<PAGE> 1
As filed with the Securities and Exchange Commission on November 6, 1998
Registration No. 333-________
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------------
RENT-WAY, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1407782
(State or other (I.R.S. Employer
jurisdiction of incorporation or Identification No.)
organization)
One Rent-Way Place
Erie, Pennsylvania 16505
(814) 455-5378
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
William E. Morgenstern, President
One Rent-Way Place
Erie, Pennsylvania 16505
(814) 455-5378
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------
Copies to:
John J. Zak, Esq. John D. Capers, Jr., Esq.
Hodgson, Russ, Andrews, Woods & Goodyear, LLP King & Spalding
1800 One M & T Plaza 191 Peachtree Street
Buffalo, New York 14203 Atlanta, Georgia 30303
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective and all
other conditions to the merger of Home Choice Holdings, Inc. with and into the
Registrant pursuant to the Agreement and Plan of Merger (the "Merger") described
in the enclosed Proxy Statement/Prospectus have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Title of each Amount to be Proposed Proposed Amount of
class of registered maximum maximum registration
securities to be offering price aggregate fee
registered per unit offering price
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Common Stock,
without par
value(1) 10,011,251(2) $22.98(3) $391,191,215.8(4) $65,540(5)
==========================================================================================================
</TABLE>
(1) This Registration Statement relates to the Common Stock, without par value,
of the Registrant issuable to holders of Home Choice common stock, par
value $.01 per share, in connection with the Merger.
(2) The number of shares to the registered pursuant to this Registration
Statement is based on the maximum number of shares of the Registrant's
common stock issuable to the holders of Home Choice common stock in the
Merger, which is calculated by multiplying the maximum number of shares of
Home Choice common stock expected to be acquired in the Merger 17,025,938
by the exchange ratio of 0.588.
(3) Estimated solely for purposes of calculating the registration fee in
accordance with 457(f) under the Securities Act of 1933, as amended (the
"Securities Act"), and computed by dividing (i) the product of (A) the
average of the high and low sale prices of Home Choice common stock on
November 3, 1998, as reported on the NASDAQ National Market ($13.51) and
(B) 17,025,938, representing the maximum number of shares of Home Choice
common stock expected to be acquired in the Merger, by (ii) 10,011,251,
representing the maximum number of shares of the Registrant's common stock
expected to be issued in the Merger.
(4) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) of the Securities Act, based on the product of
the estimated maximum number of shares of Home Choice common stock to be
acquired in the Merger multiplied by the proposed maximum offering price
per share calculated as described in footnote (3) above.
(5) Calculated by multiplying 0.000278 by the proposed maximum aggregate
offering price. $43,211.15 of such amount is offset pursuant to Rule 457(b)
by fees previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
2
<PAGE> 3
RENT-WAY LOGO
HOME CHOICE LOGO
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Rent-Way, Inc. and Home Choice Holdings, Inc.
have approved a merger agreement that would result in Home Choice being merged
with and into Rent-Way. If the merger is completed, Rent-Way would be the second
largest company in the rental-purchase industry with 865 stores in 35 states. In
the merger, Home Choice stockholders will receive 0.588 of a share of Rent-Way
common stock for each share of Home Choice common stock they own. Rent-Way
shareholders will continue to own their Rent-Way shares after the merger. We
estimate that 10,011,251 shares of Rent-Way common stock will be issued in the
merger and, upon completion of the merger, approximately 48% of the outstanding
Rent-Way common stock will be owned by current Home Choice stockholders and
approximately 52% will be owned by persons who are Rent-Way shareholders just
before the merger is completed.
The merger cannot be completed unless the shareholders of both companies
approve it. In the case of shareholders of Rent-Way, your approval of the merger
will also constitute your approval of the issuance of shares of Rent-Way common
stock to Home Choice stockholders in the merger and an increase in the number of
shares of Rent-Way common stock authorized for issuance. We have scheduled
special meetings for you to vote on these matters. YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend a meeting, please take the time to vote
by completing and mailing the enclosed proxy card. If you sign, date and mail
your proxy card without indicating how you wish to vote, your proxy will be
voted in favor of the merger. If you are a Rent-Way shareholder and fail to
return your proxy card, you will not be counted as present or voting at the
meeting unless you appear in person. If you are a Home Choice stockholder and
fail to return your proxy card, the effect will be a vote against the merger.
The dates, times and places of the meetings are as follows:
For Rent-Way shareholders:
Thursday, December 10, 1998
10:00 a.m.
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
20th Floor, One M&T Plaza
Buffalo, New York
For Home Choice stockholders:
Thursday, December 10, 1998
11:00 a.m.
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
20th Floor, One M&T Plaza
Buffalo, New York
This Joint Proxy Statement/Prospectus provides you with detailed
information about the proposed merger. It also provides Rent-Way shareholders
with information regarding the proposed issuance of shares of common stock to
Home Choice stockholders in the merger and proposed increase in the number of
authorized shares of Rent-Way common stock. We encourage you to read this entire
document carefully. You may also obtain information about our companies from
documents that we have filed with the Securities and Exchange Commission.
/s/ G. A. Ryan
G.A. Ryan
Chairman of the Board
Rent-Way, Inc.
/s/ George D. Johnson, Jr.
George D. Johnson, Jr.
Chairman of the Board
Home Choice Holdings, Inc.
<PAGE> 4
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
RENT-WAY SHAREHOLDERS AND HOME CHOICE STOCKHOLDERS ARE URGED TO CONSIDER THOSE
MATTERS SET FORTH IN "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
The date of this Joint Proxy Statement/Prospectus is November 5, 1998, and it is
first being mailed to shareholders on or about November 9, 1998.
<PAGE> 5
RENT-WAY, INC.
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 10, 1998
Rent-Way, Inc. ("Rent-Way") will hold a special meeting of its shareholders
on December 10, 1998 at 10:00 a.m., at the offices of Hodgson, Russ, Andrews,
Woods & Goodyear LLP, 20th floor, One M&T Plaza, Buffalo, New York for the
following purposes:
1. To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated September 1, 1998 (the "Merger Agreement"), by
and between Rent-Way and Home Choice Holdings, Inc., and the
transactions contemplated thereby, including (i) the issuance of shares
of Rent-Way common stock pursuant to the Merger Agreement and (ii) the
amendment of Rent-Way's Articles of Incorporation to increase the
authorized shares of Rent-Way common stock from 20,000,000 to
50,000,000.
2. To consider and act on other matters incident to the conduct of the
meeting.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY.
The accompanying Joint Proxy Statement/Prospectus describes the Merger
Agreement and the transactions contemplated thereby in greater detail.
Rent-Way has fixed the close of business on October 29, 1998 as the record
date for determination of the shareholders entitled to notice of and to vote at
the special meeting and any adjournment or postponement thereof. A list of
shareholders entitled to vote at the special meeting will be available and open
to the examination of any shareholder at the special meeting.
By Order of the Board of Directors,
/s/ William Lerner
WILLIAM LERNER
Secretary
Erie, Pennsylvania
November 5, 1998
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING, PLEASE MARK,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE. SENDING A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU
ATTEND THE SPECIAL MEETING.
<PAGE> 6
HOME CHOICE HOLDINGS, INC.
------------------------
Notice of Special Meeting of Stockholders
To Be Held December 10, 1998
------------------------
A special meeting of stockholders of Home Choice Holdings, Inc. ("Home
Choice") will be held on December 10, 1998 at 11:00 a.m., local time, at the
offices of Hodgson, Russ, Andrews, Woods & Goodyear, LLP, which are located at
the 20th Floor, One M&T Plaza, Buffalo, New York 14203, for the following
purposes:
(1)Approval and Adoption of the Merger Agreement. To consider and vote upon
a proposal to approve and adopt the Agreement and Plan of Merger, dated
as of September 1, 1998, (the "Merger Agreement") by and between
Rent-Way, Inc. ("Rent-Way") and Home Choice. Pursuant to the terms of
the Merger Agreement, among other matters, Home Choice will merge with
and into Rent-Way (the "Merger"), with Rent-Way as the surviving
corporation, and each share of common stock of Home Choice outstanding
at the effective time of the Merger will be converted into the right to
receive 0.588 shares of common stock of Rent-Way. A copy of the Merger
Agreement is attached as Annex A to the accompanying Joint Proxy
Statement/Prospectus.
(2)Other Business. To transact such other business incident to the conduct
of the special meeting or any adjournment or postponement thereof.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Only stockholders of record at the close of business on October 29, 1998
are entitled to notice of and to vote at the special meeting and any adjournment
or postponement thereof. In the event the special meeting should be adjourned to
a date or dates later than December 28, 1998, the Board of Directors will
establish a new record date for purposes of determining those stockholders then
entitled to notice of and to vote at any such adjournments.
Your attention is directed to the Joint Proxy Statement/Prospectus
accompanying this notice.
By order of the Board of
Directors
/s/ George D. Johnson, Jr.
