only to key employees of the
Company and its subsidiaries (including officers of the Company and its
subsidiaries but excluding members of the Committee) selected initially and
from time to time thereafter by the Committee on the basis of the special
importance of their services in the management, development and operations of
the Company or its subsidiaries (each such individual receiving options granted
under the Plan and each other person entitled to exercise an option granted
under the Plan is referred to herein as an "Optionee").
4. GRANTING OF OPTIONS.
(a) The Committee may grant options to key employees of the
Company and its subsidiaries; provided, however, that members of the Committee
shall not be eligible to receive grants of options under the Plan. Pursuant to
the Plan, a maximum of 11,448 shares of the $.01 par value common stock of the
Company (the "Common Stock") may be purchased from the Company, subject to
adjustment as provided in Paragraph 10 hereof; provided, however, that the
maximum number of shares subject to all options granted to an individual under
the Plan shall in no event exceed 50% of the shares of Common Stock authorized
for issuance under the Plan. Options granted under the Plan are intended not to
be treated as incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) No options shall be granted under the Plan on or after to the
tenth anniversary of the adoption of the Plan. In the event that an option
expires or is terminated or canceled unexercised as to any shares, such
released shares may again be optioned (including a grant in substitution for a
canceled option). Shares subject to options may be made available from unissued
or reacquired shares of Common Stock.
(c) Nothing contained in the Plan or in any option granted
pursuant thereto shall confer upon any Optionee any right to be continued in
the employment of the Company or any subsidiary, or interfere in any way with,
the right of the Company or its subsidiaries to terminate his or her employment
at any time.
<PAGE> 2
5. OPTION PRICE. The option price of any option granted under the Plan
shall be determined by the Committee and shall not be less than the fair market
value of the shares of Common Stock subject to the option on the date of the
grant of such option. Unless the Committee otherwise determines, for purposes
of this Paragraph 5, "fair market value" shall be the average of the highest
and lowest sales prices of the Common Stock reported on the NASDAQ National
Market (or on the principal national stock exchange on which it is listed or
quotation service on which it is listed) (as reported in The Wall Street
Journal) on the date the option is granted (or, if the date of grant is not a
trading date, on the first trading date immediately preceding the date of
grant). In the event that the Common Stock is not listed or quoted on the NASDAQ
National Market or any other national stock exchange, the fair market value of
the shares of Common Stock for all purposes of this Plan shall be reasonably
determined by the Committee. If there is a disagreement with respect to a "fair
market value" determination which had been made by the Committee that arises in
connection with an initial public offering of Common Stock, the Committee, in
its absolute direction, shall have the right (in order to resolve such
disagreement) to retroactively adjust such "fair market value" determination to
take into account, as the Committee deems appropriate in its absolute
discretion, the price of the Common Stock set forth in such initial public
offering, and all options granted under the Plan before an initial public
offering automatically shall be granted subject to such adjustment right.
6. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS.
(a) Each option shall be for such term of not more than ten years
as shall be determined by the Committee at the date of the grant. Each option
shall first become exercisable with respect to one-fourth of the total number
of shares subject to the option 12 months after the date of its grant and with
respect to an additional one-fourth at the end of each 12-month period
thereafter during the succeeding three years.
(b) Notwithstanding any other provisions of the Plan to the
contrary, the Committee may in its discretion (i) specifically provide as of
the date of the grant for another time or times of exercise; (ii) accelerate
the exercisability of any option, subject to such terms and conditions as the
Committee deems necessary and appropriate to effectuate the purposes of the
Plan, which may include, without limitation. a requirement that the Optionee
grant to the Committee an option to repurchase all or a portion of the number
of shares acquired upon exercise of the accelerated option for their fair
market value, as determined by the Committee, as of the date of acceleration;
(iii) at any time prior to the expiration or termination of any options
previously granted, extend the term of any option (including such options held
by officers) for such additional period or periods as the Committee, in its
discretion, may determine. In no event, however, shall the aggregate option
period with respect to any option, including the original term of the option
and any extensions thereof, exceed ten years. Subject to the foregoing, all or
any part of the options as to which the right to exercise has accrued may be
exercised at the time of such accrual or at any time or times thereafter during
the option term.
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<PAGE> 3
7. Exercise of Option.
(a) An option may be exercised by giving written notice to the
Committee, specifying the number of shares to be purchased. The option price
for the number of shares of Common Stock for which the option is exercised
shall become immediately due and payable; provided, however, that in lieu of
cash an Optionee may, with the approval of the Committee, exercise his or her
option by (i) delivering a promissory note in accordance with the terms of the
Plan and in a form specified by the Company; (ii) tendering to the Company
shares of Common Stock which had been owned by him or her for at least 6 months
with the certificates therefor registered in his or her name, having a fair
market value equal to the cash exercise price of the shares being purchased; or
(iii) delivery of an irrevocable written notice instructing the Company to
deliver the shares of Common Stock being purchased to a broker selected by the
Company, subject to the broker's written guarantee to deliver the cash to the
Company, in each case equal to the full consideration of the exercise price for
the shares of Common Stock being purchased. For this purpose, the per share
value of Common Stock shall be the fair market value on the date of exercise
(or, if the date of exercise is not a trading date, on the first trading date
immediately preceding the date of exercise), which fair market value shall,
unless the Committee otherwise determines, be the average of the highest and
lowest sales prices of the Common Stock reported on the NASDAQ National Market
(or on the principal national stock exchange on which it is listed or quotation
service on which it is listed) (as reported in The Wall Street Journal) on such
date.
(b) In connection with the exercise of options granted under the
Plan, the Company may make loans to such Optionees as the Committee, in its
discretion, may determine. Such loans shall be subject to the following terms
and conditions and such other terms and conditions as the Committee shall
determine to be not inconsistent with the Plan. Such loans shall bear interest
at such rates as the Committee shall determine from time to time, which rates
may be below then current market rates or may be made without interest. In no
event may any such loan exceed the fair market value, at the date of exercise,
of the shares covered by the option, or portion thereof, exercised by the
Optionee. No loan shall have any initial term exceeding two years, but any such
loan may be renewable at the discretion of the Committee. A loan shall be
either a full recourse loan or a nonrecourse loan, provided that when a
non-recourse loan shall have been made, shares of Common Stock having a fair
market value at least equal to 150 percent of the principal amount of the loan
shall be pledged by the Optionee to the Company as security for payment of the
unpaid balance of such loan.
(c) At the time of the exercise of any option, the Company may
require, as a condition of the exercise of such option, the Optionee to pay the
Company an amount equal to the amount of the tax the Company may be required to
withhold to obtain a deduction for federal and state income tax purposes as a
result of the exercise of such option by the Optionee or to comply with
applicable law. An Optionee may, with the approval of the Committee, make an
election to satisfy the tax withholding obligation by either (1) tendering
to the Company shares of Common Stock owned by
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<PAGE> 4
him or her and with the certificates therefor registered in his or her name,
having a fair market value equal to the tax-withholding obligation, (2) deduct
from any cash payment pursuant to any broker-assisted option exercise (net to
Optionee in cash or shares) an amount sufficient to satisfy any withholding tax
requirements, or (3) instructing the Company to withhold from the shares of
Common Stock otherwise issuable upon the exercise of the option that number of
shares having a fair market value equal to the tax withholding obligation. The
value of the shares to be delivered or withheld shall be based on the fair
market value of the shares of Common Stock on the date of exercise, which fair
market value shall, unless the Committee otherwise determines, be the average
of the highest and lowest sales prices of the Common Stock reported on the
NASDAQ National Market (or on the principal national stock exchange on which it
is listed or quotation service on which it is listed) (as reported in The Wall
Street Journal) on the date of exercise.
(d) At the time of any exercise of any option, the Company may,
if the Company shall determine it necessary or desirable for any reason,
require the Optionee (or his or her heirs, legatees, or legal representative,
as the case may be) as a condition upon the exercise thereof, to enter into
such shareholder, buy-sell and other agreements as the Company deems
appropriate under the circumstances and, further, to deliver to the Company a
written representation of present intention to purchase the shares for
investment and not for distribution. In the event such representation is
required to be delivered, an appropriate legend may be placed upon each
certificate delivered to the Optionee upon his or her exercise of part or all
of the option and a stop order may be placed with the transfer agent for the
Common Stock. Each option shall also be subject to the requirement that, if at
any time the Company determines, in its discretion, that the listing
registration or qualification of the shares subject to the option upon any
securities exchange or under any state, federal or foreign law, or the consent
or approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the issue or purchase of shares
thereunder, the option may not be exercised in whole or part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
8. TERMINATION OF EMPLOYMENT - EXERCISE THEREAFTER.
(a) In the event the employment of an Optionee with the Company
or any of its subsidiaries is terminated for any reason other than the
Optionee's death, permanent disability (as that term is defined in Section
22(e) of the Code, as now in effect or as shall be subsequently amended and as
determined by the Committee), or retirement after age 65, such Optionee's
option shall expire and all rights to purchase shares pursuant thereto shall
terminate immediately, except as expressly set forth in an option or as
determined by the Committee; provided, however, that no option shall be
exercisable after the term of such option under Paragraph 6 hereof expires.
Temporary absence from employment because of illness, vacation, approved leave
of absence, and transfers of employment among the Company and its subsidiaries,
shall not be considered to terminate employment or to interrupt continuous
employment.
(b) In the event of termination of employment because of death,
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as shall be subsequently
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<PAGE> 5
amended and as determined by the Committee) or retirement after age 65, the
option may be exercised by the Optionee, or, if the Optionee dies after such
termination, by the Optionee's heirs, legatees, or legal representatives, as
the case may be, at any time during its specified term prior to three years
after the date of such termination, but only to the extent the option was
exercisable at the date of such termination.
9. NON-TRANSFERABILITY OF OPTIONS. No option shall be transferable by
the Optionee otherwise than by will or the laws of descent and distribution and
each option shall be exercisable during an Optionee's lifetime only by the
Optionee or by the Optionee's legal representative; provided, however, that the
Committee, in its discretion, may permit the transfer of an option on such
terms and subject to such conditions as the Committee may deem necessary or
appropriate or as otherwise may be required by applicable law or regulation.
10. ADJUSTMENT. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows:
(a) in the event that the number of outstanding shares of Common
Stock is changed by any stock dividend, stock split or combination of shares,
the number of shares subject to the Plan and to options granted thereunder
shall be proportionately adjusted;
(b) in the event of any merger, consolidation or reorganization
of the Company with any other corporation or legal entity there shall be
substituted, on an equitable basis as determined by the Committee, for each
share of Common Stock then subject to the Plan and for each share of Common
Stock then subject to an option granted under the Plan, the number and kind of
shares of stock or other securities to which the holders of shares of Common
Stock will be entitled pursuant to the transaction; and
(c) in the event of any other relevant change in the
capitalization of the Company, the Committee shall provide for an equitable
adjustment in the number of shares of Common Stock then subject to the Plan and
to each share of Common Stock then subject to an option granted under the Plan.
In the event of any such adjustment, the option price per share of
Common Stock shall be proportionately adjusted.
11. AMENDMENT OF THE PLAN. The Board of Directors of the Company or any
authorized committee thereof may amend or discontinue the Plan at any time.
However, no such amendment or discontinuance (other than an amendment expressly
provided for in the Plan) shall (a) without the consent of the Optionee change
or impair any option previously granted, or (b) without the approval of the
holders of a majority of the shares of the Common Stock which vote in person or
by proxy at a duly held stockholders' meeting, (i) increase the maximum number
of shares which may be purchased by all employees pursuant to this Plan, (ii)
change the minimum purchase price of any
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<PAGE> 6
option, or (iii) change the limitations on the option period or increase the
time limitations of the grant of options.
12. EFFECTIVE DATE. The Plan is effective as of July 23, 1996.
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<PAGE> 1
EXHIBIT 10.13
RTO, INC.
1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. STATEMENT OF PURPOSE. The purpose of this Stock Option Plan (the
"Plan") is to benefit RTO, Inc. (the "Company") and its subsidiaries by offering
its non-employee directors a favorable opportunity to become holders of stock in
the Company over a period of years, thereby giving them a stake in the growth
and prosperity of the Company and encouraging the continuance of their services
with the Company.
2. ADMINISTRATION. The Plan shall be administered by the board of
directors of the Company (the "Board of Directors"), whose interpretation of the
terms and provisions of the Plan and whose determination of matters pertaining
to options granted under the Plan shall be final and conclusive.
3. ELIGIBILITY. Options shall be granted only to directors of the
Company who are not officers or employees of the Company (each such individual
receiving options granted under the Plan and each other person entitled to
exercise an option granted under the Plan is referred to herein as an
"Optionee").
4. GRANTING OF OPTIONS.
(a)(1) A one-time option, under which a total of 188 shares of
common stock of the Company, $.01 par value (the "Common Stock") may
be purchased from the Company, shall be automatically granted to
each director of the Company on the date of his or her initial
election or appointment to the Board of Directors (the "Appointment
Date") at an option price determined in accordance
<PAGE> 2
with Section 5; provided such director is eligible at that time under
the terms of Paragraph 3 hereof; provided, further, that the Board of
Directors may postpone the date of grant of such option if the Board of
Directors determines that such postponement is in the best interest of
the Company and, if so postponed, the "Appointment Date" in respect of
such option shall be the date on which such option shall be granted.
(2) On the date which is the first anniversary of the
Appointment Date, a one-time option, under which a total of 47 shares
of Common Stock may be purchased from the Company, shall be
automatically granted to each director of the Company at an option
price determined in accordance with Section 5, provided such director
is eligible at that time under the terms of Paragraph 3 hereof.
(3) On the date which is the second anniversary of the
Appointment Date, a one-time option, under which a total of 47 shares
of Common Stock may be purchased from the Company, shall be
automatically granted to each director of the Company at an option
price determined in accordance with Section 5, provided such director
is eligible at that time under the terms of Paragraph 3 hereof.
