<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
RENT-WAY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Pennsylvania 25-1407782
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
3230 WEST LAKE ROAD
ERIE, PENNSYLVANIA 16505
(814) 836-0618
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
WILLIAM E. MORGENSTERN, PRESIDENT
3230 WEST LAKE ROAD
ERIE, PENNSYLVANIA 16505
(814) 836-0618
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
John J. Zak, Esq. Valerie Ford Jacob, Esq.
Hodgson, Russ, Andrews, Woods & Goodyear, LLP Fried, Frank, Harris, Shriver & Jacobson
1800 One M & T Plaza One New York Plaza
Buffalo, New York 14203 New York, New York 10004-1980
(716) 848-1253 (212) 859-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE
AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities on this Form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value... 2,975,338 $17.00 $50,580,746 $15,328
=====================================================================================================
</TABLE>
(1) Includes 388,088 shares of Common Stock that may be purchased pursuant to
the over-allotment option granted to the Underwriters.
(2) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1997
2,587,250 SHARES
LOGO
COMMON STOCK
Of the 2,587,250 shares of Common Stock offered hereby, 2,500,000 are being
offered by Rent-Way, Inc. (the "Company") and 87,250 are being offered by
certain shareholders of the Company (the "Selling Shareholders"). See "Principal
and Selling Shareholders." The Company will not receive any of the proceeds from
the sale of Common Stock by the Selling Shareholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "RWAY." On November 5, 1997, the last reported sale price of the
Common Stock, on the Nasdaq National Market, was $18.25 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE 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.
<TABLE>
<CAPTION>
===================================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Shareholders
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...... $ $ $ $
Total(3)....... $ $ $ $
===================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting estimated offering expenses of $250,000 which will be
payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting
Discount will total $ and the Proceeds to Company will total $
. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject any orders in whole or in part. It is expected that
delivery of the certificates representing the shares offered hereby will be made
against payment therefor at the office of NationsBanc Montgomery Securities,
Inc., on or about , 1997.
------------------------
NATIONSBANC MONTGOMERY SECURITIES, INC.
RAUSCHER PIERCE REFSNES, INC.
THE ROBINSON-HUMPHREY COMPANY
, 1997
<PAGE> 3
[IN THIS SPACE ARE FOUR SEPARATE PHOTOGRAPHS OF THE INSIDE OF COMPANY STORES
DEPICTING (1) A DISPLAY OF TELEVISIONS, (2) A BLACK DINETTE SET, (3) A KITCHEN
DISPLAY IN WHICH A STORE EMPLOYEE INTERACTS WITH CUSTOMERS AND (4) A SET OF
BUNKBEDS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements appearing elsewhere in or incorporated by reference into this
Prospectus. Unless otherwise noted, all information in this Prospectus assumes
the Underwriters' over-allotment option is not exercised.
THE COMPANY
Rent-Way, Inc. (the "Company") offers quality, brand name home
entertainment equipment, furniture, major appliances and jewelry to customers
under full-service rental-purchase agreements that generally allow the customer
to obtain ownership of the merchandise at the conclusion of an agreed upon
rental period. The Company has been engaged in the rental-purchase business
since 1981 and as of September 30, 1997 operated 184 stores in 14 states and the
District of Columbia. Management believes that the Company's rental-purchase
arrangements appeal to a wide variety of customers by allowing them to obtain
merchandise they might otherwise be unable or unwilling to obtain due to
insufficient cash resources or lack of access to credit or because they have a
temporary, short-term need for the merchandise or a desire to rent rather than
purchase the merchandise.
The Association of Progressive Rental Organizations ("APRO"), an industry
trade association, estimated that at the end of 1996 the U.S. rental-purchase
industry consisted of approximately 7,500 stores that provided 5.8 million
products to 2.9 million households. APRO estimates that the U.S. rental-purchase
industry had gross revenues of $4.1 billion in 1996. The rental-purchase
industry is highly fragmented. Based on APRO estimates, the ten largest industry
participants account for less than 50% of total industry stores, and the
majority of the industry consists of operations with fewer than 20 stores.
Management believes that the rental-purchase industry is experiencing increasing
consolidation due to, among other factors, the recognition by smaller operators
of the increased operating efficiencies and better competitive position
achievable through larger organizations, greater availability of capital for
larger organizations, and the willingness of an older generation of operators to
resolve succession issues through disposition of the business. Management
believes that this trend toward consolidation in the industry presents an
opportunity for the Company to continue to acquire additional stores on
favorable terms.
The Company opened its first store in 1981 and by 1993, as a result of
acquisitions and new store openings, operated 19 stores in three states and had
completed its initial public common stock offering. The Company subsequently
accelerated its acquisition program and, as of September 30, 1997, operated 184
stores in 14 states and the District of Columbia as follows: Ohio (49), Michigan
(28), Pennsylvania (24), New York (20), Indiana (17), Maryland (11), Illinois
(8), Virginia (8), Florida (7), Delaware (4), Colorado (3), West Virginia (2),
Kentucky (1), New Jersey (1) and Washington, D.C. (1). Primarily as a result of
its acquisitions and the improved performance of its stores, the Company's total
revenues and net income increased from $8.4 million and $0.2 million,
respectively, for the year ended September 30, 1993 to $88.0 million and $5.4
million, respectively, for the year ended September 30, 1997. In addition, the
Company's operating income as a percentage of total revenues improved from 8.2%
for the year ended September 30, 1993 to 15.7% for the year ended September 30,
1997.
On October 6, 1997, the Company signed a letter of intent to acquire
substantially all of the assets of the Ace TV Rentals rental-purchase chain
("Ace Rentals"). Ace Rentals operates 46 stores in South Carolina and four
stores in California. The purchase price for the Ace Rentals assets is estimated
to be approximately $24.5 million. Subject to the satisfaction of certain
conditions, including negotiation of a definitive purchase agreement, the
Company expects to consummate the Ace Rentals acquisition in early January 1998.
3
<PAGE> 5
BUSINESS STRATEGY
The Company's business strategy is to continue to increase revenues and net
income by: (i) increasing the number of stores it owns, primarily through
acquisitions; (ii) emphasizing its customer-focused philosophy designed to make
each customer feel "Welcome, Wanted and Important"; (iii) increasing the average
revenue per unit rented by expanding the Company's offerings of higher priced
lines of merchandise; (iv) closely monitoring each store's performance,
particularly through the use of its proprietary management information system;
and (v) emphasizing results-oriented compensation structures and offering
intensive training programs for its employees. The Company's business strategy
is designed to capitalize on the fragmentation and growth potential of the
rental-purchase industry, which management believes should provide
well-capitalized and customer-focused operators opportunities to grow primarily
through acquisitions.
THE OFFERING
Common Stock offered by the Company... 2,500,000 shares
Common Stock offered by the Selling
Shareholders.......................... 87,250 shares(1)
Common Stock to be outstanding after
the Offering.......................... 10,299,863 shares(1)(2)
Use of proceeds....................... To repay outstanding indebtedness
(including indebtedness incurred in
connection with previous
acquisitions) and for general
corporate purposes, including
acquisitions (including the Ace
Rentals acquisition, if consummated).
See "Use of Proceeds."
Nasdaq National Market symbol......... RWAY
- ---------
(1) Includes 27,250 shares of Common Stock to be issued upon the exercise of
outstanding warrants. See "Principal and Selling Shareholders."
(2) Excludes (i) 186,000 shares of Common Stock reserved for issuance upon the
exercise of other outstanding warrants, of which warrants covering 105,000
shares have an exercise price of $9.94 per share and warrants covering
81,000 shares have an exercise price of $6.76 per share, (ii) 1,495,886
shares of Common Stock reserved for issuance upon the conversion of the
Company's 7.0% Convertible Subordinated Debentures due 2007 (the
"Debentures"), which Debentures have a conversion price of $13.37 per share
and (iii) 1,264,640 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options, which options have exercise prices
ranging from $4.67 to $18.13 per share.
4
<PAGE> 6
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
1993 1994(2) 1995(3) 1996(4) 1997(5)
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues......................... $ 8,447 $14,008 $28,194 $51,171 $88,043
Operating income....................... 689 670 2,580 6,651 13,786
Net income............................. 173 217 1,009 2,847 5,416
Earnings applicable to common shares... 173 217 971 2,718 5,696
Earnings per common share--fully
diluted.............................. $ 0.07 $ 0.06 $ 0.22 $ 0.45 $ 0.72
OPERATING DATA:
Stores open at end of period........... 19 40 83 108 184
Comparable store revenue growth(6)..... 5.5% 13.0% 15.1% 5.4% 7.6%
BALANCE SHEET DATA:
Rental merchandise, net................ $ 2,723 $ 7,068 $12,593 $17,862 $35,132
Goodwill, net.......................... 436 4,336 14,893 21,867 43,447
Total assets........................... 7,784 15,129 36,155 49,974 96,288
Total debt............................. 3,858 7,255 19,151 12,979 48,156
Total liabilities...................... 4,840 9,167 22,545 18,134 55,331
Redeemable preferred stock............. -- -- 2,750 1,121 --
Shareholders' equity................... 2,944 5,962 10,860 30,719 40,957
</TABLE>
- ---------
(1) The comparability of the historical financial information and operating data
for the periods presented has been affected by the acquisition of
rental-purchase stores during these periods as discussed in the following
footnotes.
(2) During the year ended September 30, 1994, the Company acquired 20
rental-purchase stores through its acquisition of D.A.M.S.L. Corp. on May
18, 1994.
(3) During the year ended September 30, 1995, the Company acquired 50
rental-purchase stores, 46 of which were acquired through the acquisition of
McKenzie Leasing Corporation on July 21, 1995.
(4) During the year ended September 30, 1996, the Company acquired 32
rental-purchase stores in four separate transactions.
(5) During the year ended September 30, 1997, the Company acquired 92
rental-purchase stores, 15 of which were acquired on January 2, 1997 from
Bill Coleman TV, Inc. and 70 of which were acquired on February 6, 1997 from
Perry Electronics, Inc. d/b/a Rental King.
(6) Comparable store revenue growth for each period presented includes revenues
of stores open throughout such period and the immediately preceding period.
5
<PAGE> 7
RISK FACTORS
Prospective investors should carefully review the following factors,
together with the information set forth elsewhere in or incorporated by
reference into this Prospectus prior to purchasing any Common Stock offered
hereby.
ACQUISITION RISKS
The continued growth of the Company will depend, in part, on the Company's
ability to acquire additional rental-purchase stores on favorable terms, to
integrate the acquired stores into the Company's operations, and to enhance
their performance. The Company will compete for acquisition 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, that acquisition candidates, once located, will be
acquired by the Company on terms comparable with terms available to its
acquisition competitors, or that any operations that are acquired can be
effectively and profitably integrated into the Company's existing operations.
Furthermore, future acquisitions may negatively impact the Company's operating
results, particularly during the periods immediately following an acquisition.
The Company may acquire operations that are unprofitable or have inconsistent
profitability. The inability to improve the profitability of such acquired
stores could have a material adverse effect on the Company. The Company's
acquisition strategy is also likely to place significant demands on the
Company's management and its financial resources.
RISKS ASSOCIATED WITH PENDING ACE RENTALS TRANSACTION
The Company has signed a letter of intent to acquire substantially all of
the assets of Ace Rentals, a privately-owned rental-purchase concern operated
through three affiliated corporations with 46 stores in South Carolina and four
stores in California, for an estimated aggregate purchase price of approximately
$24.5 million. Consummation of the Ace Rentals acquisition is subject to certain
conditions, the satisfaction of which are outside the control of the Company,
including the negotiation of a definitive purchase agreement and receipt of
financing, consents to assignments of store leases, and consents of the
Company's senior lenders. The Company intends to apply a substantial portion of
the net proceeds of the Offering to the payment of the purchase price due on the
Ace Rentals acquisition. However, the Company will not know whether the
conditions to the closing of the Ace Rentals acquisition will be satisfied prior
to the consummation of the Offering and, accordingly, an investor purchasing the
Common Stock offered hereby will have no assurance that the Ace Rentals
acquisition will in fact occur. Consequently, an investor in the Common Stock
offered hereby should make an investment decision taking into consideration the
possibility that the Ace Rentals acquisition will not be consummated. In the
event that the Ace Rentals acquisition is not consummated, the Company will
apply the net proceeds of the Offering not theretofore used to repay all amounts
outstanding on its senior credit facility for general corporate purposes,
including the acquisition of additional rental-purchase stores. Audited
financial statements for Ace Rentals for years ending after December 31, 1994
are not available. Therefore, there may exist unanticipated or unknown problems
or liabilities impacting the financial condition of Ace Rentals that audited
financial statements may have revealed.
The Ace Rentals acquisition, if consummated, will materially increase the
scope of the Company's operations. The Company currently has no operations in
South Carolina or California where the Ace Rentals stores are located. There can
be no assurance that the stores acquired in the Ace Rentals acquisition will
perform in accordance with management's expectations or that the Company will
not encounter unanticipated problems or liabilities in connection with the
acquisition or operation of such stores. Moreover, it is possible that the
integration of the stores acquired in the Ace Rentals acquisition will require
the dedication of management resources that otherwise would be dedicated to the
day-to-day business of the Company's other stores.
RISKS ASSOCIATED WITH SIGNIFICANT GOVERNMENT REGULATION OF THE RENTAL-PURCHASE
INDUSTRY
Forty-five states have enacted laws specifically regulating the
rental-purchase transaction, including all the states in which the Company's
stores are located except New Jersey, where the Company operates only one store
(which the Company intends to close or relocate out of state by the end of the
year). These laws generally require
6
<PAGE> 8
certain contractual and advertising disclosures concerning the nature of the
transaction and also provide varying levels of substantive consumer protection,
such as requiring a grace period for late payments and contract reinstatement
rights in the event the agreement is terminated for non-payment. The
rental-purchase laws of some states, including Michigan, New York, Ohio,
Pennsylvania and West Virginia, limit the total dollar amount of rentals that
may be charged over the life of the rental-purchase agreement. The District of
Columbia, where the Company operates one store, currently has no laws
specifically regulating a rental-purchase transaction. The District of Columbia
is subject to federal consumer credit laws of general application that the
Federal Reserve Board of Governors and federal courts have interpreted as not to
apply to a rental-purchase transaction as offered by the Company. If the Company
acquires or opens new stores in states in which it does not currently operate,
the Company will become subject to the rental-purchase laws of such states, if
any. Furthermore, there can be no assurance against the enactment of new or
revised rental-purchase laws that would have a material adverse effect on the
Company.
No federal legislation has been enacted regulating or otherwise impacting
the rental-purchase transaction. From time to time, legislation has been
introduced in Congress that would regulate the rental-purchase transaction,
including legislation that would subject the rental-purchase transaction to
interest rate, finance charge and fee limitations, as well as the Federal Truth
in Lending Act. Any such federal legislation, if enacted, could have a material
adverse effect on the Company. See "Business--Government Regulation."
RISKS ASSOCIATED WITH PARTICIPATION IN HIGHLY COMPETITIVE RENTAL-PURCHASE
INDUSTRY
The rental-purchase industry is highly competitive. The Company competes
with other rental-purchase businesses and, to a lesser extent, with rental
stores that do not offer their customers a purchase option. Competition is based
primarily on rental prices and terms, product selection and availability, and
customer service. With respect to consumers who are able to purchase a product
for cash or on credit, the Company also competes with department stores,
discount stores and retail outlets. These competitors may offer an installment
sales program or may compete with the Company simply on the basis of product and
price. Several competitors of the Company in the rental-purchase business are
national in scope and have significantly greater financial and operating
resources and name recognition than does the Company. There can be no assurance
that the Company will be able to compete successfully against these competitors.
Furthermore, additional competitors may emerge, especially since the cost of
entry into the rental-purchase business is relatively low. Increased competition
may have a material adverse effect on the Company.
SIGNIFICANT CONTINUING CASH REQUIREMENTS ASSOCIATED WITH THE COMPANY'S GROWTH
STRATEGY
The Company's cash requirements have been and will continue to be
significant. In fiscal years 1995, 1996 and 1997, the Company used $1.7 million,
$8.6 million and $25.9 million for acquisitions, respectively, and $9.2 million,
$20.4 million and $27.6 million for purchases of rental merchandise,
respectively. The continued pursuit of the Company's growth strategy will
require significant additional capital resources. Capital is needed not only for
acquisitions, but also to service acquisition-related debt, for the effective
integration, operation and expansion of acquired rental-purchase stores and for
the purchase of new rental merchandise. There can be no assurance that capital
will be available to the Company in the future or, if available, on terms
acceptable to it.
RISKS ASSOCIATED WITH INTANGIBLE ASSETS
A substantial portion of the Company's assets consists of intangible
assets, including goodwill and covenants not to compete relating to the
acquisition of rental-purchase stores. At September 30, 1997, the Company had
$43.4 million of goodwill, a substantial portion of the Company's $96.3 million
in total assets at such date. For the year ended September 30, 1997,
amortization of goodwill amounted to 2.2% of total revenues. The Company expects
goodwill on its balance sheet to continue to increase in the future due to
additional acquisitions, including the pending Ace Rentals acquisition, if
consummated. These additions to goodwill will be amortized against earnings in
future periods. In the event of any sale or liquidation of the Company, there
can be no assurance that the value of the Company's intangible assets will be
realized. If and when factors indicate that these intangible assets should be
evaluated for possible impairment, the Company may be required to reduce the
carrying value of its intangible assets. Such a reduction could have a material
adverse effect on the Company.
7
<PAGE> 9
DEPENDENCE UPON KEY PERSONNEL
The Company's operations and future success are largely dependent upon its
management, and in particular, William E. Morgenstern, the Company's co-founder
and President and Chief Executive Officer. The loss of Mr. Morgenstern's
services could have a material adverse effect on the Company. The Company
maintains no policies of life insurance on Mr. Morgenstern nor on other members
of management. See "Management."
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and By-Laws contain provisions that
could delay, deter or prevent a merger, tender offer or other business
combination or change in control involving the Company that some or a majority
of the shareholders might consider to be in their best interests, including
offers or attempted takeovers that might otherwise result in such shareholders
receiving a premium over the then market price of the Common Stock. The
Company's Articles of Incorporation contain a provision authorizing the issuance
of "blank check" preferred stock. The Company's By-Laws contain provisions
establishing a classified Board of Directors and advance notice requirements for
director nominations and actions to be taken at annual shareholder meetings,
provide that only the directors may call special meetings of the shareholders
and that the Board, or any class of the Board or any individual director, may
only be removed from office for cause by the holders of greater than 50% of the
outstanding stock entitled to vote thereon.
EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE OF COMMON STOCK
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of such shares for future sale, will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of the Common Stock (including shares issued upon the
exercise of stock options or outstanding warrants or upon conversion of the
Debentures), or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock. See "Shares Eligible for
Future Sale."