George D. Johnson, Jr.,
Chairman of the Board
Mesquite, Texas
November 5, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE MARK, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE,
WHICH DOES NOT REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ARE
ABLE TO ATTEND THE SPECIAL MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU
MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 4
The Companies............................................. 4
Our Reasons for the Merger................................ 4
The Special Meetings...................................... 4
Our Recommendations....................................... 5
Record Date; Votes Required............................... 5
Share Ownership of Management............................. 5
What Home Choice Stockholders Will Receive in the
Merger................................................. 5
Ownership of Rent-Way Following the Merger................ 6
Board of Directors and Executive Officers of the Combined
Company Following the Merger........................... 6
Interests of Certain Home Choice Officers and Directors in
the Merger............................................. 6
Conditions to the Merger.................................. 6
Termination of the Merger Agreement....................... 7
Termination Fees.......................................... 7
Regulatory Approvals...................................... 7
Accounting Treatment...................................... 7
Opinions of Financial Advisors............................ 7
Stock Option Agreements................................... 8
Material U.S. Federal Income Tax Consequences............. 8
No Appraisal Rights....................................... 8
Listing of Shares of Rent-Way Common Stock................ 8
Forward-Looking Statements May Prove Inaccurate........... 8
Recent Developments....................................... 9
Comparative Market Price Information...................... 10
COMPARATIVE PER SHARE DATA.................................. 11
RENT-WAY SELECTED HISTORICAL FINANCIAL DATA................. 12
HOME CHOICE SELECTED HISTORICAL CONSOLIDATED FINANCIAL
DATA...................................................... 14
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
DATA...................................................... 16
RISK FACTORS................................................ 17
THE MEETINGS................................................ 20
Rent-Way Special Meeting.................................. 20
Home Choice Special Meeting............................... 21
THE MERGER.................................................. 23
Introduction.............................................. 23
Background of the Merger.................................. 23
Reasons for the Merger; Recommendations of the Boards of
Directors.............................................. 25
Terms of the Merger Agreement............................. 30
Confidentiality Letter and Standstill Provisions.......... 35
Opinion of Financial Advisor to Rent-Way.................. 35
Opinion of Financial Advisors to Home Choice.............. 39
Interests of Certain Persons in the Merger................ 45
Material U.S. Federal Income Tax Consequences of the
Merger................................................. 46
Regulatory Approvals...................................... 47
Accounting Treatment...................................... 48
Listing of Rent-Way Common Stock.......................... 48
Resales of Rent-Way Common Stock.......................... 48
Dissenters' Rights of Appraisal........................... 49
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE STOCK OPTION AGREEMENTS................................. 49
General................................................... 49
Exercise of the Options................................... 49
Adjustment of Number of Shares Subject to Options......... 50
Repurchase Rights......................................... 50
Registration Rights; Listing.............................. 50
Effect of the Stock Option Agreements..................... 51
THE VOTING AGREEMENTS....................................... 51
General................................................... 51
Effect of the Voting Agreements........................... 51
INFORMATION REGARDING RENT-WAY.............................. 52
INFORMATION REGARDING HOME CHOICE........................... 52
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 53
DESCRIPTION OF RENT-WAY CAPITAL STOCK....................... 53
General................................................... 53
Rent-Way Common Stock..................................... 53
Rent-Way Preferred Stock.................................. 54
COMPARATIVE RIGHTS OF HOLDERS OF COMMON STOCK............... 54
AMENDMENT TO RENT-WAY'S ARTICLES OF INCORPORATION........... 59
LEGAL MATTERS............................................... 60
EXPERTS..................................................... 60
SHAREHOLDER PROPOSALS....................................... 61
OTHER BUSINESS.............................................. 61
WHERE CAN YOU FIND MORE INFORMATION......................... 61
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 64
</TABLE>
<TABLE>
<S> <C>
ANNEX A--Agreement and Plan of Merger
ANNEX B--Opinion of NationsBanc Montgomery Securities LLC
ANNEX C--Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation
ANNEX D--Opinion of Stephens Inc.
ANNEX E--Rent-Way Stock Option Agreement
ANNEX F--Home Choice Stock Option Agreement
ANNEX G--Form of Rent-Way Shareholder Voting Agreement
ANNEX H--Form of Home Choice Stockholder Voting Agreement
ANNEX I--Form of Proxy of Rent-Way, Inc.
ANNEX J--Form of Proxy of Home Choice Holdings, Inc.
</TABLE>
ii
<PAGE> 9
QUESTIONS AND ANSWERS
ABOUT THE MERGER
Q: WHY ARE RENT-WAY AND HOME CHOICE PROPOSING TO MERGE?
A: Our companies are proposing to merge in order to become a stronger
competitor in a rapidly consolidating industry. Following the merger,
Rent-Way will be the second largest company in the rental-purchase industry
with 865 stores in 35 states. We believe the merger will enable us to
compete more effectively for acquisitions. We also believe that the merger
presents an opportunity to achieve cost savings and synergies and to raise
the performance of the Home Choice stores to levels approaching that of the
current Rent-Way stores. However, except as discussed in "Background of the
Merger" and "Opinion of Financial Advisors to Home Choice," we did not
quantify these cost savings and synergies. In addition, we believe that the
increased size and capital base of the combined company will provide us
better access to the capital markets. The increased shareholder base of the
combined company should also create a more efficient trading market for our
stock. To review the reasons for the merger in greater detail, see pages 25
through 30.
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: Rent-Way shareholders: You are being asked to vote to approve and adopt the
agreement and plan of merger entered into by Rent-Way and Home Choice, which
provides for the merger of our two companies. Your vote to approve and adopt
the merger agreement will include the approval of the issuance of Rent-Way
common stock pursuant to the merger agreement and the amendment of
Rent-Way's Articles of Incorporation to increase the authorized shares of
Rent-Way common stock for issuance in the merger.
Home Choice stockholders: You are being asked to vote to approve and adopt
the merger agreement.
Q: WHY IS THE RENT-WAY BOARD ASKING RENT-WAY'S SHAREHOLDERS TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF RENT-WAY COMMON STOCK?
A: In order to have sufficient shares of common stock to issue to Home Choice
stockholders in the merger, it is necessary to increase the number of
authorized shares of Rent-Way common stock. In addition, given the
substantially larger size of the combined company, we wish to make
additional shares available for possible acquisitions, financings, stock
option and other benefit plan issuances and for other corporate purposes.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Home Choice stockholders: Home Choice stockholders will receive 0.588 shares
of Rent-Way common stock for each share of Home Choice common stock they
hold. This is the exchange ratio. Each share of Home Choice common stock
will be cancelled.
Rent-Way will not issue fractional shares in the merger. Instead, Home
Choice stockholders will receive cash for any fractional share of Rent-Way
common stock owed to them.
Rent-Way shareholders: Each share of Rent-Way common stock held by Rent-Way
shareholders will continue to represent one share of Rent-Way common stock
following the merger. After the merger, Home Choice's former stockholders
will own approximately 48% of Rent-Way's outstanding shares of common stock
and current Rent-Way shareholders will own approximately 52% of Rent-Way's
outstanding shares of common stock.
For example:
X if you own 1,000 shares of Home Choice common stock, then after the
merger you will receive 588 shares of Rent-Way common stock.
X If you own 100 shares of Home Choice common stock, then after the
merger you will receive 58 shares of Rent-Way common stock and cash
in the amount of 0.8 times the market value of one share of Rent-Way
common stock.
<PAGE> 10
o If you own 100 shares of Rent-Way common stock, then after the
merger those shares will continue to represent 100 shares of
Rent-Way common stock.
Q: WHAT HAPPENS AS THE MARKET PRICE OF RENT-WAY COMMON STOCK FLUCTUATES?
A: The exchange ratio is fixed at 0.588. Since the market value of Rent-Way
common stock will fluctuate before and after the merger, the value of the
Rent-Way common stock that Home Choice stockholders receive in the merger
could increase or decrease. You should obtain current market prices for
shares of Rent-Way common stock and shares of Home Choice common stock.
Q: WHAT WILL HAPPEN TO THE HOME CHOICE STOCK OPTIONS?
A: Each Home Choice stock option will be converted into an option to purchase
Rent-Way common stock, and Rent-Way will assume each Home Choice option on
the terms set forth in the applicable Home Choice stock option plan. The
number of shares of Rent-Way common stock subject to a Home Choice stock
option will be determined by multiplying the shares covered by the Home
Choice option by 0.588. The exercise price of the substitute Rent-Way
options will be the aggregate exercise price of the Home Choice stock
options being converted divided by the number of shares of Rent-Way common
stock subject to such Home Choice stock options. We will not issue
fractional shares of Rent-Way common stock upon exercise of a Home Choice
stock option. Instead, we will pay cash for any fractional share of Rent-Way
common stock owed to an option holder.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger in the fourth quarter of calendar year
1998.
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should review "Risk Factors" on pages 17 through 19.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: Home Choice stockholders: We expect that the transaction will be tax-free to
each Home Choice stockholder for federal income tax purposes. However, Home
Choice stockholders will have to pay taxes on cash received for fractional
shares. To review the tax consequences of the merger in greater detail, see
pages 45 and 46.
Rent-Way shareholders: The merger will have no tax consequences to Rent-Way
shareholders.
YOUR TAX CONSEQUENCES WILL DEPEND ON YOUR PERSONAL SITUATION. YOU SHOULD
CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF
THE MERGER TO YOU.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this Joint Proxy Statement/Prospectus,
indicate on your proxy how you want to vote, and sign and mail it in the
enclosed prepaid return envelope marked "Proxy" as soon as possible so that
your shares are represented at the respective special meetings.
THE BOARDS OF DIRECTORS OF RENT-WAY AND HOME CHOICE UNANIMOUSLY RECOMMEND
THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be voted to approve and adopt the merger agreement,
which, in the case of Rent-Way shareholders, includes the approval of the
issuance of shares of Rent-Way common stock pursuant to the merger agreement
and the amendment to the Articles of Incorporation of Rent-Way to increase
the authorized number of shares of Rent-Way common stock from 20,000,000 to
50,000,000. If you are a Home Choice stockholder and you do not sign and
send in your proxy or you abstain, it will have the effect of voting against
the merger. If you are a Rent-Way shareholder and you do not sign and send
in your proxy or you abstain, your shares will not be counted as having
voted at Rent-Way's special meeting.
