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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-22026
RENT-WAY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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PENNSYLVANIA 25-1407782
(STATE OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION) NO.)
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3230 WEST LAKE ROAD, ERIE, PENNSYLVANIA 16505
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
814-836-0618
(ISSUER'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No
Check if there is no disclosure of delinquent filers in response to Items 405 of
Regulation S-K in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing sales price on November 4, 1997 the aggregate market value
of stock held by non-affiliates of the issuer was $117,806,561.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
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CLASS OUTSTANDING AS OF NOVEMBER 4, 1997
Common Stock 7,772,613
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RENT-WAY, INC.
PART I
ITEM I BUSINESS
GENERAL
Rent-Way, Inc. (the "Company") has been engaged in the rental-purchase
business since 1981 and currently operates 184 stores that provide quality brand
name merchandise in 14 states and the District of Columbia. The Company offers
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. Management believes that these 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 was formed in 1981 to operate a rental-purchase store in Erie,
Pennsylvania. By 1993, as a result of acquisitions and new store openings, the
Company was operating 19 stores in three states and had completed its initial
public offering. As of September 30, 1997, principally as a result of
acquisitions, the Company was operating 184 stores in 14 states and the District
of Columbia.
The Company's principal executive offices are located at 3230 West Lake
Road, Erie, Pennsylvania 16505, and its telephone number is (814) 836-0618.
FISCAL 1997 ACQUISITIONS
On January 2, 1997, the Company acquired all of the outstanding stock of
Bill Coleman TV, Inc. ("Bill Coleman TV") for a purchase price consisting of
approximately $6.7 million in cash, an option to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $8.875 per share and the
assumption of certain liabilities (the "Coleman Acquisition"). Bill Coleman TV
operated 15 rental-purchase stores in Michigan and had revenues of approximately
$8.6 million for the twelve months ended December 31, 1996.
On February 6, 1997, the Company acquired all of the outstanding stock of
Perry Electronics, Inc. d/b/a Rental King ("Rental King") for a purchase price
of $23.0 million consisting of cash and the assumption of certain liabilities
(the "Rental King Acquisition"). Rental King operated 70 rental-purchase stores
in Ohio, Michigan, Florida, Colorado, Indiana, West Virginia and Kentucky and
had revenues of approximately $24.0 million for the twelve months ended December
31, 1996.
The Company also acquired a four store rental-purchase chain with stores
located in Pennsylvania in July 1997 and three rental-purchase stores located in
the Washington, D.C. area in September 1997.
PENDING ACQUISITION
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") for a purchase price of approximately $24.5 million (the "Ace
Rentals Acquisition"). Ace Rentals operates 46 stores in South Carolina and 4
stores in California.
The Company expects to close the acquisition in early January 1998, subject
to the satisfaction of certain conditions, including negotiation of a definitive
purchase agreement. Consummation of the Ace Rentals Acquisition will provide the
Company with a presence in the southeastern United States, which the Company
believes to be a growing rental-purchase market.
THE RENTAL-PURCHASE INDUSTRY
Begun in the mid-to-late 1960s, the rental-purchase business is a
relatively new segment of the retail industry offering an alternative to
traditional retail installment sales. The rental-purchase industry provides
brand name merchandise to customers generally on a week-to-week or
month-to-month basis under a full service rental
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agreement, which in most cases includes a purchase option. The customer may
cancel the rental agreement at any time without further obligation by returning
the product to the rental-purchase operator.
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. Based on APRO estimates, the rental-purchase industry had gross
revenues of $4.1 billion in 1996. The U.S. rental-purchase industry is highly
fragmented. Management estimates that the ten largest industry participants
account for less than 50% of total industry stores and that the majority of the
industry consists of operations with fewer than 20 stores. See "--Strategy",
"--Competition."
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. In
addition, management believes that many smaller industry operators lack the
management information systems necessary to manage a large multi-store
rental-purchase operation efficiently and profitably. Management believes that
this trend toward consolidation of operations in the industry presents an
opportunity for well-capitalized rental-purchase operators to continue to
acquire additional stores on favorable terms.
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. Except as disclosed herein, the Company presently
has no plans, proposals, arrangements or understandings with respect to
significant acquisitions. See "Pending Acquisition".
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
or that the Company views as growth markets for the rental-purchase industry.
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 should be able to 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
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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
toll-free 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, installations, 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.
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 management information
system enhances 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 has been the structure of its management
compensation system, which provides incentives for both regional and store
managers to increase 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 managers stock
options in the Company. Management believes that the Company's emphasis on
incentive-based compensation has been instrumental in the Company's ability to
attract, retain and motivate its regional and store managers.
Manager Training
Management believes that well-trained store managers are important to the
Company's efforts to maximize individual store performance. The Company employs
a 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 Company expense, leadership and management programs offered by
leading management and organization experts.
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OPERATIONS
Company Stores
The Company currently operates 184 stores in 14 states and the District of
Columbia, as follows:
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NUMBER OF
LOCATION STORES
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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
Washington, D.C. ................................................ 1
</TABLE>
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. Often, such shopping centers offer convenient free parking
to the Company's customers. The Company's stores are generally uniform in
interior appearance and design and display of available merchandise. The stores
have separate storage areas but generally do not use warehouse facilities. 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. The Company believes that within these areas the best
locations are in neighborhood shopping centers that include a supermarket. The
Company believes this type of location makes frequent rental payments at its
stores more convenient for its customers.
Product Selection
The Company offers brand name home entertainment equipment (such as
television sets, video recorders, video cameras and stereos), furniture, major
appliances and jewelry. Major appliances offered by the Company include
refrigerators, ranges, washers and dryers. The Company's product line currently
includes the Zenith, RCA, Pioneer and JVC brands in home entertainment
equipment, the Kenmore and Crosley brands in major appliances and the Ashley
brand in furniture. 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, payments under rental-purchase
contracts for home entertainment products accounted for approximately 44.1%,
furniture for 27.4%, appliances for 24.5%, jewelry for 2.8% and miscellaneous
other items for 1.2% of the Company's rental revenues. Customers may request
either new merchandise or previously rented merchandise. Previously rented
merchandise is typically offered at the same weekly or monthly rental rate as is
offered for new merchandise, but with an opportunity to obtain ownership of the
merchandise after fewer rental payments. 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 written rental-purchase
agreements that set forth the terms and conditions of the transaction. The
Company uses standard form rental-purchase agreements which are reviewed
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by legal counsel and customized to meet the legal requirements of the various
states in which they are to be used. Generally, the rental-purchase agreement is
signed at the store, but may be signed at the customer's residence if the
customer orders the product by telephone and requests home delivery. Customers
rent merchandise on a week-to-week and, to a lesser extent, on a month-to-month
basis. The rent for the first week or month and each succeeding week or month
during the term of the agreement is payable in advance. At the end of the
initial and each subsequent rental period, the customer retains the merchandise
for an additional week or month by paying the required rent or may terminate the
agreement without further obligation. If the customer decides to terminate the
agreement, 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, 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. Each rental-purchase transaction requires delivery and
pickup of the product, weekly or monthly payment processing and, in some cases,
repair and refurbishment of the product. In order to cover the relatively high
operating expenses generated by greater product turnover, rental-purchase
agreements require larger aggregate payments than are generally charged under
installment purchase or credit plans.
Customer Service
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. The customer is fully liable for damage, loss or destruction of the
merchandise, unless the customer purchases an optional loss/damage waiver. Most
of the products offered by the Company are covered by a manufacturer's warranty
for varying periods, which, subject to the terms of the warranty, is transferred
to the customer in the event that the customer obtains ownership. Repair
services are provided through in-house service technicians, independent
contractors or under factory warranties. The Company recently introduced
Rent-Way Plus, a fee-based membership program that provides special loss and
damage protection and an additional one year of service protection on rental
merchandise, preferred treatment in the event of involuntary job loss,
accidental death and dismemberment insurance and discounted emergency roadside
assistance, as well as other discounts on merchandise and services.
COLLECTIONS
Management believes that effective collection procedures are important to
the Company's success in the rental-purchase business. The Company's collection
procedures increase the revenue per product with minimal associated costs,
decrease the likelihood of default and reduce charge-offs. Senior management, as
well as store managers use the Company's computerized management information
system to monitor cash collections on a daily basis. In the event a customer
fails to make a rental payment when due, store management will attempt to
contact the customer to obtain payment and reinstate the contract or will
terminate the account and arrange to regain possession of the merchandise.
However, store managers are given latitude to determine the appropriate
collection action to be pursued based on individual circumstances. Depending on
state regulatory requirements, the Company charges for the reinstatement of
terminated accounts or collects a delinquent account fee. Such fees are standard
in the industry and may be subject to state law limitations. See "--Government
Regulation." Despite the fact that the Company is not subject to the federal
Fair Debt Collection Practices Act, it is the Company's policy to abide by the
restrictions of such law in its collection procedures. Charge-offs due to lost
or
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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%.
MANAGEMENT
The Company's stores are organized geographically with several levels of
management. At the individual store level, each store manager is responsible for
customer and credit relations, deliveries and pickups, inventory management,
staffing and certain marketing efforts. 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. The staffing of
a store depends on the number of rental-purchase contracts serviced by the
store.
Each store manager reports to one of 29 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, in turn,
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 overall Company-wide store
operations. Senior management at the Company's headquarters directs and
coordinates purchasing, financial planning and controls, management information
systems, employee training, personnel matters and acquisitions. Headquarters
personnel also evaluate the performance of each store and conduct on-site
reviews.
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. Reports for all stores are reviewed daily by
senior management and any irregularities are addressed the following business
day. 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. This system
provides the Company's management with access to operating and financial
information about any store location or region in which the Company operates and
generates management reports on a daily, weekly, month-to-date and year-to-date
basis for each store and every rental-purchase transaction. 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. This system has enabled the Company
to expand its operations while maintaining a high degree of control over cash
receipts, inventory, merchandise units in repair and customer transactions. To
date, the Company has successfully integrated all of its acquired stores into
its management information system. The Company believes the information system
is adequate to meet its needs for the foreseeable future.
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. The Company maintains only minimal
warehouse space for storage of merchandise, and merchandise is generally shipped
by vendors directly to each store, where it is held for rental. The Company
purchases its merchandise directly from manufacturers or distributors. The
Company generally does not enter into written contracts with its suppliers.
Although the Company currently expects to continue its existing relationships,
management believes there are
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numerous sources of products available to the Company, and does not believe that
the success of the Company's operations is dependent on any one or more of its
present suppliers.
MARKETING
The Company promotes its products and services primarily through direct
mail solicitations and, in certain markets, through television advertising and,
to a lesser extent, through radio and secondary print media advertisement. The
Company also solicits business by telephoning former and prospective customers.
The Company has recently begun dedicating an increasing percentage of its
marketing dollars to television advertising to build brand recognition in
markets where it is economically attractive to do so. 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. Advertising expense as a percentage of revenue for the year ended
September 30, 1997 was approximately 4.4%. As the Company obtains new stores in
its existing markets, the advertising expenses of each store in the market can
be reduced by listing all stores in the same market-wide advertisement.
COMPETITION
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 rates 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 in the rental-purchase business are national in scope
and have significantly greater financial and operating resources and name
recognition than does the Company.
PERSONNEL
As of September 30, 1997, the Company had approximately 944 employees, of
whom 58 are located at the corporate office in Erie, Pennsylvania. None of the
Company's employees is represented by a labor union. Management believes its
relations with its employees are good.
GOVERNMENT REGULATION
Forty-five states have enacted laws regulating or otherwise impacting the
rental-purchase transaction, including all of the states in which the Company's
stores are located other than New Jersey. 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 nonpayment of rentals. No federal
legislation has been enacted regulating rental-purchase transactions. The
Company instructs its managers in its required procedures 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.
SERVICE MARKS
The Company has registered the "Rent-Way" service mark under the Lanham
Act. The Company believes that this mark has acquired significant market
recognition and goodwill in the communities in which its stores are located. The
service mark "Rent-Way Because There's Really Only One Way" and the related
design have also been registered by the Company.
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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.
ITEM 2 DESCRIPTION OF PROPERTIES
The Company leases all of its stores under operating leases that generally
have terms of three to five years and require the Company to pay real estate
taxes, utilities and maintenance. The Company has optional renewal privileges on
most of its leases for additional periods ranging from three to five years at
rental rates generally adjusted for increases in the cost of living. There is no
assurance that the Company can renew the leases that do not contain renewal
options, or that if it can renew them, that the terms will be favorable to the
Company. Management believes that suitable store space is generally available
for lease and that the Company would be able to relocate any of its stores
without significant difficulty should it be unable to renew a particular lease.
Management also expects that additional space will be readily available at
competitive rates in the event the Company desires to open new stores. The
Company's corporate office is in Erie, Pennsylvania, and consists of two
adjacent buildings, the first building consisting of approximately 14,000 square
feet was acquired in 1995 and the second building, consisting of approximately
13,000 square feet, was acquired in 1997. The Company also leases warehouse
space in Pittsburgh, Pennsylvania, and owns an office building in Erie,
Pennsylvania, which is used for storage.
ITEM 3 LEGAL PROCEEDINGS
From time to time the Company is a party to various legal proceedings
arising in the ordinary course of its business. The Company is not currently a
party to any material litigation, except litigation to which it succeeded to as
a result of its acquisition of McKenzie Leasing Corporation in 1995, for which
it is being indemnified and held harmless. The Company has been sued in an
action brought in New York Supreme Court requesting damages in the amount of
$50.0 million arising out of an accident whereby a Company truck struck and
injured a child riding a bike. Such action is being defended by the Company's
insurance carriers and management believes it has sufficient available insurance
coverage such that this action will not have a material adverse effect on the
Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's 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 last trade price per share of the Common Stock as reported on
the Nasdaq National Market.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
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HIGH LOW HIGH LOW
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First Quarter.............................. $12.63 $ 8.25 $10.50 $ 8.38
Second Quarter............................. 12.81 8.75 10.13 7.38
Third Quarter.............................. 14.75 8.63 15.50 9.75
Fourth Quarter............................. 21.31 12.88 14.13 11.00
</TABLE>
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As of November 5, 1997, there were 117 record holders of the Common Stock.
The Company has not paid any cash dividends to shareholders. The
declaration of any cash or stock dividends will be at the discretion of the
Board of Directors, and will depend upon earnings, capital requirements and the
financial position of the Company, general economic conditions and other
pertinent factors. At this time, the Company does not intend to pay any cash
dividends in the foreseeable future. Management intends to reinvest earnings, if
any, in the development and expansion of the Company's business for an
indefinite period of time. The Company's credit facility prohibits the payment
of dividends.
ITEM 6 SELECTED FINANCIAL DATA
The following selected financial data for the years ended September 30,
1993, 1994, 1995, 1996 and 1997 were derived from the Company's financial
statements audited by Coopers & Lybrand L.L.P., independent auditors. The
historical financial data are qualified in their entirety by, and should be read
in conjunction with, Management's Discussion and Analysis of Financial Condition
and Results of Operations and the financial statements of the Company and the
notes thereto included elsewhere in this document.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
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1993 1994(1) 1995(2) 1996(3) 1997(4)
------ ------- ------- ------- -------
<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
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), net..................... 32 89 36 70 (342)
------ ------- ------- ------- -------
Income before income taxes and extraordinary
item....................................... 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
====== ======= ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
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
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>
10
<PAGE> 11
- ---------
(1) 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, which affects the comparability of the historical financial
information for the periods presented.
(2) During the year ended September 30, 1995, the Company acquired 50
rental-purchase stores, 46 through the acquisition of McKenzie Leasing
Corporation on July 21, 1995, which affects the comparability of the
historical financial information for the periods presented.
(3) During the year ended September 30, 1996, the Company acquired 32
rental-purchase stores in four separate transactions, which affects the
comparability of the historical financial information for the periods
presented.
(4) 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.
11
<PAGE> 12
RENT-WAY, INC.
PART II
ITEM 7 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 the
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>
YEARS 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 in Michigan in the Coleman
Acquisition. On February 6, 1997, the Company acquired 70 stores located in
Colorado, Florida, Indiana, Kentucky, Michigan, West Virginia, and Ohio in 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 the Ace Rentals rental-purchase chain. Ace
Rentals operates 46 stores in South Carolina and four stores in California. The
Company expects to close the acquisition in early January 1998, subject to the
satisfaction of certain conditions, including the negotiation of a definitive
purchase agreement. Consummation of Ace Rentals Acquisition will provide the
Company with a presence in the southeastern United States, which the Company
believes to be a growing rental-purchase market.
12
<PAGE> 13
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, 1997, 1996 and 1995 as a percentage of total revenues.
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenues:...................................................
Rental revenue............................................ 88.0% 85.8% 85.4%
Other revenue............................................. 12.0 14.2 14.6
----- ----- -----
Total revenues......................................... 100.0 100.0 100.0
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise..................................... 23.1 25.9 29.5
Property and equipment................................. 1.7 1.5 1.9
Amortization of goodwill............................... 2.2 1.7 1.2
Salaries and wages........................................ 25.9 25.6 24.5
Advertising............................................... 4.4 4.1 4.5
Occupancy................................................. 6.8 6.4 6.7
Other operating expense................................... 20.2 21.8 22.6
----- ----- -----
Total costs and operating expenses..................... 84.3 87.0 90.9
----- ----- -----
Operating income.......................................... 15.7 13.0 9.1
Interest expense.......................................... (3.6) (2.9) (4.1)
Other income (expenses), net.............................. (0.4) .1 .2
----- ----- -----
Income before income taxes............................. 11.7 10.2 5.2
Income tax expense........................................ (5.3) (4.6) (1.6)
----- ----- -----
Income before extraordinary item....................... 6.4 5.6 3.6
Extraordinary item........................................ (0.2) -- --
----- ----- -----
Net income............................................. 6.2% 5.6% 3.6%
===== ===== =====
</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, consummated on February 6, 1997, accounted for $16.8
million, or 45.5%, of the increase, the stores acquired in the Coleman
Acquisition, consummated on January 2, 1997, 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
13
<PAGE> 14
the Coleman Acquisition and the Rental King Acquisition. Salaries and wages
increased to $22.8 million from $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 key
management personnel in the Company's operations, human resource, marketing,
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 the 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 the 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 primarily due to the addition of the stores acquired in the
Coleman Acquisition and the 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 in January 1997, and the Rental King
Acquisition in February 1997, 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 Company's credit facility in connection with the Coleman
Acquisition and the issuance by the Company of its $20.0 million of 7%
Convertible Subordinated Debentures due 2007 (the "Debentures") in connection
with the Rental King Acquisition.
For the year ended September 30, 1997 as compared to the year ended
September 30, 1996, income tax expense increased to $4.6 million from $2.4
million principally because the Company generated greater taxable income and
because of the decrease in the Company's net deferred tax asset for the year
ended September 30, 1997. The decrease in the deferred tax asset of $0.4 million
was comprised of the deferred tax provision of $1.2 million, which is offset by
$0.8 million of deferred tax asset recorded in connection with the Coleman
Acquisition. Sufficient taxable income exists in the carryback periods to
recognize the deferred tax asset, accordingly, no valuation allowance has been
recognized. 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 in the McKenzie Leasing Corporation Acquisition
(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, which was consummated July 21, 1995, 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 3.9% net decrease resulted
primarily from a decrease in depreciation expense as a percentage of total
revenues. Depreciation expense related to rental merchandise increased to $13.2
million from
14
<PAGE> 15
$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 key
Company management personnel in the operations, legal, human resource,
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 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 in
July 1995, 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
collateralized credit agreement with First Source Financial LLP in March 1996.
For the year ended September 30, 1996 as compared to the year ended
September 30, 1995, income tax expense increased to $2.4 million from $0.4
million principally because the Company generated greater taxable income and
because of the increase in the deferred tax expense. The deferred tax asset
increased by $0.1 million resulting from the recording of $0.8 million of
deferred tax asset acquired from Diamond Leasing Corporation which is offset by
$0.7 million deferred tax expense. The Company believes it is more likely than
not to realize the net deferred tax asset, and accordingly no valuation
allowance has been recognized. This conclusion is based on the Company's taxable
income in carryback periods and, to the extent necessary, management's estimate
of taxable income in future periods. 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 its 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 a new collateralized
revolving credit facility (the "New Facility") with a syndicate of banks led by
National City Bank of Pennsylvania ("National City Bank"), providing for loans
or letters of credit 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%, and Heller Financial, Inc. committed for an 18.25% ratable share. The
New Facility replaces the existing $15.0 million collateralized credit agreement
with First Source Financial LLP. Of the $40.0 million available under the New
Facility, approximately $7.0 million was used to refinance previously existing
senior indebtedness and $0.8 million was used to redeem the Company's 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 unused portion of the New Facility was approximately $19.0 million
with approximately $12.0 million of availability.
15
<PAGE> 16
On February 6, 1997, the Company completed the private placement of the
Debentures. The Debentures are due February 1, 2007 and are convertible into
shares of common stock, without par value, of the Company 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%. The redemption
price will decrease at a rate of 1% per year, reaching a price of 100% 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
the extent of payment in full of all amounts due on all senior indebtedness. The
Debentures bear an annual interest rate of 7% with semi-annual payments in
August and February, beginning August 1, 1997. The Company filed a registration
statement to register for resale the Debentures and the shares of Common Stock
underlying the Debentures with the Securities and Exchange 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 conjunction with the
Rental King Acquisition (see Note 3 to the financial statements).
On October 8, 1997, the Company exercised its right to convert mandatorily
the $7.0 million 10% Convertible Subordinated Notes ("the Notes") held by
Massachusetts Mutual Life Insurance Company and certain of its affiliates. The
Notes were convertible by the Company at a conversion price of $9.94 per share
upon the Company's 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.
For the year ended September 30, 1997, the Company's net cash provided by
(used in) operating activities increased to $0.7 million from ($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, 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 primarily from
the Coleman Acquisition and the 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 to ($30.6) million from ($10.6) million. The increase in net cash used
in investing activities was principally due to the 1997 Acquisitions and the
remodeling costs and computer hardware costs incurred in connection with the
Coleman Acquisition and the 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 cash received in connection with
the Company's private placement of the Debentures issued in connection with the
Rental King Acquisition. Historically, the Company's growth has been financed
through internally generated working capital, borrowings under its available
credit facilities and, in connection with acquisitions, issuances of its Common
Stock, Preferred Stock and Convertible Debt. During fiscal 1997, the Company's
acquisitions were financed by a combination of cash generated by the Company's
private placement of the Debentures and borrowings under the New 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 primarily 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 which will
depend upon market and other conditions. There can be no assurance that such
additional 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
16
<PAGE> 17
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 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 15, 1995.
The Company adopted this Standard's disclosure-only provisions in fiscal 1997.
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 128 on the years ended September 30, 1997, 1996 and
1995 (see Note 2 to the financial statements).
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 statements.
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 SFAS's and
has not adopted such provisions in its September 30, 1997 financial statements.
CAUTIONARY STATEMENT
This Report on Form 10-K and the foregoing Management's Discussion and
Analysis of Financial Condition and Results of Operations contains various
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company's Annual Report to Shareholders, any Report on Form 10-Q
or Form 8-K or any other written or oral statements made by or on behalf of the
Company may include forward looking statements. Forward-looking statements
represent the Company's expectations or beliefs concerning future events. Any
forward-looking statements made by or on behalf of the Company are subject to
uncertainties and other factors that could cause actual results to differ
materially from such statements. These uncertainties and other factors include,
but are not limited to, (i) the ability of the Company to acquire additional
rental-purchase stores on favorable terms, (ii) the ability of the Company to
improve the performance of such acquired stores and to integrate such acquired
stores into the Company's operations, and (iii) the impact of state and federal
laws regulating or otherwise affecting the rental-purchase transaction.
Undo reliance should not be placed on any forward-looking statements made
by or on behalf of the Company as such statements speak only as of the date
made. The Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, the
occurrence of future events or otherwise.
17
<PAGE> 18
ITEM 8 FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Financial Statements........................................................ 18
Report of Independent Accountants.................................................. 19
Financial Statements:
Balance Sheets, September 30 1997 and 1996......................................... 20
Statements of Income, Years Ended September 30, 1997, 1996 and 1995................ 21
Statements of Shareholders' Equity, Years Ended September 30, 1997, 1996 and
1995............................................................................ 22
Statements of Cash Flows, Years Ended September 30, 1997, 1996 and 1995............ 23
Notes to Financial Statements...................................................... 24
</TABLE>
18
<PAGE> 19
RENT-WAY, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS RENT-WAY, INC.:
We have audited the accompanying balance sheets of Rent-Way, Inc. as of
September 30, 1997 and 1996, and the related statements of income, shareholders'
equity and cash flows for each of the three years in the period ended September
30, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rent-Way, Inc. as of
September 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
October 31, 1997
19
<PAGE> 20
RENT-WAY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash............................................................. $ 598,664 $ 179,425
Prepaid expenses................................................. 1,452,265 986,987
Rental merchandise, net.......................................... 35,132,316 17,862,420
Deferred income taxes............................................ 1,071,927 1,473,522
Property and equipment, net...................................... 8,518,222 4,616,362
Goodwill, net of accumulated amortization of $3,249,684 and
$1,323,399, respectively....................................... 43,446,776 21,866,806
Deferred financing costs, net of accumulated amortization of
$231,225 and $109,874, respectively............................ 1,475,088 377,232
Non-compete agreements and prepaid consulting fee, net of
accumulated amortization of $606,420 and $229,167,
respectively................................................... 1,743,514 1,320,767
Other assets..................................................... 2,849,166 1,290,217
----------- -----------
$96,287,938 $49,973,738
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................................................. $ 3,067,294 $ 1,746,797
Other liabilities................................................ 3,411,605 2,181,899
Income taxes payable............................................. 695,743 1,226,590
Debt............................................................. 48,156,426 12,979,075
----------- -----------
55,331,068 18,134,361
Commitments and Contingencies (Note 8)........................... -- --
Redeemable preferred stock, Series A, without par value; (Note
9)............................................................. -- 1,120,700
Shareholders' equity:
Preferred stock, without par value; 1,000,000 shares authorized;
no shares issued and outstanding at September 30, 1997......... -- --
Common stock, without par value; 20,000,000 shares authorized;
7,059,451 and 6,659,180 shares issued and outstanding,
respectively................................................... 32,759,595 27,907,225
Retained earnings................................................ 8,197,275 2,811,452
----------- -----------
Total shareholders' equity..................................... 40,956,870 30,718,677
----------- -----------
$96,287,938 $49,973,738
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
RENT-WAY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental revenue..................................... $77,498,328 $43,890,708 $24,080,270
Other revenue...................................... 10,545,206 7,280,629 4,114,153
----------- ----------- -----------
Total revenues................................... 88,043,534 51,171,337 28,194,423
COSTS AND OPERATING EXPENSES:
DEPRECIATION AND AMORTIZATION:
Rental merchandise............................... 20,314,482 13,229,173 8,312,014
Property and equipment........................... 1,530,133 775,169 525,060
Amortization of goodwill......................... 1,926,287 874,668 334,003
Salaries and wages................................. 22,809,722 13,100,891 6,908,648
Advertising........................................ 3,898,610 2,123,324 1,259,514
Occupancy.......................................... 5,987,604 3,269,406 1,887,870
Other operating expenses........................... 17,790,535 11,147,645 6,387,333
----------- ----------- -----------
Total costs and operating expenses................. 74,257,373 44,520,276 25,614,442
----------- ----------- -----------
Operating income.............................. 13,786,161 6,651,061 2,579,981
OTHER INCOME (EXPENSE):
Interest expense................................... (3,129,894) (1,493,143) (1,162,384)
Amortization--deferred financing costs............. (239,086) (93,649) (16,229)
Interest income.................................... 920 60,267 66,277
Other income (expense), net........................ (103,681) 103,838 (13,435)
----------- ----------- -----------
Income before income taxes and extraordinary
item........................................ 10,314,420 5,228,374 1,454,210
Income tax expense................................. 4,629,477 2,381,062 445,440
----------- ----------- -----------
Income before extraordinary item.............. 5,684,943 2,847,312 1,008,770
Extraordinary item (Notes 1 and 7)................. (269,017) -- --
----------- ----------- -----------
Net income.................................... 5,415,926 2,847,312 1,008,770
Preferred stock (dividend) / gain on redemption
(Note 9)......................................... 280,175 (128,969) (37,973)
----------- ----------- -----------
Earnings applicable to common shares.......... $ 5,696,101 $ 2,718,343 $ 970,797
=========== =========== ===========
EARNINGS PER COMMON SHARE
Primary earnings per share (adjusted to give effect
to any preferred stock (dividend)/gain on
redemption):
Income before extraordinary item.............. $ 0.82 $ 0.46 $ 0.22
=========== =========== ===========
Net income.................................... $ 0.79 $ 0.46 $ 0.22
=========== =========== ===========
Fully diluted earnings per share (adjusted to give
effect to any preferred stock (dividend)/gain on
redemption):
Income before extraordinary item.............. $ 0.74 $ 0.45 $ 0.22
=========== =========== ===========
Net income.................................... $ 0.72 $ 0.45 $ 0.22
=========== =========== ===========
Weighted average number of shares outstanding:
Primary....................................... 7,250,448 5,945,427 4,400,066
=========== =========== ===========
Fully diluted................................. 9,322,925 6,055,523 4,500,287
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
RENT-WAY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
------------------------ EARNINGS SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
--------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at September 30, 1994............. 2,705,000 $ 6,859,053 $ (897,480) $ 5,961,573
Net income for the year................. -- -- 1,008,770 1,008,770
Purchases of business (Notes 4)......... 432,792 4,072,149 -- 4,072,149
Issuance of common stock under stock
option plans (Notes 12 and 13)....... 11,706 114,427 -- 114,427
Three for two common stock split in the
form of a 50% stock dividend (Note
12).................................. 1,574,749 -- -- --
Common stock returned to treasury....... (299,263) -- -- --
Loan to related party (Note 11)......... -- (296,578) -- (296,578)
--------- ----------- ---------- -----------
Balance at September 30, 1995............. 4,424,984 10,749,051 111,290 10,860,341
--------- ----------- ---------- -----------
Net income for the year................. -- -- 2,847,312 2,847,312
Public stock offering (Note 3).......... 2,185,812 16,760,056 -- 16,760,056
Common stock returned to treasury (Note
4)................................... (14,578) -- -- --
Exercise of "put" right to principle
shareholder (Note 11)................ (8,600) (381,748) -- (381,748)
Repayment of loan to related party (Note
11).................................. (10,800) 134,578 -- 134,578
Purchases of business (Note 4).......... 20,358 187,500 -- 187,500
Issuance of common stock under stock
option plans (Note 13)............... 49,025 309,279 -- 309,279
Issuance of common stock to 401(k) Plan
(Note 15)............................ 12,979 148,509 -- 148,509
Preferred stock (dividends) (Note 9).... -- -- (147,150) (147,150)
--------- ----------- ---------- -----------
Balance at September 30, 1996............. 6,659,180 27,907,225 2,811,452 30,718,677
--------- ----------- ---------- -----------
Net income for the year................. -- -- 5,415,926 5,415,926
Common stock returned to treasury (Note
4)................................... (65,657) -- -- --
Purchases of business (Note 4).......... -- 107,500 -- 107,500
Issuance of common stock under stock
option plans including tax benefit
(Note 13)............................ 443,610 4,192,401 -- 4,192,401
Issuance of common stock to 401(k) Plan
(Note 15)............................ 22,318 272,294 -- 272,294
Preferred stock (dividends)/gain on
redemption (Note 9).................. -- 280,175 (30,103) 250,072
--------- ----------- ---------- -----------
Balance at September 30, 1997............. 7,059,451 $32,759,595 $8,197,275 $40,956,870
========= =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
RENT-WAY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.......................................... $ 5,415,926 $ 2,847,312 $ 1,008,770
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization..................... 24,009,988 14,879,010 9,187,129
Deferred income taxes............................. 1,189,082 681,490 62,308
Deferred finance write-off........................ 323,772 -- --
Issuance of common stock to 401(k) plan........... 272,294 148,509 --
CHANGES IN ASSETS AND LIABILITIES:
Prepaid expenses.................................. (41,640) (235,413) (1,302,726)
Rental merchandise................................ (27,613,433) (20,448,195) (9,170,702)
Other assets...................................... (653,249) (710,547) (225,072)
Accounts payable.................................. (884,788) (406,871) 431,956
Income taxes payable.............................. (530,847) 1,400,937 172,508
Other current liabilities......................... (836,883) 616,281 162,477
------------ ------------ -----------
Net cash provided by (used in) operating
activities................................... 650,222 (1,227,487) 326,648
------------ ------------ -----------
INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired of
$60,132 in 1997, $38,759 in 1996 and $228,556
in 1995........................................ (25,949,875) (8,601,764) (1,660,411)
Purchases of property and equipment............... (5,122,164) (2,053,245) (1,960,485)
Net proceeds from the sale of property and
equipment and land and building lots........... 476,786 9,680 133,051
Closing and development fees payable.............. -- -- (161,458)
------------ ------------ -----------
Net cash used in investing activities.......... (30,595,253) (10,645,329) (3,649,303)
------------ ------------ -----------
FINANCING ACTIVITIES:
Principal payments on capital lease obligation.... -- (6,638) (7,082)
Proceeds from borrowings.......................... 41,022,110 23,866,711 11,955,257
Payments on borrowings............................ (12,318,899) (28,195,016) (7,529,709)
Deferred financing costs.......................... (1,660,714) -- (481,553)
Issuance of common stock.......................... 4,192,401 17,069,335 114,427
Preferred stock dividend.......................... (30,103) (147,150) --
Preferred stock redemption........................ (840,525) (1,629,300) --
Loan to related party............................. -- 134,578 (21,639)
------------ ------------ -----------
Net cash provided by financing activities...... 30,364,270 11,092,520 4,029,701
------------ ------------ -----------
Increase (decrease) in cash.................... 419,239 (780,296) 707,046
Cash at beginning of year........................... 179,425 959,721 252,675
------------ ------------ -----------
Cash at end of year................................. $ 598,664 $ 179,425 $ 959,721
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest....................................... $ 2,747,871 $ 1,537,317 $ 1,039,473
Income taxes................................... $ 1,936,924 $ 307,841 $ 161,313
</TABLE>
In addition, the Company entered into various transactions during the year
which involved non-cash investing and financing activities ( Notes 4, 11, and
15).
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS AND ORGANIZATION--Rent-Way, Inc. (the "Company" or "Rent-Way") is
a corporation organized under the laws of the Commonwealth of Pennsylvania. The
Company operates a chain of stores that rent durable household products such as
home entertainment equipment, furniture, major appliances and jewelry to
consumers on a weekly or monthly basis in fourteen states and the District of
Columbia. The stores are primarily located in the Mid-West, Eastern and Southern
regions of the United States.
BASIS OF PRESENTATION--The Company changed its accounting policy to adopt
the use of an unclassified balance sheet to conform to practice in the industry
in which it operates.
ACCOUNTING ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
RENTAL MERCHANDISE, RENTAL REVENUE AND DEPRECIATION--Rental merchandise is
rented to customers pursuant to rental agreements which provide for either
weekly or monthly rental payments collected in advance. Rental revenue is
recognized as collected, since at the time of collection the rental merchandise
has been placed in service and costs of installation and delivery have been
incurred. This method of revenue recognition does not produce materially
different results than if rental revenue was recognized over the weekly or
monthly rental term. At the end of each rental period, the customer can renew
the rental agreement.
Merchandise rented to customers or available for rent is classified in the
balance sheet as rental merchandise and is valued at cost on a specific
identification method. Write-offs of rental merchandise arising from customers'
failure to return merchandise and losses due to excessive wear and tear of
merchandise are recognized using the direct write-off method, which is
materially consistent with the results that would be recognized under the
allowance method.
Rental merchandise purchased prior to July 1, 1995 is depreciated on the
straight-line method, with a 10% salvage value, over various periods ranging
from 15 to 30 months (most rental merchandise was depreciated over a 21 month
period). Effective July 1, 1995, the Company changed its depreciation method
from the straight line method to the units of activity method for new purchases.
Under the units of activity method, rental merchandise is depreciated as revenue
is collected. Rental merchandise is not depreciated during periods when it is
not on rent and therefore not generating rental revenue. This change in
accounting principle was made to more accurately match revenues and expenses.
The effect of the change was not significant. Rental merchandise in the stores
acquired from McKenzie Leasing Corporation, ("MLC"--See Note 4) was depreciated
on the straight-line method over a 15 month period. Rental merchandise in stores
acquired during 1997 and 1996 is being depreciated under the units of activity
method.
OTHER REVENUE--Other revenue includes revenue from various services and
charges to rental customers, including late fees, liability waiver fees,
processing fees, and sales of used merchandise. Other revenue is recognized as
collected. This method of revenue recognition does not produce materially
different results than if other revenue was recognized when earned.
PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION AND AMORTIZATION--Property
and equipment are stated at cost. Additions and improvements that significantly
extend the lives of depreciable assets are capitalized. Upon sale or other
retirement of depreciable property, the cost and accumulated depreciation are
removed from the related accounts and any gain or loss is reflected in the
results of operations. The Company's corporate headquarters and other buildings
are depreciated over a 20 year term on a straight-line basis. Depreciation of
furniture and fixtures, signs and vehicles is provided over the estimated useful
lives of the respective assets (three
24
<PAGE> 25
to five years) on a straight-line basis. Leasehold improvements are amortized
over the shorter of the useful life of the asset or the term of the lease and
renewal period, if applicable.
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.
INCOME TAXES--Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax and financial
statement basis of assets and liabilities at year end. Deferred income taxes are
adjusted for tax rate changes as they occur.
INTANGIBLE ASSETS--Goodwill is stated at cost. Each acquisition is
independently evaluated to determine the appropriate period for amortization of
the resulting goodwill. Currently, amortization of goodwill is calculated on a
straight line basis over periods ranging from ten to twenty years. Periodically,
the Company will determine if there has been permanent impairment of goodwill by
comparing anticipated undischarged future net cash flows from operating
activities of the acquired store locations with the carrying value of the
related goodwill. At September 30, 1997 and 1996, the Company concluded that
there was no impairment of goodwill. Deferred financing fees are stated at cost
less amortization calculated on a straight-line basis over the term of the
related debt agreements, which range from three to ten years. Non-compete
agreements and a prepaid consulting fee are stated at cost less amortization
calculated on a straight-line basis over the term of the related agreements,
which range from two to seven years.
ADVERTISING REBATES--The Company participates in vendor advertising rebate
programs with the majority of its rental merchandise suppliers. Rebates are
recognized in the period earned. On a quarterly basis, management calculates the
amount of the rebate and either submits a request for payment or credits the
balance due the respective vendor.
EARNINGS PER COMMON SHARE--Primary and fully diluted earnings per common
share are computed based on net income after preferred stock dividend
requirements and the redemption of redeemable preferred stock on a discounted
basis, if applicable. In addition, the fully diluted weighted average number of
common shares outstanding are adjusted to give effect to convertible
subordinated debt and subordinated notes deemed to be an other potentially
dilutive securities. The weighted average number of common shares outstanding
during each year is adjusted to give effect to stock options and warrants
considered to be dilutive common stock equivalents. Primary and fully diluted
weighted average common shares outstanding have been adjusted to reflect
escrowed shares returned to the Company in connection with certain of the
Company's acquisitions (See Note 4).
FAIR VALUE DISCLOSURES--Fair values of fixed interest debt instruments have
been determined through a combination of management's estimates, information
obtained from independent third parties, and discounted cash flow analysis.
EXTRAORDINARY ITEM--As a result of the refinancing of its senior credit
facility in November 1996, the Company incurred an extraordinary charge, net of
tax benefit, of $269,017. The extraordinary charge was composed of a $124,590
($74,754 net of tax benefit) prepayment penalty for early retirement of debt and
a $323,772 ($194,263 net of tax benefit) write-off of deferred finance costs
associated with the refinanced debt (See Note 7).
RECLASSIFICATIONS--Certain amounts in the September 30, 1995 and 1996,
financial statements were reclassified to conform to the September 30, 1997,
presentation.
2. NEW ACCOUNTING STANDARDS:
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 15, 1995.
The Company adopted this Standard's disclosure-only provisions in fiscal 1997.
The adoption of this standard had no impact on the Company's financial position
or results of operations.
25
<PAGE> 26
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share",
effective for periods ending after December 15, 1997. The Company, in
recognition of requirements SFAS No. 128, has determined the impact of basic and
diluted earnings per common share. Basic earnings per common share is computed
using income available to common shareholders divided by the weighted average
number of common shares outstanding. Diluted earnings per common share is
computed using income available to common shareholders adjusted for anticipated
interest savings, net of related taxes, for convertible subordinated notes and
debentures and the weighted average number of shares outstanding is adjusted for
the potential impact of options, warrants and convertible subordinated notes and
debentures.
The following table discloses the impact of the SFAS No. 128 on the
Company's earnings per common share ("EPS") for the years ended September 30,
1997, 1996, and 1995:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Earnings applicable to common shareholders for
Basic EPS................................... $5,696,101 $2,718,343 $ 970,797
Interest on 10% convertible subordinated
notes (net of tax)..................... 420,700 -- --
Interest on 7% convertible subordinated
debentures (net of tax)................ 549,632 -- --
---------- ---------- ----------
Earnings applicable to common shareholders
plus assumed conversions for Diluted EPS.... $6,666,433 $2,718,343 $ 970,797
========== ========== ==========
Weighted average common shares outstanding.... 6,692,008 5,345,878 3,855,934
Plus shares applicable to:
Options and warrants..................... 558,440 614,628 544,132
10% convertible subordinated notes....... 704,225 -- --
7% convertible subordinated debentures... 966,842 -- --
---------- ---------- ----------
Adjusted weighted average common shares
outstanding................................. 8,921,515 5,960,506 4,400,066
========== ========== ==========
Basic EPS (adjusted to give effect to any
preferred stock (dividend) / gain on
redemption):
Income before extraordinary item.............. $ 0.89 $ 0.51 $ 0.25
========== ========== ==========
Net income.................................... $ 0.85 $ 0.51 $ 0.25
========== ========== ==========
Diluted EPS (adjusted to give effect to any
preferred stock (dividend) / gain on
redemption):
Income before extraordinary item.............. $ 0.78 $ 0.46 $ 0.22
========== ========== ==========
Net Income.................................... $ 0.75 $ 0.46 $ 0.22
========== ========== ==========
</TABLE>
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 statements.
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 SFAS's and
has not adopted such provisions in its September 30, 1997 financial statements.
3. PUBLIC STOCK OFFERING:
On March 26, 1996, the Company completed a public offering consisting of
1,850,000 shares of common stock offered by the Company and 388,750 shares of
common stock offered by certain selling shareholders. In addition, the
underwriters exercised a 30 day option to purchase up to 335,812 shares of
common stock, to cover over-allotments. The shares were offered at a price of
$8.50 per share. The Company received net proceeds (less
26
<PAGE> 27
underwriters discount and selling expenses) of $16,760,056 including the
underwriters exercise of the over-allotment option. The Company used these
proceeds to repay outstanding borrowings of $13.2 million under the Company's
collateralized credit agreement with First Source Financial LLP (See Note 7), to
redeem a portion of its outstanding Series A Preferred Stock (See Note 9) and
for general corporate purposes.
4. ACQUISITIONS:
On January 24, 1997, the Company signed a definitive purchase agreement to
acquire all the outstanding shares of Perry Electronics, Inc. d/b/a Rental King
("Rental King"). On February 6, 1997, the Company consummated the transaction
and acquired all the outstanding shares of Rental King, assuming effective
control of the results of operations as of February 1, 1997. At the time of
acquisition, Rental King operated a chain of seventy rental-purchase stores in
Colorado, Florida, Indiana, Kentucky, Michigan, Ohio and West Virginia with
annual revenues of approximately $24.0 million. The consideration paid in
exchange for all the outstanding shares of Rental King was $17,284,618 in cash.
Pursuant to the terms of the purchase agreement, $2.0 million of the purchase
price was placed in escrow, subject to the terms of the escrow agreement to
satisfy seller's representations and warranties and any purchase price
adjustments. In June 1997, the full amount of the escrow account was released.
The acquisition was accounted for using the purchase method of accounting.
Rental King's assets and liabilities were recorded at their estimated fair
market values as of the date of the acquisition. The excess of the acquisition
cost over the estimated fair values of the net assets acquired, ("goodwill") of
$17,147,114 is being amortized on a straight line basis over twenty years. The
total costs of the net assets acquired was $17,284,618 and consisted of assets
of $25,124,830 less liabilities assumed of $6,196,982 and acquisition costs of
$1,643,230. The acquisition of Rental King was primarily funded by the net
proceeds received on a private placement of $20.0 million in subordinated
convertible debentures (see Note 7). The balance of the cash paid on closing was
drawn upon the Company's existing line of credit. Assets acquired (at fair
market value) other than goodwill consist primarily of rental merchandise of
$6,386,000, property and equipment of $744,615, other assets of $347,101 and
non-compete agreements of $500,000. Liabilities assumed (at fair market value)
consist primarily of trade payables of $488,561, accrued liabilities of
$1,944,927, bank debt of $2,939,494 and notes payable of $824,000. The statement
of income for the year ended September 30, 1997 includes the results of
operations of Rental King since the date of acquisition.
On January 2, 1997, the Company acquired all the outstanding shares of Bill
Coleman TV, Inc., ("Coleman"), a privately owned chain of fifteen
rental-purchase stores operating in Michigan with annual revenues of
approximately $7.5 million, in exchange for consideration consisting of
$2,679,921 in cash and an option to purchase 25,000 shares of the Company's
common stock at an exercise price of $8.875 per share with a fair market value
of $107,500. The 25,000 stock options are 100% exercisable and expire five years
from the date of the grant. Pursuant to terms of the acquisition, $350,000 of
the purchase price was placed in escrow subject to terms of the escrow agreement
to satisfy sellers' representations and warranties and any purchase price
adjustments. The escrow agreement provides for release of the escrow on
completion of a financial audit of Coleman and final resolution of any purchase
price adjustments. The acquisition was accounted for using the purchase method
of accounting. Coleman's assets and liabilities were recorded at their estimated
fair values as of the acquisition date. The excess of the acquisition cost over
the estimated fair values of the net assets acquired, ("goodwill") of $3,490,490
is being amortized on a straight line basis over twenty years. The total cost of
the net assets acquired was $2,787,421 ($2,679,921 in cash and $107,500 in stock
options) and consisted of assets of $7,685,496 less liabilities assumed of
$4,548,836 and acquisition costs of $349,239. The allocation of the cost of
acquisition will be finalized upon final resolution of the purchase price.
Assets acquired (at fair market value) other than goodwill, consisted primarily
of rental merchandise of $2,401,000, property and equipment of $42,000, deferred
tax assets of $787,487, a note receivable of $506,368, a non-compete agreement
of $300,000 and other assets of $158,151. Liabilities assumed (at fair market
value) consisted primarily of trade accounts payable of $1,838,190, debt of
$2,474,155 and note payable of $236,491. The Statement of Income for the year
ended September 30, 1997 includes the operations of Coleman from the date of
acquisition.
In July and September 1997, the Company purchased the rental merchandise
and rental-purchase contracts of seven rental-purchase stores located in
Pennsylvania, Maryland, and Virginia, with combined annual revenues of
approximately $4.3 million. The Company paid cash in exchange for the assets and
each acquisition was
27
<PAGE> 28
recorded using the purchase method of accounting. The acquired assets were
recorded at their estimated fair values at the date of acquisition. The excess
of the acquisition cost over the estimated fair values of the assets acquired,
("goodwill") of $2,681,788 is being amortized on a straight line basis over
twenty years. The total cost of the net assets acquired was $3,809,878 and
consisted of assets of $3,912,403 less acquisition costs of $102,525. The
Statement of Income for the year ended September 30, 1997 includes the operating
results for these stores from the respective dates of acquisition.
On July 25, 1996 the Company acquired all the outstanding shares of Diamond
Leasing Corporation ("DLC"); a chain of 11 rental-purchase stores operating in
Delaware, Maryland and Pennsylvania with annual revenues of approximately $7.0
million in exchange for consideration consisting of 20,358 (unregistered shares
subject to the provisions of Rule 144 of the Securities and Exchange Act) shares
of the Company's common stock and $4,102,296 in cash. Pursuant to the terms of
the acquisition, $325,000 of the purchase price was placed in escrow subject to
the terms of the escrow agreement. Per the terms of the escrow $175,000 was
released upon completion of the financial statement audit with the remaining
$150,000 being held for a three year period from the date of closing. The
acquisition was accounted for using the purchase method of accounting. DLC's
assets and liabilities were recorded at their estimated fair values as of the
acquisition date. The excess of the acquisition cost over the estimated fair
values of the net assets acquired ("goodwill") of $4,406,400 is being amortized
on a straight-line basis over twenty years. The total cost of the net assets
acquired was $4,289,796 ($187,500 in common stock and $4,102,296 in cash) and
consisted of assets of $7,219,304 less liabilities assumed of $2,363,136 and
acquisition costs of $566,372. Assets acquired (at estimated fair value) other
than goodwill consisted principally of rental merchandise of $1,359,808,
property and equipment of $310,850, non-compete agreements of $300,000 and
deferred tax assets of $744,808. Liabilities assumed (at estimated fair value)
consisted principally of trade accounts payable of $582,693 and bank debt of
$1,446,238. The Statement of Income for the year ended September 30, 1996,
includes the operations of DLC from the date of acquisition.
During 1996, the Company also purchased from 5 separate entities the rental
merchandise and contracts of 21 rental-purchase stores in Maryland, New York,
Pennsylvania, Virginia and the District of Columbia with combined annual
revenues of approximately $4.2 million. The Company paid cash in exchange for
the assets and each acquisition was recorded using the purchase method of
accounting. The acquired assets were recorded at their estimated fair values at
the date of acquisition. The excess of the acquisition cost over the estimated
fair values of the net assets acquired ("goodwill") of $3,028,796 is being
amortized on a straight line basis over twenty years. The total cost of the net
assets acquired was $3,763,250 and consisted of assets of $3,893,796 less
liabilities assumed of $44,814 and acquisition costs of $85,732. The Statement
of Income for the year ended September 30, 1996 includes the operating results
for these stores from the respective dates of acquisition.
On July 21, 1995, the Company acquired McKenzie Leasing Corporation
("MLC"), a privately owned 45 store rental-purchase chain with annual revenues
of approximately $22 million. The Company acquired all of the common stock of
MLC in exchange for 581,688 (unregistered shares subject to the provisions of
Rule 144 of the Securities and Exchange Act and a shareholder agreement) shares
of the Company's common stock, a stock option to purchase 115,812 shares of the
Company's common stock at $9.28 per share and $2,750,000 of redeemable preferred
stock (See Note 9). The 115,812 stock options are 100% exercisable and expire
five years from the date of grant. Of the common shares issued, 356,688 shares
were delivered to the former shareholders of MLC and 225,000 were placed in
escrow. In October 1996, 65,657 of the escrowed shares were returned to the
Company and 159,343 were released to the former MLC shareholders. The allocation
of the shares released from escrow was based on the daily average market price
of $13.08 per share for the twenty trading days preceding October 1, 1996. The
acquisition was accounted for using the purchase method of accounting. MLC's
assets and liabilities were recorded at their estimated fair values as of the
acquisition date. The excess of the acquisition cost over the estimated fair
values of the net assets acquired ("goodwill") of $11,074,492 is being amortized
on a straight-line basis over twenty years. The total cost of the net assets
acquired was $6,469,293 ($3,684,024 in common stock, $2,750,000 in redeemable
preferred stock and $35,269 in cash) and consisted of assets of $16,631,760 less
liabilities assumed of $8,726,921 and acquisition costs of $1,435,546. Assets
acquired (at estimated fair value) other than goodwill consisted primarily of
rental merchandise of $4,204,871 and deferred tax assets of $809,567.
Liabilities assumed (at estimated fair value) consisted primarily of trade
accounts payable
28
<PAGE> 29
of $383,478 and bank debt of $7,470,717. The Statements of Income for the year
ended September 30, 1995 includes the operations of MLC from the date of
acquisition.
In February 1995, the Company acquired the rental merchandise and contracts
of five rental-purchase stores with combined annual revenues of approximately
$2.0 million. The Company acquired the rental merchandise and contracts in
exchange for 67,500 (unregistered shares subject to the provisions of Rule 144
of the Securities and Exchange Act) shares of the Company's common stock and
cash. Of the shares issued, 42,750 were delivered to the sellers and 24,750 were
placed in escrow. On February 24, 1996, the escrow terminated by its terms and
pursuant thereto 10,172 of such escrowed shares were released to the sellers and
14,578 were returned to the Company. The allocation of shares released from
escrow was determined by the average market value of the Company's common stock
on the twenty trading days preceding February 24, 1996. The acquisitions were
accounted for using the purchase method of accounting. The acquired assets were
recorded at their estimated fair values as of the acquisition date. The excess
of the acquisition cost over the estimated fair values of the net assets
acquired ("goodwill") of $644,705 is being amortized on a straight-line basis
over twenty years. The total cost of the net assets acquired was $948,145
($388,125 in common stock and $560,020 in cash) and consisted of assets of
$1,056,609 less acquisition costs of $108,464. The Statements of Income for the
year ended September 30, 1995 includes the operations of these stores from the
date of acquisition.
The following are unaudited pro forma results of operations for the years
ended September 30, 1997 and 1996 assuming the acquisitions of DLC, MLC, Coleman
and Rental King had occurred on October 1, 1995. The unaudited pro forma
information does not include the results of operations of the five
rental-purchase stores acquired in February 1995, the twenty one rental purchase
stores acquired during 1996,and the seven rental-purchase stores acquired in
July and September of 1997 which were not significant. The results are not
necessarily indicative of future operations or what would have occurred had the
acquisitions been consummated as of October 1, 1995.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
OPERATIONS
YEARS ENDED SEPTEMBER 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Total revenues........................................... $95,450,978 $90,905,693
Net income............................................... $ 2,485,265 $ 2,366,915
Earnings per common share (adjusted to give effect to any
preferred stock (dividend)/gain on redemption):
Income before extraordinary item.................... $ 0.43 $ 0.37
=========== ===========
Net income.......................................... $ 0.41 $ 0.37
=========== ===========
</TABLE>
5. RENTAL MERCHANDISE AND PROPERTY AND EQUIPMENT:
Cost and accumulated depreciation of rental merchandise were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cost..................................................... $51,848,007 28,169,311
Less accumulated depreciation............................ 16,715,691 10,306,891
----------- ----------
$35,132,316 17,862,420
=========== ==========
</TABLE>
The Company uses a direct-ship policy from their vendors to the stores. As
a result, the Company has eliminated the need for internal warehousing and
distribution. This policy has minimized the amount of rental merchandise not on
rent. On-rent and held for rent levels of net rental merchandise were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
On-Rent merchandise...................................... $29,587,990 14,987,462
Held for rent merchandise................................ 5,544,326 2,874,958
----------- ----------
$35,132,316 17,862,420
=========== ==========
</TABLE>
29
<PAGE> 30
The Company uses the direct write-off method in accounting for losses (see
Note 1). Losses during fiscal 1997, 1996 and 1995 were incurred as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Lost merchandise................................. $ 284,312 $ 175,843 $ 136,226
Stolen merchandise............................... 2,133,604 1,153,856 792,130
Discarded merchandise............................ 254,987 75,915 80,727
---------- ---------- ----------
$2,672,903 $1,405,614 $1,009,083
========== ========== ==========
</TABLE>
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Signs................................................... $ 1,014,564 $ 413,096
Vehicles................................................ 1,524,848 1,015,298
Furniture and fixtures.................................. 2,417,396 1,211,367
Leasehold improvements.................................. 4,657,039 2,525,370
Building................................................ 2,021,852 1,377,037
----------- ----------
11,635,699 6,542,168
Less accumulated depreciation and amortization............ 3,117,477 1,925,806
----------- ----------
$ 8,518,222 $4,616,362
=========== ==========
</TABLE>
6. OTHER LIABILITIES:
Other liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Accrued salaries, wages and payroll taxes.................. $1,120,408 $ 621,621
Accrued property taxes..................................... 310,773 22,998
Sales taxes payable........................................ 434,841 262,009
Accrued interest........................................... 579,218 197,195
Accrued bonuses............................................ 275,000 207,587
Accrued rent............................................... -- 167,943
Other...................................................... 691,365 702,546
---------- ----------
$3,411,605 $2,181,899
========== ==========
</TABLE>
7. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Working Capital Loan Commitment.......................... $ -- $ 4,860,000
Revolving Loan Commitment................................ -- 734,250
Convertible Subordinated Notes........................... 7,000,000 7,000,000
Revolving Credit Facility................................ 21,022,110 --
Convertible Subordinated Debentures...................... 20,000,000 --
Equipment Financing Obligations.......................... -- 243,792
Notes Payable............................................ 134,316 141,033
----------- -----------
$48,156,426 $12,979,075
=========== ===========
</TABLE>
30
<PAGE> 31
Working Capital Loan Commitment ("WCLC") provided for borrowings up to
$6,000,000 or 40% of net rental merchandise, whichever was lower. The percentage
of net rental merchandise on which borrowings were limited reduced to 35% on
July 1, 1996 and 30% on July 1, 1997. In addition, maximum borrowings could not
exceed $5,000,000 after July 1, 1997. Interest was charged at the rate of prime
plus 1.5% per annum. Interest payments were due monthly with the principal due
on July 1, 1998. A commitment fee of .5% per annum was charged on the daily
average unused portion of the WCLC. A prepayment fee was payable at a rate of 3%
of the prepaid amount for the period July 21, 1995 to July 20, 1996, 2% of the
prepaid amount for the period July 21, 1996 to July 20, 1997, and 1% of the
prepaid amount for the period July 21, 1997 to July 20, 1998. The WCLC was
collateralized by substantially all the assets of the Company and prohibited
payments and dividends to shareholders. On November 22, 1996, the WCLC was
replaced with a new credit facility (See Note 1).
Revolving Loan Commitment ("RLC") provided for borrowings up to $9,000,000.
Borrowings were reduced by $281,250 on each of October 1, 1995, January 1, 1996,
April 1, 1996, July 1, 1996, October 1, 1996, January 1, 1997, April 1, 1997,
July 1, 1997; by $421,875 on each of October 1, 1997, January 1, 1998, April 1,
1998, July 1, 1998; and by $562,500 on each of October 1, 1998, January 1, 1999,
April 1, 1999, and July 1, 1999; and by $703,125 on each of October 1, 1999,
January 1, 2000 , April 1, 2000 and July 1, 2000. Interest payments were due
monthly. Interest was charged at the rate of prime plus 1.5%. A commitment fee
of 5% per annum was charged on the daily average unused portion of the RLC. A
prepayment fee was payable at a rate of 3% of the prepaid amount for the period
July 21, 1995 to July 20, 1996, 2% of the prepaid amount for the period July 21,
1996 to July 20, 1997, and 1% of the prepaid amount for the period July 1, 1997
to July 20, 1998. The RLC was collateralized by substantially all the assets of
the Company and prohibited payments and dividends to shareholders and certain
acquisition activity. On November 22, 1996, the RLC was replaced with a new
credit facility (See Note 1).
Convertible Subordinated Notes ("Notes") due July 15, 2002 bear interest at
the rate of 10% per annum payable quarterly on October 15, January 15, April 15
and July 15. The Notes are convertible into the Company's common stock at a
conversion price of $9.94 per share. The Company has the right to mandatorily
require the noteholders to convert the Notes to common stock if the market price
exceeds $16.50 per share for 20 days during a 30 day consecutive period (See
Note 16). In addition, the noteholders received detachable warrants to purchase
105,000 shares of the Company's common stock at $9.94 per share. The stock
purchase warrants expire on July 15, 2002. The subordinated note agreement
prohibits the payment of dividends and requires the maintenance of certain
financial covenants related to fixed charge coverage and consolidated net worth.