(4) On the date which is the third anniversary of the
Appointment Date, a one-time option, under which a total of 47 shares
of Common Stock may be purchased from the Company, shall be
automatically granted to each director of the Company at an option
price determined in accordance with Section 5,
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<PAGE> 3
provided such director is eligible at that time under the terms of
Paragraph 3 hereof.
(5) On the date which is the fourth anniversary of the
Appointment Date, a one-time option, under which a total of 47 shares
of Common Stock may be purchased from the Company, shall be
automatically granted to each director of the Company at an option
price determined in accordance with Section 5, provided such director
is eligible at that time under the terms of Paragraph 3 hereof.
The aggregate number of shares which shall be available to be so optioned under
the Plan shall be 5,000 shares. Such number of shares, and the number of shares
subject to options outstanding under the Plan, shall be subject in all cases to
adjustment as provided in Paragraph 10 hereof. Options granted under the Plan
are intended to not be treated as incentive stock options as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
(b) No options shall be granted under the Plan subsequent to the tenth
anniversary of the adoption of the Plan. In the event that an option expires or
is terminated or canceled unexercised as to any shares, such released shares may
again be optioned (including a grant in substitution for a canceled option).
Shares subject to options may be made available from unissued or reacquired
shares of Common Stock.
(c) Nothing contained in the Plan or in any option granted pursuant
thereto shall confer upon any Optionee any right to continue servicing as a
director of the Company or interfere in any way with the right of the Board of
Directors or stockholders of the Company to
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<PAGE> 4
remove such director pursuant to the certificate or articles of incorporation or
bylaws of the Company or pursuant to applicable law.
5. OPTION PRICE. Subject to the adjustment in Paragraph 10 hereof, the
option price per share of Common Stock shall be the fair market value of a share
of Common Stock on the date of the grant of such option. For purposes of this
Paragraph 5, "fair market value" shall be the average of the highest and lowest
sales prices of the Common Stock reported on the Nasdaq National Market System
(or on the principal national stock exchange on which it is listed or quotation
service on which it is listed) (as reported in The Wall Street Journal, Eastern
Edition) on the date the option is granted (or, if the date of grant is not a
trading date, on the first trading date immediately preceding the date of
grant); provided that in the event that the Common Stock is not listed or quoted
on the Nasdaq National Market System or any other national stock exchange, the
fair market value of the shares of Common Stock for purposes of this Paragraph 5
shall be reasonably determined by the Board of Directors.
6. DURATION OF OPTIONS AND INCREMENTS. Subject to the provisions of
Paragraph 8 hereof, each option shall be for a term of ten (10) years. Each
option shall become exercisable with respect to all of the shares subject to the
option six (6) months after the date of its grant.
7. EXERCISE OF OPTION. (a) An option may be exercised by giving written
notice to the Secretary of the Company, specifying the number of shares to be
purchased. The option price for the number of shares of Common Stock for which
the option is exercised shall become immediately due and payable, provided,
however, that in lieu of cash an Optionee may, with the approval of the Board of
Directors, exercise his or her option by (i) delivering a promissory note in
accordance with the terms of the Plan and in a form specified by the Company;
(ii) tendering
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<PAGE> 5
to the Company shares of Common Stock owned by him or her and with the
certificates therefor registered in his or her name, having a fair market value
equal to the cash exercise price of the shares being purchased; or (iii)
instructing the Company to withhold from the shares of Common Stock otherwise
issuable upon the exercise price of the shares being purchased; provided,
however, that an election pursuant to clause (iii) must be made by the Optionee
during the period beginning on the third business day following the date of
release for publication of the Company's quarterly or annual financial summary
of its results of operations and ending on the twelfth business day following
such date. For this purpose, the per share value of Common Stock shall be the
fair market value on the date of exercise (or, if the date of exercise is not a
trading date, on the first trading date immediately preceding the date of
exercise), which shall be the average of the highest and lowest sales prices of
the Common Stock reported on the Nasdaq National Market System (or on the
principal national stock exchange on which it is listed or quotation service on
which it is listed) (as reported in The Wall Street Journal, Eastern Edition) on
such date; provided that in the event that the Common Stock is not listed or
quoted on the Nasdaq National Market System or any other national stock
exchange, the fair market value of the shares of Common Stock for purposes of
this Paragraph 7(a) shall be reasonably determined by the Board of Directors.
(b) In connection with the exercise of options granted under
the Plan, the Company may make loans to such Optionees as the Board of
Directors, in its discretion, may determine. Such loans shall be subject to the
following terms and conditions and such other terms and conditions as the Board
of Directors shall determine to be not inconsistent with the Plan. Such loans
shall bear interest at such rates as the Board of Directors shall determine from
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<PAGE> 6
time to time, which rates may be below then current market rates or may be made
without interest. In no event may any such loan exceed the fair market value,
at the date of exercise, of the shoes covered by the option, or portion thereof,
exercised by the Optionee. No loan shall have an initial term exceeding two
years, but any such loan may be renewable at the discretion of the Board of
Directors. When a loan shall have been made, shares of Common Stock having a
fair market value at least equal to 150 percent of the principal amount of the
loan shall be pledged by the Optionee to the Company as security for payment of
the unpaid balance of the loan.
(c) If at any time an Optionee is required to pay an amount
required to be withheld under applicable income tax or other laws in connection
with the exercise of an option in order for the Company to obtain a deduction
for federal and state income tax purposes, the Company shall withhold shares of
Common Stock having a value equal to the amount required to be withheld. The
value of the shares to be withheld or delivered shall be based on the fair
market value of the shares of Common Stock on the date of exercise, which shall
be the average of the highest and lowest sales prices of the Common Stock
reported on the Nasdaq National Market System (or on the principal stock
exchange on which it is listed or quotation service on which it is listed) (as
reported in The Wall Street Journal, Eastern Edition) on the date of exercise;
provided that in the event that the Common Stock is not listed or quoted on
the Nasdaq National Market System or any other national stock exchange, the fair
market value of the shares of Common Stock for purposes of this Paragraph 7(c)
shall be reasonably determined by the Board of Directors.
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<PAGE> 7
(d) At the time of any exercise of any option, the Company
may, if the Company shall determine it necessary or desirable for any reason,
require the Optionee (or his or her heirs, legatees or legal representative, as
the case may be) as a condition upon the exercise thereof, to deliver to the
Company a written representation of present intention to purchase the shares for
investment and not for distribution. In the event such representation is
required to be delivered, an appropriate legend may be placed upon each
certificate delivered to the Optionee upon his or her exercise of part or all of
the option and a stop order may be placed with the transfer agent for the Common
Stock. Each option shall also be subject to the requirement that, if at any time
the Company determines, in its discretion, that the listing, registration or
qualification of the shares subject to the option upon any securities exchange
or under any state, federal or foreign law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the issue or purchase of shares thereunder, the option may not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Company.
8. CESSATION OF BOARD MEMBERSHIP - EXERCISE THEREAFTER. (a) In
the event that an Optionee ceases to be a director of the Company for any reason
other than for cause, such Optionee or his or her heirs, legatees or legal
representatives, as the case may be, shall have 360 days from the date such
Optionee ceased to be a director of the Company to exercise those options owned
by such Optionee which were exercisable as of the date of such cessation.
(b) In the event that an Optionee is removed from the Board
of Directors of the Company for cause (as hereinafter defined), such Optionee's
option shall expire and all rights
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<PAGE> 8
to purchase shares of Common Stock pursuant thereto shall terminate immediately.
For purposes of the Plan, removal for "cause" shall mean (a) the Optionee's
gross negligence, dishonesty, incompetency, willful breach of any employment or
consulting agreement with the Company, or the violation of any reasonable rule
or regulation of the Company, a violation of which results in significant damage
to the Company and with respect to which, except in the case of dishonesty or
incompetency, the Optionee fails to make reasonable efforts to correct in a
reasonable time; (b) the Optionee's engaging in other conduct which materially
adversely reflects on the Company or which is damaging to the Company upon
written notice of such violation; or (c) continued failure by the Optionee to
substantially perform his or her duties (other than any such failure resulting
from his or her incapacity due to physical or mental disability), following the
delivery of a demand for substantial performance by the Company.
9. NON-TRANSFERABILITY OF OPTIONS. No option shall be transferable by
the Optionee otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order and each option shall be
exercisable during an Optionee's lifetime only by such Optionee or after such
Optionee's death by such Optionee's heirs, legatees or legal representatives, as
the case may be.
10. ADJUSTMENT. The number of shares subject to the Plan and to
options granted under the Plan shall be adjusted as follows: (a) in the event
that the number of outstanding shares of Common Stock is changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
the Plan and to options granted thereunder shall be proportionately adjusted,
(b) in the event of any merger, consolidation or reorganization of the Company
with any other corporation or legal entity there shall be substituted, on an
equitable basis as
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<PAGE> 9
determined the Board of Directors, for each share of Common Stock then subject
to the Plan and for each share of Common Stock then subject to an option
granted under the Plan, the number and kind of shares of stock or other
securities to which the holders of shares of Common Stock will be entitled
pursuant to the transaction; and (c) in the event of any other relevant change
in the capitalization of the Company, the Board of Directors shall provide for
an equitable adjustment in the number of shares of Common Stock then subject to
the Plan and to each share of Common Stock then subject to an option granted
under the Plan. In the event of any such adjustment, the option price per share
of Common Stock shall be proportionately adjusted.
11. AMENDMENT OF THE PLAN. The Board of Directors of the Company or any
authorized committee thereof may amend or discontinue the Plan at any time,
provided, however, that the Plan may not be amended more than once every six
months except to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules and regulations under each, and provided
further, that no such amendment or discontinuance shall (a) without the consent
of the Optionee change or impair any option previously granted, or (b) without
the approval of the holders of a majority of the shares of Common Stock which
vote in person or by proxy at a duly held stockholders' meeting, (i) increase
the maximum number of shares which may be purchased by all eligible directors
pursuant to the Plan, (ii) change the purchase price of any option, or (iii)
change the option period or increase the time limitations on the grant of
options.
12. EFFECTIVE DATE. The Plan is effective as of September 16, 1996.
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<PAGE> 1
EXHIBIT 10.16
THE STATE OF TEXAS
COUNTY OF DALLAS
THIS LEASE AGREEMENT is made and entered into on January 1, 1993, by
and between BILLY W. WHITE dba WHITE PROPERTY CO. #2, hereinafter referred to as
Lessor, and ACTION TV & APPLIANCE RENTAL, INC., a Texas corporation, hereinafter
referred to as Lessee.
In consideration of the mutual covenants and agreements herein set
forth, and other good and valuable consideration, Lessor does hereby demise and
lease to Lessee, and Lessee does hereby lease from Lessor, the real property
described in Exhibit "A" attached hereto, together with the improvements in the
form of an office and warehouse located thereon, and hereinafter called the
"leased premises".
ARTICLE I. TERM
The term of this lease shall be three (3) years, commencing on January
1, 1993, and ending on December 31, 1995, unless sooner terminated as herein
provided.
Lessee may extend this lease for a further period of three (3) years
prior to the expiration of the lease term, under all the terms and conditions of
this lease.
ARTICLE II. RENT
In consideration of this lease, Lessee promises and agrees to pay
Lessor rent, without deduction, set off, or demand, for said premises at the
rate of Ten Thousand and no/100 Dollars ($10,000) per month. The last such
monthly installment shall be payable by Lessee to Lessor in advance on or before
the commencement date of this lease. The first such monthly installment shall be
due and payable on or before January 1, 1993, and a like monthly installment
shall be due and payable on or before the first day of each succeeding calendar
month during the term hereof. Rent for any fractional month at the beginning or
end of the lease term shall be prorated. If any rental or other payment under
this lease is not paid promptly when due, the same shall bear interest at the
rate of 10% per annum from the due date until paid, but this provision shall not
be construed to relieve Lessee from any default hereunder.
It is expressly agreed that the monthly rental specified above is
based upon a rate of $7.20 per square foot per year for 10,260 sq. ft. of
office space and $2.50 per square foot per year for 18,482 sq. ft. of warehouse
space rented by Lessee.
The rental as set forth herein shall be adjusted upward at the end of
each calendar year during the term and any extensions of this lease, which
adjustment shall apply to the succeeding calendar year period, in accordance
with the formula set forth below. In applying the formula, the following
definitions shall prevail:
<PAGE> 2
(1) "Bureau" means the Federal Bureau of Labor Statistics or any
successor agency that shall issue the indices or data referred to in
subparagraph "2".
(2) "Price Index" means the national Consumer's Price Index issued from
time to time by the Bureau, or any other measure hereafter employed by the
Bureau, or any other measure hereafter employed by the Bureau in lieu of such
price index that measures the cost of living nationally.
(3) "Average Price Index" for any yearly period is the average of the
Price Indices issued in twelve (12) months prior to the first day of that
particular calendar year period, and such average is the "Average Price Index"
for such calendar year. In making an average there shall be excluded any index
which itself is an average (i.e., there shall be no averaging of averages).
(4) The "issue" of a Price Index means the release to the public of the
Price Index, and the date of issue shall be the date it is so released whether
or not the issued Index is for the current month or period in which the release
occurs or for a prior month or period.
(5) The "Base Index" means the Average Price Index for the calendar
year within this lease agreement is executed.
If the Average Price Index for any calendar year is greater than the
Base Index, then the rental, beginning with the first day of the succeeding
calendar year and continuing for each month during such calendar year, shall be
increased in the same proportion that the increase in the Average Price Index
bears to the Base Index, such increase to be effective only to the extent that
it exceeds a similar increase then effective, established in any prior calendar
year. If an increase shall become effective by application of the rule stated in
the preceding sentence and the Average Price Index for any subsequent calendar
year is greater than the Base Index, then the rental beginning with such
subsequent calendar year shall be appropriately adjusted so as to reflect only
the increase, if any, over that applied by employing the rule set forth in the
preceding sentence.
ARTICLE III. USE OF PREMISES
Lessee will use the leased premises only for office and warehouse
purposes, unless Lessor shall give Lessee prior written consent for a different
use. In connection with its use of and activities in and about the leased
premises and the Building, Lessee, at its expense, will comply, and will cause
its employees, agents, and invites to conduct themselves, with full regard for
the rights, convenience, and welfare of all other tenants in the Building.