2
<PAGE> 11
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker how to vote your shares, following the
directions your broker provides. If you do not provide instructions to your
broker, your shares will not be voted. If you are a Home Choice stockholder
and you do not provide instructions to your broker, your shares will not be
voted and this will have the effect of voting against the merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at your
special meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you
can complete and submit a new proxy. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy to the
address set forth on the enclosed return envelope marked "Proxy." Third, you
can attend your special meeting and vote in person. Simply attending the
meeting, however, will not revoke your proxy. If you have instructed a
broker to vote your shares, you must follow directions received from your
broker to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If you are a Home Choice stockholder, we will send you written
instructions for exchanging your certificates for certificates representing
shares of Rent-Way common stock and any cash owed to you. Rent-Way will not
be obligated to deliver the consideration to which any former Home Choice
stockholder is entitled until such stockholder surrenders the certificate or
certificates for exchange.
If you are a Rent-Way shareholder, you will retain your share certificates.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETINGS?
A: We do not expect to ask you to vote on any other matters at the respective
special meetings.
Q: WHO CAN HELP WITH QUESTIONS OR COPIES OF PROXY MATERIALS?
A: If you have more questions about the merger, you should contact:
For Rent-Way shareholders:
Rent-Way, Inc.
One Rent-Way Place
Erie, Pennsylvania 16505
Attention: Investor Relations
Phone Number: (814) 455-5378
For Home Choice stockholders:
Home Choice Holdings, Inc.
714 E. Kimbrough Street
Mesquite, Texas 75149
Attention: Investor Relations
Phone Number: (972) 288-9327
If you would like additional copies of the Joint Proxy Statement/Prospectus,
you should contact:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Phone Number: (800) 223-2064
3
<PAGE> 12
SUMMARY
This summary highlights certain information from this document and may not
contain all the information that is important to you. To understand the merger
fully and for a more complete description of the legal terms of the merger, you
should read the entire document carefully, as well as the additional documents
to which we refer you. See "Where You Can Find More Information" (page 60).
THE COMPANIES
(SEE PAGE 52)
RENT-WAY, INC.
One Rent-Way Place
Erie, Pennsylvania 16505
Phone Number: (814) 555-5378
Rent-Way is one of the largest operators in the rental-purchase industry
with 407 stores in 25 states, primarily in the Southeast, Midwest and Northeast
portions of the United States. Rent-Way offers quality, brand name home
entertainment equipment, furniture, major appliances and jewelry to customers
under full-service rental-purchase agreements that generally allow the customer
an option to obtain ownership of the merchandise at the conclusion of an agreed
upon rental period or to return the merchandise at any time without obligation
or penalty. Rent-Way 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 because they have a temporary, short-term
need for the merchandise or a desire to rent rather than purchase the
merchandise.
HOME CHOICE HOLDINGS, INC.
714 E. Kimbrough Street
Mesquite, Texas 75149
Phone Number: (972) 288-9327
Home Choice is also one of the largest operators in the rental-purchase
industry with 459 rental-purchase stores in 26 states primarily in the
Southeast, Midwest and Southwest portions of the United States. Home Choice
offers quality, brand name consumer merchandise under flexible, renewable
rental-purchase agreements. Home Choice's rental-purchase agreements provide
customers with the option, but not the obligation, to obtain ownership of the
merchandise following a stated number of consecutive rental payments. Home
Choice's customers are typically low to middle income consumers with limited or
no access to traditional credit sources such as bank financing, installment
credit and credit cards. Home Choice also provides its products to consumers who
desire only temporary rental of a product. Home Choice's products include
consumer electronics, appliances, furniture, jewelry and home furnishing
accessories.
OUR REASONS FOR THE MERGER
(SEE PAGES 25 THROUGH 30)
The merger of Rent-Way and Home Choice will create a stronger competitor in
the rapidly consolidating rental-purchase industry. The combined company will be
the second largest company in the rental-purchase industry with 865 stores in 35
states. In the face of the rapid industry consolidation, the combined company
will be better able to compete for acquisitions. The merger will also bring
together Rent-Way's management, operating expertise and record of creating
shareholder value and Home Choice's substantial store base. The majority of Home
Choice's stores are located in geographic markets in which Rent-Way does not
currently operate. In addition, Home Choice's stores are generally less
profitable than Rent-Way's stores. This represents an opportunity to increase
combined company profits by bringing Home Choice store profit levels up to those
of Rent-Way stores. Adding Home Choice's large store base will also create
opportunities for cost savings through greater efficiencies and greater buying
power. However except as discussed in "Background of the Merger" and "Opinion of
Financial Advisors to Home Choice," management did not quantify any such cost
savings. Finally, the larger size of the combined company should provide better
access to the capital markets and create a more efficient trading market for
Rent-Way common stock.
THE SPECIAL MEETINGS
(SEE PAGES 20 THROUGH 22)
The Rent-Way special meeting of shareholders will be held at the offices of
Hodgson, Russ, Andrews, Woods & Goodyear, LLP, 20th Floor, One M&T Plaza,
Buffalo, New York at 10:00 a.m. on December 10, 1998.
4
<PAGE> 13
The Home Choice special meeting of stockholders will be held at the offices
of Hodgson, Russ, Andrews, Woods & Goodyear, LLP, 20th Floor, One M&T Plaza,
Buffalo, New York at 11:00 a.m. on December 10, 1998.
OUR RECOMMENDATIONS
(SEE PAGES 25 THOUGH 30)
TO RENT-WAY SHAREHOLDERS:
The Rent-Way Board of Directors believes that the merger is in your best
interests and unanimously recommends that you vote to approve and adopt the
merger agreement. By your approval of the merger agreement, you will also be
approving the issuance of shares of Rent-Way common stock pursuant to the merger
agreement and an amendment to the Articles of Incorporation of Rent-Way to
increase the authorized number of shares of Rent-Way common stock from
20,000,000 to 50,000,000.
TO HOME CHOICE STOCKHOLDERS:
The Home Choice Board of Directors believes that the merger is in your best
interests and unanimously recommends that you vote to approve and adopt the
merger agreement. Certain officers and directors of Home Choice will receive
benefits as a result of the merger which are different from the benefits you
will receive in the merger and that create potential conflicts of interest. See
"Interests of Certain Persons in the Merger" on pages 44 and 45.
RECORD DATE; VOTES REQUIRED
(SEE PAGES 20 THROUGH 22)
Rent-Way shareholders: You are entitled to vote at the Rent-Way
shareholders' meeting if you owned shares of Rent-Way common stock as of the
close of business (5:00 p.m. EST) on October 29, 1998. The affirmative vote of a
majority of the shares of Rent-Way common stock present or represented at the
Rent-Way special meeting is required to approve and adopt the merger agreement.
Gerald A. Ryan and William E. Morgenstern, Chairman of the Board and Chief
Executive Officer, respectively, of Rent-Way, who collectively own or control
approximately 8.4% of the outstanding shares of Rent-Way common stock, have
agreed to vote their shares to approve and adopt the merger agreement.
Home Choice stockholders: You are entitled to vote at the Home Choice
stockholders' meeting if you owned shares of Home Choice common stock as of the
close of business (5:00 p.m. EST) on October 29, 1998. The affirmative vote of a
majority of the outstanding shares of Home Choice common stock is required to
approve and adopt the merger agreement. GDJ, Jr. Investments Limited Partnership
(which is controlled by George D. Johnson, Jr., the Chairman of Home Choice) and
Michael D. Walts, who collectively own approximately 25.0% of the outstanding
shares of Home Choice common stock, have agreed to vote their shares to approve
and adopt the merger agreement.
SHARE OWNERSHIP OF MANAGEMENT
(SEE PAGES 20 AND 22)
The executive officers and directors of Rent-Way, including their
affiliates, beneficially own an aggregate of 954,287 shares of Rent-Way common
stock, or approximately 8.6% of the outstanding shares of Rent-Way common stock.
The executive officers and directors of Home Choice, including their affiliates,
beneficially own an aggregate of 4,791,457 shares of Home Choice common stock,
or approximately 28.1% of the outstanding shares of Home Choice common stock.
We currently expect that the executive officers and directors of Rent-Way
and Home Choice will vote their shares of Rent-Way common stock and Home Choice
common stock, respectively, FOR the proposal to approve and adopt the merger
agreement and the transactions contemplated thereby, including, in the case of
Rent-Way, the issuance of Rent-Way common stock pursuant to the merger and the
amendment to its Articles of Incorporation.
WHAT HOME CHOICE STOCKHOLDERS
WILL RECEIVE IN THE MERGER
(SEE PAGES 30 AND 31)
In the merger, Home Choice stockholders will receive 0.588 shares of
Rent-Way common stock for each share of Home Choice common stock they own. This
is referred to as the exchange ratio. No fractional shares will be issued.
Instead, Home Choice stockholders will receive cash in payment for any
fractional shares based on the market value of Rent-Way common stock at the
effective time of the merger.
Stock options to purchase Home Choice common stock will be converted into
stock options to purchase Rent-Way common stock. The number of shares of
Rent-Way common stock subject to these
5
<PAGE> 14
converted options and the exercise price of these
converted options will be adjusted as provided in the merger agreement to give
effect to the exchange ratio of 0.588 shares of Rent-Way common stock for every
one share of Home Choice common stock.
Home Choice stockholders should not send in their stock certificates until
instructed to do so after the merger has been completed.