8
<PAGE> 10
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $42.9 million ($49.6 million if the Underwriters' over-allotment
option is exercised in full), based upon an assumed offering price of $18.25 per
share (the closing sales price of the Common Stock on the Nasdaq National Market
on November 5, 1997), after deducting the underwriting discount and estimated
expenses of the Offering payable by the Company. The Company will not receive
any proceeds from the sale of Common Stock by the Selling Shareholders.
The Company intends to apply such net proceeds to repay all outstanding
borrowings under the Company's collateralized revolving credit facility (the
"Credit Facility") with a syndicate of banks led by National City Bank of
Pennsylvania ("National City Bank"), and the remaining net proceeds to general
corporate purposes, including acquisitions (including the Ace Rental
acquisition, if consummated). The Company intends to invest such remaining net
proceeds in short-term interest-bearing securities pending application of such
net proceeds as described above. As of October 31, 1997, borrowings outstanding
under the Credit Facility totaled $21.0 million and bore interest at a weighted
average interest rate of 8.2%. Borrowings under the Credit Facility mature on
expiration of the Credit Facility on November 22, 1999.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"RWAY." The following table sets forth, for the periods indicated, the high and
low closing sales price per share of the Common Stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 HIGH LOW
------ ------
<S> <C> <C>
First Quarter........................................... $10.50 $ 8.38
Second Quarter.......................................... 10.13 7.38
Third Quarter........................................... 15.50 9.75
Fourth Quarter.......................................... 14.13 11.00
YEAR ENDED SEPTEMBER 30, 1997
First Quarter........................................... 12.63 8.25
Second Quarter.......................................... 12.81 8.75
Third Quarter........................................... 14.75 8.63
Fourth Quarter.......................................... 21.31 12.88
YEAR ENDING SEPTEMBER 30, 1998
First Quarter (through November 5, 1997)................ 20.88 16.75
</TABLE>
As of November 5, 1997, there were 117 holders of record of the Common
Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends to shareholders. At this time,
the Company does not intend to pay any cash dividends. The declaration of any
cash or stock dividends will be at the discretion of the Company's Board of
Directors, and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions and other pertinent
factors. The Credit Facility prohibits the payment of dividends.
9
<PAGE> 11
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and as adjusted to reflect (i) the conversion (as of October
8, 1997) of its 10% Convertible Subordinated Notes due 2002 (the "Notes") into
704,225 shares of Common Stock and (ii) the sale of the 2,500,000 shares of
Common Stock offered hereby, based upon an assumed offering price per share of
$18.25 (the closing sales price of the Common Stock on the Nasdaq National
Market on November 5, 1997), and the application of the net proceeds therefrom
as described under "Use of Proceeds." The historical data has been abstracted
from the Company's financial statements incorporated by reference into this
Prospectus and should be read in conjunction with such financial statements and
the notes thereto.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------
ACTUAL AS ADJUSTED(1)(2)
--------- -----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Cash........................................................... $ 599 $ 22,725
======= ========
Debt:
Revolving Credit Facility.................................... $21,022 $ --
Notes payable................................................ 134 134
Convertible Subordinated Notes............................... 7,000 --
Convertible Subordinated Debentures.......................... 20,000 20,000
------- --------
Total debt................................................ 48,156 20,134
------- --------
Shareholders' equity:
Preferred Stock, without par value; 1,000,000 shares
authorized; no shares issued and outstanding.............. -- --
Common Stock, without par value; 20,000,000 shares
authorized; 7,772,613 shares issued and outstanding
(actual); 10,299,863 shares issued and outstanding (as
adjusted)(1)(3)........................................... 32,760 82,908
Retained earnings............................................ 8,197 8,197
------- --------
Total shareholders' equity................................ 40,957 91,105
------- --------
Total capitalization.................................... $89,113 $ 111,239
======= ========
</TABLE>
- ---------
(1) Includes 27,250 shares of Common Stock to be issued upon the exercise of
outstanding warrants.
(2) If further adjusted to give effect to the consummation of the Ace Rentals
acquisition as of September 30, 1997, and assuming a purchase price of $24.5
million, the amount of cash would be reduced to $0 and the amount
outstanding on the Revolving Credit Facility would be increased to $1.8
million.
(3) Excludes (i) 186,000 shares of Common Stock reserved for issuance upon the
exercise of outstanding warrants, of which warrants covering 105,000 shares
have an exercise price of $9.94 per share and warrants covering 81,000
shares have an exercise price of $6.76 per share, (ii) 1,495,886 shares of
Common Stock reserved for issuance upon the conversion of the Debentures,
which Debentures have a conversion price of $13.37 per share and (iii)
1,264,640 shares of Common Stock reserved for issuance upon exercise of
outstanding stock options, which options have exercise prices ranging from
$4.67 to $18.13 per share.
10
<PAGE> 12
SELECTED HISTORICAL FINANCIAL INFORMATION AND OPERATING DATA(1)
The following selected financial information for the five years ended
September 30, 1997 was derived from the Company's financial statements for the
five years ended September 30, 1997, audited by Coopers & Lybrand L.L.P.,
independent auditors. The selected financial information is qualified in its
entirety by, and should be read in conjunction with, the financial statements of
the Company and the notes thereto incorporated in this Prospectus by reference.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
1993 1994(2) 1995(3) 1996(4) 1997(5)
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Rental revenue........................................ $ 7,490 $12,111 $24,080 $43,891 $77,498
Other revenue......................................... 957 1,897 4,114 7,280 10,545
------- ------- ------- ------- -------
Total revenues...................................... 8,447 14,008 28,194 51,171 88,043
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise.................................. 2,410 4,073 8,312 13,229 20,314
Property and equipment.............................. 216 331 525 775 1,530
Amortization of goodwill............................ 7 108 334 875 1,926
------- ------- ------- ------- -------
Total depreciation and amortization............... 2,633 4,512 9,171 14,879 23,770
Salaries and wages.................................... 2,205 4,024 6,909 13,101 22,810
Advertising........................................... 410 540 1,259 2,123 3,899
Occupancy............................................. 589 1,006 1,888 3,269 5,988
Other operating expenses.............................. 1,921 3,256 6,387 11,148 17,790
------- ------- ------- ------- -------
Total costs and operating expenses................ 7,758 13,338 25,614 44,520 74,257
Operating income.................................. 689 670 2,580 6,651 13,786
Interest expense...................................... (580) (542) (1,162) (1,493) (3,130)
Other income (expense)................................ 32 89 36 70 (342)
------- ------- ------- ------- -------
Income before income taxes........................ 141 217 1,454 5,228 10,314
Income tax expense (benefit).......................... (32) -- 445 2,381 4,629
------- ------- ------- ------- -------
Income before extraordinary item.................. 173 217 1,009 2,847 5,685
Extraordinary item.................................... -- -- -- -- (269)
------- ------- ------- ------- -------
Net income........................................ 173 217 1,009 2,847 5,416
Preferred stock (dividend)/gain on redemption......... -- -- (38) (129) 280
------- ------- ------- ------- -------
Earnings applicable to common shares.............. $ 173 $ 217 $ 971 $ 2,718 $ 5,696
======== ======== ======== ======== ========
Earnings per common share--fully diluted.............. $ 0.07 $ 0.06 $ 0.22 $ 0.45 $ 0.72
======== ======== ======== ======== ========
OPERATING DATA:
Stores open at end of period.......................... 19 40 83 108 184
Comparable store revenue growth(6).................... 5.5% 13.0% 15.1% 5.4% 7.6%
BALANCE SHEET DATA:
Rental merchandise, net............................... $ 2,723 $ 7,068 $12,593 $17,862 $35,132
Goodwill, net......................................... 436 4,336 14,893 21,867 43,447
Total assets.......................................... 7,784 15,129 36,155 49,974 96,288
Total debt............................................ 3,858 7,255 19,151 12,979 48,156
Total liabilities..................................... 4,840 9,167 22,545 18,134 55,331
Redeemable preferred stock............................ -- -- 2,750 1,121 --
Shareholders' equity.................................. 2,944 5,962 10,860 30,719 40,957
</TABLE>
- ---------
(1) The comparability of the historical financial information and operating data
for the periods presented has been affected by the acquisition of
rental-purchase stores during these periods as discussed in the following
footnotes.
(2) During the year ended September 30, 1994, the Company acquired 20
rental-purchase stores through its acquisition of D.A.M.S.L. Corp. on May
18, 1994.
(3) During the year ended September 30, 1995, the Company acquired 50 rental
purchase stores, 46 of which were acquired through the acquisition of
McKenzie Leasing Corporation on July 21, 1995.
(4) During the year ended September 30, 1996, the Company acquired 32
rental-purchase stores in four separate transactions.
(5) During the year ended September 30, 1997, the Company acquired 92
rental-purchase stores, 15 of which were acquired on January 2, 1997 from
Bill Coleman TV, Inc. and 70 of which were acquired on February 6, 1997 from
Perry Electronics, Inc. d/b/a Rental King.
(6) Comparable store revenue growth for each period presented includes revenues
of stores open throughout such period and the immediately preceding period.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As of September 30, 1997, the Company operated 184 rental-purchase stores
located in 14 states and the District of Columbia. Primarily through
acquisitions, the number of stores operated by the Company has increased from 19
as of September 30, 1993 to 184 as of September 30, 1997. The following table
shows the number of stores opened, acquired and/or combined during this
five-year period.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
STORES 1993 1994 1995 1996 1997
------------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Open at Beginning of Period...................... 17 19 40 83 108
Opened........................................... 2 3 -- -- --
Acquired......................................... -- 20 50 32 92
Closed or Combined............................... -- 2 7 7 16
--- --- --- --- ---
Open at End of Period............................ 19 40 83 108 184
=== === === === ===
</TABLE>
During the year ended September 30, 1997, the Company entered into several
acquisitions in which the Company acquired 92 stores (the "1997 Acquisitions").
On January 2, 1997, the Company acquired 15 stores located in Michigan from Bill
Coleman TV, Inc. (the "Coleman Acquisition"). On February 6, 1997, the Company
acquired 70 stores located in Colorado, Florida, Indiana, Kentucky, Michigan,
West Virginia, and Ohio from Perry Electronics, Inc. d/b/a Rental King (the
"Rental King Acquisition"). In July and September 1997, the Company acquired
seven rental-purchase stores located in Pennsylvania, Maryland, and Virginia. In
connection with the acquisition of stores, the Company implements a strategy to
improve the operations of the acquired stores. As part of this strategy, the
Company purchases new merchandise, upgrades the appearance of the stores,
increases the amount of advertising utilized per store, and implements a
training program for the store employees.
On October 6, 1997, the Company signed a letter of intent to acquire
substantially all of the assets of Ace Rentals. Ace Rentals operates 46 stores
in South Carolina and four stores in California. The purchase price for the
assets is estimated to be approximately $24.5 million.
12
<PAGE> 14
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following
table expresses certain items of the Company's statements of income for the
years ended September 30, 1995, 1996 and 1997 as a percentage of total revenues.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Revenues:
Rental revenue.................................. 85.4% 85.8% 88.0%
Other revenue................................... 14.6 14.2 12.0
----- ----- -----
Total revenues................................ 100.0 100.0 100.0
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise.............................. 29.5 25.9 23.1
Property and equipment.......................... 1.9 1.5 1.7
Amortization of goodwill........................ 1.2 1.7 2.2
Salaries and wages.............................. 24.5 25.6 25.9
Advertising..................................... 4.5 4.1 4.4
Occupancy....................................... 6.7 6.4 6.8
Other operating expense......................... 22.6 21.8 20.2
----- ----- -----
Total costs and operating expenses............ 90.9 87.0 84.3
----- ----- -----
Operating income................................ 9.1 13.0 15.7
Interest expense................................ (4.1) (2.9) (3.6)
Other income (expenses), net.................... 0.2 0.1 (0.4)
----- ----- -----
Income before income taxes.................... 5.2 10.2 11.7
Income tax expenses............................. (1.6) (4.6) (5.3)
----- ----- -----
Income before extraordinary item................ 3.6 5.6 6.4
----- ----- -----
Extraordinary Item.............................. -- -- (0.2)
----- ----- -----
Net Income.................................... 3.6% 5.6% 6.2%
===== ===== =====
</TABLE>
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1997 AND 1996
For the year ended September 30, 1997 as compared to the year ended
September 30, 1996, total revenues increased to $88.0 million from $51.2
million, or 72.1%. The increase was due to the inclusion of a full year's
results for the stores acquired by the Company in fiscal 1996 (the "1996
Acquisitions"), a partial year's operations for the stores acquired in the 1997
Acquisitions, and increased same store revenues. The stores acquired in the
Rental King Acquisition accounted for $16.8 million, or 45.5%, of the increase,
the stores acquired in the Coleman Acquisition accounted for $6.1 million, or
16.5%, of the increase, the stores acquired in the 1996 Acquisitions accounted
for $11.1 million, or 30.1%, of the increase, the Company's same stores
accounted for $2.3 million, or 6.2%, of the increase, and other 1997
Acquisitions accounted for $0.6 million, or 1.7%, of the increase.
For the year ended September 30, 1997 as compared to the year ended
September 30, 1996, total costs and operating expenses increased to $74.3
million from $44.5 million principally as a result of costs and operating
expenses associated with the 1996 Acquisitions, the Coleman Acquisition, and the
Rental King Acquisition, but decreased to 84.3% from 87.0% of total revenues.
This resulted principally from a decrease in depreciation expense as a
percentage of total revenues and other operating expenses as a percentage of
total revenues. Depreciation expense related to rental merchandise increased to
$20.3 million from $13.2 million, but decreased to 23.1% from 25.9% of total
revenues, principally due to increases in weekly rental rates, lower purchase
costs of rental merchandise due to increased volume, and improved realization of
collectible rent. Amortization of goodwill increased to 2.2% from 1.7% of total
revenues principally because of the increase in goodwill related to the Coleman
Acquisition and Rental King Acquisition. Salaries and wages increased to $22.8
million from
13
<PAGE> 15
$13.1 million principally due to the addition of the store personnel associated
with the 1996 Acquisitions, the Coleman Acquisition, the Rental King
Acquisition, and the addition of several management personnel in the Company's
operations, marketing, human resources, accounting, and information systems
departments. Salaries and wages were 25.9% and 25.6% of total revenues for the
years ended September 30, 1997 and 1996, respectively. Advertising expense
increased to $3.9 million from $2.1 million principally due to the addition of
stores associated with the Coleman Acquisition and Rental King Acquisition.
Advertising expense increased to 4.4% from 4.1% of total revenues. Occupancy
expense increased to $6.0 million from $3.3 million principally due to the
addition of stores associated with the Coleman Acquisition and Rental King
Acquisition, and increased to 6.8% from 6.4% of total revenues. Other operating
expenses increased to $17.8 million from $11.1 million principally due to the
addition of the stores acquired in the Coleman Acquisition and Rental King
Acquisition, but decreased to 20.2% from 21.8% of total revenues.
For the year ended September 30, 1997 as compared to the year ended
September 30, 1996, operating income increased to $13.8 million from $6.7
million, or 107.3%, and increased to 15.7% from 13.0% of total revenues. The
$7.1 million increase in operating income and the 2.7% increase in operating
income as a percentage of total revenues occurred principally because of the
successful integration and conversion of the stores acquired in the 1996
Acquisitions, the Coleman Acquisition and the Rental King Acquisition, the
increase in same-store revenues, and the other factors discussed above.
For the year ended September 30, 1997 as compared to the year ended
September 30, 1996, interest expense increased to $3.1 million from $1.5
million, and increased to 3.6% from 2.9% of total revenues principally due to
borrowings drawn on the Credit Facility in connection with the Coleman
Acquisition and the issuance of the Debentures in connection with the Rental
King Acquisition.
The Company is recording income tax expense based on an effective tax rate
of 44.9%, which is higher than the statutory tax rates, principally due to
amortization expense related to goodwill incurred in connection with certain
acquisitions that is not deductible for tax purposes.
For the year ended September 30, 1997 as compared to the year ended
September 30, 1996, net income increased to $5.4 million from $2.8 million, or
90.2%. The increase, which resulted in net income increasing to 6.2% from 5.6%
of total revenues, was due to the factors discussed above.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1996 AND 1995
For the year ended September 30, 1996 as compared to the year ended
September 30, 1995, total revenues increased to $51.2 million from $28.2
million, or 81.5%. The increase was due to the inclusion of a full year's
results for the stores acquired by the Company in connection with its
acquisition of McKenzie Leasing Corporation on July 21, 1995 (the "McKenzie
Acquisition"), a partial year's operations for the stores acquired in the 1996
Acquisitions and increased same store revenues. The stores acquired in the
McKenzie Acquisition accounted for $19.7 million, or 85.6%, of the increase, the
stores acquired in the 1996 Acquisitions accounted for $2.5 million, or 10.9%,
of the increase, and the Company's same stores accounted for $0.8 million, or
3.5%, of the increase.
For the year ended September 30, 1996 as compared to the year ended
September 30, 1995, total costs and operating expenses increased to $44.5
million from $25.6 million principally as a result of costs and operating
expenses associated with the McKenzie Acquisition and the 1996 Acquisitions, but
decreased to 87.0% from 90.9% of total revenues. This resulted principally from
a decrease in depreciation expense as a percentage of total revenues.
Depreciation expenses related to rental merchandise increased to $13.2 million
from $8.3 million, but decreased to 25.9% from 29.5% of total revenues
principally due to increases in weekly rental rates, lower purchase costs of
rental merchandise due to increased volume, and improved realization of
collectible rent. Amortization of goodwill increased to 1.7% from 1.2% of total
revenues principally because of the increase in goodwill related to the McKenzie
Acquisition. Salaries and wages increased to $13.1 million from $6.9 million
principally due to the addition of the store personnel associated with the
McKenzie Acquisition, the 1996 Acquisitions, and the addition of several
management personnel in the operations, legal, human resources, accounting, and
information systems departments. Salaries and wages were 25.6% and 24.5% of
total revenues for the years ended September 30, 1996 and 1995, respectively.
Advertising expense increased to $2.1 million from $1.3 million principally due
to the addition of stores associated with the McKenzie Acquisition. Advertising
14
<PAGE> 16
expense decreased to 4.1% from 4.5% of total revenues. Occupancy expense
increased to $3.3 million from $1.9 million principally due to the addition of
stores associated with the McKenzie Acquisition, but decreased to 6.4% from 6.7%
of total revenues. Other operating expenses increased to $11.1 million from $6.4
million principally due to the addition of the stores acquired in the McKenzie
Acquisition, but decreased to 21.8% from 22.6% of total revenues.