Provided Lessee has performed all of the terms, covenants, agreements, and
conditions of this lease, including the payment of rent, to be performed by
Lessee, Lessee shall peaceably and quietly hold and enjoy the premises for the
term hereof, without hindrance from Lessor, subject to the terms and conditions
of this lease.
<PAGE> 3
ARTICLE IV. MAINTENANCE AND SURRENDER
Lessee acknowledges that its acceptance of possession of the leased
premises constitutes a conclusive admission that it has inspected the leased
premises and has found them in good condition and repair and in all respects in
accordance with the plans and specifications previously approved by Lessee.
Lessee shall furnish the following services at its sole expense:
(a) Heat and air conditioning;
(b) Electric current service for lighting and ordinary business
appliances.
(c) Usual janitorial and maintenance service including the sweeping and
waxing of floors and the cleaning of windows, replacement of light globes or
fluorescent tubes in the standard lighting fixtures. Lessee shall also maintain
and keep the public and common areas of the Building, such as lobbies, stairs,
corridors, and rest rooms in reasonably good order and condition.
Lessee shall throughout the lease term maintain the leased premises and
keep them free from waste or nuisance, and shall deliver up the premises in a
clean and sanitary condition at the termination of this lease in good repair and
condition, reasonable wear and tear and damage by fire, tornado, or other
casualty accepted. In the event Lessee should neglect to reasonably maintain the
leased premises, Lessor shall have the right, but not the obligation, to cause
repairs or corrections to be made, and any reasonable Costs therefor shall be
payable by Lessee or Lessor as additional rental on the next installment date.
ARTICLE V. OBLIGATIONS OF LESSOR AND LESSEE
Lessee shall be liable for all taxes levied or assessed against
personal property, furniture, or fixtures placed by Lessee in the premises. If
any such taxes for which Lessee is liable are levied or assessed against Lessor
or Lessor's property and if Lessor elects to pay the same or if the assessed
value of Lessor's property is increased by inclusion of personal property,
furniture, or fixtures placed by Lessee in the premises, and Lessor elects to
pay the taxes based on such increase, Lessee shall pay to Lessor upon demand
that part of such taxes for which Lessee is primarily liable hereunder.
Lessee shall not make any alterations, additions, or improvements to
the leased premises without the prior written consent of Lessor. Consent for
nonstructural alterations, additions, or improvements shall not be unreasonably
withheld by Lessor. Lessee shall have the right at all times to erect or install
furniture and fixtures provided that Lessee complies with all applicable
governmental laws, ordinances, and regulations. Lessee shall have the right to
remove at the termination of this lease such items so installed, provided Lessee
is not in default; however, Lessee shall, prior to the termination of this
lease, repair any damage caused by such removal.
<PAGE> 4
All alterations, additions, or improvements made by Lessee shall become
the property of Lessor at the termination of this lease; however, Lessee shall
promptly remove, if Lessor so elects, all alterations, additions, and
improvements, and any other property placed in the premises by Lessee, and
Lessee shall repair any damage caused by such removal.
(a) If the Building or the leased premises should be totally destroyed
by fire, tornado, or other casualty, or if they should be so damaged that
rebuilding or repairs cannot reasonably be completed within thirty (30) working
days from the date of the occurrence of the damage, this lease shall terminate
and rent shall be abated for the unexpired portion of this lease, effective as
of the date of said occurrence.
(b) If the Building or the leased premises should be damaged by fire,
tornado, or other casualty, but not to such an extent that rebuilding or repairs
cannot reasonably be completed within (30) working days from the date of the
occurrence of the damage, this lease shall not terminate, but Lessor shall, if
the casualty has occurred prior to the final three (3) months of the lease term,
at its sole cost and risk proceed forthwith to rebuild or repair the leased
premises to substantially the condition in which they existed prior to such
damage. If the casualty occurs during the final three (3) months of the lease
term, Lessor shall not be required to rebuild or repair such damage. If the
leased premises are to be rebuilt or repaired and are untenantable in whole or
in part following such damage, the rent payable hereunder during the period in
which they are untenantable shall be adjusted equitably. In the event that
Lessor should fail to complete such rebuilding or repairs within thirty (30)
working days from the date of the occurrence of the damage, Lessee may at its
option terminate this lease by written notification at such time to Lessor,
whereon all rights and obligations hereunder shall cease.
If during the term of this lease or any extension or renewal thereof,
all or a portion of the leased premises should be taken for any public or quasi
public use under any governmental law, ordinance, or regulation, or by right of
eminent domain, or should be sold to the condemning authority under threat of
condemnation, at the option of the Lessor this lease shall terminate and the
rent shall be abated during the unexpired portion of this lease, effective as of
the date of the taking of said premises by the condemning authority. Lessor
shall receive the entire award from any such taking, and Lessee shall have not
claim thereto, or for the value of any unexpired term of this lease.
Lessee and Lessee's agents, employees, and invitees will comply fully
with all requirements of the rules and regulations of the Building and related
facilities which shall be promulgated by Lessor from time to time. Lessor shall
at all times have the right to change such rules and regulations or to
promulgate other rules and regulations in such reasonable manner as may be
deemed advisable for safety, care, or cleanliness of the Building and related
facilities, or premises, and for preservation of good order therein, all of
which rules and regulations, changes, and
<PAGE> 5
amendments will be forwarded to Lessee in writing and shall be carried out and
observed by Lessee. Lessee shall further be responsible for the compliance with
such rules and regulations by the employees, servants, agents, visitors, and
invitees of Lessee.
Lessor or his agents, and representatives shall have the right to enter
into and upon any and all parts of premises at all reasonable hours to (a)
inspect same or clean or make repairs or alterations or additions as Lessor may
deem necessary (but without any obligation to do so, except as expressly
provided for herein) or (b) show the premises to prospective tenants,
purchasers, or lenders; and Lessee shall not be entitled to any abatement or
reduction of rent by reason thereof, nor shall such be deemed to be an actual or
constructive eviction.
Lessee will not permit any mechanic's lien or liens to be placed upon
the premises or the Building or improvements thereon during the term hereof, and
in case of the filing of any such lien Lessee will promptly pay same. If default
in payment thereof shall continue for twenty (20) days after written notice
thereof from Lessor to Lessee, the Lessor shall have the right and privilege at
Lessor's option of paying the same or any portion thereof without inquiry as to
the validity thereof, and any amounts so paid, including expenses and interest,
shall be so much additional indebtedness hereunder due from Lessee to Lessor and
shall be repaid to Lessor immediately on rendition of bill therefor, together
with interest at the highest lawful rate.
ARTICLE VI. INDEMNITY
Lessee agrees to, and does, indemnify and hold Lessor harmless against
any and all claims, demands, damages, costs and expenses, loss and/or liability,
including reasonable attorney's fees for the defense thereof, arising from the
conduct or management breach on the part of Lessee of any conditions of this
lease, or from any act to negligence of Lessee, its agents, contractors,
employees, subtenants, guests, or invitees in or about the leased premises. In
case of any action or proceeding brought against Lessor by reason of such claim,
Lessee, upon notice from Lessor, covenants to defend such action or proceeding
by counsel acceptable to Lessor.
ARTICLE VII. ASSIGNMENT AND SUBLEASE
Lessee may not assign this lease, or any interest therein, or sublet
the leased premises, or any part thereof, or any right or privilege pertinent
thereto, without the prior written consent of Lessor which may be withheld by
Lessor for any reason, in his sole discretion.
Lessor is expressly given the right to assign any or all of its
interest under the terms of this lease.
ARTICLE VIII. DEFAULT
<PAGE> 6
The following events shall be deemed to be events of default by lessee
under this lease:
(a) Lessee shall fail to pay any installment of the rent hereby
reserved and such failure shall continue for a period of ten (10) days.
(b) Lessee shall fail to comply with any term, provision, or covenant
of this lease, other than the payment of rent, and shall not cure such failure
within twenty (20) days after written notice thereof to Lessee.
(c) Lessee shall make an assignment for the benefit of creditors.
(d) Lessee shall file a petition under any section or chapter of the
National Bankruptcy Act, as amended, or under any similar law or statute of the
United States or any state thereof; or Lessee shall be adjudged bankrupt or
insolvent in proceedings filed against Lessee thereunder and such adjudication
shall not be vacated or set aside or stayed within the time permitted by law.
(e) A receiver or trustee shall be appointed for all or substantially
all of the assets of Lessee and such receivership shall not be terminated or
stayed within the time permitted by law.
(f) Lessee shall desert or vacate any substantial portion of the
premises for a period of five (5) or more days.
Upon the occurrence of any event of default specified in this section
above, Lessor shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever:
(a) Terminate this lease in which event Lessee shall immediately
surrender the premises to Lessor, and if Lessee fails to do so, Lessor may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession and expel or remove Lessee
and any other person who may be occupying said premises or any part thereof, by
force if necessary, without being liable for prosecution or any claim for
damages therefor, and if Lessor so elects, relet the premises on such terms as
Lessor shall deem advisable and receive the rent thereof; and Lessee agrees to
pay to Lessor on demand any deficiency that may arise by reason of such
reletting.
(b) Enter upon the premises by force if necessary, without being liable
for prosecution or any claim for damages therefor, and do whatever Lessee is
obligated to do under the terms of this lease; and Lessee agrees to reimburse
Lessor on demand for any expenses which Lessor may incur in thus effecting
compliance with Lessee's obligations under this lease, and Lessee further agrees
that Lessor shall not be liable for any damages resulting to Lessee from such
action.
No reentry or taking possession of the premises by Lessor shall be
construed as an election on its part to terminate this lease, unless a written
notice of such intention be given to Lessee. Notwithstanding any such reletting
or reentry or taking possession, lessor may at any time thereafter elect to
terminate this lease for a previous default. Pursuit of any of the foregoing
remedies shall not preclude pursuit of any of the other
<PAGE> 7
remedies herein provided or any other remedies provided by law, nor shall
pursuit of any remedy herein provided constitute a forfeiture or waiver of any
rent due to Lessor hereunder or of any damages accruing to Lessor by reason of
the violation of any of the terms, provisions, and covenants herein contained.
Lessors' acceptance of rent following an event of default hereunder shall not be
construed as Lessor's waiver of such event of default. No waiver by Lessor of
any violation or breach of any of the terms, provisions, and covenants herein
contained shall be deemed or construed to constitute a waiver of any other
violation or breach of any of the terms, provisions, and covenants herein
contained. Forbearance by Lessor to enforce one or more of the remedies herein
provided upon an event of default shall not be deemed or constitute a waiver of
such default. The loss or damage that Lessor may suffer by reason of termination
of this lease or the deficiency from any reletting as provided for above shall
include the expense of repossession and any repairs or remodeling undertaken by
Lessor following possession. Should Lessor at any time terminate this lease for
any default, in addition to any other remedy Lessor may have, Lessor may recover
from Lessee all damages Lessor may incur by reason of such default, including
such termination of the excess, if any, of the amount of rent and charges
equivalent to rent reserved in this lease for the remainder of the stated term
over the then reasonable rental value of the premises for the remainder of said
term, all of which amounts shall be immediately payable from Lessee to Lessor.
No act or thing done by the Lessor or its agent during the term hereby
granted shall be deemed an acceptance of a surrender of the premises, and no
agreement to accept a surrender of the premises shall be valid unless the same
be made in writing and subscribed by Lessor.
In addition to the statutory Lessor's lien, Lessor shall have, at all
times, a valid security interest to secure payment of all rentals and other sums
of money becoming due hereunder from Lessee, and to secure payment of any
damages or loss which Lessor may suffer by reason of the breach by Lessee of any
covenant, agreement, or condition contained herein, upon all goods, wares,
equipment, fixtures, furniture, improvements, and other personal property of
Lessee presently or which may hereafter be situated on the premises, and all
proceeds therefrom, and such property shall not be removed therefrom without the
consent of Lessor until all arrearages in rent as well as any and all other sums
of money then due to Lessor hereunder shall first have been paid and discharged
and all the covenants, agreements, and conditions hereof have been fully
complied with and performed by Lessee. Upon the occurrence of any event of
default by Lessee, Lessor, may, in addition to any other remedies provided
herein, after giving reasonable notice of the intent to take possession and
giving an opportunity for a hearing thereon, enter upon the premises and take
possession of any and all goods, wares, equipment, fixtures, furniture,
improvements, and other personal property of Lessee situated on the premises,
without liability for trespass or conversion, and
<PAGE> 8
sell the same at public or private sale, with or without having such property at
the sale, after giving Lessee reasonable notice of the time and place of any
sale or of the time after which any private sale is to be made, at which sale
the Lessor or his assigns may purchase unless otherwise prohibited by law.
Unless otherwise provided by law, and without intending to exclude any other
manner of giving Lessee reasonable notice, the requirement of reasonable notice
stall be met if such notice is given at least five (5) days before the time of
sale. The proceeds from any such disposition, less any and all expenses
connected with the taking of possession, holding, and selling of the property
(including reasonable attorney's fees and other expenses), shall be applied as a
credit against the indebtedness secured by the security interest granted in this
section. Any surplus shall be paid to Lessee or as otherwise required by law;
and the Lessee shall pay any deficiencies forthwith. Upon request by Lessor,
Lessee agrees to execute and deliver to Lessor a financing statement in form
sufficient to perfect the security interest of Lessor in the afore mentioned
property and proceeds thereof under the provisions of the Uniform Commercial
Code in force in the State of Texas. The statutory lien for rent is not hereby
waived, the security interest herein granted being in addition and supplementary
thereto.
ARTICLE IX. MISCELLANEOUS
Should Lessee, or any of its successors in interest, hold over the
premises, or any part thereof, after the expiration of the term of this lease,
unless otherwise agreed in writing, such holding over shall constitute and be
construed as tenancy from month to month only, at a rental equal to the rent
payable for the last month of the term of this lease plus fifty percent (50%) of
such amount. The inclusion of the preceding sentence shall not be construed as
Lessor's consent for Lessee to hold over.