OWNERSHIP OF RENT-WAY FOLLOWING THE MERGER (SEE PAGE 30)
Rent-Way will issue approximately 10,011,251 shares of Rent-Way common
stock to Home Choice stockholders in the merger. The shares of Rent-Way common
stock issued to Home Choice stockholders in the merger will constitute
approximately 48% of the outstanding shares of Rent-Way common stock after the
merger.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY FOLLOWING THE
MERGER
(SEE PAGE 31)
The members of the Board of Directors of Rent-Way prior to the merger will
remain the members of the Board of Directors of the combined company following
the merger. No current directors of Home Choice will become members of the Board
of Directors of the combined company following the merger.
The executive officers of Rent-Way prior to the merger will continue as the
executive officers of the combined company.
INTERESTS OF CERTAIN HOME CHOICE OFFICERS AND DIRECTORS IN THE MERGER
(SEE PAGES 45 AND 46)
Certain officers and directors of Home Choice will receive benefits as a
result of the merger which are different from the benefits you will receive in
the merger.
In the merger, certain unvested stock options held by officers and
directors of Home Choice will vest in accordance with their terms. As of October
29, 1998, officers and directors of Home Choice held options to purchase 308,583
shares of Home Choice common stock. Such options will be converted on the
effective date of the merger into options to purchase 181,446 shares of Rent-Way
common stock. An aggregate of 249,500 of such options, will vest on the
effective date of the merger. The exercise price of these options was greater
than the market price of Home Choice Common Share as of November 4, 1998.
Officers and directors of Home Choice will also continue to have the benefit of
indemnification and officers' and directors' insurance protection for six years
after the merger date.
James G. Steckart, John T. Egeland and Tracy A. Schrader, the Chief
Executive Officer, Chief Financial Officer and Vice President and General
Counsel of Home Choice, respectively, have entered into agreements with Home
Choice and Rent-Way to receive certain cash payments in the event they continue
their employment with Home Choice through the merger date. These cash payments
would total $707,400 for Mr. Steckart, $568,800 for Mr. Egeland and $100,000 for
Mr. Schrader. The agreements also provide that Rent-Way will employ them
following the merger on terms to be negotiated. Additionally, Mr. Schrader has
entered into an agreement with Home Choice that provides for a payment of
$62,500 if he maintains his employment with Home Choice through April 30, 1999;
however, Mr. Schrader will not be entitled to any payments under this agreement
if he is offered and accepts a position with Rent-Way. Mr. Steckart has reached
oral agreement with Rent-Way that he will be employed following the merger
through January 31, 1999 at his current salary and benefits and thereafter
through April 30, 1999 at a salary of $1,000 per month without benefits.
CONDITIONS TO THE MERGER
(SEE PAGES 31 AND 32)
The completion of the merger depends upon satisfaction of a number of
conditions, including the following:
(a) the approval and adoption of the merger agreement by the Rent-Way
shareholders and the Home Choice stockholders;
(b) receipt of any necessary consents or approvals from third parties and
governmental authorities, including expiration or early termination of
the statutory waiting period under applicable federal antitrust law;
(c) the authorization for listing on the Nasdaq National Market or the New
York Stock Exchange of the shares of common stock to be issued by
Rent-Way in the merger;
6
<PAGE> 15
(d) the effectiveness of the Registration Statement filed with the
Securities and Exchange Commission relating to the issuance of stock by
Rent-Way pursuant to the merger;
(e) the absence of any injunction or court order which would prohibit or
prevent the merger;
(f) the receipt by Rent-Way and Home Choice of a legal opinion to the
effect that the merger will be tax-free to Rent-Way's and Home Choice's
shareholders; and
(g) the receipt of letters from PricewaterhouseCoopers LLP to the effect
that the merger qualifies for pooling of interests accounting
treatment.
Certain of the conditions to the merger may be waived by the company
entitled to satisfaction of the condition.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGES 33 AND 34)
We can agree to terminate the merger agreement without completing the
merger, and either of us can terminate the merger agreement if any of the
following events occurs:
(a) the merger has not been consummated on or before February 28, 1999,
which date, subject to certain conditions, may be extended to April 30,
1999; or
(b) a court or other governmental authority shall have taken final action
to restrain or otherwise prohibit the completion of the merger; or
(c) the Board of Directors of Home Choice withdraws or changes in an
adverse manner its recommendation to vote in favor of the merger or
approves or recommends a proposal by a third party for the acquisition
of Home Choice by such third party; or
(d) Home Choice enters into a definitive agreement with a third party for
the acquisition of Home Choice by such third party.
TERMINATION FEES
(SEE PAGE 34)
Home Choice must pay Rent-Way $10,000,000, plus all fees and expenses
incurred by Rent-Way in connection with the merger (such as legal, accounting,
investment banking, printing and filing fees and expenses) if the merger
agreement terminates because Home Choice enters into an agreement with a third
party for the acquisition of Home Choice by such third party. These termination
fees are estimated at approximately $13,000,000, which represents approximately
19% of an aggregate assumed merger consideration of $247,177,787 (based on
delivery of 10,011,251 Rent-Way shares (at the closing price of $24.69 per share
on November 4, 1998) and the assumption of approximately $63 million in Home
Choice indebtedness).
REGULATORY APPROVALS
(SEE PAGE 47)
Generally, federal antitrust law prohibits us from completing the merger
until after we have furnished certain information and materials to the Antitrust
Division of the United States Department of Justice and the United States
Federal Trade Commission and the required waiting period has expired or has been
terminated. The required information was furnished and the waiting period
subsequently expired on October 18, 1998.
ACCOUNTING TREATMENT
(SEE PAGE 48)
We expect the merger to qualify as a pooling of interests, which means that
we will treat our companies as if they had always been combined for accounting
and financial reporting purposes. Management of the companies has been informed
that the companies will receive a letter from PricewaterhouseCoopers LLP,
Rent-Way's and Home Choice's independent accountants, that
PricewaterhouseCoopers LLP concurs with the conclusions of management that no
conditions exist which would preclude accounting for the merger as a pooling of
interests.
OPINIONS OF FINANCIAL ADVISORS
(SEE PAGES 35 THROUGH 45)
In deciding to approve the merger, our Boards of Directors considered
opinions from our respective financial advisors as to the fairness of the
exchange ratio from a financial point of view. Rent-Way received an opinion from
its financial advisor, NationsBanc Montgomery Securities LLC, that the 0.588
exchange ratio is fair from a financial point of view to Rent-Way. Home Choice
received opinions
7
<PAGE> 16
from its financial advisors, Donaldson Lufkin Jenrette
Securities Corporation and Stephens Inc., that the 0.588 exchange ratio was fair
from a financial point of view to the Home Choice stockholders. These opinions,
which are subject to the assumptions, limitations and qualifications stated in
each opinion, are attached as Annexes B, C and D to this Joint Proxy
Statement/Prospectus. We encourage you to read these opinions.
In connection with delivering these opinions, our financial advisors
performed a variety of analyses. Although the analyses performed by NationsBanc
Montgomery Securities LLC, on the one hand, and Donaldson Lufkin Jenrette
Securities Corporation and Stephens Inc., on the other, were not identical,
these analyses generally included comparing Rent-Way and Home Choice historical
stock prices and financial multiples to other selected publicly traded
companies, comparing the financial terms of the merger to those of other
publicly announced transactions and estimating the relative value of Home Choice
based on its past and estimated future financial performance.
STOCK OPTION AGREEMENTS
(SEE PAGES 49 THROUGH 51)
As an inducement to Rent-Way to enter into the merger agreement, Home
Choice granted Rent-Way an irrevocable option to purchase from Home Choice up to
4,229,847 shares of Home Choice common stock at a price of $13.24 per share.
As an inducement to Home Choice to enter into the merger agreement,
Rent-Way granted Home Choice an irrevocable option to purchase from Rent-Way up
to 2,740,908 shares of Rent-Way common stock at a price of $29.42 per share.
These options may be exercised only under certain limited and specifically
defined circumstances (none of which, to the best knowledge of Rent-Way and Home
Choice, has occurred as of the date of this document). At the request of the
option holder under certain circumstances, the issuer of the option will
repurchase at a formula price the option and any shares of the issuer's common
stock purchased on exercise of the option and then beneficially owned by such
holder at that time.
Certain aspects of the options may have the effect of discouraging parties
who might be interested in acquiring all of or a significant interest in Home
Choice or Rent-Way from considering or proposing such an acquisition. These
options may even discourage persons who, in the case of an acquisition of Home
Choice, were prepared to offer to pay consideration to the Home Choice
stockholders that had a higher value than the shares of Rent-Way common stock to
be received for each share of Home Choice common stock in the merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGES 46 AND 47)
The merger has been structured so that neither Rent-Way, Home Choice nor
our shareholders will recognize any gain or loss for federal income tax purposes
due to the merger (except for tax payable as a result of cash received in lieu
of fractional shares by Home Choice stockholders). The merger agreement provides
that our obligation to complete the merger is conditioned on receipt of legal
opinions to this effect.
You are urged to consult your own tax advisor regarding the consequences of
the merger to you.
NO APPRAISAL RIGHTS
(SEE PAGE 49)
Under Pennsylvania law, Rent-Way shareholders have no right to an appraisal
of the value of their shares in connection with the merger. Under Delaware law,
Home Choice stockholders have no right to an appraisal of the value of their
shares in connection with the merger.
LISTING OF SHARES OF RENT-WAY COMMON STOCK
(SEE PAGE 48)
Rent-Way will list the shares of Rent-Way common stock to be issued in
connection with the merger on the New York Stock Exchange.