For the year ended September 30, 1996 as compared to the year ended
September 30, 1995, operating income increased to $6.7 million from $2.6
million, or 157.8%, and increased to 13.0% from 9.1% of total revenues. The $4.1
million increase in operating income and the 3.9% increase in operating income
as a percentage of total revenues occurred principally because of the successful
integration and conversion of the stores acquired in the McKenzie Acquisition,
the increase in same-store revenues, and the factors discussed above.
For the year ended September 30, 1996 as compared to the year ended
September 30, 1995, interest expense increased to $1.5 million from $1.2
million, but decreased to 2.9% from 4.1% of total revenues principally due to
the repayment of $13.2 million of outstanding borrowings under the Company's
credit agreement in March 1996.
The Company is recording income tax expense based on an effective tax rate
of 45.5%, which is higher than the statutory tax rates, principally due to
amortization expense related to goodwill incurred in connection with the
acquisitions that is not deductible for tax purposes.
For the year ended September 30, 1996 as compared to the year ended
September 30, 1995, net income increased to $2.8 million from $1.0 million, or
182.3%. The increase, which resulted in net income increasing to 5.6% from 3.6%
of total revenues, was due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On November 22, 1996, the Company entered into the Credit Facility with a
syndicate of banks led by National City Bank, which provides for loans or
letters of credit of up to $40.0 million, subject to formula-based availability.
The syndicate consists of four banks, with National City Bank, LaSalle National
Bank, and Harris Trust and Savings Bank each committed for a ratable share of
27.25% of the facility and Heller Financial, Inc. committed for an 18.25%
ratable share of the facility. The Credit Facility replaced the Company's $15.0
million collateralized credit agreement with First Source Financial LLP. Of the
$40.0 million available under the Credit Facility approximately $7.0 million was
used to refinance previously existing senior indebtedness, and $0.8 million was
used to redeem the remainder of the Company's outstanding Series A Redeemable
Preferred Stock. The Company redeemed the preferred stock at a 25% discount to
face value resulting in a gain of $0.3 million. As of September 30, 1997, the
Company had approximately $19.0 million unused of which approximately $12.0
million was available under the Credit Facility.
On February 6, 1997, the Company completed the private placement of $20.0
million aggregate principal amount of the Debentures. The Debentures are due
February 1, 2007 and are convertible into shares of Common Stock at a conversion
price of $13.37 per share. The Debentures will become subject to redemption at
the option of the Company on February 5, 2000 at a price of 103% of par. The
redemption price will decrease at a rate of 1% per year, reaching a price of
100% of par in the year 2003 and remaining fixed until the date of maturity. The
indebtedness evidenced by the Debentures is subordinated and junior in right of
payment to senior indebtedness, including indebtedness under the Credit
Facility. The Debentures bear an annual interest rate of 7.0% with semi-annual
payments in August and February, beginning August 1, 1997. The Company filed a
registration statement to register the Debentures and the shares of Common Stock
underlying the Debentures for resale with the Securities and Exchange Commission
(the "Commission") on May 9, 1997 and the registration statement became
effective on June 19, 1997. The net proceeds raised on issuance of the
Debentures were used in payment of the purchase price on the Rental King
Acquisition.
On October 8, 1997, the Company exercised its right to convert mandatorily
the Notes. The Notes were convertible by the Company at a conversion price of
$9.94 per share upon the Common Stock trading at a price above $16.50 per share
for 20 consecutive days during any 30-day period. The Notes converted into
704,225 shares of Common Stock, which have been registered for resale pursuant
to a shelf registration statement filed by the Company that became effective in
June 1997. See "Principal and Selling Shareholders."
15
<PAGE> 17
For the year ended September 30, 1997, the Company's net cash provided by
(used in) operating activities was $0.7 million as compared to ($1.2) million
for the year ended September 30, 1996. The increase was principally due to a
$7.2 million increase in rental merchandise purchases offset by a $2.6 million
increase in net income, a $9.1 million increase in non-cash depreciation and
amortization, a $1.5 million decrease in other liabilities, a $1.9 million
decrease in income taxes payable and a $0.5 million increase in deferred income
taxes. The increase in depreciation and amortization and rental merchandise
resulted principally from the Coleman Acquisition and Rental King Acquisition,
which significantly increased the size of the Company.
For the year ended September 30, 1997 as compared to the year ended
September 30, 1996, the Company's net cash used in investing activities
increased from ($10.6) million to ($30.6) million. The increase in net cash used
in investing activities was principally due to the 1997 Acquisitions and the
remodeling and computer conversion costs incurred in connection with the Coleman
Acquisition and Rental King Acquisition.
For the year ended September 30, 1997, as compared to the year ended
September 30, 1996, the Company's net cash provided by financing activities
increased to $30.4 million from $11.1 million. The increase in net cash provided
by financing activities was principally due to the net proceeds received in
connection with the issuance of the Debentures. Historically, the Company's
growth has been financed through internally generated working capital,
borrowings under its available credit facilities and, in connection with
acquisitions, issuance of Common Stock, Preferred Stock and convertible debt.
During the year ended September 30, 1997, the Company's acquisitions were
financed by a combination of cash generated by the issuance of the Debentures
and borrowings under the Credit Facility.
The Company's primary requirements for capital (other than those related to
acquisitions) consist of purchasing additional rental merchandise and replacing
rental merchandise that has been sold or is no longer suitable for rent. The
Company intends to increase the number of stores it operates principally through
acquisitions. Such acquisitions will vary in size and the Company will consider
large acquisitions that could be material to the Company. To provide any
additional funds necessary for the continued pursuit of its growth strategies,
the Company may incur, from time-to-time, additional short and long-term bank or
other institutional indebtedness and may issue, in public or private
transactions, its equity and debt securities, the availability of such financing
to depend upon market and other conditions. There can be no assurance that such
financing will be available on terms acceptable to the Company.
INFLATION
During the year ended September 30, 1997, the cost of rental merchandise,
store lease rental expense and salaries and wages have increased modestly. These
increases have not had a significant effect on the Company's results of
operations because the Company has been able to charge commensurately higher
rental for its merchandise. This trend is expected to continue in the
foreseeable future.
OTHER MATTERS
Effective July 1, 1995, the Company changed its depreciation method for
rental merchandise from the straight-line method to the units of activity method
for new purchases. This change had no significant impact on the Company's
financial position or results of operations.
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" for the year ended September 30,
1995. The adoption of SFAS No. 121 had no impact on the Company's financial
position or results of operations.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation" effective for
transactions entered into in fiscal years that begin after December 19, 1995.
The Company adopted this standard's disclosure-only provisions in fiscal 1996.
The adoption of this standard had no impact on the Company's financial position
or results of operations.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share" effective
for periods ending after December 15, 1997. The Company has disclosed the
estimated impact of SFAS No. 128 on the years ended September 30, 1997, 1996 and
1995.
16
<PAGE> 18
In March 1997, the FASB also issued SFAS No. 129, "Disclosure of
Information about Capital Structure" effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 129 will have no impact on the
Company's financial position and results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" both effective for fiscal years beginning after December
15, 1997. The Company is currently studying the provisions of these statements
and has not adopted such provisions in its financial statements.
17
<PAGE> 19
BUSINESS
GENERAL
The Company offers quality, brand name home entertainment equipment,
furniture, major appliances and jewelry to customers under full-service
rental-purchase agreements that generally allow the customer to obtain ownership
of the merchandise at the conclusion of an agreed upon rental period. The
Company has been engaged in the rental-purchase business since 1981 and as of
September 30, 1997 operated 184 stores in 14 states and the District of
Columbia. Management believes that the Company's rental-purchase arrangements
appeal to a wide variety of customers by allowing them to obtain merchandise
that they might otherwise be unable or unwilling to obtain due to insufficient
cash resources or lack of access to credit or because they have a temporary,
short-term need for the merchandise or a desire to rent rather than purchase the
merchandise.
The Company opened its first store in 1981 and by 1993, as a result of
acquisitions and new store openings, operated 19 stores in three states and had
completed its initial public common stock offering. The Company subsequently
accelerated its acquisition program and, as of September 30, 1997, operated 184
stores in 14 states and the District of Columbia as follows: Ohio (49), Michigan
(28), Pennsylvania (24), New York (20), Indiana (17), Maryland (11), Illinois
(8), Virginia (8), Florida (7), Delaware (4), Colorado (3), West Virginia (2),
Kentucky (1), New Jersey (1) and Washington, D.C. (1). Primarily as a result of
its acquisitions and the improved performance of its stores, the Company's total
revenues and net income increased from $8.4 million and $0.2 million,
respectively, for the year ended September 30, 1993 to $88.0 million and $5.4
million, respectively, for the year ended September 30, 1997. In addition, the
Company's operating income as a percentage of total revenues improved from 8.2%
for the year ended September 30, 1993 to 15.7% for the year ended September 30,
1997.
The Company's principal executive offices are located at 3230 West Lake
Road, Erie, Pennsylvania 16505, and its telephone number is (814) 836-0618.
THE RENTAL-PURCHASE INDUSTRY
APRO, the industry's trade association, estimated that at the end of 1996
the U.S. rental-purchase industry comprised approximately 7,500 stores providing
5.8 million products to 2.9 million households. Management believes that its
customers generally have annual household incomes ranging from $20,000 to
$40,000. APRO estimates that the U.S. rental-purchase industry had gross
revenues of $4.1 billion in 1996. The rental-purchase industry is highly
fragmented. Based on APRO estimates, the ten largest industry participants
account for less than 50% of total industry stores, and the majority of the
industry consists of operations with fewer than 20 stores. Management believes
that the rental-purchase industry is experiencing increasing consolidation due
to, among other factors, the recognition by smaller operators of the increased
operating efficiencies and better competitive position achievable through larger
organizations, greater availability of capital for larger organizations, and the
willingness of an older generation of operators to resolve succession issues
through disposition of the business. Management believes that this trend toward
consolidation of operations in the industry presents an opportunity for the
Company to continue to acquire additional stores on favorable terms. See
"--Business Strategy."
BUSINESS STRATEGY
Management believes that the Company's continued success depends on
successful implementation of the following business strategies:
Acquiring and Opening New Stores. The Company currently intends to expand
its operations by acquiring existing stores and opening new stores, both within
its present market areas and in geographic regions not currently served by the
Company. At present, the majority of that expansion is expected to be
accomplished through acquisitions. The Company believes that acquisitions can
effectively increase the Company's market share while simultaneously expanding
its customer base. In addition, in pursuing its growth strategies, the Company
expects to benefit from both enhanced purchasing power and the ability to
exploit economies of scale for certain fixed operational expenses.
The Company continually reviews acquisition opportunities, and management
believes that a number of acquisition opportunities currently exist. At present,
except for the Ace Rentals acquisition, the Company has no
18
<PAGE> 20
plans, proposals, arrangements or understandings with respect to significant
acquisitions. In identifying targets for acquisition, the Company intends to
focus on operations that complement the Company's existing markets, while
remaining open to the possibility of making acquisitions in other areas. The
Company has not established formal criteria for potential acquisitions.
Generally, however, the Company seeks to acquire rental-purchase businesses that
operate profitably and are located in geographic markets that complement the
Company's existing stores. The Company seeks to acquire such businesses at
purchase prices that will permit the Company a prompt return on its investment
in the form of increased earnings. The Company has no formal policy with respect
to acquisitions with related entities. To date, no related-party acquisitions
have been considered nor does the Company anticipate considering such
acquisitions in the future. Management believes that its senior management has a
level of ability and experience that provides the Company with a competitive
advantage in the evaluation and consummation of acquisition opportunities.
Customer-Focused Philosophy. Management believes that through the
continued adherence to its
"Welcome, Wanted and Important" business philosophy it will increase its new and
repeat customer base, and thus the number of units it has on rent, thereby
increasing revenues and net income. The "Welcome, Wanted and Important"
philosophy is a method by which the Company seeks to create a store atmosphere
conducive to customer loyalty. The Company attempts to create this atmosphere
through the effective use of advertising and merchandising strategies, by
maintaining the clean and well-stocked appearance of its stores, and by
providing a high level of customer service (such as the institution of a
1-800-RENTWAY complaint and comment line). The Company's advertising emphasizes
brand name merchandise from leading manufacturers. In addition, merchandise
selection within each product category is periodically updated to incorporate
the latest offerings from suppliers. Services provided by the Company to the
customer include home delivery, installation, ordinary maintenance and repair
services and pick-up during the term of the contract at no additional charge.
Store managers also work closely with each customer in choosing merchandise,
setting delivery dates and arranging a suitable payment schedule. As part of the
"Welcome, Wanted and Important" philosophy, store managers are empowered,
encouraged and trained to make decisions regarding store operations subject only
to certain Company-wide operating guidelines and general policies. All acquired
stores are promptly evaluated and, if necessary, remodeled. Personnel of
acquired stores are also evaluated for their ability to operate in accordance
with the Company's customer-focused philosophy.
Expanding the Company's Product Lines. One of the Company's principal
strategies is to provide the rental-purchase customer with the opportunity to
obtain merchandise of higher quality than the merchandise available from its
competitors on competitive terms. To this end, the Company attempts to maintain
a broad selection of products while emphasizing higher priced merchandise. The
Company intends to continue expanding its offerings of higher priced products in
all product areas. Management believes that previous offerings of higher priced
products have succeeded in both increasing the Company's profitability and
attracting new customers to the Company's existing stores. In addition, the
Company selectively tests new merchandise. Management believes that
opportunities exist to provide additional or non-traditional merchandise to its
customers.
Monitoring Store Performance. Each store is provided with a management
information system that allows management to track rental and collection
activity on a daily basis. The system generates detailed reports that track
inventory movement by piece and by product category and the number and frequency
of past due accounts and other collection activity. In addition, physical
inventories are regularly conducted at each store to ensure the accuracy of the
management information system data. Senior management monitors this information
to ensure adherence to established operating guidelines. Management believes the
Company's proprietary management information systems enhance its ability to
monitor and affect the operating performance of existing stores and to integrate
and improve the performance of newly acquired stores.
Results-Oriented Compensation. Management believes that an important
reason for the Company's positive financial performance and growth is the
structure of its management compensation system, which provides incentives for
both regional and store managers to increase both store revenues and operating
profits. A significant portion of the Company's regional and store managers'
total compensation is dependent upon store performance. As further incentive,
the Company grants its managers stock options in the Company. Management
believes that the Company's emphasis on incentive-based compensation is
instrumental in the Company's ability to attract, retain and motivate its
regional and store managers.
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<PAGE> 21
Manager Training. Management believes that well-trained store managers are
important to the Company's efforts to maximize individual store performance. The
Company employs one full-time trainer who conducts classroom programs in the
areas of sales, store operations and personnel management. These training
programs often continue for several months and culminate in an exam. The Company
requires its managers to attend, at the Company's expense, leadership and
management programs offered by leading management and organization experts.
OPERATIONS
Company Stores. As of September 30, 1997, the Company operated 184 stores
in 14 states and the District of Columbia and, assuming consummation of the Ace
Rentals acquisition, will operate 234 stores in 16 states and the District of
Columbia as depicted below:
[A PARTIAL MAP OF THE UNITED STATES THAT INDICATES BY NUMBERS SET IN STARS THE
STATES IN WHICH THE COMPANY OPERATES STORES AND BY NUMBERS SET IN CIRCLES THE
STATES IN WHICH THE COMPANY MAY OPERATE STORES ON CONSUMMATION OF A PENDING
ACQUISITION.]
The Company's stores average approximately 3,000 square feet in floor space and
are generally located in strip shopping centers in or near low to middle income
neighborhoods. The Company's stores are generally consistent in interior
appearance and design and display of available merchandise. In selecting store
locations, the Company uses a variety of market information sources to locate
areas of a town or city that are readily accessible to low and middle income
consumers. Generally, the Company refurbishes its stores every two to three
years. A Company store normally employs one store manager, one assistant
manager, two account managers, one full-time office manager, and one full-time
delivery and installation technician.
Product Selection. The Company offers brand name home entertainment
equipment, furniture, major appliances and jewelry. The Company's product line
currently includes the Zenith, RCA, Pioneer and JVC brands in home entertainment
equipment, the Ashley brand in furniture, and the Kenmore and Crosley brands in
major appliances. The Company closely monitors customer rental requests and
adjusts its product mix to offer rental merchandise desired by customers. For
the year ended September 30, 1997, the contribution to rental revenues of the
individual product categories was approximately as follows: home entertainment
products--44.1%, furniture--27.4%, appliances--24.5%, jewelry--2.8%, and other
items--1.2%. Weekly rentals currently range from $4.99 to $59.99 for home
entertainment equipment, from $1.99 to $49.99 for furniture, from $3.99 to
$36.99 for major appliances, and from $1.99 to $34.99 for jewelry.
Rental-Purchase Agreements. Merchandise is provided to customers under
standard form rental-purchase agreements that are reviewed by legal counsel and
customized to meet the legal requirements of the various states in which they
are used. Customers rent merchandise on a week-to-week basis, or to a lesser
extent, on a month-
20
<PAGE> 22
to-month basis, with rent payable in advance. The customer may terminate the
agreement at any time, in which case the merchandise is returned to the store
and is then available for rent to another customer. The Company retains title to
the merchandise during the term of the rental-purchase agreement. If a customer
rents merchandise for a sufficient period of time, usually 12 to 24 months,
ownership is transferred to the customer without further payments being
required. Rental payments are typically made in cash or by check or money order.
The Company does not extend credit. See "--Government Regulation."
Product Turnover. Generally, a minimum rental term of between 12 and 24
months is required to obtain ownership of new merchandise. Based upon
merchandise returns for the year ended September 30, 1997, the Company believes
that the average period of time during which customers rent merchandise is 16 to
17 weeks. However, turnover varies significantly based on the type of
merchandise being rented, with certain consumer electronic products, such as
camcorders and VCRs, generally being rented for shorter periods, while
appliances and furniture are generally rented for longer periods. During the
year ended September 30, 1997, the average monthly number of idle rental
merchandise items as a percentage of the average monthly total number of rental
merchandise items was 27.7% and average monthly dollar value of idle rental
merchandise items as a percentage of the average monthly dollar value of total
items was 19.8%.
Customer Service. Through its "Welcome, Wanted and Important" business
philosophy, the Company believes it is able to increase its new and repeat
customer base. Management believes that a significant percentage of its business
is repeat customers. The Company offers same day delivery, installation and
pick-up of its merchandise at no additional cost to the customer. The Company
also provides any required service or repair without charge, except for damage
in excess of normal wear and tear. If the product cannot be repaired at the
customer's residence, the Company provides a temporary replacement while the
product is being repaired.