Revolving Credit Facility (the "New Facility") with a syndicate of banks
led by National City Bank of Pennsylvania, providing for loans or letters of
credit up to $40.0 million was signed on November 22, 1996. The syndicate is
composed of four banks, with National City Bank of Pennsylvania, LaSalle
National Bank, and Harris Trust and Savings Bank committed for an equal ratable
share of 27.25%, of the New Facility and Heller Financial, Inc. committed for an
18.25% ratable share. The New Facility provides for borrowings at the prime rate
plus 0.5% or borrowings under a Euro-rate option and availability based on a
multiple of average monthly revenues. The Euro-rate option allows the Company to
borrow at the LIBOR rate plus 275 basis points for a fixed interest period. As
of September 30, 1997, there was $21,022,110 in outstanding borrowings under the
New Facility. This balance was comprised of a $9,000,000 Euro-rate tranche at
8.49% interest, a $9,000,000 Euro-rate tranche at 8.382% interest and working
capital debt of $3,022,110 at 9.0% interest. The New Facility expires on
November 22, 1999. The New Facility requires the Company to meet certain
financial covenants and ratios including maximum leverage, minimum interest
coverage and minimum tangible net worth ratios. In addition, the Company must
meet requirements regarding monthly, quarterly and annual financial reporting.
The New Facility also contains covenants which prohibit the actions of the
Company with respect to the payment of dividends, acquisitions, mergers,
disposition of assets or subsidiaries, issuance of capital stock and capital
expenditures. The Company may, at any time, repay outstanding borrowings, in
whole or part, without premium or penalty, except with respect to restrictions
on the selection of the Euro-rate interest option. As of September 30, 1997, the
Company was in compliance with the covenants contained in the New Facility. At
September 30, 1997, the Company had approximately $12 million of availability on
the New Facility.
Convertible Subordinated Debentures ("Debentures")due February 1, 2007 and
are convertible, at any time after the registration thereof, into shares of
common stock, without par value, of the Company at a conversion
31
<PAGE> 32
price of $13.37 per share. The Debentures are subject to redemption at the
option of the Company on February 5, 2000 at a price of 103%. The redemption
price will decrease at a rate of 1% per year, reaching a price of 100% in the
year 2003 and remain fixed until the date of maturity. The indebtedness
evidenced by the Debentures is subordinated and junior in right of payment to
all senior indebtedness. Included in the senior indebtedness is $7.0 million of
convertible notes held by Massachusetts Mutual Life Insurance Co. and its
affiliates. The Debentures bear an annual interest rate of 7% with semi-annual
payments in August and February, beginning August 1, 1997. The terms of the
Debentures require the Company to meet certain annual financial reporting
obligations. In addition, the Company must deliver to the trustee compliance
certificates representing management's compliance to all conditions and
covenants in the Indenture Agreement. In addition, the Debentures contain
covenants which prohibit the Company with respect to the payment of dividends
and other distributions.
Equipment Financing Obligations due in monthly installments; collateralized
by the related equipment; interest percentages ranging from 8.9% to 11.9%;
original terms not exceeding 5 years.
Notes Payable due in monthly installments ranging from $500 to $2,500
including interest at 18.0% through December, 2006.
The Company's weighted average interest rate was 8.517%, 9.570%, and 9.731%
for the years ended September 30, 1997, 1996 and 1995, respectively.
At September 30, 1997, the carrying values and the estimated fair values of
the Company's fixed interest debt instruments are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
CARRYING ESTIMATED
VALUES FAIR VALUES
-------------- -----------
<S> <C> <C>
Convertible Subordinated Notes 10%...................... $ 7,000,000 $ 7,537,632
Convertible Subordinated Debentures 7%.................. 20,000,000 20,947,621
------------ -----------
$ 27,000,000 $28,485,253
============ ===========
</TABLE>
At September 30, 1997, aggregate annual maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
1998................................................... $ 6,339
1999................................................... 7,579
2000................................................... 21,031,171
2001................................................... 10,834
2002................................................... 7,012,953
Thereafter............................................. 20,087,550
------------
$ 48,156,426
============
</TABLE>
32
<PAGE> 33
8. COMMITMENTS AND CONTINGENCIES:
The Company leases substantially all of its retail stores under
non-cancelable agreements generally for initial periods ranging from three to
five years. The store leases generally contain renewal options for one or more
periods of three to five years. Most leases require the payment of taxes,
insurance and maintenance costs by the Company. At September 30, 1997, future
minimum rental payments under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
1998................................................... $ 5,017,102
1999................................................... 4,194,472
2000................................................... 2,890,393
2001................................................... 1,753,519
2002................................................... 885,057
Thereafter............................................. 855,205
------------
Total minimum payments required........................ $ 15,595,748
============
</TABLE>
Rent expense under operating leases for the years ended September 30, 1997,
and 1996 and 1995 was $4,497,073, $2,508,545 and $1,429,972, respectively.
The Company is subject to legal proceedings and claims in the ordinary
course of its business that have not been finally adjudicated. Certain of these
cases have resulted in contingent liabilities ranging from $1,111,000 to
$3,125,500. The majority of such claims are, in the opinion of management,
covered by insurance policies and therefore should not have a material effect on
the results of operations or financial position of the Company.
Additional claims exist in the range of $240,000 to $450,000 for which
management believes it has meritorious defenses but for which the likelihood of
an unfavorable outcome is currently not determinable. Additionally, claims exist
for which management is not able to estimate a potential loss. In management's
opinion, each of these claims will either be indemnified by the former
shareholders of companies it has acquired or covered by insurance policies and
therefore will not have a material effect on the results of operations or
financial condition of the Company.
9. REDEEMABLE PREFERRED STOCK:
On July 21, 1995, in connection with the MLC acquisition (See Note 4) the
Company issued 27,500 shares of Series A Redeemable Preferred Stock ("Preferred
Stock"). In preference to shares of common stock, each share is entitled to
receive annual cumulative cash dividends in the amount of 7% payable in
quarterly installments on the first day of January, April, July and October.
During 1997 and 1996 the Company declared and paid dividends totaling $30,103
and $147,150 respectively. At September 30, 1996, dividends in arrears totaled
$19,792. Holders of the Preferred Stock had no voting rights; however, there
were certain exceptions including the right to eight votes per share if the
Company fails to pay dividends for two quarters.
The Company was required to redeem all outstanding Preferred Stock on June
30, 2006 at a redemption price of $100 per share plus any accrued or unpaid
dividends. The Company had the right to redeem the Preferred Stock at any time
at the rate of $100 per share plus any accrued or unpaid dividends. The Company
also entered into option agreements with the holders of the Preferred Stock
which provide the holders with mandatory redemption rights. During 1996 the
following redemptions of the Series A Preferred Stock were made: $429,400 in
January, 1996, $67,700 in February, 1996, and $1,132,200 in April, 1996. In
addition, on November 26, 1996, the Company redeemed the remaining 11,207
outstanding shares. These shares were redeemed at a twenty-five percent discount
for an aggregate purchase price of $840,525 and have reinstated the status of
authorized and unissued preferred shares undesignated as to series. As a result
of redemption on a discounted basis, a net gain on redemption of $280,175 was
recognized. This amount is added to net income in the calculation of earnings
per share.
33
<PAGE> 34
10. INCOME TAXES:
The Company's income tax expense consists of the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Current expense:
Federal.................................................... $2,617,964 $1,291,972 $312,611
State and local............................................ 822,431 407,600 70,521
---------- ---------- --------
3,440,395 1,699,572 383,132
Deferred expense:
Federal.................................................... 971,154 527,950 48,289
State and local............................................ 217,928 153,540 14,019
---------- ---------- --------
1,189,082 681,490 62,308
---------- ---------- --------
Income tax expense......................................... $4,629,477 $2,381,062 $445,440
========== ========== ========
</TABLE>
A reconciliation of the income tax expense compared with the amount at the
U.S. statutory tax rate of 34% is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Tax provision at U.S. statutory rate...................... $3,506,902 $1,777,647 $ 494,431
State and local income taxes, net of federal benefit...... 686,637 370,352 55,796
Amortization of goodwill.................................. 382,821 280,702 99,035
Adjustment to tax basis of depreciable assets............. -- -- (209,364)
Other..................................................... 53,117 (47,639) 5,542
---------- ---------- ---------
Income tax expense........................................ $4,629,477 $2,381,062 $ 445,440
========== ========== =========
</TABLE>
At September 30, 1997 and 1996, the components of the net deferred tax asset are
as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Rental merchandise................................................... $ 142,151 $1,053,184
Property and equipment............................................... 650,182 346,692
Operating loss carry forwards........................................ 626,030 342,556
Amortization of goodwill, loan fees, non-compete fees and severance
payments........................................................... (346,436) (291,182)
Other................................................................ -- 22,272
---------- ----------
Net deferred tax asset............................................... $1,071,927 $1,473,522
========== ==========
</TABLE>
The change in the deferred tax asset includes $787,487 of deferred tax
assets recorded in connection with the Coleman Acquisition.
The Company believes it is more likely than not to realize the net deferred
tax asset, and accordingly, no valuation allowance has been recognized.
Sufficient taxable income exists in the carryback periods to recognize the
deferred tax asset in 1997 and, to the extent necessary, future taxable income
in 1996.
11. RELATED PARTY TRANSACTIONS:
During fiscal year ended September 30, 1997, the Company leased two
locations from a principle shareholder or a company controlled by a principal
shareholder. Rent paid during this year related to these leases was $92,238. The
Company leased six locations from a principal shareholder or a company
controlled by a principal shareholder during fiscal 1996 and 1995. The Company
paid $238,634 and $217,162 in rent during the years ended September 30, 1996 and
1995 related to these leases, respectively. The leases have an average remaining
lives of one year and require the Company to pay real estate taxes.
34
<PAGE> 35
On May 21, 1996, the Company was paid in full for a loan made to a
principal shareholder. The loan carried an annual interest rate of 7.6% and the
balance including accrued interest as of May 21, 1996 was $311,310. The loan was
satisfied by the surrender to the Company of 10,800 shares of Common Stock
valued at $15.00 per share, with the balance paid in cash.
The Company was in possession of land and building lots acquired from Erie
Business Management Corporation ("EBMC"), a corporation controlled by a
principal shareholder of the Company. The Company obtained the right to require
EBMC to repurchase any or all of the remaining land and building lots during a
period of 30 days commencing May 31, 1996. Upon exercise of this "put" right,
EBMC would have the option of paying the purchase price in cash, marketable
securities (including common stock of the Company) or a combination of both. On
June 4, 1996, the Company exercised its right to "put" the land and building
lots to EBMC. The total amount due from EBMC was $946,450, comprised of the land
and building lots, carrying costs, accrued interest the difference between the
dividend paid in 1993 to the principle shareholder and any profit recognized by
the Company and any sales of the land or building lots prior to the exercise of
the "put" option. The repurchase was satisfied in full by a combination of cash,
common stock of the Company, the surrender for cancellation of 52,500 stock
options held by the principal shareholder and the conveyance to the Company of a
building and related mortgage owned by the principal shareholder, in which the
Company had a 15 year capital lease. There was no gain or loss recorded by the
Company as a result of the exercise of the "put".
The Company has entered into employment contracts with certain directors
and executive officers. The agreements are for a three year term commencing
October 1, 1995. The Company paid $510,000 and $393,600 related to these
agreements for the years ended September 30, 1997 and 1996, respectively.
Payments for the year ending September 30, 1998 will be $535,000.
The Company paid a brokerage fee of $170,000, and issued 37,500 warrants
exercisable at the rate of $10 per share for a five year period ending September
1, 2000 to a company in which a director of Rent-Way is a shareholder. The fee
was incurred in connection with the acquisition of MLC (See Note 4).
In connection with the acquisition of D.A.M.S.L. Corp. ("DAMSL") in fiscal
1994, the Company entered into an employment contract, consulting agreements and
non-compete agreements with the former shareholders of DAMSL. The employment
agreement has payment terms of $172,666, $134,677 and $162,667 for the three
year period ended in May 1996. The payment terms for the consulting and
non-compete agreements are $165,428, $151,428, $275,428, $255,428, $295,428,
$267,428 and $319,428 for 1994 and the six following years. Expenses related to
the above agreements are expensed over the terms of the agreements and
aggregated $268,761, $296,185 and $312,763 for the years ended September 30,
1997, 1996 and 1995, respectively.
In connection with the acquisition of MLC (See Note 4), the Company entered
into consulting and non-compete agreements with McKenzie Development Corporation
("MDC"), an affiliate of MLC and the principal shareholders of MDC, the former
owners of MLC. The consulting and non-compete agreements are for seven years and
have payment terms of $1,250,000 on July 21, 1995 and $200,000 per year for each
of the following seven years. Expenses related to the consulting and non-compete
agreements are amortized on a straight-line basis over the term of the
agreements and amounted to $378,571, $378,571 and $63,095 for the years ended
September 30, 1997, 1996 and 1995, respectfully.
In connection with the acquisition of DLC (See Note 4), the Company entered
into non-compete agreements with the former owners of DLC. The agreements are
for two and three years respectively and are amortized on a straight line basis
over the term of the agreements. Amortization expense for the two agreements for
the years ended September 30, 1997 and 1996 was $114,583 and $20,837,
respectively.
12. COMMON SHARES:
The Company's Board of Directors declared a three-for-two stock split in
the form of a 50% stock dividend to shareholders of record on August 4, 1995,
payable on August 18, 1995. All references in the financial statements to number
of shares, per share amounts, stock option data and market prices of the
Company's common stock reflect the stock split.
35
<PAGE> 36
13. STOCK OPTIONS:
In June 1992, the Board of Directors of the Company adopted, and the
shareholders have approved, the Rent-Way, Inc. Stock Option Plan of 1992 (the
"1992 Plan") which authorizes the issuance of up to 600,000 shares of common
stock pursuant to stock options granted to officers, directors, key employees,
consultants, and advisors of the Company. The option exercise price will be at
least equal to the fair market value of the Company's common stock on the grant
date. The 1992 Plan will expire in June 2002 unless earlier terminated by the
Board of Directors. The authorized number of shares, the exercise price of
outstanding options and the number of shares under option are subject to
appropriate adjustment for stock dividends, stock splits, reverse stock splits,
recapitalizations and similar transactions. The 1992 Plan is administered by the
Compensation Committee of the Board of Directors who select the optionees and
determine the terms and provisions of each option grant within the parameters
set forth in the 1992 Plan.
The 1995 Stock Option Plan (the "1995 Plan") authorizes the issuance of up
to 800,000 shares of common stock pursuant to stock options granted to officers,
directors and key employees of the Company. The 1995 Plan is administered by the
Compensation Committee of the Board of Directors and contains terms and
provisions substantially identical to those contained in the 1992 Plan.
The following is a summary of activity (as adjusted to reflect the 50%
stock dividend--See Note 12) of the Company's stock options during the years
ended September 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
AVERAGE
PRICE
STOCK OPTIONS SHARES PER SHARE
- ---------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
September 30, 1994.................................................... 489,975 $3.95
Granted............................................................. 463,061 8.12
Exercised........................................................... (17,268) 4.71
Forfeited........................................................... (37,733) 4.82
September 30, 1995.................................................... 898,035 6.05
Granted............................................................. 156,000 9.18
Exercised........................................................... (52,300) 6.56
Forfeited........................................................... (56,325) 2.62
September 30, 1996.................................................... 945,410 6.74
Granted............................................................. 724,500 10.39
Exercised........................................................... (296,860) 5.80
Forfeited........................................................... (78,156) 8.45
--------- -----
September 30, 1997.................................................... 1,294,894 $8.97
========= =====
</TABLE>
At September 30, 1997, stock options representing 768,257 shares are
exercisable at prices ranging from $4.67 to $18.13 per share.
The Company accounts for stock based compensation issued to its employees
and non-employee directors in accordance with Accounting Principles Board
Opinion No. 25 and has elected to adopt the "disclosure only" provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation".
For SFAS No. 123 purposes, the fair value of each option granted under both
the 1992 Plan and the 1995 Plan, is estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for options granted in fiscal 1997 and 1996: expected
volatility of 39%, risk-free interest rates between 5.24% and 6.74%, and an
expected life of five years.
36
<PAGE> 37
If the Company had elected to recognize the compensation cost of its stock
option plans based on the fair value of the awards under those plans in
accordance with SFAS No. 123, net income and earnings per common share would
have been reduced to the pro-forma amounts below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C> <C>
Net income As reported $5,415,926 $2,847,312
Pro-forma 3,467,832 2,072,088
Earnings per common share (adjusted to give
effect to any preferred stock
(dividend)/gain on redemption):
Income before extraordinary item
As reported $ 0.74 $ 0.45
========== ==========
Pro-forma $ 0.53 $ 0.45
========== ==========
Net income
As reported $ 0.72 $ 0.45
========== ==========
Pro-forma $ 0.51 $ 0.32
========== ==========
</TABLE>
14. STOCK PURCHASE WARRANTS:
During October, November and December 1992, the Company issued warrants to
purchase up to 112,500 shares of common stock at $4.67 per share. The warrants
are exercisable at any time for a period of five years from their respective
issue dates and are subject to anti-dilution provisions providing for
appropriate adjustment in the event of any reclassification, stock dividend,
stock split, or similar transaction, and stock issuances below the warrant
exercise price. The agreements will expire five years from the respective dates
on which the warrants were issued, subject to earlier termination in certain
circumstances.
Upon the closing of the Company's initial public offering in August 1993
the underwriters received warrants to purchase 105,000 shares of common stock at
a price of $6.77 per share exercisable for a period of four years commencing one
year from the date of the offering.
In July, 1995, the Company issued warrants to purchase 105,000 shares of
common stock at $9.94 per share. The warrants are exercisable at any time for a
period of seven years from their issue dates and are subject to anti-dilution
provisions providing for appropriate adjustment in the event of any
reclassification, stock dividend, stock split, or similar transactions, and
stock issuances below the warrant exercise price.
In September 1995, the Company issued warrants to purchase 37,500 shares of
common stock at $10.00 per share. The warrants are exercisable at any time for a
period of five years from their issue dates and are subject to anti-dilution
provisions providing for appropriate adjustment in the event of any
reclassification, stock dividend, stock split, or similar transactions, and
stock issuances below the warrant exercise price.
At September 30, 1997, the following warrants (as adjusted for the 50%
stock dividend--See Note 12) were outstanding:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION SHARES SHARES
WARRANT DATE SHARES PRICE DATE EXERCISED REMAINING
- -------------- --------- -------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C>
October 1992 37,500 $ 4.67 October 1997 37,500 --
November 1992 37,500 $ 4.67 November 1997 37,500 --
December 1992 37,500 $ 4.67 December 1997 37,500 --
August 1993 105,000 $ 6.76 August 1998 24,000 81,000
July 1995 105,000 $ 9.94 July 2002 -- 105,000
September 1995 37,500 $10.00 September 2000 10,250 27,250
</TABLE>
37
<PAGE> 38
15. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1994, the Company established the Rent-Way, Inc.
401(k) Retirement Savings Plan (the "Plan"). Participation in this Plan is
available to all Company employees who meet the necessary service criteria as
defined in the Plan Agreement. Company contributions to the Plan are based on a
percentage of the employees' contributions, as determined by the Board of
Directors, and amounted to $272,294 and $148,509 (in the form of the Company's
common stock) for the years ended September 30, 1997 and 1996, respectively, and
$32,126 (in cash) for the year ended September 30, 1995.
16. SUBSEQUENT EVENTS:
On October 8, 1997, the Company exercised its right to manditorily convert
the $7.0 million, 10% convertible subordinated notes ("the Notes") held by
Massachusetts Mutual Life Insurance Company due 2002 (See Note 7). The Notes
were convertible by the Company at a conversion price of $9.94 per share upon
the Company's 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.
On October 6, 1997, the Company signed a letter of intent to acquire
substantially all of the assets of the Ace TV Rentals ("Ace Rentals")
rental-purchase chain. Ace Rentals operates 46 stores in South Carolina and 4
stores in California. The Company expects to close the transaction in early
January 1998, subject to the satisfaction of certain conditions. The Company
feels the Ace Rentals acquisition will provide the Company with a presence in
the southeastern United States, which management believes to be a growing
rental-purchase market.
38
<PAGE> 39
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
There has been no change of accountants or reporting disagreements on any
matter of accounting principle, practice, financial statement disclosure or
auditing scope or procedure within the Company's two most recent fiscal years or
the current interim period.
39
<PAGE> 40
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS
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............................ 62 Chairman of the Board and Director
President, Chief Executive Officer and
William E. Morgenstern.................... 39 Director
William Lerner............................ 61 Director and Secretary
Vincent A. Carrino........................ 38 Director
Robert B. Fagenson........................ 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>
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. Mr. Ryan
is a Class I director of the Company whose term expires in 1999.
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. Mr. Morgenstern is a Class III director of the
Company whose term expires in 1998.
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. Mr. Lerner is a Class II director of the Company whose term
expires in 2000.
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
40
<PAGE> 41
NYSE, of Healthy Planet Products, Inc., a company listed on the American Stock
Exchange that designs, 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. Mr. Fagenson is a Class I
director of the Company whose term expires in 1999.
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. Mr. Joseffer is a Class II director of the Company whose term expires
in 2000.
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 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 Financial 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.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten (10%) of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than ten-percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely upon its review
of copies of such forms furnished to it, or written representations from
reporting persons that no such forms were required for those persons, the
Company believes that during fiscal year 1997 all filing requirements applicable
to executive officers, directors, and greater than ten-percent beneficial owners
were complied with, except (i) two reports, covering an aggregate of two
transactions, were filed late by Marc W. Joseffer, a director of the Company,
(ii) one report, covering an aggregate of one transaction, was filed late by
Thomas E. Wurm and (iii) one report, covering an aggregate of one transaction,
was filed late by Ronald D. DeMoss.
41
<PAGE> 42
ITEM 11 EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ----------
COMPENSATION(1) SECURITIES
-------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- ---------------------------------------- ---- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Gerald A. Ryan.......................... 1997 $150,000 $ 72,221 60,000
Chairman of the Board 1996 122,600 13,750 --
1995 114,000 -- 63,000
William E. Morgenstern.................. 1997 $240,000 $149,506 55,000 $181,012
President and Chief Executive Officer 1996 181,000 14,000 --
1995 144,000 -- 63,000
Jeffrey A. Conway....................... 1997 $120,000 $ 97,250 27,000
Vice President and Chief Financial
Officer 1996 90,000 5,250 --
1995 89,000 -- 30,000
Thomas E. Wurm (3)...................... 1997 $156,500 $ 20,000 55,000
Vice President-Operations 1996 124,000 5,000 10,000
Ronald D. DeMoss........................ 1997 $100,700 $ 7,000 3,000
Vice President and General Counsel 1996 95,000 25,000 30,000
</TABLE>
- ---------
(1) The Named Executive Officers did not receive any annual compensation not
properly characterized as salary or bonus, except for certain prerequisites
or other benefits the aggregate incremental costs of which to the Company
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each such officer. The Company has a medical and health
benefits plan and provides term life insurance for its employees, however,
such plans do not discriminate in scope, terms or operation in favor of
executive officers or directors and are generally available to all salaried
employees. The Company has a 401(k) plan but does not have any other pension
plan or any long-term incentive plan other than the stock option plans
described below.
(2) Represents amounts paid by the Company as withholding taxes in connection
with Mr. Morgenstern's exercise of 60,000 stock options in May 1997. In
return, Mr. Morgenstern surrendered stock options to the Company for
cancellation.
(3) Mr. Wurm resigned effective October 17, 1997.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Ryan pursuant
to which he serves as Chairman of the Board of the Company for a term that
commenced October 1, 1995 and continues until September 30, 1998, unless earlier
terminated in accordance with its terms. The term of the employment agreement is
automatically extended for an additional one year period unless either party
gives notice at least 60 days prior to the date which is one year prior to the
date on which the agreement would otherwise terminate. Mr. Ryan is not required
to render full-time service to the Company. Under the employment agreement, Mr.
Ryan receives an annual salary of $125,000 (subject to annual cost of living
increases) and is eligible to receive an annual bonus in an amount determined by
the Board of Directors. Mr. Ryan is also eligible to participate in employee
benefit plans and to receive fringe benefits made generally available to senior
management.
The Company has entered into an employment agreement with Mr. Morgenstern
pursuant to which he is employed full-time as the President and Chief Executive
Officer of the Company for a term that commenced on October 1, 1995 and
continues to September 30, 1998, unless earlier terminated in accordance with
its terms. The term of the employment agreement is automatically extended for an
additional one year period unless either party gives notice at least 60 days
prior to the date which is one year prior to the date on which the agreement
would otherwise terminate. Under the employment agreement, Mr. Morgenstern
receives an annual salary of $175,000
42
<PAGE> 43
(subject to annual cost of living increases) and is eligible to receive an
annual bonus in an amount determined by the Board of Directors. Mr. Morgenstern
is also eligible to participate in all employee benefit plans and to receive
fringe benefits made generally available to senior management.
The Company has entered into an employment agreement with Mr. Conway
pursuant to which he is employed full-time as the Vice President and Chief
Financial Officer of the Company for a term that commenced on October 1, 1995
and continues to September 30, 1998, unless earlier terminated in accordance
with its terms. The term of the employment agreement is automatically extended
for additional two year periods unless either party gives notice at least 60
days prior to the date which is one year prior to the date on which the
agreement would otherwise terminate. Under the employment agreement, Mr. Conway
receives an annual salary of $90,000, $95,000 and $100,000, respectively, during
the first three years of the employment agreement. In each year following the
third year, Mr. Conway's salary would be adjusted for increases in the cost of
living. Mr. Conway is also eligible to receive an annual bonus in an amount
determined by the Board of Directors. Mr. Conway is also eligible to participate
in all employee benefit plans and to receive fringe benefits made generally
available to senior management.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 1997, Robert B. Fagenson and
William Lerner served as the members of the Compensation Committee. Other than
Mr. Lerner, who is Secretary of the Company, no person who served as a member of
the Company's Compensation Committee during the fiscal year ended September 30,
1997 was (i) an officer or employee of the Company during such fiscal year or
(ii) formerly an officer of the Company. No executive officer of the Company
served as a member of the compensation or similar committee or Board of
Directors of any other entity of which an executive officer served on the
Compensation Committee or Board of Directors of the Company.
The following table sets forth information concerning stock option grants
to the Named Executive Officers during the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK PRICE APPRECIATION
NUMBER OF OPTIONS FOR OPTION TERM
SECURITIES GRANTED TO --------------------------------------------
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIR.
NAME GRANTED(#) YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------- ---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gerald A. Ryan................. 60,000 8.5% 9.38 3/12/02 $155,792 $343,595
William E. Morgenstern......... 55,000 7.8 9.38 3/12/02 142,809 314,962
Jeffrey A. Conway.............. 27,000 3.8 9.38 3/12/02 70,106 154,618
Ronald D. DeMoss............... 3,000 0.4 11.00 11/12/01 9,117 20,147
Thomas E. Wurm................. 50,000 7.1 10.50 10/17/01 145,048 320,518
5,000 0.7 11.00 10/18/01 15,195 33,578
</TABLE>
The following table sets forth information concerning stock option
exercises by the Named Executive Officers during the fiscal year ended September
30, 1997 and the number of shares and the value of grants outstanding as of
September 30, 1997 for each such officer:
43
<PAGE> 44
AGGREGATE OPTION EXERCISES AND
OPTION VALUES AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT 9/30/97 (#)
SHARES
ACQUIRED ON VALUE --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Gerald A. Ryan............................. -- -- 120,500 40,000
William E. Morgenstern..................... 45,071 $587,700 118,084 36,666
Jeffrey A. Conway.......................... -- -- 66,000 18,000
Ronald D. DeMoss........................... -- -- 12,750 17,250
Thomas E. Wurm............................. 27,500 83,512 12,500 25,000
</TABLE>
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
9/30/97 ($)(1)
--------------------------
NAME EXERCISABLE UNEXERCISABLE
------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Gerald A. Ryan.............................................. $1,694,688 $ 470,000
William E. Morgenstern...................................... 1,662,771 430,826
Jeffrey A. Conway........................................... 951,285 211,500
Ronald D. DeMoss............................................ 151,594 227,531
Thomas E. Wurm.............................................. 132,813 253,125
</TABLE>
- ---------
(1) Based on the closing sales price of the Common Stock on the Nasdaq National
Market of $21.125 per share on September 30, 1997 less the exercise price.
COMPENSATION OF DIRECTORS
Directors who are not executive officers of the Company (Messrs. Carrino,
Fagenson, Joseffer and Lerner) receive $250 for each Board meeting attended in
person or by telephone and an annual retainer of $2,000, payable quarterly, and
are reimbursed for their out-of-pocket expenses incurred for attendance at
meetings of directors and shareholders. Mr. Lerner receives no compensation for
serving as Secretary to the Company. In addition, on March 12, 1997 the Board of
Directors granted 30,000 stock options to each of Messrs. Joseffer, Fagenson and
Lerner and 60,000 stock options to Mr. Carrino. These options have an exercise
price of $9.375 per share and vest one-third on the date of the grant and
one-third on each anniversary of the date of grant. Directors who are executive
officers of the Company receive no additional compensation for their services as
directors.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the shares of Common
Stock beneficially owned by (i) each beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company; (iii) the
Named Executive Officers of the Company; and (iv) the directors and executive
officers of the Company as a group. This information is presented as of November
4, 1997. Except as otherwise noted, the
44
<PAGE> 45
Company believes that the persons listed below have sole investment and voting
power with respect to the shares of Common Stock beneficially owned by them.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) CLASS
- ----------------------------------------------------------------------- ------------ -------
<S> <C> <C>
Gerald A. Ryan......................................................... 680,576 8.6%
William E. Morgenstern................................................. 510,525 6.5
William Lerner......................................................... 48,000 *
Vincent A. Carrino..................................................... 50,000 *
Robert B. Fagenson (3)................................................. 214,000 2.7
Marc W. Joseffer....................................................... 121,442 1.6
Jeffrey A. Conway...................................................... 133,500 1.7
Ronald D. DeMoss....................................................... 13,250 *
Kirk R. Smithee........................................................ 7,375 *
Directors / Executive Officers as a group (9 persons).................. 1,833,793 21.7
Massachusetts Mutual Life Insurance Company and affiliates, 1295 State
Street Springfield, Massachusetts 01111.............................. 809,223 10.4
</TABLE>
- ---------
* Less than one percent (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 6,000 shares owned by the Fagenson & Co., Inc. Employee Pension
plan and Trust, of which Mr. Fagenson is a co-trustee.
ITEM 13 CERTAIN TRANSACTIONS
In connection with the acquisition of D.A.M.S.L. Corp. in May 1994, the
Company entered into a consulting agreement and non-compete agreement with Marc
W. Joseffer, a director of the Company. Mr. Joseffer receives payments from the
Company under a five-year consulting agreement which expires on May 18, 1999.
Annual payments to Mr. Joseffer under such consulting agreement are $132,000,
$120,000, $144,000, $132,000 and $192,000, respectively. Under the terms of the
non-compete agreement entered into by Mr. Joseffer, he receives monthly payments
from the Company of $2,143, which monthly payments continue through March 1999.
The Company leases two store locations from Mr. Joseffer or a company
controlled by him. The Company paid $92,238 in rent and related amounts under
such leases for the year ended September 30, 1997. The Company believes the
lease rate and terms, which include the Company's obligation to pay real estate
taxes, are similar to those obtainable on an arms'-length basis.
45
<PAGE> 46
RENT-WAY, INC.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 8-K
(a) Financial Statements.
See index to Financial Statements.
(a) Exhibits required by Item 601 of Regulation S-K.
The following are filed as Exhibits to this Annual Report filed on Form
10-K for the year ended September 30, 1997:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
2.1(1) Asset Purchase Agreement among the Company, AVRentals/Warren, Inc.,
AVRentals/Youngstown, Inc., Best Rentals Northside, Inc. and Dennis Goldman,
dated February 24, 1995.
2.2(4) Agreement and Plan of Merger among the Company, McKenzie Leasing Corporation,
Steve A. McKenzie, Brenda G. McKenzie and others, dated June 9, 1995.
2.3(7) Stock Purchase Agreement by and among the Company, Diamond Leasing
Corporation, Kenneth H. Moye and Lee Brady, dated July 20, 1996.
2.4* Stock Purchase Agreement by and among the Company, Bill Coleman TV, Inc. and
David Coleman, dated January 2, 1997.
2.5(6) Stock Purchase Agreement by and among the Company, Perry Electronics, Inc.,
Robert L. Thomas, Norma J. Thomas, Randall D. Snyder and Niki L. Snyder, dated
January 24, 1997.
2.6(6) Closing Letter Agreement dated February 6, 1997 amending Stock Purchase
Agreement by and among the Company, Perry Electronics, Inc., Robert L. Thomas,
Norma J. Thomas, Randall D. Snyder and Niki L. Snyder.
3.1* Articles of Incorporation of the Company, as amended.
3.2(2) By-Laws of the Company, as amended.
4.1(1) Form of Stock Option Agreement between the Company and each of the
shareholders of McKenzie Leasing Corporation, dated July 21, 1995.
4.2(1) Registration Rights Agreement among the Company, Massachusetts Mutual Life
Insurance Co. and affiliates thereof ("MassMutual"), dated July 15, 1995.
4.3* Shareholder's Agreement between the Company and Lee Brady, dated July 20,
1996.
4.4* Stock Option Agreement between the Company and David Coleman, dated January 2,
1997.
10.1(2) Company's Stock Option Plan of 1992.
10.2(1) Company's 1995 Stock Option Plan.
10.3(2) Form of Non-Plan Stock Option Agreement.
10.4(5) Employment Agreement between William E. Morgenstern and the Company, dated
October 1, 1995.
10.5(5) Employment Agreement between Jeffrey A. Conway and the Company, dated October
1, 1995.
10.6(5) Employment Agreement between Gerald A. Ryan and the Company, dated October 1,
1995.
10.7(1) Consulting Agreement between the Company and Marc Joseffer, dated May 18,
1994.
10.8(1) Non-Competition Agreement between Marc Joseffer and the Company, dated May 18,
1994.
10.9(1) Consulting Agreement between the Company and McKenzie Development Corporation,
dated July 21, 1995.
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
10.10(1) Non-Competition Agreement between the Company and Steve A. McKenzie, dated
July 21, 1995.
10.11(1) Non-Competition Agreement between the Company and Brenda G. McKenzie, dated
July 21, 1995.
10.12(4) Subordinated Note Agreement among the Company and MassMutual, dated July 15,
1995.
10.13(1) Form of MassMutual Subordinated Note, dated July 15, 1995.
10.14(1) Form of MassMutual Warrant, dated July 15, 1995.
10.15* Credit Agreement by and among the Company, the banks party thereto and
National City Bank of Pennsylvania, as Agent, dated November 22, 1996 (the
"Credit Agreement").
10.16* First Amendment to Credit Agreement, dated January 31, 1997.
10.17(8) Form of the Company's 7% Convertible Subordinated Debentures due 2007 (the
"Debentures").
10.18(8) Indenture, dated February 4, 1997, between the Company and Manufacturers and
Traders Trust Company, as Trustee, in respect of the Debentures.
11* Statement regarding computation of earnings per share.
23* Consent of Coopers & Lybrand, L.L.P.
27* Financial Data Schedule.
</TABLE>
- ---------
* Filed herewith
(1) Previously filed, as of January 5, 1996, pursuant to the Company's
Registration Statement on Form SB-2 (No. 333-116).
(2) Previously filed, as of December 8, 1992, pursuant to the Company's
Registration Statement on Form S-18 (No. 33-55562-NY).
(3) Previously filed, as of July 9, 1993, pursuant to Amendment No. 2 to the
Company's Registration Statement of Form S-18 (No. 33-55562-NY).
(4) Previously filed, as of August 15, 1995, as an exhibit to the Company's
Report on Form 8-K.
(5) Previously filed, as of December 28, 1995, as an exhibit to the Company's
Report on Form 10-KSB.
(6) Previously filed, as of February 21, 1997, as an exhibit to the Company's
Report on Form 8-K.
(7) Previously filed, as of August 8, 1996, as an exhibit to the Company's
Report on Form 8-K.
(8) Previously filed, as of May 9, 1997, pursuant to the Company's Registration
Statement on Form S-3 (No. 333-26835).
(b) Reports on Form 8-K:
(1) On June 3, 1996, the Company filed a Form 8-K disclosing the
consummation of the acquisition of Family Rentals and Rent-America.
(2) On August 8, 1996, the Company filed a Form 8-K disclosing that it
had consummated the Stock Purchase Agreement to acquire Diamond
Leasing Corporation.
(3) On January 7, 1997, the Company filed a Form 8-K disclosing that it
had signed a letter of intent to purchase a 15 store rental-purchase
chain.
(4) On January 7, 1997, the Company filed a Form 8-K disclosing that it
had signed a definitive purchase agreement to acquire Bill Coleman
TV, a 15 store rental-purchase chain.
(5) On January 31, 1997, the Company filed a Form 8-K disclosing that it
had signed a definitive purchase agreement to acquire Rental King, a
privately owned 70 store rental-purchase chain.
47
<PAGE> 48
(6) On February 14, 1997, the Company filed a Form 8-K disclosing the
issuance of its $20 million in convertible subordinated debentures
due 2007.
(7) On February 21, 1997, the Company filed a Form 8-K disclosing the
consummation of the acquisition of Rental King, d/b/a/ Perry
Electronics ("Rental King").
(8) On April 21, 1997, the Company filed a Form 8-K/A containing audited
financial statements of Rental King and pro forma financial
statements with respect to the Rental King acquisition.
48
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Registrant: RENT-WAY, INC.
By: /s/ WILLIAM E. MORGENSTERN
------------------------------------------------
President and Chief
Executive Office
(Principal Executive Officer)
November 6, 1997
-------------------------------------------------
Date
By: /s/ JEFFREY A. CONWAY
----------------------------------------------------
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
November 6, 1997
-----------------------------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------ -------------------
<S> <C> <C>
/s/ GERALD A. RYAN Chairman of the Board of November 6, 1997
- ------------------------------------- Directors
Gerald A. Ryan
/s/ WILLIAM E. MORGENSTERN Director November 6, 1997
- -------------------------------------
William E. Morgenstern
/s/ MARC W. JOSEFFER Director November 6, 1997
- -------------------------------------
Marc W. Joseffer
/s/ ROBERT FAGENSON Director November 6, 1997
- -------------------------------------
Robert Fagenson
/s/ WILLIAM LERNER Secretary and Director November 6, 1997
- -------------------------------------
William Lerner
/s/ VINCENT CARRINO Director November 6, 1997
- -------------------------------------
Vincent Carrino
</TABLE>
49
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2.1(1) Asset Purchase Agreement among the Company, AVRentals/Warren,
Inc., AVRentals/Youngstown, Inc., Best Rentals Northside, Inc. and
Dennis Goldman, dated February 24, 1995.
2.2(4) Agreement and Plan of Merger among the Company, McKenzie
Leasing Corporation, Steve A. McKenzie, Brenda G. McKenzie and
others, dated June 9, 1995.
2.3(7) Stock Purchase Agreement by and among the Company, Diamond
Leasing Corporation, Kenneth H. Moye and Lee Brady, dated
July 20, 1996.
2.4* Stock Purchase Agreement by and among the Company, Bill Coleman
TV, Inc. and David Coleman, dated January 2, 1997.
2.5(6) Stock Purchase Agreement by and among the Company, Perry
Electronics, Inc., Robert L. Thomas, Norma J. Thomas, Randall D.
Snyder and Niki L. Snyder, dated January 24, 1997.
2.6(6) Closing Letter Agreement dated February 6, 1997 amending Stock
Purchase Agreement by and among the Company, Perry Electronics,
Inc., Robert L. Thomas, Norma J. Thomas, Randall D. Snyder and
Niki L. Snyder.
3.1* Articles of Incorporation of the Company, as amended.
3.2(2) By-Laws of the Company, as amended.
4.1(1) Form of Stock Option Agreement between the Company and each of
the shareholders of McKenzie Leasing Corporation, dated July 21,
1995.
4.2(1) Registration Rights Agreement among the Company, Massachusetts
Mutual Life Insurance Co. and affiliates thereof ("MassMutual"),
dated July 15, 1995.
4.3* Shareholder's Agreement between the Company and Lee Brady, dated
July 20, 1996.
4.4* Stock Option Agreement between the Company and David Coleman,
dated January 2, 1997.
10.1(2) Company's Stock Option Plan of 1992.
10.2(1) Company's 1995 Stock Option Plan.
10.3(2) Form of Non-Plan Stock Option Agreement.
</TABLE>
<PAGE> 51
<TABLE>
<S> <C>
10.4(5) Employment Agreement between William E. Morgenstern
and the Company, dated October 1, 1995.
10.5(5) Employment Agreement between Jeffrey A. Conway and
the Company, dated October 1, 1995.
10.6(5) Employment Agreement between Gerald A. Ryan and the Company,
dated October 1, 1995.
10.7(1) Consulting Agreement between the Company and Marc Joseffer,
dated May 18, 1994.
10.8(1) Non-Competition Agreement between Marc Joseffer and
the Company, dated May 18, 1994.
10.9(1) Consulting Agreement between the Company and
McKenzie Development Corporation, dated July 21,
1995.
10.10(1) Non-Competition Agreement between the Company and Steve A.
McKenzie, dated July 21, 1995.
10.11(1) Non-Competition Agreement between the Company and Brenda G.
McKenzie, dated July 21, 1995.
10.12(4) Subordinated Note Agreement among the Company and MassMutual,
dated July 15, 1995.
10.13(1) Form of MassMutual Subordinated Note, dated July 15, 1995.
10.14(1) Form of MassMutual Warrant, dated July 15, 1995.
10.15* Credit Agreement by and among the Company, the
banks party thereto and National City Bank of
Pennsylvania, as Agent, dated November 22, 1996
(the "Credit Agreement").
10.16* First Amendment to Credit Agreement, dated January 31, 1997.
10.17(8) Form of the Company's 7% Convertible Subordinated Debentures due
2007 (the "Debentures").
10.18(8) Indenture, dated February 4, 1997, between the Company and
Manufacturers and Traders Trust Company, as Trustee, in respect of
the Debentures.
11* Statement regarding computation of earnings per share.
23* Consent of Coopers & Lybrand, L.L.P.
27* Financial Data Schedule.
</TABLE>
<PAGE> 52
- -----------------
* Filed herewith
(1) Previously filed, as of January 5, 1996, pursuant to the Company's
Registration Statement on Form SB-2 (No. 333-116).
(2) Previously filed, as of December 8, 1992, pursuant to the Company's
Registration Statement on Form S-18 (No. 33-55562-NY).
(3) Previously filed, as of July 9, 1993, pursuant to Amendment No. 2 to the
Company's Registration Statement of Form S-18 (No. 33-55562-NY).
(4) Previously filed, as of August 15, 1995, as an exhibit to the Company's
Report on Form 8-K.
(5) Previously filed, as of December 28, 1995, as an exhibit to the Company's
Report on Form 10-KSB.
(6) Previously filed, as of February 21, 1997, as an exhibit to the Company's
Report on Form 8-K.
(7) Previously filed, as of August 8, 1996, as an exhibit to the Company's
Report on Form 8-K.
(8) Previously filed, as of May 9, 1997, pursuant to the Company's Registration
Statement on Form S-3 (No. 333-26835).
<PAGE> 1
Exhibit 2.4
STOCK PURCHASE AGREEMENT
Dated January 2, 1997
Between
RENT-WAY, INC.
(a Pennsylvania Corporation),
BILL COLEMAN TV, INC.
(a Michigan Corporation),
and
DAVID COLEMAN
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
January 2, 1997, by and among RENT-WAY, INC., a Pennsylvania corporation with
its principal place of business at 3230 West Lake Road, Erie, Pennsylvania
16505 (the "Buyer"); DAVID COLEMAN, an individual residing at 3706 Northview,
Kalamazoo, Michigan 49004 (the "Seller"); and BILL COLEMAN TV, INC., a Michigan
corporation with its principal place of business at 5519 E. Cork Street,
Kalamazoo, Michigan, 49001 (the "Corporation").
RECITALS:
WHEREAS, Seller owns all of the issued and outstanding shares
of stock of the Corporation; and
WHEREAS, Buyer desires to purchase from the Seller, and
Seller desires to sell to Buyer, all of the shares of the Corporation upon the
terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained in this Agreement, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer,
Seller and the Corporation agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms below
shall have the following meanings:
(a) "Accounts" shall mean the customer accounts established
and existing under the Rental Contracts.
(b) "Active Rental Merchandise" shall mean rental merchandise
of the Business which is subject to a Rental Contract as of the Closing Date.
(c) "Agreement" shall mean this Stock Purchase Agreement,
together with the Schedules and Exhibits attached to this Agreement and the
certificates and instruments to be executed and delivered in connection with
this Agreement.
(d) "Business" shall mean the rental and rental-purchase
business in Michigan conducted by the Corporation at the Store Locations.
(e) "Business Records" shall mean all originals and copies of
all operating data and records of the Business on whatever media including,
without limitation, financial, accounting and bookkeeping books and records,
purchase and sale orders and invoices, sales and sales
<PAGE> 3
- 2 -
promotional data, advertising materials, marketing analyses, past and present
price lists, past and present customer service and credit files, personnel
records and other records pertaining to the Business.
(f) "Closing Date" shall mean January 2, 1997, except that if
all of the conditions to Closing set forth in Articles 7 and 8 of this
Agreement shall not have been satisfied or waived on or prior to such date,
"Closing Date" shall mean the third business day after the satisfaction or
waiver of all such conditions to Closing, or on such other date as the parties
may agree.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended to date.
(h) "Defaulted Rental Purchase Contract" shall mean a Rental
Purchase Contract for which either of the following is true as of the Closing
Date: (i) a payment due on or before November 29, 1996 has not been made by the
customer which is the party thereto or (ii) the rental merchandise covered
thereby was lost, damaged or destroyed by theft or casualty.
(i) "Encumbrance" shall mean any restriction, charge, lien,
pledge, option, easement, security interest, right-of-way, encumbrance or other
similar right of any Person.
(j) "Environmental Claims" shall mean any notice of
violation, notice of potential or actual responsibility or liability, claim,
suit, action, demand, directive or order by any Person for any damage
(including, but not limited to, personal injury, tangible or intangible
property damage, contribution, indemnity, indirect or consequential damages,
damage to the environment, environmental removal, response or remediation
costs, nuisance, pollution, contamination or other adverse effects on the
environment or for fines, penalties or restrictions on existing environmental
permits or licenses) resulting from or relating to (i) the presence of, the
Release or threatened Release into the environment of, or exposure to, any
Hazardous Substance, (ii) the generation, manufacture, processing,
distribution, use, handling, transportation, storage, treatment or disposal of
any Hazardous Substance, (iii) the violation, or alleged violation, of any
Environmental Laws or (iv) the non-compliance or alleged non-compliance with
any Environmental Laws.
(k) "Environmental Laws" shall mean any applicable statutes,
ordinances, directives or other laws, any rules or regulations, orders, and any
licenses, permits, orders, judgments, notices or other requirements issued
pursuant thereto, enacted, promulgated or issued by any Governmental Authority,
relating to pollution or protection of public health or the environment
(including, but not limited to, any air, surface water, groundwater, land
surface or sub-surface strata, whether outside, inside or under any structure),
or to the identification, reporting, generation, manufacture, processing,
distribution, use, handling, treatment, storage, disposal, labelling, deposit,
transporting, presence, Release or threatened Release of, any Hazardous
Substances, pollutants, contaminants, wastes or any other substances or
materials.
<PAGE> 4
- 3 -
Without limiting the generality of the foregoing, Environmental Laws shall
include in the United States, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Toxic Substances
Control Act, as amended, the Hazardous Materials Transportation Act, as
amended, the Resource Conservation and Recovery Act, as amended, the Clean
Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean Air
Act, as amended, and the Occupational Safety and Health Act, as amended, and
all analogous laws enacted, promulgated or lawfully issued by any Governmental
Authority.
(l) "Future Rental Revenue Stream" shall mean, as of any date
and as to any Rental Purchase Contract, an amount equal to the total dollar
amount of remaining rental payments necessary for a customer to acquire
ownership of the rental merchandise under such Rental Purchase Contract.
"Future Rental Revenue Stream" shall be calculated by multiplying the monthly
rental rate of a Rental Purchase Contract by the remaining number of monthly
payments necessary for a customer to acquire ownership of the rental
merchandise under such Rental Purchase Contract.
(m) "GAAP" shall mean generally accepted accounting
principles in the United States.
(n) "Governmental Authority" shall mean any federal, state,
local or foreign government, or any political subdivision of any of the
foregoing, or any court, agency or other entity, body, organization or group,
exercising any executive, legislative, judicial, quasi-judicial, regulatory or
administrative function of government.
(o) "Governmental Requirement" shall mean any rule,
regulation, code, plan, injunction, judgment, order, decree, ruling or charge
of any Governmental Authority.
(p) "Hazardous Substances" shall mean any pollutants,
contaminants, substances, chemicals, carcinogens, wastes and any ignitable,
corrosive, reactive, toxic or other hazardous substances of materials, whether
solids, liquids or gases (including, but not limited to, petroleum and its
derivatives, PCBs, asbestos, radioactive materials, waste waters, sludge, slag
and any other substance, material or waste), as defined in or regulated by any
Environmental Laws or as determined by any Governmental Authority.
(q) "Inactive Rental Merchandise" shall mean the rental
merchandise of the Business which is not subject to a Rental Contract as of the
Closing Date.
(r) "Intangible Property" shall mean all patents, trademarks,
service marks, tradenames, copyrights, inventions, know how, trade secrets,
products or other developments in progress and other intangible property owned
or used pursuant to a license agreement or otherwise, by the Corporation in the
conduct of the Business.
<PAGE> 5
- 4 -
(s) "Liabilities" shall mean all liabilities and obligations
of every nature of the Corporation, whether absolute, accrued, contingent,
known, unknown, matured, unmatured or otherwise, and whether or not disclosed
or required to be disclosed or provided for in the Corporation's financial
statements in accordance with GAAP or pursuant to this Agreement, including but
not limited to (A) all indebtedness for borrowed money, (B) all trade accounts
payable, (C) all liabilities and obligations pursuant to any agreement to which
the Corporation is a party and (D) any liability for Taxes, or loss of a tax
benefit.
(t) "Net Book Value of Rental Merchandise" shall mean the net
book value of rental merchandise of the Corporation on December 28, 1996 as
determined in accordance with GAAP applied on a consistent basis.
(u) "Permits" shall mean all licenses, permits and other
authorizations used in the Business.
(v) "Person" shall mean any Governmental Authority,
individual, corporation, partnership, trust or other entity.
(w) "Proceeding" shall mean any action, order, writ,
injunction, judgment, decree, claim, suit, litigation, dispute, grievance,
arbitral action, investigation or other proceeding.
(x) "Purchase Price" shall mean $6,700,000 plus an amount,
not to exceed $35,000, for the purchase of new Rental Merchandise which shall
be determined in accordance with Exhibit A, payable in cash, (i) less the
amount of the Corporation's Liabilities as of December 31, 1996, (ii) less the
difference, if positive, between (A) $7,602,804 and (B) the Future Rental
Revenue Stream under all Rental Purchase Contracts (other than Defaulted Rental
Purchase Contracts) as of December 28, 1996 and (iii) less the difference, if
positive, between (A) $2,177,818 and (B) the Net Book Value of Rental
Merchandise as of December 31, 1996, subject to adjustment after the Closing in
accordance with Section 2.2(b).
(y) "Real Property" shall mean all real property currently
owned or leased by the Corporation or in which Corporation has any interest or
previously owned in the past 10 years.
(z) "Release" shall mean any spillage, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing into the environment.
(aa) "Rental Contracts" shall mean all rental and
rental-purchase contracts relating to the Business, which are duly signed by a
customer, made in the ordinary course of business and otherwise legally
enforceable, providing for the rental to customers of furniture, appliances,
electronic equipment and other personal property. Rental Contracts shall not
include rental and rental-purchase contracts that customers entered into as a
part of a promotion or other marketing strategy that did not require the
customer to pay at least one week's rent prior to delivery of the
<PAGE> 6
- 5 -
rental property; provided, however, that this exclusion shall not apply to any
rental or rental-purchase contracts for which a free rental period has expired
and the customer has paid at least one week's rent prior to Closing.
(ab) "Rental Purchase Contracts" shall mean those Rental
Contracts which permit customers to acquire ownership of the rental
merchandise.
(ac) "Rental Merchandise" shall mean (i) the Active Rental
Merchandise and (ii) the Inactive Rental Merchandise.
(ad) "Representative" shall mean any officer, director,
principal, attorney, accountant, agent, employee or other representative of any
Person.
(ae) "Shares" shall mean all of the issued and outstanding
shares of stock of the Corporation.
(af) "Store Locations" shall mean the rental store locations
set forth on Schedule 1.1(af).
(ag) "Tangible Personal Property" shall mean all tangible
personal property (other than rental merchandise) used to conduct the Business,
including, without limitation, vehicles, computers, modems, printers, fax
machines, file cabinets, desks, calculators, telephone systems, counters, safes
and security systems, together with any transferable manufacturer or vendor
warranties related thereto. Tangible Personal Property shall not include any
item conveyed from the Corporation pursuant to the Preclosing Transactions.
(ah) "Tax" shall mean any federal, state, local or foreign
income, gross receipts, license, payroll, employment, excise, severance,
start-up, occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, intangible
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
(ai) "Tax Return" shall mean any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and any amendment thereof.
1.2 Other Defined Terms. The following terms shall have
meanings defined for such terms in the Sections set forth below:
<PAGE> 7
- 6 -
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Bank Payoff 2.3(b)
BDO 2.2(b)
BDO Audit 2.2(b)
Business Reports 4.5
Buyer's Audit 2.2(b)
Closing 3.1
Closing Certificate 2.2(b)
Escrow Agent 2.3(b)
Escrow Funds 2.3(b)
Financial Statements 4.9
Indemnified Party 9.2(c)
Indemnifying Party 9.2(c)
Interim Financial Statements 4.9
Losses 9.2
Non-Compete Agreement 6.5
Preclosing Transactions 6.8
Real Property Leases 4.10
Stock Option Agreement 6.6
Third-Party Accountants 2.2(b)
Unconfirmed Rental Purchase Contracts 2.2(b)
</TABLE>
1.3 Usage of Terms. Except where the context otherwise
requires, words importing the singular number shall include the plural number
and vice versa.
1.4 References to Articles, Sections, Exhibits and Schedules.
All references in this Agreement to Articles, Sections (and other
subdivisions), Exhibits and Schedules refer to the corresponding Articles,
Sections (and other subdivisions), Exhibits and Schedules of or attached to
this Agreement, unless the context expressly, or by necessary implication
otherwise requires.
ARTICLE 2
PURCHASE AND SALE OF SHARES
2.1 Transfer of Shares. Subject to the terms and conditions
contained in this Agreement, on the Closing Date Seller shall sell, convey,
transfer, assign and deliver to Buyer, and Buyer shall acquire from Seller, the
Shares, free and clear of all Encumbrances.
2.2 Purchase Price; Post-Closing Adjustment.
<PAGE> 8
- 7 -
(a) At the Closing (as hereinafter defined) Buyer shall pay
to Seller for the sale, transfer, assignment, conveyance and delivery of the
Shares an amount equal to the Purchase Price as provided in Sections 2.2 and
2.3.
(b) On the Closing Date, Seller shall deliver to Buyer a
certificate, certified by an executive officer of the Corporation (the "Closing
Certificate"), setting forth (i) a pro forma estimate of the Liabilities as of
December 31, 1996; (ii) a schedule of the Defaulted Rental Purchase Contracts
existing as of December 28, 1996 and a computation of the Future Rental Revenue
Stream as of December 28, 1996 under all Rental Purchase Contracts other than
Defaulted Rental Purchase Contracts; and (iii) a computation of the Net Book
Value of Rental Merchandise as of December 31, 1996. The Closing shall proceed,
and any adjustments to the Purchase Price shall be made based on the Closing
Certificate.
There shall be conducted by the Corporation's certified
public accountants, BDO Seidman LLP ("BDO") within sixty (60) days following
the Closing Date an audit, as part of BDO's audit of the Corporation's
financial statements for the period ending December 31, 1996, of (i) the
Liabilities of the Corporation as of December 31, 1996 and (ii) the Net Book
Value of Rental Merchandise of the Corporation as of December 31, 1996 (the
"BDO Audit"). Simultaneously with such audit, there shall be conducted by
Buyer an audit of the Corporation's financial statements and Business Records
to determine the existence of any Rental Purchase Contract (other than a
Defaulted Rental Purchase Contract disclosed to Buyer in the Closing
Certificate on the Closing Date) which meets any of the criteria set forth on
Schedule 2.2(b) (each, an "Unconfirmed Rental Purchase Contract") (the "Buyer's
Audit"). BDO shall report to Buyer and Seller any increase in the amount of the
Liabilities over the amount stated in the Closing Certificate and/or any change
in the Net Book Value of Rental Merchandise upon discovery, and Buyer shall
report to Seller all Unconfirmed Rental Purchase Contracts. As promptly as
reasonably possible, but in any event not later than sixty (60) days after the
Closing Date, BDO shall deliver the BDO Audit report to Buyer and Seller and
Buyer shall deliver the Buyer's Audit report to Seller. Buyer's accountants
shall have access to all of BDO's work papers relating to the BDO Audit, and
Seller shall have access to all of Buyer's work papers relating to the Buyer's
Audit. Each of Buyer and Seller shall have fifteen (15) days after receipt of
the BDO Audit to object to the amount of any increase in the Liabilities and
for Seller to account for any changes in the Net Book Value of Rental
Merchandise; and Seller shall have fifteen (15) days after the receipt of the
Buyer's Audit to clear any Unconfirmed Rental Purchase Contract. If Seller is
unable, within such 15-day periods, to clear any Unconfirmed Rental Contracts
and/or account for any changes in the Net Book Value of Rental Merchandise, the
Purchase Price shall be further reduced by (i) the Future Rental Revenue Stream
of all Unconfirmed Rental Purchase Contracts and (ii) the difference, if
positive, between the Net Book Value of Rental Merchandise set forth in the
Closing Certificate and the Net Book Value of Rental Merchandise as determined
in the audit provided, however, that such dollar for dollar reductions in the
Purchase Price shall only occur if the Future Rental Revenue Stream and the Net
Book Value of Rental Merchandise set forth in the Closing Certificate are below
$7,602,804 and $2,177,818, respectively. Otherwise, such dollar for dollar
<PAGE> 9
- 8 -
reduction in the Purchase Price shall not occur unless and until the Future
Rental Revenue Stream and the Net Book Value of Rental Merchandise, as
calculated after such audits, are below $7,602,804 and $2,177,804,
respectively. In addition, if the amount of Liabilities is in excess of the
Liabilities set forth on the Closing Certificate, the Purchase Price shall be
reduced by such amount.
If the Buyer and the Seller are unable to reach agreement as
to any final Purchase Price adjustment within 15 days after the end of the
second 15-day review period set forth above, then KMPG Peat Marwick (the
"Third-Party Accountants") shall promptly be retained to undertake the
determination of any adjustments to the Purchase Price necessary under this
Section 2.2(b), which determination shall be made as quickly as possible. Such
determination of the Third-Party Accountants shall be final and binding upon
the Buyer and the Seller, and all expenses of the Third-Party Accountants shall
be borne by the party found by the Third-Party Accountants to be in the
greatest error with respect to its position on the amount of such adjustment.