FORWARD-LOOKING STATEMENTS
MAY PROVE INACCURATE
(SEE PAGE 53)
We have each made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of the combined company. Also,
when we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. You should note that many
factors, some of which are discussed elsewhere
8
<PAGE> 17
in this document and in the documents which we incorporate by reference, could
affect the future financial results of the combined company and could cause
those results to differ materially from those expressed in our forward-looking
statement contained or incorporated by reference in this document. These factors
include the following:
X operating, legal and regulatory risks;
X economic, political and competitive forces affecting the rental-purchase
industry; and
X the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
RECENT DEVELOPMENTS
(SEE PAGE 52)
On September 10, 1998, Rent-Way acquired the assets of the 23-store Cari
Rentals rental-purchase chain. The Cari Rentals stores are located in Nebraska,
Iowa, South Dakota and Missouri. The purchase price of the acquisition was
approximately $7.3 million.
9
<PAGE> 18
COMPARATIVE MARKET PRICE INFORMATION
Rent-Way common stock is listed on The New York Stock Exchange ("NYSE")
under the symbol "RWY." Prior to October 8, 1998, Rent-Way common stock was
traded on The Nasdaq National Market. Home Choice common stock is traded on The
Nasdaq National Market under the symbol "HMCH." For Home Choice, periods prior
to June 23, 1998 reflect the price of the common stock of Alrenco, Inc.
("Alrenco"), Home Choice's predecessor company. Alrenco was traded on The Nasdaq
National Market under the symbol "RNCO." The following table sets forth the high
and low intra-day sales prices per share as reported on The Nasdaq National
Market for the calendar year periods indicated, except that for Rent-Way,
beginning on October 8, 1998, such table sets forth the high and low intra-day
sales prices per share as reported on the NYSE Composite Tape. No cash dividends
have been paid on the common stock of Rent-Way or Home Choice.
<TABLE>
<CAPTION>
RENT-WAY HOME CHOICE
COMMON STOCK COMMON STOCK
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
YEAR 1996:
First Quarter(1)....................................... $10.25 $ 7.25 $15.88 $13.75
Second Quarter......................................... 15.63 9.75 19.75 14.25
Third Quarter.......................................... 14.75 10.88 23.75 16.75
Fourth Quarter......................................... 13.00 8.19 22.25 9.63
YEAR 1997:
First Quarter.......................................... $13.38 $ 8.75 $12.13 $10.13
Second Quarter......................................... 15.13 8.63 13.38 10.00
Third Quarter.......................................... 21.75 12.50 19.63 12.88
Fourth Quarter(2)...................................... 20.38 15.00 19.00 13.88
YEAR 1998:
First Quarter.......................................... $24.94 $17.13 $20.25 $14.50
Second Quarter......................................... 34.75 23.75 20.13 9.63
Third Quarter.......................................... 32.80 20.58 14.13 10.13
Fourth Quarter (through November 4).................... 25.25 17.38 14.00 8.81
</TABLE>
- ---------------
(1) Home Choice's market price information for the first quarter of 1996 is from
January 23, 1996 (the date Alrenco completed its initial public offering).
(2) Home Choice's market price information for the fourth quarter of 1997
reflects the public announcement of the merger of Alrenco and RTO, Inc.
("RTO") on September 28, 1997.
Set forth below are the last reported sale prices of Rent-Way common stock
and Home Choice common stock on September 1, 1998, the last trading day prior to
the public announcement that Rent-Way and Home Choice had executed the merger
agreement, and on November 4, 1998, the last trading day prior to the date of
this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
RENT-WAY HOME CHOICE
COMMON STOCK COMMON STOCK
------------ ------------
<S> <C> <C>
September 1, 1998................................ $23.13 $12.69
November 4, 1998................................. $24.69 $13.75
</TABLE>
10
<PAGE> 19
COMPARATIVE PER SHARE DATA
The following table sets forth certain earnings and book value per common
share data for our respective companies on a historical, pro forma combined and
pro forma equivalent basis assuming the merger had been consummated during the
periods presented and assuming an exchange ratio for the merger of 0.588 shares
of Rent-Way common stock for each outstanding share of Home Choice common stock.
The merger is reflected as a pooling-of-interests with the pro forma data
derived accordingly. The information presented below is based on and should be
read in conjunction with the historical financial statements of Rent-Way and
Home Choice and the related notes thereto which are incorporated by reference in
this Joint Proxy Statement/Prospectus and with the unaudited pro forma condensed
combined financial statements and the related notes thereto appearing at page
64. Neither company has paid any cash dividends on its common stock.
<TABLE>
<CAPTION>
NINE
MONTH
PERIOD
ENDED
YEARS(1) JUNE 30,
------------------------ --------
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
RENT-WAY COMMON STOCK
Diluted earnings per share:
Historical............................................. $0.22 $0.46 $ 0.78(6) $ 0.77
Pro forma combined(2).................................. 0.37 0.30 0.11(6) (0.31)
Book value per share:
Historical(3).......................................... $ 5.80 $ 9.57
Pro forma combined(4).................................. 10.04 10.94
HOME CHOICE COMMON STOCK
Diluted earnings per share:
Historical............................................. $0.37(6) $0.09 $(0.23) $(0.89)
Equivalent pro forma combined(5)....................... 0.22(6) 0.18 0.06 (.18)
Book value per share:
Historical(3).......................................... $ 8.26 $ 7.91
Equivalent pro forma combined(5)....................... 5.90 6.43
</TABLE>
- ---------------
(1) Book value per share information for Rent-Way and Home Choice are as of
September 30, for each respective period. Historical diluted earnings per
share information for Rent-Way is for the respective years ended September
30. Historical diluted earnings per share information for Home Choice is for
the respective years ended December 31. The pro forma combined diluted
earnings per share information is based on the historical financial
information of Rent-Way and Home Choice for the respective years ended
September 30 and December 31, respectively.
(2) Pro forma combined earnings per share amounts for Rent-Way common stock
represent the sum of pro forma combined amounts for Rent-Way and Home
Choice, divided by pro forma combined weighted average common shares
outstanding.
(3) Historical book value per share information for Rent-Way and Home Choice as
of the end of each period presented is computed by dividing historical
stockholders' equity for each company by the number of shares outstanding at
the end of each period presented, respectively, excluding shares under stock
option plans.
(4) Pro forma combined book value per share information as of the end of each
period presented is computed by dividing pro forma stockholders' equity
($170,998,765 at September 30, 1997 and $229,177,206 at June 30, 1998), by
the sum of the number of shares of Rent-Way common stock outstanding on such
dates and the shares of Rent-Way common stock assumed to be issued pursuant
to the Merger Agreement.
(5) Equivalent pro forma combined amounts of Home Choice common stock represent
the pro forma combined per share amounts of Rent-Way common stock,
multiplied by the exchange ratio of 0.588.
(6) Per share amounts do not include the effects of extraordinary items recorded
in the historical financial statements.
11
<PAGE> 20
RENT-WAY SELECTED HISTORICAL FINANCIAL DATA(1)
(In thousands, except per share data)
The selected historical financial data of Rent-Way set forth below have
been derived from the financial statements of Rent-Way as they appeared in
Rent-Way's Annual Reports on Form 10-K filed with the Securities and Exchange
Commission as of and for each of the five fiscal years in the period ended
September 30, 1997 audited by PricewaterhouseCoopers LLP, independent auditors,
and Rent-Way's Quarterly Reports on Form 10-Q filed with the Securities and
Exchange Commission for the nine-month periods ended June 30, 1997 and 1998. The
selected financial data for the nine months ended June 30, 1997 and 1998 are
unaudited but include all adjustments (consisting of normal recurring
adjustments) that Rent-Way considers necessary to present fairly Rent-Way's
results of operations for the periods presented. The operating results for the
nine-month period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the entire fiscal year. The selected financial
data is based on and should be read in conjunction with the historical financial
statements of Rent-Way and the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing in Rent-Way's Annual Report on Form 10-K for the year ended September
30, 1997, which are incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
1993 1994(2) 1995(3) 1996(4) 1997(5)
------------- ------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Rental revenue............................. $7,490 $12,111 $24,080 $43,891 $77,498
Other revenue.............................. 957 1,897 4,114 7,280 10,545
------ ------- ------- ------- -------
Total revenues......................... 8,447 14,008 28,194 51,171 88,043
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise....................... 2,410 4,073 8,312 13,229 20,314
Property and equipment................... 216 331 525 775 1,530
Amortization of goodwill................. 7 108 334 875 1,926
------ ------- ------- ------- -------
Total depreciation and amortization.... 2,633 4,512 9,171 14,879 23,770
Salaries and wages......................... 2,205 4,024 6,909 13,101 22,810
Advertising................................ 410 540 1,259 2,123 3,899
Occupancy.................................. 589 1,006 1,888 3,269 5,988
Other operating expenses................... 1,921 3,256 6,387 11,148 17,790
------ ------- ------- ------- -------
Total costs and operating expenses..... 7,758 13,338 25,614 44,520 74,257
------ ------- ------- ------- -------
Operating income....................... 689 670 2,580 6,651 13,786
Interest expense............................. (580) (542) (1,162) (1,493) (3,130)
Interest income.............................. -- -- -- -- --
Other income (expense)....................... 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(7).... $ 173 $ 217 $ 1,009 $ 2,847 $ 5,685
====== ======= ======= ======= =======
Earnings per common share before
extraordinary item(8):
Basic.................................. $ 0.07 $ 0.06 $ 0.25 $ 0.51 $ 0.89
====== ======= ======= ======= =======
Diluted................................ $ 0.07 $ 0.06 $ 0.22 $ 0.46 $ 0.78
====== ======= ======= ======= =======
Weighted average number of shares
outstanding(8):
Basic.................................. 2,412 3,568 3,856 5,346 6,692
====== ======= ======= ======= =======
Diluted................................ 2,412 3,720 4,400 5,961 8,922
====== ======= ======= ======= =======
<CAPTION>
NINE MONTH PERIOD
ENDED JUNE 30,
-------------------------------
1997 1998(6)
------------- ---------------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Rental revenue............................. $55,341 $111,323
Other revenue.............................. 7,994 13,737
------- --------
Total revenues......................... 63,335 125,060
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise....................... 14,634 27,531
Property and equipment................... 1,026 1,962
Amortization of goodwill................. 1,338 2,970
------- --------
Total depreciation and amortization.... 16,998 32,463
Salaries and wages......................... 16,214 31,346
Advertising................................ 2,880 6,183
Occupancy.................................. 4,328 8,380
Other operating expenses................... 13,314 27,015
------- --------
Total costs and operating expenses..... 53,734 105,387
------- --------
Operating income....................... 9,601 19,673
Interest expense............................. (2,312) (4,346)
Interest income.............................. 1 110
Other income (expense)....................... (63) (60)
------- --------
Income before income taxes and
extraordinary item................... 7,227 15,377
Income tax expense (benefit)................. 3,378 6,619
------- --------
Income before extraordinary item(7).... $ 3,849 $ 8,758
======= ========
Earnings per common share before
extraordinary item(8):
Basic.................................. $ 0.62 $ 0.87
======= ========
Diluted................................ $ 0.56 $ 0.77
======= ========
Weighted average number of shares
outstanding(8):
Basic.................................. 6,621 10,081
======= ========
Diluted................................ 8,604 12,226
======= ========
</TABLE>
- ---------------
See Notes on Page 13.