Collections. Management believes that effective collection procedures are
important to the Company's success in the rental-purchase business. Senior
management, as well as store managers, use the Company's computerized management
information system to monitor cash collections on a daily basis. When a
customer's payment is late, the Company's policy is to contact the customer
promptly to determine the customer's ability to pay. If an item on rent is not
returned or payment thereon is not received within 90 days of its due date, the
Company's policy is to charge-off the item. Charge-offs due to lost or stolen
merchandise were approximately 3.0% and 2.7% of the Company's revenues for the
years ended September 30, 1997 and 1996, respectively. The charge-off rate for
chains with over 20 stores reporting to APRO in 1996 was 2.9%.
Purchasing and Distribution. The Company's general product mix is
determined by senior management, based on an analysis of customer rental
patterns and introduction of new products on a test basis. Individual store
managers are responsible for determining the particular product selection for
their store from a list of products approved by senior management. All purchase
orders are executed through regional managers and the Company's purchasing
department to insure that inventory levels and mix throughout the store regions
are appropriate. Merchandise is generally shipped by vendors directly to each
store, where it is held for rental.
Marketing. The Company promotes its products and services primarily
through direct mail and, in certain markets, through television advertising,
and, to a lesser extent, through radio and secondary print media advertising.
The Company's print advertisements emphasize product and brand name selection,
prompt delivery and repair, and the absence of any downpayment, credit
investigation or long-term obligation. The Company has recently begun dedicating
an increasing percentage of its marketing dollars to television advertising to
build name recognition in markets where it is economically attractive to do so.
Management. The Company's stores are organized geographically with several
levels of management. Each store manager reports to one of 25 regional managers
each of whom typically oversees six to eight stores. Regional managers are
primarily responsible for monitoring individual store performance and inventory
levels within their respective regions. The Company's regional managers report
to four directors of operations, located at the Company's headquarters, who
monitor the operations of their respective regions and, through the regional
managers, individual store performance. The directors of operations report to
the Chief Operating Officer who is responsible for Company-wide store
operations.
21
<PAGE> 23
MANAGEMENT INFORMATION SYSTEM
The Company believes that its proprietary management information system
provides it with a competitive advantage over many small rental-purchase
operations. The Company uses an integrated computerized management information
and control system to track each unit of merchandise and each rental-purchase
agreement. The Company's system also includes extensive management software and
report generating capabilities. Each store is equipped with a computer system
that tracks individual components of revenue, idle items, items on rent,
delinquent accounts and other account information. Management electronically
gathers each day's activity report through the computer located at the
headquarters office. Utilizing the management information system, senior
management, regional managers and store managers can closely monitor the
productivity of stores under their supervision compared to Company-prescribed
guidelines. Reports for all stores are reviewed daily by senior management and
any irregularities are addressed the following business day. The Company
believes its management information system is adequate to meet its needs for the
foreseeable future.
GOVERNMENT REGULATION
Forty-five states have enacted laws specifically regulating the
rental-purchase transaction, including all the states in which the Company's
stores are located except New Jersey, where the Company operates only one store
(which the Company intends to close or relocate out of state by the end of the
year.) These laws generally require certain contractual and advertising
disclosures concerning the nature of the transaction and also provide varying
levels of substantive consumer protection, such as requiring a grace period for
late payments and contract reinstatement rights in the event the agreement is
terminated for non-payment. The rental-purchase laws of some states, including
Michigan, New York, Ohio, Pennsylvania and West Virginia limit the total dollar
amount of rentals that may be charged over the life of the rental-purchase
agreement. The District of Columbia, where the Company operates one store,
currently has no laws specifically regulating a rental-purchase transaction. The
District of Columbia is subject to federal consumer credit laws of general
application that the Federal Reserve Board of Governors and the federal courts
have interpreted as not to apply to a rental-purchase transaction as offered by
the Company. If the Company acquires or opens new stores in states in which it
does not currently operate, the Company will become subject to the
rental-purchase laws of such states, if any. The Company prefers to operate its
stores in those states that have enacted laws specifically regulating the
rental-purchase transaction as such laws provide the Company with a measure of
certainty regarding its legal obligations to its customers, unlike states in
which no such laws have been enacted. There can be no assurance against the
enactment of new or revised rental-purchase laws that would have a material
adverse effect on the Company.
No federal legislation has been enacted regulating or otherwise impacting
the rental-purchase transaction. From time to time legislation has been
introduced in Congress that would regulate the rental-purchase transaction,
including legislation that would subject the rental-purchase transaction to
interest rate, finance charge and fee limitations, as well as the Federal Truth
in Lending Act. As the rental-purchase transaction is not currently subject to
any such limitations, any such federal legislation, if enacted, could have a
material adverse effect on the Company. See "Risk Factors--Risks Associated with
Significant Government Regulation of the Rental-Purchase Industry."
The Company instructs its managers in the procedures required pursuant to
applicable law through training seminars and policy manuals and believes that it
has operated in compliance with the requirements of applicable law in all
material respects. In addition, the Company provides its customers with a
toll-free number, 1-800-RENTWAY, to telephone corporate headquarters to report
any irregularities in service or misconduct by its employees. Any such calls are
reviewed daily and are the subject of immediate follow-up investigation by
senior management.
RELATED PARTY TRANSACTIONS
Although the Company has in the past and may in the future enter into
transactions with related parties, the Company has adopted no formal policies,
procedures or controls with respect to such transactions. Generally, however,
the Company requires that any transactions with related entities be on terms no
less favorable to the Company than would be available from an unrelated third
party.
22
<PAGE> 24
RECENT DEVELOPMENTS
Pending Acquisition of Ace Rentals. On October 6, 1997, the Company signed
a letter of intent to acquire substantially all of the assets of Ace Rentals.
Ace Rentals' business is operated through three affiliated corporations and
consists of 46 stores in South Carolina and four stores in California. The
purchase price for the Ace Rentals assets is estimated to be approximately $24.5
million. The Company expects to consummate the Ace Rentals acquisition in early
January 1998. If consummated, the Ace Rentals acquisition will give the Company
an expanded presence in the southeast United States, which management believes
is a growing market for the rental-purchase business.
Consummation of the Ace Rentals acquisition is subject to certain
significant conditions, including (i) negotiating a definitive purchase
agreement, (ii) the Company completing an acceptable due diligence review; (iii)
the acquired business meeting certain financial tests as of closing; (iv) the
Company obtaining necessary consents to the assignment of the rental-purchase
store leases; (v) the Company obtaining the consent of the lenders under the
Credit Facility; and (vi) other customary closing conditions. There can be no
assurance that the Ace Rentals acquisition will be consummated, or if
consummated, that its operations will be successfully integrated into the
Company. See "Risk Factors--Risks Associated with Pending Ace Rentals
Transaction."
Mandatory Conversion of the Company's $7.0 million 10% Convertible
Subordinated Notes due 2002. On October 8, 1997, the Company exercised its
right to convert mandatorily the Notes into an aggregate of 704,225 shares of
Common Stock. The Notes were mandatorily convertible by the Company at a
conversion price of $9.94 per share upon the Common Stock trading at a price
above $16.50 per share for 20 consecutive days during any 30-day period. As of
September 18, 1997, the Common Stock had traded at a price sufficient to meet
the requirements for mandatory conversion and the Company promptly gave notice
to the holders of the Notes of the exercise of its mandatory conversion right.
The shares of Common Stock received by the holders on conversion of the Notes
have been registered for resale pursuant to a shelf registration statement filed
by the Company that became effective in June 1997.
23
<PAGE> 25
MANAGEMENT
Certain information regarding the directors and executive officers of the
Company is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------
<S> <C> <C>
Gerald A. Ryan(1).................... 62 Chairman of the Board and Director
William E. Morgenstern(1)............ 39 President, Chief Executive Officer and
Director
William Lerner(2).................... 61 Director and Secretary
Vincent A. Carrino................... 38 Director
Robert B. Fagenson(2)................ 47 Director
Marc W. Joseffer..................... 49 Director
Jeffrey A. Conway.................... 40 Vice President and Chief Financial Officer
Ronald D. DeMoss..................... 46 Vice President and General Counsel
Kirk R. Smithee...................... 34 Chief Operating Officer
</TABLE>
- ---------
(1) Member of Executive Committee of Board of Directors.
(2) Member of Audit and Compensation Committees of Board of Directors.
Gerald A. Ryan, a founder of the Company, has served as Chairman of the
Board of the Company since its formation in 1981. Mr. Ryan has also been
instrumental in the formation of several other companies, including Spectrum
Control, Inc., a company listed on the Nasdaq National Market, which produces
electronic components. He presently serves as Chairman of the Board of Spectrum
Control, Inc. In 1986, Mr. Ryan acquired Skinner Engine Company, a
privately-held company, which manufactures and rebuilds mixers for use in the
rubber industry, and serves as Chairman of the Board of that company.
William E. Morgenstern, a founder of the Company, has served as its
President and Chief Executive Officer since its formation in 1981. Mr.
Morgenstern began his rental-purchase industry career with Rent-A-Center in 1979
in Ft. Worth, Texas. While employed by Rent-A-Center, he held the positions of
store manager and district manager for Pennsylvania and New York. Mr.
Morgenstern is former President of the Pennsylvania Association of Rental
Dealers ("PARD"), a trade association that monitors activities in the state
legislature that affect the rental-purchase industry. From 1986 to 1988, he
served on the Board of Directors of APRO, the rental-purchase industry's
national trade association.
William Lerner has been a director of the Company since November 1992 and
its Secretary since January 1993. Mr. Lerner, a practicing attorney in New York
since 1961 and in Pennsylvania since 1990, is of counsel to Snow Becker Krauss
P.C., New York, New York. Mr. Lerner is also a director of Seitel, Inc., a
company listed on the New York Stock Exchange ("NYSE") that develops and
maintains a seismic data bank for the oil and gas industry, Helm Resources,
Inc., a company listed on the American Stock Exchange with interests in the
packaging and distribution of plastic resins, the distribution of films to cable
television companies and asset based lending activities and
Micros-to-Mainframes, Inc., a company listed on the Nasdaq National Market that
is a provider and systems integrator of advanced technology communications
products and Internet services. From 1986 to 1989, Mr. Lerner was General
Counsel to The Geneva Companies, which provides merger and acquisition services
to privately-owned middle market companies, and from 1989 to 1990 was General
Counsel to Hon Development Company, a southern California real estate
development company.
Vincent A. Carrino has been director since January 1995 when he was elected
by the Board for a one-year term expiring in 1996. At the 1996 Annual Meeting of
Shareholders, Mr. Carrino was elected as a Class III director of the Company
whose term expires in 1998. Mr. Carrino founded Brookhaven Capital Management,
Inc., an investment management company headquartered in Menlo Park, California,
in 1986 and has been its President since that date.
Robert B. Fagenson has been a director since August 1993. He has, for more
than the past five years, been President and a director of Fagenson & Co., Inc.,
a NYSE specialist firm, and a Vice President and director of Starr Securities,
Inc., a registered broker-dealer and member of the NYSE. Mr. Fagenson is also a
director of the NYSE, of Healthy Planet Products, Inc., a company listed on the
American Stock Exchange that designs,
24
<PAGE> 26
publishes and markets greeting cards, Hudson Hotel Corporation (formerly
Microtel Franchise and Development Corporation), a company listed on the Nasdaq
National Market and a developer of economy lodging facilities and owner and
operator of hotel, motel and resort properties, AutoInfo, Inc., a company listed
on the Nasdaq National Market and a dealer in computerized products and services
for after-market motor vehicle parts, and Nu-Tech Biomedical, Inc., a company
listed on the Nasdaq Small-Cap Market that researches medicines for the
treatment of cancer.
Marc W. Joseffer has been a director of the Company since May 1994 and was
employed by the Company in various management positions from May 1994 through
October 1996. For more than five years prior thereto, he was Vice President and
a principal shareholder of D.A.M.S.L. Corp., a privately-owned company engaged
in the rental-purchase industry. D.A.M.S.L. Corp. was acquired by the Company in
May 1994, at which time Mr. Joseffer was elected a director of the Company by
the Board.
Jeffrey A. Conway was employed by the Company as a financial advisor from
February 1992 through September 1992 and in October 1992 was appointed Vice
President and Chief Financial Officer. He served as Chief Financial Officer of
Rentclub, Inc., a 17 store rental-purchase chain, from June 1990 through
November 1991. From May 1979 through June 1987 and from July 1987 to October
1989, Mr. Conway was employed by the independent accounting firms of Coopers &
Lybrand and Ernst & Young, respectively, as an Audit Manager. Mr. Conway is a
certified public accountant.
Ronald D. DeMoss was elected Vice President and General Counsel of the
Company in February 1996. From June 1990 through November 1995, Mr. DeMoss was
employed as a corporate counsel for Rent-A-Center and, in such capacity, was
involved in the enactment of rental-purchase legislation in 11 states. During
1995, Mr. DeMoss also served as Rent-A-Center's Director of Government
Relations. In August 1996, Mr. DeMoss was elected to APRO's Board of Directors
for a two-year term. Mr. DeMoss also serves on APRO's Government Relations
Committee. From 1981 through 1990, Mr. DeMoss was a practicing attorney in
Wichita, Kansas.
Kirk R. Smithee was hired by the Company in September 1995 as a regional
manager, in July 1996 was named a director of operations and in October 1997 was
promoted to Chief Operating Officer. From September 1987 through September 1995,
Mr. Smithee served in various management positions with Rent-A-Center, including
field training manager, district manager and regional manager.
25
<PAGE> 27
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of November 5, 1997 certain information
regarding beneficial ownership of the Common Stock by (i) each director and
executive officer of the Company, (ii) all directors and executive officers of
the Company as a group, (iii) each person known by the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock, and
(iv) each Selling Shareholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THE BENEFICIAL OWNERSHIP
OFFERING(2) NUMBER OF AFTER THE OFFERING(2)
--------------------- SHARES BEING ---------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Gerald A. Ryan(3)..................... 680,576 8.6% -- 680,576 6.5%
William E. Morgenstern................ 510,525 6.5 40,000 470,525 4.5
Marc W. Joseffer...................... 121,442 1.6 -- 121,442 1.2
William Lerner........................ 48,000 * -- 48,000 *
Vincent A. Carrino.................... 50,000 * -- 50,000 *
Robert B. Fagenson(4)................. 214,000 2.7 -- 214,000 2.1
Jeffrey A. Conway..................... 133,500 1.7 20,000 113,500 1.1
Ronald D. DeMoss...................... 13,250 * -- 13,250 *
Kirk R. Smithee....................... 7,375 * -- 7,375 *
Directors/Executive Officers as a
group (9 persons)................... 1,778,668 21.7 60,000 1,718,668 16.0
Massachusetts Mutual Life Insurance
Company and affiliates(5)........... 809,225 10.3 -- 809,225 7.8
1295 State Street
Springfield, Massachusetts 01111
Starr Securities, Inc.(6)(7).......... 7,000 * 7,000 -- --
Michael A. Bauer(6)(7)................ 6,000 * 6,000 -- --
Michael Bowe(6)(7).................... 10,250 * 10,250 -- --
Robert Postma(6)(7)................... 4,000 * 4,000 -- --
------
87,250
======
</TABLE>
- ---------
*Less than 1%
(1) Unless otherwise indicated, the address for all persons listed above is c/o
Rent-Way, Inc., 3230 West Lake Road, Erie, Pennsylvania 16505.
(2) Includes shares issuable upon exercise of stock options and warrants which
are currently exercisable or which will become exercisable within 60 days.
(3) Includes 112,500 shares owned by the Ryan Children's Trust of 1993, of which
Mr. Ryan is sole trustee.
(4) Includes 6,000 shares owned by the Fagenson & Co., Inc. Employee Pension
Plan and Trust, of which Mr. Fagenson is a co-trustee.
(5) Includes 105,000 shares of Common Stock issuable on the exercise of certain
warrants.
(6) The address for such owner is 19 Rector Street, New York, New York 10006.
(7) Represents shares of Common Stock underlying warrants that are currently
exercisable, which shares will be offered in the Offering.
26
<PAGE> 28
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 10,299,863 shares
of Common Stock outstanding and will have reserved for issuance (i) 186,000
shares of Common Stock issuable upon the exercise of outstanding warrants (of
which warrants covering 105,000 shares have an exercise price of $9.94 per share
and warrants covering 81,000 shares have an exercise price of $6.76 per share),
(ii) 1,495,886 shares of Common Stock issuable upon conversion of the Debentures
(at a conversion price of $13.37 per share) and (iii) 1,264,640 shares of Common
Stock issuable upon exercise of outstanding stock options (at exercise prices
ranging from $4.67 to $18.13 per share). Of the 10,299,863 shares outstanding,
6,516,647 shares are currently traded or available for sale in the open market,
and all of the 2,587,250 shares sold in the Offering (2,975,338 shares if the
Underwriters' over-allotment option is exercised in full), will be freely
tradeable without restriction or further registration under the Securities Act,
unless acquired by an "affiliate" of the Company as that term is defined in Rule
144 described below. All of the shares of Common Stock issuable upon exercise of
the warrants, all of the shares of Common Stock issuable on conversion of the
Debentures and 639,736 of the shares of Common Stock issuable on exercise of the
stock options described above will similarly be freely tradeable upon issuance
as such shares are registered for resale by the holders thereof under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
1,255,966 shares outstanding, which are held by directors and executive officers
of the Company, are subject to the restrictions of Rule 144. The Company's
directors and executive officers and Massachusetts Mutual Life Insurance Company
and certain of its affiliates ("MassMutual") have agreed pursuant to certain
lock-up agreements entered into in connection with the Offering not to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for shares of Common Stock for a period of
90 days following the date of this Prospectus without the consent of NationsBanc
Montgomery Securities, Inc. All of such shares will become eligible for sale in
the public market after expiration of these lockup agreements, subject to the
provisions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned restricted shares for
at least one year or an affiliate of the Company is entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent (1%) of the then outstanding shares of the Common Stock or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale, provided certain manner and notice of sale requirements and
requirements as to the availability of current public information about the
Company are satisfied. A person who is deemed not to have been an affiliate of
the Company at any time during the 90 days preceding a sale of restricted shares
by such person, and who has beneficially owned such shares for two years would
be entitled to sell such shares without regard to the availability of current
public information and the volume limitations described above. The Company is
unable to predict the effect that sales made under Rule 144, pursuant to future
registration statements, or otherwise, may have on any then prevailing market
price for shares of the Common Stock. Nevertheless, sales of a substantial
amount of Common Stock in the public market, or the perception that such sales
could occur, could adversely affect market prices.
The Company also has agreed not to offer, sell, contract to sell, or
otherwise dispose of any shares of Common Stock or securities convertible into
or exchangeable or exercisable for shares of Common Stock for a period of 90
days following the date of this Prospectus without the prior written consent of
NationsBanc Montgomery Securities, Inc., except that the Company, without such
consent, may grant stock options and issue Common Stock upon exercise of the
warrants or the stock options or the conversion of the Debentures described
above.