The amount of any such further reduction to the Purchase
Price shall be payable by Seller within five (5) days after the expiration of
the second 15-day review period set forth above unless Seller contests such
adjustment in which case all payments shall be made within 5 days after the
Third-Party Accountants' determination.
2.3 Payment of Purchase Price. On the Closing Date, Buyer
shall pay the Purchase Price to Seller as follows:
(a) Buyer shall pay to Seller the Purchase Price (as
adjusted, if applicable) minus the Escrow Funds (as hereinafter defined), as
set forth in Exhibit A hereto.
(b) Buyer shall deliver to Manufacturers and Traders Trust
Company, Buffalo, New York (the "Escrow Agent") $350,000 (the "Escrow Funds")
by wire transfer as instructed by the Escrow Agent in a letter delivered to
Buyer not less than two days prior to the Closing, such funds to be held (i) to
pay for any adjustments in the Purchase Price pursuant to Section 2.2 and (ii)
to provide partial security for Seller's indemnity obligations in Article 9
hereof. The Escrow Funds shall be held as follows: $200,000 shall be held
until the audit of the Corporation's financial statements and the Corporation's
Business Records pursuant to Section 2.2, and $150,000 (the "Indemnity Escrow
Amount") shall be held for a period of two (2) years after the Closing Date.
Seller and Buyer agree to jointly direct the release of the Escrow Funds, other
than the Indemnity Escrow Amount, as soon as practical after the Purchase Price
adjustment and audit are completed. The Indemnity Escrow Amount, as well as the
other Escrow Funds, shall be held and disbursed in accordance with, and
pursuant to, the terms and conditions of an Escrow Agreement among Seller,
Buyer and Escrow Agent in substantially the form of Exhibit B.
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(c) At the Closing, Buyer shall pay $2,499,636.77 to FINOVA
Capital Corporation (the "Bank Payoff") and certain of the Corporation's
Liabilities.
2.4 Sales Taxes. Seller shall be responsible for any income,
transfer, sales or use tax imposed by reason of the transfer of the Shares
provided hereunder.
ARTICLE 3
CLOSING
3.1 Closing. The closing of the transaction contemplated in
this Agreement (the "Closing") shall be held at 9:00 a.m. local time on the
Closing Date at the offices of the Corporation in Kalamazoo, Michigan, or at
such other place as shall be agreed to by Seller and Buyer. The Closing shall
be effective as of the commencement of business on the Closing Date.
3.2 Stock Certificates and Instruments of Assignment. To
effect the transfer referred to in Section 2.1 on the Closing Date, the Seller
shall deliver to Buyer, each certificate representing any of the Shares held by
the Seller and all stock powers or other instruments of assignment reasonably
requested by Buyer. Such instruments of assignment shall be in form and
substance, and shall be executed and delivered in a manner, satisfactory to
Buyer.
3.3 Purchase Price; Certificates. On the Closing Date, Buyer
shall deliver and tender the Purchase Price. Buyer and Seller shall deliver the
certificates, agreements and other items described in Articles 7 and 8 of this
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE CORPORATION
Seller and the Corporation, jointly and severally, represent
and warrant to Buyer that the following are true, correct and complete on the
date of this Agreement, and shall be true, correct and complete as of the
Closing Date:
4.1 Organization and Good Standing. The Corporation is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan. Schedule 4.1 sets forth each jurisdiction other
than the jurisdiction of organization where the Corporation is qualified to do
business and each tradename or assumed name used by the Corporation in the
conduct of the Business. The Corporation is duly qualified to do business in,
and in good standing under the laws of, each jurisdiction in which such
qualification is necessary under the applicable laws as result of the conduct
of its respective business or the ownership of its respective properties. The
Corporation has full power and authority to conduct its business as it is
presently being conducted and to own and lease its properties and assets. The
Corporation has no
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subsidiaries. The Corporation conducts the Business directly and not through
any association, joint venture, partnership or other business entity.
4.2 Authority; Authorization; Binding Effect. Seller and the
Corporation have all necessary power and authority and have taken all action
necessary to execute and deliver this Agreement and the instruments to be
executed and delivered pursuant hereto, to consummate the transactions
contemplated by this Agreement and to perform their obligations under this
Agreement. Copies of all resolutions of the Board of Directors of the
Corporation with respect to the transactions contemplated by this Agreement,
certified by the Secretary or an Assistant Secretary of the Corporation in form
satisfactory to counsel for Buyer, have been or will be delivered to Buyer.
This Agreement has been duly executed and delivered by Seller and the
Corporation and constitutes a legal, valid and binding obligation of Seller and
the Corporation enforceable against Seller and the Corporation in accordance
with its terms, except as enforcement may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors rights generally and (ii) the discretion of the
appropriate court with respect to specific performance, injunctive relief or
other forms of equitable remedies.
4.3 No Conflicts, Violations or Proceedings. The execution
and delivery of this Agreement, the consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
and will not result in (i) a violation of or conflict with any provision of the
Certificate of Incorporation, Bylaws or other organization certificates or
documents of the Corporation, (ii) to the best of the Seller and the
Corporation's knowledge, a breach of, or a default under, any material term or
provision of any contract, agreement, indebtedness, encumbrance, commitment,
license, franchise, permit, authorization or concession relating to the
Business to which Seller or the Corporation is a party, (iii) to the best of
the Seller and the Corporation's knowledge, a violation by Seller or the
Corporation in any material respect of any statute, rule, regulation,
ordinance, code, order, judgment, writ, injunction, decree or award or (iv) an
imposition of any Encumbrance on any of the Shares. There is no pending or, to
the knowledge of Seller or the Corporation, threatened or anticipated
Proceeding against, relating to or affecting the transactions contemplated by
this Agreement.
4.4 No Consents or Approvals. Except as otherwise set forth
on Schedule 4.4, no consent, approval or authorization of, or declaration,
filing or registration with, to the knowledge of Seller or the Corporation, any
Governmental Authority or any other Person is required to be made or obtained
by Seller or the Corporation in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement.
4.5 Customer/Account Information. The Corporation has
delivered to Buyer the reports set forth on Schedule 4.5 (the "Business
Reports"). The Business Reports are true and correct in all respects and fairly
present the operations of the Business.
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4.6 Title to Shares. On the Closing Date, Seller shall own
all of the Shares issued in his name free of any Encumbrance and subject to no
restrictions with respect to transferability, other than restrictions generally
applicable under federal or state securities laws.
4.7 Capitalization. Schedule 4.7 sets forth the authorized,
issued and outstanding shares of capital stock of the Corporation, the legal
and beneficial ownership thereof and any Encumbrances thereon. All of the
Shares are duly authorized, validly issued, fully paid and nonassessable, and
were issued in compliance with all applicable laws. All voting rights with
respect to the Corporation are vested in the Shares. Except as set forth in
Schedule 4.7, (a) there are no outstanding shares of capital stock of the
Corporation, or outstanding securities convertible into or exchangeable or
exercisable for shares of capital stock of the Corporation, (b) there are no
bonds, debentures, notes, or other indebtedness having the right to vote on any
matters on which the Corporation's shareholders may vote, (c) there are no
outstanding options, warrants, rights, contracts, commitments, understandings
or arrangements by which the Corporation is bound to issue, repurchase or
otherwise acquire or retire any capital stock of the Corporation, (d) there are
no voting agreements, voting trusts, buy-sell agreements, options or rights or
obligations relating to the shareholders or the capital stock of the
Corporation, and (e) except for certain provisions of this Agreement, there are
no agreements between the Seller and the Corporation which will survive the
Closing. Upon consummation of the transactions contemplated by this Agreement,
Buyer will acquire the Shares, free of any Encumbrance.
4.8 Corporate Records. Except as set forth on Schedule 4.8,
the minute books of the Corporation are complete and accurate and contain a
complete and accurate record of all meetings and actions of shareholders and
directors and of any executive committee or other committee of the shareholders
or board of directors. The stock record book of the Corporation is complete and
accurate and contains a complete and accurate record of all share transactions
for the Corporation from the date of its incorporation. True and complete
copies of the Business Records, the minute book and stock record book of the
Corporation have been made available for review by Buyer.
4.9 Financial Statements. The Corporation and Seller have
delivered or will deliver to Buyer (a) audited financial statements of the
Corporation for each of the years in the three-year period ended December 31,
1995 (consisting of a balance sheet, statement of income, profit and loss and a
statement of cash flows), audited by BDO (the "Financial Statements") and (b)
unaudited interim financial statements of the Corporation (consisting of a
balance sheet, statement of income, profit and loss and a statement of cash
flows) for the 12 month period ended December 31, 1996 (the "Interim Financial
Statements"). Except as set forth on Schedule 4.9, the Financial Statements
and, to the knowledge of Seller and the Corporation, the Interim Financial
Statements fairly present the financial condition and the results of operations
of the Corporation as of their respective dates and for the periods then ended
and the Financial Statements have been prepared in accordance with GAAP applied
on a consistent basis. The books and records of the Corporation fairly reflect
the assets, liabilities and operations of the Corporation in accordance
<PAGE> 13
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with GAAP and the Financial Statements are in conformity therewith. The Interim
Financial Statements are prepared on a consistent basis with prior practice.
4.10 Real Property. Schedule 4.10 lists and describes briefly
all Real Property. Except as set forth on Schedule 4.10, in the past ten years
the Corporation has not owned any Real Property and currently owns no Real
Property. The Corporation has delivered to Buyer correct and complete copies of
the leases and subleases, as amended to date, for the Real Property (the "Real
Property Leases"). Except as set forth on Schedule 4.10, with respect to each
Real Property Lease: (i) to the knowledge of Seller or the Corporation, the
lease or sublease is legal, valid, binding, enforceable and in full force and
effect, (ii) to the knowledge of Seller or the Corporation, the lease or
sublease will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby, (iii) to the knowledge of the Corporation and
the Seller no party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification or acceleration
thereunder, (iv) the Corporation has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold and (v) to the knowledge of Seller or the Corporation, all
facilities leased or subleased thereunder have received all approvals of
governmental authorities (including licenses and permits) required in
connection with the operation thereof and have been operated and maintained in
accordance with applicable laws, rules and regulations.
4.11 Tangible Personal Property. Schedule 4.11, lists all
Tangible Personal Property owned or leased by the Corporation as of December
31, 1996. The Tangible Personal Property constitutes all the tangible personal
property used in the operation of the Business and necessary to conduct the
Business as presently conducted. Except as set forth on Schedule 4.11, the
Tangible Personal Property owned by the Corporation is free and clear of all
Encumbrances. Substantially all of the Tangible Personal Property is located at
the Real Property. The Corporation makes no express warranties regarding the
Tangible Personal Property set forth in Schedule 4.11 and expressly disclaims
the implied warranties of merchantability and fitness for a particular purpose.
The Tangible Personal Property is in all material respects in good working
order, ordinary wear and tear excepted.
4.12 Intangible Property. Schedule 4.12, lists all Intangible
Property. Except as set forth on Schedule 4.12, the Intangible Property is
legally and beneficially owned exclusively by the Corporation and is used
exclusively by the Corporation and, to the knowledge of Seller and the
Corporation, is not the subject of any pending or threatened proceeding for
opposition, cancellation, reexamination, revocation or rectification and, to
the knowledge of Seller and the Corporation, there are no facts or matters
which might give rise to any such proceeding. To the knowledge of Seller or the
Corporation, the use by the Corporation of the Intangible Property is not
infringing upon or otherwise violating the rights of any third party in or to
such Intangible Property, and no proceedings have been instituted against, and
no notices have been received by,
<PAGE> 14
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the Corporation that are presently outstanding alleging that the use by the
Corporation of the Intangible Property infringes upon or otherwise violates any
rights of a third party in or to such Intangible Property. To the knowledge of
the Seller or the Corporation, the consummation of the transactions
contemplated by this Agreement will not result in the loss of or impairment of
any of the Corporation's rights in the Intangible Property. Except as set forth
on Schedule 4.12, no shareholder, director, officer or employee of the
Corporation owns, directly or indirectly, in whole or in part, any right in the
Intangible Property that the Corporation has used or the use of which is
necessary for the Business as now conducted.
4.13 Compliance with Laws; Permits. Except as set forth in
Schedule 4.13, the Corporation and the conduct of the Business has duly
complied with and is in compliance with all Governmental Requirements. The
Corporation has not received any notice to the effect that, or otherwise been
advised that, the Corporation is not in compliance with any Governmental
Requirement. The Permits constitute all material permits, consents, licenses,
franchises, authorizations and approvals of any Governmental Authority or other
Person (a) which are used in the operation of the Business and (b) which are
necessary to conduct the Business as presently conducted, other than those the
failure of which to obtain would not have a material adverse effect on the
Business, assets or financial condition of the Corporation, to the knowledge of
Seller or the Corporation. All of the Permits are valid and in full force and
effect, no violations thereof have been issued or are anticipated and no
proceeding is pending, or to the knowledge of the Corporation or the Seller
threatened, to revoke or limit any of them. Except as set forth on Schedule
4.13, after due and reasonable inquiry, to the knowledge of the Seller or the
Corporation, the consummation of the transactions contemplated by this
Agreement do not and will not violate or render any of the Permits invalid,
require any amendment or reissuance of any of the Permits or require the
consent of the Governmental Authority which has issued any of the Permits.
4.14 Litigation. Except as set forth in Schedule 4.14, there
is no claim, legal action, suit, arbitration, Governmental Authority
investigation or other legal or administrative proceeding, or any order,
decree, or judgment pending, or to the knowledge of the Corporation and the
Seller threatened, against or relating to the Corporation, its officers,
directors or employees, or its properties, assets or business. Neither the
Seller nor the Corporation knows of any basis or grounds for any such claim,
legal action, suit, arbitration, Governmental Authority investigation or other
legal or administrative proceeding.
4.15 Tax Matters. Except as set forth on Schedule 4.15, the
Corporation has filed all Tax Returns relating to the Business that it was
required to file as of Closing. To the knowledge of Seller and the Corporation,
all such Tax Returns were correct and complete in all respects. Except as set
forth on Schedule 4.15, all Taxes owed by the Corporation (whether or not shown
on any Tax Return) have been paid if due as of Closing. There are no
Encumbrances on any of the Shares that arose in connection with any failure (or
alleged failure) to pay any Tax. The Corporation has withheld and paid if due
as of Closing all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent
<PAGE> 15
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contractor, creditor, stockholder or other third party. Except as set forth on
Schedule 4.15, there are no federal, state, local or foreign tax liens upon any
of the properties or assets of the Corporation or the Shares, and there are no
unpaid taxes which are or could become a lien on the properties or assets of
the Corporation or the Shares, except for current taxes not yet due and
payable. The Corporation has delivered, or will deliver upon execution of this
Agreement, copies of all federal, state, local and foreign tax returns and
reports filed by the Corporation in the past three years.
4.16 Rental Contracts; Rental Merchandise.
(a) With respect to each Rental Contract: (i) the Rental
Contract is in full force and effect according to its terms, (ii) the Rental
Contract will continue to be in full force and effect following the
consummation of the transactions contemplated hereby, in the same manner and to
the same extent as it was prior to consummation and (iii) the Rental Contract
complies in all respects with Michigan law.
(b) The Future Rental Revenue Stream under all Rental
Purchase Contracts (other than Defaulted Rental Purchase Contracts) as of the
close of business on December 28, 1996 will be greater than or equal to
$7,602,804; provided, however, that Buyer's sole remedy in the event that such
representation is not true as of the Closing Date shall be to accept the
adjustment of the Purchase Price as provided in Section 2.2(b) and to proceed
with the Closing; except that if the Future Rental Revenue Stream under all
Rental Purchase Contracts (other than Defaulted Rental Purchase Contracts) as
of the close of business on December 28, 1996 is less than $7,500,000, then
Buyer may, at its election, without liabilities to Seller or the Corporation,
terminate this Agreement.
(c) The Net Book Value of Rental Merchandise as of the close
of business on December 31, 1996 will be greater than or equal to $2,177,818;
provided, however, that Buyer's sole remedy in the event that such
representation is not true as of the Closing Date shall be to accept the
adjustment of the Purchase Price as provided in Section 2.2(b) and to proceed
with the Closing; except that if the Net Book Value of Rental Merchandise as of
the close of business on December 31, 1996 is less than $2,000,000, then Buyer
may, at its election, without liability to Seller or the Corporation, terminate
this Agreement.
(d) The Rental Merchandise is in good, merchantable and
usable condition, ordinary wear and tear excepted. Seller and the Corporation
have delivered to the Buyer or will deliver to Buyer upon execution of this
Agreement, an itemized list of all of the Rental Merchandise as of December 28,
1996 showing the date of purchase, the supplier, the cost, description of each
item sufficient to identify it to Buyer, and the location of each item. For
purposes of this Section, the term "good, merchantable and usable" shall mean
merchandise which is in good and merchantable condition and of the quality
regularly rented to customers of the Corporation in the usual course of the
Business.
<PAGE> 16
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4.17 Employees. Schedule 4.17 identifies all employees of the
Business. The Corporation is in material compliance with all applicable laws
respecting employment practices, terms and conditions of employment,
management-labor relations and wages and hours which are in effect as of the
date of this Agreement. The Corporation is not a party to any labor agreement
with any labor organization. There is no unfair labor practice, charge or
complaint against the Corporation pending or to the knowledge of Seller and the
Corporation, threatened before any Governmental Authority. There is no labor
strike or labor disturbance pending or threatened against the Corporation nor
is any material grievance currently being asserted. The Corporation has not
experienced a work stoppage or work slowdown at any time during the three (3)
years immediately preceding the date of this Agreement. There is, to the
knowledge of Seller and the Corporation, no organizational campaign being
conducted and no dispute as to the representation of any employees of the
Corporation. There is no employment agreement with any employee, officer or
director of the Corporation. The Corporation has good business relations with
its employees at the store manager level and above and, to the knowledge of
Seller and the Corporation, there is no reason to believe that the transaction
contemplated by this Agreement will adversely affect such business relations.
4.18 Customers. No records of customers who have rented
merchandise from the Corporation within the last two years have been destroyed.
The customer lists of the Business accurately identify all of the customers of
the Business. All transactions with customers have been and are currently
conducted on an arm's length basis.
4.19 Environmental Matters. Except as disclosed in Schedule
4.19, to the best of the Seller's and the Corporation's knowledge, the
Corporation, and its assets, properties and operations are now and, at all
times prior to the Closing Date, have been in compliance with all Environmental
Laws. To the knowledge of Seller and the Corporation, there has not been and
is no Release or threatened Release of any Hazardous Substance at, on, under,
in, to or from any of the Real Property (or, to the knowledge of the
Corporation at, on, under, in, to or from any of the Real Property) whether as
a result of or in connection with the operations and activities at the Real
Property or otherwise, except as disclosed in Schedule 4.19. Neither the
Corporation, nor the Seller have received any notice of alleged, actual or
potential responsibility for, or any inquiry or investigation regarding, the
presence, Release or threatened Release of any Hazardous Substance at any
location, whether at the Real Property or otherwise, which Hazardous Substances
were allegedly manufactured, used, generated, processed, treated, stored,
disposed or otherwise handled at or transported from the Real Property or
otherwise, except as set forth in Schedule 4.19. Neither the Corporation, nor
the Seller have received any notice of any other claim, demand or action by any
Person alleging any actual or threatened injury or damage to any Person,
property, natural resource or the environment arising from or relating to the
presence, Release or threatened Release of any Hazardous Substances at, on,
under, in, to or from the Real Property or in connection with any operations or
activities thereat, except as set forth on Schedule 4.19. Neither the Real
Property nor any operations or activities thereat is or has been subject to any
judicial or administrative proceeding, order, consent, agreement or any lien
relating to any Environmental
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Laws or Environmental Claims. Except as set forth on Schedule 4.19, to the
knowledge of Seller and the Corporation, (a) there are no underground storage
tanks presently located at the Real Property and to the knowledge of the Seller
and the Corporation, there have been no releases of any Hazardous Substances
from any underground storage tanks or related piping at the Real Property, (b)
there are no PCBs located at, on or in the Real Property and (c) there is no
asbestos or friable asbestos-containing material located at, on or in the Real
Property. To the knowledge of the Corporation and the Seller, the Corporation
has delivered to Buyer or its Representatives copies of all information
requested by Buyer which has been supplied by or on behalf of the Corporation
to any Governmental Authority having the duties of regulation, registration,
authorization or enforcement of or under any Environmental Laws.
4.20 Accounts Receivable. Except as set forth on Schedule
4.20, all of the accounts receivable of the Corporation excluding amounts due
under any Accounts (the "Accounts Receivable") are bona fide receivables, arose
during the ordinary course of the Business and will be collected at their full
face amount, net of reserves. Except as set forth on Schedule 4.20, no Person
has any liens on the Accounts Receivable, there is no right of off-set on any
of the Accounts Receivable, and no agreement for reduction or discount has been
made with respect to any of the Accounts Receivable.
4.21 Suppliers. Except as set forth in Schedule 4.21, within
the last two years, no supplier has indicated to the Corporation that it
intends to terminate its relationship with the Corporation. The Corporation has
good business relationships with each of its current suppliers. There are no
current problems with suppliers which are reasonably likely to adversely affect
the Corporation.
4.22 Bank Accounts. Schedule 4.22 contains true, complete and
correct lists of all bank accounts and safe deposit boxes maintained by the
Corporation, and all persons entitled to draw thereon, to withdraw therefrom
or, with access thereto.
4.23 Brokers. Neither Seller nor the Corporation have entered
into and will not enter into any agreement, arrangement or understanding with
any Person which will result in the obligation of Buyer to pay any finder's
fee, brokerage commission or similar payment in connection with the transaction
contemplated hereby.
4.24 Material Misstatements or Omissions. No representation
or warranty by Seller or the Corporation in this Agreement, or in any document,
exhibit, statement, certificate, document or schedule furnished to Buyer
pursuant to this Agreement, or in connection with the transactions contemplated
by this Agreement, contains or will contain at the Closing Date any untrue
statement of a material fact, or intentionally omits or will omit to state any
material fact necessary to make the statements or facts contained therein not
misleading.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller and the
Corporation that the following are true, correct and complete on the date
hereof, and shall be true, correct and complete as of the Closing Date:
5.1 Organization and Good Standing. Buyer is a corporation,
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Buyer is duly qualified to do business and is in
good standing in each jurisdiction in which such qualification is necessary
under the applicable law as a result of the conduct of its business or the
ownership of its properties. Buyer has all necessary power and authority to
execute and deliver this Agreement, to consummate the transactions contemplated
by this Agreement and to perform its obligations under this Agreement.
5.2 Authority; Authorization; Binding Effect. Buyer has all
necessary power and authority and has taken all action necessary to execute and
deliver this Agreement and the instruments to be executed and delivered
pursuant hereto, to consummate the transactions contemplated by this Agreement
and to perform its obligations under this Agreement. This Agreement has been
duly executed and delivered by Buyer and constitutes a legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors
rights generally and (ii) the discretion of the appropriate court with respect
to specific performance, injunctive relief or other forms of equitable
remedies.
5.3 No Conflicts, Violations or Proceedings. The execution
and delivery of this Agreement, the consummation of the transactions
contemplated by this Agreement and the performance by Buyer of its obligations
under this Agreement do not and will not result in (i) a violation of or a
conflict with any provision of the Articles of Incorporation of Buyer or other
organizational documents of Buyer, (ii) a breach of, or a default under, any
term or provision of any contract, agreement, indebtedness, encumbrance,
commitment, license, franchise, permit, authorization or concession to which
Buyer is a party or (iii) a violation by Buyer of any statute, rule,
regulation, ordinance, code, order, judgment, writ, injunction, decree or
award. There is no pending or, to the knowledge of Buyer, threatened or
anticipated Proceeding against, relating to or affecting the transactions
contemplated by this Agreement.
5.4 No Consents or Approvals. No consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Authority or any other Person is required to be made or obtained by Buyer in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transaction contemplated hereby.
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5.5 No Brokers. Buyer has not entered into and will not enter
into any agreement, arrangement or understanding with any Person which will
result in the obligation of Seller to pay any finder's fee, brokerage
commission or similar payment in connection with the transaction contemplated
hereby.
5.6 Material Misstatements or Omissions. No representations
or warranties by Buyer in this Agreement, or in any document, exhibit,
statement, certificate, document or schedule furnished to Seller pursuant to
this Agreement, or in connection with the transaction contemplated by this
Agreement, contains or will contain any untrue statement of a material fact, or
intentionally omits or will omit to state any material fact necessary to make
the statements or facts contained therein not misleading.
ARTICLE 6
COVENANTS PRIOR TO CLOSING
Seller and the Corporation on the one hand, and Buyer on the
other hand, each covenant with the other as follows:
6.1 Conduct of Business Prior to Closing. The Corporation
shall continue to carry on the Business in the ordinary course and
substantially in accordance with past practice and will not take any action
inconsistent therewith or with the consummation of the transactions
contemplated by this Agreement. The Corporation shall inform Buyer of any
material changes in the Business.
6.2 Investigation by Buyer. Buyer and each Representative of
Buyer shall conduct a due diligence review with respect to the Corporation and
the Business after the Closing. In connection with such due diligence review,
Seller shall, upon reasonable prior notice, (i) cooperate with Buyer and each
Representative of Buyer and (ii) provide all information, and all documents and
other tangible items containing or relating to such information, reasonably
requested by Buyer, any Representative of Buyer or any financial institution,
relating to the Business and the Corporation.
6.3 Consents and Best Efforts. As soon as practicable, Buyer,
Seller and the Corporation, as applicable, will commence all reasonable action
required hereunder to obtain all consents, approvals and agreements of, and to
give all notices and make all filings with, any Person as may be necessary to
authorize, approve or permit the full and complete sale, conveyance, assignment
or transfer of the Shares, free and clear of any Encumbrances, by a date early
enough to allow the sale hereunder to be consummated by the Closing Date.
Buyer, Seller and the Corporation agree to use commercially reasonable best
efforts to satisfy all conditions precedent to their respective obligations to
consummate the transactions contemplated by this Agreement.
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6.4 Certain Prohibited Transactions. During the period
beginning on the date of this Agreement and ending on the Closing Date, the
Corporation and the Seller shall not:
(a) except in the ordinary course of business, mortgage,
pledge or otherwise encumber or sell, transfer or otherwise dispose of any of
the Tangible Personal Property other than as contemplated by this Agreement;
(b) enter into or terminate any material contract or
agreement, or make any material change in any of its material contracts or
agreements relating to or otherwise affecting the Tangible Personal Property or
the Business, other than in the ordinary course of business and consistent with
past practice or as contemplated by this Agreement; or
(c) do any other act which would cause any representation or
warranty of the Corporation or Seller in this Agreement to be or become untrue
in any material respect.
6.5 Non-Compete Agreement. On the Closing Date, Buyer and
Seller shall enter into a non-compete agreement substantially in the form of
Exhibit C (the "Non-Compete Agreement").
6.6 Stock Option Agreement. On the Closing Date, Seller and
Buyer shall enter into a stock option agreement substantially in the form of
Exhibit D (the "Stock Option Agreement").
6.7 Intangible Property. On or prior to the Closing Date, the
Corporation will cooperate with Buyer to enable Buyer to obtain and use on and
after the Closing Date the telephone numbers used in the Business.
6.8 Preclosing Transactions. The parties agree that the
following actions shall be taken prior to Closing:
(a) Seller shall cause D&D Enterprises to transfer
title to certain assets of D&D Enterprises to the
Corporation. The specific assets, and their collective
value, are listed on a Bill of Sale from D&D Enterprises to
the Corporation dated January 2, 1997, a copy of which is to
be delivered to Buyer at Closing.
(b) The Corporation shall terminate all of its real
estate leases with Seller, entities in which Seller is a
shareholder, member or partner, William P. Coleman and/or
entities in which William P. Coleman is a shareholder or
member, and the Buyer shall enter into new leases with such
entities for a period of 120 days on comparable terms and
conditions as the existing leases. Attached as Schedule
6.8(b) is a list of such leases.
<PAGE> 21
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(c) The Corporation shall bring current and cure any
defaults relating to all real estate leases that are
presently in default. The Corporation or Seller may use the
proceeds from the Closing to make such payments, in which
case such payments shall deemed to be Liabilities for
purposes of this Agreement.
(d) Seller shall cause the assets used by the
Corporation in the operation of "Consumer Repair" to be
conveyed to a newly-formed entity in which Seller is a
shareholder. Such conveyance shall be by means of a Bill of
Sale. In addition, Seller shall cause the Corporation to
assign to such newly-formed entity certain leases for office
equipment used in the operation of "Consumer Repair." The
specific leases to be assigned are listed on a Lease
Assignment, dated January 2, 1997, a copy of which will be
delivered at Closing.
(e) The Corporation and Buyer shall review the
vehicle leases remaining after the Closing and determine
whether any lease assignments are necessary. If so, Seller
shall cause all leases for all vehicles used by the
Corporation in connection with the Business to be assigned to
the Corporation.
(f) The Corporation shall assign the insurance
policy on Seller to Seller or a person or entity designated
by Seller. The parties agree that execution of the assignment
forms may occur after Closing and that each party shall take
such actions as are necessary to complete the assignment.
(g) The Corporation shall convey the assets, and
assign the leases, relating to the Centrex telephone system
at the Corporation's headquarters, to the newly-formed entity
referenced in Section 6(d).
(h) The Corporation and William Coleman, or an
entity controlled by William Coleman, shall execute mutual
releases relating to their interest in leases for locations
at 3938 South Westnedge Avenue, Kalamazoo, Michigan; 562 East
Emmett Street, Battle Creek, Michigan; and 5519 East Cork
Street, Kalamazoo, Michigan. A copy of such Release shall be
delivered at Closing or as soon thereafter as reasonably
possible.
The foregoing actions are herein referred to as the "Preclosing Transactions."
ARTICLE 7
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transactions
contemplated by this Agreement are subject, in the discretion of Seller, to the
satisfaction, on or prior to the Closing
<PAGE> 22
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Date, of each of the following conditions (any of which may, in Seller's
absolute and sole discretion, be waived in whole or in part in writing):
7.1 Representations, Warranties and Covenants. All
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date, and
Buyer shall have performed all agreements and covenants required hereby to be
performed by it prior to or at the Closing Date.
7.2 Consents. All consents, approvals and waivers necessary
to permit Seller to transfer the Shares to Buyer as contemplated hereby shall
have been obtained, unless the failure to obtain any such consent, approval or
waiver would not have a material adverse effect upon Seller.
7.3 No Proceedings. No Proceeding by any Person shall have
been instituted or threatened which questions the validity or legality of the
transaction contemplated hereby and which could reasonably be expected to
affect materially the right or ability of Seller to transfer the Shares to
Buyer.
7.4 Certificates. Buyer will furnish Seller with such
certificates of its officers and others to evidence compliance with the
conditions set forth in this Article 7 as may be reasonably requested by
Seller.
7.5 Corporate Documents. Seller shall have received from
Buyer (i) resolutions adopted by the board of directors of Buyer approving this
Agreement and the transactions contemplated hereby and (ii) a list of the
officers of Buyer executing this Agreement and any agreement contemplated by
this Agreement, certified by the Secretary or an Assistant Secretary of Buyer.
7.6 Other Agreements. Concurrently with the Closing, Buyer
shall have executed and delivered to Seller the Non-Compete Agreement and the
Stock Option Agreement; and the Preclosing Transactions shall have been
completed.
7.7 Payments. Buyer shall have, concurrently with the
Closing, paid the Purchase Price, the Bank Payoff and certain Liabilities.
ARTICLE 8
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transaction
provided for hereby are subject, in the discretion of Buyer, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any of which may, in Buyer's absolute and sole discretion, be
waived in whole or in part in writing):
<PAGE> 23
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8.1 Representations, Warranties and Covenants. All
representations and warranties of Seller and the Corporation contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date, and Seller and the Corporation shall have performed all
agreements and covenants required hereby to be performed by each of them prior
to or at the Closing Date.
8.2 Consents. All consents, approvals and waivers necessary
to permit Seller to transfer the Shares to Buyer as contemplated hereby shall
have been obtained, except for consents which in the aggregate if not obtained
would not have any material adverse affect on the Business.
8.3 No Proceedings. No Proceeding by any Person shall have
been instituted or threatened which questions the validity or legality of the
transaction contemplated hereby and which could reasonably be expected to
affect materially the right or ability of Buyer to own or operate the Business
after the Closing.
8.4 Certificates. Seller and the Corporation will furnish
Buyer with such certificates to evidence compliance with the conditions set
forth in this Article 8 as may be reasonably requested by Buyer.
8.5 Releases. All security interests and liens on the
Corporation's assets shall have been terminated and released or Seller shall
have provided Buyer with assurances that such releases will be obtained as soon
as practicable after Closing, such assurances to be acceptable to Buyer in
Buyer's sole discretion.
8.6 No Interruption or Adverse Change. Prior to or at the
time of Closing, (i) no interruption or suspension of a material volume of the
Business as now conducted shall have occurred or been threatened and (ii) no
adverse change in the Business shall have occurred or been threatened.
8.7 Corporate Documents. Buyer shall have received from
Seller and the Corporation (i) resolutions adopted by the board of directors
and shareholders of the Corporation approving this Agreement and the
transactions contemplated hereby and (ii) a list of the officers of the
Corporation executing this Agreement and each agreement contemplated by this
Agreement, certified by the Secretary or Assistant Secretary of the
Corporation.
8.8 Other Agreements. At or before the Closing, Seller shall
have executed and delivered to Buyer the Non-Compete Agreement and the Stock
Option Agreement; and the Preclosing Transactions shall have been completed.
<PAGE> 24
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ARTICLE 9
INDEMNIFICATION
9.1 Survival of Representations, Warranties and Covenants.
The representations and warranties of Seller and the Corporation, and of Buyer,
contained in this Agreement shall, without regard to any investigation made by
any of the parties hereto, survive the Closing Date until January 2, 1999;
provided, however, that the representations and warranties made in Section 4.6
(Title) shall survive the Closing indefinitely. The covenants and agreements of
Seller, the Corporation and Buyer contained in this Agreement shall survive the
Closing Date until they have been fully satisfied or otherwise discharged.
9.2 Indemnifications.
(a) By Seller. Seller shall indemnify, save and hold harmless
Buyer (before and after the Closing) and the Corporation (after the Closing
only) from, against and in respect of the following (individually a "Loss" and
collectively "Losses"):
(i) any and all loss, liability, deficiency or damage
suffered or incurred by Buyer by reason of any untrue representation, breach of
warranty or nonfulfillment of any covenant or agreement by Seller or the
Corporation in this Agreement or in any agreement, instrument or other writing
delivered to Buyer by Seller or the Corporation pursuant to or in connection
with this Agreement;
(ii) any claim against the Corporation or Buyer for (x) a
finder's fee, investment banker's fee, or brokerage or other commission or (y)
for legal expenses, in each case by any Person for services alleged to have
been rendered at the instance of the Corporation or Seller with respect to this
Agreement or the transaction contemplated by this Agreement;
(iii) any and all loss, liability, deficiency or damage
suffered or incurred by Buyer or the Corporation relating to any claim, suit,
litigation or proceeding with respect to events occurring prior to the Closing
Date which is not fully reserved for on the Corporation's Financial Statements,
except to the extent fully covered by insurance;
(iv) any liabilities and obligations for taxes which are
or shall be incurred with respect to the operation of the Corporation on or
prior to the Closing Date which shall not have been fully reserved or accrued
for on the Corporation's Financial Statements;
(v) any and all loss, liability, deficiency or damage
suffered or incurred by Buyer or the Corporation in connection with any
employee plan with respect to the operation of
<PAGE> 25
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the Corporation on or prior to the Closing Date which is not fully reserved for
on the Corporation's Financial Statements;
(vi) any and all loss, liability, deficiency or damage
suffered or incurred by Buyer or the Corporation caused by or arising out of
the generation, treatment, handling, storage or disposal of Hazardous
Substances or noncompliance with any Environmental Laws prior to the Closing
Date regardless of whether or not the matter or matters giving rise to any such
Losses were disclosed to Buyer in Schedule 4.19 or known by the Seller at the
date of this Agreement; and
(vii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, (including, but not
limited to, legal fees and expenses) incident to any of the foregoing or
incurred in enforcing this Agreement or any agreement provided for in this
Agreement.
Buyer must deliver notice to Seller of any claim by Buyer for indemnification
under clauses (i), (iv) or (v) of this Paragraph (a) prior to January 2, 1999
and under clauses (ii), (iii), (vi) and (vii) prior to the expiration of the
applicable statute of limitations, except for indemnification under clause
(iii) relating to any tort liability, in which case Buyer must notify Seller
prior to January 2, 2000; otherwise, any such claim shall be barred and is
waived by Buyer hereunder.
(b) By Buyer. Buyer shall indemnify and save and hold
harmless Seller from, against and in respect of the following (individually, a
"Loss" and, collectively, "Losses"):
(i) any and all loss, liability, deficiency or damage
suffered or incurred by Seller, resulting from any untrue representation,
breach of warranty or nonfulfillment of any covenant or agreement by Buyer
(including failure to deliver the Purchase Price) contained in this Agreement
or in any agreement, instrument or other writing delivered to Seller pursuant
to or in connection with this Agreement;
(ii) any claim against Seller for a finder's fee,
investment banker's fee, or brokerage or other commission by any Person for
services alleged to have been rendered at the instance of Buyer with respect to
this Agreement or the transaction contemplated by this Agreement;
(iii) any and all loss, liability, deficiency or damage
suffered or incurred by Seller relating to any claim, suit, litigation or
proceeding relating to the Corporation or the Business with respect to the
operation of the Business or events occurring after the Closing Date; and
(iv) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, (including, but not
limited to, legal fees and expenses) incident to
<PAGE> 26
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any of the foregoing or incurred in enforcing this Agreement or any agreement
provided for in this Agreement.
Seller must deliver notice to Buyer of any claim by Seller against Buyer for
indemnification under clause (i) of this Paragraph (b) prior to January 2, 1999
and under clauses (ii), (iii) and (iv) of this Paragraph (b) prior to the
expiration of the applicable statute of limitations. Otherwise, any such claim
shall be barred and is waived by Seller hereunder.
(c) Notification of Claims. In the event that any party
entitled to indemnification pursuant to this Agreement (the "Indemnified
Party") proposes to make any claim for such indemnification, the Indemnified
Party shall deliver to the indemnifying party (the "Indemnifying Party"), which
delivery with respect to the Losses arising from breaches of representations
and warranties shall be on or prior to the date upon which the applicable
representations and warranties expire pursuant to Section 9.1 hereof, a signed
certificate, which certificate shall (i) state that Losses have been incurred
or that a claim has been made for which Losses may be incurred, (ii) specify
the sections of this Agreement under which such claim is made and (iii) specify
in reasonable detail each individual item of Loss or other claim including the
amount thereof and the date such Loss was incurred. In addition, each
Indemnified Party shall give notice to the Indemnifying Party within ten (10)
days of its receipt of service of any suit or proceeding which pertains to a
matter for which indemnification may be sought; provided, however, that the
failure to give such notice shall not relieve the Indemnifying Party of its
obligations hereunder if the Indemnifying Party has not been prejudiced
thereby.
(d) Defense of Third Party Claims and Extension of Statute of
Limitations. Any Indemnified Party shall in good faith cooperate and assist the
Indemnifying Party in defending against any claims or asserted claims with
respect to which the Indemnified Party seeks indemnification under this
Agreement. If requested by the Indemnifying Party, the Indemnified Party shall
join in any action, litigation, arbitration or proceeding, provided that the
Indemnifying Party shall pay the costs of the Indemnified Party, including
reasonable attorney's fees, caused by such joinder. The Indemnified Party shall
not settle or compromise any claim or asserted claim, nor agree to extend any
statute of limitations applicable to any claim or asserted claim, which the
Indemnified Party seeks indemnification under this Agreement, without the prior
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld. Any right of participation of the Indemnifying Party
shall be subject, as a condition precedent, to such party's acknowledging to
the Indemnified Party, in writing, the obligation of the Indemnifying Party to
indemnify the other party hereto in accordance with the terms of this
Agreement. Upon such acknowledgement, the Indemnified Party will provide the
Indemnifying Party will all reasonably available information, assistance, and
authority to enable the Indemnifying Party to jointly participate in such
defense or settlement, and upon the Indemnifying Party's payment of any amounts
due with respect to such Proceeding, the Indemnified Party will, to the extent
of such payment, assign or cause to be assigned to the Indemnifying Party the
claims of the Indemnified Party, if any, against such third parties with
respect to which such payment is made.
<PAGE> 27
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ARTICLE 10
COVENANTS AFTER THE CLOSING
10.1 Books and Records. For a period of seven (7) years
following the Closing Date, Buyer shall afford to Seller and its
representatives, during normal business hours, reasonable access to the books,
records and other data of Seller in the possession of Buyer with respect to the
period prior to the Closing Date to the extent that such access may be
reasonably required by Seller to facilitate (i) the preparation by Seller of
tax returns as they may be required to file with respect to their operation of
the Business prior to Closing or in connection with any audit, amended return,
claim for refund or any proceeding with respect thereto, (ii) the
investigation, litigation and final disposition of any claims which may have
been or may be made against Seller in connection with their operation of the
Business prior to Closing, (iii) the payment of any indemnity under this
Agreement or (iv) any other reasonable purpose. At any time after the Closing
Date, Buyer may dispose of, alter or destroy any such books, records and other
data upon giving sixty (60) days' prior notice to Seller to permit Seller, at
his expense, to examine, duplicate or repossess such books, records and other
data. For a period of seven (7) years following the Closing Date, Seller shall
afford to Buyer and its representatives, during normal business hours,
reasonable access to the books, records and other data of Seller which Seller
retains after the Closing Date. At any time after the Closing Date, Seller may
dispose of, alter or destroy any such books, records and other data upon giving
sixty (60) days' prior written notice to Buyer to permit it, at its expense, to
examine, duplicate or possess such books, records and other data.
10.2 Further Assurances. Both before and after the Closing
Date, each party will cooperate in good faith with the other and will take all
appropriate action and execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder.
ARTICLE 11
MISCELLANEOUS
11.1 Termination. This Agreement may be terminated upon ten
(10) days prior written notice at any time prior to Closing without liability
of any party or any other party:
(i) by mutual written consent of Buyer and Seller;
(ii) by Buyer, if Closing has not occurred on or
before January 3, 1997 as a result of the
nonfulfillment of any of the conditions to
Buyer's obligation to perform contained in
Article 8 of this Agreement after written
notice of such nonfulfillment and
reasonable opportunity to cure; or
<PAGE> 28
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(iii) by Seller if Closing has not occurred on or
before January 3, 1997 as a result of the
nonfulfillment of any of the conditions to
Seller's obligation to perform contained in
Article 7 of this Agreement after written
notice of such nonfulfillment and
reasonable opportunity to cure.
This Agreement may also be terminated by Seller on the one hand, or Buyer, on
the other hand, upon ten (10) days prior written notice if a non-terminating
party has breached any material covenant to be performed by it pursuant to this
Agreement. Termination of this Agreement shall not affect in any way the
continuing obligations of the parties hereto pursuant to Section 11.7 hereof
relating to expenses.
11.2 Assignment. Neither this Agreement nor any of the rights
or obligations hereunder may be assigned by Seller or the Corporation on the
one hand, or Buyer on the other hand, without the prior written consent of the
other parties. No assignment of this Agreement by Buyer shall relieve Buyer of
any of its obligations hereunder. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of Seller, the Corporation and
Buyer and their respective successors and assigns, and no other Person shall
have any right or obligation under this Agreement.
11.3 Notices. Unless otherwise provided in this Agreement,
any notice, request, instruction or other document to be given hereunder by
either party to the other shall be in writing and delivered personally or
mailed by certified mail, postage prepaid, return receipt requested, or by
telecopy, with a confirmation via one of the preceding methods, as follows:
If to Seller or the Corporation, addressed to:
David Coleman
3706 Northview
Kalamazoo, Michigan 49004
Telephone: (616) 349-2912
With a copy to:
Miller, Johnson, Snell & Cummiskey, PLC
Attn: J. Patrick Lennon, Esq.
426 W. Michigan Avenue
Kalamazoo, Michigan 49007
Telephone: (616) 343-0282
Telecopy: (616) 226-2951
<PAGE> 29
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If to Buyer, addressed to:
Rent-Way, Inc.
Attn: Ronald D. DeMoss,
Vice President and General Counsel
3230 West Lake Road
Erie, Pennsylvania 16505
Telephone: (814) 836-0618
Telecopy: (814) 835-6865
and to:
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
Attn: Robert B. Fleming, Jr., Esq.
Paul J. Vallone, Esq.
1800 One M&T Plaza
Buffalo, NY 14203-2391
Telephone: (716) 856-4000
Telecopy: (716) 849-0349
and be effective (i) if given by hand delivery, when left at the address of the
addressee as above provided, (ii) if given by mail, on the third business day
after such communication is deposited in the mail, addressed as above provided,
and (iii) if given by telecopy, when telecopied to the number above provided,
except that notices of a change of address shall not be effective until
received; or to such other place and with such other copies as either party may
designate as to itself by written notice to the other party.
11.4 Choice of Law. This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance with the
laws of the State of Michigan (without reference to the choice of law
provisions of Michigan law) except with respect to matters of law concerning
the internal corporate affairs of any corporate entity which is a party to or
the subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity was incorporated shall govern.
11.5 Entire Agreement; Amendments and Waivers. This
Agreement, together with all Exhibits and Schedules hereto, constitutes the
entire agreement between Seller, the Corporation and Buyer pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of Seller, the
Corporation and Buyer. In addition, this Agreement shall not supersede the
terms of a previously executed Confidentiality Agreement between Seller and
Buyer. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No
<PAGE> 30
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waiver of any provision of this Agreement shall be deemed or shall constitute a
waiver of any other provision of this Agreement (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided in such writing.
11.6 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Any party may
execute this Agreement by facsimile signature and the other party shall be
entitled to rely on such facsimile signature as evidence that this Agreement
has been duly executed by such party. Any party executing this Agreement by
facsimile signature shall immediately forward to the other party an original
signature page by overnight mail.
11.7 Expenses. Except as otherwise specified in this
Agreement, the Corporation shall pay its own and the Seller shall pay his own,
and Buyer shall pay its own, legal, accounting and other expenses incident to
the negotiation and preparation of this Agreement and the consummation of the
transactions contemplated hereby.
11.8 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
11.9 Titles. The titles, captions or headings of the articles
and sections of this Agreement are inserted for convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement.
11.10 Publicity. Neither Seller nor the Corporation shall
issue any press release or make any public statement regarding the transaction
contemplated hereby prior to the Closing Date, without the prior approval of
Buyer, except as may be required by applicable law, in which case the party
required to issue such press release or make such public statement will consult
with the other party prior to issuing such press release or making such public
statement.
11.11 Use of Name. Seller shall not use the name "Coleman" or
any form or derivative of the name "Coleman" in connection with any rental or
rental-purchase business. With Buyer's written permission, which Buyer may give
in its sole discretion, Seller may use the name "Coleman" or any form or
derivative of the name "Coleman" in connection with a business unrelated and
not competitive with the rental or rental-purchase business.
11.12 Rebate. Seller shall be entitled to receive and collect
any rebate which may be forthcoming to the Corporation from The Rental Industry
Buying Group and the Buyer and the Corporation, by execution of this Agreement,
release any rights they may have to receive such rebate.
<PAGE> 31
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11.13 1996 Tax Returns. Seller shall file all 1996 tax
returns required to be filed in connection with the operation of the
Corporation prior to the Closing with the exception of personal property
returns for the assessment date of December 31, 1996 which shall be filed by
the Buyer. Such 1996 tax returns shall be subject to the approval of Buyer's
Chief Financial Officer. Any Alternative Minimum Tax deposits made in
connection with the December 31, 1996 Federal Form 1120 will be returned to
Seller once utilized by the Buyer.
IN WITNESS WHEREOF, the Corporation and Buyer have caused
this Agreement to be duly executed on their respective behalf by their
respective duly authorized officers, and the Seller has executed this
Agreement, as of the day and year indicated at the beginning of this Agreement.
Any individual signing on behalf of a corporation represents and warrants that
he has power and authority to bind the corporation.
RENT-WAY, INC.
By: /s/ William E. Morgenstern
William E. Morgenstern
President and Chief Executive Officer
BILL COLEMAN TV, INC.
By: /s/ David Coleman
David Coleman
President
/s/ David Coleman
David Coleman
<PAGE> 32
SCHEDULES
Schedule Description
-------- -----------
Schedule 1.1(af) Store Locations
Schedule 4.1 Organization
Schedule 4.4 Consents and Approvals
Schedule 4.5 Customers
Schedule 4.7 Capitalization
Schedule 4.8 Corporate Records
Schedule 4.9 Financial Statements
Schedule 4.10 Real Property
Schedule 4.11 Tangible Personal Property
Schedule 4.12 Intangible Property
Schedule 4.13 Compliance with Laws
Schedule 4.14 Litigation
Schedule 4.15 Tax Matters
Schedule 4.17 Employees
Schedule 4.19 Environmental Matters
Schedule 4.20 Accounts Receivable
Schedule 4.21 Suppliers
Schedule 4.22 Bank Accounts
Exhibit Description
------- -----------
A Payment of Purchase Price
B Escrow Agreement
C Non-Compete Agreement
D Stock Option Agreement
<PAGE> 33
EXHIBIT A
PAYMENT OF PURCHASE PRICE
1. The Purchase Price (as adjusted pursuant to Sections 2.2 and 2.3 of the
Agreement) shall be paid by wire transfer to Seller at the Closing.
2. In addition to the Purchase Price, Buyer shall grant to Seller an option to
purchase 25,000 shares of the Buyer's common stock at a price of $8.875 per
share as further described in the Stock Option Agreement.
3. The Purchase Price shall be increased by a maximum of $35,000 for new
purchases of Rental Merchandise by the Corporation before the Closing Date.
The exact amount of such increase shall be determined at Closing based upon
invoices provided from the Corporation to the Buyer evidencing such
purchases.
<PAGE> 1
Exhibit 3.1
Filed this 16th day of November, 1981
Commonwealth of Pennsylvania
Department of State
/s/ William R. Davis
Secretary of the Commonwealth
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
Articles of Incorporation -
Domestic Business Corporation
In compliance with the requirements of Section 204 of the Business
Corporation Law Act of May 5, 1933 (P.L. 364) (15 P.S. Section 1204), the
undersigned, desiring to be incorporated as a business corporation, hereby
certifies that:
1. The name of the corporation is RENT-WAY, INC.
2. The location and post office address of the initial registered
office of the corporation in this Commonwealth is 14 West 10th Street, Erie,
Pennsylvania 16501.
3. The corporation is incorporated under the Business Corporation Law
of the Commonwealth of Pennsylvania for the following purpose or purposes: To
engage in and to do all lawful acts concerning any or all lawful business for
which a corporation may be incorporated under the Business Corporation Law of
Pennsylvania, Act of May, 1933, P.L. 364, as amended.
4. The term for which the corporation is to exist is: perpetual.
5. The aggregate number of shares which the corporation shall have
authority to issue is: 10,000 shares of no par common stock.
6. The names and post office addresses of each incorporator(s) and the
number and class of shares subscribed by such incorporator(s) are:
<TABLE>
<CAPTION>
Name Address Number and Class of Shares
<S> <C> <C>
John P. Leemhuis 1400 Baldwin Building One share subscribed
Erie, PA 16501
</TABLE>
IN TESTIMONY WHEREOF, the incorporator has signed and sealed these
Articles of Incorporation this 5th day of November, 1981.
(SEAL) /s/ John P. Leemhuis (SEAL)
John P. Leemhuis (SEAL)
<PAGE> 2
Filed this 21st day of October,
1988
Commonwealth of Pennsylvania
Department of State
/s/ James J. Haggerty
Secretary of the Commonwealth
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
Articles of Amendment -
Domestic Business Corporation
In compliance with the requirements of Section 806 of the Business
Corporation Law, act of May 5, 1933 (P.L. 364) (15 P.S. Section 1806), the
undersigned corporation, desiring to amend its Articles does hereby certify
that:
1. The name of the corporation is RENTWAY, INC.
2. The location of its registered office in this Commonwealth is the
(Department of State is hereby authorized to correct the following statement to
conform to the records of the Department): 14 West Tenth Street, Erie,
Pennsylvania 16501.
3. The statute by or under which it was incorporated is: Business
Corporation Law of Pennsylvania, Act of May, 1933, P.L. 364, as amended.
4. The date of its incorporation is November 16, 1981. [SEAL]
5. (Check and if appropriate, complete one of the following):
[x] The meeting of the shareholders of the corporation at which the
amendment was adopted was held at the time and place and pursuant to the kind
and period of notice herein stated.
Time: The 30th day of September, 1988.
Place: 17 West 10th St., Erie, PA 16501
Kind and period of notice_________________________________
____________________________________________________________________________
[x] The amendment was adopted by a consent in writing, setting
forth the action so taken, signed by all of the shareholders entitled to vote
thereon and filed with the Secretary of the corporation.
<PAGE> 3
6. At the time of the action of shareholders:
(a) The total number of shares outstanding was: 10,000 shares
of common stock
(b) The number of shares entitled to vote was: 10,000 shares of
common stock
7. In the action taken by the shareholders:
(a) The number of shares voted in favor of the amendment was:
10,000 shares of common stock
(b) The number of shares voted against the amendment was: None
8. The amendment adopted by the shareholders, set forth in full, is as
follows:
Articles 5 is amended to read as follows: "The aggregate number
of shares which the corporation shall have authority to issue is
1,000,000 shares of no par common stock."
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer and its
corporate seal, duly attested by another such officer, to be hereunto affixed
this 7th day of October, 1988.
<TABLE>
<S> <C>
RENTWAY, INC.
---------------------
(NAME OF CORPORATION)
Attest:
/s/ Therese Bihler By: /s/ William E. Morgenstern
- --------------------------------------------- ------------------------------------
(SIGNATURE) (SIGNATURE)
Secretary President
- --------------------------------------------- ----------------------------------------
(TITLE: SECRETARY, ASSISTANT SECRETARY, ETC.) (TITLE: PRESIDENT, VICE PRESIDENT, ETC.)
</TABLE>
[SEAL]
<PAGE> 4
Filed with the Department of State on
March 27, 1992
/s/ Secretary of the Commonwealth
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev. 89)
In compliance with the requirements of 15 Pa.C.S. Section 1915
(relating to articles of amendment), the undersigned business corporation,
desiring to amend its Articles, hereby states that:
1. The name of the corporation is: RENTWAY, INC.
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) commercial registered office provider and the county of
venue is (the Department is hereby authorized to correct the following
address to conform to the records of the Department):
(a) 17 West 10th Street, Erie, PA 16501, Erie County
For a corporation represented by a commercial registered office
provider, the county in (b) shall be deemed the county in which the
corporation is located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Business Corporation
Law of 1933
4. The original date of its incorporation is: November 16, 1981
5. (Check, and if appropriate complete, one of the following):
_x_ The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
___ The amendment shall be effective on:_________________________
6. (Check one of the following):
_x_ The amendment was adopted by the shareholders pursuant to 15 Pa.C.S.
Section 1914(a) and (b).
___ The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. Section 1914(c).
<PAGE> 5
7. (Check, and if appropriate complete, one of the following):
___ The amendment adopted by the corporation, set forth in full, is as
follows:
_x_ The amendment adopted by the corporation as set forth in full in
Exhibit A, attached hereto and made a part hereof.
8. (Check if the amendment restates the Articles):
_x_ The restated Articles of Incorporation supersede the original Articles
and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this
26th day of March, 1992.
RENTWAY, INC.
-----------------------------------------
(Name of Corporation)
BY: /s/ William E. Morgenstern, President
--------------------------------------
(Signature)
TITLE: President
-----------------------------------
<PAGE> 6
EXHIBIT "A"
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF RENT-WAY, INC.
In compliance with the requirements of the Pennsylvania Business
Corporation Law, the undersigned desiring to be incorporated as a business
corporation, hereby certifies that:
1. The name of the Corporation is RENT-WAY, INC.
2. The location and post office address of the initial registered
office of the Corporation in this Commonwealth is: 17 West 10th Street, Erie,
PA 16501
3. The Corporation is incorporated under the Business Corporation Law
of the Commonwealth of Pennsylvania for the following purpose or purposes:
To engage in and to do all lawful acts concerning any or all lawful
business for which a corporation may be incorporated under the
Business Corporation Law of Pennsylvania, Act of May, 1933, P.L. 364,
as amended.
4. The term for which the Corporation is to exist is perpetual.
5. The aggregate number of shares which the Corporation shall have
authority to issue is 10,000,000 shares of no-par common stock.
<PAGE> 7
6. The name and address of each incorporator and the number and class
of shares subscribed by such incorporator is:
John P. Leemhuis, 2222 West 1 share subscribed
Sr. Grandview Blvd.
Erie, PA 16506
7. The following provisions of the Business Corporation Law of 1988
shall not be applicable to the Corporation:
(a) Section 2538 (relating to approval of transactions with
interested shareholders);
(b) Subchapter 25E (relating to control transactions);
(c) Subchapter 25F (relating to business combinations);
(d) Subchapter 25G (relating to control-share acquisitions);
(e) Subchapter 25H (relating to disgorgement by certain controlling
shareholders following attempts to acquire control).
<PAGE> 8
Filed with the Department of
State on April 19, 1995.
/s/ Secretary of the Commonwealth
Secretary of the Commonwealth
ARTICLES OF AMENDMENT
1. The name of the corporation is: RENT-WAY, INC.
2. The address of the registered office of the corporation in Pennsylvania
(which is located in Erie County) is:
17 West 10th Street
Erie, PA 16501
3. The statute under which the corporation was incorporated is: Business
Corporation Law of 1988.
4. The date of its incorporation is: November 16, 1981.
5. The amendment shall be effective upon the filing of these articles of
amendment in the Department of State.
6. The amendment was adopted by the shareholders pursuant to 15 Pa.C.S.
Section 1914(a) and (b).
7. The amendment adopted by the corporation, set forth in full, is as follows:
The corporation is authorized to issue 11,000,000 shares of capital stock
of which 10,000,000 shares shall be designated no par Common Stock, and
1,000,000 shares shall be designated Preferred Stock. The Board of
Directors shall have the full authority to divide the 1,000,000 shares of
Preferred Stock into classes or series, or both, and to determine for any
such class or series its voting rights (which may be full, limited,
multiple, or fractional, or no voting rights) and such designations,
preferences, qualifications, privileges, limitations, restrictions,
options, conversion rights and other special or relative rights as may be
desired. Such division and determination may be accomplished by an
amendment to this Article, which amendment may be made solely by action of
the Board of Directors, which shall have the full authority permitted by
law to make such divisions and determinations.
<PAGE> 9
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof on
April 19, 1995.
RENT-WAY, INC.
BY: /s/ Jeffrey A. Conway
-----------------------
Vice President and
Chief Financial Officer
<PAGE> 10
Filed with the Department of State on
June 16, 1995
/s/ Yvette Kane
Secretary of the Commonwealth
STATEMENT WITH RESPECT TO SHARES-DOMESTIC BUSINESS CORPORATION
DSCB:15-1922 (Rev. 90)
In compliance with the requirements of 15 Pa.C.S. Section 1522 (relating to
statement with respect to shares), the undersigned corporation, desiring to
state the designation and voting rights, preferences, limitations and special
rights, if any, of a class or series of its shares, hereby states that:
1. The name of the corporation is: RENT-WAY, INC.
2. (Check and complete one of the following):
___ The resolution amending the Articles under 15 Pa.C.S. Section 1522(b)
(relating to divisions and determinations by the board), set forth in
full, is as follows:
_x_ The resolution amending the Articles under 15 Pa.C.S. Section 1522(b) is
set forth in full in Exhibit A attached hereto and made a part hereof.