12
<PAGE> 21
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
----------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental merchandise, net.................... $ 2,723 $ 7,068 $12,593 $17,862 $35,132 $ 73,691
Total assets............................... 7,784 15,129 36,155 49,974 96,228 237,655
Total debt................................. 3,858 7,255 19,151 12,979 48,156 116,004
Shareholders' equity....................... 2,944 5,962 10,860 30,719 40,957 104,817
</TABLE>
- ---------------
(1) The comparability of the historical financial information and operating
data for the periods presented has been affected by the acquisition of
rental-purchase stores during these periods as discussed in the following
footnotes.
(2) During the fiscal year ended September 30, 1994, Rent-Way acquired 20
rental-purchase stores through its acquisition of D.A.M.S.L. Corp. on May
18, 1994.
(3) During the fiscal year ended September 30, 1995, Rent-Way acquired 50
rental purchase stores, 46 of which were acquired through the acquisition
of McKenzie Leasing Corporation on July 21, 1995.
(4) During the fiscal year ended September 30, 1996, Rent-Way acquired 32
rental-purchase stores in four separate transactions.
(5) During the fiscal year ended September 30, 1997, Rent-Way acquired 92
rental-purchase stores, 15 of which were acquired on January 2, 1997 from
Bill Coleman TV, Inc. and 70 of which were acquired on February 6, 1997
from Perry Electronics, Inc. d/b/a Rental King.
(6) During the nine months ended June 30, 1998, Rent-Way acquired 195
rental-purchase stores, 50 of which were acquired on January 6, 1998 from
three affiliated corporations doing business as Ace TV Rentals and 145 of
which were acquired on February 5, 1998 from Champion Rentals, Inc.
(7) The historical statements of income for the nine month period ended June
30, 1997 and the year ended September 30, 1997, include an extraordinary
loss of $269 or $0.03 per share, which is not reflected in the selected
historical financial data presented.
(8) Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 128, "Earnings per Share."
13
<PAGE> 22
HOME CHOICE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (1)
(In thousands, except per share data)
The selected historical consolidated financial data of Home Choice set forth
below have been derived from the consolidated financial statements of Home
Choice. The consolidated financial statements of Home Choice as of and for the
fiscal years ended December 31, 1994, 1995, 1996 and 1997 have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report for the years
ended December 31, 1995, 1996 and 1997 appears in Home Choice's Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission for the quarter
ended March 31, 1998. The report of PricewaterhouseCoopers LLP makes reference
to the report of other auditors. The selected consolidated financial data as of
and for the fiscal year ended December 31, 1993 and for the six-month periods
ended June 30, 1997 and 1998 are unaudited, but include all adjustments Home
Choice considers necessary to fairly present Home Choice's results of operations
for the periods presented. The operating results for the six-month period ended
June 30, 1998 are not necessarily indicative of results for the entire year. The
selected financial data is based on and should be read in conjunction with the
historical financial statements of Home Choice and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which are incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTH PERIOD
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------- -------------------
1993 1994 1995 1996(2) 1997(3) 1997(3) 1998
------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues.............................. $61,752 $68,781 $77,529 $124,161 $230,969 $110,153 $131,074
------- ------- ------- -------- -------- -------- --------
Operating expenses:
Direct store expenses..................... 48,982 56,462 65,021 104,181 195,222 89,059 111,469
Corporate expenses........................ 6,515 7,064 7,988 10,711 26,140 10,786 13,710
Cost of business combinations............. -- -- -- 1,743 935 502 11,115
Name change expense....................... -- -- -- -- 743 -- 634
Litigation settlement..................... 625 -- -- -- -- -- --
Amortization of intangibles............... 476 329 569 3,981 9,902 5,657 3,597
Key executive signing bonuses............. -- -- -- 1,486 400 -- --
------- ------- ------- -------- -------- -------- --------
Total operating expenses............ 56,598 63,855 73,578 122,102 233,342 106,004 140,525
------- ------- ------- -------- -------- -------- --------
Operating income (loss)............. 5,154 4,926 3,951 2,059 (2,373) 4,149 (9,451)
Interest expense............................ (2,206) (2,144) (2,468) (1,572) (2,512) (1,006) (2,308)
Interest income............................. 25 39 35 645 218 261 95
Other non-operating income, net............. 163 115 1,311 1,154 786 (131) (768)
------- ------- ------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item............ 3,136 2,936 2,829 2,286 (3,881) 3,273 (12,432)
Income tax expense.......................... 722 764 877 1,188 237 2,115 (2,401)
------- ------- ------- -------- -------- -------- --------
Income (loss) before extraordinary
item(4)........................... $ 2,414 $ 2,172 $ 1,952 $ 1,098 $ (4,118) $ 1,158 $(10,031)
======= ======= ======= ======== ======== ======== ========
PRO FORMA INFORMATION (UNAUDITED):
Income (loss) before extraordinary item... $ 2,414 $ 2,172 $ 1,952 $ 1,098 $ (4,118) $ 1,158 $ --
Pro forma income tax expense (benefit)
before extraordinary item(5)............ 590 505 290 201 (214) (214) --
------- ------- ------- -------- -------- -------- --------
Pro forma income (loss) before
extraordinary item...................... $ 1,824 $ 1,667 $ 1,662 $ 897 $ (3,904) $ 1,372 $ --
======= ======= ======= ======== ======== ======== ========
Pro forma earnings (loss) before
extraordinary item per common
share -- basic and diluted(6)........... $ 0.41 $ 0.37 $ 0.37 $ 0.09 $ (0.23) $ 0.08 $ (0.59)
======= ======= ======= ======== ======== ======== ========
Pro forma weighted average number of
shares outstanding(6):
Basic................................... 4,428 4,456 4,517 10,219 16,941 16,931 16,969
======= ======= ======= ======== ======== ======== ========
Diluted................................. 4,428 4,456 4,517 10,262 17,117 17,326 16,969
======= ======= ======= ======== ======== ======== ========
BALANCE SHEET DATA:
Rental merchandise, net..................... $15,636 $20,450 $21,742 $ 58,724 $ 97,261 $ 97,894
Total assets................................ 25,499 30,282 35,341 169,131 223,561 232,276
Total notes payable......................... 20,308 23,152 23,064 6,772 48,162 66,265
Stockholders' equity (deficit).............. (2,673) (534) 3,449 146,344 143,011 134,360
</TABLE>
- ---------------
See notes on page 15.
14
<PAGE> 23
(1) On February 26, 1998, Home Choice and RTO merged in a transaction accounted
for as a pooling of interests and, accordingly, the historical financial
information reflected has been restated to reflect the combined financial
information of both Home Choice and RTO for all periods presented. The
comparability of the historical financial information and operating data for
the periods presented has been affected by the acquisition of
rental-purchase stores during these periods as discussed in the following
footnotes.
(2) During the fiscal year ended December 31, 1996, Home Choice acquired 14
rental-purchase stores through its acquisition of Easy TV & Appliance
Rental, 14 rental-purchase stores through its acquisition of Network
Rentals, Inc, 28 rental-purchase stores through its acquisition of Fastway,
Inc., and 102 rental-purchase stores through its acquisition of Action TV &
Appliance Rental, Inc.
(3) During the fiscal year ended December 31, 1997, Home Choice acquired 27
rental-purchase stores through its acquisition of B & L Concepts, Inc., 11
rental-purchase stores through its acquisition of Instant Rent to Own, Inc.,
and 17 rental-purchase stores through its acquisition of Amigo TV Rental,
Inc.
(4) The historical statements of income for the year ended December 31, 1995,
includes an extraordinary gain of $3,336 or $0.74 per share which is not
reflected in the selected historical financial data presented.
(5) Represents the pro forma income taxes on income (loss) of acquired companies
accounted for as poolings of interests which were S corporations prior to
acquisition. The pro forma income taxes have been provided on income (loss)
using an effective income tax rate of approximately 38.6%.