Lessee accepts this lease subject to any deeds of trust, security
interests, or mortgages which might now or hereafter constitute a lien upon the
Building or improvements therein or on the lease premises and to zoning
ordinances and governmental regulations relating to the use of the property.
Lessee shall at any time hereafter, on demand execute any instruments, releases,
or other documents that may be required by any mortgagee for the purpose of
subjecting and subordinating this lease to the lien of any such deed of trust,
security interest, or mortgage.
All notices provided to be given under this agreement shall be given by
certified mail or registered mail, addressed to the proper party, at the
following address:
LESSOR: LESSEE:
BILLY W. WHITE ACTION TV & APPLIANCE RENTAL INC.
244 RIGGS CIRCLE P. O. BOX 850306
MESQUITE, TX. 75149 MESQUITE, TEXAS 75185-0306
<PAGE> 9
Words of any gender used in this lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
This agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, legal
representatives, successors, and assigns where permitted by this agreement.
This agreement shall be construed under and in accordance with the laws
of the State of Texas, and all obligations of the parties created hereunder are
performable in Dallas County, Texas.
In case any one or more of the provisions contained in this agreement
shall for any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision thereof and this agreement shall be construed as if such
invalid, illegal, or unenforceable provision had never been contained herein.
This agreement constitutes the sole and only agreement of the parties
hereto and supersedes any prior understandings or written or oral agreements
between the parties respecting the within subject matter.
No amendment, modification, or alteration of the terms hereof shall be
binding unless the same be in writing, dated subsequent to the date hereof and
duly executed by the parties hereto.
If there be more than one Lessee, the obligations hereunder imposed
upon Lessee shall be joint and several. If there be a guarantor of Lessee's
obligations hereunder, the obligations hereunder imposed upon Lessee shall be
the joint and several obligations of lessee and such guarantor and Lessor need
not first proceed against the Lessee hereunder before proceeding against such
guarantor, nor shall any such guarantor be released from its guaranty for any
reason whatsoever, including without limitation, in case of any amendments
hereto, waivers hereof or failure to give such guarantor any notices hereunder.
The rights and remedies provided in favor of Lessor by this lease
agreement are cumulative and the use of any one right or remedy by Lessor shall
not preclude or waive its right to use any or all other remedies. Said rights
and remedies are given in addition to any other rights the parties may have by
law, statute, ordinance, or otherwise.
No waiver by the parties hereto of any default or breach of any term,
condition, or covenant of this lease shall be deemed to be waiver of any other
breach of the same or any other term, condition, or covenant contained herein.
In the event Lessee breaches any of the terms of this agreement whereby
Lessor employs attorneys to protect or enforce its rights hereunder and
prevails, then Lessee agrees to pay the Lessor reasonable attorneys' fees so
incurred by Lessor.
Neither Lessor nor Lessee shall be required to perform any term,
condition, or covenant in this lease so long as such performance is delayed or
prevented by force majeure, which shall mean acts of God, strikes, lockouts,
material or labor
<PAGE> 10
restrictions by any governmental authority, civil riot, floods, and any other
cause not reasonably within the control of Lessor/Lessee and which by the
exercise of due diligence Lessor or Lessee is unable, wholly or in part, to
prevent or overcome.
Time is of the essence of this agreement.
IN WITNESS WHEREOF, the undersigned Lessor and Lessee hereto execute
this agreement as of the day and year first above written.
LESSOR:
/s/ Billy W. White
-------------------------------------
LESSEE:
ACTION TV & APPLIANCE RENTAL, INC.
BY: /s/ Billy W. White
-------------------------------------
PRESIDENT
January 1, 1993
<PAGE> 11
EXHIBIT "A"
BEING a tract of land in the W. CARUTH SURVEY, ABSTRACT No. 362, Dallas
County, Texas, being part of Lot 1, Block A, of Replat No. 1, Landers Addition,
an Addition to the City of Mesquite, recorded in Volume 76182, Page 1321, Deed
Records of Dallas County, Texas, and being more particularly described as
follows:
BEGINNING at an iron rod for a corner on the East line of Long Creek Road South
224.46 feet from the Northwest corner of Replat No. 1 Landers Addition;
THENCE North 89 degrees 43 minutes East 389.22 feet to an iron rod for a corner
on the West line of a 0.169 acre tract of land conveyed to Square D. Co. and
recorded in volume 77042, Page 1835, Deed Records of Dallas County, Texas;
THENCE South 0 degrees 17 minutes East with the West line of said 0.169 acre
trace 163.50 feet to an iron rod for corner;
THENCE South 89 degrees 43 minutes West 390.03 feet to an iron rod for a corner
on the East line of Long Creek Road;
THENCE North with the East line of Long Creek Road 163.50 feet to the POINT OF
BEGINNING.
<PAGE> 12
AMENDMENT MODIFICATION AND EXTENSION AGREEMENT
This Amendment to the Lease Agreement is entered into by and between
White Property Co., #2 ("Lessors"), and Action TV & Appliance Rental, Inc.
("Lessee").
W I T N E S S E T H
WHEREAS, Lessor and Lessee entered into that certain Lease Agreement
dated January 01, 1993 (the "Lease Agreement") under the terms of which Lessor
leased to Lessee certain premises being approximately 28,742 square feet of
space situated in the city of Mesquite, county of Dallas, state of Texas, having
a street address of 714 Kimbrough and more fully described in said Lease
Agreement as the "leased premises", and
WHEREAS, Lessor and Lessee now desire to extend and modify said Lease
Agreement as more fully hereinafter set forth.
NOW THEREFORE, for and in consideration of the premises and the
undertakings obtained herein, the parties agree to amend the Lease Agreement in
the following manner:
1. The primary term of the Lease is extended to December 31,
1997.
2. Lessor agrees that Lessee shall have the right to renew this
Lease for one (1) option period for an additional three (3)
years commencing January 01, 1998 through December 31, 2000.
EXCEPT as hereinabove amended, the provisions of said Lease remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have below executed this
Agreement and Amendment to Lease this 06th day of August, 1996.
LESSOR: White Property Co. #2 LESSEE: Action TV & Appliance Rental
By: /s/ Bill White By: /s/ Bill White
--------------------- ------------------------
Name: Bill White Name: Bill White
------------------- -----------------------
Title: General Partner Title: President
------------------ ----------------------
<PAGE> 1
EXHIBIT 10.17
THE STATE OF TEXAS
COUNTY OF DALLAS
This agreement of lease, made this 1st day of June, 1992 by and between
Bill White known herein as Lessor, and Action TV & Appliance Rental, Inc. known
herein as Lessee.
WITNESSETH, That the said Lessor does by these presents lease unto the
said Lessee commercial property fronting on the east side of E. Kimbrough St. in
the City of Mesquite, Texas, Dallas County, and having a street address of
Mesquite, Texas for the term of six (6) years, beginning on the 1st day of June,
1992, to be occupied as a service department/warehouse and not otherwise, paying
therefore the sum of Three hundred twenty-four thousand and no/100 dollars
($324,000.00) payable in monthly installments of Four thousand five hundred and
no/100 ($4,500.00) Dollars each, beginning on the 1st day of June, 1992, with a
monthly installment being payable on the 1st day of each month thereafter during
the term of this lease, and upon the conditions and covenants following:
(l) Lessee shall pay the rent at P. O. Box 850306, Mesquite, Texas
75185-0306, monthly in advance as aforesaid, as the same shall
fall due.
(2) Lessee shall take good care of the property and its fixtures,
and suffer no waste; and shall, at Lessee's own expense and
cost, keep said premises in good repair. At the end or other
expiration of the term of this lease, Lessee shall deliver up
the leased premises in good order and condition. All
alterations, additions and improvements, except trade
fixtures, put in at the expenses of Lessee shall be the
property of Lessor and shall remain upon and surrendered with
the premises as a part thereof at the termination of this
lease. No improvements or alterations shall be made in or to
the leased premises without the consent of the Lessor.
(3) Lessee shall pay all utility bills incurred by Lessee during
the term of this lease. Lessee shall be responsible for all
taxes, insurance and maintenance during the term of this
lease.
<PAGE> 2
(4) Lessor shall not be liable to Lessee or to Lessee's employees,
patrons, or visitors, for any damage to person or property,
caused by the act or negligence due to the building on said
premises or any appurtenances thereof being improperly
constructed or being or becoming out of repair, nor for any
damage from any defects or want of repair of any part of the
building of which the leased premises form a part. Lessee
accepts such premises as suitable for the purposes for which
same are leased and accepts the building and each and every
appurtenance thereof, and waives defects therein and agrees to
hold the Lessor harmless from all claims for any such damage
to person or property.
(5) Lessee shall keep in force a policy of liability insurance, as
protection against any claims which may be made for damage to
person or property, as described in the preceding paragraph of
this lease; and Lessee shall provide Lessor with a
certificate, or other written evidence, showing the existence
of such liability insurance and the amount of coverage
provided by same,
(6) Any holding over by the Lessee of the hereby leased premises,
after the expiration of this lease, shall operate and be
construed as a tenancy from month-to-month at a rental of
$4,500.00 a month, and such month-to-month tenancy shall be
subject to all of the terms and conditions of this lease
agreement.
SIGNED the day and date above written.
/s/ Bill White
-----------------------------
Lessor - Bill White
Action TV & Appliance Rental, Inc.
----------------------------------
Lessee
by: /s/ K. David Belt
------------------------------
K. David Belt
it's Vice President
-------------------------
<PAGE> 1
EXHIBIT 10.18
ACTION RENT-TO-OWN
SHOPPING CENTER LEASE
Gross Lease
This Shopping Center Lease ("Lease") is entered into as of the 1st day of May,
1996, by and between White Property Co. No. 2, Ltd (the "Landlord") and ACTION
TV & APPLIANCE RENTAL, INC., a Texas corporation, doing business as ACTION
RENT-TO-OWN (the "Tenant").
1. DEFINITIONS AND CERTAIN BASIC PROVISIONS
1.1
(a) Landlord's Address: P.O. Box 850306 Mesquite TX 75185-0306
(b) Tenant's Mailing Address: P.O. Box 850306, Mesquite, Texas 75185-0306
(c) "Demised Premises": A store unit commonly known as 6007 Wesley
Street, City Greenville, State TX, Zip Code 75401 in the Shopping
Center (defined below), and being outlined in red on the site plan
marked Exhibit "A" attached hereto and made a part hereof for all
purposes, for purposes of this Lease being deemed to contain 4,000
leasable square feet (measured to the exterior of outside walls and to
the center of interior walls).
(d) "Lease Term": Commencing on the Term Commencement Date, which shall be
the 1st day of May, 1996, unless a building or improvements are to be
constructed or renovated by or for Tenant, in which event the "Term
Commencement Date" shall be defined below, and continuing for five (5)
years and no (0) months; provided that if the Term Commencement Date
is a date other than the first day of a calendar month, the Lease Term
shall be for said number of years and months plus the number of days
remaining in such calendar month following the Term Commencement Date.
The "term" shall include the Lease Term, the Renewal Terms, and all
extensions.
(e) "Renewal Terms": two (2) terms of five (5) years each.
(f) "Guaranteed Rental": $2,750.00 per month, payable monthly in advance.
(g) INTENTIONALLY OMITTED.
(h)
(i) "Common Area": That part of the Shopping Center not occupied by
buildings designed for rental as shown on the site plan intended for
the common and non-exclusive use of all tenants, their customers,
invitees, employees, agents, sublessees, assignees and
concessionaires, including among other facilities (as such may be
applicable to the Shopping Center) parking areas, driveways, service
driveways, service areas, landscaped areas, Shopping Center sign,
parking lot lighting poles and light fixtures of the Shopping Center,
private streets and alleys, landscaping, curbs, loading area,
sidewalks, malls and promenades (enclosed or otherwise), lighting
facilities, drinking fountains, meeting rooms, public toilets, and the
like.
(j) "Permitted Uses": general retail and/or mercantile uses; rent-to-own;
rental-purchase; consumer finance; sales, leasing and/or rental of
electronics, appliances, furniture, and/or such other lines as from
time to time carried by other ACTION RENT-TO-OWN stores.
(k) "Exclusive Uses": rent-to-own; rental-purchase operations.
(l)
(m)
(n) "Hazardous Materials" shall mean any substance the presence of which
on the Demised Premises or Shopping Center is regulated by any
Governmental Requirements (as
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Page 1
<PAGE> 2
hereinafter defined), including but not limited to (i) any
"hazardous waste" as defined by the Resource Conservation and
Recovery Act of 1976 (46 U.S.C. Section 6901 et seq.), as
amended from time to time, and any regulations promulgated
thereunder; (ii) any hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. section 9601 et seq.)
("CERCLA" or "SuperFund"), as amended from time to time, and
regulations promulgated thereunder; (iii) asbestos and/or
asbestos containing-materials; (iv) polychlorinated biphenyls;
(v) any petroleum~based products; and (vi) underground storage
tanks, whether empty, filled or partially filled with any
substance.
(o) "Governmental Requirements" shall mean all laws, ordinances,
statutes, codes, rules, regulations, orders and decrees of the
United States, the state, the county, the city or any other
political subdivision in which the Demised Premises is located
and any other political subdivision, agency or
instrumentality, exercising jurisdiction over the Tenant or
the Demised Premises or Shopping Center.
(p) "Hazardous Materials Contamination" shall mean the
contamination of the improvements, facilities, soil, ground
water, air, or other elements on, over or under the Demised
Premises or Shopping Center by Hazardous Materials, or the
contamination of the improvements, facilities, ground water,
air, or other elements on, over or under any other property as
a result of Hazardous Materials at any time emanating from the
Demised Premises or Shopping Center.
1.2 Each of the foregoing definitions and basic provisions shall
be construed in conjunction with and limited by the references thereto in other
provisions of this Lease.