3. The aggregate number of shares of such class or series established and
designated by (a) such resolution, (b) all prior statements, if any, filed
under 15 Pa.C.S. Section 1522 or corresponding provisions of prior law with
respect thereto, and (c) any other provision of the Articles is 30,000
shares.
4. The resolution was adopted by the Board of Directors or an authorized
committee thereof on: June 10,1995
5. (Check, and if appropriate complete, one of the following):
_x_ The resolution shall be effective upon the filing this statement with
respect to shares in the Department of State.
___ The resolution shall be effective on: ____________ at _____________
Date Hour
<PAGE> 11
IN TESTIMONY WHEREOF, the undersigned corporation has caused this
statement to be signed by a duly authorized officer thereof this 15th day of
June, 1995.
RENT-WAY, INC.
---------------------------
(Name of Corporation)
BY: /s/ Jeffrey A. Conway
------------------------
(Signature)
TITLE: V.P. and CFO
---------------------
<PAGE> 12
EXHIBIT "A"
SERIES A PREFERRED STOCK
1. NUMBER AND DESIGNATION. There is hereby authorized for issuance as a
series of the Preferred Stock of the Corporation, 30,000 shares, without par
value, to be designated as "Series A Preferred Stock" (hereinafter "Series A
Preferred Stock").
2. CERTAIN DEFINITIONS. For purposes hereof, the following definitions
shall apply:
JUNIOR STOCK. The term "Junior Stock" shall mean the Common Stock and
any other class or series of stock of the Corporation (i) with respect to
dividends, not entitled to receive any dividends in any dividend period unless
all dividends required to have been paid or declared and set apart for payment
on the Series A Preferred Stock shall have been so paid or declared and set
apart for payment, (ii) with respect to rights on liquidation, not entitled to
receive any distribution upon liquidation, dissolution and winding up of the
affairs of the Corporation until the Series A Preferred Stock shall have
received the entire amount to which such stock is entitled and, or (iii) with
respect to mandatory redemption rights, not entitled to receive any mandatory
redemption payments until the Series A Preferred Stock shall have received all
mandatory redemption payments to which such stock is entitled.
PARITY STOCK. The term "Parity Stock" shall mean any class or series
of stock of the Corporation (i) with respect to dividends, entitled to receive
payment of dividends on a parity with the Series A Preferred Stock, (ii) with
respect to rights on liquidation, entitled to receive any distribution upon
liquidation, dissolution and winding up of the affairs of the Corporation on a
parity with the Series A Preferred Stock, or (iii) with respect to mandatory
redemption rights, entitled to receive any mandatory redemption payments on a
parity with the Series A Preferred Stock.
SENIOR STOCK. The term "Senior Stock" shall mean any class or series
of stock of the Corporation (i) with respect to dividends, ranking senior to
the Series A Preferred Stock in respect of the right to receive dividends, (ii)
with respect to rights on liquidation, ranking senior to the Series A Preferred
Stock in respect of the right to receive any distribution upon liquidation,
dissolution and winding up of the affairs of the Corporation, or (iii) with
respect to mandatory redemption rights, ranking senior to the Series A
Preferred Stock in respect of the right to receive mandatory redemption
payments.
<PAGE> 13
3. DIVIDENDS. The holders of the Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Corporation, out of any funds legally available therefor, on each share of
Series A Preferred Stock, before any declaration or payment or setting apart
for payment of dividends on any Junior Stock, dividends in an amount equal to
the liquidation preference of each such share multiplied by 7% per annum (based
upon a 360 day year consisting of twelve 30 day months), payable in cash in
equal quarterly installments on the first day of January, April, July and
October (each a "Dividend Payment Date") of each year commencing July 1, 1995.
Such dividends shall be cumulative, whether or not earned or declared, and
shall be payable in arrears to the holders of record of the Series A Preferred
Stock as their names appear on the share register of the Corporation as of the
fifteenth day of the month preceding the applicable Dividend Payment Date.
Accrued and unpaid dividends on the Series A Preferred Stock shall accrue
additional dividends in respect thereof at a rate of 9% per annum (based on a
360 day year consisting of twelve 30 day months). The Corporation shall use its
reasonable best efforts to have funds legally available to pay all dividends
provided for in this paragraph 3.
4. LIQUIDATION PREFERENCE. In the event of the liquidation, dissolution
and winding up of the affairs of the Corporation, whether voluntary or
involuntary, the holders of the Series A Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, before any payment or setting apart for
payment of any amount shall be made in respect of any Junior Stock, an amount
equal to $100 per share plus an amount equal to all accrued and unpaid
dividends thereon (whether or not earned or declared), to and including the
date fixed for distribution. If upon any liquidation, dissolution and winding
up the Corporation, whether voluntary or involuntary, the assets to be
distributed to the holders of the Series A Preferred Stock and the holders of
any Parity Stock shall be insufficient to permit the payment to all such
holders of the full preferential amounts to which they are entitled, then the
assets of the Corporation to be distributed to all such holders shall be
distributed ratably to the holders of the Series A Preferred Stock, on the one
hand, and the holders of any Parity Stock, on the other, in the same proportion
as the aggregate liquidation preference amount of the Series A Preferred Stock,
on the one hand, and any such Parity Stock, on the other, bears to the sum of
the aggregate liquidation preference amount of the Series A Preferred Stock and
the aggregate liquidation preference amount of any Parity Stock and, in such
event, the assets of the Corporation to be distributed to the holders of the
Series A Preferred Stock shall be distributed ratably among such holders in the
same proportion as the number of shares of outstanding Series A Preferred Stock
held by each such holder bears to the total number of shares of outstanding
Series A Preferred Stock.
5. VOTING RIGHTS.
(a) General. The Series A Preferred Stock shall have no voting rights
except as specifically provided in this paragraph 5 or as otherwise required by
law.
(b) Class Vote. So long as any shares of Series A Preferred Stock
remain outstanding, the Corporation shall not without the vote or written
consent of the
<PAGE> 14
holders of a majority of the outstanding shares of the Series A Preferred
Stock, voting as a separate class:
(i) purchase, redeem or otherwise acquire for value (or pay into
or set aside a sinking or similar fund for such purpose) any Junior
Stock at any time that dividends on the Series A Preferred Stock
shall be accrued and unpaid (unless a sum sufficient for the payment
thereof shall have been set apart);
(ii) authorize or issue, or obligate itself to issue, any Senior
Stock; or
(iii) increase or decrease (other than by reason of redemption)
the total number of authorized shares of Series A Preferred Stock.
(c) VOTING RIGHTS ON DEFAULT. If the Corporation shall have failed to
pay dividends on all outstanding shares of Series A Preferred Stock in an
amount equal to two quarterly dividends at the rate payable upon such shares (a
"Dividend Default"), the holders of shares of Series A Preferred Stock shall
have the right to eight (8) votes for each share of Series A Preferred Stock
held by such holder on all matters submitted to the stockholders of the
Corporation for authorization, adoption or approval. If upon such payment of
past due dividends, in full, such voting right of the holders of shares of
Series A Preferred Stock shall cease, subject to revesting of such voting right
in the event of each and every additional Dividend Default in an amount equal
to two quarterly dividends as aforesaid.
6. REDEMPTION.
(a) MANDATORY REDEMPTION. The Corporation shall redeem all outstanding
shares of Series A Preferred Stock on June 30, 2006 at a redemption price per
share equal to the liquidation preference amount thereof, plus any accrued but
unpaid dividends thereon to the date of redemption.
(b) PUT OPTIONS. The Corporation intends to enter into agreements with
the holders of the Series A Preferred Stock pursuant to which such holders
shall have the right to require the Corporation to repurchase their Series A
Preferred Stock on the terms and subject to the conditions set forth therein
(the "Put Options"). The Put Options provide the holders thereof with mandatory
redemption rights which are in addition to those set forth in subparagraph (a)
of this paragraph 6.
(c) OPTIONAL REDEMPTION. The Series A Preferred Stock may be redeemed,
at the option of the Corporation, in whole or in part, at any time and from
time to time, at a redemption price per share equal to the liquidation
preference amount thereof, plus any accrued but unpaid dividends to the date of
redemption. At least 10 days prior to the date fixed for the redemption of
shares of Series A Preferred Stock pursuant to this paragraph, a written notice
shall be mailed to each holder of record of shares of Series A Preferred Stock
to be redeemed addressed to such holder at the address for such holder as
<PAGE> 15
shown on the records of the Corporation, which notice shall notify the holder
of the election of the Corporation to redeem the holder's shares stating the
date fixed for redemption thereof and calling upon such holder to surrender to
the Corporation on the redemption date at the place designated in such notice
the certificate or certificates representing the shares specified in such
notice of redemption; provided, however, that no failure to give such notice
nor any defect therein shall affect the validity of the proceedings for the
redemption of any shares of Series A Preferred Stock to be redeemed.
(d) REDEMPTION PROCEDURES. On the redemption date (whether mandatory
or optional) each holder of shares of Series A Preferred Stock to be redeemed
shall present and surrender the certificate or certificates for such shares,
free and clear of all liens and encumbrances, to the Corporation and thereupon
the redemption price of such shares shall be paid to the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. In the event pursuant to an
optional redemption less than all the shares represented by such certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares. From and after the redemption date, all dividends on shares of the
Series A Preferred Stock shall cease to accrue and all rights of the holders
thereof as shareholders of the Corporation, except the right to receive the
redemption price thereof upon the surrender of certificates representing such
shares, shall cease and terminate and such shares shall not thereafter be
transferred on the books of the Corporation.
(e) STATUS OF REDEEMED SHARES. Shares of Series A Preferred Stock
acquired by the Corporation by reason of redemption shall have the status of
authorized and unissued shares of Preferred Stock of the Corporation
undesignated as to series and may be redivided, redesignated and reissued as
part of any series of Preferred Stock of the Corporation, but may not be
reissued as shares of Series A Preferred Stock.
7. AUTHORIZATION OR ISSUANCE OF JUNIOR STOCK OR PARITY STOCK. Nothing
herein shall be construed to require a class vote or the consent of the holders
of the outstanding shares of Series A Preferred Stock in connection with any
increase in the total number of authorized shares of the Corporation or
issuance of additional shares of Junior Stock. The Corporation shall not issue
any Parity Stock without the prior vote or written consent of the holders of a
majority of the outstanding shares of the Series A Preferred Stock.
<PAGE> 16
Filed with the Department of State on
March 21, 1996
/s/ Yvette Kane
Secretary of the Commonwealth
STATEMENT OF CHANGE OF REGISTERED OFFICE
DSCB:15-1507/4144/5507/6144/8506 (Rev. 90)
1. The name of the corporation is: RENT-WAY, INC.
2. The (a) address of this corporation's or limited partnership's current
registered office in this Commonwealth or (b) name of its commercial
registered office provider and the county of venue is (the Department is
hereby authorized to correct the following address to conform to the
records of the Department):
(a) 17 West 10th Street, Erie, PA 16501, Erie County
For a corporation or a limited partnership represented by a commercial
registered office provider, the county in (b) shall be deemed the county in
which the corporation is located for venue and official publication
purposes.
3. (Complete part (a) or (b)):
(a) The address to which the registered office of the corporation or
limited partnership in this Commonwealth is to be changed is: 3230 West
Lake Road, Erie, PA 16505-3657, Erie County
(b) The registered office of the corporation or limited partnership shall
be provided by:
c/o:_______________________________________________________________________
Name of Commercial Registered Office Provider County
IN TESTIMONY WHEREOF, the undersigned corporation or limited partnership
has caused this statement to be signed by a duly authorized officer thereof
this 18th day of March, 1996.
RENT-WAY, INC.
---------------------------------------------
(Name of Corporation/Limited Partnership)
BY: /s/ Ronald D. DeMoss
------------------------------------------
(Signature)
TITLE: Vice President and General Counsel
---------------------------------------
<PAGE> 17
Filed with the Department of State on
March 12, 1997
/s/ Yvette Kane
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev. 90)
In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating
to articles of amendment), the undersigned business corporation, desiring to
amend its Articles, hereby states that:
1. The name of the corporation is: RENT-WAY, INC.
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) names of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following address to conform to the records of the Department):
(a) 3230 West Lake Road, Erie, PA 16505, Erie County
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Business Corporation
Law of 1988
4. The date of its incorporation is: November 16, 1981
5. (Check, and if appropriate complete, one of the following):
_x_ The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
___ The amendment shall be effective on:____________ at _____________
Date Hour
6. (Check one of the following):
_x_ The amendment was adopted by the shareholders pursuant to 15 Pa.C.S.
Section 1914(a) and (b).
<PAGE> 18
___ The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
___ The amendment adopted by the corporation, set forth in full, is as
follows:
_x_ The amendment adopted by the corporation as set forth in full in
Exhibit A attached hereto and made a part hereof.
8. ___ The restated Articles of Incorporation supersede the original
Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this
12th day of March, 1997.
RENT-WAY, INC.
-----------------------------------------
(Name of Corporation)
BY: /s/ Ronald D. DeMoss
--------------------------------------
(Signature)
TITLE: Vice President and General Counsel
-----------------------------------
<PAGE> 19
Exhibit A
Article 5 of the Articles of Incorporation is amended to read, in its entirety,
as follows:
"5. The corporation is authorized to issue 21,000,000
shares of capital stock of which 20,000,000 shares
shall be designated no par Common Stock, and
1,000,000 shares shall be designated Preferred
Stock. The Board of Directors shall have the full
authority to divide the 1,000,000 shares of
Preferred Stock into classes or series, or both, and
to determine for any such class or series its voting
rights (which may be full, limited, multiple, or
fractional, or no voting rights) and such
designations, preferences, qualifications,
privileges, limitations, restrictions, options,
conversion rights and other special or relative
rights as may as desired. Such division and
determination may be accomplished by an amendment to
this Article, which amendment may be solely by
action of the Board of Directors, which shall have
the full authority permitted by law to make such
divisions and determinations."
<PAGE> 20
Filed with the Department of State on
March 12, 1997
/s/ Yvette Kane
Secretary of the Commonwealth
STATEMENT WITH RESPECT TO SHARES-DOMESTIC BUSINESS CORPORATION
DSCB:15-1522 (Rev. 90)
In compliance with the requirements of 15 Pa.C.S. Section 1522(b)
(relating to statement with respect to shares), the undersigned corporation,
desiring to state the designation and voting rights, preferences, limitations,
and special rights, if any, of a class or series of its shares, hereby states
that:
1. The name of the corporation is: RENT-WAY, INC.
2. (Check and complete one of the following):
___ The resolution amending the Articles under 15 Pa.C.S. Section 1522(b)
(relating to divisions and determinations by the board), set forth in
full, is as follows:
_x_ The resolution amending the Articles under 15 Pa.C.S. Section 1522(b)
is set forth in full in Exhibit A attached hereto and made a part
hereof.
3. The aggregate number of shares of such class or series established and
designated by (a) such resolution, (b) all prior statements, if any, filed
under 15 Pa.C.S. Section 1522 or corresponding provisions of prior law with
respect thereto, and (c) any other provision of the Articles is 30,000
shares.
4. The resolution was adopted by the Board of Directors or an authorized
committee thereof on: March 12, 1997
5. (Check, and if appropriate complete, one of the following):
_x_ The resolution shall be effective upon the filing this statement with
respect to shares in the Department of State.
___ The resolution shall be effective on: ______________ at _____________
Date Hour
<PAGE> 21
IN TESTIMONY WHEREOF, the undersigned corporation has caused this
statement to be signed by a duly authorized officer thereof this 12th day of
March, 1997.
RENT-WAY, INC.
-----------------------------------------
(Name of Corporation)
BY: /s/ Ronald D. DeMoss
--------------------------------------
(Signature)
TITLE: Vice President and General Counsel
-----------------------------------
<PAGE> 22
EXHIBIT A
RENT-WAY, INC.
Resolutions adopted by the Board
of Directors on March 12, 1997
RETURN OF SHARES OF SERIES A WHEREAS, in connection with the acquisition
PREFERRED STOCK TO STATUS OF by the corporation of McKenzie Leasing
AUTHORIZED AND UNISSUED Corporation (the "McKenzie Acquisition"),
SHARES UNDESIGNATED AS TO 30,000 shares of Preferred Stock of the
SERIES corporation were designated Series A
Preferred Stock (the "Series A Stock"); and
WHEREAS, only 27,500 shares of Series A
Stock were issued in connection with the
McKenzie Acquisition (the "Issued Series A
Stock"); and
WHEREAS, the Issued Series A Stock has been
redeemed by the corporation and pursuant to
its terms returned to the status of
authorized and unissued Preferred Stock
undesignated as to series; and
WHEREAS, the board of directors of the
corporation deems it in the best interests
of the corporation to amend the
corporation's Articles of Incorporation to
return the 2,500 shares of Series A Stock
that were not issued in connection with the
McKenzie Acquisition (the "Unissued Series
A Stock") to the status of authorized and
unissued shares of Preferred Stock
undesignated as to series; and
WHEREAS, the terms of the Series A Stock
provide that the board of directors of the
corporation may amend the Articles of
Incorporation for this purpose without
submitting the amendment to the
shareholders of the corporation for their
approval;
NOW, THEREFORE, be it hereby
RESOLVED, that the corporation amend its
Articles of Incorporation in order to
return the Unissued Series A Stock to the
status of authorized and unissued Preferred
Stock undesignated as to series; and be it
further
<PAGE> 23
RESOLVED, that the President, any Vice
President and the Secretary and Assistant
Secretary of the Corporation be, and hereby
are, authorized and directed, for and on
behalf of the corporation, to execute and
deliver Articles of Amendment of the
Articles of Incorporation of the
corporation to effect such amendment and to
take all such other action as such officers
shall deem necessary for the purpose of
filing such Articles in the Department of
State of the Commonwealth of Pennsylvania
and otherwise effectuating the purposes of
the foregoing resolution.
<PAGE> 1
Exhibit 4.3
SHAREHOLDER'S AGREEMENT
This Agreement (the "Agreement"), is made as of the ____ day of July,
1996, between RENT-WAY, INC., a Pennsylvania corporation (the "Company") and
LEE BRADY, an individual residing at 15 Blythe Court, New Castle, Delaware
19720 ("Brady").
RECITALS:
Pursuant to a Stock Purchase Agreement dated July __, 1996 the (the
"Purchase Agreement") the Company is issuing to Brady an aggregate of 20,358
shares of its common stock, without par value (the "Common Stock"), subject to
adjustment, which shares shall have a Market Value (as defined in the Purchase
Agreement) of $250,000 as of the date of issuance. The parties wish to set
forth certain obligations and restrictions with respect to the Common Stock and
to provide for certain registration rights with respect to the Common Stock
owned by Brady, as hereinafter set forth in this Agreement.
AGREEMENT:
In order to implement the foregoing and in consideration of the mutual
agreements contained in this Agreement and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934, and the
rules and regulations thereunder.
"Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"Shares" shall mean, as of any date, all shares of Common Stock issued
to Brady pursuant to the Purchase Agreement.
"SEC" shall mean the Securities and Exchange Commission, or any
successor commission or agency having similar powers.
"Securities Act" shall mean the Securities Act of 1933, and the rules
and regulations thereunder.
<PAGE> 2
2. REGISTRATION RIGHTS.
(a) Piggyback Registrations. For a period beginning one (1) year after
the date of this Agreement and continuing for a period of one (1) year
thereafter if the Company proposes to file a registration statement on Form S-1
to register any of its Common Stock under the Securities Act for sale to the
public under the Securities Act, the Company shall give Brady notice of such
proposed registration at least 30 days prior to the filing of a registration
statement. At the written request of Brady delivered to the Company within 15
days after the receipt of the notice from the Company, which request shall
state the number of Shares that Brady wishes to sell publicly under the
registration statement proposed to be filed by the Company (the "Registration
Shares"), the Company shall use its best efforts to include in any such
registration under the Securities Act (and in any related registration,
qualification or compliance under state blue sky laws) such Registration
Shares, and to cause such registration (the "Piggyback Registration") to become
and remain effective; provided, however, that (i) the Company may, without the
consent of Brady, withdraw such registration statement prior to its becoming
effective if the Company has abandoned its proposal to register its Common
Stock; (ii) the Company may, without the consent of Brady, delay the
effectiveness of such registration statement if in the opinion of the Board of
Directors such delay is in the best interests of the Company, and (iii) if a
registration pursuant to this Section 2(a) involves an underwritten offering
and the managing underwriter advises the Company that, in its written opinion
to Brady, the number of Registration Shares requested to be included in such
registration exceeds the number which can be sold in such offering, so as to be
likely to have an adverse affect on such offering as contemplated by the
Company (including the price at which the Company proposes to sell such Common
Stock), then the Company will include in such registration (x) first, all of
the Common Stock to be sold by the Company and (y) second, to the extent of the
number of Registration Shares requested to be included in such registration
which, in the opinion of such managing underwriter, can be sold without having
the adverse effect referred to above, the number of Registration Shares which
Brady and all other holders of the Company's Common Stock who, as of the date
of this Agreement, have contractual rights of registration have requested to be
included in such registration, such amount to be allocated pro rata among all
such requesting holders on the basis of the relative number of shares of Common
Stock then held by each such holder, provided that any such shares thereby
allocated to any such holder that exceeds such holder's request will be
reallocated among the remaining requesting holders in like manner.
(b) Registration Covenants of the Company. In the event that any
Registration Shares of Brady are to be registered pursuant to Section 2(a), the
Company covenants and agrees that it shall use its reasonable best efforts to
effect the registration and cooperate in the sale of the Registration Shares to
be registered and, subject to the Company's rights described in Section 2(a) to
withdraw certain registrations, it shall:
(i)(A) prepare and file with the SEC a registration statement
registering the Registration Shares (as well as any necessary
amendments or supplements thereto) (a "Registration Statement"); (B)
provide Brady and his legal representatives with a reasonable
opportunity to review the Registration (and any amendments thereto)
before filing; and (C) use its reasonable best efforts to cause the
Registration Statement to become effective;
<PAGE> 3
(ii) notify Brady, promptly after the Company shall receive
notice thereof, of the time when the Registration Statement becomes
effective or when any amendment or supplement or any prospectus
forming a part of the Registration Statement has been filed;
(iii) notify Brady promptly of any request by the SEC for the
amending or supplementing of the Registration Statement or prospectus
or for additional information;
(iv)(A) advise Brady after the Company shall receive notice or
otherwise obtain knowledge of the issuance of any order by the SEC
suspending the effectiveness of the Registration Statement or any
amendment thereto or of the initiation or threatening of any
proceeding for that purpose and (B) promptly use its best efforts to
prevent the issuance of any stop order or to obtain its withdrawal
promptly if a stop order should be issued;
(v)(A) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus forming
a part thereof as may be necessary to keep the Registration Statement
effective for the lesser of (I) a period of time necessary to permit
Brady to dispose of the Registration Shares in accordance with the
intended methods of disposition as set forth in the Registration
Statement and (II) 120 days and (B) comply with the provisions of the
Securities Act with respect to the disposition of the Registration
Shares covered by the Registration Statement during such period in
accordance with the intended methods of disposition by Brady set
forth in the Registration Statement;
(vi) furnish to Brady such number of copies of the Registration
Statement, each amendment and supplement thereto, the prospectus
included in the Registration Statement (including each preliminary
prospectus) and such other documents as Brady may reasonably request
in order to facilitate the disposition of the Registration Shares
owned by Brady;
(vii) use its best efforts to register or qualify such
Registration Shares under such other securities or blue sky laws of
such jurisdictions as determined by the underwriters after
consultation with the Company and Brady (or by the Company after
consultation with Brady, if there is no underwriter), and do any and
all other acts and things which may be reasonably necessary or
advisable to enable Brady to consummate the disposition in such
jurisdictions of the Registration Shares (provided that the Company
shall not be required to (A) qualify generally to do business in any
jurisdiction in which it would not otherwise be required to qualify
but for this Section 2(b)(vii), (B) subject itself to taxation in any
such jurisdiction or (C) consent to general service of process in any
such jurisdiction);
(viii) notify Brady, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the Registration
Statement would contain an untrue statement of a material
<PAGE> 4
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and, at
the request of Brady, prepare a supplement or amendment to the
Registration Statement so that the Registration Statement shall not,
to the Company's knowledge, contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(c) Expenses. The parties agree as follows:
(i) Subject to clause (ii) of this Section 2(c) the Company shall
pay, on behalf of Brady all reasonable out-of-pocket expenses incurred in
connection with a Piggyback Registration pursuant to Section 2(a) of this
Agreement, including, but not limited to, all SEC and Blue Sky registration and
filing fees and related expenses; word processing, duplicating and printing
expenses; fees and disbursements of legal counsel for the Company including, if
different, Blue Sky counsel, and of the Company's independent public
accountants required by or incident to compliance with all applicable SEC and
Blue Sky laws, rules and regulations; and transfer agents' fees expenses in
connection with any Piggyback Registration.
(ii) All underwriting discounts and selling commissions relating to
Registration Shares in connection with a Piggyback Registration shall be borne
by the holders of such Registration Shares pro rata.
(d) Assignment of Registration Rights. Brady may assign his rights
under this Article 2 only to his spouse or any descendant of Brady, or to any
trust for the benefit of any of such persons; provided that no such assignment
shall increase the Company's obligations to effect registrations or pay
expenses thereof.
(e) Compliance with Law. In consideration for the Company agreeing to
its obligations under this Article 2, Brady agrees, with respect to any
Piggyback Registration, not to sell, make any short sale of, pledge, loan,
grant any option for the purchase of, or otherwise dispose of any Registration
Shares in any manner that would violate any applicable law, rule or regulation.
3. INDEMNIFICATION.
(a) Indemnification by the Company. In the event of any registration,
qualification or compliance effected with respect to Registration Shares under
the Securities Act, state blue sky laws or otherwise, the Company shall, and
hereby does, indemnify and hold harmless Brady, each other Person who
participates as an underwriter in the offering or sale of Registration Shares
and each other Person, if any, who controls any such underwriter within the
meaning of Section 15 of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which Brady or any such
underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which the
Registration Shares were registered under the Securities
<PAGE> 5
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any other
document, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein in
light of the circumstances in which they were made not misleading, and the
Company shall reimburse Brady, and each such underwriter and controlling person
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, liability, action or
proceeding; provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or expense (or action
or proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement or other document in
reliance upon and in conformity with information furnished to the Company
through an instrument duly executed by or on behalf of Brady or such
underwriter, as the case may be, specifically stating that it is for use in the
preparation thereof; and provided further that the Company shall not be liable
to any Person who participates as an underwriter in the offering or sale of
Registration Shares or any other Person, if any, who controls such underwriter
within the meaning of the Securities Act, in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of such Person's failure to send or give a copy
of the final prospectus, as the same may be then supplemented or amended, to
the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the
sale of Registration Shares to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Shareholders, or any such controlling person and shall survive the transfer of
the Registration Shares by Brady.
(b) Indemnification by Brady. In the event of any registration,
qualification or compliance effected with respect to Registration Shares under
the Securities Act, state blue sky laws or otherwise, Brady shall, and hereby
does, indemnify and hold harmless (in the same manner and to the same extent as
set forth in Section 3(a)) the Company, each director of the Company, each
officer of the Company and each other Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
other document, if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with information about
Brady furnished to the Company through an instrument duly executed by Brady
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement or other document. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer by such seller of the securities of the Company being registered.
(c) Shareholder Information. Brady shall provide the Company with such
information with respect to the Registration Shares to be sold, the plans for
the proposed disposition thereof and such other information as shall, in the
opinion of counsel for the Company,
<PAGE> 6
be necessary to enable the Company to include in such registration statement
all material facts required to be disclosed with respect to Brady.
(d) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in Section 3(a) or 3(b), such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided that
the failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under Section 3(a) or
3(b), except to the extent that the indemnifying party is actually prejudiced
by such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist or the indemnified party may have defenses not available to the
indemnifying party in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
(e) Indemnification Payments. Any indemnification payment required by
this Section 3 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
4. RESTRICTIONS ON TRANSFER OF SHARES; RULE 144.
(a) Restrictions on Transfer of Shares. Except as otherwise expressly
provided for in this Agreement, Brady agrees that he will not sell, transfer,
pledge, hypothecate or otherwise dispose of any Shares for a period of two (2)
years from the date of this Agreement. The certificates representing the Shares
shall have placed thereon the following legend:
"The Shares represented by this certificate have not been
registered under the Securities Act and may not be sold or
transferred except in compliance with such Act. In addition, the
Shares represented by this Certificate are subject to the
provisions of a Shareholder's Agreement dated as of July __, 1996
between Rent-Way, Inc. and one of the shareholders of Rent-Way,
Inc., a copy of which is on file at the office of Rent-Way, Inc."
(b) Rule 144. The Company shall take all actions reasonably necessary
to enable Brady to sell the Shares without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144 under the
Securities Act, as such Rule may be amended from
<PAGE> 7
time to time, or any similar rule or regulation hereafter adopted by the SEC,
including filing on a timely basis all reports required to be filed under the
Exchange Act. Upon the request of Brady, the Company shall deliver to Brady a
written statement as to whether it has complied with such requirements. The
Company shall cooperate with Brady to enable such sales to be made in
accordance with applicable laws, rules and regulations, the requirements of the
Company's transfer agent and the reasonable requirements of any broker through
which the sales are proposed to be executed, and shall, upon request, furnish
unlegended certificates representing Shares in such numbers and denominations
as any Shareholder shall reasonably require for delivery pursuant to such
sales.
5. GENERAL PROVISIONS.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto. Any failure of a
party to comply with any obligation, covenant, agreement or condition contained
in this Agreement may be waived by the other party only by a written instrument
signed by such other party, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure of compliance.
(b) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed effective upon receipt (or refusal of receipt)
and shall be delivered personally or sent by telex, telecopy or registered,
overnight or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(i) if to the Company, to:
Rent-Way, Inc.
3230 West Lake Road
Erie, Pennsylvania 16505
Attention: William E. Morgenstern
with a copy to:
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
1800 One M&T Plaza
Buffalo, New York 14203
Attention: Robert B. Fleming, Jr., Esq.
Paul J. Vallone, Esq.
<PAGE> 8
(ii) if to Brady, as follows:
Lee Brady
15 Blythe Court
New Castle, Delaware 19720
with a copy to:
Murray Sawyer, Esq.
Sawyer, Akin & Herron
1220 N. Market Street
Suite 606
P.O. Box 25047
Wilmington, Delaware 19899
(c) Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, Exhibit
to or Schedule to this Agreement, unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Wherever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one of the counterparts has been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
(e) Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire Agreement and supersedes
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania, without regard
to conflict of law rules.
IN WITNESS WHEREOF, the Company and Brady have caused this Agreement
to be signed by the respective persons thereunto duly authorized, all as of the
date first written above.
RENT-WAY, INC.
By /s/ William E. Morgenstern
William E. Morgenstern
President
/s/ Lee Brady
Lee Brady
<PAGE> 1
Exhibit 4.4
STOCK OPTION AGREEMENT
THIS AGREEMENT made and entered into as the _____ day of January,
1997 (the "date of grant") by and between RENT-WAY, INC., a Pennsylvania
corporation (the "Company"), and DAVID COLEMAN (the "Optionee").
WITNESSETH:
WHEREAS, pursuant to the terms of that certain Stock Purchase
Agreement, dated as of January __, 1997 by and among the Optionee, the Company
and Bill Coleman TV, Inc. (the "Purchase Agreement"), the Company is granting
the Optionee an option to purchase 25,000 shares of authorized Common Stock of
the Company;
NOW, THEREFORE, in consideration of the premises, the mutual promises
and representations contained in this Stock Option Agreement, and intending to
be legally bound, the parties agree as follows:
1. STOCK OPTION. The Company hereby grants to Optionee an option to
purchase from it, upon the terms and conditions set forth
herein, an aggregate of 25,000 shares of authorized Common Stock
of the Company (the "Option").
2. TERMS OF STOCK OPTION. The right to purchase stock pursuant to
this Option is subject to the following terms, conditions and
covenants:
(a) The option price is $8.875 per share, being the fair market
value of the Common Stock of the Company on December 19,
1996 (the "Option Price").
(b) The Option may be exercised in whole or part at any time or
from time to time for the amount vested within a five (5)
year period from the date of grant.
(c) In case of death or disability of Optionee, the Option may
be exercised by his duly authorized legal representative or
by the person or persons who shall have acquired the Option
by bequest or inheritance.
(d) The Option Price shall be payable to the Company upon the
exercise of the Option in cash, by certified check or by
wire transfer.
3. RIGHTS AS SHAREHOLDER. The Optionee shall have no right as a
shareholder with respect to any shares covered by this Option
until the date of issuance of a stock certificate to him for the
shares, which shall occur no later than the fifth business day
after exercise of the Option. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights
for which the record date is prior to the date a stock
certificate is issued, except as provided in Section 4, below.
<PAGE> 2
4. RECAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of stock
issuable upon exercise of the Option and the exercise price per
share, shall be appropriately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the
Company resulting from the subdivision or consolidation of
shares or the payment of stock dividends (but only on the
stock). Subject to any required action by the shareholders, if
the Company shall be the surviving Company in any merger or
consolidation, each outstanding option shall pertain to and
apply to the securities to which a holder of the number of
shares of stock subject to the option would have been entitled.
A sale of all of the shares of Common Stock of the Company
("Stock Sale"), a dissolution or liquidation of the Company or a
merger or consolidation in which the Company is not the
surviving company shall cause each outstanding option to
terminate, provided that each Optionee shall, in such event,
have the right, immediately prior to such dissolution or
liquidation or merger or consolidation in which the Company is
not the surviving company, to exercise the option in whole or in
part, except as otherwise provided in this Agreement. The
Company shall mail to the Optionee notice of any such Stock
Sale, dissolution, liquidation, or merger or consolidation at
least ten (10) days prior to such event.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the
Company's Board of Directors acting in good faith, whose
determination in that respect shall be final, binding and
conclusive.
Except as expressly provided in this Section 4, the Optionee
shall have no rights by reason of an increase or decrease in the
number of shares of stock of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of
assets or stock of another company, and any issue by the Company
of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to this
Option.
The grant of this Option shall not affect in any way the right
or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure
or to merge or to consolidate or to dissolve, liquidate or sell
or transfer all or any part of its business or assets.
5. INVESTMENT PURPOSE. This Option is granted on the condition that
any purchase of stock covered by the Option shall be for
investment purposes, and not with a view towards resale or
distribution. Any shares issued pursuant to the Option shall be
restricted and shall not have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). Such
shares may not be resold without registration with the
Securities and Exchange Commission unless, in the reasonable
opinion of counsel for the Company, such registration is not
required under the Securities Act or any other applicable law,
regulation, or rule of any governmental agency, national
securities exchange, or national securities association. All
certificates for Common Stock issued by the Company pursuant to
this Agreement, except shares registered under the Securities
Act, shall contain the following statement when issued:
"The securities represented by this certificate have not
been registered under any applicable federal or state
securities acts in reliance upon exemptions under those
acts. These securities may not be transferred unless the
Company receives a
<PAGE> 3
satisfactory opinion of counsel that such transfer will not
violate any applicable securities laws."
6. Miscellaneous.
(a) The Company shall at all times reserve and keep available
for issuance the number of authorized shares of its Common
Stock necessary for the purpose of issuance upon exercise
of this Option, and such shares shall at no time have an
aggregate par value in excess of the applicable option
price for such shares.
(b) If the Board of Directors of the Company shall declare any
dividend or other distribution on its Common Stock except
out of earned surplus or net profits or by way of a stock
dividend payable on its common stock, the Company shall
mail notice thereof to the Optionee not less than 30 days
prior to the record date fixed for determining shareholders
entitled to participate in such dividend or other
distribution and the Optionee shall not participate in such
dividend or other distribution or be entitled to any rights
on account or as a result thereof unless and to the extent
that this Option is exercised prior to such record date.
(c) Fractional shares shall be issued upon the exercise of this
Option in any case where the Optionee would be entitled to
receive a fractional share upon such exercise.
(d) The Company covenants and agrees that the shares of stock
represented by each certificate for its Common Stock to be
delivered on the exercise of this Option will, at the time
of such delivery, be validly issued and outstanding and be
fully paid and nonassessable. The Company further covenants
and agrees that it will pay when due and payable any and
all federal and state issuance or transfer taxes that may
be payable in respect of this Option or any common stock or
certificates issued thereunder. The Company shall not,
however, be required to pay any tax which may be payable in
respect of any transfer involved in the transfer and
delivery of stock certificates in the name other than that
of the Optionee, and any such tax shall be paid of the
Optionee at the time of presentation.
(e) The right to exercise this Option shall not be suspended
during any period that the stock transfer books of the
Company for its Common Stock may be closed. The Company
shall not be required, however, to deliver stock
certificates upon such exercise while such books are duly
closed for any purpose, but the Company may postpone the
delivery of such certificates until the opening of such
books. In such case, the certificates shall be delivered
promptly after the books are opened.
(f) This Agreement shall be binding upon the parties, their
heirs, legal representatives, successors and assigns.
(g) Any and all notices, designations, consents, offers and
acceptances or other communications provided for shall be
given in writing by registered mail, which shall be
addressed, in the case of the Company, to the principal
office, and in the case of the Optionee, to his residence
or such other address as may have been designated by him.
<PAGE> 4
(h) The invalidity or enforceability of any particular
provision of this Agreement shall not affect the other
provisions, and the Agreement shall be construed in all
respects as if such invalid or unenforceable provision or
provisions were omitted.
(i) The Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
signed by its President, and Optionee has hereunto set his hand and seal.
OPTIONEE RENT-WAY, INC.
/s/ David Coleman By: /s/ William E. Morgenstern
David Coleman William E. Morgenstern
President
<PAGE> 5
EXERCISE OF STOCK OPTION AND DECLARATION
Pursuant to the provisions of the Option Agreement entered into as of
January __, 1997 between Rent-Way, Inc. (The "Company") and the undersigned as
Optionee. I hereby exercise the Stock Option to the extent of ______ shares of
Common Stock of the Company. I hereby make payment as follows:
o Cash/certified check in the amount of $_____________.
o Wire transfer in the amount of $________________________.
I have been advised that these shares may not be sold or offered for
sale in the absence of an effective registration statement as to the securities
under the Securities Act of 1933, as amended, or my delivery to the Company of
an Opinion of Counsel satisfactory to the Company that such registration is not
required.
Date: ___________________, 199_ _________________________
Optionee (Signature)
Social Security Number: Address:
___________________________________ _________________________
_________________________
_________________________
<PAGE> 1
Exhibit 10.15
REVOLVING CREDIT FACILITY
CREDIT AGREEMENT
by and among
RENT-WAY, INC.
and
THE BANKS PARTY HERETO
and
NATIONAL CITY BANK OF PENNSYLVANIA, As Agent
Dated as of November 22, 1996
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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<S> <C>
1. CERTAIN DEFINITIONS-------------------------------------------------------- 1
1.1 CERTAIN DEFINITIONS.--------------------------------------------------- 1
1.2 CONSTRUCTION.----------------------------------------------------------19
1.2.1 Number; Inclusion.----------------------------------------------19
1.2.2 Determination.--------------------------------------------------19
1.2.3 Agent's Discretion and Consent.---------------------------------19
1.2.4 Documents Taken as a Whole.-------------------------------------19
1.2.5 Headings.-------------------------------------------------------20
1.2.6 Implied References to this Agreement.---------------------------20
1.2.7 Persons.--------------------------------------------------------20
1.2.8 Modifications to Documents.-------------------------------------20
1.2.9 From, To and Through.-------------------------------------------20
1.2.10 Shall; Will.----------------------------------------------------20
1.3 ACCOUNTING PRINCIPLES.-------------------------------------------------20
2. REVOLVING CREDIT FACILITY--------------------------------------------------21
2.1 REVOLVING CREDIT COMMITMENTS.------------------------------------------21
2.2 NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO REVOLVING CREDIT LOANS.---21
2.3 COMMITMENT FEES.-------------------------------------------------------21
2.4 REVOLVING CREDIT FACILITY FEE.-----------------------------------------22
2.5 REVOLVING CREDIT LOAN REQUESTS.----------------------------------------22
2.6 MAKING REVOLVING CREDIT LOANS.-----------------------------------------22
2.7 REVOLVING CREDIT NOTES.------------------------------------------------23
2.8 USE OF PROCEEDS.-------------------------------------------------------23
2.9 LETTER OF CREDIT SUBFACILITY.------------------------------------------23
2.9.1 Issuance of Letters of Credit.-----------------------------------23
2.9.2 Letter of Credit Fees.-------------------------------------------23
2.9.3 Disbursements, Reimbursement.------------------------------------24
2.9.4 Repayment of Participation Advances.-----------------------------25
2.9.5 Documentation.---------------------------------------------------25
2.9.6 Determinations to Honor Drawing Requests.------------------------26
2.9.7 Nature of Participation and Reimbursement Obligations.-----------26
2.9.8 Indemnity.-------------------------------------------------------27
2.9.9 Liability for Acts and Omissions.--------------------------------28
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3. [INTENTIONALLY OMITTED]----------------------------------------------------28
4. INTEREST RATES-------------------------------------------------------------28
4.1 INTEREST RATE OPTIONS.-------------------------------------------------28
4.1.1 Revolving Credit Interest Rate Options.--------------------------29
4.1.2 Rate Quotations.-------------------------------------------------29
4.2 INTEREST PERIODS.------------------------------------------------------29
4.2.1 Ending Date and Business Day.------------------------------------30
4.2.2 Amount of Borrowing Tranche.-------------------------------------30
4.2.3 Termination Before Expiration Date.------------------------------30
4.2.4 Renewals.--------------------------------------------------------30
4.3 INTEREST AFTER DEFAULT.------------------------------------------------30
4.3.1 Letter of Credit Fees, Interest Rate.----------------------------30
4.3.2 Other Obligations.-----------------------------------------------30
4.3.3 Acknowledgment.--------------------------------------------------30
4.4 EURO-RATE UNASCERTAINABLE; ILLEGALITY; INCREASED COSTS;
DEPOSITS NOT AVAILABLE-------------------------------------------------31
4.4.1 Unascertainable.-------------------------------------------------31
4.4.2 Illegality; Increased Costs; Deposits Not Available.-------------31
4.4.3 Agent's and Bank's Rights.---------------------------------------31
4.5 SELECTION OF INTEREST RATE OPTIONS.------------------------------------32
5. PAYMENTS-------------------------------------------------------------------32
5.1 PAYMENTS.--------------------------------------------------------------32
5.2 PRO RATA TREATMENT OF BANKS.-------------------------------------------33
5.3 INTEREST PAYMENT DATES.------------------------------------------------33
5.4 VOLUNTARY REPAYMENTS.--------------------------------------------------33
5.4.1 Right to Repay.--------------------------------------------------33
5.4.2 Commitment Reductions.-------------------------------------------34
5.4.3 Replacement of a Bank.-------------------------------------------34
5.4.4 Change of Lending Office.----------------------------------------35
5.5 MANDATORY REPAYMENTS.--------------------------------------------------35
5.5.1 Sale of Assets.--------------------------------------------------35
5.5.2 Borrowing Base Exceeded.-----------------------------------------36
5.5.3 Application Among Interest Rate Options.-------------------------36
5.6 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.----------------------36
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5.6.1 Increased Costs or Reduced Return Resulting From Taxes, Reserves,
Capital Adequacy Requirements, Expenses, Etc.--------------------36
5.6.2 Indemnity.-------------------------------------------------------37
6. REPRESENTATIONS AND WARRANTIES---------------------------------------------38
6.1 REPRESENTATIONS AND WARRANTIES.----------------------------------------38
6.1.1 Organization and Qualification.----------------------------------38
6.1.2 Capitalization and Ownership.------------------------------------38
6.1.3 Subsidiaries.----------------------------------------------------38
6.1.4 Power and Authority.---------------------------------------------39
6.1.5 Validity and Binding Effect.-------------------------------------39
6.1.6 No Conflict.-----------------------------------------------------39
6.1.7 Litigation.------------------------------------------------------39
6.1.8 Title to Properties.---------------------------------------------40
6.1.9 Financial Statements.--------------------------------------------40
6.1.10 Use of Proceeds; Margin Stock.----------------------------------41
6.1.11 Full Disclosure.------------------------------------------------41
6.1.12 Taxes.----------------------------------------------------------41
6.1.13 Consents and Approvals.-----------------------------------------42
6.1.14 No Event of Default; Compliance with Instruments.---------------42
6.1.15 Patents, Trademarks, Copyrights, Licenses, Etc.-----------------42
6.1.16 Security Interests.---------------------------------------------42
6.1.17 Mortgage Liens.-------------------------------------------------43
6.1.18 Status of the Pledge Collateral.--------------------------------43
6.1.19 Insurance.------------------------------------------------------43
6.1.20 Compliance with Laws.-------------------------------------------44
6.1.21 Material Contracts; Burdensome Restrictions.--------------------44
6.1.22 Investment Companies; Regulated Entities.-----------------------44
6.1.23 Plans and Benefit Arrangements.---------------------------------44
6.1.24 Employment Matters.---------------------------------------------46
6.1.25 Environmental Matters.------------------------------------------46
6.1.26 Senior Debt Status.---------------------------------------------48
6.2 UPDATES TO SCHEDULES.--------------------------------------------------48
7. CONDITIONS OF LENDING------------------------------------------------------48
7.1 FIRST LOANS.-----------------------------------------------------------49
7.1.1 Officer's Certificate.-------------------------------------------49
7.1.2 Secretary's Certificate.-----------------------------------------49
7.1.3 Delivery of Loan Documents.--------------------------------------50
7.1.4 Opinion of Counsel.----------------------------------------------50
7.1.5 Legal Details.---------------------------------------------------50
7.1.6 Payment of Fees.-------------------------------------------------50
7.1.7 Environmental Audit.---------------------------------------------50
7.1.8 Appraisals.------------------------------------------------------51
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7.1.9 Consents.--------------------------------------------------------51
7.1.10 Officer's Certificate Regarding MACs.---------------------------51
7.1.11 No Violation of Laws.-------------------------------------------51
7.1.12 No Actions or Proceedings.--------------------------------------51
7.1.13 Insurance Policies; Certificates of Insurance; Endorsements.----52
7.1.14 Title Insurance.------------------------------------------------52
7.1.15 Filing Receipts.------------------------------------------------52
7.1.16 Equipment Description.------------------------------------------52
7.1.17 Termination of Existing Loan Agreement.-------------------------52
7.2 EACH ADDITIONAL LOAN.--------------------------------------------------53
8. COVENANTS------------------------------------------------------------------53
8.1 AFFIRMATIVE COVENANTS.-------------------------------------------------53
8.1.1 Preservation of Existence, Etc.----------------------------------53
8.1.2 Payment of Liabilities, Including Taxes, Etc.--------------------53
8.1.3 Maintenance of Insurance.----------------------------------------54
8.1.4 Maintenance of Properties and Leases.----------------------------55
8.1.5 Maintenance of Patents, Trademarks, Etc.-------------------------55
8.1.6 Visitation Rights.-----------------------------------------------55
8.1.7 Keeping of Records and Books of Account.-------------------------56
8.1.8 Plans and Benefit Arrangements.----------------------------------56
8.1.9 Compliance with Laws.--------------------------------------------56
8.1.10 Use of Proceeds.------------------------------------------------56
8.1.11 Further Assurances.---------------------------------------------57
8.1.12 Subordination of Intercompany Loans.----------------------------57
8.1.13 Continuation of Landlords' Waivers.-----------------------------57
8.2 NEGATIVE COVENANTS.----------------------------------------------------58
8.2.1 Indebtedness.----------------------------------------------------58
8.2.2 Liens.-----------------------------------------------------------58
8.2.3 Guaranties.------------------------------------------------------58
8.2.4 Loans and Investments.-------------------------------------------59
8.2.5 Dividends and Related Distributions.-----------------------------59
8.2.6 Liquidations, Mergers, Consolidations, Acquisitions.-------------59
8.2.7 Dispositions of Assets or Subsidiaries.--------------------------61
8.2.8 Affiliate Transactions.------------------------------------------62
8.2.9 Subsidiaries, Partnerships and Joint Ventures.-------------------62
8.2.10 Continuation of or Change in Business.--------------------------63
8.2.11 Plans and Benefit Arrangements.---------------------------------63
8.2.12 Fiscal Year.----------------------------------------------------64
8.2.13 Issuance of Stock.----------------------------------------------64
8.2.14 Changes in Organizational Documents.----------------------------64
8.2.15 Capital Expenditures and Leases.--------------------------------64
8.2.16 Maximum Leverage Ratio (Total Funded Debt).---------------------65
8.2.17 Maximum Leverage Ratio (Senior Funded Debt).--------------------65
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8.2.18 Minimum Interest Coverage Ratio.--------------------------------65
8.2.19 Minimum Tangible Net Worth.-------------------------------------65
8.2.20 Subordinated Loan Document Covenants; Amendment.----------------65
8.2.21 Interest Rate Protection.---------------------------------------65
8.2.22 Rental Merchandise Usage.---------------------------------------66
8.2.23 Prepayments on Subordinated Debt.-------------------------------66
8.2.24 Landlord's Waivers.---------------------------------------------66
8.3 REPORTING REQUIREMENTS.------------------------------------------------66
8.3.1 Monthly Financial Statements.------------------------------------66
8.3.2 Quarterly Financial Statements.----------------------------------67
8.3.3 Annual Financial Statements.-------------------------------------67
8.3.4 Certificate of the Borrower.-------------------------------------68
8.3.5 Monthly Inventory Report.----------------------------------------68
8.3.6 Notice of Default.-----------------------------------------------68
8.3.7 Notice of Litigation.--------------------------------------------69
8.3.8 Certain Events.--------------------------------------------------69
8.3.9 Budgets, Forecasts, Other Reports and Information.---------------69
8.3.10 Notices Regarding Plans and Benefit Arrangements.---------------70
9. DEFAULT--------------------------------------------------------------------71
9.1 EVENTS OF DEFAULT.-----------------------------------------------------71
9.1.1 Payments Under Loan Documents.-----------------------------------72
9.1.2 Breach of Warranty.----------------------------------------------72
9.1.3 Breach of Negative Covenants or Visitation Rights.---------------72
9.1.4 Breach of Other Covenants.---------------------------------------72
9.1.5 Defaults in Other Agreements or Indebtedness.--------------------72
9.1.6 Final Judgments or Orders.---------------------------------------73
9.1.7 Loan Document Unenforceable.-------------------------------------73
9.1.8 Uninsured Losses; Proceedings Against Assets.--------------------73
9.1.9 Notice of Lien or Assessment.------------------------------------73
9.1.10 Insolvency.-----------------------------------------------------73
9.1.11 Events Relating to Plans and Benefit Arrangements.--------------73
9.1.12 Cessation of Business.------------------------------------------74
9.1.13 Change of Control.----------------------------------------------74
9.1.14 Involuntary Proceedings.----------------------------------------74
9.1.15 Voluntary Proceedings.------------------------------------------75
9.2 CONSEQUENCES OF EVENT OF DEFAULT.--------------------------------------75
9.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings.--------------------------------------75
9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.------------75
9.2.3 Set-off.---------------------------------------------------------76
9.2.4 Suits, Actions, Proceedings.-------------------------------------76
9.2.5 Application of Proceeds.-----------------------------------------76
9.2.6 Other Rights and Remedies.---------------------------------------77
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9.3 NOTICE OF SALE.--------------------------------------------------------77
10. THE AGENT-----------------------------------------------------------------77
10.1 APPOINTMENT.----------------------------------------------------------77
10.2 DELEGATION OF DUTIES.-------------------------------------------------78
10.3 NATURE OF DUTIES; INDEPENDENT CREDIT INVESTIGATION.-------------------78
10.4 ACTIONS IN DISCRETION OF AGENT; INSTRUCTIONS FROM THE BANKS.----------78
10.5 REIMBURSEMENT AND INDEMNIFICATION OF AGENT BY THE BORROWER.-----------79
10.6 EXCULPATORY PROVISIONS; LIMITATION OF LIABILITY.----------------------80
10.7 REIMBURSEMENT AND INDEMNIFICATION OF AGENT BY BANKS.------------------80
10.8 RELIANCE BY AGENT.----------------------------------------------------81
10.9 NOTICE OF DEFAULT.----------------------------------------------------81
10.10 NOTICES.-------------------------------------------------------------81
10.11 BANKS IN THEIR INDIVIDUAL CAPACITIES.--------------------------------82
10.12 HOLDERS OF NOTES.----------------------------------------------------82
10.13 EQUALIZATION OF BANKS.-----------------------------------------------82
10.14 SUCCESSOR AGENT.-----------------------------------------------------83
10.15 AGENT'S FEE.---------------------------------------------------------83
10.16 AVAILABILITY OF FUNDS.-----------------------------------------------83
10.17 CALCULATIONS.--------------------------------------------------------84
10.18 BENEFICIARIES.-------------------------------------------------------84
11. MISCELLANEOUS-------------------------------------------------------------84
11.1 MODIFICATIONS, AMENDMENTS OR WAIVERS.---------------------------------84
11.1.1 Increase of Commitment; Extension or Expiration Date.-----------84
11.1.2 Extension of Payment; Reduction of Principal Interest or Fees;
Modification of Terms of Payment.-------------------------------85
11.1.3 Release of Collateral or Guarantor.-----------------------------85
11.1.4 Miscellaneous---------------------------------------------------85
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11.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED.------------85
11.3 REIMBURSEMENT AND INDEMNIFICATION OF BANKS BY THE BORROWER; TAXES.----86
11.4 HOLIDAYS.-------------------------------------------------------------86
11.5 FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE.---------------------------87
11.5.1 Notional Funding.-----------------------------------------------87
11.5.2 Actual Funding.-------------------------------------------------87
11.6 NOTICES.--------------------------------------------------------------87
11.7 SEVERABILITY.---------------------------------------------------------88
11.8 GOVERNING LAW.--------------------------------------------------------88
11.9 PRIOR UNDERSTANDING.--------------------------------------------------88
11.10 DURATION; SURVIVAL.--------------------------------------------------88
11.11 SUCCESSORS AND ASSIGNS.----------------------------------------------89
11.12 CONFIDENTIALITY.-----------------------------------------------------90
11.13 COUNTERPARTS.--------------------------------------------------------90
11.14 AGENT'S OR BANK'S CONSENT.-------------------------------------------90
11.15 EXCEPTIONS.----------------------------------------------------------91
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.------------------------------91
11.17 TAX WITHHOLDING CLAUSE.----------------------------------------------91
11.18 JOINDER OF GUARANTORS.-----------------------------------------------92
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LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
SCHEDULE 1.1(P) - PERMITTED LIENS
SCHEDULE 6.1.1 - QUALIFICATIONS TO DO BUSINESS
SCHEDULE 6.1.2 - CAPITALIZATION
SCHEDULE 6.1.3 - SUBSIDIARIES
SCHEDULE 6.1.7 - LITIGATION
SCHEDULE 6.1.8 - OWNED AND LEASED REAL PROPERTY
SCHEDULE 6.1.13 - CONSENTS AND APPROVALS
SCHEDULE 6.1.15 - PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.
SCHEDULE 6.1.18 - PARTNERSHIP AGREEMENTS; LLC AGREEMENTS
SCHEDULE 6.1.19 - INSURANCE POLICIES
SCHEDULE 6.1.21 - MATERIAL CONTRACTS
SCHEDULE 6.1.23 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 6.1.25 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 8.2.1 - PERMITTED INDEBTEDNESS
SCHEDULE 8.2.10 - BUSINESSES OF LOAN PARTIES
EXHIBITS
EXHIBIT 1.1(A) - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(C) - COLLATERAL ASSIGNMENT
EXHIBIT 1.1(G)(1) - GUARANTOR JOINDER
EXHIBIT 1.1(G)(2) - GUARANTY AGREEMENT
EXHIBIT 1.1(I)(1) - INDEMNITY AGREEMENT
EXHIBIT 1.1(I)(2) - INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(L) - LANDLORD'S WAIVER
EXHIBIT 1.1(M) - MORTGAGE
EXHIBIT 1.1(P)(1) - PATENT, TRADEMARK AND COPYRIGHT ASSIGNMENT
EXHIBIT 1.1(P)(2) - PLEDGE AGREEMENT
EXHIBIT 1.1(R) - REVOLVING CREDIT NOTE
EXHIBIT 1.1(S) - SECURITY AGREEMENT
EXHIBIT 2.5 - LOAN REQUEST
EXHIBIT 7.1.4 - OPINION OF COUNSEL
EXHIBIT 8.3.1 - BORROWING BASE CERTIFICATE
EXHIBIT 8.3.4 - QUARTERLY COMPLIANCE CERTIFICATE
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of November 22, 1996 and is made by and
among RENT-WAY, INC., a Pennsylvania corporation (the "Borrower"), each of the
Guarantors (as hereinafter defined), the BANKS (as hereinafter defined), and
NATIONAL CITY BANK OF PENNSYLVANIA, in its capacity as agent for the Banks
under this Agreement (hereinafter referred to in such capacity as the "Agent").
WITNESSETH:
WHEREAS, the Borrower has requested the Banks to provide a revolving
credit facility to the Borrower in an aggregate principal amount not to exceed
$40,000,000; and
WHEREAS, the revolving credit facility shall be used for repayment of
certain existing indebtedness of the Borrower, for financing certain
acquisitions by the Borrower, for the development of additional retail
locations, for working capital purposes and for general corporate purposes of
the Borrower and its Subsidiaries; and
WHEREAS, National City is willing to provide up to $20,000,000 of such
credit upon the terms and conditions hereinafter set forth and to use its
reasonable efforts to cause additional Banks to provide up to $20,000,000 of
additional revolving credit loans upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally
bound hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS.
In addition to words and terms defined elsewhere in this Agreement, the
following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
ACQUIRING PERSON shall mean any Person or group of two or more Persons
(excluding the Management Group) acting as a partnership, limited partnership,
syndicate, or other group for the purpose of acquiring, holding or disposing of
Voting Stock of the Borrower, together with all affiliates and associates (as
defined in Rule 12b-2 under the Securities and Exchange Act of 1934, as
amended) of such Person or Persons
AFFILIATE as to any Person shall mean any other Person (i) which directly
or indirectly controls, is controlled by, or is under common control with such
Person, (ii) which
<PAGE> 11
beneficially owns or holds 5% or more of any class of the voting or other
equity interests of such Person, or (iii) 5% or more of any class of voting
interests or other equity interests of which is beneficially owned or held,
directly or indirectly, by such Person. Control, as used in this definition,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise, including the
power to elect a majority of the directors or trustees of a corporation or
trust, as the case may be.
AGENT shall mean National City Bank of Pennsylvania, and its successors
and assigns.
AGENT'S FEE shall have the meaning assigned to that term in Section 10.15.
AGENT'S LETTER shall have the meaning assigned to that term in Section
10.15.
AGREEMENT shall mean this Credit Agreement, as the same may be
supplemented or amended from time to time, including all schedules and
exhibits.
ANNUAL STATEMENTS shall have the meaning assigned to that term in Section
6.1.9(i).