27
<PAGE> 29
UNDERWRITING
The underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions contained in the underwriting agreement
among the Company, the Selling Shareholders and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock indicated below opposite their
respective names, at the public offering price less the underwriting discount
set forth on the cover page of this Prospectus. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters are committed to purchase all of
the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
NationsBanc Montgomery Securities, Inc. .........................................
Rauscher Pierce Refsnes, Inc. ...................................................
The Robinson-Humphrey Company, LLC...............................................
---------
Total....................................................................... 2,587,250
=========
</TABLE>
The Underwriters have advised the Company and the Selling Shareholders that
the Underwriters propose initially to offer the shares of Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow selected dealers a concession of not more than $ per
share, and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After the
Offering, the public offering price and other selling terms may be changed by
the Underwriters. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 338,088 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 2,587,250 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise this option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
Each director and executive officer of the Company and MassMutual have
agreed that for a period of 90 days following the date of this Prospectus, that
they will not, directly or indirectly, offer to sell, sell, contract to sell or
otherwise sell or dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for shares of Common Stock
without the consent of NationsBanc Montgomery Securities, Inc. The Company has
agreed not to offer to sell, sell, contract to sell or otherwise dispose of any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock for a period of 90 days from the date of
this Prospectus without the prior written consent of NationsBanc Montgomery
Securities, Inc. except that the Company may, without such consent, grant stock
options and issue shares of Common Stock upon exercise of outstanding stock
options and warrants and conversion of the Debentures.
Certain persons participating in the Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market. Such transactions may include stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting any purchase for the purpose of pegging, fixing
or maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the Offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
Offering when
28
<PAGE> 30
shares of Common Stock sold by the syndicate member are purchased in syndicate
covering transactions. Such transactions may be effected on the Nasdaq National
Market, in the over-the-counter market, or otherwise.
In connection with the Offering, the Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in the Offering, in accordance
with Rule 103 of Regulation M under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Passive market making consists of displaying bids
on the Nasdaq National Market limited by the bid prices of independent market
makers and purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified prior period and must be discontinued
when such limit is reached. Passive market making may stabilize the market price
of the Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters relating to the validity of the Common Stock offered
hereby will be passed upon for the Company and the Selling Shareholders by
Hodgson, Russ, Andrews, Woods & Goodyear LLP, Buffalo, New York. Certain legal
matters will be passed upon for the Underwriters by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), New
York, New York. Fried, Frank, Harris, Shriver & Jacobson will rely on the
opinion of Hodgson, Russ, Andrews, Woods & Goodyear LLP with respect to matters
of Pennsylvania law.
EXPERTS
The balance sheets as of September 30, 1997 and 1996 and the related
statements of income, shareholders' equity and cash flows for the years ended
September 30, 1997, 1996 and 1995 of Rent-Way, Inc. incorporated by reference
into this Prospectus and the registration statement of which this Prospectus
forms a part from the Company's Annual Report on Form 10-K for the year ended
September 30, 1997 have been incorporated herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to the
registration of the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. Statements contained in this
Prospectus or in any document incorporated by reference herein as to the
contents of any contract or other documents referred to herein or therein are
not necessarily complete and, in each instance, reference is made to the copy of
such documents filed as an exhibit to the Registration Statement or such other
documents, which may be obtained from the Commission as indicated above upon
payment of the fees prescribed by the Commission. Each such statement is
qualified in its entirety by such reference.
The Company is subject to the informational reporting requirements of 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 may be inspected at the public reference
facilities of the Commission located at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the New York Regional Office of the Commission, Seven
World Trade Center, Suite 1300, New York, New York 10048, and at the Chicago
Regional Office of the Commission, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. In addition, the Common Stock is
29
<PAGE> 31
traded on the Nasdaq National Market and the Company's reports, proxy statements
and information statements and other information filed with the Nasdaq National
Market can be inspected at the offices of the Nasdaq National Market, 1735 K
Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated by reference into this Prospectus:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997; and
(ii) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated August 19, 1993, including any
amendment or report filed for the purpose of updating such description.
In addition, 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
and prior to termination of the Offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date such
document is filed with the Commission.
Any statement contained herein, or any document, all or a portion of which
is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Prospectus to the extent that a statement contained herein, or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of the Registration Statement or this Prospectus. All
information appearing in this Prospectus is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in the
documents incorporated herein by reference.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents (other than exhibits thereto,
unless such exhibits are specifically incorporated by reference therein) are
available without charge, upon written or oral request by any person to whom
this Prospectus has been delivered, from Jeffrey A. Conway, Chief Financial
Officer, Rent-Way, Inc., 3230 West Lake Road, Erie, Pennsylvania 16505,
telephone number (814) 836-0618.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Prospectus, and in documents
incorporated by reference herein, are forward-looking statements within the
meaning of Section 27A(i) of the Securities Act and Section 21E(i) of the
Exchange Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which 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 any such
forward-looking statements. Such factors include, among other things, the
ability of the Company to acquire additional rental-purchase stores on favorable
terms, the ability of the Company to improve the performance of such acquired
stores and to integrate such stores profitably into the Company's existing
operations, and the impact of state and federal laws, including new legislation,
regulating or otherwise affecting the rental-purchase transaction, as well as
other factors set forth in this Prospectus.
30
<PAGE> 32
[AT THE TOP OF THIS PAGE IS A PICTURE OF THE OUTSIDE OF A COMPANY STORE WITH A
COMPANY TRUCK PARKED IN FRONT OF SUCH STORE. THE COMPANY'S LOGO IS PROMINENTLY
DISPLAYED ON THE SIDE OF THE TRUCK. AT THE BOTTOM OF THIS PAGE IS A PICTURE OF
THE INSIDE OF A COMPANY STORE DISPLAYING A SELECTION OF FURNITURE.]
<PAGE> 33
======================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations in connection with this Offering
other than those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriter. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
securities to which it relates or an offer to, or a solicitation of, any person
in any jurisdiction in which such an offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 9
Price Range of Common Stock........... 9
Dividend Policy....................... 9
Capitalization........................ 10
Selected Historical Financial
Information and Operating Data...... 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 12
Business.............................. 18
Management............................ 24
Principal and Selling Shareholders.... 26
Shares Eligible for Future Sale....... 27
Underwriting.......................... 28
Legal Matters......................... 29
Experts............................... 29
Available Information................. 29
Incorporation of Certain Documents by
Reference........................... 30
Forward-Looking Statements............ 30
</TABLE>
======================================================
======================================================
2,587,250 SHARES
RENTWAY LOGO
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
NATIONSBANC MONTGOMERY
SECURITIES, INC.
RAUSCHER PIERCE REFSNES, INC.
THE ROBINSON-HUMPHREY
COMPANY
, 1997
======================================================
<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be incurred in connection with the Offering are set forth
below (other than underwriting commissions and discounts). The Selling
Shareholders will not pay any expenses of the Offering.
<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 15,328
NASD filing fee................................................................... 5,559
Accounting fees and expenses...................................................... 25,000
Printing and mailing.............................................................. 75,000
Legal fees and expenses........................................................... 75,000
Blue sky fees and expenses........................................................ 15,000
Nasdaq National Market listing fee................................................ 17,500
Miscellaneous..................................................................... 21,613
--------
Total........................................................................... $250,000
========
</TABLE>
- ---------
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The provisions of Sections 1741 through 1750 of the Pennsylvania Business
Corporation Law provide that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any action
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a representative of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
the action or proceeding if they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation. To the extent that a representative of the corporation has been
successful on the merits or otherwise in defense of any action or proceeding or
in defense of any claim, issue or matter therein, the corporation is required by
the Pennsylvania Business Corporation Law to indemnify them against expenses
actually and reasonably incurred by them in connection with such defense.
The Company's By-Laws provide that it shall indemnify its officers and
directors against claims arising from actions taken in their official capacity
except where the conduct giving rise to the claim is finally determined by a
court or in arbitration to have constituted willful misconduct or recklessness
or to have involved the receipt from the Company of a personal benefit to which
the officer or director was not entitled, or where such indemnification has been
determined in a final adjudication to be unlawful. The Company may create a
fund, trust or other arrangement to secure the indemnification. In addition, the
Company is required to pay the expenses of defending the claim in advance of
final adjudication upon the receipt of an undertaking by the officer or director
to repay such advanced amounts if it is ultimately determined that the officer
or director is not entitled to be indemnified. These provisions of the By-Laws
are expressly permitted pursuant to the Pennsylvania Business Corporation Law.
II-1
<PAGE> 35
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
4.1(1) Articles of Incorporation of the Company, as amended
4.2(2) By-Laws of the Company, as amended
4.3(1)* Credit Agreement dated November 22, 1996 by and among the Company, the banks
parties thereto and National City Bank of Pennsylvania, as agent, as amended
4.4(3)* Form of the Company's 7% Convertible Subordinated Debentures due 2007 (the
"Debentures")
4.5(3)* Indenture, dated as of February 4, 1997, between the Company and Manufacturers
and Traders Trust Company, as trustee, in respect of the Debentures
5.1 Opinion of Hodgson, Russ, Andrews, Woods & Goodyear, LLP
23.1 Consent of Hodgson, Russ, Andrews, Woods & Goodyear, LLP (included in Exhibit
5.1)
23.2 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (included on signature page to this Registration Statement)
</TABLE>
- ---------
* None of the other indebtedness of the Company exceeds 10% of its total
consolidated assets. The Company will furnish copies of the agreements
relating to such other indebtedness to the Securities and Exchange Commission
upon request.
(1) Previously filed, on November 6, 1997, as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 30, 1997.
(2) Previously filed, on December 8, 1992, as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 30, 1992.
(3) Previously filed, on May 9, 1997, as an exhibit to the Company's
Registration Statement on Form S-3 (No. 333-26835).
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The Company also hereby undertakes that:
(1) For purposes of determining any liability, under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.
(c) The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or Section 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.
II-2
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company certifies
that it has reasonable grounds to believe that it meets all of the requirements
of filing on Form S-3 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized in the City of
Erie, Commonwealth of Pennsylvania, on November 6, 1997.
RENT-WAY, INC.
By: /s/ WILLIAM E. MORGENSTERN
------------------------------------
William E. Morgenstern, President
POWER OF ATTORNEY
Each person who signature appears below hereby constitutes and appoints
each of William E. Morgenstern and Jeffrey A. Conway, with full power to act
without the other, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, to sign any
and all applications, registration statements, notices and other documents
necessary or advisable to comply with the applicable state securities laws, and
to file the same, together with all other documents in connection therewith,
with the appropriate state securities authorities, granting unto said
attorneys-in-fact and agents or any of them, or their or his substitutes or
substitute, full power and authority to perform and do each and every act and
thing necessary and advisable as fully to all intents and purposes and he might
or could perform and do in person, thereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof, including,
without limitation, the taking of any and all actions in connection with the
filing of any registration statement filed pursuant to Rule 462 under the
Securities Act with respect to this Offering.
In accordance with the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in the
capacities and on the date stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ GERALD A. RYAN Chairman of the Board November 6, 1997
- --------------------------------------- and Director
Gerald A. Ryan
/s/ WILLIAM E. MORGENSTERN President, Chief Executive November 6, 1997
- --------------------------------------- Officer and Director
William E. Morgenstern (Principal Executive Officer)
/s/ JEFFREY A. CONWAY Vice President and Chief Financial November 6, 1997
- --------------------------------------- Officer (Principal Financial and
Jeffrey A. Conway Accounting Officer)
/s/ MARC W. JOSEFFER Director November 6, 1997
- ---------------------------------------
Marc W. Joseffer
/s/ WILLIAM LERNER Director November 6, 1997
- ---------------------------------------
William Lerner
/s/ VINCENT A. CARRINO Director November 6, 1997
- ---------------------------------------
Vincent A. Carrino
/s/ ROBERT B. FAGENSON Director November 6, 1997
- ---------------------------------------
Robert B. Fagenson
</TABLE>
II-3
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
4.1(1) Articles of Incorporation of the Company, as amended
4.2(2) By-Laws of the Company, as amended
4.3(1)* Credit Agreement dated November 22, 1996 by and among the Company, the banks
parties thereto and National City Bank of Pennsylvania, as agent, as amended
4.4(3)* Form of the Company's 7% Convertible Subordinated Debentures due 2007
(the "Debentures")
4.5(3)* Indenture, dated as of February 4, 1997, between the Company and Manufacturers
and Traders Trust Company, as trustee, in respect of the Debentures
5.1 Opinion of Hodgson, Russ, Andrews, Woods & Goodyear, LLP
23.1 Consent of Hodgson, Russ, Andrews, Woods & Goodyear, LLP (included in Exhibit
5.1)
23.2 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (included on signature page to this Registration Statement)
</TABLE>
- ---------
* None of the other indebtedness of the Company exceeds 10% of its total
consolidated assets. The Company will furnish copies of the agreements
relating to such other indebtedness to the Securities and Exchange Commission
upon request.
(1) Previously filed, on November 6, 1997, as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 30, 1997.
(2) Previously filed, as of December 8, 1992, as an exhibit to the Company's
Annual Report on Form 10-K for the year ended September 30, 1992.
(3) Previously filed, on May 9, 1997, as an exhibit to the Company's
Registration Statement on Form S-3 (No. 333-26835).
<PAGE> 1
Exhibit 1.1
[Draft of November 4, 1997]
_______________ SHARES
RENT-WAY, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED NOVEMBER __, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES...............................................................2
A. Representations and Warranties of the Company......................................................2
Compliance with Registration Requirements.........................................................2
Offering Materials Furnished to Underwriters......................................................3
Distribution of Offering Material By the Company..................................................3
The Underwriting Agreement........................................................................3
Authorization of the Common Shares................................................................3
No Applicable Registration or Other Similar Rights................................................4
No Material Adverse Change........................................................................4
Independent Accountants...........................................................................4
Preparation of the Financial Statements...........................................................4
Incorporation and Good Standing of the Company....................................................5
Capitalization and Other Capital Stock Matters....................................................5
Stock Exchange Listing............................................................................5
Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required........6
No Material Actions or Proceedings................................................................6
Intellectual Property Rights......................................................................7
All Necessary Permits, etc........................................................................7
Title to Properties...............................................................................7
Tax Law Compliance................................................................................7
Company Not an "Investment Company"...............................................................8
Insurance.........................................................................................8
No Price Stabilization or Manipulation............................................................8
Related Party Transactions........................................................................8
Exchange Act Compliance...........................................................................8
Contracts Described...............................................................................9
Compliance with Environmental Laws................................................................9
ERISA Compliance.................................................................................10
B. Representations and Warranties of the Selling Shareholders.......................................10
The Underwriting Agreement.......................................................................10
The Custody Agreement and Power of Attorney......................................................11
Title to Common Shares to be Sold; All Authorizations Obtained...................................11
Delivery of the Common Shares to be Sold.........................................................11
Non-Contravention; No Further Authorizations or Approvals Required...............................11
No Registration or Other Similar Rights..........................................................12
No Further Consents, etc.........................................................................12
Disclosure Made by Such Selling Shareholder in the Prospectus....................................12
No Price Stabilization or Manipulation...........................................................12
Confirmation of Company Representations and Warranties...........................................13
Statements by the Selling Shareholder............................................................13
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES............................................13
The Firm Common Shares...........................................................................13
The First Closing Date...........................................................................14
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
The Optional Common Shares; the Second Closing Date..............................................14
Public Offering of the Common Shares.............................................................14
Payment for the Common Shares....................................................................14
Delivery of the Common Shares....................................................................15
Delivery of Prospectus to the Underwriters.......................................................15
SECTION 3. ADDITIONAL COVENANTS........................................................................16
A. Covenants of the Company.........................................................................16
Underwriters' Review of Proposed Amendments and Supplements......................................16
Securities Act Compliance........................................................................16
Amendments and Supplements to the Prospectus and Other Securities Act Matters....................16
Copies of any Amendments and Supplements to the Prospectus.......................................17
Blue Sky Compliance..............................................................................17
Use of Proceeds..................................................................................17
Transfer Agent...................................................................................17
Earnings Statement...............................................................................17
Periodic Reporting Obligations...................................................................18
Agreement Not To Offer or Sell Additional Securities.............................................18
Future Reports to the Underwriters...............................................................18
Exchange Act Compliance..........................................................................19
B. Covenants of the Selling Shareholders............................................................19
Agreement Not to Offer or Sell Additional Securities.............................................19
Delivery of Forms W-8 and W-9....................................................................19
SECTION 4. PAYMENT OF EXPENSES.........................................................................19
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS...........................................20
Accountants' Comfort Letter......................................................................20
Compliance with Registration Requirements; No Stop Order; Additional Information Requests
Complied With; No Objection from NASD..........................................................21
No Material Adverse Change or Ratings Agency Change..............................................21
Opinion of Counsel for the Company...............................................................22
Opinion of Counsel for the Underwriters..........................................................22
Officers' Certificate............................................................................22
Bring-down Comfort Letter........................................................................22
Listing of Common Shares on Nasdaq National Market...............................................23
Opinion of Counsel for the Selling Shareholders..................................................23
Selling Shareholders' Certificate................................................................23
Selling Shareholders' Documents..................................................................23
Lock-Up Agreement from Certain Shareholders of the Company Other Than Selling Shareholders.......23
Additional Documents.............................................................................24
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.....................................................24
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.............................................................24
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
SECTION 8. INDEMNIFICATION.............................................................................25
Indemnification of the Underwriters..............................................................25
Indemnification of the Company, its Directors and Officers.......................................26
Notifications and Other Indemnification Procedures...............................................27
Settlements......................................................................................27
SECTION 9. CONTRIBUTION................................................................................28
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS..........................................29
SECTION 11. TERMINATION OF THIS AGREEMENT...............................................................30
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.........................................30
SECTION 13 NOTICES.....................................................................................30
SECTION 14. SUCCESSORS..................................................................................31
SECTION 15. PARTIAL UNENFORCEABILITY....................................................................31
SECTION 16. GOVERNING LAW PROVISIONS....................................................................32
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO SELL AND DELIVER COMMON SHARES........32
SECTION 18. GENERAL PROVISIONS..........................................................................32
</TABLE>
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<PAGE> 5
UNDERWRITING AGREEMENT
November __, 1997
NATIONSBANC MONTGOMERY SECURITIES, INC.
Rauscher Pierce Refsnes, Inc.
The Robinson-Humphrey Company, LLC
c/o NATIONSBANC MONTGOMERY SECURITIES, INC.