2. GRANTING CLAUSE; QUIET ENJOYMENT; EXCLUSIVE USE
2.1 In consideration of the obligation of Tenant to pay the rent
as herein provided and in consideration of the other terms, covenants and
conditions hereof, Landlord hereby demises and leases to Tenant for the
Permitted Uses, and Tenant hereby takes and accepts from Landlord, the Demised
Premises and the non-exclusive, irrevocable right, easement and license to the
use of the Common Area, TO HAVE AND TO HOLD said Demised Premises and use of the
Common Area for the Lease Term (and the Renewal Term(s), if any, which are
exercised) upon the terms and conditions set forth in this Lease. Tenant's use
of the loading docks adjacent to the Demised Premises shall be Common Area but
exclusively reserved to Tenant. Landlord hereby covenants, warrants, and agrees
that if Tenant shall not be in default beyond any period for the cure thereof,
Tenant shall, at all times during the original Lease Term and any exercised
Renewal Terms or extensions, have peaceable and quiet enjoyment and possession
of the Demised Premises without any manner of molestation or hindrance from the
Landlord or any other person, firm, or corporation whatsoever.
2.2 Landlord hereby warrants, represents, and covenants to
Tenant, as of the effective date of this Lease, that Tenant's Permitted Uses
are not in violation of any exclusive use rights granted to any other tenants
now in or hereafter to be in the Shopping Center, and in any adjacent property
now or hereafter owned or controlled by Landlord or under common ownership or
control with Landlord, and that during the Lease Term Tenant shall have the
sole and exclusive right in the Shopping Center, and in any adjacent property
now or hereafter owned or controlled by Landlord or under common ownership or
control with Landlord, to use or occupy any premises for the Exclusive Uses.
Landlord agrees to indemnify, defend, and hold harmless Tenant for any and all
loss, damages, expenses, and/or costs associated with violation of this
provision.
2.3 Landlord hereby warrants, represents, and covenants to Tenant
that (a) at the time of the execution by Landlord of the Lease, Landlord is the
sole legal and equitable owner in fee simple of the Shopping Center and Demised
Premises; (b) at the time of the execution by Landlord of this Lease, Landlord
has good and marketable fee simple title to the Shopping Center and Demised
Premises free and clear of all liens and encumbrances except taxes not yet due
and payable, the deed of trust to Existing Mortgagee, and other exceptions of
title which have been approved in writing by Tenant; (c) Landlord warrants and
will defend the title of the Shopping Center and Demised Premises, and will
indemnity Tenant against any damage and expense which Tenant may suffer by
reason of any lien, encumbrance, restriction or defect in the title or
description herein of the Shopping Center and/or Demised Premises; and (d)
Landlord has full right and power to execute this Lease and to lease the Demised
Premises for the Lease Term and Renewal Terms. In the event Landlord does not
have the title and rights aforesaid, then in such event, in addition to any
other rights of Tenant, this Lease shall, at the option of Tenant, become null
and void, and no rent for the remainder of the Lease Term may become due to the
Landlord, its legal representatives or assigns, and all advance rents and other
payments shall be returned by the Landlord to Tenant, or Tenant may withhold
rent thereafter accruing until Tenant is furnished proof satisfactory to Tenant
as to the parties entitled to receive rent, and Landlord will defend, indemnify,
and protect the Tenant in any dispute made by any party claiming that Landlord
does not have full right and power to execute this Lease and/or to collect the
rent.
Initials: Tenant /s/DB Landlord /s/BW
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Page 2
<PAGE> 3
2.4 Landlord agrees to provide to Tenant without charge, within seven (7)
days after request by Tenant, all title information in Landlord's possession or
control relating to the Shopping Center and/or Demised Premises. Tenant may
obtain, at its own expense, an abstract of title and/or a leasehold title
insurance policy issued by a title insurance company acceptable to Tenant. In
the event said abstract or title insurance policy is not obtainable or shows,
or if issued would show, any liens, encumbrances or exceptions to title other
than those specified above or any state of title other than that specified
above, then Tenant, as its sole option, may (a) at Landlord's expense, take
steps necessary to cure such defects in or exceptions to title and/or (b) by
notice to Landlord, terminate this Lease, in which event this Lease shall be
null and void and of no further force and effect.
2.5
2.6 Landlord represents, warrants and covenants that no portion of the
Shopping Center nor any adjacent property now or hereafter owned or controlled
by Landlord or under common ownership or control with Landlord, will be used
during the Lease Term or any exercised Renewal Terms or extensions thereof for
operation of a bar, gaming establishment, or sexually oriented business.
3 CONSTRUCTION OR ALTERATION OF DEMISED PREMISES
3.1 Landlord shall be responsible at its sole cost and expense for making
the Demised Premises ready for occupancy by Tenant on a "turnkey" basis, and in
strict compliance with the plans and specifications prepared by Tenant, and
approved by Landlord. Tenant shall have no duty whatsoever to perform any work
on or about the Demised Premises except as expressly set out in this Lease or
in the exhibits hereto either prior to the Commencement Date or during the
Lease Term, and Landlord shall be obligated to perform all other needed work
prior to or during the Lease Term on or about the Demised Premises, latent or
otherwise, except as otherwise expressly set out herein. Tenant's Work shall
consist of installation of its fixtures and equipment.
3.2 Landlord represents, warrants, and covenants that the Shopping Center
and Demised Premises conform and will conform to all requirements of any
authority having jurisdiction; if said Shopping Center or Demised Premises do
not conform, Landlord is required to promptly make them conform. In the event
Tenant is required by local or state code to produce same, Landlord shall
provide Tenant with a complete set of "as built" drawings. Landlord agrees to
make all repairs, alterations, additions, or replacements to the Demised
Premises required by any law, statute, ordinance, order or regulation of any
governmental authority; to keep the Demised Premises equipped with all fire and
safety appliances, devices, equipment and applications so required, including,
but not limited to, smoke and fire alarms, sprinkler systems and approved fire
extinguishers of the type and number recommended; to procure any licenses and
permits required; and to comply with the orders and regulations of all
governmental authorities, including all requirements as set forth in the
Americans with Disabilities Act as said Act now exists or may be amended in the
future; and to place all HVAC equipment in compliance with the Clean Air Act of
1992 in accordance with law.
3.3 Landlord shall notify Tenant if and when construction progress and
procedures shall permit any part of Tenant's Work to be done simultaneously
with Landlord's Work, and upon such notice, Tenant shall have the right to
enter upon the Demised Premises for such purposes. Such entry shall not be
construed as an acceptance of or possession of the Demised Premises by Tenant
under the provisions of this Lease or as a waiver of any of the provisions
hereof.
3.4 company, reasonably acceptable to Tenant, and shall guarantee that
the HVAC system is in good working
4 DATES
4.1 The Tenant Possession Date shall be the date Landlord tenders
possession of the Demised Premises to Tenant by written notice. As of the
Tenant Possession Date, all provisions of the Lease shall be applicable except
as to Tenant's obligations with regard to payments due hereunder which shall
take effect as of the Rent Commencement Date.
Initials: Tenant /s/DB Landlord /s/BW
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Page 3
<PAGE> 4
4.2
4.3
4.4 The Term Commencement Date shall be the earlier of (i) the date Tenant
opens for business; or (ii) the Rent Commencement Date if such date is on the
first day of a month. If the Rent Commencement Date is not on the first day of
the month, then it shall be the first day of the following month.
4.5 Landlord and Tenant each agree that at the request of either they
will execute and deliver a short form Lease in recordable form containing the
basic provisions of this Lease acknowledging and reciting the exact Rent
Commencement Date, Term Commencement Date, Lease Term, and Renewal Terms of
this Lease.
5. SIGNS
5.1 Tenant shall at its sole cost and expense have the right to place,
erect, and maintain signs on the building in which the Demised Premises are
located and subject to local ordinances, and local building and electrical
codes. Tenant agrees to maintain such sign(s) in good condition and repair,
save and defend Landlord free of all cost, expense, loss, or damage which may
result from the erection, maintenance, and existence of same. Notwithstanding
anything to the contrary contained herein, Tenant shall be permitted to utilize
its standard window signs and pre-opening signs and banners subject to local
ordinances, and local building and electrical codes.
5.2 Tenant shall have the right to place suitable road sign(s) upon the
existing Shopping Center pylon(s). Once the pylon sign(s) are installed, Tenant
shall not be required to remove, replace, change, or alter it or them and
Landlord shall not remove, replace or diminish the size or number of Tenant's
pylon sign(s).
5.3 During the Lease Term, Renewal Terms or extensions of this Lease,
Landlord shall not install any structure, sign or landscaping or take any other
action which will materially obstruct or interfere with the visibility or
legibility of Tenant's signs or the visibility of the Demised Premises or
storefront.
6. RENT
6.1 Rental shall accrue hereunder from the Rent Commencement Date, and
shall be payable to Landlord at the address specified above or such other
address as may be designated by Landlord from time to time in writing and
actually received by Tenant at least twenty (20) days prior to the change of
notice.
6.2 Tenant shall pay to landlord Guaranteed Rental in monthly
installments in the amounts specified above. The first such monthly installment
shall be due and payable on or before the Rent Commencement Date, and
subsequent installments shall be due and payable on or before the first day of
each succeeding calendar month during the Lease Term; provided that if the Rent
Commencement Date is a date other than the first day of a calendar month, there
shall be due and payable on or before such date as Guaranteed Rental for the
balance of such calendar month a sum equal to that proportion of the Guaranteed
Rental specified for the first calendar month as herein provided, which the
number of days from the Rent Commencement Date to the end of the calendar month
during which the Rent Commencement Date shall fall bears to the total number of
days in such month.
7. COMMON AREA
7.1 During the Lease Term, Renewal Terms and extensions, the Tenant, and
its employees, customers, subtenants, assignees, invitees, licensees and
concessionaires shall have the nonexclusive right to use the Common Area, such
use to be in common with Landlord and other tenants of the Shopping Center.
7.2
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7.3 At all times, the Landlord shall provide and maintain free customer
and employee parking of not less than five (5) standard sized automobile spaces
for each one thousand square feet of rentable area. Unless otherwise agreed in
writing by Tenant, such spaces shall be not less than nine feet (9') in width.
7.4
8 USE AND CARE OF DEMISED PREMISES
8.1 The Demised Premises may be used for the Permitted Uses or for any
other lawful purpose.
8.2 It is expressly understood that, notwithstanding anything to the
contrary contained herein, Tenant may close the Demised Premises when in
Tenant's sole judgment the operation of the Demised Premises as provided
herein cannot be economically justified or when the operation of the Demised
Premises would expose Tenant's employees to any condition or event which
threatens the safety of such employees; provided, however, that any such
closing shall not relieve Tenant from any of its obligations hereunder. In the
event that Tenant closes the Demised Premises under this section and fails to
reopen the Demised Premises within ninety (90) days thereafter, Landlord may
terminate this Lease upon thirty (30) days' notice to Tenant unless within such
thirty (30) days Tenant gives written notice of its intention to reopen for
business in the Demised Premises within sixty (60) days. In the event of such
termination by Landlord, Tenant shall be released from all further liability
hereunder.
8.3 Tenant shall not, without Landlord's prior written consent, keep
anything within the Demised Premises or use the Demised Premises for any
purposes other than the Permitted Uses which increases the insurance premium
cost or invalidates any insurance policy carried on the Demised Premises or
other parts of the Shopping Center, unless Tenant pays the additional premium
cost. Tenant agrees, at its own cost and expense, to comply in its operations
with all rules, regulations and requirements of the fire insurance underwriting
organization or similar body or governmental authority having jurisdiction over
such operations.
8.4 Tenant shall take reasonably good care of the interior of the Demised
Premises, normal wear and tear excepted, and keep the same free from
intentional waste at all times. Tenant shall keep the interior of the Demised
Premises and sidewalks immediately adjacent to the Demised Premises neat, clean
and reasonably free from dirt or rubbish at all times, and shall store all
trash and garbage within areas designated by Landlord outside the Demised
Premises. Tenant shall not operate an incinerator or burn trash or garbage
within the Shopping Center area.
8.5 Tenant shall maintain all display windows in neat, attractive
condition.
8.6 Tenant shall procure at its sole expense any permits and licenses
required for the transaction of its business in the Demised Premises and
otherwise comply with all applicable laws, ordinances, and governmental
regulations governing its operations.
8.7 Tenant may conduct occasional sidewalk sales at the Demised Premises.
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9 MAINTENANCE AND REPAIR OF DEMISED PREMISES
9.1
9.2 Subject to Landlord's repair obligations, Tenant shall keep the
interior of the Demised Premises in reasonably good, clean and habitable
condition and shall clear plumbing stoppages caused by Tenant's misuse. Tenant
shall cause accessible filters in air handling systems to be changed on a
monthly basis and shall replace fluorescent tubes when needed. Notwithstanding
the foregoing, Landlord hereby expressly warrants to Tenant that all items
required to be kept by Tenant in good order/repair, maintenance, and operation
will be in good operating condition as of the Tenant Possession Date. Landlord
further agrees that Tenant shall have no obligation to repair or maintain any
such item as is not in operating condition until put in operating condition by
Landlord at its expense. Tenant shall notify Landlord of any defects within
thirty (30) days after the Tenant Possession Date by providing Landlord with
written notice of such items not in operating condition. Landlord shall, within
ten (10) days from such notice, put such inoperative items listed on the punch
list in operating condition.
10 ALTERATIONS
10.1 During the Lease Term, Tenant shall have the right to make changes,
additions, and alterations inside the Demised Premises, provided that such work
shall not affect the structural parts of the building of which they are a part,
that such are done in good and workmanlike manner, that permits therefor from
all public authorities, as required, are obtained and paid for, that all costs
and expenses arising from such undertaking as well as all damages occasioned in
connection therewith shall be paid by Tenant, that all such changes (other than
Tenant's unattached, readily movable furniture and equipment, which shall remain
Tenant's sole property) shall remain upon and be surrendered with the Demised
Premises and become the property of the Landlord at the termination of this
Lease unless Landlord and Tenant otherwise agree in writing, and that Tenant
shall promptly remove or bond against any mechanics' liens placed on the Demised
Premises resulting therefrom.