APPLICABLE MARGIN shall mean, as applicable:
(A) the percentage spread to be added to the Base Rate under the Base Rate
Option based upon the Loans outstanding and the Average Monthly Revenue as of
the end of each fiscal quarter of the Borrower, as certified by the Loan
Parties pursuant to Sections 8.3.2 and 8.3.3, as set forth below:
if Loans outstanding are less than Base Rate Spread equals
three times Average Monthly Revenue one half percent (1/2%),
if Loans outstanding are equal to or greater Base Rate Spread equals
than three times Average Monthly Revenue one percent (1%),
or
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(B) the percentage spread to be added to the Euro-Rate under the Euro-Rate
Option based upon the Loans outstanding and the Average Monthly Revenue as of
the end of each fiscal quarter of the Borrower, as certified by the Loan
Parties pursuant to Sections 8.3.2 and 8.3.3, as set forth below:
if Loans outstanding are less than Euro-Rate Spread equals
three times Average Monthly Revenue two and three-fourths percent
(2-3/4%)
if Loans outstanding are equal to or greater Euro-Rate Spread equals
than three times Average Monthly Revenue three and one-fourth percent
(3-1/4).
The Applicable Margin initially shall be based upon the Average Monthly
Revenue calculated as of the fiscal quarter ended September 30, 1996.
Thereafter, the Applicable Margin shall be calculated at the time of delivery
of the financial statements and compliance certificates provided pursuant to
Sections 8.3.2 and 8.3.3. Any change in the Applicable Margin shall become
effective as of the first day of the fiscal quarter following the fiscal
quarter upon which the change is based.
ASSIGNMENT AND ASSUMPTION AGREEMENT shall mean an Assignment and
Assumption Agreement by and among a Purchasing Bank, a Transferor Bank and the
Agent, as Agent and on behalf of the remaining Banks, substantially in the form
of Exhibit 1.1(A).
AUTHORIZED OFFICER shall mean those individuals, designated by written
notice to the Agent from the Borrower, authorized to execute notices, reports
and other documents on behalf of the Loan Parties required hereunder. The
Borrower may amend such list of individuals from time to time by giving written
notice of such amendment to the Agent.
AVERAGE MONTHLY REVENUE shall mean the average monthly consolidated
revenue of the Loan Parties derived from the Rental Contracts and determined in
accordance with GAAP, calculated as of the end of month for the three months
then ended, as certified by the Loan Parties pursuant to Section 8.3.1. In the
event that the sum of reinstatement fees, liability waiver fees, late fees and
processing fees for the Rental Contracts exceeds eighteen percent (18%) of the
total consolidated revenue of the Loan Parties in any month, such excess amount
for such month shall be excluded in the calculation of Average Monthly Revenue.
BANKS shall mean the financial institutions named on SCHEDULE 1.1(B) and
their respective successors and assigns as permitted hereunder, each of which
is referred to herein as a Bank.
BASE NET WORTH shall mean the sum of 90% of the Consolidated Tangible Net
Worth as of September 30, 1996, plus the amounts set forth in (i) and (ii)
below which occur
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during the period from October 1, 1996, through the date of determination: (i)
75% of consolidated net income without regard to extraordinary items of gain or
loss of the Borrower and its Subsidiaries for each fiscal year in which net
income was earned (as opposed to a net loss), and (ii) 90% of any increase in
the Consolidated Tangible Net Worth resulting from a Permitted Acquisition.
BASE RATE shall mean the greater of (i) the interest rate per annum
announced from time to time by the Agent at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged commercial
borrowers by the Agent, or (ii) the Federal Funds Effective Rate plus one half
percent (1/2%) per annum.
BASE RATE OPTION shall mean the option of the Borrower to have Loans bear
interest at the rate and under the terms and conditions set forth in Section
4.1.1(i).
BENEFIT ARRANGEMENT shall mean at any time an "employee benefit plan,"
within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a
Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to by any member of the ERISA Group.
BORROWER shall mean Rent-Way, Inc., a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania.
BORROWING BASE shall mean the product obtained by multiplying the Average
Monthly Revenue by four (4). The Borrowing Base shall be computed as of the end
of each month and at the time of a request for a Loan pursuant to Section 2.5
or a Letter of Credit pursuant to Section 2.9.1 and shall be set forth in the
Loan Request and in the certificates to be delivered by the Loan Parties
pursuant to Section 8.3.1
BORROWING BASE CERTIFICATE shall mean the certification delivered by the
Borrower and included in each of the Loan Request and in the certificates
delivered pursuant to Section 8.3.1 in the form of Exhibit 8.3.1 which
evidences that the sum of the outstanding Loans plus the Letters of Credit
Outstanding does not exceed the Borrowing Base.
BORROWING DATE shall mean, with respect to any Loan, the date for the
making thereof or the renewal or conversion thereof at or to the same or a
different Interest Rate Option, which shall be a Business Day.
BORROWING TRANCHE shall mean specified portions of Loans outstanding as
follows: (i) any Loans to which a Euro-Rate Option applies which become subject
to the same Interest Rate Option under the same Loan Request by the Borrower
and which have the same Interest Period shall constitute one Borrowing Tranche,
and (ii) all Loans to which the Base Rate Option applies shall constitute one
Borrowing Tranche.
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BUSINESS DAY shall mean any day other than a Saturday or Sunday or a legal
holiday on which commercial banks are authorized or required to be closed for
business in Pittsburgh, Pennsylvania.
CLOSING DATE shall mean the Business Day on which the first Loan shall be
made, which shall be November 22, 1996 or, if all the conditions specified in
Section 7 have not been satisfied or waived by such date, not later than
November 30, 1996, as designated by the Borrower by at least three (3) Business
Days' advance notice to the Agent at its Principal Office, or such other date
as the parties agree. The closing shall take place at 9:00 a.m., Pittsburgh
time, on the Closing Date at the offices of Buchanan Ingersoll Professional
Corporation, 301 Grant Street, Pittsburgh, Pennsylvania 15219, or at such other
time and place as the parties agree.
COLLATERAL shall mean the Pledge Collateral, the UCC Collateral, the
Intellectual Property Collateral and the Real Property.
COLLATERAL ASSIGNMENTS shall mean the Collateral Assignments in the form
of Exhibit 1.1(C).
COMMITMENT shall mean, as to any Bank at any time, the amount initially
set forth opposite its name on SCHEDULE 1.1(B) in the column labeled "Amount of
Commitment for Revolving Credit Loans," and thereafter on Schedule I to the
most recent Assignment and Assumption Agreement, and COMMITMENTS shall mean the
aggregate Commitments of all of the Banks.
COMMITMENT FEE shall have the meaning assigned to that term in Section
2.3.
CONSIDERATION shall mean with respect to any Permitted Acquisition, the
aggregate of (i) the cash paid by any of the Loan Parties, directly or
indirectly, to the seller in connection therewith, (ii) the capital stock of
the Borrower or any Loan Party issued to the seller in connection therewith
(iii) the Indebtedness incurred or assumed by any of the Loan Parties, whether
in favor of the seller or otherwise and whether fixed or contingent, (iv) any
Guaranty given or incurred by any Loan Party in connection therewith, and (v)
any other consideration given or obligation incurred by any of the Loan Parties
in connection therewith.
CONSOLIDATED ADJUSTED CASH FLOW FROM OPERATIONS for any period of
determination shall mean (i) the sum of net income, amortization, interest
expense and income tax expense minus (ii) non-cash credits to net income, in
each case of the Borrower and its Subsidiaries for such period determined and
consolidated in accordance with GAAP.
CONSOLIDATED CASH FLOW FROM OPERATIONS for any period of determination
shall mean (i) the sum of net income, depreciation, amortization, other
non-cash charges to net income (excluding charge-offs of Rental Merchandise),
interest expense and income tax expense
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<PAGE> 15
minus (ii) non-cash credits to net income, in each case of the Borrower and its
Subsidiaries for such period determined and consolidated in accordance with
GAAP.
CONSOLIDATED FUNDED DEBT shall mean as of any date of determination, the
sum of Indebtedness for borrowed money (including capitalized leases) and
Letters of Credit Outstanding, in each case of the Borrower and its
Subsidiaries determined and consolidated in accordance with GAAP.
CONSOLIDATED FUNDED SENIOR DEBT shall mean as of any date of
determination, the principal amount outstanding on the Loans and other
Indebtedness which is pari passu with the Loans and Letters of Credit
Outstanding, in each case of the Borrower and its Subsidiaries determined and
consolidated in accordance with GAAP.
CONSOLIDATED TANGIBLE NET WORTH shall mean as of any date of determination
total stockholders' equity plus preferred stock to the extent it is not already
included in the stockholders' equity less intangible assets of the Borrower and
its Subsidiaries as of such date determined and consolidated in accordance with
GAAP.
DOLLAR, DOLLARS, U.S. DOLLARS and the symbol $ shall mean lawful money of
the United States of America.
DRAWING DATE shall have the meaning assigned to that term in Section
2.9.3.2.
ENVIRONMENTAL COMPLAINT shall mean any written complaint setting forth a
cause of action for personal or property damage or natural resource damage or
equitable relief, order, notice of violation, citation, request for information
issued pursuant to any Environmental Laws by an Official Body, subpoena or
other written notice of any type relating to, arising out of, or issued
pursuant to, any of the Environmental Laws or any Environmental Conditions, as
the case may be.
ENVIRONMENTAL CONDITIONS shall mean any conditions of the environment,
including the workplace, the ocean, natural resources (including flora or
fauna), soil, surface water, groundwater, any actual or potential drinking
water supply sources, substrata or the ambient air, relating to or arising out
of, or caused by, the use, handling, storage, treatment, recycling, generation,
transportation, release, spilling, leaking, pumping, emptying, discharging,
injecting, escaping, leaching, disposal, dumping, threatened release or other
management or mismanagement of Regulated Substances resulting from the use of,
or operations on, any Property.
ENVIRONMENTAL LAWS shall mean all federal, state, local and foreign Laws
and regulations, including permits, licenses, authorizations, bonds, orders,
judgments, and consent decrees issued, or entered into, pursuant thereto,
relating to pollution or protection of human health or the environment or
employee safety in the workplace.
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<PAGE> 16
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.
ERISA GROUP shall mean, at any time, the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control and all other entities which, together with
the Borrower, are treated as a single employer under Section 414 of the
Internal Revenue Code.
EURO-RATE shall mean, with respect to any Loan comprising any Borrowing
Tranche to which the Euro-Rate Option applies for any Interest Period, the
interest rate per annum determined by the Agent by dividing (i) the rate of
interest determined by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the eurodollar
rate at 11:00 a.m. Pittsburgh time two (2) Business Days prior to the first day
of such Interest Period for an amount comparable to such Loan and having a
borrowing date and a maturity comparable to such Interest Period by (ii) a
number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate
shall be adjusted with respect to any Euro-Rate Option outstanding on the
effective date of any change in the Euro-Rate Reserve Percentage as of such
effective date. The Agent shall give prompt notice to the Borrower and the
Banks of the Euro-Rate as determined or adjusted in accordance herewith, which
determination shall be conclusive absent manifest error.
EURO-RATE OPTION shall mean the option of the Borrower to have Loans bear
interest at the rate and under the terms and conditions set forth in Section
4.1.1(ii).
EURO-RATE RESERVE PERCENTAGE shall mean the maximum percentage (expressed
as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the
Agent which is in effect during any relevant period, as prescribed by the Board
of Governors of the Federal Reserve System (or any successor) for determining
the reserve requirements (including supplemental, marginal and emergency
reserve requirements) with respect to eurocurrency funding (currently referred
to as "Eurocurrency Liabilities") of a member bank in such System.
EVENT OF DEFAULT shall mean any of the events described in Section 9.1 and
referred to therein as an "Event of Default."
EXPIRATION DATE shall mean, with respect to the Commitments, November 22,
1999.
FACILITY FEES shall mean the fees referred to in Sections 2.4.
FEDERAL FUNDS EFFECTIVE RATE for any day shall mean the rate per annum
(based on a year of 360 days and actual days elapsed and rounded upward to the
nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by
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<PAGE> 17
federal funds brokers on the previous trading day, as computed and announced by
such Federal Reserve Bank (or any successor) in substantially the same manner
as such Federal Reserve Bank computes and announces the weighted average it
refers to as the "Federal Funds Effective Rate" as of the date of this
Agreement; provided, if such Federal Reserve Bank (or its successor) does not
announce such rate on any day, the "Federal Funds Effective Rate" for such day
shall be the Federal Funds Effective Rate for the last day on which such rate
was announced.
FINANCIAL PROJECTIONS shall have the meaning assigned to that term in
Section 6.1.9(ii).
FIRST SOURCE shall mean First Source Financial LLP, an Illinois registered
limited liability partnership.
GAAP shall mean generally accepted accounting principles as are in effect
from time to time, subject to the provisions of Section 1.3, and applied on a
consistent basis both as to classification of items and amounts.
GOVERNMENTAL ACTS shall have the meaning assigned to that term in Section
2.9.8.
GUARANTOR shall mean each of the parties to this Agreement which is
designated as a "Guarantor" on the signature page hereof and each other Person
which joins this Agreement as a Guarantor after the date hereof pursuant to
Section 11.18.
GUARANTOR JOINDER shall mean a joinder by a Person as a Guarantor under
this Agreement, the Guaranty Agreement and the other Loan Documents in the form
of Exhibit 1.1(G)(1).
GUARANTY of any Person shall mean any obligation of such Person
guaranteeing or in effect guaranteeing any liability or obligation of any other
Person in any manner, whether directly or indirectly, including any agreement
to indemnify or hold harmless any other Person, any performance bond or other
suretyship arrangement and any other form of assurance against loss, except
endorsement of negotiable or other instruments for deposit or collection in the
ordinary course of business.
GUARANTY AGREEMENT shall mean the Guaranty and Suretyship Agreement in
substantially the form of Exhibit 1.1(G)(2) executed and delivered by each of
the Guarantors to the Agent for the benefit of the Banks.
HISTORICAL STATEMENTS shall have the meaning assigned to that term in
Section 6.1.9(i).
INDEBTEDNESS shall mean, as to any Person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or
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<PAGE> 18
unliquidated, direct or indirect, absolute or contingent, or joint or several)
of such Person for or in respect of: (i) borrowed money, (ii) amounts raised
under or liabilities in respect of any note purchase or acceptance credit
facility, (iii) reimbursement obligations (contingent or otherwise) under any
letter of credit, currency swap agreement, interest rate swap, cap, collar or
floor agreement or other interest rate management device, (iv) any other
transaction (including forward sale or purchase agreements, capitalized leases
and conditional sales agreements) having the commercial effect of a borrowing
of money entered into by such Person to finance its operations or capital
requirements (but not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a promissory note
or other evidence of indebtedness and which are not more than thirty (30) days
past due), or (v) any Guaranty of Indebtedness for borrowed money.
INDEMNITY AGREEMENT shall mean the Indemnity Agreement in the form of
Exhibit 1.1(I)(1) among the Banks, the Agent and the Loan Parties relating to
possible environmental liabilities associated with any of the Property.
INELIGIBLE SECURITY shall mean any security which may not be underwritten
or dealt in by member banks of the Federal Reserve System under Section 16 of
the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.
INSOLVENCY PROCEEDING shall mean, with respect to any Person, (a) case,
action or proceeding with respect to such Person (i) before any court or any
other Official Body under any bankruptcy, insolvency, reorganization or other
similar Law now or hereafter in effect, or (ii) for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or similar official) of any Loan Party or otherwise relating to liquidation,
dissolution, winding-up or relief of such Person, or (b) any general assignment
for the benefit of creditors, composition, marshaling of assets for creditors,
or other, similar arrangement in respect of such Person's creditors generally
or any substantial portion of its creditors; undertaken under any Law.
INTELLECTUAL PROPERTY COLLATERAL shall mean all of the property described
in the Patent, Trademark and Copyright Assignment.
INTERCOMPANY SUBORDINATION AGREEMENT shall mean a Subordination Agreement
among the Loan Parties in the form attached hereto as Exhibit 1.1(I)(2).
INTEREST COVERAGE RATIO for any period of determination shall mean the
ratio of Consolidated Adjusted Cash Flow from Operations to interest expense,
in each case of the Borrower and its Subsidiaries for such period determined
and consolidated in accordance with GAAP.
INTEREST PERIOD shall have the meaning assigned to such term in Section
4.2.
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<PAGE> 19
INTEREST RATE OPTION shall mean any Euro-Rate Option or the Base Rate
Option.
INTERIM STATEMENTS shall have the meaning assigned to that term in Section
6.1.9(i).
INTERNAL REVENUE CODE shall mean the Internal Revenue Code of 1986, as the
same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.
LABOR CONTRACTS shall mean all employment agreements, employment
contracts, collective bargaining agreements and other agreements among any Loan
Party or Subsidiary of a Loan Party and its employees.
LANDLORD'S WAIVER shall mean the Landlord's Waiver in the form Exhibit
1.1(L).
LAW shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
LETTER OF CREDIT shall have the meaning assigned to that term in Section
2.9.1.
LETTER OF CREDIT BORROWING shall mean an extension of credit resulting
from a drawing under any Letter of Credit which shall not have been reimbursed
on the date when made and shall not have been converted into a Loan under
Section 2.9.3.2.
LETTER OF CREDIT FEE shall have the meaning assigned to that term in
Section 2.9.2.
LETTERS OF CREDIT OUTSTANDING shall mean at any time the sum of (i) the
aggregate undrawn face amount of outstanding Letters of Credit and (ii) the
aggregate amount of all unpaid and outstanding Reimbursement Obligations.
LIEN shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the
filing).
LLC INTERESTS shall have the meaning given to such term in Section 6.1.3.
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<PAGE> 20
LOAN DOCUMENTS shall mean this Agreement, the Agent's Letter, the
Collateral Assignment, the Guaranty Agreement, the Indemnity Agreement, the
Intercompany Subordination Agreement, the Mortgage, the Notes, the Patent,
Trademark and Copyright Assignment, the Pledge Agreement, the Security
Agreement, and any other instruments, certificates or documents delivered or
contemplated to be delivered hereunder or thereunder or in connection herewith
or therewith, as the same may be supplemented or amended from time to time in
accordance herewith or therewith, and LOAN DOCUMENT shall mean any of the Loan
Documents.
LOAN PARTIES shall mean the Borrower and the Guarantors.
LOAN REQUEST shall have the meaning given to such term in Section 2.5.
LOANS shall mean collectively and LOAN shall mean separately all revolving
credit loans or any revolving credit loan made by the Banks or one of the Banks
to the Borrower pursuant to Section 2.1 or 2.9.3.
Management Group shall mean William E. Morgenstern and all other members
of the board of directors of the Borrower and their respective Spouses,
descendants, Spouses of descendants and trustees of trusts established for the
benefit of such Persons, and the executors of estates of such Persons.
"Spouses" shall include widows and widowers until first remarried.
MATERIAL ADVERSE CHANGE shall mean any set of circumstances or events
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Agreement or any
other Loan Document, (b) is or could reasonably be expected to be material and
adverse to the business, properties, assets, financial condition, results of
operations or prospects of the Loan Parties taken as a whole, (c) impairs
materially or could reasonably be expected to impair materially the ability of
the Loan Parties taken as a whole to duly and punctually pay or perform its
Indebtedness, or (d) impairs materially or could reasonably be expected to
impair materially the ability of the Agent or any of the Banks, to the extent
permitted, to enforce their legal remedies pursuant to this Agreement or any
other Loan Document.
MMLIC shall mean Massachusetts Mutual Life Insurance Company, a
Massachusetts corporation, its successors and assigns.
MONTH, with respect to an Interest Period under the Euro-Rate Option,
shall mean the interval between the days in consecutive calendar months
numerically corresponding to the first day of such Interest Period. If any
Euro-Rate Interest Period begins on a day of a calendar month for which there
is no numerically corresponding day in the month in which such Interest Period
is to end, the final month of such Interest Period shall be deemed to end on
the last Business Day of such final month.
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<PAGE> 21
MORTGAGE shall mean the Mortgage in substantially the form of Exhibit
1.1(M) with respect to the Real Property executed and delivered by the Borrower
to the Agent for the benefit of the Banks.
MULTIEMPLOYER PLAN shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five Plan years,
has made or had an obligation to make such contributions.
MULTIPLE EMPLOYER PLAN shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the ERISA Group)
at least two of whom are not under common control, as such a plan is described
in Sections 4063 and 4064 of ERISA.
NATIONAL CITY shall mean National City Bank of Pennsylvania, a national
banking association, its successors and assigns.
NOTES shall mean collectively and NOTE shall mean separately all the
Revolving Credit Notes of the Borrower in the form of Exhibit 1.1(R) evidencing
the Loans together with all amendments, extensions, renewals, replacements,
refinancings or refundings thereof in whole or in part.
NOTICES shall have the meaning assigned to that term in Section 11.6.
OBLIGATIONS shall mean collectively and OBLIGATION shall mean separately
any obligation or liability of any of the Loan Parties to the Agent or any of
the Banks, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
under or in connection with this Agreement, the Notes, the Letters of Credit,
the Agent's Letter or any other Loan Document.
OCCUPANCY EXPENSE for any period of determination shall mean the
consolidated rental expense under operating leases for the retail store sites
(including common area maintenance charges, taxes and other amounts payable
under lease agreements) of the Borrower and its Subsidiaries as lessees,
determined and consolidated in accordance with GAAP.
OFFICIAL BODY shall mean any national, federal, state, local or other
government or political subdivision or any agency, authority, bureau, central
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
PARTICIPATION ADVANCE shall mean, with respect to any Bank, such Bank's
payment in respect of its participation in a Letter of Credit Borrowing
according to its Ratable Share pursuant to Section 2.9.4.
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<PAGE> 22
PARTNERSHIP INTERESTS shall have the meaning given to such term in Section
6.1.3.
PATENT, TRADEMARK AND COPYRIGHT ASSIGNMENT shall mean the Patent,
Trademark and Copyright Collateral Assignment in substantially the form of
Exhibit 1.1(P)(1) executed and delivered by each of the Loan Parties to the
Agent for the benefit of the Banks.
PBGC shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any successor.
PERMITTED ACQUISITIONS shall have the meaning assigned to such term in
Section 8.2.6.
PERMITTED INVESTMENTS shall mean:
(i) direct obligations of the United States of America or any agency
or instrumentality thereof or obligations backed by the full faith and credit
of the United States of America maturing in twelve (12) months or less from the
date of acquisition;
(ii) commercial paper maturing in 180 days or less rated not lower
than A-1 by Standard & Poor's or P-1 by Moody's Investors Service, Inc. on the
date of acquisition;
(iii) demand deposits, time deposits or certificates of deposit
maturing within one year in commercial banks whose obligations are rated A-1, A
or the equivalent or better by Standard & Poor's on the date of acquisition;
(iv) repurchase agreements collaterized by securities described in
(i) above with any registered broker/dealer or any commercial bank described in
(iii) above; and
(v) investments in money market funds registered under the Investment
Company Act of 1940 whose shares are registered under the Securities Act of
1933 and rated AAAm or AAAm-G by Standard & Poor's on the date of acquisition.
PERMITTED LIENS shall mean:
(i) Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business and which are not yet due and payable;
(ii) Pledges or deposits made in the ordinary course of business to
secure payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, old-age
pensions or other social security programs;
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<PAGE> 23
(iii) Liens of mechanics, materialmen, warehousemen, carriers, or
other like Liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable and Liens of landlords securing
obligations to pay lease payments that are not yet due and payable or in
default;
(iv) Good-faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, not in excess of the aggregate amount
due thereunder, or to secure statutory obligations, or surety, appeal,
indemnity, performance or other similar bonds required in the ordinary course
of business;
(v) Encumbrances consisting of zoning restrictions, easements or
other restrictions on the use of real property, none of which materially
impairs the use of such property or the value thereof, and none of which is
violated in any material respect by existing or proposed structures or land
use;
(vi) Liens, security interests and mortgages in favor of the Agent
for the benefit of the Banks;
(vii) Liens on property leased by any Loan Party or Subsidiary of a
Loan Party under capital and operating leases permitted in Section 8.2.15
securing obligations of such Loan Party or Subsidiary to the lessor under such
leases;
(viii) Any Lien existing on the date of this Agreement and described
on SCHEDULE 1.1(P), provided that the principal amount secured thereby is not
hereafter increased, and no additional assets become subject to such Lien;
(ix) Purchase Money Security Interests, provided that the aggregate
amount of loans and deferred payments secured by such Purchase Money Security
Interests shall not exceed $100,000 (excluding for the purpose of this
computation any loans or deferred payments secured by Liens described on
SCHEDULE 1.1(P)); and
(x) The following, (A) if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings diligently
conducted so long as levy and execution thereon have been stayed and continue
to be stayed or (B) if a final judgment is entered and such judgment is
discharged within thirty (30) days of entry, and in either case they do not
affect the Collateral or, in the aggregate, materially impair the ability of
any Loan Party to perform its Obligations hereunder or under the other Loan
Documents:
(1) Claims or Liens for taxes, assessments or charges due and payable
and subject to interest or penalty, provided that the applicable Loan
Party maintains such reserves or other appropriate provisions as shall be
required by GAAP and pays all such taxes, assessments or charges forthwith
upon the commencement of proceedings to foreclose any such Lien;
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<PAGE> 24
(2) Claims, Liens or encumbrances upon, and defects of title to, real
or personal property other than the Collateral, including any attachment
of personal or real property or other legal process prior to adjudication
of a dispute on the merits; or
(3) Claims or Liens of mechanics, materialmen, warehousemen,
carriers, or other statutory nonconsensual Liens.
(4) Liens resulting from final judgments or orders described in
Section 9.1.6.
(xi) Liens consented to by the Agent pursuant to Section 8.2.21.
PERSON shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
organization, joint venture, government or political subdivision or agency
thereof, or any other entity.
PLAN shall mean at any time an employee pension benefit plan (including a
Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title
IV of ERISA or is subject to the minimum funding standards under Section 412 of
the Internal Revenue Code and either (i) is maintained by any member of the
ERISA Group for employees of any member of the ERISA Group or (ii) has at any
time within the preceding five years been maintained by any entity which was at
such time a member of the ERISA Group for employees of any entity which was at
such time a member of the ERISA Group.
PLEDGE AGREEMENT shall mean the Pledge Agreement in substantially the form
of Exhibit 1.1(P)(2) to be executed and delivered by the Loan Parties to the
Agent for the benefit of the Banks.
PLEDGE COLLATERAL shall mean the property of the Loan Parties in which
security interests are to be granted under the Pledge Agreement or the
Collateral Assignment.
POTENTIAL DEFAULT shall mean any event or condition which with notice,
passage of time or a determination by the Agent or the Required Banks, or any
combination of the foregoing, would constitute an Event of Default.
PRINCIPAL OFFICE shall mean the main banking office of the Agent in
Pittsburgh, Pennsylvania.
PRIOR SECURITY INTEREST shall mean a valid and enforceable perfected
first-priority security interest under the Uniform Commercial Code in the UCC
Collateral and the Pledge Collateral which is subject only to Liens for taxes
not yet due and payable to the extent such prospective tax payments are given
priority by statute or Purchase Money Security Interests as permitted
hereunder.
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<PAGE> 25
PROHIBITED TRANSACTION shall mean any prohibited transaction as defined in
Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which
neither an individual nor a class exemption has been issued by the United
States Department of Labor.
PROPERTY shall mean all real property, both owned and leased, of any Loan
Party or Subsidiary of a Loan Party.
PURCHASE MONEY SECURITY INTEREST shall mean Liens upon tangible personal
property securing loans to any Loan Party or Subsidiary of a Loan Party or
deferred payments by such Loan Party or Subsidiary for the purchase of such
tangible personal property, provided that the Liens are limited to the property
acquired with the proceeds of the loan.
PURCHASING BANK shall mean a Bank which becomes a party to this Agreement
by executing an Assignment and Assumption Agreement.
RATABLE SHARE shall mean the proportion that a Bank's Commitment bears to
the Commitments of all of the Banks.
REAL PROPERTY shall mean the real estate owned by the Borrower and located
in Millcreek Township, Erie County, Pennsylvania, which shall be encumbered by
the Mortgage.
REGULATED SUBSTANCES shall mean any substance, including any solid,
liquid, semisolid, gaseous, thermal, thoriated or radioactive material, refuse,
garbage, wastes, chemicals, petroleum products, by-products, coproducts,
impurities, dust, scrap, heavy metals, defined as a "hazardous substance,"
"pollutant," "pollution," "contaminant," "hazardous or toxic substance,"
"extremely hazardous substance," "toxic chemical," "toxic waste," "hazardous
waste," "industrial waste," "residual waste," "solid waste," "municipal waste,"
"mixed waste," "infectious waste," "chemotherapeutic waste," "medical waste,"
or "regulated substance" or any related materials, substances or wastes as now
or hereafter defined pursuant to any Environmental Laws, ordinances, rules,
regulations or other directives of any Official Body, the generation,
manufacture, extraction, processing, distribution, treatment, storage,
disposal, transport, recycling, reclamation, use, reuse, spilling, leaking,
dumping, injection, pumping, leaching, emptying, discharge, escape, release or
other management or mismanagement of which is regulated by the Environmental
Laws.
REGULATION U shall mean Regulation U, T, G or X as promulgated by the
Board of Governors of the Federal Reserve System, as amended from time to time.
REIMBURSEMENT OBLIGATION shall have the meaning assigned to such term in
Section 2.9.3.2.
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<PAGE> 26
RENTAL CONTRACTS shall mean all rental and rental-purchase contracts of
the Loan Parties made in the ordinary course of business providing for the
rental to customers of Rental Merchandise.
RENTAL MERCHANDISE shall mean the furniture, appliances, electronic
equipment and other personal property of the Loan Parties acquired for the
purpose of lease or sale under the Rental Contracts.
RENTAL MERCHANDISE ADJUSTMENT shall mean the number used in the
calculation of the financial covenants set forth in Sections 8.2.16 and 8.2.17
to reduce Consolidated Cash Flow from Operations. For the fiscal quarter ended
December 31, 1996 and each fiscal quarter thereafter, the Rental Merchandise
Adjustment shall equal the capital expenditures of the Loan Parties for Rental
Merchandise for such fiscal quarter. For the fiscal quarters ended March 31,
1996, June 30, 1996 and September 30, 1996, the Rental Merchandise Adjustment
shall equal the amount of depreciation relating to Rental Merchandise for such
quarter, computed in accordance with GAAP.
REPORTABLE EVENT shall mean a reportable event described in Section 4043
of ERISA and regulations thereunder with respect to a Plan or Multiemployer
Plan.
REQUIRED BANKS shall mean
(i) if there are no Loans, Reimbursement Obligations or Letter of
Credit Borrowings outstanding, Banks whose Commitments aggregate at least
66-2/3% of the Commitments of all of the Banks, or
(ii) if there are Loans, Reimbursement Obligations, or Letter of
Credit Borrowings outstanding, any Bank or group of Banks if the sum of the
Loans , Reimbursement Obligations and Letter of Credit Borrowings of such Banks
then outstanding aggregates at least 66-2/3% of the total principal amount of
all of the Loans , Reimbursement Obligations and Letter of Credit Borrowings
then outstanding. Reimbursement Obligations and Letter of Credit Borrowings
shall be deemed, for purposes of this definition, to be in favor of the Agent
and not a participating Bank if such Bank has not made its Participation
Advance in respect thereof and shall be deemed to be in favor of such Bank to
the extent of its Participation Advance if it has made its Participation
Advance in respect thereof.
REVOLVING FACILITY USAGE shall mean at any time the sum of the Loans
outstanding and the Letters of Credit Outstanding.
SECTION 20 SUBSIDIARY shall mean the Subsidiary of the bank holding
company controlling any Bank, which Subsidiary has been granted authority by
the Federal Reserve Board to underwrite and deal in certain Ineligible
Securities.
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<PAGE> 27
SECURITY AGREEMENT shall mean the Security Agreement in substantially the
form of Exhibit 1.1(S) executed and delivered by each of the Loan Parties to
the Agent for the benefit of the Banks.
SHARES shall have the meaning assigned to that term in Section 6.1.2.
STANDARD & POOR'S shall mean Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.
STANDBY LETTER OF CREDIT shall mean a Letter of Credit issued to support
obligations of one or more of the Loan Parties, contingent or otherwise, which
finance the working capital and business needs of the Loan Parties incurred in
the ordinary course of business.
SUBORDINATED DEBT shall mean (i) Indebtedness of the Borrower to MMLIC,
the other Purchasers (as such term is defined in the Subordinated Loan
Documents) and their successors and assigns, evidenced by the Subordinated Loan
Documents and subject to the subordination terms set forth in Section 8
thereof, and (ii) Indebtedness of the Loan Parties to Persons which sell
ownership interests or assets to the Loan Parties under a Permitted Acquisition
in accordance with Section 8.2.6.
SUBORDINATED LOAN DOCUMENTS shall mean (i) the Subordinated Note Agreement
dated as of July 15, 1995 between the Borrower, MMLIC and the Purchasers (as
such term is defined therein) and any and all other documents evidencing or
relating to the obligations of the Borrower or any Loan Party to the
Purchasers, and (ii) all agreements evidencing the Subordinated Debt owed to
Persons which sell ownership interests or assets to the Loan Parties under a
Permitted Acquisition in accordance with Section 8.2.6.
SUBSIDIARY of any Person at any time shall mean (i) any corporation or
trust of which 50% or more (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more directors or trustees (regardless of any
contingency which does or may suspend or dilute the voting rights) is at such
time owned directly or indirectly by such Person or one or more of such
Person's Subsidiaries, (ii) any partnership of which such Person is a general
partner or of which 50% or more of the partnership interests is at the time
directly or indirectly owned by such Person or one or more of such Person's
Subsidiaries, (iii) any limited liability company of which such Person is a
member or of which 50% or more of the limited liability company interests is at
the time directly or indirectly owned by such Person or one or more of such
Person's Subsidiaries or (iv) any corporation, trust, partnership, limited
liability company or other entity which is controlled or capable of being
controlled by such Person or one or more of such Person's Subsidiaries.
SUBSIDIARY SHARES shall have the meaning assigned to that term in Section
6.1.3.
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SYNDICATIONS PERIOD shall mean the period between the Closing Date and the
date which is the earlier of (i) the date the Commitments of the Banks equal
$40,000,000, or (ii) one hundred twenty (120) days after the Closing Date.
TRANSFEROR BANK shall mean the selling Bank pursuant to an Assignment and
Assumption Agreement.
UCC COLLATERAL shall mean the property of the Loan Parties in which
security interests are to be granted under the Security Agreement.
UNIFORM COMMERCIAL CODE shall have the meaning assigned to that term in
Section 6.1.16.
Voting Stock shall mean any class or classes the holders of which are
ordinarily, in the absence of contingencies, entitled to elect a majority of
the corporate directors (or persons performing similar functions).
1.2 CONSTRUCTION.
Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the
other Loan Documents:
1.2.1 NUMBER; INCLUSION.
references to the plural include the singular, the plural, the part
and the whole; "or" has the inclusive meaning represented by the phrase
"and/or," and "including" has the meaning represented by the phrase "including
without limitation";
1.2.2 DETERMINATION.
references to "determination" of or by the Agent or the Banks shall
be deemed to include good-faith estimates by the Agent or the Banks (in the
case of quantitative determinations) and good-faith beliefs by the Agent or the
Banks (in the case of qualitative determinations) and such determination shall
be conclusive absent manifest error;
1.2.3 AGENT'S DISCRETION AND CONSENT.
whenever the Agent or the Banks are granted the right herein to act
in its or their sole discretion or to grant or withhold consent such right
shall be exercised in good faith;
1.2.4 DOCUMENTS TAKEN AS A WHOLE.
the words "hereof," "herein," "hereunder," "hereto" and similar terms
in this Agreement or any other Loan
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Document refer to this Agreement or such other Loan Document as a whole and not
to any particular provision of this Agreement or such other Loan Document;
1.2.5 HEADINGS.
the section and other headings contained in this Agreement or such
other Loan Document and the Table of Contents (if any), preceding this
Agreement or such other Loan Document are for reference purposes only and shall
not control or affect the construction of this Agreement or such other Loan
Document or the interpretation thereof in any respect;
1.2.6 IMPLIED REFERENCES TO THIS AGREEMENT.
article, section, subsection, clause, schedule and exhibit references
are to this Agreement or other Loan Document, as the case may be, unless
otherwise specified;
1.2.7 PERSONS.
reference to any Person includes such Person's successors and assigns
but, if applicable, only if such successors and assigns are permitted by this
Agreement or such other Loan Document, as the case may be, and reference to a
Person in a particular capacity excludes such Person in any other capacity;
1.2.8 MODIFICATIONS TO DOCUMENTS.
reference to any agreement (including this Agreement and any other
Loan Document together with the schedules and exhibits hereto or thereto),
document or instrument means such agreement, document or instrument as amended,
modified, replaced, substituted for, superseded or restated;
1.2.9 FROM, TO AND THROUGH.
relative to the determination of any period of time, "from" means
"from and including," "to" means "to but excluding," and "through" means
"through and including"; and
1.2.10 SHALL; WILL.
references to "shall" and "will" are intended to have the same
meaning.
1.3 ACCOUNTING PRINCIPLES.
Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and
prepared in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have
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the meanings ascribed to such terms by GAAP; provided, HOWEVER, that all
accounting terms used in Section 8.2 (and all defined terms used in the
definition of any accounting term used in Section 8.2) shall have the meaning
given to such terms (and defined terms) under GAAP as in effect on the date
hereof applied on a basis consistent with those used in preparing the Annual
Statements referred to in Section 6.1.9(i).
2. REVOLVING CREDIT FACILITY
2.1 REVOLVING CREDIT COMMITMENTS.
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, each Bank severally agrees to
make Loans to the Borrower at any time or from time to time on or after the
date hereof to the Expiration Date provided that after giving effect to such
Loan (i) the aggregate amount of Loans from such Bank shall not exceed such
Bank's Commitment minus such Bank's Ratable Share of the Letters of Credit
Outstanding and (ii) the aggregate amount of the Loans of all the Banks plus
the Letters of Credit Outstanding shall not exceed the Borrowing Base. Within
such limits of time and amount and subject to the other provisions of this
Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section
2.1.
2.2 NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO REVOLVING CREDIT LOANS.
Each Bank shall be obligated to participate in each request for Loans
pursuant to Section 2.5 in accordance with its Ratable Share. The aggregate of
each Bank's Loans outstanding hereunder to the Borrower at any time shall never
exceed its Commitment minus its Ratable Share of the Letter of Credit
Outstandings. The obligations of each Bank hereunder are several. The failure
of any Bank to perform its obligations hereunder shall not affect the
Obligations of the Borrower to any other party nor shall any other party be
liable for the failure of such Bank to perform its obligations hereunder. The
Banks shall have no obligation to make Loans hereunder on or after the
Expiration Date.
2.3 COMMITMENT FEES.
Accruing from the date hereof until the Expiration Date, the Borrower
agrees to pay to the Agent for the account of each Bank, as consideration for
such Bank's Commitment hereunder, a nonrefundable commitment fee (the
"Commitment Fee") equal to one-fourth percent (1/4%) per annum (computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) on the average daily difference between the amount of (i) such Bank's
Commitment as the same may be constituted from time to time and the (ii) the
principal amount of such Bank's Ratable Share of Loans and Letters of Credit
Outstanding. All Commitment Fees shall be payable in arrears on the first
Business Day of each January, April, July and October after the date hereof and
on the Expiration Date or upon acceleration of the Notes.
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2.4 REVOLVING CREDIT FACILITY FEE.
The Borrower agrees to pay to the Agent for the account of each Bank, as
consideration for such Bank's Commitment, a nonrefundable Facility Fee equal to
three-fourths percent (3/4%) of such Bank's Commitment, payable on the Closing
Date, or if such Bank is not a party to this Agreement on the Closing Date, at
the time such Bank joins in this Agreement.
2.5 REVOLVING CREDIT LOAN REQUESTS.
Except as otherwise provided herein, the Borrower may from time to time
prior to the Expiration Date request the Banks to make Loans, or renew or
convert the Interest Rate Option applicable to existing Loans pursuant to
Section 4.2, by delivering to the Agent, not later than 10:00 a.m., Pittsburgh
time, (i) three (3) Business Days prior to the proposed Borrowing Date with
respect to the making of Loans to which the Euro-Rate Option applies or the
conversion to or the renewal of the Euro-Rate Option for any Loans; and (ii)
one (1) Business Day prior to either the proposed Borrowing Date with respect
to the making of a Loan to which the Base Rate Option applies or the last day
of the preceding Interest Period with respect to the conversion to the Base
Rate Option for any Loan, of a duly completed request therefor substantially in
the form of Exhibit 2.5, which includes a Borrowing Base Certificate (each, a
"Loan Request"). Each Loan Request shall be irrevocable and shall specify (i)
the proposed Borrowing Date; (ii) the aggregate amount of the proposed Loans
comprising each Borrowing Tranche, which shall be in integral multiples of
$250,000 and not less than $1,000,000 for each Borrowing Tranche to which the
Euro-Rate Option applies and not less than the lesser of $250,000 or the
maximum amount available for Borrowing Tranches to which the Base Rate Option
applies; (iii) whether the Euro-Rate Option or Base Rate Option shall apply to
the proposed Loans comprising the applicable Borrowing Tranche; and (iv) in the
case of a Borrowing Tranche to which the Euro-Rate Option applies, an
appropriate Interest Period for the proposed Loans comprising such Borrowing
Tranche.
2.6 MAKING REVOLVING CREDIT LOANS.
The Agent shall, promptly after receipt by it of a Loan Request pursuant
to Section 2.5, notify the Banks of its receipt of such Loan Request
specifying: (i) the proposed Borrowing Date and the time and method of
disbursement of the Loans requested thereby; (ii) the amount and type of each
such Loan and the applicable Interest Period (if any); and (iii) the
apportionment among the Banks of such Loans as determined by the Agent in
accordance with Section 2.2. Each Bank shall remit the principal amount of each
Loan to the Agent such that the Agent is able to, and the Agent shall, to the
extent the Banks have made funds available to it for such purpose and subject
to Section 7.2, fund such Loans to the Borrower in U.S. Dollars and immediately
available funds at the Principal Office prior to 2:00 p.m., Pittsburgh time, on
the applicable Borrowing Date, provided that if any Bank fails to remit such
funds to the Agent in a timely manner, the Agent may elect in its sole
discretion to fund
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with its own funds the Loans of such Bank on such Borrowing Date, and such Bank
shall be subject to the repayment obligation in Section 10.16.
2.7 REVOLVING CREDIT NOTES.
The Obligation of the Borrower to repay the aggregate unpaid principal
amount of the Loans made to it by each Bank, together with interest thereon,
shall be evidenced by a Note dated the Closing Date (or if such Bank is not a
party to this Agreement on the Closing Date, the date that such Bank joins in
this Agreement), payable to the order of such Bank in a face amount equal to
the Commitment of such Bank.
2.8 USE OF PROCEEDS.
The proceeds of the Loans shall be used for the repayment of existing
Indebtedness of the Borrower, acquisition of stock or assets of Persons engaged
in the business of the Borrower and its Subsidiaries described in Schedule
8.2.10, for the development of additional retail locations in connections with
such business, and for working capital and general corporate purposes, all in
accordance with Section 8.1.10.
2.9 LETTER OF CREDIT SUBFACILITY.
2.9.1 ISSUANCE OF LETTERS OF CREDIT.
Borrower may request the issuance of one or more letters of credit
(each a "Letter of Credit") on behalf of itself or another Loan Party by
delivering to the Agent (i) a completed application and agreement for letters
of credit in such form as the Agent may specify from time to time by no later
than 10:00 a.m., Pittsburgh time, at least three (3) Business Days, or such
shorter period as may be agreed to by the Agent, in advance of the proposed
date of issuance and (ii) a Loan Request with the Borrowing Base portion
completed. Each Letter of Credit shall be a Standby Letter of Credit. Subject
to the terms and conditions hereof and in reliance on the agreements of the
other Banks set forth in this Section 2.9, the Agent will issue a Letter of
Credit provided that each Letter of Credit shall (A) have a maximum maturity of
twelve (12) months from the date of issuance, and (B) in no event expire later
than one Business Day prior to the Expiration Date and providing that in no
event shall (i) the Letters of Credit Outstanding exceed, at any one time,
$1,000,000 or (ii) the Revolving Facility Usage exceed, at any one time, the
lesser of the Commitments or the Borrowing Base.
2.9.2 LETTER OF CREDIT FEES.
The Borrower shall pay (i) to the Agent for the ratable account of
the Banks a fee (the "Letter of Credit Fee") equal to the Applicable Margin for
the Euro-Rate Option per annum, and (ii) to the Agent for its own account a
fronting fee equal to one-eighth percent (1/8%) per annum, which fees shall be
computed on the daily average Letters of Credit Outstanding and shall be
payable quarterly in arrears commencing with the first Business Day of
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each January, April, July and October following issuance of each Letter of
Credit and on the Expiration Date. The Borrower shall also pay to the Agent for
the Agent's sole account the Agent's then in effect customary fees and
administrative expenses payable with respect to the Letters of Credit as the
Agent may generally charge or incur from time to time in connection with the
issuance, maintenance, modification (if any), assignment or transfer (if any),
negotiation, and administration of Letters of Credit.
2.9.3 DISBURSEMENTS, REIMBURSEMENT.
2.9.3.1 Immediately upon the Issuance of each Letter of Credit, each
Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from the Agent a participation in such Letter of Credit and each
drawing thereunder in an amount equal to such Bank's Ratable Share of the
maximum amount available to be drawn under such Letter of Credit and the amount
of such drawing, respectively.
2.9.3.2 In the event of any request for a drawing under a Letter of
Credit by the beneficiary or transferee thereof, the Agent will promptly notify
the Borrower. Provided that it shall have received such notice, the Borrower
shall reimburse (such obligation to reimburse the Agent shall sometimes be
referred to as a "Reimbursement Obligation") the Agent prior to 11:00 a.m.,
Pittsburgh time on each date that an amount is paid by the Agent under any
Letter of Credit (each such date, an "Drawing Date") in an amount equal to the
amount so paid by the Agent. In the event the Borrower fails to reimburse the
Agent for the full amount of any drawing under any Letter of Credit by 11:00
a.m., Pittsburgh time, on the Drawing Date, the Agent will promptly notify each
Bank thereof, and the Borrower shall be deemed to have requested that Loans be
made by the Banks under the Base Rate Option to be disbursed on the Drawing
Date under such Letter of Credit, subject to the amount of the unutilized
portion of the Commitment and the Borrowing Base and subject to the conditions
set forth in Section 7.2 other than any notice requirements. Any notice given
by the Agent pursuant to this Section 2.9.3.2 may be oral if immediately
confirmed in writing; provided that the lack of such an immediate confirmation
shall not affect the conclusiveness or binding effect of such notice.
2.9.3.3 Each Bank shall upon any notice pursuant to Section 2.9.3.2
make available to the Agent an amount in immediately available funds equal to
its Ratable Share of the amount of the drawing, whereupon the participating
Banks shall (subject to Section 2.9.3.4) each be deemed to have made a Loan
under the Base Rate Option to the Borrower in that amount. If any Bank so
notified fails to make available to the Agent for the account of the Agent the
amount of such Bank's Ratable Share of such amount by no later than 3:30 p.m.,
Pittsburgh time on the Drawing Date, then interest shall accrue on such Bank's
obligation to make such payment, from the Drawing Date to the date on which
such Bank makes such payment, at a rate per annum equal to the Federal Funds
Effective Rate in effect from time to time during such period. The Agent will
promptly give notice of the occurrence of the Drawing Date, but failure of the
Agent to give any such notice on the Drawing Date or in
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sufficient time to enable any Bank to effect such payment on such date shall
not relieve such Bank from its obligation under this Section 2.9.3.3.
2.9.3.4 With respect to any unreimbursed drawing that is not
converted into Loans under the Base Rate Option to the Borrower in whole or in
part as contemplated by Section 2.9.3.2, because of the Borrower's failure to
satisfy the conditions set forth in Section 7.2 other than any notice
requirements or for any other reason, the Borrower shall be deemed to have
incurred from the Agent a Letter of Credit Borrowing in the amount of such
drawing. Such Letter of Credit Borrowing shall be due and payable on demand
(together with interest) and shall bear interest at the rate per annum
applicable to the Loans under the Base Rate Option. Each Bank's payment to the
Agent pursuant to Section 2.9.3.3 shall be deemed to be a payment in respect of
its participation in such Letter of Credit Borrowing and shall constitute a
Participation Advance from such Bank in satisfaction of its participation
obligation under this Section 2.9.3.
2.9.4 REPAYMENT OF PARTICIPATION ADVANCES.
2.9.4.1 Upon (and only upon) receipt by the Agent for its account of
immediately available funds from the Borrower (i) in reimbursement of any
payment made by the Agent under the Letter of Credit with respect to which any
Bank has made a Participation Advance to the Agent, or (ii) in payment of
interest on such a payment made by the Agent under such a Letter of Credit, the
Agent will pay to each Bank, in the same funds as those received by the Agent,
the amount of such Bank's Ratable Share of such funds, except the Agent shall
retain the amount of the Ratable Share of such funds of any Bank that did not
make a Participation Advance in respect of such payment by Agent.
2.9.4.2 If the Agent is required at any time to return to any Loan
Party, or to a trustee, receiver, liquidator, custodian, or any official in any
Insolvency Proceeding, any portion of the payments made by any Loan Party to
the Agent pursuant to Section 2.9.4.1 in reimbursement of a payment made under
the Letter of Credit or interest or fee thereon, each Bank shall, on demand of
and one day's notice by the Agent, forthwith return to the Agent the amount of
its Ratable Share of any amounts so returned by the Agent plus interest thereon
from the date such demand is made to the date such amounts are returned by such
Bank to the Agent, at a rate per annum equal to the Federal Funds Effective
Rate in effect from time to time.
2.9.5 DOCUMENTATION.
Each Loan Party agrees to be bound by the terms of the Agent's
application and agreement for letters of credit and the Agent's written
regulations and customary practices relating to letters of credit, though such
interpretation may be different from the such Loan Party's own. In the event of
a conflict between such application or agreement and this Agreement, this
Agreement shall govern. It is understood and agreed that, except in the case of
gross negligence or willful misconduct, the Agent shall not be liable for any
error, negligence
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and/or mistakes, whether of omission or commission, in following any Loan
Party's instructions or those contained in the Letters of Credit or any
modifications, amendments or supplements thereto.
2.9.6 DETERMINATIONS TO HONOR DRAWING REQUESTS.
In determining whether to honor any request for drawing under any
Letter of Credit by the beneficiary thereof, the Agent shall be responsible
only to determine that the documents and certificates required to be delivered
under such Letter of Credit have been delivered and that they comply on their
face with the requirements of such Letter of Credit.
2.9.7 NATURE OF PARTICIPATION AND REIMBURSEMENT OBLIGATIONS.
Each Bank's obligation in accordance with this Agreement to make the
Loans or Participation Advances, as contemplated by Section 2.9.3, as a result
of a drawing under a Letter of Credit, and the Obligations of the Borrower to
reimburse the Agent upon a draw under a Letter of Credit, shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Section 2.9 under all circumstances, including the
following circumstances:
(i) any set-off, counterclaim, recoupment, defense or other
right which such Bank may have against the Agent, the Borrower or any other
Person for any reason whatsoever;
(ii) the failure of any Loan Party or any other Person to
comply, in connection with a Letter of Credit Borrowing, with the conditions
set forth in Section 2.1, 2.5, 2.6 or 7.2 or as otherwise set forth in this
Agreement for the making of a Loan, it being acknowledged that such conditions
are not required for the making of a Letter of Credit Borrowing and the
obligation of the Banks to make Participation Advances under Section 2.9.3;
(iii) any lack of validity or enforceability of any Letter of Credit;
(iv) the existence of any claim, set-off, defense or other right
which any Loan Party or any Bank may have at any time against a beneficiary or
any transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), the Agent or any Bank or any other Person or,
whether in connection with this Agreement, the transactions contemplated herein
or any unrelated transaction (including any underlying transaction between any
Loan Party or Subsidiaries of a Loan Party and the beneficiary for which any
Letter of Credit was procured);
(v) any draft, demand, certificate or other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in
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any respect or any statement therein being untrue or inaccurate in any respect
even if the Agent has been notified thereof;
(vi) payment by the Agent under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit;
(vii) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of any Loan Party or
Subsidiaries of a Loan Party;
(viii) any breach of this Agreement or any other Loan Document by any
party thereto;
(ix) the occurrence or continuance of an Insolvency Proceeding with
respect to any Loan Party;
(x) the fact that an Event of Default or a Potential Default shall
have occurred and be continuing;
(xi) the fact that the Expiration Date shall have passed or this
Agreement or the Commitments hereunder shall have been terminated; and
(xii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing; provided that each Bank's obligation to make
Loans under Section 2.9.3.3 is subject to the conditions set forth in Section
7.2.
2.9.8 INDEMNITY.
In addition to amounts payable as provided in Section 10.5, the Borrower
hereby agrees to protect, indemnify, pay and save harmless the Agent from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable fees, expenses and disbursements of
counsel and allocated costs of internal counsel) which the Agent may incur or
be subject to as a consequence, direct or indirect, of (i) the issuance of any
Letter of Credit, other than as a result of (A) the gross negligence or willful
misconduct of the Agent as determined by a final judgment of a court of
competent jurisdiction or (B) subject to the following clause (ii), the
wrongful dishonor by the Agent of a proper demand for payment made under any
Letter of Credit, or (ii) the failure of the Agent to honor a drawing under any
such Letter of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein called "Governmental
Acts").
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2.9.9 LIABILITY FOR ACTS AND OMISSIONS.
As between any Loan Party and the Agent, such Loan Party assumes all risks
of the acts and omissions of, or misuse of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit. In furtherance and not in
limitation of the foregoing, the Agent shall not be responsible for: (i) the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the application for an
issuance of any such Letter of Credit, even if it should in fact prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged
(even if the Agent shall have been notified thereof); (ii) the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any such Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) the failure of the beneficiary of
any such Letter of Credit, or any other party to which such Letter of Credit
may be transferred, to comply fully with any conditions required in order to
draw upon such Letter of Credit or any other claim of any Loan Party against
any beneficiary of such Letter of Credit, or any such transferee, or any
dispute between or among any Loan Party and any beneficiary of any Letter of
Credit or any such transferee; (iv) errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail, cable, telegraph, telex
or otherwise, whether or not they be in cipher; (v) errors in interpretation of
technical terms; (vi) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any such Letter of Credit or
of the proceeds thereof; (vii) the misapplication by the beneficiary of any
such Letter of Credit of the proceeds of any drawing under such Letter of
Credit; or (viii) any consequences arising from causes beyond the control of
the Agent, including any Governmental Acts, and none of the above shall affect
or impair, or prevent the vesting of, any of the Agent's rights or powers
hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth above, any action taken or omitted by the Agent under or
in connection with the Letters of Credit issued by it or any documents and
certificates delivered thereunder, if taken or omitted in good faith, shall not
put the Agent under any resulting liability to the Borrower or any Bank.
3. [INTENTIONALLY OMITTED]
4. INTEREST RATES
4.1 INTEREST RATE OPTIONS.
The Borrower shall pay interest in respect of the outstanding unpaid
principal amount of the Loans as selected by it from the Base Rate Option or
Euro-Rate Option set forth below applicable to the Loans, it being understood
that, subject to the provisions of this
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Agreement, the Borrower may select different Interest Rate Options and
different Interest Periods to apply simultaneously to the Loans comprising
different Borrowing Tranches and may convert to or renew one or more Interest
Rate Options with respect to all or any portion of the Loans comprising any
Borrowing Tranche, provided that there shall not be at any one time outstanding
more than seven (7) Borrowing Tranches in the aggregate among all of the Loans
accruing interest at a Euro-Rate Option. If at any time the designated rate
applicable to any Loan made by any Bank exceeds such Bank's highest lawful
rate, the rate of interest on such Bank's Loan shall be limited to such Bank's
highest lawful rate.
4.1.1 REVOLVING CREDIT INTEREST RATE OPTIONS.
The Borrower shall have the right to select from the following Interest
Rate Options applicable to the Loans:
(i) BASE RATE OPTION: A fluctuating rate per annum (computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) equal to the Base Rate plus the Applicable Margin, such interest rate
to change automatically from time to time effective as of the effective date of
each change in the Base Rate or Applicable Margin; or
(ii) EURO-RATE OPTION: A rate per annum (computed on the basis of a
year of 360 days and actual days elapsed) equal to the Euro-Rate plus the
Applicable Margin, such interest rate to change automatically from time to time
effective as of the effective date of each change in the Applicable Margin.
4.1.2 RATE QUOTATIONS.
The Borrower may call the Agent on or before the date on which a Loan
Request is to be delivered to receive an indication of the rates then in
effect, but it is acknowledged that such projection shall not be binding on the
Agent or the Banks nor affect the rate of interest which thereafter is actually
in effect when the election is made.
4.2 INTEREST PERIODS.
At any time when the Borrower shall select, convert to or renew a
Euro-Rate Option, the Borrower shall notify the Agent thereof at least three
(3) Business Days prior to the effective date of such Euro-Rate Option by
delivering a Loan Request. The notice shall specify an interest period (the
"Interest Period") during which such Interest Rate Option shall apply, such
Interest Period to be (i) one Month if the Borrower selects the Euro-Rate
Option during the Syndications Period, and (ii) one, two, three or six Months
in the event Borrower selects the Euro-Rate Option after the Syndications
Period has ended. Notwithstanding the preceding sentence, the following
provisions shall apply to any selection of, renewal of, or conversion to a
Euro-Rate Option:
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4.2.1 ENDING DATE AND BUSINESS DAY.
any Interest Period which would otherwise end on a date which is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day;
4.2.2 AMOUNT OF BORROWING TRANCHE.
each Borrowing Tranche of Euro-Rate Loans shall be in integral multiples
of $250,000 and not less than $1,000,000;
4.2.3 TERMINATION BEFORE EXPIRATION DATE.
the Borrower shall not select, convert to or renew an Interest Period for
any portion of the Loans that would end after the Expiration Date; and
4.2.4 RENEWALS.
in the case of the renewal of a Euro-Rate Option at the end of an Interest
Period, the first day of the new Interest Period shall be the last day of the
preceding Interest Period, without duplication in payment of interest for such
day.
4.3 INTEREST AFTER DEFAULT.
To the extent permitted by Law, upon the occurrence of an Event of Default
and until such time such Event of Default shall have been cured or waived:
4.3.1 LETTER OF CREDIT FEES, INTEREST RATE.
the Letter of Credit Fees and the rate of interest for each Loan otherwise
applicable pursuant to Section 2.9.2 or Section 4.1, respectively, shall be
increased by two percent (2%) per annum; and
4.3.2 OTHER OBLIGATIONS.
each other Obligation hereunder if not paid when due shall bear interest
at a rate per annum equal to the sum of the rate of interest applicable under
the Base Rate Option plus an additional two percent (2%) per annum from the
time such Obligation becomes due and payable and until it is paid in full.
4.3.3 ACKNOWLEDGMENT.
The Borrower acknowledges that the increase in rates referred to in this
Section 4.3 reflects, among other things, the fact that such Loans or other
amounts have become
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a substantially greater risk given their default status and that the Banks are
entitled to additional compensation for such risk; and all such interest shall
be payable by Borrower upon demand by Agent.
4.4 EURO-RATE UNASCERTAINABLE; ILLEGALITY; INCREASED COSTS; DEPOSITS NOT
AVAILABLE
4.4.1 UNASCERTAINABLE.
If on any date on which a Euro-Rate would otherwise be determined, the
Agent shall have determined that:
(i) adequate and reasonable means do not exist for ascertaining such
Euro-Rate, or
(ii) a contingency has occurred which materially and adversely
affects the London interbank eurodollar market relating to the Euro-Rate, the
Agent shall have the rights specified in Section 4.4.3.