(6) Restated to reflect the Adoption of Statement of Financial Accounting
Standards No. 128, "Earnings per Share."
15
<PAGE> 24
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected unaudited pro forma condensed combined financial data
is based on and should be read in connection with the historical financial
statements of Rent-Way and Home Choice which are incorporated by reference in
this Joint Proxy Statement/Prospectus, adjusted to give effect to the merger and
assuming the merger is accounted for under the pooling of interests accounting
method. The selected information presents the 1997 fiscal year and the nine
month periods ended June 30, 1997 and 1998 and also includes the pro forma
effects of certain other acquisition transactions. See "Unaudited Pro Forma
Condensed Combined Financial Statements" at page 64. The pro forma condensed
combined statement of income data presented below assumes that the Merger was
consummated at the beginning of the periods presented and the pro forma balance
sheet data assumes that the Merger was consummated on June 30, 1998. The pro
forma financial data is presented for illustrative purposes only, and is not
necessarily indicative of the operating results or financial position that would
have occurred if the Merger had been consummated at the beginning of the periods
or on the dates indicated, nor is it necessarily indicative of future operating
results or financial position.
<TABLE>
<CAPTION>
NINE MONTH PERIOD
FISCAL ENDED JUNE 30,
-------------------------------------- -------------------------
1995 1996(2) 1997(2) 1997(2) 1998(2)
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues................................... $ 105,723 $ 175,333 $ 412,491 $ 297,674 $ 343,964
COST AND OPERATING EXPENSES:
Operating expenses............................... 98,290 160,023 379,552 267,939 316,985
Cost of business combinations.................... -- 1,743 935 2,197 11,185
Name change expense.............................. -- -- 742 -- 1,377
Amortization of intangibles...................... 902 4,857 14,894 11,983 9,314
---------- ----------- ----------- ----------- -----------
Total costs and operating expenses........... 99,192 166,623 396,123 282,119 338,861
---------- ----------- ----------- ----------- -----------
Operating income............................. 6,531 8,710 16,368 15,555 5,103
OTHER INCOME (EXPENSE):
Interest expense................................. (3,646) (3,159) (10,410) (9,001) (9,390)
Interest income.................................. 102 706 238 773 265
Other expense, net............................... 248 507 (360) (84) (754)
Gain/loss on sale of stores...................... 1,049 751 950 -- --
---------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item......................... 4,284 7,515 6,786 7,243 (4,776)
Income tax expense............................... 1,323 3,570 5,018 4,604 1,711
---------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item...... $ 2,961 $ 3,945 1,768 2,639 (6,487)
========== =========== =========== =========== ===========
PRO FORMA INFORMATION (UNAUDITED):
Income (loss) before extraordinary item........ $ 2,961 $ 3,945 1,768 2,639 (6,487)
Pro forma income tax expense (benefit) before
extraordinary item(1)........................ 290 201 (214) (156) --
---------- ----------- ----------- ----------- -----------
Pro forma income before extraordinary item..... $ 2,671 $ 3,744 1,982 2,795 (6,487)
========== =========== =========== =========== ===========
Pro forma earnings (loss) before extraordinary
item per common share:
Basic........................................ $ 0.40 $ 0.32 0.12 0.15 (0.32)
========== =========== =========== =========== ===========
Diluted...................................... $ 0.37 $ 0.30 0.11 0.15 (0.31)
========== =========== =========== =========== ===========
Pro forma weighted average number of shares
outstanding:
Basic........................................ 6,511,892 11,354,936 19,240,534 19,152,623 20,488,209
========== =========== =========== =========== ===========
Diluted...................................... 7,056,024 11,994,468 19,902,577 19,640,250 21,137,434
========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Rental merchandise, net.......................... $ 171,584
Total assets..................................... 469,931
Total debt....................................... 182,269
Shareholders' equity............................. 229,177
</TABLE>
- ---------------
(1) Represents the pro forma income taxes on income (loss) of acquired
companies accounted for as poolings-of-interests which were S corporations
prior to acquisition. The pro forma income taxes have been provided on
income (loss) using an effective income tax rate of approximately 38.6%.
(2) As a result of Rent-Way and Home Choice having different fiscal year ends
the three month periods ended December 31, 1997 and 1996 for Home Choice
were included in both the Pro Forma Statement of Income Data for fiscal
1996 and 1997, respectively, and the nine month periods ended June 30, 1997
and 1998, respectively. Revenues were $42,739,933 and $61,541,358,
respectively, and net losses were $1,553,946 and $5,142,156, respectively,
for the three month periods ended December 31, 1996 and 1997, respectively.
Upon consummation of the merger, the loss for the three month period ended
December 31, 1997 will be reflected as an adjustment to shareholders'
equity. The Pro Forma Statement of Income Data does not reflect any
estimate of expenses directly associated with the merger. The amount of
such expenses expected to be included in the Statements of Income of
Rent-Way within the next 12 months is $10 million.
16
<PAGE> 25
RISK FACTORS
In addition to general investment risks and those factors set forth
elsewhere in this document (including under the caption "Cautionary Statement
Concerning Forward-Looking Statements"), you should consider the following
material risks in deciding whether to approve and adopt the merger agreement.
RISKS ASSOCIATED WITH THE INTEGRATION OF THE TWO COMPANIES
The merger involves the integration of two rental-purchase companies that
previously operated independently. Rent-Way may not be able to integrate Home
Choice into its operations without encountering difficulties. Home Choice has a
substantially greater number of stores than any rental-purchase company
previously acquired by Rent-Way. We also cannot assure you if or to what extent
the integration of Home Choice's operations will result in cost savings and
operating synergies following the merger.
RISKS ASSOCIATED WITH THE FIXED EXCHANGE RATIO
In the merger, each share of Home Choice common stock will be converted
into the right to receive 0.588 shares of Rent-Way common stock. This is
referred to as the exchange ratio. The exchange ratio is fixed and will not be
adjusted in the event of any increase or decrease in the market price of Home
Choice common stock or Rent-Way common stock. As a result, the market value of
the consideration to be received by Home Choice stockholders in the merger could
vary depending on fluctuations in the value of Rent-Way common stock. These
fluctuations could occur as the result of changes in the business, operations or
prospects of Rent-Way, market assessments of the likelihood that the merger will
be consummated, the timing of the merger, regulatory considerations,
developments in the rental-purchase industry, and general market and economic
conditions. Accordingly, we cannot assure Home Choice stockholders that the
market value of the merger consideration on the date of this Joint Proxy
Statement/Prospectus will be the same as the market value of the merger
consideration on the date of the Rent-Way and Home Choice special meetings or on
the effective date of the merger.
RISKS ASSOCIATED WITH THE COMBINED COMPANY'S ACQUISITION STRATEGY FOLLOWING THE
MERGER
The continued growth of Rent-Way following the merger will depend, in
significant part, on its ability to acquire additional rental-purchase stores on
favorable terms, to integrate those acquired stores into its operations and to
enhance their performance. Rent-Way will compete for acquisitions with several
other companies. One of these companies, Renters Choice, Inc. ("Renter's
Choice"), has significantly greater financial and other resources than Rent-Way.
We cannot assure you that Rent-Way will be able to locate or acquire suitable
acquisition candidates, that acquisition candidates, once located, will be
acquired by Rent-Way on terms comparable with terms available to its
competitors, or that any operations that are acquired can be efficiently and
profitably integrated into Rent-Way's existing operations. Rent-Way may acquire
operations that are unprofitable or have inconsistent profitability. These
acquisitions may hurt Rent-Way's operating results, particularly during periods
immediately following completion of the acquisition. Rent-Way's acquisition
strategy will also place significant demands on its management and its financial
resources.
RISKS ASSOCIATED WITH SIGNIFICANT GOVERNMENT REGULATION OF THE RENTAL-PURCHASE
INDUSTRY
Forty-six states have enacted laws specifically regulating the
rental-purchase transaction, including all of the states in which Rent-Way's
stores will be located following the merger. These laws generally require
written disclosures concerning the nature of the transaction and also provide
consumer protections, such as a grace period for late payments and reinstatement
rights in the event the rental-purchase agreement is terminated for non-
payment. The rental-purchase laws of some states, including California,
Michigan, New York, Ohio, Pennsylvania and West Virginia, limit the total dollar
amount of payments that may be charged over the life of the rental-purchase
agreement. As Rent-Way acquires or opens new stores in new states, it will
become subject to the rental-purchase laws of those states. We can not provide
you with any assurance against the enactment of new or revised rental-purchase
laws that could have a material adverse effect on Rent-Way following the merger.
No federal legislation has been enacted regulating or otherwise impacting
the rental-purchase transaction. From time to time, legislation has been
introduced in Congress that would regulate the rental-purchase
17
<PAGE> 26
transaction, including legislation that would subject the transaction to
interest rate, finance charge and fee limitations, and to the Federal Truth in
Lending Act. Any federal legislation of this sort, if enacted, could have a
material adverse effect on Rent-Way following the merger.
RISKS ASSOCIATED WITH PARTICIPATION IN HIGHLY COMPETITIVE RENTAL-PURCHASE
INDUSTRY
The rental-purchase industry is highly competitive. Following the merger,
Rent-Way will compete with other rental-purchase businesses and, to a lesser
extent, with rental stores that do not offer a purchase option. Competition is
based primarily on rental prices and terms, product selection and availability,
and customer service. Following the merger, Rent-Way will also compete with
department stores, discount stores and other retail outlets that offer an
installment sales program or offer comparable products and prices. Rent-Way's
largest industry competitor, Renter's Choice, is national in scope and has
significantly greater financial and operating resources and, because it recently
acquired the stores formerly operated under the Rent-A-Center name, greater name
recognition than Rent-Way. We cannot assure you that following the merger
Rent-Way will be able to successfully compete with Renter's Choice or with its
other competitors. Furthermore, additional competitors may emerge since the cost
of entering the rental-purchase business is relatively low.