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Rent-Way, Inc., a Pennsylvania corporation (the
"Company"), proposes to issue and sell to NationsBanc Montgomery Securities,
Inc. ("NMSI"), Rauscher Pierce Refsnes, Inc. and The Robinson-Humphrey Company,
LLC (the "Underwriters") an aggregate of 2,500,000 shares of its Common Stock,
without par value (the "Common Stock"); and the shareholders of the Company
named in Schedule B (collectively, the "Selling Shareholders") severally
propose to sell to the Underwriters an aggregate of [___] shares of Common
Stock. The 2,500,000 shares of Common Stock to be sold by the Company and the
[___] shares of Common Stock to be sold by the Selling Shareholders are
collectively called the "Firm Common Shares". In addition, the Company has
granted to the Underwriters an option to purchase up to an additional [___]
shares (the "Optional Common Shares") of Common Stock, as provided in Section
2. The Firm Common Shares and, if and to the extent such option is exercised,
the Optional Common Shares are collectively called the "Common Shares".
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(File No. 333-[___]), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements,
exhibits and schedules thereto, in the form in which it was declared effective
by the Commission under the Securities Act of 1933 and the rules and
regulations promulgated thereunder (collectively, the "Securities Act"),
including all documents incorporated or deemed to be incorporated by reference
therein and any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act or the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (collectively, the "Exchange Act"), is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of NMSI, elected to
rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a
<PAGE> 6
"preliminary prospectus") dated November __, 1997 (such preliminary prospectus
is called the "Rule 434 preliminary prospectus"), together with the applicable
term sheet (the "Term Sheet") prepared and filed by the Company with the
Commission under Rules 434 and 424(b) under the Securities Act, and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus,
the Prospectus or the Term Sheet, or any amendments or supplements to any of
the foregoing, shall include any copy thereof filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval System
("EDGAR"). All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include
the filing of any document under the Exchange Act which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
The Company and each of the Selling Shareholders hereby
confirm their respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of
the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation
S-T under the Securities Act), was identical to the copy thereof delivered
to the Underwriters for use in connection with the offer and sale of the
Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the
time it became effective and at all subsequent times, complied and will
comply in all material respects with the Securities Act and did not and
will not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, as amended or
supplemented, as of its date and at all subsequent times, did not and will
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
representations and
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<PAGE> 7
warranties set forth in the two immediately preceding sentences do not
apply to statements in or omissions from the Registration Statement, any
Rule 462(b) Registration Statement, or any post-effective amendment
thereto, or the Prospectus, or any amendments or supplements thereto, made
in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Underwriters
expressly for use therein. There are no contracts or other documents
required to be described in the Prospectus or to be filed as exhibits to
the Registration Statement which have not been described or filed as
required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Underwriters three complete manually signed copies of the
Registration Statement and of each consent and certificate of experts
filed as a part thereof, and conformed copies of the Registration
Statement (without exhibits) and preliminary prospectuses and the
Prospectus, as amended or supplemented, in such quantities and at such
places as the Underwriters have reasonably requested.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection
with the offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable
law and except as the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting the rights and remedies of creditors or by general equitable
principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement, other than the
Selling Shareholders with respect to the Common Shares included in the
Registration Statement, except for such rights as have been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or
any development that could reasonably be expected to result in a material
adverse change, in the condition, financial or otherwise, or in the
earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company (any such
change is called a "Material Adverse Change"); (ii) the Company has not
incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business;
and (iii) there has
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<PAGE> 8
been no dividend or distribution of any kind declared, paid or made by the
Company on any class of capital stock or repurchase or redemption by the
Company of any class of capital stock.
(h) Independent Accountants. Coopers & Lybrand LLP who have expressed
their opinion with respect to the financial statements (which term as used
in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration
Statement and included or incorporated by reference in the Prospectus, are
independent public or certified public accountants as required by the
Securities Act and the Exchange Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and
included or incorporated by reference in the Prospectus present fairly the
consolidated financial position of the Company as of and at the dates
indicated and the results of its operations and cash flows for the periods
specified. The supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. Such
financial statements and supporting schedules have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included or
incorporated by reference in the Registration Statement. The financial
data set forth in the Prospectus under the captions "Prospectus Summary --
Summary Historical Financial and Operating Data", "Selected Historical
Financial Information and Operating Data" and "Capitalization" fairly
present the information set forth therein on a basis consistent with that
of the audited financial statements contained or incorporated by reference
in the Registration Statement.
(j) Incorporation and Good Standing of the Company. The Company has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the Commonwealth of Pennsylvania and has
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and to enter into
and perform its obligations under this Agreement. The Company is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct
of business, except for such jurisdictions where the failure to so qualify
or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Change. The Company has no subsidiaries.
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, upon exercise of outstanding options or warrants or
upon conversion of the Company's 7% Convertible Subordinated Debentures
due 2007 (the "Convertible Debentures"), in each case as described in the
Prospectus. The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof incorporated by reference in
the Prospectus. All of the issued and outstanding shares of Common Stock
(including the shares of Common Stock owned by Selling Shareholders) have
been duly authorized and validly issued, are fully paid and nonassessable
and have been issued in compliance with federal and state securities laws.
None of the outstanding shares of Common Stock were issued in violation of
any preemptive
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<PAGE> 9
rights, rights of first refusal or other similar rights to subscribe for
or purchase securities of the Company. There are no authorized or
outstanding options, warrants, preemptive rights, rights of first refusal
or other rights to purchase, or equity or debt securities convertible into
or exchangeable or exercisable for, any capital stock of the Company other
than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted thereunder, set forth or
incorporated by reference in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans,
arrangements, options and rights.
(l) Stock Exchange Listing. The Common Stock (including the Common
Shares) is registered pursuant to Section 12(g) of the Exchange Act and is
listed on the Nasdaq National Market, and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act or delisting the Common Stock
from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. (the "NASD") is contemplating terminating such registration
or listing.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. The Company is not in violation of
its charter or by-laws or in default (or, with the giving of notice or
lapse of time, would be in default) ("Default") under any indenture,
mortgage, loan or credit agreement, note, contract, franchise, lease or
other instrument to which the Company is a party or by which it may be
bound (including, without limitation, the Convertible Debentures and the
related indenture and the Revolving Credit Facility, dated as of November
22, 1996, as amended as of January 31, 1997, (the "Revolving Credit
Facility"), with National City Bank of Pennsylvania, LaSalle National
Bank, Harris Trust and Savings Bank and Heller Financial, Inc., as
lenders), or to which any of the property or assets of the Company is
subject (each, an "Existing Instrument"), except for such Defaults as
would not, individually or in the aggregate, result in a Material Adverse
Change. The Company's execution, delivery and performance of this
Agreement and consummation of the transactions contemplated hereby and by
the Prospectus (i) have been duly authorized by all necessary corporate
action and will not result in any violation of the provisions of the
charter or by-laws of the Company, (ii) will not conflict with or
constitute a breach of, or Default or a Debt Repayment Triggering Event
(as defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company
pursuant to, or require the consent of any other party to, any Existing
Instrument, except for such conflicts, breaches, Defaults, liens, charges
or encumbrances as would not, individually or in the aggregate, result in
a Material Adverse Change and (iii) will not result in any violation of
any law, administrative regulation or administrative or court decree
applicable to the Company. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental
or regulatory authority or agency, is required for the Company's
execution, delivery and performance of this Agreement and consummation of
the transactions contemplated hereby and by the Prospectus, except such as
have been obtained or made by the Company and are in full force and effect
under the Securities Act, applicable state securities or blue sky laws and
from the NASD. As used herein, a "Debt Repayment Triggering Event" means
any event or condition which gives, or with the giving of notice or lapse
of time would give, the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to
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<PAGE> 10
require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company.
(n) No Material Actions or Proceedings. Except as otherwise disclosed
in the Prospectus, there are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened
(i) against or affecting the Company, (ii) which has as the subject
thereof any officer or director of, or property owned or leased by, the
Company or (iii) relating to environmental or discrimination matters,
where in any such case (A) there is a reasonable possibility that such
action, suit or proceeding might be determined adversely to the Company
and (B) any such action, suit or proceeding, if so determined adversely,
would reasonably be expected to result in a Material Adverse Change or
adversely affect the consummation of the transactions contemplated by this
Agreement No material labor dispute with the employees of the Company
exists or, to the best of the Company's knowledge, is threatened or
imminent.
(o) Intellectual Property Rights. Except as otherwise disclosed in the
Prospectus, the Company owns or possesses sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals, trade secrets and
other similar rights (collectively, "Intellectual Property Rights")
reasonably necessary to conduct its business as now conducted; and the
expected expiration of any of such Intellectual Property Rights would not
result in a Material Adverse Change. The Company has not received any
notice of infringement or conflict with asserted Intellectual Property
Rights of others, which infringement or conflict, if the subject of an
unfavorable decision, would result in a Material Adverse Change.
(p) All Necessary Permits, etc. Except as otherwise disclosed in the
Prospectus, the Company possesses such valid and current certificates,
authorizations or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct its business,
and the Company has not received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could result in
a Material Adverse Change.
(q) Title to Properties. Except as otherwise disclosed in the
Prospectus, the Company has good and marketable title to all the
properties and assets reflected as owned in the financial statements
referred to in Section 1(A)(i) above (or elsewhere in the Prospectus), in
each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such
property by the Company. The real property, improvements, equipment and
personal property held under lease by the Company are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company.
(r) Tax Law Compliance. The Company has filed all necessary federal,
state and foreign income and franchise tax returns or has properly
requested extensions thereof and has paid all taxes required to be paid by
it and, if due and payable, any related or similar assessment, fine or
penalty levied against it except as may be being contested in good faith
and by appropriate proceedings. The Company has made adequate charges,
accruals and
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<PAGE> 11
reserves in the applicable financial statements referred to in Section
1(A)(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the
Company has not been finally determined.
(s) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after
receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(t) Insurance. Except as otherwise disclosed in the Prospectus, the
Company is insured by recognized, financially sound and reputable
institutions with policies in such amounts and with such deductibles and
covering such risks as are generally deemed adequate and customary for its
business including, but not limited to, policies covering real and
personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and earthquakes. The Company has no reason
to believe that it will not be able (i) to renew its existing insurance
coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to
conduct its business as now conducted and at a cost that would not result
in a Material Adverse Change. The Company has not been denied any
insurance coverage which it has sought or for which it has applied.
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(v) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any other person
required to be described in the Prospectus which have not been described
as required.
(w) Exchange Act Compliance. The documents incorporated or deemed to
be incorporated by reference in the Prospectus, at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act, and, when
read together with the other information in the Prospectus, at the time
the Registration Statement and any amendments thereto become effective and
at the First Closing Date and the Second Closing Date, as the case may be,
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(x) Contracts Described. There are no Existing Instruments required to
be described or referred to in the Registration Statement or to be filed
as exhibits thereto other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto; and the
descriptions thereof and references thereto are correct in all material
respects.
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<PAGE> 12
(y) Compliance with Environmental Laws. Except as otherwise disclosed
in the Prospectus or as would not, individually or in the aggregate,
result in a Material Adverse Change (i) the Company is not in violation of
any federal, state, local or foreign law or regulation relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products (collectively,
"Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company under applicable
Environmental Laws, or noncompliance with the terms and conditions
thereof, and the Company has not received any written communication,
whether from a governmental authority, citizens group, employee or
otherwise, that alleges that the Company is in violation of any
Environmental Law; (ii) there is no claim, action or cause of action filed
with a court or governmental authority, no investigation with respect to
which the Company has received written notice, and no written notice by
any person or entity alleging potential liability for investigatory costs,
cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties arising
out of, based on or resulting from the presence, or release into the
environment, of any Material of Environmental Concern at any location
owned, leased or operated by the Company now or in the past (collectively,
"Environmental Claims"), pending or, to the best of the Company's
knowledge, threatened against the Company or any person or entity whose
liability for any Environmental Claim the Company has retained or assumed
either contractually or by operation of law; and (iii) to the best of the
Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result in a
violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or against any person or entity
whose liability for any Environmental Claim the Company has retained or
assumed either contractually or by operation of law.
(z) ERISA Compliance. Except as otherwise disclosed in the Prospectus,
the Company and any "employee benefit plan" (as defined under the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
and published interpretations thereunder (collectively, "ERISA"))
established or maintained by the Company or its "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA.
"ERISA Affiliate" means, with respect to the Company or a subsidiary, any
member of any group of organizations described in Sections 414(b),(c),(m)
or (o) of the Internal Revenue Code of 1986, as amended, and the
regulations and published interpretations thereunder (the "Code") of which
the Company is a member. No "reportable event" (as defined under ERISA)
has occurred or is reasonably expected to occur with respect to any
"employee benefit plan" established or maintained by the Company or any of
its ERISA Affiliates. No "employee benefit plan" established or maintained
by the Company or any of its ERISA Affiliates, if such "employee benefit
plan" were terminated, would have any "amount of unfunded benefit
liabilities" (as defined under ERISA). Neither the Company nor any of its
ERISA Affiliates has incurred or reasonably expects to incur any liability
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<PAGE> 13
under (i) Title IV of ERISA with respect to termination of, or withdrawal
from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or
4980B of the Code. Each "employee benefit plan" established or maintained
by the Company or any of its ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or failure to act, which would cause the loss
of such qualification.
Any certificate signed by an officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter
as to the matters set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. In
addition to the representations, warranties and covenants set forth in Section
1(A), each Selling Shareholder represents, warrants and covenants to each
Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Shareholder and is a valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Shareholder and [American Stock
Transfer & Trust Company], as custodian (the "Custodian"), relating to the
deposit of the Common Shares to be sold by such Selling Shareholder (the
"Custody Agreement") and (ii) Power of Attorney appointing certain
individuals named therein as such Selling Shareholder's attorneys-in-fact
(each, an "Attorney-in-Fact") to the extent set forth therein relating to
the transactions contemplated hereby and by the Prospectus (the "Power of
Attorney"), of such Selling Shareholder has been duly authorized, executed
and delivered by such Selling Shareholder and is a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its
terms, except as rights to indemnification thereunder may be limited by
applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(c) Title to Common Shares to be Sold; All Authorizations Obtained.
Such Selling Shareholder has, and on the First Closing Date and the Second
Closing Date (as defined below) will have, good and valid title to all of
the Common Shares which may be sold by such Selling Shareholder pursuant
to this Agreement on such date and the legal right and power, and all
authorizations and approvals required by law [and under its charter or
by-laws, partnership agreement, trust agreement or other organizational
documents, as the case may be,] to enter into this Agreement and such
Selling Shareholder's Custody Agreement and Power of Attorney, to sell,
transfer and deliver all of the Common Shares which may be sold by such
Selling Shareholder pursuant to this Agreement and to comply with such
Selling Shareholder's other obligations hereunder and thereunder.
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<PAGE> 14
(d) Delivery of the Common Shares to be Sold. Delivery of the Common
Shares which are sold by such Selling Shareholder pursuant to this
Agreement will pass good and valid title to such Common Shares, free and
clear of any security interest, mortgage, pledge, lien, encumbrance or
other claim.
(e) Non-Contravention; No Further Authorizations or Approvals
Required. The execution and delivery by such Selling Shareholder of, and
the performance by such Selling Shareholder of such Selling Shareholder's
obligations under, this Agreement, the Custody Agreement and the Power of
Attorney will not contravene or conflict with, result in a breach of, or
constitute a Default under, or require the consent of any other party to,
the [charter or by-laws, partnership agreement, trust agreement or other
organizational documents of such Selling Shareholder] or any other
agreement or instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound or under which such Selling
Shareholder is entitled to any right or benefit, any provision of
applicable law or any judgment, order, decree or regulation applicable to
such Selling Shareholder of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Shareholder. No consent, approval, authorization or other order
of, or registration or filing with, any court or other governmental
authority or agency, is required for the consummation by such Selling
Shareholder of the transactions contemplated in this Agreement, except
such as have been obtained or made and are in full force and effect under
the Securities Act, applicable state securities or blue sky laws and from
the NASD.
(f) No Registration or Other Similar Rights . Such Selling Shareholder
does not have any registration or other similar rights to have any equity
or debt securities registered for sale by the Company under the
Registration Statement or included in the offering contemplated by this
Agreement, except for such rights as are described in the Prospectus under
"Shares Eligible for Future Sale".
(g) No Further Consents, etc. Except for the (i) consent of such
Selling Shareholder to the respective number of Common Shares to be sold
by all of the Selling Shareholders pursuant to this Agreement and (ii)
waiver by certain other holders of Common Stock of certain registration
rights pursuant to the Registration Rights Agreement, dated as of
[_______], no consent, approval or waiver is required under any instrument
or agreement to which such Selling Shareholder is a party or by which such
Selling Shareholder is bound or under which such Selling Shareholder is
entitled to any right or benefit, in connection with the offering, sale or
purchase by the Underwriters of any of the Common Shares which may be sold
by such Selling Shareholder under this Agreement or the consummation by
such Selling Shareholder of any of the other transactions contemplated
hereby.
(h) Disclosure Made by Such Selling Shareholder in the Prospectus. All
information furnished by or on behalf of such Selling Shareholder in
writing expressly for use in the Registration Statement and Prospectus is,
and on the First Closing Date and the Second Closing Date will be, true,
correct, and complete in all material respects, and does not, and on the
First Closing Date and the Second Closing Date will not, contain any
untrue statement of a material fact or omit to state any material fact
necessary to make such information not misleading. Such Selling
Shareholder confirms as accurate the number of shares of Common Stock set
forth opposite such Selling Shareholder's name in the Prospectus under the
caption "Principal and Selling Shareholders" (both prior to and after
giving effect to the sale of the Common Shares).
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<PAGE> 15
(i) No Price Stabilization or Manipulation. Such Selling Shareholder
has not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Common Shares.
(j) Confirmation of Company Representations and Warranties. Such
Selling Shareholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true
and correct, is familiar with the Registration Statement and the
Prospectus and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement or the Prospectus
which has had or may have a Material Adverse Change and is not prompted to
sell shares of Common Stock by any information concerning the Company
which is not set forth in the Registration Statement and the Prospectus.
(k) Statements by the Selling Shareholder. To the extent that any
statements or omissions made in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendment or supplement
thereto are made in reliance upon and in conformity with written
information furnished to the Company by such Selling Shareholder expressly
for use therein, such preliminary prospectus and the Registration
Statement did, and the Prospectus and any further amendments or
supplements to the Registration Statement and the Prospectus will, when
they become effective or are filed with the Commission, as the case may
be, conform in all material respects to the requirements of the Securities
Act and not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein o0r necessary to
make the statements therein not misleading.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. Upon the terms herein set forth, (i)
the Company agrees to issue and sell to the several Underwriters an aggregate
of [___] Firm Common Shares and (ii) the Selling Shareholders agree to sell to
the several Underwriters an aggregate of [___] Firm Common Shares, each Selling
Shareholder selling the number of Firm Common Shares set forth opposite such
Selling Shareholder's name on Schedule B. On the basis of the representations,
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Shareholders the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company and the Selling Shareholders shall be $[___] per
share.