4.4.2 ILLEGALITY; INCREASED COSTS; DEPOSITS NOT AVAILABLE.
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any Loan to which a
Euro-Rate Option applies has been made impracticable or unlawful by compliance
by such Bank in good faith with any Law or any interpretation or application
thereof by any Official Body or with any request or directive of any such
Official Body (whether or not having the force of Law), or
(ii) such Euro-Rate Option will not adequately and fairly reflect the
cost to such Bank of the establishment or maintenance of any such Loan, or
(iii) after making all reasonable efforts, deposits of the relevant
amount in Dollars for the relevant Interest Period for a Loan to which a
Euro-Rate Option applies are not available to such Bank in the London interbank
market, then the Agent shall have the rights specified in Section 4.4.3.
4.4.3 AGENT'S AND BANK'S RIGHTS.
In the case of any event specified in Section 4.4.1 above, the Agent shall
promptly so notify the Banks and the Borrower thereof, and in the case of an
event specified in Section 4.4.2 above, such Bank shall promptly so notify the
Agent and endorse a certificate to such notice as to the specific circumstances
of such notice, and the Agent shall promptly send copies of such notice and
certificate to the other Banks and the Borrower. Upon such date as
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shall be specified in such notice (which shall not be earlier than the date
such notice is given), the obligation of (A) the Banks, in the case of such
notice given by the Agent, or (B) such Bank, in the case of such notice given
by such Bank, to allow the Borrower to select, convert to or renew a Euro-Rate
Option shall be suspended until the Agent shall have later notified the
Borrower, or such Bank shall have later notified the Agent, of the Agent's or
such Bank's, as the case may be, determination that the circumstances giving
rise to such previous determination no longer exist. If at any time the Agent
makes a determination under Section 4.4.1 and the Borrower has previously
notified the Agent of its selection of, conversion to or renewal of a Euro-Rate
Option and such Interest Rate Option has not yet gone into effect, such
notification shall be deemed to provide for selection of, conversion to or
renewal of the Base Rate Option otherwise available with respect to such Loans.
If any Bank notifies the Agent of a determination under Section 4.4.2, the
Borrower shall, subject to the Borrower's indemnification Obligations under
Section 5.6.2, as to any Loan of the Bank to which a Euro-Rate Option applies,
on the date specified in such notice either convert such Loan to the Base Rate
Option otherwise available with respect to such Loan or prepay such Loan in
accordance with Section 5.4. Absent due notice from the Borrower of conversion
or prepayment, such Loan shall automatically be converted to the Base Rate
Option otherwise available with respect to such Loan upon such specified date.
4.5 SELECTION OF INTEREST RATE OPTIONS.
If the Borrower fails to select a new Interest Period to apply to any
Borrowing Tranche of Loans under the Euro-Rate Option at the expiration of an
existing Interest Period applicable to such Borrowing Tranche in accordance
with the provisions of Section 4.2, the Borrower shall be deemed to have
converted such Borrowing Tranche to the Base Rate Option commencing upon the
last day of the existing Interest Period.
5. PAYMENTS
5.1 PAYMENTS.
All payments and prepayments to be made in respect of principal, interest,
Commitment Fees, Facility Fees, Letter of Credit Fees, Agent's Fee or other
fees or amounts due from the Borrower hereunder shall be payable prior to 11:00
a.m., Pittsburgh time, on the date when due without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by the
Borrower, and without set-off, counterclaim or other deduction of any nature,
and an action therefor shall immediately accrue. Such payments shall be made to
the Agent at the Principal Office for the ratable accounts of the Banks with
respect to the Loans in U.S. Dollars and in immediately available funds, and
the Agent shall promptly distribute such amounts to the Banks in immediately
available funds, provided that in the event payments are received by 11:00
a.m., Pittsburgh time, by the Agent with respect to the Loans and such payments
are not distributed to the Banks on the same day received by the Agent, the
Agent shall pay the Banks the Federal Funds Effective Rate with respect to the
amount of such payments for
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each day held by the Agent and not distributed to the Banks. The Agent's and
each Bank's statement of account, ledger or other relevant record shall, in the
absence of manifest error, be conclusive as the statement of the amount of
principal of and interest on the Loans and other amounts owing under this
Agreement and shall be deemed an "account stated."
5.2 PRO RATA TREATMENT OF BANKS.
Each borrowing shall be allocated to each Bank according to its Ratable
Share, and each selection of, conversion to or renewal of any Interest Rate
Option and each payment or prepayment by the Borrower with respect to
principal, interest, Commitment Fees, Facility Fees, Letter of Credit Fees, or
other fees (except for the Agent's Fee) or amounts due from the Borrower
hereunder to the Banks with respect to the Loans, shall (except as provided in
Section 4.4.3 in the case of an event specified in Section 4.4 [Euro-Rate
Unascertainable; Illegality; Increased Costs; Deposits Not Available], 5.4.3
[Voluntary Prepayments] or 5.4 [Additional Compensation in Certain
Circumstances]) be made in proportion to the applicable Loans outstanding from
each Bank and, if no such Loans are then outstanding, in proportion to the
Ratable Share of each Bank.
5.3 INTEREST PAYMENT DATES.
Interest on Loans to which the Base Rate Option applies shall be due and
payable in arrears on the first Business Day of each January, April, July and
October after the date hereof and on the Expiration Date or upon acceleration
of the Notes. Interest on Loans to which the Euro-Rate Option applies shall be
due and payable on the last day of each Interest Period for those Loans and, if
such Interest Period is longer than three (3) Months, also on the 90th day of
such Interest Period. Interest on the principal amount of each Loan or other
monetary Obligations shall be due and payable on demand after such principal
amount or other monetary Obligations become due and payable (whether on the
stated maturity date, upon acceleration or otherwise).
5.4 VOLUNTARY REPAYMENTS.
5.4.1 RIGHT TO REPAY.
The Borrower shall have the right at its option from time to time to
pay the Loans in whole or part without premium or penalty (except as provided
in Section 5.4.3 below or in Section 5.6):
(i) at any time with respect to any Loan to which the Base Rate
Option applies,
(ii) on the last day of the applicable Interest Period with respect
to Loans to which a Euro-Rate Option applies,
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(iii) on the date specified in a notice by any Bank pursuant to
Section 4.4 [Euro-Rate Unascertainable] with respect to any Loan to which a
Euro-Rate Option applies.
Whenever the Borrower desires to repay any part of the Loans, it shall
provide a repayment notice to the Agent at least one (1) Business Day prior to
the date of repayment of Loans setting forth the following information:
(y) the date, which shall be a Business Day, on which the proposed
repayment is to be made; and
(z) the total principal amount of such repayment, which shall not be
less than $100,000.
All repayment notices shall be irrevocable. The principal amount of
the Loans for which a repayment notice is given, together with interest on such
principal amount except with respect to Loans to which the Base Rate Option
applies, shall be due and payable on the date specified in such repayment
notice as the date on which the proposed repayment is to be made. Except as
provided in Section 4.4.3, if the Borrower repays a Loan but fails to specify
the applicable Borrowing Tranche which the Borrower is repaying, the repayment
shall be applied first to Loans to which the Base Rate Option applies, then to
Loans to which the Euro-Rate the Option applies. Any repayment hereunder shall
be subject to the Borrower's Obligation to indemnify the Banks under Section
5.6.2.
5.4.2 COMMITMENT REDUCTIONS.
The Borrower may at any time and from time to time terminate in whole
or reduce in part the Commitment by giving the Agent and the Banks not less
than seven (7) days prior written notice to such effect. Notice of termination
or reduction, having once been given by the Borrower, shall be irrevocable on
the part of the Borrower. Each reduction of the Commitments shall be in the
aggregate amount of at least $5,000,000 and in multiples of $500,000. After
each such reduction of the Commitments, the fee payable pursuant to Section 2.3
shall be calculated upon the Commitments as so reduced. Upon any such
reduction, the Commitments of the Banks shall be reduced proportionately based
upon each Bank's Ratable Share.
5.4.3 REPLACEMENT OF A BANK.
In the event any Bank (i) gives notice under Section 4.4 or Section
5.6.1, (ii) does not fund Loans because the making of such Loans would
contravene any Law applicable to such Bank, (iii) does not approve any action
as to which consent of the Required Banks is requested by the Borrower and
obtained hereunder, or (iv) becomes subject to the control of an Official Body
(other than normal and customary supervision), then the Borrower shall have the
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right at its option, with the consent of the Agent, which shall not be
unreasonably withheld, to prepay the Loans of such Bank in whole, together with
all interest accrued thereon, and terminate such Bank's Commitment within
ninety (90) days after (w) receipt of such Bank's notice under Section 4.4 or
5.6.1, (x) the date such Bank has failed to fund Loans because the making of
such Loans would contravene Law applicable to such Bank, (y) the date of
obtaining the consent which such Bank has not approved, or (z) the date such
Bank became subject to the control of an Official Body, as applicable; provided
that the Borrower shall also pay to such Bank at the time of such prepayment
any amounts required under Section 5.6 and any accrued interest due on such
amount and any related fees; provided, however, that the Commitment of such
Bank shall be provided by one or more of the remaining Banks or a replacement
bank acceptable to the Agent; provided, further, the remaining Banks shall have
no obligation hereunder to increase their Commitments. Notwithstanding the
foregoing, the Agent may only be replaced subject to the requirements of
Section 10.14 and provided that all Letters of Credit have expired or been
terminated or replaced.
5.4.4 CHANGE OF LENDING OFFICE.
Each Bank agrees that upon the occurrence of any event giving rise to
increased costs or other special payments under Section 4.4.2 [Illegality,
etc.] or 5.6.1 [Increased Costs, etc.] with respect to such Bank, it will if
requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office for any Loans
or Letters of Credit affected by such event, provided that such designation is
made on such terms that such Bank and its lending office suffer no economic,
legal or regulatory disadvantage, with the object of avoiding the consequence
of the event giving rise to the operation of such Section. Nothing is this
Section 5.4.4 shall affect or postpone any of the Obligations of the Borrower
or any other Loan Party or the rights of the Agent or any Bank provided in this
Agreement.
5.5 MANDATORY PREPAYMENTS.
5.5.1 SALE OF ASSETS.
Within five (5) Business Days of any sale of assets authorized
by Section 8.2.7(v) which involves the sale of assets having a market value or
book value in an amount equal to or greater than $1,500,000, the Borrower shall
make a mandatory prepayment of principal on the Loans equal to the after-tax
proceeds of such sale (as estimated in good faith by the Borrower), together
with accrued interest on such principal amount. All prepayments pursuant to
this Section 5.5.1 shall constitute a permanent reduction of the Commitments of
the Banks. Notwithstanding the foregoing, to the extent that the after-tax
proceeds of such sale are used by the applicable Loan Party prior to the due
date of the mandatory prepayment to acquire substitute assets in the ordinary
course of business of such Loan Party and such substitute assets are subject to
a Prior Security Interest in favor of the Agent for the benefit of the Banks,
then the mandatory prepayment shall be correspondingly reduced or terminated,
as the case may be.
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5.5.2 BORROWING BASE EXCEEDED.
Whenever the outstanding principal balance of the Loans plus the
Letters of Credit Outstanding exceeds the Borrowing Base, the Borrower shall
make, with one (1) Business Day after the Borrower learns of such excess and
whether or not the Agent has given notice to such effect, a mandatory
prepayment of principal equal to the excess of the outstanding principal
balance of the Loans over the Borrowing Base, together with accrued interest on
such principal amount.
5.5.3 APPLICATION AMONG INTEREST RATE OPTIONS.
All prepayments required pursuant to this Section 5.5 shall first be
applied among the Interest Rate Options to the principal amount of the Loans
subject to the Base Rate Option, then to Loans subject to a Euro-Rate Option.
In accordance with Section 5.6.2, the Borrower shall indemnify the Banks for
any loss or expense, including loss of margin, incurred with respect to any
such prepayments applied against Loans subject to a Euro-Rate Option on any day
other than the last day of the applicable Interest Period.
5.6 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
5.6.1 INCREASED COSTS OR REDUCED RETURN RESULTING FROM TAXES,
RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES, ETC.
If any Law, guideline or interpretation or any change in any Law,
guideline or interpretation or application thereof by any Official Body charged
with the interpretation or administration thereof or compliance with any
request or directive (whether or not having the force of Law) of any central
bank or other Official Body:
(i) subjects any Bank to any tax or changes the basis of
taxation with respect to this Agreement, the Notes, the Loans or payments by
the Borrower of principal, interest, Commitment Fees, or other amounts due from
the Borrower hereunder or under the Notes (except for taxes on the overall net
income of such Bank),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend credit
extended by, or assets (funded or contingent) of, deposits with or for the
account of, or other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable any capital adequacy
or similar requirement (A) against assets (funded or contingent) of, or letters
of credit, other credits or commitments to extend credit extended by, any Bank,
or (B) otherwise applicable to the obligations of any Bank under this
Agreement,
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and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Bank's capital, taking into consideration such Bank's customary policies with
respect to capital adequacy) by an amount which such Bank in its sole
discretion deems to be material, such Bank shall from time to time notify the
Borrower and the Agent of the amount determined in good faith (using any
averaging and attribution methods employed in good faith) by such Bank to be
necessary to compensate such Bank for such increase in cost, reduction of
income, additional expense or reduced rate of return. Such notice shall set
forth in reasonable detail the basis for such determination. Such amount shall
be due and payable by the Borrower to such Bank ten (10) Business Days after
such notice is given.
5.6.2 INDEMNITY.
In addition to the compensation required by Section 5.6.1, the
Borrower shall indemnify each Bank against all liabilities, losses or expenses
(including loss of margin, any loss or expense incurred in liquidating or
employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by a Bank to fund or maintain Loans subject to a
Euro-Rate Option) which such Bank sustains or incurs as a consequence of any
(i) payment, prepayment, conversion or renewal of any Loan to
which a Euro-Rate Option applies on a day other than the last day of the
corresponding Interest Period (whether or not such payment or prepayment is
mandatory, voluntary or automatic and whether or not such payment or prepayment
is then due),
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any Loan Requests under
Section 2.5 or Section 4.2 or notice relating to prepayments under Section 5.4,
or
(iii) default by the Borrower in the performance or observance
of any covenant or condition contained in this Agreement or any other Loan
Document, including any failure of the Borrower to pay when due (by
acceleration or otherwise) any principal, interest, Commitment Fee or any other
amount due hereunder.
If any Bank sustains or incurs any such loss or expense, it shall
from time to time notify the Borrower of the amount determined in good faith by
such Bank (which determination may include such assumptions, allocations of
costs and expenses and averaging or attribution methods as such Bank shall deem
reasonable) to be necessary to indemnify such Bank for such loss or expense.
Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrower to such
Bank ten (10) Business Days after such notice is given.
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6. REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATIONS AND WARRANTIES.
The Loan Parties, jointly and severally, represent and warrant to the
Agent and each of the Banks as follows:
6.1.1 ORGANIZATION AND QUALIFICATION.
Each Loan Party and each Subsidiary of each Loan Party is a
corporation, partnership or limited liability company duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each Loan Party and each Subsidiary of each Loan Party has the
lawful power to own or lease its properties and to engage in the business it
presently conducts or proposes to conduct. Each Loan Party and each Subsidiary
of each Loan Party is duly licensed or qualified and in good standing in each
jurisdiction listed on SCHEDULE 6.1.1 and in all other jurisdictions where the
property owned or leased by it or the nature of the business transacted by it
or both makes such licensing or qualification necessary.
6.1.2 CAPITALIZATION AND OWNERSHIP.
The authorized capital stock of the Borrower consists of 10,000,000
shares of common stock and 1,000,000 shares of preferred stock, of which
6,659,180 shares of common stock and 11,207 shares of Series A preferred stock
(collectively referred to herein as the "Shares") are issued and outstanding
and are owned as indicated on SCHEDULE 6.1.2. All of the Shares have been
validly issued and are fully paid and nonassessable. There are no options,
warrants or other rights outstanding to purchase any such shares except as
indicated on SCHEDULE 6.1.2.
6.1.3 SUBSIDIARIES.
SCHEDULE 6.1.3 states the name of each of the Borrower's
Subsidiaries, its jurisdiction of incorporation, its authorized capital stock,
the issued and outstanding shares (referred to herein as the "Subsidiary
Shares") and the owners thereof if it is a corporation, its outstanding
partnership interests (the "Partnership Interests") if it is a partnership and
its outstanding limited liability company interests, interests assigned to
managers thereof and the voting rights associated therewith (the "LLC
Interests") if it is a limited liability company. The Borrower and each
Subsidiary of the Borrower has good and marketable title to all of the
Subsidiary Shares, Partnership Interests and LLC Interests it purports to own,
free and clear in each case of any Lien. All Subsidiary Shares, Partnership
Interests and LLC Interests have been validly issued, and all Subsidiary Shares
are fully paid and nonassessable. All capital contributions and other
consideration required to be made or paid in connection with the issuance of
the Partnership Interests and LLC Interests have been made or paid, as the case
may be. There are no options, warrants or other rights outstanding to purchase
any such Subsidiary Shares, Partnership Interests or LLC Interests except as
indicated on SCHEDULE 6.1.3.
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6.1.4 POWER AND AUTHORITY.
Each Loan Party has full power to enter into, execute, deliver and
carry out this Agreement and the other Loan Documents to which it is a party,
to incur the Indebtedness contemplated by the Loan Documents and to perform its
Obligations under the Loan Documents to which it is a party, and all such
actions have been duly authorized by all necessary proceedings on its part.
6.1.5 VALIDITY AND BINDING EFFECT.
This Agreement has been duly and validly executed and delivered by
each Loan Party, and each other Loan Document which any Loan Party is required
to execute and deliver on or after the date hereof will have been duly executed
and delivered by such Loan Party on the required date of delivery of such Loan
Document. This Agreement and each other Loan Document constitutes, or will
constitute, legal, valid and binding obligations of each Loan Party which is or
will be a party thereto on and after its date of delivery thereof, enforceable
against such Loan Party in accordance with its terms, except to the extent that
enforceability of any of such Loan Document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or limiting the right of specific
performance.
6.1.6 NO CONFLICT.
Neither the execution and delivery of this Agreement or the other
Loan Documents by any Loan Party nor the consummation of the transactions
herein or therein contemplated or compliance with the terms and provisions
hereof or thereof by any of them will conflict with, constitute a default under
or result in any breach of (i) the terms and conditions of the certificate of
incorporation, bylaws, certificate of limited partnership, partnership
agreement, certificate of formation, limited liability company agreement or
other organizational documents of any Loan Party or (ii) any Law or any
material agreement or instrument or order, writ, judgment, injunction or decree
to which any Loan Party or any of its Subsidiaries is a party or by which it or
any of its Subsidiaries is bound or to which it is subject, or result in the
creation or enforcement of any Lien, charge or encumbrance whatsoever upon any
property (now or hereafter acquired) of any Loan Party or any of its
Subsidiaries (other than Liens granted under the Loan Documents).
6.1.7 LITIGATION.
Except as set forth in SCHEDULE 6.1.7, there are no actions, suits,
proceedings or investigations pending or, to the knowledge of any Loan Party,
threatened against such Loan Party or any Subsidiary of such Loan Party at law
or equity before any Official Body. None of such actions, suits, proceedings or
investigations, which determined adversely to the Loan Parties, would
individually or in the aggregate result in any Material Adverse Change. Except
as set forth on Schedule 6.1.7. none of the Loan Parties or any Subsidiaries of
any Loan
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Party is in violation of any order, writ, injunction or any decree of any
Official Body. No such violations may result in any Material Adverse Change
6.1.8 TITLE TO PROPERTIES.
The real property owned or leased by each Loan Party and each
Subsidiary of each Loan Party is described on SCHEDULE 6.1.8. Each Loan Party
and each Subsidiary of each Loan Party has good and marketable title to or
valid leasehold interest in all properties, assets and other rights which it
purports to own or lease or which are reflected as owned or leased on its books
and records, free and clear of all Liens and encumbrances except Permitted
Liens, and subject to the terms and conditions of the applicable leases. All
leases of property are in full force and effect without the necessity for any
consent which has not previously been obtained upon consummation of the
transactions contemplated hereby.
6.1.9 FINANCIAL STATEMENTS.
(i) HISTORICAL STATEMENTS. The Borrower has delivered to the Agent
copies of its audited consolidated year-end financial statements for and as of
the end of the four fiscal years ended September 30, 1995 (the "Annual
Statements"). In addition, the Borrower has delivered to the Agent copies of
its unaudited consolidated interim financial statements for the fiscal year to
date and as of the end of the fiscal quarter ended June 30, 1996 (the "Interim
Statements"), and a copy of the preliminary unaudited consolidated year-end
financial statements for and as of the fiscal year ended September 30, 1996
(the "Preliminary Statements") (the Annual, Interim and Preliminary Statements
being collectively referred to as the "Historical Statements"). The Historical
Statements were compiled from the books and records maintained by the
Borrower's management, are correct and complete and fairly represent the
consolidated financial condition of the Borrower and its Subsidiaries as of
their dates and the results of operations for the fiscal periods then ended and
have been prepared in accordance with GAAP consistently applied, subject (in
the case of the Interim Statements and the Preliminary Statements) to normal
year-end audit adjustments.
(ii) FINANCIAL PROJECTIONS. The Borrower has delivered to the Agent
financial projections of the Borrower and its Subsidiaries for the three fiscal
years ended September 30, 1997, 1998 and 1999 derived from various assumptions
of the Borrower's management (the "Financial Projections"). The Financial
Projections represent a reasonable range of possible results in light of the
history of the business, present and foreseeable conditions and the intentions
of the Borrower's management. The Financial Projections accurately reflect the
liabilities of the Borrower and its Subsidiaries upon consummation of the
transactions contemplated hereby as of the Closing Date.
(iii) ACCURACY OF FINANCIAL STATEMENTS. Neither the Borrower nor any
Subsidiary of the Borrower has any liabilities, contingent or otherwise, or
forward or long-term commitments that are not disclosed in the Historical
Statements or in the notes thereto, and except as disclosed therein there are
no unrealized or anticipated losses from
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any commitments of the Borrower or any Subsidiary of the Borrower which may
cause a Material Adverse Change. Since September 30, 1995, no Material Adverse
Change has occurred.
6.1.10 USE OF PROCEEDS; MARGIN STOCK.
The Loan Parties intend to use the proceeds of the Loans in
accordance with Sections 2.8 and 8.1.10. None of the Loan Parties or any
Subsidiaries of any Loan Party engages or intends to engage principally, or as
one of its important activities, in the business of extending credit for the
purpose, immediately, incidentally or ultimately, of purchasing or carrying
margin stock (within the meaning of Regulation U). No part of the proceeds of
any Loan has been or will be used, immediately, incidentally or ultimately, to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock or to refund Indebtedness
originally incurred for such purpose, or for any purpose which entails a
violation of or which is inconsistent with the provisions of the regulations of
the Board of Governors of the Federal Reserve System. None of the Loan Parties
or any Subsidiary of any Loan Party holds or intends to hold margin stock in
such amounts that more than 25% of the reasonable value of the assets of any
Loan Party or Subsidiary of any Loan Party are or will be represented by margin
stock.
6.1.11 FULL DISCLOSURE.
Neither this Agreement nor any other Loan Document, nor any
certificate, statement, agreement or other documents furnished to the Agent or
any Bank in connection herewith or therewith, contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein, in light of the circumstances
under which they were made, not misleading. There is no fact known to any Loan
Party which materially adversely affects the business, property, assets,
financial condition, results of operations or prospects of any Loan Party or
Subsidiary of any Loan Party which has not been set forth in this Agreement or
in the certificates, statements, agreements or other documents furnished in
writing to the Agent and the Banks prior to or at the date hereof in connection
with the transactions contemplated hereby.
6.1.12 TAXES.
All federal, state, local and other tax returns required to have been
filed with respect to each Loan Party and each Subsidiary of each Loan Party
have been filed, and payment or adequate provision has been made for the
payment of all taxes, fees, assessments and other governmental charges which
have or may become due pursuant to said returns or to assessments received,
except to the extent that such taxes, fees, assessments and other charges are
being contested in good faith by appropriate proceedings diligently conducted
and for which such reserves or other appropriate provisions, if any, as shall
be required by GAAP shall have been made. There are no agreements or waivers
extending the statutory period of limitations
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applicable to any federal income tax return of any Loan Party or Subsidiary of
any Loan Party for any period.
6.1.13 CONSENTS AND APPROVALS.
Except for the filing of financing statements and the Mortgage in the
state and county filing offices, no consent, approval, exemption, order or
authorization of, or a registration or filing with, any Official Body or any
other Person is required by any Law or any agreement in connection with the
execution, delivery and carrying out of this Agreement and the other Loan
Documents by any Loan Party, except as listed on SCHEDULE 6.1.13, all of which
shall have been obtained or made on or prior to the Closing Date except as
otherwise indicated on SCHEDULE 6.1.13.
6.1.14 NO EVENT OF DEFAULT; COMPLIANCE WITH INSTRUMENTS.
No event has occurred and is continuing and no condition exists or
will exist after giving effect to the borrowings or other extensions of credit
to be made on the Closing Date under or pursuant to the Loan Documents which
constitutes an Event of Default or Potential Default. None of the Loan Parties
or any Subsidiaries of any Loan Party is in violation of (i) any term of its
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company
agreement or other organizational documents or (ii) any material agreement or
instrument to which it is a party or by which it or any of its properties may
be subject or bound where such violation would constitute a Material Adverse
Change.
6.1.15 PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.
Each Loan Party and each Subsidiary of each Loan Party owns or
possesses all the material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises, permits and rights necessary
to own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by such Loan Party or Subsidiary, without
known possible, alleged or actual conflict with the rights of others. All
material patents, trademarks, service marks, trade names, copyrights, licenses,
registrations, franchises and permits of each Loan Party and each Subsidiary of
each Loan Party are listed and described on SCHEDULE 6.1.15.
6.1.16 SECURITY INTERESTS.
The Liens and security interests granted to the Agent for the benefit
of the Banks pursuant to the Collateral Assignment, the Patent, Trademark and
Copyright Assignment, the Pledge Agreement and the Security Agreement in the
Collateral (other than the Real Property) constitute and will continue to
constitute Prior Security Interests under the Uniform Commercial Code as in
effect in each applicable jurisdiction (the "Uniform Commercial Code") or other
applicable Law entitled to all the rights, benefits and priorities provided by
the Uniform
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Commercial Code or such Law. Upon the filing of financing statements relating
to said security interests in each office and in each jurisdiction where
required in order to perfect the security interests described above, taking
possession of any stock certificates or other certificates evidencing the
Pledge Collateral and recordation of the Patent, Trademark and Copyright
Assignment in the United States Patent and Trademark Office and United States
Copyright Office, as applicable, all such action as is necessary or advisable
to establish such rights of the Agent will have been taken, and there will be
upon execution and delivery of the Collateral Assignment, the Patent, Trademark
and Copyright Assignment, the Pledge Agreement and the Security Agreement, such
filings and such taking of possession, no necessity for any further action in
order to preserve, protect and continue such rights, except the filing of
continuation statements with respect to such financing statements within six
months prior to each five-year anniversary of the filing of such financing
statements. All filing fees and other expenses in connection with each such
action have been or will be paid by the Borrower.
6.1.17 MORTGAGE LIENS.
The Liens granted to the Agent for the benefit of the Banks pursuant
to the Mortgage constitute a valid first priority Lien under applicable law.
All such action as will be necessary or advisable to establish such Lien of the
Agent and its priority as described in the preceding sentence will be taken at
or prior to the time required for such purpose, and there will be as of the
date of execution and delivery of the Mortgage no necessity for any further
action in order to protect, preserve and continue such Lien and such priority.
6.1.18 STATUS OF THE PLEDGE COLLATERAL.
All the shares of capital stock, Partnership Interests or LLC
Interests included in the Pledge Collateral to be pledged pursuant to the
Pledge Agreement or the Collateral Assignment are or will be upon issuance
validly issued and nonassessable and owned beneficially and of record by the
pledgor free and clear of any Lien or restriction on transfer, except as
otherwise provided by the Pledge Agreement or the Collateral Assignment and
except as the right of the Banks to dispose of the Shares, Partnership
Interests or LLC Interests may be limited by the Securities Act of 1933, as
amended, and the regulations promulgated by the Securities and Exchange
Commission thereunder and by applicable state securities laws. There are no
shareholder, partnership, limited liability company or other agreements or
understandings with respect to the shares of capital stock, Partnership
Interests or LLC Interests included in the Pledge Collateral except for the
partnership agreements and limited liability company agreements described on
SCHEDULE 6.1.18. The Loan Parties have delivered true and correct copies of
such partnership agreements and limited liability company agreements to the
Agent.
6.1.19 INSURANCE.
SCHEDULE 6.1.19 lists all insurance policies and other bonds to which
any Loan Party or Subsidiary of any Loan Party is a party, all of which are
valid and in full force and effect. No notice has been given or claim made and
no grounds exist to cancel or avoid any of
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such policies or bonds or to reduce the coverage provided thereby. Such
policies and bonds provide adequate coverage from reputable and financially
sound insurers in amounts sufficient to insure the assets and risks of each
Loan Party and each Subsidiary of each Loan Party in accordance with prudent
business practice in the industry of the Loan Parties and their Subsidiaries.
6.1.20 COMPLIANCE WITH LAWS.
The Loan Parties and their Subsidiaries are in compliance in all
material respects with all applicable Laws (other than Environmental Laws which
are specifically addressed in Section 6.1.25) in all jurisdictions in which any
Loan Party or Subsidiary of any Loan Party is presently or will be doing
business except where the failure to do so would not constitute a Material
Adverse Change.
6.1.21 MATERIAL CONTRACTS; BURDENSOME RESTRICTIONS.
SCHEDULE 6.1.21 lists all material contracts relating to the business
operations of each Loan Party and each Subsidiary of any Loan Party, including
all employee benefit plans and Labor Contracts. All such material contracts are
valid, binding and enforceable upon such Loan Party or Subsidiary and each of
the other parties thereto in accordance with their respective terms, and there
is no default thereunder, to the Loan Parties' knowledge, with respect to
parties other than such Loan Party or Subsidiary. None of the Loan Parties or
their Subsidiaries is bound by any contractual obligation, or subject to any
restriction in any organization document, or any requirement of Law which could
result in a Material Adverse Change.
6.1.22 INVESTMENT COMPANIES; REGULATED ENTITIES.
None of the Loan Parties or any Subsidiaries of any Loan Party is an
"investment company" registered or required to be registered under the
Investment Company Act of 1940 or under the "control" of an "investment
company" as such terms are defined in the Investment Company Act of 1940 and
shall not become such an "investment company" or under such "control." None of
the Loan Parties or any Subsidiaries of any Loan Party is subject to any other
Federal state statute or regulation limiting its ability to incur Indebtedness
for borrowed money.
6.1.23 PLANS AND BENEFIT ARRANGEMENTS.
Except as set forth on SCHEDULE 6.1.23:
(i) The Borrower and each other member of the ERISA Group are
in compliance in all material respects with any applicable provisions of ERISA
with respect to all Benefit Arrangements, Plans and Multiemployer Plans. There
has been no Prohibited Transaction with respect to any Benefit Arrangement or
any Plan or, to the best
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knowledge of the Borrower, with respect to any Multiemployer Plan or Multiple
Employer Plan, which could result in any material liability of the Borrower or
any other member of the ERISA Group. The Borrower and all other members of the
ERISA Group have made when due any and all payments required to be made under
any agreement relating to a Multiemployer Plan or a Multiple Employer Plan or
any Law pertaining thereto. With respect to each Plan and Multiemployer Plan,
the Borrower and each other member of the ERISA Group (i) have fulfilled in all
material respects their obligations under the minimum funding standards of
ERISA, (ii) have not incurred any liability to the PBGC, and (iii) have not had
asserted against them any penalty for failure to fulfill the minimum funding
requirements of ERISA.
(ii) To the best of the Borrower's knowledge, each
Multiemployer Plan and Multiple Employer Plan is able to pay benefits
thereunder when due.
(iii) Neither the Borrower nor any other member of the ERISA
Group has instituted or intends to institute proceedings to terminate any Plan.
(iv) No event requiring notice to the PBGC under Section
302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with
respect to any Plan, and no amendment with respect to which security is
required under Section 307 of ERISA has been made or is reasonably expected to
be made to any Plan.
(v) The aggregate actuarial present value of all benefit
liabilities (whether or not vested) under each Plan, determined on a plan
termination basis, as disclosed in, and as of the date of, the most recent
actuarial report for such Plan, does not exceed the aggregate fair market value
of the assets of such Plan.
(vi) Neither the Borrower nor any other member of the ERISA
Group has incurred or reasonably expects to incur any material withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer Plan.
Neither the Borrower nor any other member of the ERISA Group has been notified
by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer
Plan or Multiple Employer Plan has been terminated within the meaning of Title
IV of ERISA and, to the best knowledge of the Borrower, no Multiemployer Plan
or Multiple Employer Plan is reasonably expected to be reorganized or
terminated, within the meaning of Title IV of ERISA.
(vii) To the extent that any Benefit Arrangement is insured,
the Borrower and all other members of the ERISA Group have paid when due all
premiums required to be paid for all periods through the Closing Date. To the
extent that any Benefit Arrangement is funded other than with insurance, the
Borrower and all other members of the ERISA Group have made when due all
contributions required to be paid for all periods through the Closing Date.
(viii) All Plans, Benefit Arrangements and Multiemployer Plans
have been administered in accordance with their terms and applicable Law.
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6.1.24 EMPLOYMENT MATTERS.
Each of the Loan Parties and each of their Subsidiaries is in
compliance with the Labor Contracts and all applicable federal, state and local
labor and employment Laws including those related to equal employment
opportunity and affirmative action, labor relations, minimum wage, overtime,
child labor, medical insurance continuation, worker adjustment and relocation
notices, immigration controls and worker and unemployment compensation, where
the failure to comply would constitute a Material Adverse Change. There are no
outstanding grievances, arbitration awards or appeals therefrom arising out of
the Labor Contracts or current or threatened strikes, picketing, handbilling or
other work stoppages or slowdowns at facilities of any of the Loan Parties or
any of their Subsidiaries which in any case would constitute a Material Adverse
Change. The Borrower has delivered to the Agent true and correct copies of each
of the Labor Contracts.
6.1.25 ENVIRONMENTAL MATTERS.
Except as disclosed on SCHEDULE 6.1.25:
(i) None of the Loan Parties or any Subsidiaries of any Loan
Party has received any Environmental Complaint from any Official Body or
private Person alleging that such Loan Party or Subsidiary or any prior or
subsequent owner of any of the Property is a potentially responsible party
under the Comprehensive Environmental Response, Cleanup and Liability Act, 42
U.S.C. Section 9601, ET SEQ., and none of the Loan Parties has any reason to
believe that such an Environmental Complaint might be received. There are no
pending or, to any Loan Party's knowledge, threatened Environmental Complaints
relating to any Loan Party or Subsidiary of any Loan Party or, to any Loan
Party's knowledge, any prior or subsequent owner of any of the Property
pertaining to, or arising out of, any Environmental Conditions.
(ii) There are no circumstances at, on or under any of the
Property owned by any Loan Party that constitute a breach of or non-compliance
with any of the Environmental Laws, and there are no past or present
Environmental Conditions at, on or under any of the Property owned by a Loan
Party or, to any Loan Party's knowledge, at, on or under adjacent property,
that prevent compliance with the Environmental Laws at any of the owned
Property. There are no circumstances at, on or under any of the Property
leased by any Loan Party that constitute a breach of or non-compliance with any
of the Environmental Laws where the failure to comply would constitute a
Material Adverse Change. There are no past or present Environmental Conditions
at, on or under any of the Property leased by a Loan Party or, to any Loan
Party's knowledge, at, on or under adjacent property, that prevent compliance
with the Environmental Laws at any of the leased Property, where the failure to
comply would constitute a Material Adverse Change.
(iii) Neither any of the Property owned by any Loan Party nor
any structures, improvements, equipment, fixtures, activities or facilities
thereon or thereunder contain or use Regulated Substances except in compliance
with Environmental Laws.
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There are no processes, facilities, operations, equipment or other activities
at, on or under any of the owned Property, or, to any Loan Party's knowledge,
at, on or under adjacent property, that currently result in the release or
threatened release of Regulated Substances onto any of the owned Property,
except to the extent that such releases or threatened releases are not a breach
of or otherwise not a violation of the Environmental Laws. Neither any of the
Property leased by any Loan Party nor any structures, improvements, equipment,
fixtures, activities or facilities thereon or thereunder contain or use
Regulated Substances except in compliance with Environmental Laws where the
failure to comply would constitute a Material Adverse Change. There are no
processes, facilities, operations, equipment or other activities at, on or
under any of the leased Property, or, to any Loan Party's knowledge, at, on or
under adjacent property, that currently result in the release or threatened
release of Regulated Substances onto any of the leased Property, except to the
extent that such releases or threatened releases are not a breach of or
otherwise not a violation of the Environmental Laws where the failure to comply
would constitute a Material Adverse Change.
(iv) There are no aboveground storage tanks, underground
storage tanks or underground piping associated with such tanks, used for the
management of Regulated Substances at, on or under any of the Property owned by
any Loan Party that (a) do not have, to the extent required by Environmental
Laws, a full operational secondary containment system in place, and (b) are not
otherwise in compliance with all Environmental Laws. There are no abandoned
underground storage tanks or underground piping associated with such tanks,
previously used for the management of Regulated Substances at, on or under any
of the owned Property that have not either been closed in place in accordance
with Environmental Laws or removed in compliance with all applicable
Environmental Laws and no contamination associated with the use of such tanks
exists on any of the owned Property that is not in compliance with
Environmental Laws. There are no aboveground storage tanks, underground storage
tanks or underground piping associated with such tanks, used for the management
of Regulated Substances at, on or under any of the Property leased by any Loan
Party that (a) do not have, to the extent required by Environmental Laws, a
full operational secondary containment system in place, and (b) are not
otherwise in compliance with all Environmental Laws, where in the case of (a)
or (b), the failure to comply with such Environmental Laws would constitute a
Material Adverse Change. There are no abandoned underground storage tanks or
underground piping associated with such tanks, previously used for the
management of Regulated Substances at, on or under any of the leased Property
that have not either been closed in place in accordance with Environmental Laws
or removed in compliance with all applicable Environmental Laws and no
contamination associated with the use of such tanks exists on any of the leased
Property that is not in compliance with Environmental Laws, where the failure
to comply would constitute a Material Adverse Change.
(v) Each Loan Party and each Subsidiary of any Loan Party has
all material permits, licenses, authorizations, plans and approvals necessary
under the Environmental Laws for the conduct of the business of such Loan Party
or Subsidiary as presently conducted. Each Loan Party and each Subsidiary of
any Loan Party has submitted all
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material notices, reports and other filings required by the Environmental Laws
to be submitted to an Official Body which pertain to past and current
operations on any of the Property.
(vi) All past and present on-site generation, storage,
processing, treatment, recycling, reclamation, disposal or other use or
management of Regulated Substances at, on, or under any of the Property owned
by any Loan Party and all off-site transportation, storage, processing,
treatment, recycling, reclamation, disposal or other use or management of
Regulated Substances have been done in accordance with the Environmental Laws.
All past and present on-site generation, storage, processing, treatment,
recycling, reclamation, disposal or other use or management of Regulated
Substances at, on, or under any of the Property leased by any Loan Party and
all off-site transportation, storage, processing, treatment, recycling,
reclamation, disposal or other use or management of Regulated Substances have
been done in accordance with the Environmental Laws, except where to failure to
comply with such Environmental Laws would not constitute a Material Adverse
Change.
6.1.26 SENIOR DEBT STATUS.
The Obligations of each Loan Party under this Agreement, the Notes,
the Guaranty Agreement and each of the other Loan Documents to which it is a
party (i) do rank and will rank at least pari passu in priority of payment with
all other Indebtedness of such Loan Party except Indebtedness of such Loan
Party to the extent secured by Permitted Liens, and (ii) constitute "Senior
Debt" as such term is defined in the Subordinated Loan Documents. There is no
Lien upon or with respect to any of the properties or income of any Loan Party
or Subsidiary of any Loan Party which secures indebtedness or other obligations
of any Person except for Permitted Liens.
6.2 UPDATES TO SCHEDULES.
Should any of the information or disclosures provided on any of the
Schedules attached hereto become outdated or incorrect in any material respect,
the Borrower shall promptly provide the Agent in writing with such revisions or
updates to such Schedule as may be necessary or appropriate to update or
correct same; provided, however, that no Schedule shall be deemed to have been
amended, modified or superseded by any such correction or update, nor shall any
breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule be deemed to have been cured thereby,
unless and until the Required Banks, in their sole and absolute discretion,
shall have accepted in writing such revisions or updates to such Schedule.
7. CONDITIONS OF LENDING
The obligation of each Bank to make Loans and of the Agent to issue
Letters of Credit hereunder is subject to the performance by each of the Loan
Parties of its Obligations to
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be performed hereunder at or prior to the making of any such Loans or issuance
of such Letters of Credit and to the satisfaction of the following further
conditions:
7.1 FIRST LOANS.
On the Closing Date:
7.1.1 OFFICER'S CERTIFICATE.
The representations and warranties of each of the Loan Parties
contained in Section 6 and in each of the other Loan Documents shall be true
and accurate on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein), and each of the Loan Parties
shall have performed and complied with all covenants and conditions hereof and
thereof, no Event of Default or Potential Default shall have occurred and be
continuing or shall exist; and there shall be delivered to the Agent for the
benefit of each Bank a certificate of each of the Loan Parties, dated the
Closing Date and signed by the Chief Executive Officer, President or Chief
Financial Officer of each of the Loan Parties, to each such effect. The
certificate of the Loan Parties shall contain calculations in sufficient detail
to demonstrate compliance as of the Closing Date with all financial covenants
contained in Section 8.2.
7.1.2 SECRETARY'S CERTIFICATE.
There shall be delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed by the Secretary or an Assistant
Secretary of each of the Loan Parties, certifying as appropriate as to:
(i) all action taken by each Loan Party in connection with this
Agreement and the other Loan Documents;
(ii) the names of the officer or officers authorized to sign
this Agreement and the other Loan Documents and the true signatures of such
officer or officers and specifying the Authorized Officers permitted to act on
behalf of each Loan Party for purposes of this Agreement and the true
signatures of such officers, on which the Agent and each Bank may conclusively
rely; and
(iii) copies of its organizational documents, including its
certificate or articles of incorporation, bylaws, certificate of limited
partnership, partnership agreement, certificate of formation, and limited
liability company agreement as in effect on the Closing Date certified by the
appropriate state official where such documents are filed in a state office
together with certificates from the appropriate state officials as to the
continued existence
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and good standing of each Loan Party in each state where organized or qualified
to do business and a bring-down certificate by facsimile dated the Closing
Date.
7.1.3 DELIVERY OF LOAN DOCUMENTS.
The Collateral Assignments, Indemnity Agreement, Landlord's Waivers,
initial Loan Request, Mortgage, Notes, Patent, Trademark and Copyright
Assignment, Pledge Agreement, and Security Agreement shall have been duly
executed and delivered to the Agent for the benefit of the Banks, together with
all appropriate financing statements.
7.1.4 OPINION OF COUNSEL.
There shall be delivered to the Agent for the benefit of each Bank a
written opinion of Hodgson Russ Andrews Wood & Goodyear, LLP, counsel for the
Loan Parties (who may rely on the opinions of such other counsel as may be
acceptable to the Agent), dated the Closing Date and in form and substance
satisfactory to the Agent and its counsel:
(i) as to the matters set forth in Exhibit 7.1.4; and
(ii) as to such other matters incident to the transactions
contemplated herein as the Agent may reasonably request.
7.1.5 LEGAL DETAILS.
All legal details and proceedings in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall be in form
and substance satisfactory to the Agent and counsel for the Agent, and the
Agent shall have received all such other counterpart originals or certified or
other copies of such documents and proceedings in connection with such
transactions, in form and substance satisfactory to the Agent and said counsel,
as the Agent or said counsel may reasonably request.
7.1.6 PAYMENT OF FEES.
The Borrower shall have paid or caused to be paid to the Agent for
itself and for the account of the Banks to the extent not previously paid the
Facility Fees, all other commitment and other fees accrued through the Closing
Date and the costs and expenses for which the Agent and the Banks are entitled
to be reimbursed.
7.1.7 ENVIRONMENTAL AUDIT.
The Loan Parties shall cause to be performed and completed an
environmental audit with respect to the Real Property by consultants
satisfactory to the Agent and shall provide all reports and results of such
audit in writing to the Agent. Such reports shall meet the Agent's minimum
requirements for phase I environmental assessments and any other requirements
of the Agent or the Banks. The environmental condition of the Loan Parties' and
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their Subsidiaries' assets, as substantiated by such audit, shall be
satisfactory to the Agent in all respects. On the Closing Date the appropriate
officers of the applicable Loan Parties shall have delivered to the Agent in
form and substance satisfactory to the Agent a certificate to the effect that
the Loan Parties have made known to the Agent all information known to them and
their Subsidiaries concerning Environmental Conditions and Environmental
Complaints and the Loan Parties and their Subsidiaries' compliance with the
Environmental Laws relating to any of the Property and any other site for which
any Loan Party or Subsidiary of a Loan Party has received notice that it is
potentially responsible for Environmental Conditions.
7.1.8 APPRAISALS.
The Agent shall have received appraisals or valuations of the Loan
Parties' and their Subsidiaries' assets as the Agent may require in form and
substance satisfactory to the Agent in all respects.
7.1.9 CONSENTS.
All material consents required to effectuate the transactions
contemplated hereby as set forth on SCHEDULE 6.1.13 shall have been obtained.
The Borrower, MMLIC and the other purchasers of notes under the Subordinated
Loan Documents shall have executed and delivered an amendment in connection
with this Agreement and the Loans wherein the Borrower, MMLIC and the other
note purchasers acknowledge and agree that the terms of subordination in the
Subordinated Loan Documents apply to this Agreement, the Loan Documents and the
Loans.
7.1.10 OFFICER'S CERTIFICATE REGARDING MACS.
Since September 30, 1995, no Material Adverse Change shall have
occurred; prior to the Closing Date, there shall have been no material change
in the management of any Loan Party or Subsidiary of any Loan Party; and there
shall have been delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed by the Chief Executive Officer,
President or Chief Financial Officer of each Loan Party to each such effect.
7.1.11 NO VIOLATION OF LAWS.
The making of the Loans and the issuance of the Letters of Credit
shall not contravene any Law applicable to any Loan Party or any of the Banks.
7.1.12 NO ACTIONS OR PROCEEDINGS.
No action, proceeding, investigation, regulation or legislation shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain or prohibit, or to obtain
damages in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or
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which, in the Agent's sole discretion, would make it inadvisable to consummate
the transactions contemplated by this Agreement or any of the other Loan
Documents.
7.1.13 INSURANCE POLICIES; CERTIFICATES OF INSURANCE; ENDORSEMENTS.
The Loan Parties shall have delivered evidence acceptable to the
Agent that adequate insurance in compliance with Section 8.1.3 is in full force
and effect and that all premiums then due thereon have been paid, together with
a certified copy of each Loan Party's casualty insurance policy or policies
evidencing coverage satisfactory to the Agent, with additional insured,
mortgagee and lender loss payable special endorsements attached thereto in form
and substance satisfactory to the Agent and its counsel naming the Agent as
additional insured, mortgagee and lender loss payee.
7.1.14 TITLE INSURANCE.
The Loan Parties shall deliver a title insurance policy or policies
or binder or binders in favor of the Agent for the benefit of the Banks, in
customary ALTA current mortgagee's form, and in amounts not less than $930,000,
with premiums paid thereon, issued by a title insurance company acceptable to
the Agent and insuring the Mortgage as a valid first priority Lien upon the
applicable Loan Parties' fee simple title to the Real Property Collateral and
all improvements and all appurtenances thereto (including such easements and
appurtenances as may be required by the Agent), free and clear of any and all
defects and encumbrances whatsoever, subject only to such exceptions as may be
approved in writing by the Agent, with endorsements thereto as to such matters
as the Agent may designate.
7.1.15 FILING RECEIPTS.
The Agent shall have received (1) copies of all filing receipts and
acknowledgments issued by any governmental authority to evidence any
recordation or filing necessary to perfect the Lien of the Banks on the
Collateral or other satisfactory evidence of such recordation and filing and
(2) evidence in a form acceptable to the Agent that such Lien constitutes a
Prior Security Interest in favor of the Banks and, in the case of the Mortgage,
a valid and perfected first priority Lien.
7.1.16 EQUIPMENT DESCRIPTION.
The Loan Parties shall have delivered to the Agent a detailed
schedule of equipment and fixed assets of the Loan Parties, in form and content
acceptable to the Agent.
7.1.17 TERMINATION OF EXISTING LOAN AGREEMENT.
The loans and other obligations of the Loan Parties to First Source
under the Secured Credit Agreement dated as of July 21, 1995, among, inter
alia, the Borrower and First Source shall have been satisfied in full, and the
credit agreement and all related loan
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documents shall have been terminated. All Liens securing the Indebtedness of
the Loan Parties to First Source shall have been terminated.
7.2 EACH ADDITIONAL LOAN.
At the time of making any Loans or issuing any Letters of Credit
other than Loans made or Letters of Credit issued on the Closing Date and after
giving effect to the proposed extensions of credit: the representations and
warranties of the Loan Parties contained in Section 6 and in the other Loan
Documents shall be true on and as of the date of such additional Loan or Letter
of Credit with the same effect as though such representations and warranties
had been made on and as of such date (except representations and warranties
which expressly relate solely to an earlier date or time, which representations
and warranties shall be true and correct on and as of the specific dates or
times referred to therein) and the Loan Parties shall have performed and
complied with all covenants and conditions hereof; no Event of Default or
Potential Default shall have occurred and be continuing or shall exist; the
making of the Loans or issuance of such Letter of Credit shall not contravene
any Law applicable to any Loan Party or Subsidiary of any Loan Party or any of
the Banks; and the Borrower shall have delivered to the Agent a duly executed
and completed Loan Request or application for a Letter of Credit as the case
may be.
8. COVENANTS
8.1 AFFIRMATIVE COVENANTS.
The Loan Parties, jointly and severally, covenant and agree that until
payment in full of the Loans, Reimbursement Obligations and Letter of Credit
Borrowings, and interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations under the
Loan Documents and termination of the Commitments, the Loan Parties shall
comply at all times with the following affirmative covenants:
8.1.1 PRESERVATION OF EXISTENCE, ETC.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain its legal existence as a corporation, limited partnership or limited
liability company and its license or qualification and good standing in each
jurisdiction in which its ownership or lease of property or the nature of its
business makes such license or qualification necessary, except as otherwise
expressly permitted in Section 8.2.6.
8.1.2 PAYMENT OF LIABILITIES, INCLUDING TAXES, ETC.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
duly pay and discharge all liabilities to which it is subject or which are
asserted against it, promptly as and
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when the same shall become due and payable, including all taxes, assessments
and governmental charges upon it or any of its properties, assets, income or
profits, prior to the date on which penalties attach thereto, except to the
extent that such liabilities, including taxes, assessments or charges, are
being contested in good faith and by appropriate and lawful proceedings
diligently conducted and for which such reserve or other appropriate
provisions, if any, as shall be required by GAAP shall have been made, but only
to the extent that failure to discharge any such liabilities would not result
in any additional liability which would adversely affect to a material extent
the financial condition of any Loan Party or Subsidiary of any Loan Party or
which would affect the Collateral, provided that the Loan Parties and their
Subsidiaries will pay all such liabilities forthwith upon the commencement of
proceedings to foreclose any Lien which may have attached as security therefor.
8.1.3 MAINTENANCE OF INSURANCE.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
insure its properties and assets against loss or damage by fire and such other
insurable hazards as such assets are commonly insured (including fire, extended
coverage, property damage, workers' compensation, public liability and business
interruption insurance) and against other risks (including errors and
omissions) in such amounts as similar properties and assets are insured by
prudent companies in similar circumstances carrying on similar businesses, and
with reputable and financially sound insurers, including self-insurance to the
extent customary, all as reasonably determined by the Agent. At the request of
the Agent, the Loan Parties shall deliver to the Agent and each of the Banks
(x) on the Closing Date and annually thereafter an original certificate of
insurance signed by the Loan Parties' independent insurance broker describing
and certifying as to the existence of the insurance on the Collateral required
to be maintained by this Agreement and the other Loan Documents, together with
a copy of the endorsement described in the next sentence attached to such
certificate and (y) from time to time a summary schedule indicating all
insurance then in force with respect to each of the Loan Parties. Such policies
of insurance shall contain special endorsements, in form and substance
acceptable to the Agent in its reasonable judgment, which shall (i) specify the
Agent as an additional insured, mortgagee and lender loss payee as its
interests may appear, with the understanding that any obligation imposed upon
the insured (including the liability to pay premiums) shall be the sole
obligation of the applicable Loan Parties and not that of the insured, (ii)
provide that the interest of the Banks shall be insured regardless of any
breach or violation by the applicable Loan Parties of any warranties,
declarations or conditions contained in such policies or any action or inaction
of the applicable Loan Parties or others insured under such policies, (iii)
provide a waiver of any right of the insurers to set off or counterclaim or any
other deduction, whether by attachment or otherwise, (iv) provide that any and
all rights of subrogation which the insurers may have or acquire shall be, at
all times and in all respects, junior and subordinate to the prior payment in
full of the Indebtedness hereunder and that no insurer shall exercise or assert
any right of subrogation until such time as the Indebtedness hereunder has been
paid in full and the Commitments have terminated, (v) provide, except in the
case of public liability insurance and workmen's compensation insurance, that
all insurance proceeds for losses of less than $100,000 shall be
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adjusted with and payable to the applicable Loan Parties and that all insurance
proceeds for losses of $100,000 or more shall be adjusted with and payable to
the Agent, (vi) include effective waivers by the insurer of all claims for
insurance premiums against the Agent, (vii) provide that no cancellation of
such policies for any reason (including non-payment of premium) nor any change
therein shall be effective until at least thirty (30) days after receipt by the
Agent of written notice of such cancellation or change, (viii) be primary
without right of contribution of any other insurance carried by or on behalf of
any additional insureds with respect to their respective interests in the
Collateral, and (ix) provide that inasmuch as the policy covers more than one
insured, all terms, conditions, insuring agreements and endorsements (except
limits of liability) shall operate as if there were a separate policy covering
each insured. The applicable Loan Parties shall notify the Agent promptly of
any occurrence causing a material loss or decline in value of the Collateral
and the estimated (or actual, if available) amount of such loss or decline. Any
monies received by the Agent constituting insurance proceeds or condemnation
proceeds (pursuant to the Mortgage) may, at the option of the Agent, (i) be
applied by the Agent to the payment of the Loans in such manner as the Agent
may reasonably determine, or (ii) be disbursed to the applicable Loan Parties
on such terms as are deemed appropriate by the Agent for the repair,
restoration and/or replacement of property in respect of which such proceeds
were received.
8.1.4 MAINTENANCE OF PROPERTIES AND LEASES.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain in good repair, working order and condition (ordinary wear and tear
excepted) in accordance with the general practice of other businesses of
similar character and size, all of those properties useful or necessary to its
business, and from time to time, such Loan Party will make or cause to be made
all appropriate repairs, renewals or replacements thereof.
8.1.5 MAINTENANCE OF PATENTS, TRADEMARKS, ETC.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain in full force and effect all patents, trademarks, service marks, trade
names, copyrights, licenses, franchises, permits and other authorizations
necessary for the ownership and operation of its properties and business if the
failure so to maintain the same would constitute a Material Adverse Change.
8.1.6 VISITATION RIGHTS.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
permit any of the officers or authorized employees or representatives of the
Agent or any of the Banks to visit and inspect any of its properties and to
examine and make excerpts from its books and records and discuss its business
affairs, finances and accounts with its officers, all in such detail and at
such times and as often as any of the Banks may reasonably request, provided
that each Bank shall provide the Borrower and the Agent with reasonable notice
prior to any visit or
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inspection. In the event any Bank desires to conduct an audit of any Loan
Party, such Bank shall conduct such audit contemporaneously with any audit to
be performed by the Agent.
8.1.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
The Borrower shall, and shall cause each Subsidiary of the Borrower
to, maintain and keep proper books of record and account which enable the
Borrower and its Subsidiaries to issue financial statements in accordance with
GAAP and as otherwise required by applicable Laws of any Official Body having
jurisdiction over the Borrower or any Subsidiary of the Borrower, and in which
full, true and correct entries shall be made in all material respects of all
its dealings and business and financial affairs.
8.1.8 PLANS AND BENEFIT ARRANGEMENTS.
The Borrower shall, and shall cause each other member of the ERISA
Group to, comply with ERISA, the Internal Revenue Code and other applicable
Laws applicable to Plans and Benefit Arrangements except where such failure,
alone or in conjunction with any other failure, would not result in a Material
Adverse Change. Without limiting the generality of the foregoing, the Borrower
shall cause all of its Plans and all Plans maintained by any member of the
ERISA Group to be funded in accordance with the minimum funding requirements of
ERISA and shall make, and cause each member of the ERISA Group to make, in a
timely manner, all contributions due to Plans, Benefit Arrangements and
Multiemployer Plans.
8.1.9 COMPLIANCE WITH LAWS.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
comply with all applicable Laws, including all Environmental Laws, in all
respects, provided that it shall not be deemed to be a violation of this
Section 8.1.9 if any failure to comply with any Law would not result in fines,
penalties, remediation costs, other similar liabilities or injunctive relief
which in the aggregate would constitute a Material Adverse Change.
8.1.10 USE OF PROCEEDS.
8.1.10.1 GENERAL.
The Loan Parties will use the Letters of Credit and the proceeds of
the Loans only for (i) general corporate purposes and for working capital, (ii)
to finance Permitted Acquisitions, (iii) to repay and terminate Indebtedness
outstanding under credit facility with First Source, or (iv) to develop
additional retail locations in connection with the business of the Loan Parties
described in Schedule 8.2.10. The Loan Parties use of the Letters of Credit and
the proceeds of the Loans for any purposes which contravenes any applicable Law
or any provision hereof.
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8.1.10.2 MARGIN STOCK.
The Loan Parties shall not use the proceeds of the Loans to purchase
margin stock as more fully provided in Section 6.1.10.
8.1.10.3 SECTION 20 SUBSIDIARIES.
The Loan Parties will not, directly or indirectly, use any portion of
the proceeds of the Loans (i) knowingly to purchase any Ineligible Securities
from a Section 20 Subsidiary during any period in which such Section 20
Subsidiary makes a market in such Ineligible Securities, (ii) knowingly to
purchase during the underwriting or placement period Ineligible Securities
being underwritten or privately placed by a Section 20 Subsidiary, or (iii) to
make payments of principal or interest on Ineligible Securities underwritten or
privately placed by as Section 20 Subsidiary and issued by or for the benefit
of any Loan Party or any Affiliate of any Loan Party.
8.1.11 FURTHER ASSURANCES.
Each Loan Party shall, from time to time, at its expense, faithfully
preserve and protect the Agent's Lien on and Prior Security Interest in the
Collateral as a continuing first priority perfected Lien, subject only to
Permitted Liens, and shall do such other acts and things as the Agent in its
sole discretion may deem necessary or advisable from time to time in order to
preserve, perfect and protect the Liens granted under the Loan Documents and to
exercise and enforce its rights and remedies thereunder with respect to the
Collateral.
8.1.12 SUBORDINATION OF INTERCOMPANY LOANS.
Each Loan Party shall cause any intercompany Indebtedness, loans or
advances owed by any Loan Party to any other Loan Party to be subordinated
pursuant to the terms of the Intercompany Subordination Agreement.
8.1.13 CONTINUATION OF LANDLORDS' WAIVERS.
Each Loan Party shall cause each Landlord's Waiver to remain in full
force and effect in connection with any extension of any lease and, subject to
the requirements of Section 8.2.24, shall cause the landlord of any additional
leased locations to execute and deliver a Landlord's Waiver in substantially
the form of Exhibit 1.1(L) prior to locating any property of such Loan Party
upon such premises.