10.2 All construction work done by Tenant within the Demised Premises
shall be performed in a good and workmanlike manner, free of liens, in
compliance with all Governmental Requirements, and in such manner as to cause a
minimum of interference with other construction in progress and with the
transaction of business in the Shopping Center. No liens shall attach to the
Shopping Center for work done for or on account of Tenant, but shall only
attach, if at all, to the Tenant's rights under this Lease.
11 UTILITIES
11.1 Landlord agrees to cause to be provided and maintained all mains,
conduits and other facilities necessary to supply water, gas, electricity,
telephone service and sewage services to the Demised Premises. Landlord shall
provide separate utility meters which shall accurately reflect Tenant's usage.
11.2 Tenant shall promptly pay all connection and use charges for
electricity, water, gas, telephone service, sewage service and other utilities
furnished to it at the Demised Premises. In the event Landlord supplies any
utility to Tenant, the rate charged for such service shall not exceed the cost
to Landlord or the applicable consumer rate which Tenant would otherwise pay as
a direct customer of the public or municipal utility company providing such
service, whichever is lower. In the event any utility service to the Demised
Premises provided by Landlord shall be interrupted for a period of more than
twenty-four (24) consecutive hours as a result of the acts or negligence of
Landlord, its agents, contractors or employees, or as a result of Landlord's
failure to make repairs, all rent shall abate upon the expiration of such
twenty-four (24) hour period until such services are fully restored.
12 INDEMNITY AND PUBLIC LIABILITY INSURANCE
12.1 Tenant hereby agrees to indemnify Landlord and hold Landlord
harmless from any loss, expense or claims arising out of damage or injury or
resulting from any breach, violation or nonperformance of any covenants or
conditions hereof by Tenant, its agents or employees.
12.2 Tenant shall procure and maintain throughout the Lease Term a policy
or policies of comprehensive general liability insurance, at its sole cost and
expense, insuring against all claims, demands
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or actions arising out of or in connection with Tenant's use or occupancy of the
Demised Premises, the limits of such policy or policies be in an amount not less
than $500.000.00. Such policy or policies shall include waiver of subrogation
endorsements in favor of Landlord.
12.3. Landlord hereby agrees to indemnity Tenant and hold Tenant
harmless from any loss, expense or claims arising out of damage or injury or
resulting from any breach, violation or nonperformance of any covenants or
conditions hereof by Landlord, its agents, employees or invitees.
12.4 Landlord shall procure and maintain throughout the Lease Term a
policy or policies of comprehensive general liability insurance, at its sole
cost and expense, insuring against all claims, demands or actions arising out of
or in connection with Landlord's use or occupancy of the Shopping Center, or by
the condition of the Shopping Center, the limits of such policy or policies be
in an amount not less than $500,000.00. Such policy or policies shall include
waiver of subrogation endorsements in favor of Tenant.
13 DAMAGES BY CASUALTY
13.1 In the event that the Demised Premises shall be damaged or
destroyed by fire or other casualty insurable under standard fire and extended
coverage insurance and neither Landlord nor Tenant elects to or is entitled to
terminate this Lease as hereinafter provided, Landlord shall proceed with
diligence and at its sole cost and expense to rebuild and repair the Demised
Premises. In the event (a) the building in which the Demised Premises are
located shall be destroyed or substantially damaged by a casualty not covered by
Landlord's insurance or (b) such building shall be destroyed or rendered
untenable to an extent in excess of fifty percent (50%) of the first floor area
by a casualty covered by Landlord's insurance, then Landlord may elect either to
terminate this Lease or to proceed to rebuild and repair the Demised Premises.
Landlord shall give written notice to Tenant of such election within fifteen
(15) days after the occurrence of such casualty and, if it elects to rebuild and
repair, shall proceed to do so with diligence. Provided, however, that if there
are two (2) years or more remaining on the current Lease Term, or Tenant
exercises a remaining Renewal Term, Tenant can override Landlord's election to
terminate the Lease.
13.2 In the event that the Demised Premises cannot be restored or
Tenant cannot reopen for business within forty-five (45) days after the
casualty, then Tenant may elect to terminate this Lease.
13.3 During the period from the occurrence of the casualty until
Landlord's repairs are completed, the rent hereunder shall be totally abated.
14 EMINENT DOMAIN
14.1 If any portion of the floor area of the Demised Premises should be
taken for any public or quasi-public use under any governmental law, ordinance
or regulation or by right of eminent domain or by private purchase in lieu
thereof, or if the rentable square footage in the Shopping Center should be
reduced by twenty percent (20%) or more, this Lease shall terminate at Tenant's
option and the rent shall be abated during the unexpired portion of this Lease,
effective on the date physical possession is taken by the condemning authority.
14.2 If Tenant shall elect not to terminate this Lease as aforesaid,
the rent payable hereunder during the unexpired portion of this Lease shall be
reduced in a manner that is fair and equitable, effective on the date physical
possession is taken by the condemning authority. Following such partial taking,
Landlord shall make all necessary repairs or alterations to make the remaining
portions of the Demised Premises a complete architectural and commercial unit.
14.3 If any part of the Common Area should be taken as aforesaid, this
Lease shall not terminate, nor shall the rentals payable hereunder be reduced,
except that Tenant may terminate this Lease if, in Tenant's sole judgment,
access to the Demised Premises or Shopping Center or any other essential service
or facility is materially diminished, or if the parking area shall be reduced by
fifteen percent (15%) or more, or if the required parking ratios are not
maintained, or if the lease of or occupancy by any Key Tenant is terminated. Any
election to terminate this Lease in accordance with this provision shall be
evidenced by written notice of termination delivered to the Landlord.
14.4 All compensation awarded for any taking (or the proceeds of
private sale in lieu thereof) of the Demised Premises or Common Area shall be
the property of Tenant to the extent of Tenant's moving costs and relocation
expenses, the loss of personal property, fixtures, and equipment taken, and the
unamortized cost of any leasehold improvements by Tenant, and Landlord hereby
assigns its interest in any such portion of the award to Tenant. The balance of
the award shall be the property of Landlord, and Tenant shall have no interest
therein. For purposes hereof, Tenant's leasehold improvements shall be deemed
amortized in annual increments as of each anniversary of the Rent Commencement
Date, with the number of whole integer Lease Years having expired in the Lease
Term as of the date of taking being the numerator, and the number of whole
integer Lease Years originally contained in the Lease Term being the
denominator.
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15 ASSIGNMENT AND SUBLETTING
15.1 Tenant may assign, finance, pledge, encumber, or in any manner
transfer this Lease or any estate or interest therein, or Tenant's personal
property, or sublet the Demised Premises or any part thereof, or grant any
license, concession or other right of occupancy of any portion of the Demised
Premises without the prior written consent of Landlord.
15.2 No merger into or with any other entity, regardless of which is
the surviving entity, reorganization, nor any change in the ownership of all or
any part of the outstanding voting shares or outstanding shares of capital stock
of Tenant shall be subject to any approval rights by the Landlord
15.3 Notwithstanding any assignment, financing, pledging,
encumbrance, subletting, merger, reorganization, or transfer of stock, Tenant
(or the surviving entity in a merger) shall at all times remain fully
responsible and liable for the payment of the rent herein specified and for
compliance with all of its other obligations under this Lease.
16 TAXES AND INSURANCE
16.1 Tenant shall pay before delinquency all taxes levied against its
personal property and trade fixtures placed in the Demised Premises by Tenant.
If any such taxes are levied against Landlord or Landlord's property and if
Landlord elects to pay the same, Tenant shall pay to Landlord upon demand that
part of such taxes for which Tenant is primarily liable hereunder.
16.2 Landlord all pay before delinquency all taxes levied against the
Shopping Center.
16.3 Tenant may elect to carry insurance covering Tenant's stock of
goods, trade fixtures, and all other contents of the Demised Premises, or may
self-insure. Any insurance against casualty loss which may be carried by Tenant
shall be under the sole control of the Tenant and Landlord shall have no
interest therein.
16.4 Landlord shall carry fire and extended coverage insurance on the
Shopping Center to the extent of the full insurable value thereof.
16.5 To the extent permitted by applicable insurance policies, the
parties release each other, and their respective authorized representatives,
from any claims for damage to any person or to the Demised Premises and to the
fixtures, personal property, Tenant's improvements and alterations of either
Landlord or Tenant in or on the Demised Premises that are caused by or result
from risks insured against under any insurance policies carried by the parties
and in force at the time of any damage, notwithstanding that any loss or
damage may be due or result from the negligence of either of the parties or
their respective officers, employees, agents or other authorized
representatives.
17 DEFAULT AND REMEDIES
17.1 The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) Tenant shall fail to pay any installment of rent or any other
obligation hereunder involving the payment of money and such
failure shall continue for a period of fifteen (15) days after
receipt of written notice of default from Landlord.
(b) Tenant shall fail to comply with any other term, provision or
covenant of this Lease, other than as described in subsection
(a) above and shall not cure such failure within thirty (30)
days after receipt of written notice of default from Landlord,
or it the failure by its nature cannot reasonably be cured
within thirty (30) days, such additional time as is reasonable
under the circumstances.
17.2 Upon the occurrence of any such events of default, this Lease, if
the Landlord so elects, shall thereupon become null and void, and the Landlord
shall have the right to reenter or repossess the Demised Premises, either by
summary proceedings or surrender and dispossess ant remove therefrom the Tenant
or other occupants thereof and their effects, without being liable to any
prosecution therefor. Neither bankruptcy, insolvency, an assignment for the
benefit of creditors, nor the appointment of a receiver shall affect this Lease
or permit its termination so long as the covenants on the part of the Tenant to
be performed shall be performed by Tenant or some party claiming under Tenant.
In such case, the Landlord may, at its option, relet the Demised Premises or any
part thereof, as the agent of the Tenant, and the Tenant shall pay the Landlord
the amount by which the rent and charges equivalent to rent reserved herein for
the balance of the Term shall exceed the reasonable rental value of the Demised
Premises for the same period as the same becomes due.
17.9 The following events shall be deemed to be events of default by
Landlord under this Lease:
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(a) Landlord shall fail to pay when due any of its obligations hereunder
involving the payment of money and such failure shall continue for a
period of fifteen (15) days after receipt of written notice of default
from Tenant.
(b) Landlord shall fail to comply with any other term, provision or
covenant of this Lease, other than as described in subsection (a)
above and shall not cure such failure within thirty (30) days after
receipt of written notice of default from Tenant, or if the failure by
its nature cannot reasonably be cured within thirty (30) days, such
additional time as is reasonable under the circumstances.
17.4
17.5 If on account of any breach or default by either party in its
obligations hereunder, the non-breaching party shall employ an attorney to
interpret, construe, determine, present, enforce or defend any of the
non-breaching party's rights or remedies hereunder, the breaching party agrees
to pay any reasonable attorneys' fees awarded in such proceeding against the
breaching party.
17.6 Landlord expressly waives all statutory, constitutional, implied and
express liens and/or security agreements against the personal property,
fixtures, and equipment of Tenant, and agrees that Tenant may remove such
personal property, fixtures, and equipment from the Demised Premises at any time
without hinderance or molestation by Landlord. Any lender providing financing to
Tenant is a third-party beneficiary of this provision. Landlord shall execute
and deliver such further assurances of such provisions as such lender(s) may
request from time to time.
18 HOLDING OVER
18.1 In the event Tenant remains in possession of the Demised Premises
after expiration of this Lease and without the execution of a new Lease or
extension, or exercise of a Renewal Term, it shall be deemed to be occupying
said Demised Premises as a tenant from month to month subject to all the
conditions, provisions and obligations of this Lease insofar as the same are
applicable to a month to month tenancy.
19 SUBORDINATION; ATTORNMENT
19.1 Tenant accepts this Lease subject and subordinate to the mortgage,
deed of trust or other lien presently existing upon the Demised Premises or the
Shopping Center as a whole in favor of the Existing Mortgagee, and to any
renewals, enlargements, replacements, and extensions thereof, provided that at
the time of execution hereof, Tenant and Existing Mortgagee have entered into a
mutually acceptable non-disturbance and attornment agreement, which agreement
shall provide, inter alia, that the Existing Mortgagee shall not disturb the
tenancy of Tenant, so long as Tenant is not in default of its obligations under
this Lease beyond any applicable notice and cure periods. Landlord shall cause
Existing Mortgagee to agree that insurance proceeds and condemnation awards
shall be used for the repair and restoration of the Demised Premises when so
provided in this Lease.
19.2 Tenant agrees to subordinate its rights under this Lease to any
mortgage, deed of trust or other lien existing in the future upon the Demised
Premises or the Shopping Center as a whole in favor of any institutional or
conduit lender, and to any renewals, enlargements, replacements, and extensions
thereof, provided that at the time of execution thereof, Tenant and such lender
simultaneously enter into a mutually acceptable subordination, non-disturbance
and attornment agreement, which agreement shall provide, inter alia, that the
mortgagee shall not disturb the tenancy of Tenant, so long as Tenant is not in
default of its obligations under this Lease beyond any applicable notice and
cure periods. Landlord shall cause any such mortgagee to agree that insurance
proceeds and condemnation awards shall be used for the repair and restoration of
the Demised Premises when so provided in this Lease.
20 NOTICES
20.1 Wherever any notice is required or permitted hereunder such notice
shall be in writing. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered when actually received or
refused by the designated addressee, or if earlier and regardless of whether
actually received or not, when deposited in the United States Mail, postage
prepaid, Certified Mail, Return Receipt Requested, addressed to the parties
hereto at the respective addresses set out in Section 1.1 above, or at such
other addresses as each party may have subsequently specified by written notice
actually received by the other party.
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21 ENVIRONMENTAL
21.1 Landlord represents and warrants the Demised Premises and Shopping
Center do not presently contain any Hazardous Materials. Upon discovery of any
Hazardous Materials in, on, under or around the Demised Premises or Shopping
Center at any time during the Lease Term of this Lease or any Renewal Terms or
extensions thereof, which Hazardous Materials are determined to have been in
existence on, in, or under the Demised Premises or Shopping Center prior to the
Tenant Possession Date, or are determined to have been placed thereon by
Landlord, its employees or agents, or other tenants, or is migrating from
neighboring property, Landlord shall promptly, at Landlord's (or other persons'
or entities' [excluding Tenant]) sole cost and expense, remove and dispose of
such Hazardous Materials in compliance with all Governmental Regulations, and
indemnify, defend, and hold Tenant, its officers and directors, harmless
therefrom.