The First Closing Date. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters and payment therefor shall be
made at the offices of NMSI, 600 Montgomery Street, San Francisco, California
(or such other place as may be agreed to by
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<PAGE> 16
the Company and the Underwriters) at 6:00 a.m. San Francisco time, on December
__, 1997, or such other time and date not later than 10:30 a.m. San Francisco
time, on December __, 1997 as the Underwriters shall designate by notice to the
Company (the time and date of such closing are called the "First Closing
Date"). The Company and the Selling Shareholders hereby acknowledge that
circumstances under which the Underwriters may provide notice to postpone the
First Closing Date as originally scheduled include, but are in no way limited
to, any determination by the Company, the Selling Shareholders or the
Underwriters to recirculate to the public copies of an amended or supplemented
Prospectus or a delay as contemplated by the provisions of Section 10.
The Optional Common Shares; the Second Closing Date. In
addition, on the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of [___] Optional Common Shares
from the Company at the purchase price per share to be paid by the Underwriters
for the Firm Common Shares. The option granted hereunder is for use by the
Underwriters solely in covering any over-allotments in connection with the sale
and distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by NMSI to the
Company, which notice may be given at any time within 30 days from the date of
this Agreement. Such notice shall set forth (i) the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the option,
(ii) the names and denominations in which the certificates for the Optional
Common Shares are to be registered and (iii) the time, date and place at which
such certificates will be delivered (which time and date may be simultaneous
with, but not earlier than, the First Closing Date; and in such case the term
"First Closing Date" shall refer to the time and date of delivery of
certificates for the Firm Common Shares and the Optional Common Shares). Such
time and date of delivery, if subsequent to the First Closing Date, is called
the "Second Closing Date" and shall be determined by the NMSI and shall not be
earlier than three nor later than five full business days after delivery of
such notice of exercise. If any Optional Common Shares are to be purchased,
each Underwriter agrees, severally and not jointly, to purchase the number of
Optional Common Shares (subject to such adjustments to eliminate fractional
shares as the Underwriters may determine) that bears the same proportion to the
total number of Optional Common Shares to be purchased as the number of Firm
Common Shares set forth on Schedule A opposite the name of such Underwriter
bears to the total number of Firm Common Shares. NMSI may cancel the option at
any time prior to its expiration by giving written notice of such cancellation
to the Company.
Public Offering of the Common Shares. The Underwriters hereby
advise the Company and the Selling Shareholders that the Underwriters intend to
offer for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed
and the Registration Statement has been declared effective as the Underwriters,
in their sole judgment, have determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares
to be sold by the Company shall be made at the First Closing Date (and, if
applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Company. Payment for the Common Shares to
be sold by the Selling Shareholders shall be made at the First
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<PAGE> 17
Closing Date (and, if applicable, at the Second Closing Date) by wire transfer
of immediately available funds to the order of the Custodian.
It is understood that the NMSI have been authorized, for its
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
NMSI, individually and not as a representative of the Underwriters, may (but
shall not be obligated to) make payment for any Common Shares to be purchased
by any Underwriter whose funds shall not have been received by the First
Closing Date or the Second Closing Date, as the case may be, for the account of
such Underwriter, but any such payment shall not relieve such Underwriter from
any of its obligations under this Agreement.
Each Selling Shareholder hereby agrees that (i) such Selling
Shareholder will pay all stock transfer taxes, stamp duties and other similar
taxes, if any, payable upon the sale or delivery of the Common Shares to be
sold by such Selling Shareholder to the several Underwriters, or otherwise in
connection with the performance of such Selling Shareholder's obligations
hereunder and (ii) the Custodian is authorized to deduct for such payment any
such amounts from the proceeds to such Selling Shareholder hereunder and to
hold such amounts for the account of such Selling Shareholder with the
Custodian under the Custody Agreement.
Delivery of the Common Shares. The Company and the Selling
Shareholders shall deliver, or cause to be delivered, to the Underwriters
certificates for the Firm Common Shares to be sold by them at the First Closing
Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company
shall also deliver, or cause to be delivered, to the Underwriters, certificates
for the Optional Common Shares the Underwriters have agreed to purchase from
the Company at the First Closing Date or the Second Closing Date, as the case
may be, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The certificates
for the Common Shares shall be in definitive form and registered in such names
and denominations as the Underwriters shall have requested at least two full
business days prior to the First Closing Date (or the Second Closing Date, as
the case may be) and shall be made available for inspection on the business day
preceding the First Closing Date (or the Second Closing Date, as the case may
be) at a location in New York City as the Underwriters may designate. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than
12:00 p.m. on the second business day following the date the Common Shares are
released by the Underwriters for sale to the public, the Company shall delivery
or cause to be delivered copies of the Prospectus in such quantities and at
such places as the Underwriters shall request.
SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) Underwriters Review of Proposed Amendments and Supplements. During
such period beginning on the date hereof and ending on the later of the
First Closing Date or such
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<PAGE> 18
date, as in the opinion of counsel for the Underwriters, the Prospectus is
no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), prior to
amending or supplementing the Registration Statement (including any
registration statement filed under Rule 462(b) under the Securities Act)
or the Prospectus (including any amendment or supplement through
incorporation by reference of any report filed under the Exchange Act),
the Company shall furnish to the Underwriters for review a copy of each
such proposed amendment or supplement, and the Company shall not file any
such proposed amendment or supplement to which the Underwriters reasonably
object.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Underwriters in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing
of any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or
the Prospectus, or of any proceedings to remove, suspend or terminate from
listing or quotation the Common Stock from any securities exchange upon
which the it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any
of such purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. Additionally, the Company agrees
that it shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts
to confirm that any filings made by the Company under such Rule 424(b)
were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall
occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if in the opinion of the Underwriters or
counsel for the Underwriters it is otherwise necessary to amend or
supplement the Prospectus to comply with law, the Company agrees to
promptly prepare (subject to Section 3(A)(a) hereof), file with the
Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish each Underwriter, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto (including any documents incorporated
or deemed incorporated by reference therein) as such Underwriter may
request.
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<PAGE> 19
(e) Blue Sky Compliance. The Company shall cooperate with the
Underwriters and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application
of) the blue sky or state securities or blue sky laws or Canadian
provincial securities laws of those jurisdictions designated by the
Underwriters, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required
for the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to take any action that
would subject it to general service of process in any such jurisdiction
where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the
Underwriters promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares for
offering, sale or trading in any jurisdiction or any initiation or threat
of any proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof at the
earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Underwriters an
earnings statement (which need not be audited) that satisfies the
provisions of Section 11(a) of the Securities Act.
(j) Periodic Reporting Obligations. During the Prospectus Delivery
Period, the Company shall file, on a timely basis, with the Commission and
the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act.
(k) Agreement Not To Offer or Sell Additional Securities. During the
period of 90 days following the date of the Prospectus, the Company will
not, without the prior written consent of NMSI (which consent may be
withheld at the sole discretion of NMSI), directly or indirectly, sell,
offer, contract or grant any option to sell, pledge, transfer or establish
an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Exchange Act, or otherwise dispose of or transfer, or announce
the offering of, or file any registration statement under the Securities
Act in respect of, any shares of Common Stock, options or warrants to
acquire shares of the Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock (other than as
contemplated by this Agreement with respect to the Common Shares);
provided, however, that the Company may issue (1) shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other
stock plan or arrangement described in the Prospectus, (2) shares of its
Common Stock pursuant to the exercise of the warrants described in the
Prospectus or (3) shares of its Common Stock pursuant to the conversion of
the Convertible Debentures described in the Prospectus[, but only if the
holders of such shares, options, shares issued upon exercise of such
options or warrants or shares issued upon conversion of Convertible
Debentures agree in writing not to sell, offer, dispose of or otherwise
transfer any such shares or options during such 90-day
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<PAGE> 20
period without the prior written consent of NMSI (which consent may be
withheld at the sole discretion of the NMSI)].
(l) Future Reports to the Underwriters. During the period of five
years hereafter, the Company will furnish to the Underwriters at 600
Montgomery Street, San Francisco, CA 94111 Attention:[ ]: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report
of the Company containing the balance sheet of the Company as of the close
of such fiscal year and statements of income, shareholders' equity and
cash flows for the year then ended and the opinion thereon of the
Company's independent public or certified public accountants; (ii) as soon
as practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report
on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of
any report or communication of the Company mailed generally to holders of
its capital stock.
(m) Exchange Act Compliance. During the Prospectus Delivery Period,
the Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the
manner and within the time periods required by the Exchange Act.
B. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Shareholder will not, without the prior written consent of NMSI (which consent
may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock,
or securities exchangeable or exercisable for or convertible into shares of
Common Stock currently or hereafter owned either of record or beneficially (as
defined in Rule 13d-3 under Exchange Act by the undersigned, or publicly
announce the undersigned's intention to do any of the foregoing, for a period
commencing on the date hereof and continuing through the close of trading on
the date 90 days after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the Underwriters
prior to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Shareholder is a non-United States
Person) or Form W-9 (if the Selling Shareholder is a United States Person).
NMSI, on behalf of the several Underwriters, may, in its sole
discretion, waive in writing the performance by the Company or any Selling
Shareholder of any one or more of the foregoing covenants or extend the time
for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay
[the Company and the Selling Shareholders, jointly and severally, agree to pay
in such proportions as they may
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<PAGE> 21
agree upon among themselves] all costs, fees and expenses incurred in
connection with the performance of its [their] obligations hereunder and in
connection with the transactions contemplated hereby, including without
limitation (i) all expenses incident to the issuance and delivery of the Common
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agent of the Common Stock, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Common Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for
offer and sale under the state securities or blue sky laws or the provincial
securities laws of Canada, and, if requested by the Underwriters, preparing and
printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
(vii) the filing fees incident to, and the reasonable fees and expenses of
counsel for the Underwriters in connection with, the NASD's review and approval
of the Underwriters' participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with listing the Common
Shares on the Nasdaq National Market, and (ix) all other fees, costs and
expenses referred to in Item 14 of Part II of the Registration Statement.
Except as provided in this Section 4, Section 6, Section 8 and Section 9
hereof, the Underwriters shall pay their own expenses, including the fees and
disbursements of their counsel.
[The Selling Shareholders further agree with each Underwriter
to pay (directly or by reimbursement) all fees and expenses incident to the
performance of their obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to (i) fees and
expenses of counsel and other advisors for such Selling Shareholders, (ii) fees
and expenses of the Custodian and (iii) expenses and taxes incident to the sale
and delivery of the Common Shares to be sold by such Selling Shareholders to
the Underwriters hereunder (which taxes, if any, may be deducted by the
Custodian under the provisions of Section 2 of this Agreement).]
This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the
Company, on the one hand, and the Selling Shareholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling
Shareholders of their respective covenants and other obligations hereunder, and
to each of the following additional conditions:
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<PAGE> 22
(a) Accountants' Comfort Letter. On the date hereof, the Underwriters
shall have received from Coopers & Lybrand LLP, independent public or
certified public accountants for the Company, a letter dated the date
hereof addressed to the Underwriters, in form and substance satisfactory
to the Underwriters, containing statements and information of the type
ordinarily included in accountant's "comfort letters" to underwriters,
delivered according to Statement of Auditing Standards No. 72 (or any
successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.
(b) Compliance with Registration Requirements; No Stop Order;
Additional Information Requests Complied With; No Objection from NASD. For
the period from and after effectiveness of this Agreement and prior to the
First Closing Date and, with respect to the Optional Common Shares, the
Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed
a post-effective amendment to the Registration Statement containing
the information required by such Rule 430A, and such post-effective
amendment shall have become effective; or, if the Company elected to
rely upon Rule 434 under the Securities Act and obtained the
Underwriters' consent thereto, the Company shall have filed a Term
Sheet with the Commission in the manner and within the time period
required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or threatened by the Commission;
(iii) all requests for additional information on the part of
the Commission shall have been complied with to the satisfaction of
counsel to the Underwriters; and
(iv) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the
period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the Second
Closing Date:
(i) in the judgment of the Underwriters there shall not have
occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any
securities of the Company by any "nationally recognized statistical
rating organization" as such term is defined for purposes of Rule
436(g)(2) under the Securities Act.
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<PAGE> 23
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Underwriters shall have received the
favorable opinions of Hodgson, Russ, Andrews, Woods & Goodyear, LLP,
special counsel for the Company, and Ronald D. DeMoss, Vice President and
General Counsel of the Company, each dated as of such Closing Date, the
forms of which are attached as Exhibits A-1 and A-2 [the forms of opinions
are currently consolidated into Exhibit A -- to be divided up between
counsel, as appropriate].
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Underwriters shall have
received the favorable opinion of Fried, Frank, Harris, Shriver &
Jacobson, counsel for the Underwriters, dated as of such Closing Date,
with respect to the matters set forth in paragraphs[(i), (v) (with respect
to subparagraph (i) only), (vi), (vii), (viii), (ix), (x) and (xi) (with
respect to the captions "Description of Capital Stock" and "Underwriting"
under subparagraph (i) only),] and the next-to-last paragraph of Exhibit
[A-1].
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Underwriters shall have received a written
certificate executed by the Chairman of the Board or Chief Executive
Officer and President of the Company and the Chief Financial Officer or
Chief Accounting Officer of the Company, dated as of such Closing Date, to
the effect set forth in subsections (b)(ii) and (c)(ii) of this Section 5,
and further to the effect that:
(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred any Material
Adverse Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1(A) of this Agreement are true and
correct with the same force and effect as though expressly made on and
as of such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Underwriters shall have received from Coopers
& Lybrand LLP, independent public or certified public accountants for the
Company, a letter dated such date, in form and substance satisfactory to
the Underwriters, to the effect that they reaffirm the statements made in
the letter furnished by them pursuant to subsection (a) of this Section 5,
except that the specified date referred to therein for the carrying out of
procedures shall be no more than three business days prior to the First
Closing Date or Second Closing Date, as the case may be.
(h) Listing of Common Shares on Nasdaq National Market. The Common
Shares to be sold by the Company and the Selling Shareholders at the First
Closing Date and the Second Closing Date shall have been duly accepted,
subject to notice of issuance, for listing on the Nasdaq National Market.
(i) Opinion of Counsel for the Selling Shareholders. On each of the
First Closing Date and the Second Closing Date the Underwriters shall have
received the favorable
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<PAGE> 24
opinion of Hodgson, Russ, Andrews, Woods & Goodyear, LLP, counsel for the
Selling Shareholders, dated as of such Closing Date, the form of which is
attached as Exhibit B.
(j) Selling Shareholders' Certificate. On each of the First Closing
Date and the Second Closing Date the Underwriters shall received a written
certificate executed by the Attorney-in-Fact of each Selling Shareholder,
dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such
Selling Shareholder set forth in Section 1(B) of this Agreement are
true and correct with the same force and effect as though expressly
made by such Selling Shareholder on and as of such Closing Date; and
(ii) such Selling Shareholder has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(k) Selling Shareholders' Documents. On the date hereof, the Company
and the Selling Shareholders shall have furnished for review by the
Underwriters copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Shareholders and such further information,
certificates and documents as the Underwriters may reasonably request.
(l) Lock-Up Agreement from Certain Shareholders of the Company Other
Than Selling Shareholders. On the date hereof, the Company shall have
furnished to the Underwriters an agreement in the form of Exhibit C hereto
from each of the Company's officers and directors and _____ and _____, and
each such agreement shall be in full force and effect on each of the First
Closing Date and the Second Closing Date.
(m) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Underwriters and counsel for the
Underwriters shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass
upon the issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Underwriters by notice to the Company and the Selling Shareholders at any time
on or prior to the First Closing Date and, with respect to the Optional Common
Shares, at any time prior to the Second Closing Date, which termination shall
be without liability on the part of any party to any other party, except that
Section 4, Section 6, Section 8 and Section 9 shall at all times be effective
and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Underwriters pursuant to Section 5, Section 7, Section 10,
Section 11 or Section 17, or if the sale to the Underwriters of the Common
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or the Selling Shareholders to
perform any agreement herein or to comply with any provision hereof, the
Company agrees to reimburse the Underwriters (or such Underwriters as have
terminated this
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<PAGE> 25
Agreement with respect to themselves), severally, upon demand for all
out-of-pocket expenses that shall have been reasonably incurred by the
Underwriters in connection with the proposed purchase and the offering and sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of
(i) the execution of this Agreement by the parties hereto and (ii) notification
by the Commission to the Company and the Underwriters of the effectiveness of
the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company or the
Selling Shareholders to any Underwriter, except that the Company and the
Selling Shareholders shall be obligated to reimburse the expenses of the
Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter to the
Company or the Selling Shareholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company and each of the
Selling Shareholders, jointly and severally, agree to indemnify and hold
harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or
expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof
as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; or (iii) in whole or in part
upon any inaccuracy in the representations and warranties of the Company
or the Selling Shareholders contained herein; or (iv) in whole or in part
upon any failure of the Company or the Selling Shareholders to perform
their respective obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Common Stock or the
offering contemplated hereby, and which is included as part of or referred
to in any loss, claim, damage, liability or action arising out of or based
upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a
court of competent jurisdiction shall have determined by a final judgment
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<PAGE> 26
that such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its bad faith or willful misconduct; and to reimburse
each Underwriter and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by NMSI) as such
expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising
or paying any such loss, claim, damage, liability, expense or action;
provided, however, that the foregoing indemnity agreement shall not apply
to any loss, claim, damage, liability or expense to the extent, but only
to the extent, arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company
and the Selling Shareholders by the Underwriters expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto); and provided, further, that with
respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Common
Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2
and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was
not sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 8(a) shall be in addition to
any liabilities that the Company and the Selling Shareholders may
otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, the Selling Shareholders and each
person, if any, who controls the Company or any Selling Shareholder within
the meaning of the Securities Act or the Exchange Act, against any loss,
claim, damage, liability or expense, as incurred, to which the Company, or
any such director, officer, Selling Shareholder or controlling person may
become subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of such Underwriter), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof
as contemplated below) arises out of or is based upon any untrue or
alleged untrue statement of a material fact contained in the Registration
Statement, any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or arises out of or is based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement, any preliminary prospectus, the
Prospectus (or any amendment or supplement thereto), in reliance upon and
in conformity with written information furnished to the Company and the
Selling Shareholders by the Underwriters expressly for use therein; and to
reimburse the Company, or any such director, officer, Selling Shareholder
or controlling person for any legal and other expense reasonably incurred
by the Company, or any such director, officer, Selling Shareholder or
controlling person in connection with investigating,
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<PAGE> 27
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The Company and each of the Selling
Shareholders, hereby acknowledge that the only information that the
Underwriters have furnished to the Company and the Selling Shareholders
expressly for use in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) are the
statements set forth (A) as the last two paragraphs on the inside front
cover page of the Prospectus concerning stabilization and passive market
making by the Underwriters and (B) in the table in the first paragraph and
as the second paragraph under the caption "Underwriting" in the Prospectus;
and the Underwriters confirm that such statements are correct. The
indemnity agreement set forth in this Section 8(b) shall be in addition to
any liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than under the indemnity agreement contained
in this Section 8 or to the extent it is not prejudiced as a proximate
result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that a conflict may arise between the
positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties.
Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so to assume the defense of
such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with
the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more
than one separate counsel (together with local counsel), approved by the
indemnifying party (NMSI in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of
the indemnifying party.
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<PAGE> 28
(d) Settlements. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel as contemplated by Section 8(c) hereof, the
indemnifying party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such settlement
is entered into more than 30 days after receipt by such indemnifying party
of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to
the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement,
compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity was or could have been
sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any
reason held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders, on the one hand,
and the Underwriters, on the other hand, from the offering of the Common Shares
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Shareholders, on the one
hand, and the Underwriters, on the other hand, in connection with the
statements or omissions or inaccuracies in the representations and warranties
herein which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Shareholders, on the one hand, and the
Underwriters, on the other hand, in connection with the offering of the Common
Shares pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Common Shares
pursuant to this Agreement (before deducting expenses) received by the Company
and the Selling Shareholders, and the total underwriting discount received by
the Underwriters, in each case as set forth on the front cover page of the
Prospectus (or, if Rule 434 under the Securities Act is used, the corresponding
location on the Term Sheet) bear to the aggregate initial public offering price
of the Common Shares as set forth on such cover. The relative fault of the
Company and the Selling Shareholders, on the one hand, and the Underwriters, on
the other hand, shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact or any such inaccurate or
alleged inaccurate representation or warranty relates to information supplied
by the Company or the Selling Shareholders, on the one hand, or the
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<PAGE> 29
Underwriters, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth
in Section 8(c) with respect to notice of commencement of any action shall
apply if a claim for contribution is to be made under this Section 9; provided,
however, that no additional notice shall be required with respect to any action
for which notice has been given under Section 8(c) for purposes of
indemnification.
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 9.
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute pursuant to this Section 9 are several, and not joint, in
proportion to their respective underwriting commitments as set forth opposite
their names in Schedule A. For purposes of this Section 9, each officer and
employee of an Underwriter and each person, if any, who controls an Underwriter
within the meaning of the Securities Act and the Exchange Act shall have the
same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company with the meaning of the
Securities Act and the Exchange Act shall have the same rights to contribution
as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL
UNDERWRITERS. If, on the First Closing Date or the Second Closing Date, as the
case may be, any one or more of the several Underwriters shall fail or refuse
to purchase Common Shares that it or they have agreed to purchase hereunder on
such date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed 10% of the aggregate number of the Common Shares to be purchased on such
date, the other Underwriters shall be obligated, severally, in the proportions
that the number of Firm Common Shares set forth opposite their respective names
on Schedule A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the NMSI with the consent of the
non-defaulting Underwriters, to purchase the Common Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date. If, on the First Closing Date or the Second Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Common Shares and the aggregate number of Common Shares with respect
to which such default occurs exceeds 10% of the aggregate number of Common
Shares to be purchased on such date, and arrangements satisfactory to the NMSI
and the Company for the
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<PAGE> 30
purchase of such Common Shares are not made within 48 hours after such default,
this Agreement shall terminate without liability of any party to any other
party except that the provisions of Section 4, Section 8 and Section 9 shall at
all times be effective and shall survive such termination. In any such case
either the NMSI or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event
for longer than seven days in order that the required changes, if any, to the
Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under
this Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date this Agreement maybe terminated by the Underwriters by notice
given to the Company and the Selling Shareholders if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York or California authorities; (iii) there
shall have occurred any outbreak or escalation of national or international
hostilities or any crisis or calamity, or any change in the United States or
international financial markets, or any substantial change or development
involving a prospective substantial change in United States' or international
political, financial or economic conditions, as in the judgment of the
Underwriters is material and adverse and makes it impracticable to market the
Common Shares in the manner and on the terms described in the Prospectus or to
enforce contracts for the sale of securities; (iv) in the judgment of the
Underwriters there shall have occurred any Material Adverse Change; or (v) the
Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Underwriters may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have
been insured. Any termination pursuant to this Section 11 shall be without
liability on the part of (a) the Company or the Selling Shareholders to any
Underwriter, except that the Company and the Selling Shareholders shall be
obligated to reimburse the expenses of the Underwriters pursuant to Sections 4
and 6 hereof, (b) any Underwriter to the Company or the Selling Shareholders,
or (c) of any party hereto to any other party except that the provisions of
Section 8 and Section 9 shall at all times be effective and shall survive such
termination.
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<PAGE> 31
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers, of the Selling
Shareholders and of the several Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers or directors or any controlling person, or the
Selling Shareholders, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
SECTION 13 NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Underwriters:
c/o NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Rent-Way, Inc.
3230 West Lake Road
Erie, Pennsylvania 16505
Facsimile: (814) 836-5005
Attention: William E. Morgenstern
If to the Selling Shareholders:
[Custodian]
[address]
Facsimile: [___]
Attention: [___]
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 10 hereof, and to the benefit of the
employees, officers and directors and controlling persons
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<PAGE> 32
referred to in Section 8 and Section 9, and in each case their respective
successors, and personal representatives, and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Common Shares as such from any of the Underwriters merely by
reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING
SHAREHOLDERS TO SELL AND DELIVER COMMON SHARES. If one or more of the Selling
Shareholders shall fail to sell and deliver to the Underwriters the Common
Shares to be sold and delivered by such Selling Shareholders at the First
Closing Date pursuant to this Agreement, then the Underwriters may at their
option, by written notice from the Underwriters to the Company and the Selling
Shareholders, either (i) terminate this Agreement without any liability on the
part of any Underwriter or, except as provided in Sections 4, 6, 8 and 9
hereof, the Company or the Selling Shareholders, or (ii) purchase the shares
which the Company and other Selling Shareholders have agreed to sell and
deliver in accordance with the terms hereof. If one or more of the Selling
Shareholders shall fail to sell and deliver to the Underwriters the Common
Shares to be sold and delivered by such Selling Shareholders pursuant to this
Agreement at the First Closing Date, then the Underwriters shall have the
right, by written notice from the Underwriters to the Company and the Selling
Shareholders, to postpone the First Closing Date, but in no event for longer
than seven days in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes
the entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation,
the indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
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<PAGE> 33
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
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<PAGE> 34
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
RENT-WAY, INC.
By:__________________________
[Title]
[SELLING SHAREHOLDERS]
By:__________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Underwriters in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES, INC.
RAUSCHER PIERCE REFSNES, INC.
THE ROBINSON-HUMPHREY COMPANY, LLC
By NATIONSBANC MONTGOMERY SECURITIES, INC.
By: __________________________
Richard A. Smith
Authorized Signatory
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<PAGE> 35
SCHEDULE A
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
NUMBER OF OPTIONAL COMMON SHARES
FIRM COMMON SHARES TO BE PURCHASED
TO BE PURCHASED
<S> <C> <C>
UNDERWRITERS
NationsBanc Montgomery Securities, Inc. ................. [___] [___]
Rauscher Pierce Refsnes, Inc. ........................... [___] [___]
The Robinson-Humphrey Company, LLC....................... [___] [___]
Total:........................................... 2,500,000 [___]
------------------- --------------------------
</TABLE>
<PAGE> 36
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
FIRM COMMON
SHARES
TO BE SOLD
<S> <C>
SELLING SHAREHOLDER
Selling Shareholder #1[*]
[address]
Attention: [___] ......................................... [___]
Selling Shareholder #2
[address]
Attention: [___] ......................................... [___]
Total:........................................... [___]
------------
</TABLE>
[* Significant Selling Shareholder]
<PAGE> 37
EXHIBIT A
The final opinion in draft form should be attached as Exhibit A at the time
this Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant
to Section 5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the Commonwealth of
Pennsylvania.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material Adverse
Change.
(iv) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the descriptions thereof
set forth or incorporated by reference in the Prospectus. All of the
outstanding shares of Common Stock (including the shares of Common Stock
owned by Selling Shareholders) have been duly authorized and validly
issued, are fully paid and nonassessable and, to the best of such
counsel's knowledge, have been issued in compliance with the registration
and qualification requirements of federal and state securities laws. The
form of certificate used to evidence the Common Stock is in due and proper
form and complies with all applicable requirements of the charter and
by-laws of the Company and the corporation law of the Commonwealth of
Pennsylvania. The description of the Company's stock option, stock bonus
and other stock plans or arrangements, and the options or other rights
granted and exercised thereunder, set forth or incorporated by reference
in the Prospectus accurately and fairly presents the information required
to be shown with respect to such plans, arrangements, options and rights.
(v) No shareholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the corporation law
of the Commonwealth of Pennsylvania or (ii) to the best knowledge of such
counsel, otherwise.
(vi) The Underwriting Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and
<PAGE> 38
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles.
(vii) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the
consideration set forth therein, will be validly issued, fully paid and
nonassessable.
(viii) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if any,
has been issued under the Securities Act and no proceedings for such
purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act
has been made in the manner and within the time period required by such
Rule 424(b).
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus including any document incorporated
by reference therein, and each amendment or supplement to the Registration
Statement and the Prospectus including any document incorporated by
reference therein, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included or
incorporated by reference therein or in exhibits to or excluded from the
Registration Statement, as to which no opinion need be rendered) comply as
to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act.
(x) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xi) The statements (i) included or incorporated by reference in the
Prospectus under the captions "Risk Factors -- Risks Associated with
Significant Government Regulation of the Rental Purchase Industry",
"Description of Capital Stock", "Management's Discussion and Analysis and
Results of Operations -- Liquidity", "Business -- Litigation", "Business
-- Government Regulation," "Business -- Service Marks", "Certain
Relationships and Related Transactions", "Shares Eligible for Future Sale"
and "Underwriting" and (ii) in Item 14 and Item 15 of the Registration
Statement, insofar as such statements constitute matters of law, summaries
of legal matters, the Company's charter or by-law provisions, documents or
legal proceedings, or legal conclusions, has been reviewed by such counsel
and fairly present and summarize, in all material respects, the matters
referred to therein.
(xii) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
-2-
<PAGE> 39
(xiii) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits
thereto; and the descriptions thereof and references thereto are correct
in all material respects.
(xiv) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of the Underwriting Agreement and consummation of the transactions
contemplated thereby and by the Prospectus, except as required under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(xv) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder
(other than performance by the Company of its obligations under the
indemnification section of the Underwriting Agreement, as to which no
opinion need be rendered) (i) have been duly authorized by all necessary
corporate action on the part of the Company; (ii) will not result in any
violation of the provisions of the charter or by-laws of the Company;
(iii) will not constitute a breach of, or Default or a Debt Repayment
Triggering Event under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company
pursuant to, (A) the Convertible Debentures or the related indenture or
the Revolving Credit Facility, or (B) to the best knowledge of such
counsel, any other material Existing Instrument; or (iv) to the best
knowledge of such counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree applicable to
the Company.
(xvi) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of
Investment Company Act.
(xvii) Except as disclosed in the Prospectus under the caption "Shares
Eligible for Future Sale", to the best knowledge of such counsel, there
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by the Underwriting
Agreement, other than the Selling Shareholders, except for such rights as
have been duly waived.
(xviii) To the best knowledge of such counsel, the Company is not in
violation of its charter or by-laws or any law, administrative regulation
or administrative or court decree applicable to the Company or in Default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any material Existing Instrument, except in each
such case for such violations or Defaults as would not, individually or in
the aggregate, result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants
for the Company and with representatives of the Underwriters
-3-
<PAGE> 40
at which the contents of the Registration Statement and the Prospectus,
and any supplements or amendments thereto, and related matters were
discussed and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the Prospectus
(other than as specified above), and any supplements or amendments
thereto, on the basis of the foregoing, nothing has come to their
attention which would lead them to believe that either the Registration
Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date or at the First Closing
Date or the Second Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need express no belief as to the financial statements or schedules
or other financial or statistical data derived therefrom, included or
incorporated by reference in the Registration Statement or the Prospectus
or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than
the laws of the Commonwealth of Pennsylvania or the State of New York or
the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the
First Closing Date or the Second Closing Date, as the case may be, shall
be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion and shall be
furnished to the Underwriters) of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying
upon such opinion of other counsel, and (B) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the
Company and public officials.
-4-
<PAGE> 41
EXHIBIT B
The final opinion in draft form should be attached as Exhibit B at the time
this Agreement is executed.
The opinion of such counsel pursuant to Section 5(h) shall be
rendered to the Underwriters at the request of the Company and shall so state
therein. References to the Prospectus in this Exhibit B include any supplements
thereto at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of,
such Selling Shareholder, enforceable in accordance with its terms, except
as rights to indemnification thereunder may be limited by applicable law
and except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles.
(ii) The execution and delivery by such Selling Shareholder of, and
the performance by such Selling Shareholder of such Selling Shareholder's
obligations under, the Underwriting Agreement and such Selling
Shareholder's Custody Agreement and its Power of Attorney will not
contravene or conflict with, result in a breach of, or constitute a
default under, the charter or by-laws, partnership agreement, trust
agreement or other organizational documents, as the case may be, of such
Selling Shareholder, or, to the best of such counsel's knowledge, violate
or contravene any provision of applicable law or regulation, or violate,
result in a breach of or constitute a default under the terms of any other
agreement or instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound, or any judgment, order or decree
applicable to such Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over such Selling Shareholder.
(iii) Such Selling Shareholder has good and valid title to all of the
Common Shares which may be sold by such Selling Shareholder under the
Underwriting Agreement and has the legal right and power, and all
authorizations and approvals required [under its charter and by-laws,
partnership agreement, trust agreement or other organizational documents,
as the case may be,] to enter into the Underwriting Agreement and its
Custody Agreement and such Selling Shareholder's Power of Attorney, to
sell, transfer and deliver all of the Common Shares which may sold by such
Selling Shareholder under the Underwriting Agreement and to comply with
such Selling Shareholder's other obligations under the Underwriting
Agreement, such Selling Shareholder's Custody Agreement and such Selling
Shareholder's Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such
Selling Shareholder has been duly authorized, executed and delivered by
such Selling Shareholder and is a valid and binding agreement of such
Selling Shareholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy,
insolvency,
<PAGE> 42
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(v) Assuming that the Underwriters purchase the Common Shares which
are sold by such Selling Shareholder pursuant to the Underwriting
Agreement for value and without notice of any adverse claim as such term
is used in Section 8-105 of the Uniform Commercial Code as currently in
effect in the State of New York, the delivery of the certificates
representing such Common Shares either registered in the name of the
Underwriters or effectively endorsed to the Underwriters or in blank
pursuant to the Underwriting Agreement will pass to the Underwriters all
rights that such Selling Shareholder has in such Common Shares, free and
clear of all adverse claims.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court
or governmental authority or agency, is required for the consummation by
such Selling Shareholder of the transactions contemplated in the
Underwriting Agreement, except as required under the Securities Act,
applicable state securities or blue sky laws, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the laws of the
State of New York and ____________ or the federal law of the United States, to
the extent they deem proper and specified in such opinion, upon the opinion
(which shall be dated the First Closing Date or the Second Closing Date, as the
case may be, shall be satisfactory in form and substance to the Underwriters,
shall expressly state that the Underwriters may rely on such opinion and shall
be furnished to the Underwriters) of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the Underwriters;
provided, however, that such counsel shall further state that they believe that
they and the Underwriters are justified in relying upon such opinion of other
counsel, and (B) as to matters of fact, to the extent they deem proper, on
certificates of the Selling Shareholders and public officials
-2-
<PAGE> 43
EXHIBIT C
November __, 1997
NationsBanc Montgomery Securities, Inc.
Rauscher Pierce Refsnes, Inc.
The Robinson-Humphrey Company, LLC
c/o NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
RE: Rent-Way, Inc. (the "Company")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as
the underwriters. The undersigned recognizes that the Offering will be of
benefit to the undersigned and will benefit the Company by, among other things,
raising additional capital for its operations. The undersigned acknowledges
that you are relying on the representations and agreements of the undersigned
contained in this letter in carrying out the Offering and in entering into
underwriting arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of NMSI (which consent
may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under Exchange Act) by the undersigned, or publicly announce the
undersigned's intention to do any of the foregoing, for a period commencing on
the date hereof and continuing through the close of trading on the date 90 days
after the date of the Prospectus. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock held by the
undersigned except in compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of 1933, as amended,
of any Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
<PAGE> 44
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- -----------------------------------
Printed Name of Holder
By:
--------------------------------
Signature
- -----------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
-2-
<PAGE> 1
EXHIBIT 5.1
HODGSON, RUSS, ANDREWS, WOODS & GOODYEAR, LLP
1800 ONE M&T PLAZA
BUFFALO, NEW YORK 14203
November 6, 1997
Rent-Way, Inc.
3230 West Lake Road
Erie, Pennsylvania 16505
Ladies and Gentlemen:
Re: Registration Statement on Form S-3 (No. 333- )
We are delivering this opinion at your request in connection with the
registration by Rent-Way, Inc. (the "Company") under the Securities Act of 1933,
as amended (the "Act"), and the rules and regulations thereunder, of 2,587,250
shares of Common Stock, without par value, of the Company (plus an additional
388,088 shares to cover over-allotments) (the "Shares") for sale by the Company
as set forth in the prospectus (the "Prospectus") forming a part of the
above-referenced registration statement (the "Registration Statement").
The opinion set forth in this letter is based upon (1) our review of (a)
the Underwriting Agreement in the form included as Exhibit 1.1 to the
Registration Statement (the "Underwriting Agreement"), (b) originals, or copies
authenticated to our satisfaction, of the Company's Articles of Incorporation,
as amended, its By-Laws, as amended, and records of certain of its corporate
proceedings and (c) such other certificates, opinions and instruments we have
deemed necessary and (2) our review of published sources of law as we have
deemed necessary. We have assumed that when the Shares are sold either
appropriate certificates complying with applicable law evidencing the Shares
will be properly executed or such Shares will be uncertificated shares complying
with applicable law.
Based upon the foregoing, it is our opinion that the Shares have been duly
authorized, and when the Shares are issued and paid for as contemplated by the
Prospectus, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this letter as Exhibit 5.1 to the
Registration Statement and the reference to this firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
HODGSON, RUSS, ANDREWS, WOODS & GOODYEAR, LLP
By /s/ JOHN J. ZAK
/mmf
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-3 (File No. ) of our report dated October 31, 1997 on our
audits of the financial statements of Rent-Way, Inc. We also consent to the
references to our firm under the captions "Experts" and "Selected Historical
Financial Information and Operating Data."
/s/ COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
November 6, 1997