8.1.14 SURVEY.
The Borrower shall, within forty-five (45) days after the Closing
Date, provide the Agent with an ALTA survey with respect to the Real Property
Collateral.
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8.2 NEGATIVE COVENANTS.
The Loan Parties, jointly and severally, covenant and agree that until
payment in full of the Loans, Reimbursement Obligations and Letter of Credit
Borrowings and interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
and termination of the Commitments, the Loan Parties shall comply with the
following negative covenants:
8.2.1 INDEBTEDNESS.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as set forth on SCHEDULE 8.2.1
(including any extensions or renewals thereof, provided there is no increase in
the amount thereof or other significant change in the terms thereof unless
otherwise specified on SCHEDULE 8.2.1;
(iii) Capitalized and operating leases as and to the extent
permitted under Section 8.2.15;
(iv) Indebtedness secured by Purchase Money Security Interests
not exceeding $100,000;
(v) Indebtedness of a Loan Party to another Loan Party which is
subordinated in accordance with the provisions of Section 8.1.12; and
(vi) Indebtedness incurred in connection with Permitted
Acquisitions provided that after giving effect thereto, no Potential Default or
Event of Default exists.
8.2.2 LIENS.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time create, incur, assume or suffer to exist any Lien
on any of its property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except Permitted Liens.
8.2.3 GUARANTIES.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time, directly or indirectly, become or be liable in
respect of any Guaranty, or assume, guarantee, become surety for, endorse or
otherwise agree, become or remain directly or contingently liable upon or with
respect to any obligation or liability of any other Person,
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except for (i) Guaranties of Indebtedness of the Loan Parties permitted
hereunder, (ii) Guaranties of Subordinated Debt in existence on the Closing
Date, and (iii) Guaranties of Indebtedness permitted under Section 8.2.1(vi).
8.2.4 LOANS AND INVESTMENTS.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time make or suffer to remain outstanding any loan or
advance to, or purchase, acquire or own any stock, bonds, notes or securities
of, or any partnership interest (whether general or limited) or limited
liability company interest in, or any other investment or interest in, or make
any capital contribution to, any other Person, or agree, become or remain
liable to do any of the foregoing, except:
(i) trade credit extended on usual and customary terms in the
ordinary course of business;
(ii) advances to employees to meet expenses incurred by such
employees in the ordinary course of business;
(iii) Permitted Acquisitions;
(iv) Permitted Investments; and
(v) loans, advances and investments in other Loan Parties.
8.2.5 DIVIDENDS AND RELATED DISTRIBUTIONS.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, make or pay, or agree to become or remain liable to make or
pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its shares of
capital stock, partnership interests or limited liability company interests on
account of the purchase, redemption, retirement or acquisition of its shares of
capital stock (or warrants, options or rights therefor), partnership interests
or limited liability company interests, except dividends or other distributions
payable to another Loan Party.
8.2.6 LIQUIDATIONS, MERGERS, CONSOLIDATIONS, ACQUISITIONS.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a party
to any merger or consolidation, or acquire by purchase, lease or otherwise all
or substantially all of the assets or capital stock of any other Person,
provided that
(1) any Loan Party other than the Borrower may consolidate or merge
into another Loan Party which is wholly-owned by one or more of the other Loan
Parties, and
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(2) any Loan Party may acquire, whether by purchase or by merger, (A)
all of the ownership interests of another Person or (B) substantially all of
assets of another Person or of a business or division of another Person (each
an "Permitted Acquisition"), provided that each of the following requirements
is met:
(i) such Person shall be a corporation, limited liability
company or other entity with respect to applicable state law provided that the
owners of all stock or other ownership interests in such entity shall not be
liable for any obligations of such entity or for the claims of any creditors
thereof,
(ii) if the Loan Parties are acquiring the ownership interests
in such Person, such Person shall execute a Guarantor Joinder and join this
Agreement as a Guarantor pursuant to Section 11.18 and such Person and its
owners shall grant Liens in the assets and stock or other ownership interests
in such Person and otherwise comply with Section 11.18 on or before the date of
such Permitted Acquisition,
(iii) the board of directors or other equivalent governing body
of such Person shall have approved such Permitted Acquisition and the Loan
Parties shall have delivered to the Banks written evidence of such approval
prior to such Permitted Acquisition,
(iv) the business acquired, or the business conducted by the
Person whose ownership interests are being acquired, as applicable, shall be
substantially the same as one or more line or lines of business conducted by
the Loan Parties and shall comply with Section 8.2.10,
(v) no Potential Default or Event of Default shall exist
immediately prior to and after giving effect to such Permitted Acquisition,
(vi) the Borrower shall have given the Agent written notice of
the acquisition at least fourteen (14) days prior to its consummation, which
notice shall include a Borrowing Base Certificate which evidences that after
giving effect to the Permitted Acquisition and any Loans to be made in
connection therewith, the Loans and Letters of Credit Outstanding shall not
exceed the Borrowing Base (excluding from the Borrowing Base all Rental
Contracts to be acquired pursuant to the Permitted Acquisition),
(vii) any Consideration given by the Loan Parties in the form
of Indebtedness to be paid at a date after the closing date of the Permitted
Acquisition shall be subordinated to the Loans and other Obligations on terms
and conditions satisfactory to the Agent,
(viii) if the Consideration given by the Loan Parties for the
Permitted Acquisition is cash, preferred stock and/or other Consideration other
than common capital stock of the Borrower, the Consideration given by the Loan
Parties for such Permitted Acquisition shall not exceed $7,500,000, and after
giving effect to such Permitted Acquisition,
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the aggregate Consideration in cash, preferred stock and/or other Consideration
other than common capital stock of the Borrower given by the Loan Parties for
all Permitted Acquisitions made from the Closing Date through the date of the
Permitted Acquisition shall not exceed $30,000,000,
(ix) if the Consideration given by the Loan Parties for such
Permitted Acquisition is exclusively common capital stock of the Borrower, the
Consideration given by the Loan Parties shall not exceed $15,000,000 in value,
and after giving effect to such Permitted Acquisition, the Consideration given
in shares of common capital stock of the Borrower for all Permitted
Acquisitions made from the Closing Date through the date of the Permitted
Acquisition shall not exceed $50,000,000. For purposes of valuing the common
capital stock given as Consideration, each share shall be equal to the listed
closing market price per share on NASDAQ as of the closing date of the
Permitted Acquisition,
(x) if the Consideration given by the Loan Parties for such
Permitted Acquisition includes but is not exclusively common capital stock of
the Borrower, the Consideration other than shares of the common capital stock
Borrower shall not exceed $7,500,000, the aggregate Consideration for such
Permitted Acquisition shall not exceed $10,000,000, and after giving effect to
such Permitted Acquisition, the Consideration other than common capital stock
of the Borrower given by the Loan Parties for all Permitted Acquisitions made
from the Closing Date through the date of the Permitted Acquisition shall not
exceed the limitation set forth in subsection (viii) above, and the
Consideration in the form of common capital stock of the Borrower given by the
Loan Parties for all Permitted Acquisitions made from the Closing Date through
the date of the Permitted Acquisition shall not exceed the limitation set forth
in subsection (ix) above, and
(xi) the Loan Parties shall have delivered to the Banks such
opinions of counsel in form and substance satisfactory to the Agent or such
other evidence as shall be satisfactory to the Agent in its sole discretion
that the Loan Parties are in compliance with all applicable Law in any
additional states in which the Loan Parties do business after the consummation
of the Permitted Acquisition.
8.2.7 DISPOSITIONS OF ASSETS OR SUBSIDIARIES.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or
dispose of, voluntarily or involuntarily, any of its properties or assets,
tangible or intangible (including sale, assignment, discount or other
disposition of accounts, contract rights, chattel paper, equipment or general
intangibles with or without recourse or of capital stock, shares of beneficial
interest, partnership interests or limited liability company interests of a
Subsidiary of such Loan Party), except:
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(i) transactions involving the sale of inventory in the
ordinary course of business;
(ii) any sale, transfer, rental or lease of assets in the
ordinary course of business which are no longer necessary or required in the
conduct of such Loan Party's or such Subsidiary's business;
(iii) any sale, transfer or lease of assets by any wholly owned
Subsidiary of such Loan Party to another Loan Party;
(iv) any sale, transfer or lease of assets in the ordinary
course of business which does not cause the aggregate market value or the
aggregate book value of all such sales, transfers and leases in any fiscal year
to exceed $2,500,000 and which are replaced by substitute assets acquired or
leased within the parameters of Section 8.2.15, provided such substitute assets
are subject to the Banks' Prior Security Interest; or
(v) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through (iv) above, which is
approved by the Required Banks so long as the after-tax proceeds (as reasonably
estimated by the Borrower) are applied as a mandatory prepayment of the Loans
in accordance with the provisions of Section 5.5.1 above.
8.2.8 AFFILIATE TRANSACTIONS.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, enter into or carry out any transaction (including purchasing
property or services from or selling property or services to any Affiliate of
any Loan Party or other Person) unless such transaction is not otherwise
prohibited by this Agreement, is entered into in the ordinary course of
business upon fair and reasonable arm's-length terms and conditions which are
fully disclosed to the Agent and is in accordance with all applicable Law.
8.2.9 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, own or create directly or indirectly any Subsidiaries other
than (i) any Subsidiary which has joined this Agreement as Guarantor on the
Closing Date; and (ii) any Subsidiary formed after the Closing Date which joins
this Agreement as a Guarantor pursuant to Section 11.18, provided that the
Required Banks shall have consented to such formation and joinder and that such
Subsidiary and the Loan Parties, as applicable, shall grant and cause to be
perfected first priority Liens to the Agent for the benefit of the Banks in the
assets held by, and stock of or other ownership interests in, such Subsidiary.
Each of the Loan Parties shall not become or agree to (1) become a general or
limited partner in any general or limited partnership, except that the Loan
Parties may be general or limited partners in other Loan Parties, (2) become a
member or manager of, or hold a limited liability company interest in, a
limited liability
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company, except that the Loan Parties may be members or managers of, or hold
limited liability company interests in, other Loan Parties, or (3) become a
joint venturer or hold a joint venture interest in any joint venture.
8.2.10 CONTINUATION OF OR CHANGE IN BUSINESS.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, engage in any business other than as set forth on SCHEDULE
8.2.10, substantially as conducted and operated by such Loan Party or
Subsidiary during the present fiscal year, and such Loan Party or Subsidiary
shall not permit any material change in such business.
8.2.11 PLANS AND BENEFIT ARRANGEMENTS.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to:
(i) fail to satisfy the minimum funding requirements of ERISA
and the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the Internal Revenue
Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan, Benefit
Arrangement or Multiemployer Plan which, alone or in conjunction with any other
circumstances or set of circumstances resulting in liability under ERISA, would
constitute a Material Adverse Change;
(iv) permit the aggregate actuarial present value of all
benefit liabilities (whether or not vested) under each Plan, determined on a
plan termination basis, as disclosed in the most recent actuarial report
completed with respect to such Plan, to exceed, as of any actuarial valuation
date, the fair market value of the assets of such Plan;
(v) fail to make when due any contribution to any Multiemployer
Plan that the Borrower or any member of the ERISA Group may be required to make
under any agreement relating to such Multiemployer Plan, or any Law pertaining
thereto;
(vi) withdraw (completely or partially) from any Multiemployer
Plan or withdraw (or be deemed under Section 4062(e) of ERISA to withdraw) from
any Multiple Employer Plan, where any such withdrawal is likely to result in a
material liability of the Borrower or any member of the ERISA Group;
(vii) terminate, or institute proceedings to terminate, any
Plan, where such termination is likely to result in a material liability to the
Borrower or any member of the ERISA Group;
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(viii) make any amendment to any Plan with respect to which
security is required under Section 307 of ERISA; or
(ix) fail to give any and all notices and make all disclosures
and governmental filings required under ERISA or the Internal Revenue Code,
where such failure is likely to result in a Material Adverse Change.
8.2.12 FISCAL YEAR.
The Borrower shall not, and shall not permit any Subsidiary of the
Borrower to, change its fiscal year from the twelve-month period beginning
October 1 and ending September 30.
8.2.13 ISSUANCE OF STOCK.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, issue any additional shares of its capital stock or any
options, warrants or other rights in respect thereof, except that the Borrower
may issue additional shares of capital stock (i) for Permitted Acquisitions in
accordance with the provisions of Section 8.2.6, (ii) for distribution to
employees as provided for under the stock option plans set forth on Schedule
6.1.21 as in effect on the Closing Date, or (iii) if the net proceeds of the
issuance are used by the Borrower to reduce (a) the Loans outstanding under
this Agreement, and (b) the Commitments of the Banks.
8.2.14 CHANGES IN ORGANIZATIONAL DOCUMENTS.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, amend in any respect its certificate or articles of
incorporation (including any provisions or resolutions relating to capital
stock), by-laws, certificate of limited partnership, partnership agreement,
certificate of formation, limited liability company agreement or other
organizational documents without providing at least thirty (30) calendar days'
prior written notice to the Agent and the Banks and, in the event such change
would be adverse to the Banks as determined by the Agent in its sole
discretion, obtaining the prior written consent of the Required Banks.
8.2.15 CAPITAL EXPENDITURES AND LEASES.
Excluding the purchase of Rental Merchandise, each of the Loan
Parties shall not, and shall not permit any of its Subsidiaries to, make any
payments exceeding $2,000,000 in the aggregate in any fiscal year on account of
the purchase or lease of any assets which if purchased would constitute fixed
assets or which if leased would constitute a capitalized lease, or any payments
exceeding $250,000 in the aggregate in any fiscal year on account of the rental
or lease of real or personal property of any other Person which does not
constitute a capitalized lease, and all such capital expenditures and leases
shall be made under usual and customary terms and in the ordinary course of
business.
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8.2.16 MAXIMUM LEVERAGE RATIO (TOTAL FUNDED DEBT).
The Loan Parties shall not permit the ratio of (a) Consolidated
Funded Debt as of the end of each fiscal quarter of the Borrower plus the
product obtained by multiplying Occupancy Expense by four (4) to (b)
Consolidated Cash Flow from Operations plus Occupancy Expense minus the Rental
Merchandise Adjustment to be greater than 3.5 to 1.0. For purposes of this
ratio, Consolidated Cash Flow from Operations, the Rental Merchandise
Adjustment and the calculation of Occupancy Expense shall be calculated as of
the end of each fiscal quarter of the Borrower for the four fiscal quarters
then ended.
8.2.17 MAXIMUM LEVERAGE RATIO (SENIOR FUNDED DEBT).
The Loan Parties shall not permit the ratio of (a) Consolidated
Funded Senior Debt as of the end of each fiscal quarter of the Borrower plus
the product obtained by multiplying Occupancy Expense by four (4) to (b)
Consolidated Cash Flow from Operations plus Occupancy Expense minus the Rental
Merchandise Adjustment to be greater than 3.0 to 1.0. For purposes of this
ratio, Consolidated Cash Flow from Operations, the Rental Merchandise
Adjustment and the calculation of Occupancy Expense shall be calculated as of
the end of each fiscal quarter of the Borrower for the four fiscal quarters
then ended.
8.2.18 MINIMUM INTEREST COVERAGE RATIO.
The Loan Parties shall not permit the Interest Coverage Ratio,
calculated as of the end of each fiscal quarter of the Borrower for the four
fiscal quarters then ended, to be less than 3.5 to 1.0.
8.2.19 MINIMUM TANGIBLE NET WORTH.
The Borrower shall not at any time permit Consolidated Tangible Net
Worth to be less than the Base Net Worth.
8.2.20 SUBORDINATED LOAN DOCUMENT COVENANTS; AMENDMENT.
The Loan Parties shall not be in default with respect to the Fixed
Charge Coverage Ratio as set forth in Section 4.6 of the Subordinated Loan
Documents with MMLIC or be in default of the covenant set forth in Section
4.5(c) of the such Subordinated Loan Documents. The Loan Parties shall not
amend the terms of the Subordinated Loan Documents with MMLIC without the prior
written consent of the Agent.
8.2.21 INTEREST RATE PROTECTION.
The Loan Parties shall not enter into any interest rate protection
agreement (the "Interest Rate Protection Agreement") without the prior written
consent of the Agent, which consent shall not be unreasonably withheld. Any
Interest Rate Protection Agreement shall be
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with a financial institution acceptable to the Agent and contain such terms and
conditions as shall be acceptable to the Agent. Documentation for the Interest
Rate Protection Agreement shall be in a standard International Swap Dealer
Association Agreement and shall provide for the method of calculating the
reimbursable amount of the provider's credit exposure in a reasonable and
customary manner. Such financial institution may be granted a security interest
in certain of the Collateral and receive a Lien pari passu with the Lien of the
Agent upon terms acceptable to the Agent in its reasonable judgment.
8.2.22 RENTAL MERCHANDISE USAGE.
The Loan Parties shall not permit at any time the value of the Rental
Merchandise under lease pursuant to Rental Contracts to be less than 75% of the
total value of Rental Merchandise. For purposes of this Section 8.2.22, the
value of the Rental Merchandise shall be as it is recorded on the books and
records of the Loan Parties, determined in accordance with GAAP
8.2.23 PREPAYMENTS ON SUBORDINATED DEBT.
The Loan Parties shall not make any voluntary prepayment, redemption
or repurchase on account of the Subordinated Debt.
8.2.24 LANDLORD'S WAIVERS.
The Loan Parties shall not fail to deliver to the Agent an executed
Landlord's Waiver in substantially the form of Exhibit 1.1(L) (i) from the
lessors of at least 50% of the leased Collateral locations, as listed on
Schedule A to the Security Agreement, within thirty days of the Closing Date,
and (ii) from the lessors of at least 50% of the Collateral locations to be
added pursuant to any Permitted Acquisition within thirty days of the closing
of such Permitted Acquisition.
8.3 REPORTING REQUIREMENTS.
The Loan Parties, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings and interest thereon, expiration or termination of all
Letters of Credit, satisfaction of all of the Loan Parties' other Obligations
hereunder and under the other Loan Documents and termination of the
Commitments, the Loan Parties will furnish or cause to be furnished to the
Agent and each of the Banks:
8.3.1 MONTHLY FINANCIAL STATEMENTS.
As soon as available and in any event within thirty (30) calendar
days after the end of each calendar month, the Borrower's financial statements,
consisting of a consolidated
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and consolidating balance sheet as of the end of such month and related
consolidated and consolidating statements of income, stockholders' equity and
cash flows for the month then ended and the fiscal year through that date, all
in reasonable detail and certified (subject to normal year-end adjustments) by
the Chief Executive Officer, President or Chief Financial Officer of the
Borrower as having been prepared in accordance with GAAP, consistently applied,
and setting forth in comparative form the respective financial statements for
the corresponding date and period in the previous fiscal year. Concurrently
with the financial statements of the Borrower furnished to the Agent pursuant
to this Section 8.3.1, the Borrower shall provide a Borrowing Base Certificate
in the form of Exhibit 8.3.1 containing calculations in sufficient detail to
demonstrate compliance with the Borrowing Base Requirements set forth in
Section 2.1.
8.3.2 QUARTERLY FINANCIAL STATEMENTS.
As soon as available and in any event within forty-five (45) calendar
days after the end of each of the first three fiscal quarters in each fiscal
year, the quarterly report of Form 10-Q for the Borrower and its consolidated
financial statements, consisting of a consolidated and consolidating balance
sheet as of the end of such fiscal quarter and related consolidated and
consolidating statements of income, stockholders' equity and cash flows for the
fiscal quarter then ended and the fiscal year through that date, all in
reasonable detail and certified (subject to normal year-end audit adjustments)
by the Chief Executive Officer, President or Chief Financial Officer of the
Borrower as having been prepared in accordance with GAAP, consistently applied,
and setting forth in comparative form the respective financial statements for
the corresponding date and period in the previous fiscal year.
8.3.3 ANNUAL FINANCIAL STATEMENTS.
As soon as available and in any event within ninety (90) days after
the end of each fiscal year of the Borrower, the annual report on Form 10-K for
the Borrower and its consolidated financial statements, consisting of a
consolidated and consolidating balance sheet as of the end of such fiscal year,
and related consolidated and consolidating statements of income, stockholders'
equity and cash flows for the fiscal year then ended, all in reasonable detail
and setting forth in comparative form the financial statements as of the end of
and for the preceding fiscal year, and certified by Coopers & Lybrand L.L.P. or
such other independent certified public accountants of comparable nationally
recognized standing satisfactory to the Agent in its reasonable judgment. The
consolidating statement of income shall include a schedule detailing the income
by each retail location of the Loan Parties. The certificate or report of
accountants shall be free of qualifications (other than any consistency
qualification that may result from a change in the method used to prepare the
financial statements as to which such accountants concur) and shall not
indicate the occurrence or existence of any event, condition or contingency
which would materially impair the prospect of payment or performance of any
covenant, agreement or duty of any Loan Party under any of the Loan Documents.
The Loan Parties shall
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deliver with such financial statements and certification by their accountants a
letter of such accountants to the Agent and the Banks substantially (i) to the
effect that, based upon their ordinary and customary examination of the affairs
of the Borrower, performed in connection with the preparation of such
consolidated financial statements, and in accordance with generally accepted
auditing standards, they are not aware of the existence of any condition or
event which constitutes an Event of Default or Potential Default or, if they
are aware of such condition or event, stating the nature thereof and confirming
the Borrower's calculations with respect to the certificate to be delivered
pursuant to Section 8.3.4 with respect to such financial statements and (ii) to
the effect that the Banks are intended to rely upon such accountant's
certification of the annual financial statements and that such accountants
authorize the Loan Parties to deliver such reports and certificate to the Banks
on such accountants' behalf.
8.3.4 CERTIFICATE OF THE BORROWER.
Concurrently with the financial statements of the Borrower furnished
to the Agent and to the Banks pursuant to Sections 8.3.2 and 8.3.3, a
certificate of the Borrower signed by the Chief Executive Officer, President or
Chief Financial Officer of the Borrower, in the form of Exhibit 8.3.4, to the
effect that, except as described pursuant to Section 8.3.6, (i) the
representations and warranties of the Borrower contained in Section 6 and in
the other Loan Documents are true on and as of the date of such certificate
with the same effect as though such representations and warranties had been
made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time) and the Loan Parties have
performed and complied with all covenants and conditions hereof, (ii) no Event
of Default or Potential Default exists and is continuing on the date of such
certificate and (iii) containing calculations in sufficient detail to
demonstrate compliance as of the date of such financial statements with all
financial covenants contained in Section 8.2.
8.3.5 MONTHLY INVENTORY REPORT.
At the time of the delivery of the report described in Section 8.3.1,
a summary of the inventory of the Loan Parties subject to Rental Contracts and
the total inventory of the Loan Parties, in form and content acceptable to the
Agent
8.3.6 NOTICE OF DEFAULT.
Promptly after any officer of any Loan Party has learned of the
occurrence of an Event of Default or Potential Default, a certificate signed by
the Chief Executive Officer, President or Chief Financial Officer of such Loan
Party setting forth the details of such Event of Default or Potential Default
and the action which the such Loan Party proposes to take with respect thereto.
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8.3.7 NOTICE OF LITIGATION.
Promptly after the commencement thereof, notice of all actions,
suits, proceedings or investigations before or by any Official Body or any
other Person against any Loan Party or Subsidiary of any Loan Party which
relate to the Collateral, involve a claim or series of claims in excess of
$100,000 or which if adversely determined would constitute a Material Adverse
Change.
8.3.8 CERTAIN EVENTS.
Written notice to the Agent:
(i) at least thirty (30) calendar days prior thereto, with
respect to any proposed sale or transfer of assets pursuant to Section
8.2.7(iv) or (v),
(ii) within the time limits set forth in Section 8.2.14, any
amendment to the organizational documents of any Loan Party;
(iii) at least thirty (30) calendar days prior thereto, with
respect to any change in any Loan Party's locations from the locations set
forth in Schedule A to the Security Agreement, other than changes resulting
from the consummation of a Permitted Acquisition; and
(iv) at least fourteen (14) calendar days prior thereto, with
respect to any change in any Loan Party's locations from the locations set
forth in Schedule A to the Security Agreement resulting from the consummation
of a Permitted Acquisition.
8.3.9 BUDGETS, FORECASTS, OTHER REPORTS AND INFORMATION.
Promptly upon becoming available to the Borrower:
(i) the annual budget and any forecasts or projections of the
Borrower, to be supplied not later than sixty (60) days prior to commencement
of the fiscal year to which any of the foregoing may be applicable,
(ii) any reports including management letters submitted to the
Borrower by independent accountants in connection with any annual, interim or
special audit,
(iii) any reports, notices or proxy statements generally
distributed by the Borrower to its stockholders on a date no later than the
date supplied to such stockholders,
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(iv) regular or periodic reports, including Forms 10-K, 10-Q
and 8-K, registration statements and prospectuses, filed by the Borrower with
the Securities and Exchange Commission,
(v) a copy of any order in any proceeding to which the Borrower
or any of its Subsidiaries is a party issued by any Official Body, and
(vi) such other reports and information as any of the Banks may
from time to time reasonably request. The Borrower shall also notify the Banks
promptly of the enactment or adoption of any Law which may result in a Material
Adverse Change.
8.3.10 NOTICES REGARDING PLANS AND BENEFIT ARRANGEMENTS.
8.3.10.1 CERTAIN EVENTS.
Promptly upon becoming aware of the occurrence thereof, notice
(including the nature of the event and, when known, any action taken or
threatened by the Internal Revenue Service or the PBGC with respect thereto)
of:
(i) any Reportable Event with respect to the Borrower or any
other member of the ERISA Group (regardless of whether the obligation to report
said Reportable Event to the PBGC has been waived),
(ii) any Prohibited Transaction which could subject the
Borrower or any other member of the ERISA Group to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in connection with any Plan, any Benefit Arrangement or
any trust created thereunder,
(iii) any assertion of material withdrawal liability with
respect to any Multiemployer Plan,
(iv) any partial or complete withdrawal from a Multiemployer
Plan by the Borrower or any other member of the ERISA Group under Title IV of
ERISA (or assertion thereof), where such withdrawal is likely to result in
material withdrawal liability,
(v) any cessation of operations (by the Borrower or any other
member of the ERISA Group) at a facility in the circumstances described in
Section 4062(e) of ERISA,
(vi) withdrawal by the Borrower or any other member of the
ERISA Group from a Multiple Employer Plan,
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(vii) a failure by the Borrower or any other member of the
ERISA Group to make a payment to a Plan required to avoid imposition of a Lien
under Section 302(f) of ERISA,
(viii) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA, or
(ix) any change in the actuarial assumptions or funding methods
used for any Plan, where the effect of such change is to materially increase or
materially reduce the unfunded benefit liability or obligation to make periodic
contributions.
8.3.10.2 NOTICES OF INVOLUNTARY TERMINATION AND ANNUAL REPORTS.
Promptly after receipt thereof, copies of (a) all notices received
by the Borrower or any other member of the ERISA Group of the PBGC's intent to
terminate any Plan administered or maintained by the Borrower or any member of
the ERISA Group, or to have a trustee appointed to administer any such Plan;
and (b) at the request of the Agent or any Bank each annual report (IRS Form
5500 series) and all accompanying schedules, the most recent actuarial reports,
the most recent financial information concerning the financial status of each
Plan administered or maintained by the Borrower or any other member of the
ERISA Group, and schedules showing the amounts contributed to each such Plan by
or on behalf of the Borrower or any other member of the ERISA Group in which
any of their personnel participate or from which such personnel may derive a
benefit, and each Schedule B (Actuarial Information) to the annual report filed
by the Borrower or any other member of the ERISA Group with the Internal
Revenue Service with respect to each such Plan.
8.3.10.3 NOTICE OF VOLUNTARY TERMINATION.
Promptly upon the filing thereof, copies of any Form 5310, or any
successor or equivalent form to Form 5310, filed with the PBGC in connection
with the termination of any Plan.
9. DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall mean the occurrence or existence of any one or
more of the following events or conditions (whatever the reason therefor and
whether voluntary, involuntary or effected by operation of Law):
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9.1.1 PAYMENTS UNDER LOAN DOCUMENTS.
The Borrower shall fail to pay any principal of any Loan (including
mandatory prepayments or the payment due at maturity), Reimbursement Obligation
or Letter of Credit Borrowing or any other amount owing hereunder or under the
other Loan Documents after such principal or other amount becomes due in
accordance with the terms hereof or thereof, or the Borrower shall fail to pay
any interest on any Loan, Reimbursement Obligation or Letter of Credit
Borrowing within five calendar days after such interest becomes due in
accordance with the terms hereof;
9.1.2 BREACH OF WARRANTY.
Any representation or warranty made at any time by any of the Loan
Parties herein or by any of the Loan Parties in any other Loan Document, or in
any certificate, other instrument or statement furnished pursuant to the
provisions hereof or thereof, shall prove to have been false or misleading in
any material respect as of the time it was made or furnished;
9.1.3 BREACH OF NEGATIVE COVENANTS OR VISITATION RIGHTS.
Any of the Loan Parties shall default in the observance or
performance of any covenant contained in Section 8.1.6 or Section 8.2;
9.1.4 BREACH OF OTHER COVENANTS.
Any of the Loan Parties shall default in the observance or
performance of any other covenant, condition or provision hereof or of any
other Loan Document and such default shall continue unremedied for a period of
ten (10) Business Days after any officer of any Loan Party becomes aware of the
occurrence thereof (such grace period to be applicable only in the event such
default can be remedied by corrective action of the Loan Parties as determined
by the Agent in its sole discretion);
9.1.5 DEFAULTS IN OTHER AGREEMENTS OR INDEBTEDNESS.
A default or event of default shall occur at any time under the terms
of any other agreement involving borrowed money or the extension of credit or
any other Indebtedness under which any Loan Party or Subsidiary of any Loan
Party may be obligated as a borrower or guarantor in excess of $100,000 in the
aggregate, and such breach, default or event of default consists of the failure
to pay (beyond any period of grace permitted with respect thereto, whether
waived or not) any indebtedness when due (whether at stated maturity, by
acceleration or otherwise) or if such breach or default permits or causes the
acceleration of any indebtedness (whether or not such right shall have been
waived) or the termination of any commitment to lend;
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9.1.6 FINAL JUDGMENTS OR ORDERS.
Any final judgments or orders for the payment of money in excess of
$100,000 in the aggregate shall be entered against any Loan Party by a court
having jurisdiction in the premises, which judgment is not discharged, vacated,
bonded or stayed pending appeal within a period of thirty (30) days from the
date of entry;
9.1.7 LOAN DOCUMENT UNENFORCEABLE.
Any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against the party executing the same or such party's
successors and assigns (as permitted under the Loan Documents) in accordance
with the respective terms thereof or shall in any way be terminated (except in
accordance with its terms) or become or be declared ineffective or inoperative
or shall in any way be challenged or contested or cease to give or provide the
respective Liens, security interests, rights, titles, interests, remedies,
powers or privileges intended to be created thereby;
9.1.8 UNINSURED LOSSES; PROCEEDINGS AGAINST ASSETS.
There shall occur any material uninsured damage to or loss, theft or
destruction of any of the Collateral in excess of $250,000 or the Collateral or
any other of the Loan Parties' or any of their Subsidiaries' assets are
attached, seized, levied upon or subjected to a writ or distress warrant; or
such come within the possession of any receiver, trustee, custodian or assignee
for the benefit of creditors and the same is not cured within thirty (30) days
thereafter;
9.1.9 NOTICE OF LIEN OR ASSESSMENT.
A notice of Lien or assessment in excess of $100,000 which is not a
Permitted Lien is filed of record with respect to all or any part of any of the
Loan Parties' or any of their Subsidiaries' assets by the United States, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including the PBGC, or any taxes or
debts owing at any time or times hereafter to any one of these becomes payable
and the same is not paid within thirty (30) days after the same becomes
payable;
9.1.10 INSOLVENCY.
Any Loan Party or any Subsidiary of a Loan Party ceases to be solvent
or admits in writing its inability to pay its debts as they mature;
9.1.11 EVENTS RELATING TO PLANS AND BENEFIT ARRANGEMENTS.
Any of the following occurs: (i) any Reportable Event, which the
Agent determines in good faith constitutes grounds for the termination of any
Plan by the PBGC or the
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appointment of a trustee to administer or liquidate any Plan, shall have
occurred and be continuing; (ii) proceedings shall have been instituted or
other action taken to terminate any Plan, or a termination notice shall have
been filed with respect to any Plan; (iii) a trustee shall be appointed to
administer or liquidate any Plan; (iv) the PBGC shall give notice of its intent
to institute proceedings to terminate any Plan or Plans or to appoint a trustee
to administer or liquidate any Plan; and, in the case of the occurrence of (i),
(ii), (iii) or (iv) above, the Agent determines in good faith that the amount
of the Borrower's liability is likely to exceed 10% of its Consolidated Net
Worth less intangibles; (v) the Borrower or any member of the ERISA Group shall
fail to make any contributions when due to a Plan or a Multiemployer Plan; (vi)
the Borrower or any other member of the ERISA Group shall make any amendment to
a Plan with respect to which security is required under Section 307 of ERISA;
(vii) the Borrower or any other member of the ERISA Group shall withdraw
completely or partially from a Multiemployer Plan; (viii) the Borrower or any
other member of the ERISA Group shall withdraw (or shall be deemed under
Section 4062(e) of ERISA to withdraw) from a Multiple Employer Plan; or (ix)
any applicable Law is adopted, changed or interpreted by any Official Body with
respect to or otherwise affecting one or more Plans, Multiemployer Plans or
Benefit Arrangements and, with respect to any of the events specified in (v),
(vi), (vii), (viii) or (ix), the Agent determines in good faith that any such
occurrence would be reasonably likely to materially and adversely affect the
total enterprise represented by the Borrower and the other members of the ERISA
Group;
9.1.12 CESSATION OF BUSINESS.
Any Loan Party or Subsidiary of a Loan Party ceases to conduct its
business as contemplated, except as expressly permitted under Section 8.2.6 or
8.2.7, or any Loan Party or Subsidiary of a Loan Party is enjoined, restrained
or in any way prevented by court order from conducting all or any material part
of its business and such injunction, restraint or other preventive order is not
dismissed within thirty (30) days after the entry thereof;
9.1.13 CHANGE OF CONTROL.
(i) An Acquiring Person shall have acquired, or obtained the right to
acquire, legal or beneficial ownership of more than 20% of the outstanding
shares of the Voting Stock of the Borrower; or (ii) within a period of twelve
(12) consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period shall cease to constitute a majority
of the board of directors of the Borrower;
9.1.14 INVOLUNTARY PROCEEDINGS.
A proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
any Loan Party or Subsidiary of a Loan Party in an involuntary case under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or for the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator, conservator (or similar official)
of any Loan Party or Subsidiary of a Loan Party for any substantial part of its
property, or for the winding-up
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or liquidation of its affairs, and such proceeding shall remain undismissed or
unstayed and in effect for a period of thirty (30) consecutive days or such
court shall enter a decree or order granting any of the relief sought in such
proceeding; or
9.1.15 VOLUNTARY PROCEEDINGS.
Any Loan Party or Subsidiary of a Loan Party shall commence a
voluntary case under any applicable bankruptcy, insolvency, reorganization or
other similar law now or hereafter in effect, shall consent to the entry of an
order for relief in an involuntary case under any such law, or shall consent to
the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator, conservator (or other similar official) of
itself or for any substantial part of its property or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any action in furtherance of any of the
foregoing.
9.2 CONSEQUENCES OF EVENT OF DEFAULT.
9.2.1 EVENTS OF DEFAULT OTHER THAN BANKRUPTCY, INSOLVENCY OR
REORGANIZATION PROCEEDINGS.
If an Event of Default specified under Sections 9.1.1 through 9.1.13
shall occur and be continuing, the Banks and the Agent shall be under no
further obligation to make Loans or issue Letters of Credit, as the case may
be, and the Agent may, and upon the request of the Required Banks, shall (i) by
written notice to the Borrower, declare the unpaid principal amount of the
Notes then outstanding and all interest accrued thereon, any unpaid fees and
all other Indebtedness of the Borrower to the Banks hereunder and thereunder to
be forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Agent for the benefit of each Bank without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, and (ii) require the Borrower to, and the Borrower
shall thereupon, deposit in a non-interest bearing account with the Agent, as
cash collateral for its Obligations under the Loan Documents, an amount equal
to the maximum amount currently or at any time thereafter available to be drawn
on all outstanding Letters of Credit, and the Borrower hereby pledges to the
Agent and the Banks, and grants to the Agent and the Banks a security interest
in, all such cash as security for such Obligations. Upon the curing of all
existing Events of Default to the satisfaction of the Required Banks, the Agent
shall return such cash collateral to the Borrower; and
9.2.2 BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS.
If an Event of Default specified under Section 9.1.14 or 9.1.15 shall
occur, the Banks shall be under no further obligations to make Loans hereunder
and the unpaid principal amount of the Notes then outstanding and all interest
accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to
the Banks hereunder and thereunder shall be
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immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived; and
9.2.3 SET-OFF.
If an Event of Default shall occur and be continuing, any Bank to
whom any Obligation is owed by any Loan Party hereunder or under any other Loan
Document or any participant of such Bank which has agreed in writing to be
bound by the provisions of Section 10.13 and any branch, Subsidiary or
Affiliate of such Bank or participant anywhere in the world shall have the
right, in addition to all other rights and remedies available to it, without
notice to such Loan Party, to set-off against and apply to the then unpaid
balance of all the Loans and all other Obligations of the Borrower and the
other Loan Parties hereunder or under any other Loan Document any debt owing
to, and any other funds held in any manner for the account of, the Borrower or
such other Loan Party by such Bank or participant or by such branch, Subsidiary
or Affiliate, including all funds in all deposit accounts (whether time or
demand, general or special, provisionally credited or finally credited, or
otherwise) now or hereafter maintained by the Borrower or such other Loan Party
for its own account (but not including funds held in custodian or trust
accounts) with such Bank or participant or such branch, Subsidiary or
Affiliate. Such right shall exist whether or not any Bank or the Agent shall
have made any demand under this Agreement or any other Loan Document, whether
or not such debt owing to or funds held for the account of the Borrower or such
other Loan Party is or are matured or unmatured and regardless of the existence
or adequacy of any Collateral, Guaranty or any other security, right or remedy
available to any Bank or the Agent; and
9.2.4 SUITS, ACTIONS, PROCEEDINGS.
If an Event of Default shall occur and be continuing, and whether or
not the Agent shall have accelerated the maturity of Loans pursuant to any of
the foregoing provisions of this Section 9.2, the Agent or any Bank, if owed
any amount with respect to the Notes, may proceed to protect and enforce its
rights by suit in equity, action at law and/or other appropriate proceeding,
whether for the specific performance of any covenant or agreement contained in
this Agreement or the Notes, including as permitted by applicable Law the
obtaining of the ex parte appointment of a receiver, and, if such amount shall
have become due, by declaration or otherwise, proceed to enforce the payment
thereof or any other legal or equitable right of the Agent or such Bank; and
9.2.5 APPLICATION OF PROCEEDS.
From and after the date on which the Agent has taken any action
pursuant to this Section 9.2 and until all Obligations of the Loan Parties have
been paid in full, any and all proceeds received by the Agent from any sale or
other disposition of the Collateral, or any part thereof, or the exercise of
any other remedy by the Agent, shall be applied as follows:
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(i) first, to reimburse the Agent and the Banks for
out-of-pocket costs, expenses and disbursements, including reasonable
attorneys' and paralegals' fees and legal expenses, incurred by the Agent or
the Banks in connection with realizing on the Collateral or collection of any
Obligations of any of the Loan Parties under any of the Loan Documents,
including advances made by the Banks or any one of them or the Agent for the
reasonable maintenance, preservation, protection or enforcement of, or
realization upon, the Collateral, including advances for taxes, insurance,
repairs and the like and reasonable expenses incurred to sell or otherwise
realize on, or prepare for sale or other realization on, any of the Collateral;
(ii) second, to the repayment of all Indebtedness then due and
unpaid of the Loan Parties to the Banks incurred under this Agreement or any of
the other Loan Documents, whether of principal, interest, fees, expenses or
otherwise, in such manner as the Agent may determine in its discretion; and
(iii) the balance, if any, as required by Law.
9.2.6 OTHER RIGHTS AND REMEDIES.
In addition to all of the rights and remedies contained in this
Agreement or in any of the other Loan Documents (including the Mortgage), the
Agent shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code or other applicable Law, all of which rights and
remedies shall be cumulative and non-exclusive, to the extent permitted by Law.
The Agent may, and upon the request of the Required Banks shall, exercise all
post-default rights granted to the Agent and the Banks under the Loan Documents
or applicable Law.
9.3 NOTICE OF SALE.
Any notice required to be given by the Agent of a sale, lease, or
other disposition of the Collateral or any other intended action by the Agent,
if given ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice thereof to the Borrower.
10. THE AGENT
10.1 APPOINTMENT.
Each Bank hereby irrevocably designates, appoints and authorizes National
City to act as Agent for such Bank under this Agreement and to execute and
deliver or accept on behalf of each of the Banks the other Loan Documents. Each
Bank hereby irrevocably authorizes, and each holder of any Note by the
acceptance of a Note shall be deemed irrevocably to authorize, the Agent to
take such action on its behalf under the provisions of this Agreement
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and the other Loan Documents and any other instruments and agreements referred
to herein, and to exercise such powers and to perform such duties hereunder as
are specifically delegated to or required of the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. National City
agrees to act as the Agent on behalf of the Banks to the extent provided in
this Agreement.
10.2 DELEGATION OF DUTIES.
The Agent may perform any of its duties hereunder by or through agents or
employees (provided such delegation does not constitute a relinquishment of its
duties as Agent) and, subject to Sections 10.5 and 10.6, shall be entitled to
engage and pay for the advice or services of any attorneys, accountants or
other experts concerning all matters pertaining to its duties hereunder and to
rely upon any advice so obtained.
10.3 NATURE OF DUTIES; INDEPENDENT CREDIT INVESTIGATION.
The Agent shall have no duties or responsibilities except those expressly
set forth in this Agreement and no implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Agreement or otherwise exist. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of this Agreement
a fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Without limiting the generality of the foregoing,
the use of the term "agent" in this Agreement with reference to the Agent is
not intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable Law. Instead, such term is used
merely as a matter of market custom, and is intended to create or reflect only
an administrative relationship between independent contracting parties. Each
Bank expressly acknowledges (i) that the Agent has not made any representations
or warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of any of the Loan Parties, shall be deemed to constitute
any representation or warranty by the Agent to any Bank; (ii) that it has made
and will continue to make, without reliance upon the Agent, its own independent
investigation of the financial condition and affairs and its own appraisal of
the creditworthiness of each of the Loan Parties in connection with this
Agreement and the making and continuance of the Loans hereunder; and (iii)
except as expressly provided herein, that the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Bank
with any credit or other information with respect thereto, whether coming into
its possession before the making of any Loan or at any time or times
thereafter.
10.4 ACTIONS IN DISCRETION OF AGENT; INSTRUCTIONS FROM THE BANKS.
The Agent agrees, upon the written request of the Required Banks, to take
or refrain from taking any action of the type specified as being within the
Agent's rights, powers or discretion herein, provided that the Agent shall not
be required to take any action which exposes
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the Agent to personal liability or which is contrary to this Agreement or any
other Loan Document or applicable Law. In the absence of a request by the
Required Banks, the Agent shall have authority, in its sole discretion, to take
or not to take any such action, unless this Agreement specifically requires the
consent of the Required Banks or all of the Banks. Any action taken or failure
to act pursuant to such instructions or discretion shall be binding on the
Banks, subject to Section 10.6. Subject to the provisions of Section 10.6, no
Bank shall have any right of action whatsoever against the Agent as a result of
the Agent acting or refraining from acting hereunder in accordance with the
instructions of the Required Banks, or in the absence of such instructions, in
the absolute discretion of the Agent.
10.5 REIMBURSEMENT AND INDEMNIFICATION OF AGENT BY THE BORROWER.
The Borrower unconditionally agrees to pay or reimburse the Agent and hold
the Agent harmless against (a) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements, including fees and expenses of
counsel (including the allocated costs of staff counsel), appraisers and
environmental consultants, incurred by the Agent (i) in connection with the
development, negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the other
Loan Documents, (ii) relating to any requested amendments, waivers or consents
pursuant to the provisions hereof, (iii) in connection with the enforcement of
this Agreement or any other Loan Document or collection of amounts due
hereunder or thereunder or the proof and allowability of any claim arising
under this Agreement or any other Loan Document, whether in bankruptcy or
receivership proceedings or otherwise, and (iv) in any workout or restructuring
or in connection with the protection, preservation, exercise or enforcement of
any of the terms hereof or of any rights hereunder or under any other Loan
Document or in connection with any foreclosure, collection or bankruptcy
proceedings, and (b) all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent, in its capacity as such, in any way relating to or arising out of this
Agreement or any other Loan Documents or any action taken or omitted by the
Agent hereunder or thereunder, provided that the Borrower shall not be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements if the same results
from the Agent's gross negligence or willful misconduct, or if the Borrower was
not given notice of the subject claim and the opportunity to participate in the
defense thereof, at its expense (except that the Borrower shall remain liable
to the extent such failure to give notice does not result in a loss to the
Borrower), or if the same results from a compromise or settlement agreement
entered into without the consent of the Borrower, which shall not be
unreasonably withheld. In addition, the Borrower agrees to reimburse and pay
all reasonable out-of-pocket expenses of the Agent's regular employees and
agents engaged periodically to perform audits of the Loan Parties' books,
records and business properties.
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10.6 EXCULPATORY PROVISIONS; LIMITATION OF LIABILITY.
Neither the Agent nor any of its directors, officers, employees, agents,
attorneys or Affiliates shall (a) be liable to any Bank for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith
including pursuant to any Loan Document, unless caused by its or their own
gross negligence or willful misconduct, (b) be responsible in any manner to any
of the Banks for the effectiveness, enforceability, genuineness, validity or
the due execution of this Agreement or any other Loan Documents or for any
recital, representation, warranty, document, certificate, report or statement
herein or made or furnished under or in connection with this Agreement or any
other Loan Documents, or (c) be under any obligation to any of the Banks to
ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions hereof or thereof on the part of the Loan
Parties, or the financial condition of the Loan Parties, or the existence or
possible existence of any Event of Default or Potential Default. No claim may
be made by any of the Loan Parties, any Bank, the Agent or any of their
respective Subsidiaries against the Agent, any Bank or any of their respective
directors, officers, employees, agents, attorneys or Affiliates, or any of
them, for any special, indirect or consequential damages or, to the fullest
extent permitted by Law, for any punitive damages in respect of any claim or
cause of action (whether based on contract, tort, statutory liability, or any
other ground) based on, arising out of or related to any Loan Document or the
transactions contemplated hereby or any act, omission or event occurring in
connection therewith, including the negotiation, documentation, administration
or collection of the Loans, and each of the Loan Parties, (for itself and on
behalf of each of its Subsidiaries), the Agent and each Bank hereby waive,
releases and agree never to sue upon any claim for any such damages, whether
such claim now exists or hereafter arises and whether or not it is now known or
suspected to exist in its favor. Each Bank agrees that, except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Agent hereunder or given to the Agent for the account of or with copies for
the Banks, the Agent and each of its directors, officers, employees, agents,
attorneys or Affiliates shall not have any duty or responsibility to provide
any Bank with an credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Loan Parties which may come into the possession of the
Agent or any of its directors, officers, employees, agents, attorneys or
Affiliates.
10.7 REIMBURSEMENT AND INDEMNIFICATION OF AGENT BY BANKS.
Each Bank agrees to reimburse and indemnify the Agent (to the extent not
reimbursed by the Borrower and without limiting the Obligation of the Borrower
to do so) in proportion to its Ratable Share from and against all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, and
reasonable costs, expenses or disbursements, including reasonable attorneys'
fees and disbursements (including the allocated costs of staff counsel), and
costs of appraisers and environmental consultants, of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent,
in its capacity as such, in any way relating to or arising out of this
Agreement or any other Loan Documents or any action taken
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or omitted by the Agent hereunder or thereunder, provided that no Bank shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (a) if
the same results from the Agent's gross negligence or willful misconduct, or
(b) if such Bank was not given notice of the subject claim and the opportunity
to participate in the defense thereof, at its expense (except that such Bank
shall remain liable to the extent such failure to give notice does not result
in a loss to the Bank), or (c) if the same results from a compromise and
settlement agreement entered into without the consent of such Bank, which shall
not be unreasonably withheld. In addition, each Bank agrees promptly upon
demand to reimburse the Agent (to the extent not reimbursed by the Borrower and
without limiting the Obligation of the Borrower to do so) in proportion to its
Ratable Share for all amounts due and payable by the Borrower to the Agent in
connection with the Agent's periodic audit of the Loan Parties' books, records
and business properties.
10.8 RELIANCE BY AGENT.
The Agent shall be entitled to rely upon any writing, telegram, telex or
teletype message, resolution, notice, consent, certificate, letter, cablegram,
statement, order or other document or conversation by telephone or otherwise
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons, and upon the advice and opinions of counsel
and other professional advisers selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action hereunder unless it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
10.9 NOTICE OF DEFAULT.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Potential Default or Event of Default unless the Agent has
received written notice from a Bank or the Borrower referring to this
Agreement, describing such Potential Default or Event of Default and stating
that such notice is a "notice of default."
10.10 NOTICES.
The Agent shall promptly send to each Bank a copy of all notices received
from the Borrower pursuant to the provisions of this Agreement or the other
Loan Documents promptly upon receipt thereof. The Agent shall promptly notify
the Borrower and the other Banks of each change in the Base Rate and the
effective date thereof. Upon the request of any Bank, the Agent shall provide
such Bank with any report provided by the Borrower to the Agent pursuant to the
provisions of this Agreement or the Loan Documents which are not required to be
provided to all the Banks.
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10.11 BANKS IN THEIR INDIVIDUAL CAPACITIES.
With respect to its Commitment and the Loans made by it and any other
rights and powers given to it as a Bank hereunder or under any of the other
Loan Documents, the Agent shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not the Agent, and
the term "Banks" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. National City and its Affiliates and each of
the Banks and their respective Affiliates may, without liability to account,
except as prohibited herein, make loans to, accept deposits from, discount
drafts for, act as trustee under indentures of, and generally engage in any
kind of banking or trust business with, the Loan Parties and their Affiliates,
in the case of the Agent, as though it were not acting as Agent hereunder and
in the case of each Bank, as though such Bank were not a Bank hereunder. The
Banks acknowledge that, pursuant to such activities, the Agent or its
Affiliates may (i) receive information regarding the Loan Parties (including
information that may be subject to confidentiality obligations in favor of the
Loan Parties) and acknowledge that the Agent shall be under no obligation to
provide such information to them, and (ii) accept fees and other consideration
from the Loan Parties for services in connection with this Agreement and
otherwise without having to account for the same to the Banks.
10.12 HOLDERS OF NOTES.
The Agent may deem and treat any payee of any Note as the owner thereof
for all purposes hereof unless and until written notice of the assignment or
transfer thereof shall have been filed with the Agent. Any request, authority
or consent of any Person who at the time of making such request or giving such
authority or consent is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
10.13 EQUALIZATION OF BANKS.
The Banks and the holders of any participations in any Notes agree among
themselves that, with respect to all amounts received by any Bank or any such
holder for application on any Obligation hereunder or under any Note or under
any such participation, whether received by voluntary payment, by realization
upon security, by the exercise of the right of set-off or banker's lien, by
counterclaim or by any other non-pro rata source, equitable adjustment will be
made in the manner stated in the following sentence so that, in effect, all
such excess amounts will be shared ratably among the Banks and such holders in
proportion to their interests in payments under the Notes, except as otherwise
provided in Section 4.4.3, 5.4.3 or 5.6. The Banks or any such holder receiving
any such amount shall purchase for cash from each of the other Banks an
interest in such Bank's Loans in such amount as shall result in a ratable
participation by the Banks and each such holder in the aggregate unpaid amount
under the Notes, provided that if all or any portion of such excess amount is
thereafter recovered from the Bank or the holder making such purchase, such
purchase shall be rescinded and the purchase price
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restored to the extent of such recovery, together with interest or other
amounts, if any, required by law (including court order) to be paid by the Bank
or the holder making such purchase.
10.14 SUCCESSOR AGENT.
The Agent (i) may resign as Agent or (ii) shall resign if such resignation
is requested by the Required Banks (if the Agent is a Bank, the Agent's Loans
and its Commitment shall be considered in determining whether the Required
Banks have requested such resignation) or required by Section 5.4.3, in either
case of (i) or (ii) by giving not less than thirty (30) days' prior written
notice to the Borrower. If the Agent shall resign under this Agreement, then
either (a) the Required Banks shall appoint from among the Banks a successor
agent for the Banks, subject to the consent of the Borrower, such consent not
to be unreasonably withheld, or (b) if a successor agent shall not be so
appointed and approved within the thirty (30) day period following the Agent's
notice to the Banks of its resignation, then the Agent shall appoint, with the
consent of the Borrower, such consent not to be unreasonably withheld, a
successor agent who shall serve as Agent until such time as the Required Banks
appoint and the Borrower consents to the appointment of a successor agent. Upon
its appointment pursuant to either clause (a) or (b) above, such successor
agent shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent, effective upon its appointment, and
the former Agent's rights, powers and duties as Agent shall be terminated
without any other or further act or deed on the part of such former Agent or
any of the parties to this Agreement. After the resignation of any Agent
hereunder, the provisions of this Section 10 shall inure to the benefit of such
former Agent and such former Agent shall not by reason of such resignation be
deemed to be released from liability for any actions taken or not taken by it
while it was an Agent under this Agreement.
10.15 AGENT'S FEE.
The Borrower shall pay to the Agent a nonrefundable fee (the "Agent's
Fee") under the terms of a letter (the "Agent's Letter") between the Borrower
and Agent, as amended from time to time.
10.16 AVAILABILITY OF FUNDS.
The Agent may assume that each Bank has made or will make the proceeds of
a Loan available to the Agent unless the Agent shall have been notified by such
Bank on or before the later of (1) the close of Business on the Business Day
preceding the Borrowing Date with respect to such Loan or (2) 24 hours before
the time on which the Agent actually funds the proceeds of such Loan to the
Borrower (whether using its own funds pursuant to this Section 10.16 or using
proceeds deposited with the Agent by the Banks and whether such funding occurs
before or after the time on which Banks are required to deposit the proceeds of
such Loan with the Agent). The Agent may, in reliance upon such assumption (but
shall not be required to), make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Agent
by such Bank, the Agent shall be entitled to
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recover such amount on demand from such Bank (or, if such Bank fails to pay
such amount forthwith upon such demand from the Borrower) together with
interest thereon, in respect of each day during the period commencing on the
date such amount was made available to the Borrower and ending on the date the
Agent recovers such amount, at a rate per annum equal to the applicable
interest rate in respect of the Loan.
10.17 CALCULATIONS.
In the absence of gross negligence or willful misconduct, the Agent shall
not be liable for any error in computing the amount payable to any Bank whether
in respect of the Loans, fees or any other amounts due to the Banks under this
Agreement. In the event an error in computing any amount payable to any Bank is
made, the Agent, the Borrower and each affected Bank shall, forthwith upon
discovery of such error, make such adjustments as shall be required to correct
such error, and any compensation therefor will be calculated at the Federal
Funds Effective Rate.
10.18 BENEFICIARIES.
Except as expressly provided herein, the provisions of this Section 10 are
solely for the benefit of the Agent and the Banks, and the Loan Parties shall
not have any rights to rely on or enforce any of the provisions hereof. In
performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for any of the Loan Parties.
11. MISCELLANEOUS
11.1 MODIFICATIONS, AMENDMENTS OR WAIVERS.
With the written consent of the Required Banks, the Agent, acting on
behalf of all the Banks, and the Borrower, on behalf of the Loan Parties, may
from time to time enter into written agreements amending or changing any
provision of this Agreement or any other Loan Document or the rights of the
Banks or the Loan Parties hereunder or thereunder, or may grant written waivers
or consents to a departure from the due performance of the Obligations of the
Loan Parties hereunder or thereunder. Any such agreement, waiver or consent
made with such written consent shall be effective to bind all the Banks and the
Loan Parties; provided, that, without the written consent of all the Banks, no
such agreement, waiver or consent may be made which will:
11.1.1 INCREASE OF COMMITMENT; EXTENSION OR EXPIRATION DATE.
Increase the amount of the Commitment of any Bank hereunder or extend
the Expiration Date;
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11.1.2 EXTENSION OF PAYMENT; REDUCTION OF PRINCIPAL INTEREST OR FEES;
MODIFICATION OF TERMS OF PAYMENT.
Whether or not any Loans are outstanding, extend the time for payment
of principal or interest of any Loan (excluding the due date of any mandatory
prepayment of a Loan or any mandatory Commitment reduction in connection with
such a mandatory repayment hereunder except for mandatory reductions of the
Commitments on the Expiration Date), the Commitment Fee or any other fee
payable to any Bank, or reduce the principal amount of or the rate of interest
borne by any Loan or reduce the Commitment Fee or any other fee payable to any
Bank, or otherwise affect the terms of payment of the principal of or interest
of any Loan, the Commitment Fee or any other fee payable to any Bank;
11.1.3 RELEASE OF COLLATERAL OR GUARANTOR.
Except for sales of assets permitted by Section 8.2.7, release any
Collateral, any Guarantor from its Obligations under the Guaranty Agreement or
any other security for any of the Loan Parties' Obligations; or
11.1.4 MISCELLANEOUS
Amend Section 5.2 [Pro Rata Treatment of Banks], 10.6 [Exculpatory
Provisions, etc.] or 10.13 [Equalization of Banks] or this Section 11.1, alter
any provision regarding the pro rata treatment of the Banks, change the
definition of Borrowing Base or Required Banks, approve an acquisition of the
ownership interest of another Person or substantially all of the assets of
another Person or of a business or division of another Person which does not
constitute a Permitted Acquisition, or change any requirement providing for the
Banks or the Required Banks to authorize the taking of any action hereunder;
provided, further, that no agreement, waiver or consent which would modify
the interests, rights or obligations of the Agent in its capacity as Agent or
as the issuer of Letters of Credit shall be effective without the written
consent of the Agent
11.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED.
No course of dealing and no delay or failure of the Agent or any Bank in
exercising any right, power, remedy or privilege under this Agreement or any
other Loan Document shall affect any other or future exercise thereof or
operate as a waiver thereof, nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such a right, power,
remedy or privilege preclude any further exercise thereof or of any other
right, power, remedy or privilege. The rights and remedies of the Agent and the
Banks under this Agreement and any other Loan Documents are cumulative and not
exclusive of any rights or remedies which they would otherwise have. Any
waiver, permit, consent or approval of any kind or character on the part of any
Bank of any breach or default under this Agreement or
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any such waiver of any provision or condition of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in
such writing.