21.2 Throughout the Lease Term or any Renewal Terms or extensions, Tenant
shall not permit its employees or agents to introduce, use, generate, release,
discharge, store, dispose, or transport any Hazardous Materials on, under, in,
above, to, or from the Demised Premises other than in strict compliance with all
applicable federal, state, and local laws, rules, regulations and orders. Tenant
shall indemnify Landlord, except for the negligence or wrongful acts or omission
of Landlord, Landlord's agents, contractors, or employees, from any release or
Hazardous Materials from the Demised Premises directly caused by Tenant while in
possession, or elsewhere if directly caused by Tenant.
21.3 The within covenants shall survive the expiration or earlier
termination of the term of this Lease.
22 RENEWAL TERMS
22.1 Tenant shall have the right and option to renew the term of this
Lease for the number and duration of Renewal Terms specified above on the same
terms and conditions by giving Landlord not less than sixty (60) days written
notice prior to the expiration date of the then current term.
23 FIRST RIGHT OF NEGOTIATION
23.1 In the event that the Demised Premises are located in a
free-standing building, and Landlord shall desire to sell such building
separate from the sale of the Shopping Center as a whole during the term of
this Lease, Landlord shall first offer to sell the Demised Premises to Tenant
prior to selling the building to a third party.
24 CONDITIONAL RIGHT OF TERMINATION
24.1
25 MISCELLANEOUS
25.1 Nothing herein contained shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto, it
being understood and agreed that neither the method of computation of rent, nor
any other provision contained herein, nor any acts of the parties hereto, shall
be deemed to create any relationship between the parties hereto other than the
relationship of Landlord and Tenant.
25.2 In all circumstances under this Lease where prior consent or
permission of one party ("first party"), whether it be Landlord or Tenant, is
required before the other party ("second party") is authorized to take any
particular type of action, the matter of whether to grant such consent or
permission shall not be unreasonably withheld or delayed by the first party.
25.3 One or more waivers of any covenant, term or condition of this Lease
by either party shall not be construed as a waiver of subsequent breach of the
same covenant, term or condition. The consent or approval by either party to
or of any act by the other party requiring such consent or approval shall not
be deemed to waive or render unnecessary consent to or approval of any
subsequent similar act.
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25.4 Whenever a period of time is herein prescribed for action to be taken
by either party, other than the payment of Guaranteed Rental, such party shall
not be liable or responsible for, and there shall be excluded from the
computation of any such period of time, any delays due to strikes, riots, acts
of God, shortages of labor or materials, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond the
reasonable control of such party.
25.5 Each party agrees that it will from time to time upon request by the
other party or its lender or potential lender execute and deliver to the
requesting party a statement in recordable form certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as so modified), the date to which
Guaranteed Rental has been paid, and to the best knowledge of the certifying
party the essential terms of the Lease and the absence of defaults by either
party (or stating such defaults if claimed).
25.6 THE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE INTERPRETATION,
VALIDITY, PERFORMANCE AND ENFORCEMENT OF THIS LEASE, EXCEPT TO THE EXTENT THAT
THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED SHALL CONTROL THE VESTING
OF LEASEHOLD TITLE AND REMEDIES FOR DEFAULT. IF ANY PROVISION OF THIS LEASE
SHOULD BE HELD TO BE INVALID OR UNENFORCEABLE, THE VALIDITY AND ENFORCEABILITY
OF THE REMAINING PROVISIONS OF THIS LEASE SHALL NOT BE AFFECTED THEREBY.
25.7 The captions used herein are for convenience only and do not limit
or amplify the provisions hereof.
25.8 Whenever herein the singular number is used, the same shall include
the plural, and vice versa, and words of any gender shall include every other
gender.
25.9 This Lease contains the entire agreement between the parties, and no
agreement shall be effective to change, modify, or terminate this Lease in
whole or in part unless such is in writing and duly signed by the party against
whom enforcement of such change, modification or termination is sought. This
Lease shall not be strictly construed against either party.
25.10 The following Exhibits are hereby incorporated by this reference:
A. Shopping Center Legal Description
EXECUTED as of the date hereinabove stated.
LANDLORD:
White Property Co. No. 2, Ltd.
------------------------------------------
By: /s/ Bill White
---------------------------------------
Bill White
--------------------------------------
Title: General Partner
-------------------------------
TENANT:
ACTION TV & APPLIANCE RENTAL, INC., a Texas
corporation
By: /s/ K. David Belt
---------------------------------------
K. David Belt
--------------------------------------
Title: Vice President
-------------------------------
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EXHIBIT "A"
BEING a tract of land in the W. CARUTH SURVEY, ABSTRACT NO. 362, Dallas County,
Texas, being part of Lot 1, Block A, of Replat No. 1, Landers Addition, an
Addition to the City of Mesquite, recorded in Volume 76182, Page 1321, Deed
Records of Dallas County, Texas, and being more particularly described as
follows:
BEGINNING at an iron rod for a corner on the East line of Long Creek Road South
224.46 feet from the Northwest corner of Replat No. 1 Landers Addition;
THENCE North 89 degrees 43 minutes East 389.22 feet to an iron rod for a corner
on the West line of a 0.169 acre tract of land conveyed to Square D. Co. and
recorded in Volume 77042, Page 1835, Deed Records of Dallas County, Texas;
THENCE South 0 degrees 17 minutes East with the West line of said 0.169 acre
trace 163.50 feet to an iron rod for corner;
THENCE South 89 degrees 43 minutes West 390.03 feet to an iron rod for a corner
on the East line of Long Creek Road;
THENCE North with the East line of Long Creek Road 163.50 feet to the POINT OF
BEGINNING.
<PAGE> 1
EXHIBIT 10.19
AIRCRAFT DRY LEASE
This Lease of aircraft is made, effective as of April 8, 1997, by and
between Wyoming Associates, Inc., a corporation incorporated under the laws of
the State of South Carolina, with principal offices at 961 East Main Street,
Spartanburg, South Carolina 29302 hereinafter referred to as "Lessor") and RTO,
Inc., a corporation incorporated under the laws of the State of Delaware, with
principal offices at 961 East Main Street, Spartanburg, SC 29302 (hereinafter
referred to as "Lessee").
RECITALS
The parties recite that:
A. Lessor owns a 1987 Gates Learjet Model 55B aircraft, Serial No. 132,
and currently registered as N133WB (hereinafter referred to as the "Aircraft").
The Aircraft is available for use by a qualified Lessee; and
B. Lessee desires to lease the Aircraft under such terms and conditions
as are mutually satisfactory to parties.
The parties agree as follows:
SECTION ONE
LEASE OF AIRCRAFT
For Two Thousand One Hundred Dollars and No/100 ($2,100.00) per flight
hour, Lessor agrees to lease the Aircraft to Lessee without crew. Said amount
shall include and fully cover Lessee's responsibility for the cost of
maintenance and insurance for the Aircraft. The Aircraft shall be delivered to
Lessee at Spartanburg Downtown Airport in Spartanburg, South Carolina on April
8, 1997, at which time Lessee shall inspect the Aircraft to the extent
<PAGE> 2
deemed necessary. Lessee shall have ten (10) flight hours following delivery of
the aircraft in which to notify Lessor in writing of any defects in the Aircraft
or its equipment or accessories. If, at the end of such period, Lessor has not
received such notification, it shall be conclusively presumed between the
parties that Lessee has fully inspected the Aircraft having knowledge that it is
in good condition and repair and that Lessee is satisfied with and has accepted
the Aircraft in such condition and repair.
SECTION TWO
TERM
This Lease shall commence on April 8,1997 and continue for one year
after said date. Thereafter, this Lease shall be automatically renewed on a
month to month basis, unless sooner terminated by either party as hereinafter
provided. Either party may at any time terminate this Lease upon thirty (30)
days written notice to the other party, delivered personally or by certified
mail, return receipt requested, at the address for said other party as set forth
above.
SECTION THREE
COMMERCIAL OPERATION RESTRICTION
Neither Lessee nor Lessor will make the Aircraft available for hire
within the meaning of the Federal Aviation Regulations. The Aircraft is to be
operated strictly in accordance with 14 C.F.R. Part 91.
2
<PAGE> 3
SECTION FOUR
INSURANCE
At all times during the term of this Lease, Lessor shall cause to be
carried and maintained, at Lessee's cost and expense, as set forth in Section
One, physical damage insurance with respect to the Aircraft in the amount set
form below:
Aircraft Physical Damage $4,200,000.00
-------------
(No Deductible While
In Motion or Not In Motion)
At all times during the term of this Lease, Lessor shall also cause to
be carried and maintained, at Lessee's cost and expense, as set forth in Section
One, third party aircraft liability insurance, passenger legal liability
insurance, proper damage liability insurance, and medical expense insurance in
the amounts set forth below:
Combined Liability Coverage for
Bodily Injury and Property Damage
Including Passengers -
Each Occurrence $100,000,000.00
---------------
Medical Expense Coverage -
Each Person $ 5,000.00
---------------
Lessee shall also bear the cost of paying any deductible amount on any
policy of insurance in the event of a claim or loss.
Any policies of insurance carried in accordance with this Lease:
(i) shall name Lessor as an additional insured; and (ii) shall contain a waiver
by the underwriter thereof of any right of subrogation against Lessor. Each
liability policy shall be primary without right of contribution from any other
insurance which is carried by Lessee or Lessor and shall expressly provide that
all of the provisions thereof, except the limits of liability, shall operate in
the same manner as if there were a separate policy covering each insured.
3
<PAGE> 4
Lessor shall submit this Lease for approval to the insurance carrier
for each policy of insurance on the Aircraft. Lessor shall arrange for a
Certificate of Insurance evidencing appropriate coverage as to the Aircraft and
the satisfaction of the requirements set forth above to be given by its
insurance carriers to Lessee.
SECTION FIVE
RESTRICTIONS ON USE
Lessee may operate the Aircraft only for the purposes and within the
geographical limits set forth in the insurance policy or policies obtained in
compliance with Section Four of this Lease. The Aircraft shall be operated at
all times in accordance with the flight manual and all manufacturer's suggested
operating procedures. Furthermore, Lessee shall not use the Aircraft in
violation of any foreign, federal, state, territorial, or municipal law or
regulation and shall be solely responsible for any fines, penalties, or
forfeitures occasioned by any violation by Lessee. If such fines or penalties
are imposed on Lessor and paid by Lessor, Lessee shall reimburse Lessor for the
amount thereof within thirty (30) days of receipt by Lessee of written demand
from Lessor. Lessee will not base the Aircraft, or permit it to be based,
outside the limits of the United States of America, without the written consent
of Lessor.
The Aircraft shall be flown only by certificated and qualified pilots
and shall be maintained only by certificated and qualified mechanics. In the
event the insurance on the Aircraft would be invalidated because Lessee is
unable to obtain certificated and qualified pilots and mechanics, Lessee shall
not operate the Aircraft until such time as certificated and qualified pilots
and mechanics are obtained and insurance on the Aircraft is made valid.
4
<PAGE> 5
Lessee will not directly or indirectly create, incur, assume or suffer
to exist any lien on or with respect to the Aircraft. Lessee will promptly, at
its own expense, take such action as may be necessary to discharge any lien not
excepted above if the same shall arise at any time.
SECTION SIX
INSPECTION BY LESSOR
Lessee agrees to permit Lessor or any authorized agent to inspect the
Aircraft at any reasonable time and to furnish any information in respect to the
Aircraft and its use that Lessor may reasonably request.
SECTION SEVEN
ALTERATIONS
Except in accordance win other written agreements entered into
subsequent to the date of this Lease between Lessee and Lessor regarding
maintenance of the Aircraft, Lessee shall not have the right to alter, modify,
or make additions or improvements to the Aircraft without the written permission
of Lessor. All such alterations, modifications, additions, and improvements as
are so made shall become the property of Lessor and shall be subject to all of
the terms of this Lease.
SECTION EIGHT
TITLE
The registration of and title to the Aircraft shall be in the name of
the Lessor, and the Aircraft, at all times during the term of this Lease or any
extension, shall bear United States registration markings. All responsibility
and obligations in regard to the operation of the
5
<PAGE> 6
Aircraft as above owned, registered, and marked shall be borne by Lessee during
the tern of this Lease.
SECTION NINE
PAYMENT OF TAXES
Lessee shall pay all taxes associated with Lessee's use of the Aircraft
on Lessee's own business, including landing fees, fuel taxes, and any other
taxes or fees which may be assessed against a specific flight by Lessee.
SECTION TEN
ASSIGNMENT
Lessee shall not assign this Lease or any interest in the Aircraft, or
sublet the Aircraft, without prior written consent of Lessor. Subject to the
foregoing, this Lease inures to the benefit of, and is binding on, the heirs,
legal representatives, successors, and assigns of the parties.
SECTION ELEVEN
ACCIDENT AND CLAIM
Lessee shall immediately notify Lessor of each accident involving the
Aircraft, which notification shall specify the time, place, and nature of the
accident or damage, the names and addresses of parties involved, persons
injured, witnesses, and owners of properties damaged, and such other information
as may be known. Lessee shall advise Lessor of all correspondence, papers,
notices, and documents whatsoever received by
6
<PAGE> 7
Lessee in connection with any claim or demand involving or relating to
the Aircraft or its operation, and shall aid in any investigation instituted by
Lessor and in the recovery of damages from third persons liable therefore.
SECTION TWELVE
RETURN OF AIRCRAFT TO LESSOR
On the termination of this Lease by expiration or otherwise, Lessee
shall return the Aircraft to Lessor at Spartanburg Downtown Airport in
Spartanburg, South Carolina, in as good operating condition and appearance as
when received, ordinary wear, tear and deterioration excepted, and shall
indemnify Lessor against any claim for loss or damage occurring prior to the
actual physical delivery of the Aircraft to Lessor.