11.3 REIMBURSEMENT AND INDEMNIFICATION OF BANKS BY THE BORROWER; TAXES.
The Borrower agrees unconditionally upon demand to pay or reimburse to
each Bank (other than the Agent, as to which the Borrower's Obligations are set
forth in Section 10.5) and to save such Bank harmless against (i) liability for
the payment of all reasonable out-of-pocket costs, expenses and disbursements
(including fees and expenses of counsel (including allocated costs of staff
counsel) for each Bank), incurred by such Bank (a) in connection with the
enforcement of this Agreement or any other Loan Document, or collection of
amounts due hereunder or thereunder or the proof and allowability of any claim
arising under this Agreement or any other Loan Document, whether in bankruptcy
or receivership proceedings or otherwise, and (b) in any workout or
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Bank, in its capacity as such, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or
omitted by such Bank hereunder or thereunder, provided that the Borrower shall
not be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
(A) if the same results from such Bank's gross negligence or willful
misconduct, or (B) if the Borrower was not given notice of the subject claim
and the opportunity to participate in the defense thereof, at its expense
(except that the Borrower shall remain liable to the extent such failure to
give notice does not result in a loss to the Borrower), or (C) if the same
results from a compromise or settlement agreement entered into without the
consent of the Borrower, which shall not be unreasonably withheld. The Banks
will attempt to minimize the fees and expenses of legal counsel for the Banks
which are subject to reimbursement by the Borrower hereunder by considering the
usage of one law firm to represent the Banks and the Agent if appropriate under
the circumstances. The Borrower agrees unconditionally to pay all stamp,
document, transfer, recording or filing taxes or fees and similar impositions
now or hereafter determined by the Agent or any Bank to be payable in
connection with this Agreement or any other Loan Document, and the Borrower
agrees unconditionally to save the Agent and the Banks harmless from and
against any and all present or future claims, liabilities or losses with
respect to or resulting from any omission to pay or delay in paying any such
taxes, fees or impositions.
11.4 HOLIDAYS.
Whenever payment of a Loan to be made or taken hereunder shall be due on a
day which is not a Business Day such payment shall be due on the next Business
Day and such extension of time shall be included in computing interest and fee,
except that the Loans shall be due on the Business Day preceding the Expiration
Date if the Expiration Date is not a Business
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Day. Whenever any payment or action to be made or taken hereunder (other than
payment of the Loans) shall be stated to be due on a day which is not a
Business Day, such payment or action shall be made or taken on the next
following Business Day (except as provided in Section 4.2 with respect to
Interest Periods under the Euro-Rate Option), and such extension of time shall
not be included in computing interest or fees, if any, in connection with such
payment or action.
11.5 FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE.
11.5.1 NOTIONAL FUNDING.
Each Bank shall have the right from time to time, without notice to
the Borrower, to deem any branch, Subsidiary or Affiliate (which for the
purposes of this Section 11.5 shall mean any corporation or association which
is directly or indirectly controlled by or is under direct or indirect common
control with any corporation or association which directly or indirectly
controls such Bank) of such Bank to have made, maintained or funded any Loan to
which the Euro-Rate Option applies at any time, provided that immediately
following (on the assumption that a payment were then due from the Borrower to
such other office), and as a result of such change, the Borrower would not be
under any greater financial obligation pursuant to Section 5.6 than it would
have been in the absence of such change. Notional funding offices may be
selected by each Bank without regard to such Bank's actual methods of making,
maintaining or funding the Loans or any sources of funding actually used by or
available to such Bank.
11.5.2 ACTUAL FUNDING.
Each Bank shall have the right from time to time to make or maintain
any Loan by arranging for a branch, Subsidiary or Affiliate of such Bank to
make or maintain such Loan subject to the last sentence of this Section 11.5.2.
If any Bank causes a branch, Subsidiary or Affiliate to make or maintain any
part of the Loans hereunder, all terms and conditions of this Agreement shall,
except where the context clearly requires otherwise, be applicable to such part
of the Loans to the same extent as if such Loans were made or maintained by
such Bank, but in no event shall any Bank's use of such a branch, Subsidiary or
Affiliate to make or maintain any part of the Loans hereunder cause such Bank
or such branch, Subsidiary or Affiliate to incur any cost or expenses payable
by the Borrower hereunder or require the Borrower to pay any other compensation
to any Bank (including any expenses incurred or payable pursuant to Section
5.6) which would otherwise not be incurred.
11.6 NOTICES.
All notices, requests, demands, directions and other communications (as
used in this Section 11.6, collectively referred to as "Notices") given to or
made upon any party hereto under the provisions of this Agreement shall be by
telephone or in writing (including telex or facsimile communication) unless
otherwise expressly permitted hereunder and shall be delivered or sent by telex
or facsimile to the respective parties at the addresses and numbers set forth
under
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their respective names on Schedule 1.1(B) hereof or in accordance with any
subsequent unrevoked written direction from any party to the others. All
Notices shall, except as otherwise expressly herein provided, be effective (a)
in the case of telex or facsimile, when received, (b) in the case of
hand-delivered Notice, when hand-delivered, (c) in the case of telephone, when
telephoned, provided, however, that in order to be effective, telephonic
Notices must be confirmed in writing no later than the next day by letter,
facsimile or telex, (d) if given by mail, four (4) days after such
communication is deposited in the mail with first-class postage prepaid, return
receipt requested, and (e) if given by any other means (including by air
courier), when delivered; provided, that Notices to the Agent shall not be
effective until received. Any Bank giving any Notice to any Loan Party shall
simultaneously send a copy thereof to the Agent, and the Agent shall promptly
notify the other Banks of the receipt by it of any such Notice.
11.7 SEVERABILITY.
The provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
11.8 GOVERNING LAW.
Each Letter of Credit and Section 2.9 shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, as the same may be revised or amended
from time to time, and to the extent not inconsistent therewith, the internal
laws of the Commonwealth of Pennsylvania without regard to its conflict of laws
principles and the balance of this Agreement shall be deemed to be a contract
under the Laws of the Commonwealth of Pennsylvania and for all purposes shall
be governed by and construed and enforced in accordance with the internal laws
of the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
11.9 PRIOR UNDERSTANDING.
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and
therein, including any prior confidentiality agreements and commitments.
11.10 DURATION; SURVIVAL.
All representations and warranties of the Loan Parties contained herein or
made in connection herewith shall survive the making of Loans and issuance of
Letters of Credit and shall not be waived by the execution and delivery of this
Agreement, any investigation by the Agent or the Banks, the making of Loans,
issuance of Letters of Credit, or payment in full of the
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Loans. All covenants and agreements of the Loan Parties contained in Sections
8.1, 8.2 and 8.3 herein shall continue in full force and effect from and after
the date hereof so long as the Borrower may borrow or request Letters of Credit
hereunder and until termination of the Commitments and payment in full of the
Loans and expiration or termination of all Letters of Credit. All covenants and
agreements of the Borrower contained herein relating to the payment of
principal, interest, premiums, additional compensation or expenses and
indemnification, including those set forth in the Notes, Section 5 and Sections
10.5, 10.7 and 11.3, shall survive payment in full of the Loans, expiration or
termination of the Letters of Credit and termination of the Commitments.
11.11 SUCCESSORS AND ASSIGNS.
(i) This Agreement shall be binding upon and shall inure to the
benefit of the Banks, the Agent, the Loan Parties and their respective
successors and assigns, except that none of the Loan Parties may assign or
transfer any of its rights and Obligations hereunder or any interest herein.
Each Bank may, at its own cost, make assignments of or sell participations in
all or any part of its Commitment and the Loans made by it to one or more banks
or other entities, subject to the consent of the Borrower and the Agent with
respect to any assignee, such consent not to be unreasonably withheld, provided
that (1) no consent of the Borrower shall be required in the case of an
assignment by a Bank to an Affiliate of such Bank, and (2) assignments may not
be made in amounts less than $5,000,000. In the case of an assignment, upon
receipt by the Agent of the Assignment and Assumption Agreement, the assignee
shall have, to the extent of such assignment (unless otherwise provided
therein), the same rights, benefits and obligations as it would have if it had
been a signatory Bank hereunder, the Commitments shall be adjusted accordingly,
and the Assignor shall be relieved from all obligations and liabilities which
accrue after the Assignment and based upon the Commitment and related rights
assigned to the Assignee. Upon surrender of any Note subject to such
assignment, the Borrower shall execute and deliver a new Note to the assignee
in an amount equal to the amount of the Commitment assumed by it and a new Note
to the assigning Bank in an amount equal to the Commitment retained by it
hereunder. The assigning Bank shall pay to the Agent a service fee in the
amount of $3,000 for each assignment. In the case of a participation, the
participant shall only have the rights specified in Section 9.2.3 (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto and not to include any voting rights except with
respect to changes of the type referenced in Sections 11.1.1, 11.1.2, or
11.1.3, all of such Bank's obligations under this Agreement or any other Loan
Document shall remain unchanged, and all amounts payable by any Loan Party
hereunder or thereunder shall be determined as if such Bank had not sold such
participation.
(ii) Any assignee or participant which is not incorporated
under the Laws of the United States of America or a state thereof shall deliver
to the Borrower and the Agent the form of certificate described in Section
11.17 relating to federal income tax withholding. Each Bank may furnish any
publicly available information concerning any Loan
- 89 -
<PAGE> 99
Party or its Subsidiaries and any other information concerning any Loan Party
or its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees or participants),
provided that such assignees and participants agree to be bound by the
provisions of Section 11.12.
(iii) Notwithstanding any other provision in this Agreement,
any Bank may at any time pledge or grant a security interest in all or any
portion of its rights under this Agreement, its Note and the other Loan
Documents to any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR Section 203.14 without notice to or
consent of the Borrower or the Agent. No such pledge or grant of a security
interest shall release the transferor Bank of its obligations hereunder or
under any other Loan Document.
11.12 CONFIDENTIALITY.
The Agent and the Banks each agree to keep confidential all information
obtained from any Loan Party or its Subsidiaries which is nonpublic and
confidential or proprietary in nature (including any information the Borrower
specifically designates as confidential), except as provided below, and to use
such information only in connection with their respective capacities under this
Agreement and for the purposes contemplated hereby. The Agent and the Banks
shall be permitted to disclose such information (i) to outside legal counsel,
accountants and other professional advisors who need to know such information
in connection with the administration and enforcement of this Agreement,
subject to agreement of such Persons to maintain the confidentiality, (ii) to
assignees and participants as contemplated by Section 11.11, (iii) to the
extent requested by any bank regulatory authority or, with notice to the
Borrower, as otherwise required by applicable Law or by any subpoena or similar
legal process, or in connection with any investigation or proceeding arising
out of the transactions contemplated by this Agreement, (iv) if it becomes
publicly available other than as a result of a breach of this Agreement or
becomes available from a source not known to be subject to confidentiality
restrictions, or (v) if the Borrower shall have consented to such disclosure.
11.13 COUNTERPARTS.
This Agreement may be executed by different parties hereto on any number
of separate counterparts, each of which, when so executed and delivered, shall
be an original, and all such counterparts shall together constitute one and the
same instrument.
11.14 AGENT'S OR BANK'S CONSENT.
Whenever the Agent's or any Bank's consent is required to be obtained
under this Agreement or any of the other Loan Documents as a condition to any
action, inaction, condition or event, the Agent and each Bank shall be
authorized to give or withhold such consent in its sole and absolute discretion
and to condition its consent upon the giving of additional collateral, the
payment of money or any other matter.
- 90 -
<PAGE> 100
11.15 EXCEPTIONS.
The representations, warranties and covenants contained herein shall be
independent of each other, and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH
LOAN PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 11.6 AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY
WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST
IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. EACH LOAN PARTY, THE AGENT AND THE BANKS HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
11.17 TAX WITHHOLDING CLAUSE.
Each Bank or assignee or participant of a Bank that is not incorporated
under the Laws of the United States of America or a state thereof agrees that
it will deliver to each of the Borrower and the Agent two (2) duly completed
copies of the following: (i) Internal Revenue Service Form W-9, 4224 or 1001,
or other applicable form prescribed by the Internal Revenue Service, certifying
that such Bank, assignee or participant is entitled to receive payments under
this Agreement and the other Loan Documents without deduction or withholding of
any United States federal income taxes, or is subject to such tax at a reduced
rate under an applicable tax treaty, or (ii) Internal Revenue Service Form W-8
or other applicable form or a certificate of such Bank, assignee or participant
indicating that no such exemption or reduced rate is allowable with respect to
such payments. Each Bank, assignee or participant required to deliver to the
Borrower and the Agent a form or certificate pursuant to the preceding sentence
shall deliver such form or certificate as follows: (A) each Bank which is a
party hereto on the Closing Date shall deliver such form or certificate at
least five (5) Business Days prior to the first date on which any interest or
fees are payable by the Borrower hereunder for the account of such Bank; (B)
each assignee or
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<PAGE> 101
participant shall deliver such form or certificate at least five (5) Business
Days before the effective date of such assignment or participation (unless the
Agent in its sole discretion shall permit such assignee or participant to
deliver such form or certificate less than five (5) Business Days before such
date in which case it shall be due on the date specified by the Agent). Each
Bank, assignee or participant which so delivers a Form W-8, W-9, 4224 or 1001
further undertakes to deliver to each of the Borrower and the Agent two (2)
additional copies of such form (or a successor form) on or before the date that
such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent, either certifying that such Bank,
assignee or participant is entitled to receive payments under this Agreement
and the other Loan Documents without deduction or withholding of any United
States federal income taxes or is subject to such tax at a reduced rate under
an applicable tax treaty or stating that no such exemption or reduced rate is
allowable. The Agent shall be entitled to withhold United States federal income
taxes at the full withholding rate unless the Bank, assignee or participant
establishes an exemption or that it is subject to a reduced rate as established
pursuant to the above provisions.
11.18 JOINDER OF GUARANTORS.
Any Subsidiary of the Borrower which is required to join this Agreement as
a Guarantor pursuant to Section 8.2.6 or Section 8.2.9 shall execute and
deliver to the Agent (i) a Guarantor Joinder in substantially the form attached
hereto as Exhibit 1.1(G)(1) pursuant to which it shall join as a Guarantor each
of the documents to which the Guarantors are parties; (ii) documents in the
forms described in Section 7.1 [First Loans] modified as appropriate to relate
to such Subsidiary; and (iii) documents necessary to grant and perfect Prior
Security Interests to the Agent for the benefit of the Banks in all assets held
by such Subsidiary and in the stock or other ownership interests of such
Subsidiary. The Loan Parties shall deliver such Guarantor Joinder and related
documents to the Agent within five (5) Business Days after the date of the
acquisition of the Subsidiary or the date of the filing of such Subsidiary's
articles of incorporation if the Subsidiary is a corporation, the date of the
filing of its certificate of limited partnership if it is a limited partnership
or the date of its organization if it is an entity other than a limited
partnership or corporation.
[SIGNATURES APPEAR ON THE NEXT PAGE]
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<PAGE> 102
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
ATTEST: RENT-WAY, INC., "Borrower"
____________________________ By: ________________________________
Title: _____________________________
NATIONAL CITY BANK OF
PENNSYLVANIA, individually and as
Agent
By: ________________________________
Title: _____________________________
LASALLE NATIONAL BANK
By: ________________________________
Title: _____________________________
- 93 -
<PAGE> 103
HARRIS TRUST & SAVINGS BANK
By: ________________________________
Title: _____________________________
HELLER FINANCIAL, INC.
By: ________________________________
Title: _____________________________
- 94 -
<PAGE> 104
SCHEDULE 1.1(B) - 2 SCHEDULE 1.1(B)COMMITMENTS OF BANKS
AND ADDRESSES FOR NOTICES
Page 1 of 2
PART 1 - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES TO BANKS
<TABLE>
<CAPTION>
AMOUNT OF COMMITMENT FOR
BANK REVOLVING CREDIT LOANS RATABLE SHARE
---- ---------------------- -------------
<S> <C> <C>
Name: National City Bank of
Pennsylvania
Address: __________________
Attention: ________________
Telephone: (__) ___-_______ $20,000,000 __________%
Telecopy: (__) ___-_______
Name: _____________________
Address: __________________
Attention: ________________
Telephone: (__) ___-_______
Telecopy: (__) ___-_______ $__________ __________%
Name: _____________________
Address: __________________
Attention: ________________
Telephone: (__) ___-_______
Telecopy: (__) ___-_______ $__________ __________%
Total $ %
===========
</TABLE>
SCHEDULE 1.1(B)
<PAGE> 105
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Page 2 of 2
PART 2 - ADDRESSES FOR NOTICES TO BORROWER AND GUARANTORS:
AGENT
Name: _____________________
Address: __________________
Attention: ________________
Telephone: (__) ___-_______
Telecopy: (__) ___-_______
BORROWER:
Name: _____________________
Address: __________________
Attention: ________________
Telephone: (__) ___-_______
Telecopy: (__) ___-_______
GUARANTORS:
Name: _____________________
Address: __________________
Attention: ________________
Telephone: (__) ___-_______
Telecopy: (__) ___-_______
[REPEAT FOR EACH GUARANTOR]
SCHEDULE 1.1(B) - 2
<PAGE> 1
Exhibit 10.16
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT is dated as of January 31,
1997 (the "Amendment") and is made by and among RENT-WAY, INC., a Pennsylvania
corporation (the "Borrower"), each of the Guarantors and each of the BANKS (as
defined in the Credit Agreement defined below), and NATIONAL CITY BANK OF
PENNSYLVANIA, in its capacity as agent for the Banks under the Credit Agreement
(hereinafter referred to in such capacity as the "Agent").
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent entered
in to that certain Credit Agreement, dated as of November 22, 1996 (as
hereafter amended, the "Credit Agreement");
WHEREAS, defined terms used herein shall have the meanings given to
them in the Credit Agreement as such Credit Agreement shall be amended hereby
on the First Amendment Effective Date;
WHEREAS, the Borrower has entered into the Bill Coleman Acquisition
Agreement, pursuant to which Borrower purchased on January 2, 1997 all of the
issued and outstanding shares of stock of Bill Coleman TV;
WHEREAS, the Borrower has entered into the Perry Electronics
Acquisition Agreement, pursuant to which Borrower proposes to purchase on the
closing date specified therein all of the issued and outstanding shares of the
stock of Perry Electronics;
WHEREAS, the parties hereto desire to amend the Credit Agreement to
acknowledge that the Bill Coleman TV Acquisition and the Perry Electronics are
Permitted Acquisitions, subject to the terms and conditions hereof and to make
certain other changes to the Credit Agreement as more fully provided herein.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally
bound hereby, covenant and agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is amended as
set forth below effective on the dates set forth in Section 6 hereof:
(a) Amended and Restated Definitions (Section 1.1). Each of the
following definitions now contained in Section 1.1 of the Credit Agreement is
hereby amended and restated to read as set forth below:
"Consolidated Funded Debt shall mean as of any date of
determination, the sum of Indebtedness for borrowed money
(including capitalized leases, BUT EXCLUDING INDEBTEDNESS UNDER
THE NWB SUBORDINATED
<PAGE> 2
LOAN DOCUMENTS AND THE MMLIC Subordinated LOAN DOCUMENTS) and
Letters of Credit Outstanding, in each case of the Borrower and
its Subsidiaries determined and consolidated in accordance with
GAAP.
Consolidated Tangible Net Worth shall mean as of any date of
determination total stockholders' equity plus preferred stock to
the extent it is not already included in the stockholders' equity,
PLUS INDEBTEDNESS UNDER THE NWB SUBORDINATED LOAN DOCUMENTS, less
intangible assets of the Borrower and its Subsidiaries, IN EACH
CASE as of such date determined and consolidated in accordance
with GAAP.
Loan Documents shall mean this Agreement, the Agent's Letter,
the Collateral Assignment, the Guaranty Agreement, the Indemnity
Agreement, the Intercompany Subordination Agreement, the Mortgage,
the Notes, the Patent, Trademark and Copyright Assignment, the
Pledge Agreement, the Security Agreement, THE FIRST AMENDMENT and
any other instruments, certificates or documents delivered or
contemplated to be delivered hereunder, thereunder OR UNDER THE
FIRST AMENDMENT or in connection herewith or therewith, as the
same may be supplemented or amended from time to time in
accordance herewith or therewith, and Loan Document shall mean any
of the Loan Documents.
Subordinated Debt shall mean (i) Indebtedness of the Borrower
to MMLIC, the other Purchasers (as such term is defined in the
MMLIC Subordinated Loan Documents) and their successors and
assigns, evidenced by the MMLIC Subordinated Loan Documents and
subject to the subordination terms set forth in Section 8 thereof,
(II) INDEBTEDNESS OF THE BORROWER TO THE SECURITYHOLDERS (AS SUCH
TERM IS DEFINED IN THE NWB INDENTURE) AND THEIR SUCCESSORS AND
ASSIGNS, EVIDENCED BY THE NWB SUBORDINATED LOAN DOCUMENTS AND
SUBJECT TO THE SUBORDINATION TERMS SET FORTH IN SECTION 11
THEREOF, AND (iii) Indebtedness of the Loan Parties to Persons
which sell ownership interests or assets to the Loan Parties under
a Permitted Acquisition in accordance with Section 8.2.6.
Subordinated Loan Documents shall MEAN (i) THE MMLIC
SUBORDINATED LOAN DOCUMENTS, (ii) THE NWB SUBORDINATED LOAN
DOCUMENTS, AND (iii) all agreements evidencing the Subordinated
Debt owed to Persons which sell ownership interests or assets to
the Loan Parties under a Permitted Acquisition in accordance with
Section 8.2.6."
(b) New Definitions (Section 1.1). The following new definitions
are hereby added to Section 1.1 of the Credit Agreement in alphabetical order:
-2-
<PAGE> 3
"Bill Coleman TV shall mean Bill Coleman TV, Inc., a Michigan
corporation, the stock of which was acquired by the Borrower on
January 2, 1997 pursuant to the Bill Coleman TV Acquisition
Agreement.
Bill Coleman TV Acquisition shall mean the acquisition by
Borrower of the stock of Bill Coleman TV pursuant to the Bill
Coleman TV Acquisition Agreement and the other transactions
pursuant to or as contemplated by the Bill Coleman TV Acquisition
Agreement.
Bill Coleman TV Acquisition Agreement shall mean that certain
Stock Purchase Agreement, dated as of January 2, 1997, between
Borrower and Bill Coleman TV, as amended from time to time.
First Amendment shall mean the First Amendment to Credit
Agreement, dated as of January 31, 1997 as the same may be
supplemented or amended from time to time, including all schedules
and exhibits thereto.
First Amendment Effective Date shall have the meaning given to
such term in the First Amendment.
MMLIC Subordinated Loan Documents shall mean the Subordinated
Note Agreement dated as of July 15, 1995 between the Borrower,
MMLIC and the Purchasers (as such term is defined therein) and any
and all other documents evidencing or relating to the obligations
of the Borrower or any Loan Party to the Purchasers.
NWB shall mean National Westminster Bank, Plc., its successors
and assigns. NWB is the placement agent with respect to the
securities to be issued under the NWB Indenture.
NWB Debt Amendments Effective Date shall have the meaning
given to such term in the First Amendment.
NWB Indenture shall mean the Indenture dated as of the date of
the First Amendment by and between the Borrower and Manufacturers
and Traders Trust Company, as the trustee, with respect to up to
$23,000,000 of Subordinated Debentures due 2007 to be issued by
the Borrower. NWB is the Placement Agent under the NWB Indenture.
NWB Subordinated Loan Documents shall mean the NWB Indenture
and the Securities (as defined in the NWB Indenture) issued
pursuant thereto and any other documents evidencing or relating
-3-
<PAGE> 4
to the obligations of the Borrower or any Loan Party to the
Securityholders (as defined in the NWB Indenture).
Perry Electronics shall mean Perry Electronics, Inc., an Ohio
corporation, the stock of which is to be acquired by the Borrower
on the First Amendment Effective Date pursuant to the Perry
Electronics Acquisition Agreement.
Perry Electronics Acquisition shall mean the proposed
acquisition by Borrower of the stock of Perry Electronics to be
consummated on the First Amendment Effective Date pursuant to the
Perry Electronics Acquisition Agreement and the other transactions
pursuant to or as contemplated by the Perry Electronics
Acquisition Agreement.
Perry Electronics Acquisition Agreement shall mean that
certain Stock Purchase Agreement, dated as of January 24, 1997,
between the Borrower and Perry Electronics, as amended from time
to time."
Perry Electronics Amendments Effective Date shall have the
meaning given to such term in the First Amendment.
Restrictive PE Leases shall have meaning given to such term in
the First Amendment.
(c) Principal Office of Perry Electronics. A new Section 8.1.15 is
hereby added to the Credit Agreement to immediately follow Section 8.1.14. Such
Section 8.1.15 shall read as follows:
"8.1.15 Principal Office of Perry Electronics. Perry
Electronics (or the Borrower if Perry Electronics has merged into
the Borrower) shall execute and deliver to the Agent for the
benefit of each of the Banks the documents listed in (a) through
(d) below on or before the date which is ninety (90) days
following the Perry Electronics Closing Date (the "Office Move
Deadline") if Perry Electronics or the Borrower uses the office
located at 3001 Lincoln Highway East Massillon, Ohio (the
"Massillon Office") as an office for any purposes on or after the
Office Move Deadline. Borrower shall be deemed to use the
Massillon Office as an office if Borrower or any of its officers,
managers or employees (other than a single manager who shall not
have general corporate responsibilities) do any of the following
(i) maintain or store records of the Perry Electronics or the
Borrower, (ii) conduct business of or manage Perry Electronics or
the Borrower or (iii) convene for matters relating to the business
of Borrower or Perry Electronics.
-4-
<PAGE> 5
(a) a leasehold mortgage on the lessee's leasehold interest
in the Massillon Office in a form acceptable to the Agent
(b) an Indemnity Agreement in the form attached as Exhibit
1.1(i)(1) relating to the Massillon Office;
(c) a mortgagee's title policy relating to the Massillon
Office in the form described in Section 7.1.14; and
(d) an environmental report in the form described in
Section 7.1.7 relating to the Massillon Office."
(d) Indebtedness. Clause (ii) of Section 8.2.1 of the Credit
Agreement is hereby amended and restated as set forth below:
"(ii) Indebtedness AS OF THE NWB DEBT AMENDMENTS EFFECTIVE
DATE as set forth on Schedule 8.2.1 (including any extensions or
renewals thereof, provided there is no increase in the amount
thereof or other significant change in the terms thereof FOLLOWING
THE NWB DEBT AMENDMENTS EFFECTIVE DATE unless otherwise specified
on Schedule 8.2.1;"
(e) Dividends and Related Distributions. Section 8.2.5 to the
Credit Agreement is hereby amended and restated to read as follows:
"8.2.5 Dividends and Related Distributions.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, make or pay, or agree to become or remain
liable to make or pay, any dividend or other distribution of any
nature (whether in cash, property, securities or otherwise) on
account of or in respect of its shares of capital stock,
partnership interests or limited liability company interests on
account of the purchase, redemption, retirement or acquisition of
its shares of capital stock (or warrants, options or rights
therefor), partnership interests or limited liability company
interests, except THAT (i) THE LOAN PARTIES MAY PAY dividends or
other distributions payable to another Loan Party, AND (ii) THE
BORROWER MAY PAY PRINCIPAL, INTEREST OR DIVIDENDS ON THE
SUBORDINATED DEBT, SUBJECT TO (i) THE RESTRICTIONS ON PREPAYMENTS
IN SECTION 8.2.23 AND (ii) THE RESTRICTIONS ON PAYMENTS CONTAINED
IN THE SUBORDINATION AND OTHER PROVISIONS CONTAINED IN THE MMLIC
SUBORDINATED LOAN DOCUMENTS AND THE NWB SUBORDINATED LOAN
DOCUMENTS."
(f) Liquidations, Mergers, Consolidations, Acquisitions. Section
8.2.6(1) to the Credit Agreement is hereby amended and restated to read as
follows:
-5-
<PAGE> 6
"(1) any Loan Party other than the Borrower
may consolidate or merge into another Loan Party which is
wholly-owned by one or more of the other Loan Parties,
PROVIDED, THAT BORROWER SHALL DELIVER TO THE AGENT COPIES OF
THE APPLICABLE MERGER OR CONSOLIDATION DOCUMENTATION WITHIN
FIVE (5) BUSINESS DAYS AFTER THE EFFECTIVE DATE OF SUCH
MERGER OR CONSOLIDATION AND THE APPROPRIATE LOAN PARTIES
SHALL PROMPTLY THEREAFTER (BUT IN NO EVENT IN LESS THAN FIVE
(5) BUSINESS DAYS AFTER THE AGENT'S REQUEST THEREFORE)
EXECUTE AND DELIVER TO THE AGENT NEW UCC-1 FINANCING
STATEMENTS OR AMENDMENTS TO FILED UCC-1 FINANCING STATEMENTS,
AS APPROPRIATE IN THE DISCRETION OF THE AGENT, AND TAKE SUCH
OTHER ACTION AS IS NECESSARY TO MAINTAIN FIRST PRIORITY LIENS
IN THE ASSETS OF THE PARTIES TO SUCH MERGER OR CONSOLIDATION;
AND"
(g) Subordinated Loan Document Covenants; Amendment. Section
8.2.20 is hereby amended and restated to read as set forth below:
"8.2.20 Subordinated Loan Document Covenants; Amendment.
The Loan Parties shall not be in default with respect to the
Fixed Charge Coverage Ratio as set forth in Section 4.6 of the
MMLIC Subordinated Loan Documents or be in default of the covenant
set forth in Section 4.5(c) of the such MMLIC Subordinated Loan
Documents. The Loan Parties shall not amend the terms of the MMLIC
Subordinated Loan Documents OR THE NWB SUBORDINATED LOAN DOCUMENTS
without the prior written consent of the Agent."
(h) Prepayment on Subordinated Debt. Section 8.2.23 is hereby
amended and restated to read as set forth below:
"8.2.23 Prepayments on Subordinated Debt.
The Loan Parties shall not make any voluntary prepayment,
redemption or repurchase on account of ANY OF the Subordinated
Debt."
(i) Consents of Landlords Under Leases of Perry Electronics
Stores. A new Section 8.2.25 is hereby added to the Credit Agreement to
immediately follow Section 8.2.25. Such Section 8.2.25 shall read as follows:
"8.2.25 Consents of Landlords Under Leases of Perry
Electronics Stores. Borrower or Perry Electronics shall use its
best efforts to not fail to obtain consents in a form acceptable
to the Agent consenting to the purchase and sale of the stock of
Perry Electronics to the Borrower from landlords and shall obtain
such consents under at
-6-
<PAGE> 7
least 50% of the Restrictive PE Leases within thirty (30) days
after the Perry Electronics Amendments Effective Date.
(j) Defaults in Other Agreements or Indebtedness. The words,
"(including the Subordinated Debt)" shall be inserted in the second line of
Section 9.1.5 (Defaults in Other Agreements or Indebtedness) immediately after
the words, "or the extension of credit or any other Indebtedness".
(k) Loan Document Unenforceable. The words, "or any provision
relating or affecting subordination contained in any Subordinated Loan
Documents" shall be inserted in the first line of Section 9.1.7 (Loan Document
Unenforceable) immediately after the words, "Any of the Loan Documents".
(l) Amendments to Exhibits to Credit Agreement. The following
Exhibits to the Credit Agreement are hereby amended and restated in their
entirety in the forms of such Exhibits attached hereto:
Exhibit 1.1(S) Security Agreement, including Schedule A - list
of office and asset locations
Exhibit 8.3.4 Quarterly Compliance Certificate
(m) Amendments to Schedules to Credit Agreement. The following
Schedules to the Credit Agreement are hereby amended and restated in their
entirety in the forms of such Schedules attached hereto:
Schedule 1.1(B) - Commitments of Banks and Addresses for
Notices
Schedule 1.1(P) - Permitted Liens
Schedule 6.1.1 - Qualifications to do Business
Schedule 6.1.2 - Capitalization
Schedule 6.1.3 - Subsidiaries
Schedule 6.1.7 - Litigation
Schedule 6.1.8 - Owned And Leased Real Property
Schedule 6.1.13 - Consents And Approvals
Schedule 6.1.15 - Patents, Trademarks, Copyrights,
Licenses
Schedule 6.1.18 - Partnership Agreements; LLC Agreements
Schedule 6.1.19 - Insurance Policies
Schedule 6.1.21 - Material Contracts
Schedule 6.1.23 - Employee Benefit Plan Disclosures
Schedule 6.1.25 - Environmental Disclosures
Schedule 8.2.1 - Permitted Indebtedness
Schedule 8.2.10 - Business of Loan Parties
-7-
<PAGE> 8
2. Waivers, Warranties and Covenants. The Loan Parties and the Banks
acknowledge and agree as set forth in this Section 2, effective on the dates
set forth in Section 6 hereof.
(a) Bill Coleman TV Acquisition.
(i) Delivery Due Dates. The Loan Parties waive the requirement
that the Loan Parties must satisfy the requirements contained in Subsections
8.2.6(2)(ii), (vi) and (xi) of the Credit Agreement in connection with the Bill
Coleman TV Acquisition on or before the due dates specified in such
Subsections, provided that the Loan Parties shall satisfy the conditions
contained in such Subsections on or before the First Amendment Effective Date.
(ii) Consideration. The total Consideration given by the Loan
Parties in connection with the Bill Coleman TV Acquisition was approximately
$6,700,000, all of which consisted of cash paid or Indebtedness assumed by the
Borrower.
(b) Perry Electronics Acquisition.
(i) Notice; Borrowing Base Certificate. The Loan Parties waive
the requirement that the Loan Parties deliver to the Agent written notice of
the Perry Electronics Acquisition under Subsection 8.2.6(2)(vi) (as more fully
described in such Subsection) at least fourteen (14) days before the
consummation of such acquisition, provided that the Loan Parties shall deliver
such notice and otherwise comply with such Subsection in connection with the
Perry Electronics Acquisition on or before the First Amendment Effective Date.
(ii) Consideration Limitations. The Loan Parties waive the
requirement in Subsection 8.2.6(2)(viii) in connection with the Perry
Electronics Acquisition that the Loan Parties shall not give Consideration in
cash, preferred stock and/or other Consideration other than common capital
stock of the Borrower in excess of $7,500,000 in connection with any individual
Permitted Acquisition (but do not waive the requirement in such Section that
the Consideration in connection with all Permitted Acquisitions may not exceed
in the aggregate $30,000,000 after the Closing Date), in each instance as more
fully provided in Subsection 8.2.6(2)(viii), provided that the Loan Parties
covenant and agree that the total Consideration given by the Loan Parties in
connection with the Perry Electronics Acquisition shall not exceed $23,000,000
all of which consists of either cash paid or Indebtedness assumed by the
Borrower.
(iii) Consents. There are no material consents required to
effectuate the purchase and sale of the stock of Perry Electronics and the
other transactions under the Perry Electronics Acquisition Documents, except
that the Borrower might be required to obtain the consent of landlords under
leases (the "Restrictive PE Leases") listed on Schedule 6.1.13 for the purchase
and sale of the stock of Perry Electronics to the Borrower. The Restrictive PE
Leases comprise no more than 50% of the leases of Perry Electronics for its
stores.
-8-
<PAGE> 9
(c) Both Acquisitions.
(i) Other Conditions in Section 8.2.6(2) Satisfied. The Loan
Parties represent, warrant and covenant to the Agent and each of the Banks that
after giving effect to the waivers in this Section 2 above and upon
satisfaction of the conditions set forth in Section 3 of this Amendment, each
of the conditions in Section 8.2.6(2) of the Credit Agreement shall be
satisfied with respect to each of the Bill Coleman TV Acquisition and the Perry
Electronics Acquisition and each such acquisition shall constitute a "Permitted
Acquisition" as such term is defined in Section 8.2.6(2).
(ii) Covenant to Obtain Landlord's Waivers. The Loan Parties
shall deliver to the Agent an executed Landlord's Waiver in substantially the
form of Exhibit 1.1(L) to the Credit Agreement from lessors of at least 50% of
the Collateral locations added pursuant to the Bill Coleman TV Acquisition and
the Perry Electronics Acquisition in accordance with Section 8.2.24 of the
Credit Agreement, except that the term "closing date" as used in Section 8.2.24
as it relates to the Bill Coleman Acquisition shall be deemed to mean the First
Amendment Effective Date.
(iii) Delivery of Documents. Borrower has delivered to the Agent
for the benefit of the Banks true and correct copies of the Bill Coleman
Acquisition Agreement, the Perry Electronics Acquisition Agreement and the NWB
Indenture.
3. Conditions Precedent. The provisions contained in Sections 1 and 2 of
this Amendment shall not become effective until each of the conditions set
forth in this Section 3 has been satisfied. The date on which such conditions
are satisfied shall be referred to as the "First Amendment Effective Date" The
provisions in all other Sections of this Amendment are effective on the date
hereof and are not subject to the conditions set forth in this Section 3.
(a) Satisfaction of Conditions in Section 6(a). Each of the
conditions set forth in Section 6(a) hereof (execution of this Amendment and
completion of Schedules and Exhibits hereto) shall have been satisfied.
(b) Events of Default; Potential Defaults, Compliance Certificate. No
Event of Default or Potential Default which might not be cured before it
results in an Event of Default shall have occurred and be continuing after
giving effect to the Perry Electronics Acquisition to be consummated
simultaneously with the First Amendment Effective Date. The Chief Executive
Officer, President or Chief Financial Officer of the Borrower shall have
executed and delivered to the Agent for the benefit of each Bank a certificate
in the form of Exhibit 3(b) hereto confirming the same, including a
confirmation that Borrower shall be in compliance with the covenants contained
in Sections 8.2.16, 8.2.17 and 8.2.19 after giving effect to the amendments
herein and to the Perry Electronics Acquisition.
(c) Other Loan Document Deliveries by Bill Coleman TV, Perry
Electronics and the Borrower. Each of Bill Coleman TV, Perry Electronics and
the Borrower, as applicable, shall execute and deliver each of the following
documents:
-9-
<PAGE> 10
(i) Guaranty Agreement. Each of Bill Coleman TV and Perry
Electronics shall execute and deliver to the Agent for the benefit of each of
the Banks the Guaranty Agreement in the form of Exhibit 1.1(G)(2) of the Credit
Agreement.
(ii) Security Agreement. Each of Bill Coleman TV and Perry
Electronics shall (1) execute and deliver to the Agent for the benefit of each
of the Banks the Guaranty Agreement in the form of Exhibit 1.1(S) of the Credit
Agreement and (2) complete and deliver to the Agent the Schedule A (list of
office and asset locations) to such Security Agreement.
(iii) UCC-1 Financing Statements.
(A) Bill Coleman TV and Perry Electronics. Each of Bill
Coleman TV and Perry Electronics shall execute and deliver to the Agent for the
benefit of each of the Banks UCC-1 financing statements sufficient to perfect
Liens in its personal property in all jurisdictions where filing of such
statements is necessary or appropriate to perfect such Liens in the discretion
of the Agent.
(B) Borrower - UCC-1 Statements. Borrower shall execute
and deliver to the Agent for the benefit of each of the Banks UCC-1 financing
statements sufficient to perfect Liens in the personal property of Bill Coleman
TV and Perry Electronics in favor of the Agent, assuming that such property is
hereafter transferred to the Borrower, in all appropriate jurisdictions where
filing of such statements would be necessary or appropriate to maintain
perfection of such Liens following such transfer.
(C) Borrower - UCC-3 Statements. Borrower shall execute
and deliver to the Agent for the benefit of each of the Banks UCC-3 statements
amending prior UCC-1 filings against the Borrower in Pennsylvania as necessary
to reflect amendments to the Pennsylvania Uniform Commercial Code relating to
perfection of Liens in "Investment Property" (as such term is defined in such
Code).
(iv) Pledge Agreement and Related Documents. The Borrower
shall execute and deliver, as applicable, to the Agent for the benefit of each
of the Banks (1) the Pledge Agreement in the form of Exhibit 1.1(P)(2) of the
Credit Agreement, pledging its stock in Bill Coleman TV and Perry Electronics
(2) the schedule of pledged securities to be attached as thereto, (3) the
original stock certificates representing such stock, (4) stock powers
respecting such certificates, and (5) UCC-1 financing statements to be filed in
order perfect Liens in such stock to the extent such Liens can be perfected by
filing.
(v) Intercompany Subordination Agreement. The Borrower, Bill
Coleman TV and Perry Electronics each shall execute and deliver to the Agent
for the benefit of each of the Banks the Intercompany Subordination Agreement
in the form attached as Exhibit 1.1(I)(2) to the Credit Agreement.
(vi) Joinder to Credit Agreement. Each of Bill Coleman TV and
Perry Electronics shall execute and deliver to the Agent for the benefit of
each of the Banks a joinder
-10-
<PAGE> 11
agreement in a form acceptable to the Agent pursuant to which it shall
acknowledge that it has joined the Credit Agreement as a Loan Party. Such
joinder may be included in the Guaranty Agreement described in (i) above.
(vii) Collateral Assignment. The Borrower, Bill Coleman TV and
Perry Electronics shall execute and deliver to the Agent for the benefit of
each of the Banks the Collateral Assignment in the form attached as Exhibit
1.1(C) to the Credit Agreement pursuant to which they shall assignee their
interests in (1) the Rental Contracts of Bill Coleman TV and Perry Electronics,
(2) the leases of Bill Coleman TV and Perry Electronics and (3) the Bill
Coleman TV Acquisition Agreement and the Perry Electronics Acquisition
Agreement.
(viii) Patent, Trademark and Copyright Assignment. Perry
Electronics shall execute and deliver to the Agent for the benefit of each of
the Banks the Patent, Trademark and Copyright Assignment in the form of Exhibit
1.1(P)(1) of the Credit Agreement.
(d) Borrowing Base Certificate. The Borrower shall execute and
deliver, as applicable, to the Agent for the benefit of each of the Banks a
Borrowing Base Certificate which evidences that after giving effect to the Bill
Coleman TV Acquisition and the Perry Electronics Acquisition and the Loans to
be made in connection therewith, the Loans and Letters of Credit Outstanding
shall not exceed the Borrowing Base (excluding from the Borrowing Base all
Rental Contracts to be acquired pursuant to the Bill Coleman TV Acquisition and
the Perry Electronics Acquisition).
(e) Lien Search. The Borrower shall deliver to the Agent the results
of a Lien search satisfactory to the Agent evidencing that the Liens to be
granted in the assets of Bill Coleman TV and Perry Electronics will be first
priority Liens.
(f) Payoff Letters; Lien Releases. The Borrower shall have delivered
Payoff Letters and copies of Lien releases evidencing that the following
Indebtedness has been repaid and that the Liens securing the same have been
terminated of record:
(i) Indebtedness of Borrower to First Source under the Secured
Credit Agreement dated as of July 21, 1995 (Lien releases);
(ii) Indebtedness of Bill Coleman TV to FINOVA Capital
Corporation (payoff letter and Lien releases); and
(iii) Indebtedness of Perry Electronics to United National
Bank, Canton, Ohio (payoff letter and Lien releases).
(g) Secretary's Certificate. The Secretary or Assistant Secretary of
Bill Coleman TV and Perry Electronics shall execute and deliver to the Agent
for the benefit of each Bank a certificate dated as of the date hereof,
certifying as to
(i) all corporate or partnership action taken by it in
connection with the documents listed in clause (b) above;
-11-
<PAGE> 12
(ii) the names of the officer or officers authorized to sign
this Amendment and the related documents and the true signatures of such
officer or officers and specifying the Authorized Officers permitted to act on
behalf of them for purposes of this Amendment and the true signatures of such
officers, on which the Agent and each Bank may conclusively rely; and
(iii) copies of the organizational documents of, including the
certificate of incorporation, bylaws and corporate resolutions as in effect on
the First Amendment Effective Date, together with certificates from the
appropriate state officials as to the continued existence and good standing of
it in each state where it is organized or qualified to do business.
(h) Opinion of Counsel.
(i) Hodgson Russ Andrews Wood & Goodyear, LLP, counsel for the
Borrower, Bill Coleman TV and Perry Electronics (who may rely on the opinions
of such other counsel as may be acceptable to the Agent), shall have delivered
to the Agent for the benefit of each Bank a written opinion dated as of the
date hereof and in form and substance satisfactory to the Agent and its counsel
as to the matters set forth in Exhibit 3(h) hereto.
(ii) In house counsel for the Borrower and for Bill Coleman TV
and Perry Electronics (following the acquisitions by the Borrower of the stock
of such corporations), shall have delivered to the Agent for the benefit of
each Bank a written opinion dated as of the date hereof and in form and
substance satisfactory to the Agent and its counsel as to the rent-to-own
regulatory matters set forth in Exhibit 3(h) hereto with respect to
jurisdictions in which the Loan Parties conduct business which such counsel did
not addressed in its prior opinion.
(iii) The opinion of counsel for the shareholders of Perry
Electronics to be delivered to the Borrower pursuant to the Perry Electronics
Acquisition shall provide that the Banks may rely thereon.
(i) Delivery of Documents; No Modifications; Consummation of
Transactions. Borrower shall have delivered true and correct copies of all of
NWB Subordinated Loan Documents and the documents executed or delivered in
connection with the Bill Coleman TV Acquisition and the Perry Electronics
Acquisition. There shall have been no amendments to the Bill Coleman TV
Acquisition Agreement, the Perry Electronics Acquisition Agreement or the NWB
Indenture between the date on which Borrower delivered such documents to the
Agent (which shall be on or before the date of this Amendment) and the First
Amendment Effective Date unless the Agent the Banks shall have consented to the
same in writing. The transactions under the Bill Coleman TV Acquisition
Agreement, the Perry Electronics Acquisition Agreement and the NWB Subordinated
Loan Documents shall have been consummated.
(j) Consents. All material consents required to effectuate the
transactions contemplated by the Bill Coleman TV Acquisition Documents, the
Perry Electronics Acquisition Documents (except for the consents of the
landlords under the Restrictive PE Leases which consents are addressed in
Section 8.2.25 of the Credit Agreement) and the NWB Subordinated Loan Documents
shall have been obtained.
-12-
<PAGE> 13
(k) Perry Electronics and Bill Coleman TV Leases. Borrower shall
deliver to the Agent either (i) copies of each of the leases of Perry
Electronics and Bill Coleman TV for their sales offices or (ii) summaries of
such leases prepared by Borrower or its counsel in a form acceptable to the
Agent, such summaries to include a (without limitation) description of the
principal terms of such lease, any restrictions on the transfer of the lease or
of the ownership of the Borrower and a confirmation that the lease does not by
its terms grant to the lessor any Liens in the assets of the lessee.
(l) Fees and Expenses. Borrower shall have paid all outstanding fees
and expenses due to the Agent or the Banks, including the fees of Agent's
counsel in connection with this Amendment.
(m) Legal Details. All legal details and proceedings in connection
with the transactions contemplated by this Amendment and the other Loan
Documents shall be in form and substance satisfactory to the Agent and counsel
for the Agent, and the Agent shall have received all such other counterpart
originals or certified or other copies of such documents and proceedings in
connection with such transactions, in form and substance satisfactory to the
Agent and said counsel, as the Agent or said counsel may reasonably request.
4. Full Force and Effect. The Credit Agreement and each of other Loan
Documents shall remain in full force and effect on and after the date of this
Amendment except as expressly amended hereby or pursuant hereto. On and after
the date hereof, each reference in the Credit Agreement to "this Agreement",
"hereunder" or words of like import shall mean and be a reference to the Credit
Agreement, as amended by this Amendment, and each reference in each other Loan
Document to the "Credit Agreement" shall mean and be a reference to the Credit
Agreement, as previously amended and as amended by this Amendment. The parties
hereto do not amend or waive any provisions of the Credit Agreement or the
other Loan Documents except as expressly set forth herein.
5. Counterparts. This Amendment may be executed by different parties
hereto on any number of separate counterparts, each of which, when so executed
and delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument.
6. Effective Date.
(a) First Amendment Effective Date. All provisions of this Amendment
shall be effective on the date on which the conditions listed in (i) and (ii)
below have been satisfied (the "First Amendment Effective Date"), except for
those provisions hereof referred to in Sections 6(b), (c) and (d) which shall
not become effective until the dates specified in such Sections.:
(i) Execution and Delivery. this Amendment has been executed,
in counterparts or otherwise, and delivered to the Agent for the benefit of the
Banks; and
(ii) Completion of Schedules and Exhibits. Each of the
Schedules and Exhibits hereto has been completed and attached hereto.
-13-
<PAGE> 14
(b) NWB Debt Amendments Effective Date. The provisions listed under
the heading "Provisions Which Shall Become Effective on the NWB Debt Amendments
Effective Date" below shall become effective on the date on which the
conditions listed under the heading "Conditions to Amendments and Waivers
Relating to NWB Debt Issuance" shall have been satisfied (such date shall be
referred to as the "NWB Debt Amendments Effective Date"). If such conditions
listed below are not satisfied and the Borrower has not issued its convertible
securities pursuant to the NWB Indenture on or before February 28, 1997, then
the provisions listed below shall not become effective.
PROVISIONS WHICH SHALL BECOME EFFECT
ON THE NWB DEBT AMENDMENTS EFFECTIVE DATE
------------ ------------------------------------------------------
Section Title
------------ ------------------------------------------------------
1(a) Definition of "Consolidated Funded Debt"
------------ ------------------------------------------------------
1(a) Definition of "Subordinated Debt"
------------ ------------------------------------------------------
1(a) Definition of "Subordinated Loan Documents"
------------ ------------------------------------------------------
1(d) Indebtedness
------------ ------------------------------------------------------
1(e) Dividends and Related Distributions
------------ ------------------------------------------------------
1(g) Subordinated Loan Document Covenants; Amendment
------------ ------------------------------------------------------
1(h) Prepayment and Subordinated Debt
------------ ------------------------------------------------------
CONDITIONS TO AMENDMENTS AND WAIVERS
RELATING TO NWB DEBT ISSUANCE
------------ ------------------------------------------------------
Section Title
------------ ------------------------------------------------------
3(a) Satisfaction of Conditions in Section 6(a)
------------ ------------------------------------------------------
3(i) Delivery of Documents; No Modifications; Consummation of
Transactions (condition relating only to NWB
Subordinated Loan Documents)
------------ ------------------------------------------------------
3(j) Consents (condition relating only to NWB Subordinated
Loan Documents)
------------ ------------------------------------------------------
3(m) Legal Details
------------ ------------------------------------------------------
(c) Perry Electronics Amendments Effective Date. The provisions
listed under the heading "Provisions Which Shall Become Effective on the Perry
Electronics Amendments Effective Date" below shall become effective on the
later of date on which each of the conditions listed under the heading
"Conditions to Amendments and Waivers Relating to Perry Electronics
Acquisition" shall have been satisfied (such date shall be referred to as the
"Perry Electronics Amendments Effective Date"). If the conditions listed below
are not satisfied on or before the date which is five (5) Business Days after
the Borrower issues its convertible securities under the NWB Indenture, then
the provisions listed below shall not become effective.
-14-
<PAGE> 15
PROVISIONS WHICH SHALL BECOME EFFECTIVE ON THE
PERRY ELECTRONICS AMENDMENTS EFFECTIVE DATE
------------ -------------------------------------------------------
Section Title
------------ -------------------------------------------------------
------------ -------------------------------------------------------
1(a) Definition of "Consolidated Tangible Net Worth"
------------ -------------------------------------------------------
1(c) Principal Office of Perry Electronics
------------ -------------------------------------------------------
1(i) Consents of Landlords under Leases of Perry
Electronics Stores
------------ -------------------------------------------------------
1(l) Amendments to Exhibits to Credit Agreement
------------ -------------------------------------------------------
1(m) Amendments to Schedules to Credit Agreement
------------ -------------------------------------------------------
2(b)(i) Perry Electronics Acquisition - Notice; Borrowing
Base Certificate
------------ -------------------------------------------------------
2(b)(ii) Consideration Limitations
------------ -------------------------------------------------------
2(b)(iii) Consents
------------ -------------------------------------------------------
CONDITIONS TO AMENDMENTS AND WAIVERS
RELATING TO PERRY ELECTRONICS ACQUISITION
--------------------------------------------------------------------
All conditions listed in Section 3
--------------------------------------------------------------------
(d) Covenant Relating to Bill Coleman Bill Coleman Acquisition. If
the Borrower does not consummate the Perry Electronics Acquisition within five
(5) Business Days after the date on which the Borrower issues its convertible
securities under the NWB Indenture, then:
(A) Borrower shall satisfy each of the conditions in Section 3
listed below, except that each document referred to in Section 3 shall only
include Bill Coleman TV as a party thereto and such conditions shall otherwise
be modified to reflect that the Borrower has consummated the Bill Coleman TV
Acquisition, but has not consummated the Perry Electronics Acquisition, and
(B) Borrower shall deliver updates to the Schedules described
in Sections 1(l) and (m) hereto which reflect that Borrower has consummated the
Bill Coleman TV Acquisition, but not consummated the Perry Electronics
Acquisition:
LIST OF CONDITIONS REFERRED TO IN PARAGRAPH (A) ABOVE
------------ -------------------------------------------------------
Section Title
------------ -------------------------------------------------------
3(a) Satisfaction of Conditions in Section 6
------------ -------------------------------------------------------
-15-
<PAGE> 16
------------ --------------------------------------------------------
3(b) Events of Default; Potential Defaults, Compliance
Certificate
------------ --------------------------------------------------------
3(c)(i) Guaranty Agreement
------------ --------------------------------------------------------
3(c)(ii) Security Agreement
------------ --------------------------------------------------------
3(c) UCC-1 Financing Statements - Bill Coleman TV and
(iii)(A) Perry Electronics
------------ --------------------------------------------------------
3(c) UCC-1 Financing Statements - Borrower - UCC-1 Statements
(iii)(B)
------------ --------------------------------------------------------
3(c) UCC-1 Financing Statements - Borrower - UCC-3 Statements
(iii)(C)
------------ --------------------------------------------------------
3(c)(iv) Pledge Agreement and Related Documents
------------ --------------------------------------------------------
3(c)(v) Intercompany Subordination Agreement
------------ --------------------------------------------------------
3(c)(vi) Joinder to Credit Agreement
------------ --------------------------------------------------------
3(c)(vii) Collateral Assignment
------------ --------------------------------------------------------
3(d) Borrowing Base Certificate
------------ --------------------------------------------------------
3(e) Lien Search
------------ --------------------------------------------------------
3(f) Payoff Letters; Lien Releases
------------ --------------------------------------------------------
3(g) Secretary's Certificate
------------ --------------------------------------------------------
3(h) Opinion of Counsel
------------ --------------------------------------------------------
3(j) Consents
------------ --------------------------------------------------------
3(k) Perry Electronics and Bill Coleman TV Leases
------------ --------------------------------------------------------
3(l) Fees and Expenses
------------ --------------------------------------------------------
3(m) Legal Details
------------ --------------------------------------------------------
[SIGNATURES APPEAR ON THE NEXT PAGE]
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Amendment as of the day and year first
above written.
RENT-WAY, INC., "Borrower"
By: _____________________________________
Title: __________________________________
NATIONAL CITY BANK OF
PENNSYLVANIA, individually and as Agent
By: _____________________________________
Title: __________________________________
LASALLE NATIONAL BANK
By: _____________________________________
Title: __________________________________
HARRIS TRUST & SAVINGS BANK
By: _____________________________________
Title: __________________________________
HELLER FINANCIAL, INC.
By: _____________________________________
Title: __________________________________
<PAGE> 18
LIST OF SCHEDULES AND EXHIBITS
Schedules
---------
Schedule 1.1(B) - Commitments of Banks and Addresses for Notices
Schedule 1.1(P) - Permitted Liens
Schedule 6.1.1 - Qualifications to do Business
Schedule 6.1.2 - Capitalization
Schedule 6.1.3 - Subsidiaries
Schedule 6.1.7 - Litigation
Schedule 6.1.8 - Owned and Leased Real Property
Schedule 6.1.13 - Consents and Approvals
Schedule 6.1.15 - Patents, Trademarks, Copyrights, Licenses
Schedule 6.1.18 - Partnership Agreements; LLC Agreements
Schedule 6.1.19 - Insurance Policies
Schedule 6.1.21 - Material Contracts
Schedule 6.1.23 - Employee Benefit Disclosures
Schedule 6.1.25 - Environmental Disclosures
Schedule 8.2.1 - Permitted Indebtedness
Schedule 8.2.10 - Business of Loan Parties
Exhibits
--------
Exhibit 1.1(S) - Security Agreement
Exhibit 3(b) - Perry Acquisition Compliance Certificate
Exhibit 3(h) - Opinion of Hodgson, Russ, Andrews, Wood & Goodyear,
LLP
Exhibit 8.3.4 - Quarterly Compliance Certificate
<PAGE> 1
RENT-WAY, INC.
EXHIBIT 11
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE 1997 1996 1995
<S> <C> <C> <C>
PRIMARY
Net income $5,415,926 $2,847,312 $1,008,770
Preferred stock (dividend)/gain on redemption 280,175 (128,969) (37,973)
---------- ---------- ----------
Earnings applicable to common shares for primary earnings per share $5,696,101 $2,718,343 $ 970,797
========== ========== ==========
Weighted average number of common shares
outstanding during the year 6,692,008 5,473,875 3,855,934
Add - common equivalent shares (determined
using the "treasury stock" method) representing
shares issuable upon exercise of stock options,
stock warrants and escrowed shares 558,440 471,552 544,132
---------- ---------- ----------
Weighted average number of shares used in
calculation of primary earnings per share 7,250,448 5,945,427 4,400,066
========== ========== ==========
Earnings per common share
Income before extraordinary item(adjusted to give effect to any
preferred stock (dividend)/gain on redemption): $ 0.82 $ 0.46 $ 0.22
========== ========== ==========
Earnings applicable to common shares $ 0.79 $ 0.46 $ 0.22
========== ========== ==========
FULLY DILUTED
Earnings applicable to common shares for primary earnings per share $5,696,101 $2,718,343 $ 970,797
Interest on 10% convertible notes (net of tax) 420,700 -- --
Interest on 7% convertible debentures (net of tax) 549,632 -- --
---------- ---------- ----------
Earnings applicable to common shares for fully diluted
Earnings per share $6,666,433 $2,718,343 $ 970,797
========== ========== ==========
Weighted average number of shares used in
calculating primary income per share 6,692,008 5,473,875 3,855,934
Add - incremental shares representing:
Shares issuable upon exercise of stock options,
stock warrants and escrowed shares
included in primary calculation above 558,440 471,522 544,133
Shares issuable upon exercise of stock options
and warrants based on year end market prices 401,410 110,126 100,220
Shares issued on Conversion of 10% convertible notes 704,225 -- --
Shares issued on conversion of 7% convertible debentures 966,842 -- --
---------- ---------- ----------
Weighted average number of shares used in
calculation of fully diluted income per share 9,322,925 6,055,523 4,500,287
========== ========== ==========
Earnings per common share
Income before extraordinary item (adjusted to give effect to any
preferred stock (dividend)/gain on redemption) $ 0.74 $ 0.45 $ 0.22
========== ========== ==========
Earnings applicable to common shares $ 0.72 $ 0.45 $ 0.22
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement of
Rent-Way, Inc. on Form S-8 (File Numbers, 0-22026 and 333-13355) of our report
dated October 31, 1997, on our audits of the financial statements of Rent-Way,
Inc. as of September 30, 1887 and 1996, and for the years ended September 30,
1997,1996 and 1995, which report is included in this Annual Report on Form
10-K.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 598,664
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 35,132,316
<CURRENT-ASSETS> 0
<PP&E> 8,518,222
<DEPRECIATION> 3,117,477
<TOTAL-ASSETS> 96,287,938
<CURRENT-LIABILITIES> 0
<BONDS> 48,156,426
0
0
<COMMON> 32,759,595
<OTHER-SE> 8,197,275
<TOTAL-LIABILITY-AND-EQUITY> 96,287,938
<SALES> 77,498,328
<TOTAL-REVENUES> 88,043,534
<CGS> 20,314,482
<TOTAL-COSTS> 74,257,373
<OTHER-EXPENSES> (103,681)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,368,980
<INCOME-PRETAX> 10,314,420
<INCOME-TAX> 4,629,477
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (269,017)
<CHANGES> 0
<NET-INCOME> 5,415,926
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.72
</TABLE>