SECTION THIRTEEN
MODIFICATION OF AGREEMENT
This Lease constitutes the entire understanding between the parties,
and any change or modification must be in writing and signed by both parties.
SECTION FOURTEEN
GOVERNING LAW
This Lease is entered into under, and is to be construed in accordance
with the laws of the State of South Carolina.
7
<PAGE> 8
SECTION FIFTEEN
TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1987 GATES LEARJET MODEL 55 B, MANUFACTURER'S SERIAL NO.
132, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N133WB,
HAS BEEN MAINTAINED AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD
PRECEDING THE DATE OF THIS LEASE.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE,
RTO, INC., 961 EAST MAIN STREET, SPARTANBURG, SOUTH CAROLINA 29302, IS
CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
I, THE UNDERSIGNED DAN C. BREEDEN, JR., AS (VICE PRESIDENT) OF RTO, INC.,
961 EAST MAIN STREET, SPARTANBURG, SC 29302, CERTIFY THAT I AM RESPONSIBLE FOR
OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT I UNDERSTAND MY RESPONSIBILITIES
FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
IN WITNESS WHEREOF, the parties have executed this Lease.
WYOMING ASSOCIATES, INC.
/S/ George D. Johnson, Jr. 4-22-97 3:57
- ------------------------------------- --------------------------------
George D. Johnson, Jr., President Date and Time of Execution
RTO, Inc.
/S/ Dan C. Breeden, Jr. 4-22-97 12:30 PM
- ------------------------------------- --------------------------------
Dan C. Breeden, Jr., Vice President Date and Time of Execution
8
<PAGE> 1
EXHIBIT 10.20
AIRCRAFT DRY LEASE
This Lease of aircraft is made, effective as of April 8, 1997, by and
between Wyoming Associates, Inc., a corporation incorporated under the laws of
the State of South Carolina, with principal offices at 961 East Main Street,
Spartanburg, South Carolina 29302 hereinafter referred to as "Lessor") and RTO,
Inc., a corporation incorporated under the laws of the State of Delaware, with
principal offices at 961 East Main Street, Spartanburg, SC 29302 (hereinafter
referred to as "Lessee").
RECITALS
The parties recite that:
A. Lessor owns a 1985 Canadair Challenger Model CL-600-2A12
aircraft, Serial No. 3042, and currently registered as N900CC (hereinafter
referred to as the "Aircraft"). The Aircraft is available for use by a qualified
Lessee; and
B. Lessee desires to lease the Aircraft under such terms and
conditions as are mutually satisfactory to the parties.
The parties agree as follows:
SECTION ONE
LEASE OF AIRCRAFT
For Three Thousand Dollars and No/100 ($3,000.00) per flight hour,
Lessor agrees to lease the Aircraft to Lessee without crew. Said amount shall
include and fully cover Lessee's responsibility for the cost of maintenance and
insurance for the Aircraft. The Aircraft shall be delivered to Lessee at
Spartanburg Downtown Airport in Spartanburg, South Carolina on April 8, 1997, at
which time Lessee shall inspect the Aircraft to the extent deemed necessary.
Lessee
<PAGE> 2
shall have ten (10) flight hours following delivery of the aircraft in which to
notify Lessor in writing of any defects in the Aircraft or its equipment or
accessories. If, at the end of such period, Lessor has not received such
notification, it shall be conclusively presumed between the parties that Lessee
has fully inspected the Aircraft having knowledge that it is in good condition
and repair and that Lessee is satisfied with and has accepted the Aircraft in
such condition and repair.
SECTION TWO
TERM
This Lease shall commence on April 8, 1997 and continue for one year
after said date. Thereafter, this Lease shall be automatically renewed on a
month to month basis, unless sooner terminated by either party as hereinafter
provided. Either party may at any time terminate this Lease upon thirty (30)
days written notice to other party, delivered personally or by certified mail,
return receipt requested, at the address for said other party as set forth
above.
SECTION THREE
COMMERCIAL OPERATION RESTRICTION
Neither Lessee nor Lessor will make the Aircraft available for hire
within the meaning of the Federal Aviation Regulations. The Aircraft is to
be operated strictly in accordance with 14 C.F.R. Part 91.
2
<PAGE> 3
SECTION FOUR
INSURANCE
At all times during the term of this Lease, Lessor shall cause to be
carried and maintained, at Lessee's cost and expense, as set forth in Section
One, physical damage insurance with respect to the Aircraft in the amount set
forth below:
Aircraft Physical Damage $10,500,000.00
(No Deductible While --------------
In Motion or Not In Motion)
At all times during the term of this Lease, Lessor shall also cause to
be carried and maintained, at Lessee's cost and expense, as set forth in Section
One, third party aircraft liability insurance, passenger legal liability
insurance, property damage liability insurance, and medical expense insurance in
the amounts set forth below:
Combined Liability Coverage for
Bodily Injury and Property Damage
Including Passengers -
Each Occurrence $100,000,000.00
---------------
Medical Expense Coverage -
Each Person $ 5,000.00
---------------
Lessee shall also bear the cost of paying any deductible amount on any
policy of insurance in the event of a claim or loss.
Any policies of insurance carried in accordance with this Lease: (i)
shall name Lessor as an additional insured; and (ii) shall contain a waiver by
the underwriter thereof of any right of subrogation against Lessor. Each
liability policy shall be primary without right of contribution from any other
insurance which is carried by Lessee or Lessor and shall expressly provide that
all of the provisions thereof, except the limits of liability, shall operate in
the same manner as if there were a separate policy covering each insured.
3
<PAGE> 4
Lessor shall submit this Lease for approval to the insurance carrier
for each policy of insurance on the Aircraft. Lessor shall arrange for a
Certificate of Insurance evidencing appropriate coverage as to the Aircraft and
the satisfaction of the requirements set forth above to be given by its
insurance carriers to Lessee.
SECTION FIVE
RESTRICTIONS ON USE
Lessee may operate the Aircraft only for the purposes and within the
geographical limits set form in the insurance policy or policies obtained in
compliance win Section Four of this Lease. The Aircraft shall be operated at all
times in accordance with the flight manual and all manufacturer's suggested
operating procedures. Furthermore, Lessee shall not use the aircraft in
violation of any foreign, federal, state, territorial, or municipal law or
regulation and shall be solely responsible for any fines, penalties, or
forfeitures occasioned by any violation by Lessee. If such fines or penalties
are imposed on Lessor and paid by Lessor, Lessee shall reimburse Lessor for the
amount thereof within thirty (30) days of receipt by Lessee of written demand
from Lessor. Lessee will not base the Aircraft, or permit it to be based,
outside the limits of the United States of America, without the written
consent of Lessor.
The Aircraft shall be flown only by certificated and qualified pilots
and shall be maintained only by certificated and qualified mechanics. In the
event the insurance on the Aircraft would be invalidated because Lessee is
unable to obtain certificated and qualified pilots and mechanics, Lessee shall
not operate the Aircraft until such time as certificated and qualified pilots
and mechanics are obtained and insurance on the Aircraft is made valid.
4
<PAGE> 5
Lessee will not directly or indirectly create, incur, assume or suffer
to exist any lien on or with respect to the Aircraft. Lessee will promptly, at
its own expense, take such action as may be necessary to discharge any lien not
excepted above if the same shall arise at any time.
SECTION SIX
INSPECTION BY LESSOR
Lessee agrees to permit Lessor or any authorized agent to inspect the
Aircraft at any reasonable time and to furnish any information in respect to the
Aircraft and its use that Lessor may reasonably request.
SECTION SEVEN
ALTERATIONS
Except in accordance with other written agreements entered into
subsequent to the date of this Lease between Lessee and Lessor regarding
maintenance of the Aircraft, Lessee shall not have the right to alter, modify,
or make additions or improvements to the Aircraft without the written permission
of Lessor. All such alterations, modifications, additions, and improvements as
are so made shall become the property of Lessor and shall be subject to all of
the terms of this Lease.
SECTION EIGHT
TITLE
The registration of and title to the Aircraft shall be in the name of
the Lessor, and the Aircraft, at all times during the terms of this Lease or any
extension, shall bear United States registration markings. All responsibility
and obligations in regard to the operation of the
5
<PAGE> 6
Aircraft as above owned, registered, and marked shall be borne by Lessee during
the term of this Lease.
SECTION NINE
PAYMENT OF TAXES
Lessee shall pay all taxes associated with Lessee's use of the Aircraft on
Lessee's own business, including landing fees, fuel taxes, and any other taxes
or fees which may be assessed against a specific flight by Lessee.
SECTION TEN
ASSIGNMENT
Lessee shall not assign this Lease or any interest in the Aircraft, or
sublet the Aircraft, without prior written consent of Lessor. Subject to the
foregoing, this Lease inures to the benefit of, and is binding on, the heirs,
legal representatives, successors, and assigns of the parties.
SECTION ELEVEN
ACCIDENT AND CLAIM
Lessee shall immediately notify Lessor of each accident involving the
Aircraft, which notification shall specify the time, place, and nature of the
accident or damage, the names and addresses of parties involved, persons
injured, witnesses, and owners of properties damaged, and such other information
as may be known. Lessee shall advise Lessor of all correspondence, papers,
notices, and documents whatsoever received by
6
<PAGE> 7
Lessee in connection with any claim or demand involving or relating to the
Aircraft or its operation, and shall aid in any investigation instituted by
Lessor and in the recovery of damages from third persons liable therefore.
SECTION TWELVE
RETURN OF AIRCRAFT TO LESSOR
On the termination of this Lease by expiration or otherwise, Lessee
shall return the Aircraft to Lessor at Spartanburg Downtown Airport in
Spartanburg, South Carolina, in as good operating condition and appearance as
when received, ordinary wear, tear and deterioration excepted, and shall
indemnify Lessor against any claim for loss or damage occurring prior to the
actual physical delivery of the Aircraft to Lessor.
SECTION THIRTEEN
MODIFICATION OF AGREEMENT
This Lease constitutes the entire understanding between the parties,
and any change or modification must be in writing and signed by both parties.
SECTION FOURTEEN
GOVERNING LAW
This Lease is entered into under, and is to be construed in accordance
with, the laws of the State of South Carolina.
7
<PAGE> 8
SECTION FIFTEEN
TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1985 CANADAIR CHALLENGER MODEL CL-600-2A12, MANUFACTURER'S
SERIAL NO. 3042, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION
AS N900CC, HAS BEEN MAINTAINED AND INSPECTED UNDER FAR PART 91 DURING THE 12
MONTH PERIOD PRECEDING THE DATE OF THIS LEASE.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE,
RTO, INC., 961 EAST MAIN STREET, SPARTANBURG, SOUTH CAROLINA 29302, IS
CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
I, THE UNDERSIGNED DAN C. BREEDEN, JR., AS VICE PRESIDENT OF RTO, INC.,
961 EAST MAIN STREET, SPARTANBURG, SC 29302, CERTIFY THAT I AM RESPONSIBLE FOR
OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT I UNDERSTAND MY RESPONSIBILITIES
FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
IN WITNESS WHEREOF, the parties have executed this Lease.
WYOMING ASSOCIATES, INC.
/S/ George D. Johnson, Jr. 4-26-97 4:53 pm
- ------------------------------------- --------------------------------
George D. Johnson, Jr., President Date and Time of Execution
RTO, Inc.
/S/ Dan C. Breeden, Jr. 4-28-97 8:37 am
- ------------------------------------- --------------------------------
Dan C. Breeden, Jr., Vice President Date and Time of Execution
8
<PAGE> 1
EXHIBIT 16.1
March 6, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We have read the statements under the caption "Experts" relating to the
change in accountants included in this registration statement on Form S-4 of
Alrenco, Inc. as filed on March 6, 1998, and are in agreement with the
statements contained therein.
Very truly yours,
GRANT THORNTON LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 7, 1997, accompanying the
financial statements included in the Annual Report of Alrenco, Inc. on form 10-K
for the year ended December 31, 1996, and our report dated February 7, 1997,
covering the financial statements of Alrenco, Inc., which is included in Form
8-K of Alrenco, Inc. dated March 5, 1998. We consent to the use of the
aforementioned reports in this registration statement and to the use of our name
as it appears under the captions "Selected Financial Data" and "Experts."
GRANT THORNTON LLP
Dallas, Texas
March 6, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-4 of our report dated
November 8, 1996, accompanying the financial statements of Fastway, Inc. for the
year ended August 31, 1996 contained in Alrenco's Current Report on Form 8-K/A
filed on March 14, 1997, and to the use of our name as it appears under the
caption "Experts" in this registration statement.
TRAVIS WOLFF & COMPANY, L.L.P.
Dallas, Texas
March 6, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Alrenco, Inc. on Form S-4 of our report dated May 28, 1997, on our audits of
the consolidated financial statements of RTO, Inc. and subsidiaries as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 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, appearing in the registration statement
on Form S-4 (SEC File No. 333-44451) of Alrenco, Inc. filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933. We also consent
to the incorporation by reference in this registration statement of Alrenco,
Inc. on Form S-4 of our report dated February 26, 1998 on our audits of the
supplemental consolidated financial statements of Alrenco, Inc. and
subsidiaries, after restatement for the 1998 pooling of interest with RTO, Inc.
as described in Note 1 to those financial statements, as of December 1995 and
1996 and for each of the three years in the period ended December 31, 1996,
which report is included in the Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 5, 1998. We also consent to the
references to our firm under the captions "Experts" and "Selected Financial
Data."
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
March 6, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Financial Data of Action" in this Registration Statement (Form S-4) of
Alrenco, Inc. and to the incorporation by reference therein of our reports a)
dated November 4, 1996 with respect to the financial statements of Action TV &
Appliance Rental, Inc. and b) dated January 16, 1997 with respect to the
financial statements of B&L Concepts, Inc., each included in the Registration
Statement (Form S-4 No. 333-44451) of Alrenco, Inc. for the registration of
12,280,316 shares of its common stock, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Dallas, Texas
March 4, 1998