SIGNIFICANT CONTINUING CASH REQUIREMENTS ASSOCIATED WITH THE COMBINED COMPANY'S
ACQUISITION STRATEGY
Rent-Way's pursuit of its acquisition strategy following the merger will
require significant capital. Capital is needed not only for acquisitions and new
store openings, but also to service acquisition-related debt, for the effective
integration, operation and expansion of acquired rental-purchase stores,
including the Home Choice stores, and for the purchase of new rental
merchandise. We cannot assure you that adequate capital will be available to
Rent-Way following the merger or, if available, on terms acceptable to Rent-Way.
RISKS ASSOCIATED WITH INTANGIBLE ASSETS
Following the merger, a substantial portion of Rent-Way's assets will
consist of intangible assets, including goodwill and covenants not to compete
related to the acquisition of rental-purchase stores. Rent-Way expects goodwill
on its balance sheet to continue to increase in the future as it makes
additional acquisitions. Additions to goodwill are amortized against earnings in
future periods. Furthermore, we cannot assure you that Rent-Way will receive
value for these intangible assets on a sale or liquidation of Rent-Way.
RISKS ASSOCIATED WITH DEPENDENCE ON KEY PERSONNEL
The executive officers of Rent-Way prior to the merger will continue as the
executive officers of the combined company. The success of Rent-Way following
the merger is largely dependent upon these executive officers. The loss of
services of any of these executive officers could have a material adverse affect
on Rent-Way.
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE ISSUES
Following the merger, the combined company will need to insure that Year
2000 software failures do not adversely impact its operations. Rent-Way has
established procedures for evaluating and managing the risks and costs
associated with this problem and believes that its computer systems are
currently Year 2000 compliant. In connection with integrating the companies
following the merger, Rent-Way will evaluate the Home Choice computer systems
for Year 2000 compliance. Rent-Way's inability to integrate the Home Choice
computer systems and cause them to be Year 2000 compliant could have a material
adverse effect on Rent-Way following the merger.
EFFECT OF ANTI-TAKEOVER PROVISIONS IN RENT-WAY ARTICLES AND BY-LAWS
The Articles of Incorporation and By-laws of Rent-Way following the merger
will contain provisions that could delay, deter or prevent a merger, tender
offer or other business combination or change in control involving Rent-Way that
some or a majority of the Rent-Way shareholders might consider to be in their
best interest, including offers or attempted takeovers that might otherwise
result in the Rent-Way shareholders receiving a
18
<PAGE> 27
premium over the then market price of the Rent-Way common stock. Rent-Way's
Articles of Incorporation contain a provision authorizing the issuance of "blank
check" preferred stock. Rent-Way's By-laws contain provisions establishing a
classified Board of Directors and advance notice requirements for director
nominations and actions to be taken at annual shareholder meetings. The By-laws
also provide that only the directors may call special meetings of the Rent-Way
shareholders and that the Rent-Way Board, or any class of the Rent-Way Board or
any individual director, may be removed from office only for cause and only by
vote of holders of greater than 50% of the outstanding Rent-Way common stock.
19
<PAGE> 28
THE MEETINGS
RENT-WAY SPECIAL MEETING
Date, Time and Place
The enclosed proxy is solicited by and on behalf of the Rent-Way Board of
Directors (the "Rent-Way Board") for use at the special meeting of shareholders
of Rent-Way scheduled for December 10, 1998 at 10:00 a.m. at the offices of
Hodgson, Russ, Andrews, Woods & Goodyear, LLP, 20th floor, One M&T Plaza,
Buffalo, New York (the "Rent-Way Special Meeting").
Purpose of the Rent-Way Special Meeting
The purpose of the Rent-Way Special Meeting is to consider and vote on the
approval and adoption of the Agreement and Plan of Merger dated September 1,
1998 by and between Rent-Way and Home Choice (the "Merger Agreement") and the
transactions contemplated thereby, including (i) the issuance of shares of Rent-
Way common stock pursuant to the Merger Agreement (the "Stock Issuance"), and
(ii) an amendment (the "Articles Amendment") to the Articles of Incorporation of
Rent-Way to increase the authorized shares of Rent-Way common stock from
20,000,000 to 50,000,000, and to transact any other business incident to the
conduct of the Rent-Way Special Meeting.
Record Date; Votes Required
The Rent-Way Board has fixed the close of business on October 29, 1998 (the
"Rent-Way Record Date"), as the record date for purposes of determining the
Rent-Way shareholders entitled to receive notice of and to vote at the Rent-Way
Special Meeting. Only those Rent-Way shareholders as of the Rent-Way Record Date
are entitled to notice of and to vote at the Rent-Way Special Meeting. As of the
close of business on the Rent-Way Record Date, there were 11,088,949 shares of
Rent-Way common stock issued and outstanding and entitled to vote at the
Rent-Way Special Meeting. Rent-Way shareholders as of the Rent-Way Record Date
are entitled to cast one vote on the matter of approval and adoption of the
Merger Agreement and on any other matter incident to the conduct of the Rent-Way
Special Meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Rent-Way common stock entitled to vote at the Rent-Way
Special Meeting is necessary to constitute a quorum for the transaction of
business at the Rent-Way Special Meeting. The affirmative vote of the holders of
a majority of the votes cast by all Rent-Way shareholders entitled to vote at
the Rent-Way Special Meeting is required to approve and adopt the Merger
Agreement, including the Stock Issuance and the Articles Amendment.
At the Rent-Way Special Meeting, abstentions will be treated as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum, but will not be counted in the number of votes cast on any matter. If a
broker does not receive voting instructions from the beneficial owner of shares
on a particular matter and indicates on the proxy that it does not have
discretionary authority to vote on that matter (a "broker non-vote"), those
shares will not be considered as present and entitled to vote with respect to
that matter for the purposes of establishing a quorum. Abstentions and broker
non-votes will not be counted as votes cast either for or against approval of
the merger.
Share Ownership of Management; Voting Agreements
As of the Rent-Way Record Date, the directors and executive officers of
Rent-Way, together with their affiliates, as a group beneficially owned
approximately 8.6% of the outstanding shares of Rent-Way common stock entitled
to vote at the Rent-Way Special Meeting. Gerald A. Ryan and William E.
Morgenstern, Chairman of the Board and Chief Executive Officer, respectively, of
Rent-Way, have entered into voting agreements with Home Choice requiring them to
vote all shares of Rent-Way common stock beneficially owned by them for approval
of the Merger Agreement. As of the Rent-Way Record Date, Messrs. Ryan and
Morgenstern held of record and beneficially 8.4% of the outstanding shares of
Rent-Way common stock entitled to vote at the Rent-Way Special Meeting. See "The
Voting Agreements."
20
<PAGE> 29
Solicitation and Revocation of Proxies
Shares of Rent-Way common stock represented by duly executed proxies in the
enclosed form received prior to the Rent-Way Special Meeting and not revoked
will be voted at the meeting or at any adjournments or postponements thereof in
accordance with the instructions specified on the proxy. If no instructions are
specified, such proxies will be voted FOR approval and adoption of the Merger
Agreement, including the Stock Issuance, and the Articles Amendment. A proxy may
be revoked by the person executing it at any time prior to its use by giving
written notice to the Secretary of Rent-Way, by delivery of an executed proxy
bearing a later date or by voting in person at the Rent-Way Special Meeting. All
written notices of revocation and other communications with respect to
revocation of proxies should be addressed to Rent-Way as follows: Rent-Way,
Inc., One Rent-Way Place, Erie, Pennsylvania 16505, Attention: Corporate
Secretary. Attendance at the Rent-Way Special Meeting will not have the effect
of revoking a proxy unless the Rent-Way shareholder in attendance notifies the
secretary of the meeting in writing of such revocation prior to voting of the
proxy.
The Rent-Way Board is not aware of any other matters which may be presented
for consideration and a vote at the Rent-Way Special Meeting. If other matters
incident to the conduct thereof do properly come before the Rent-Way Special
Meeting, it is intended that shares of Rent-Way common stock represented by duly
executed proxies in the enclosed form will be voted by the persons named in the
proxy in accordance with their best judgment.
Rent-Way will pay all of the expenses of soliciting proxies for the
Rent-Way Special Meeting, including the cost of preparing, printing, assembling
and mailing this Joint Proxy Statement/Prospectus and the enclosed form of
proxy. In addition to the solicitation of proxies by mail, certain officers and
regular employees of Rent-Way, without additional compensation, may use their
personal efforts, by telephone or otherwise, to obtain proxies. Rent-Way will
also request persons, firms and corporations holding shares in their names, or
in the names of their nominees, which shares are beneficially owned by others,
to send this Joint Proxy Statement/Prospectus to and obtain proxies from such
beneficial owners, and will reimburse such holders for their reasonable expenses
in so doing. In addition, Georgeson & Company, Inc. ("Georgeson") has been
jointly retained by Rent-Way and Home Choice to assist in the solicitation of
proxies. Georgeson will receive reasonable and customary compensation for its
services (estimated at $10,000), will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities under the
federal securities laws.
HOME CHOICE SPECIAL MEETING
Date, Time and Place
The enclosed proxy is solicited by and on behalf of the Home Choice Board
of Directors (the "Home Choice Board") for use at the special meeting of
stockholders of Home Choice scheduled for December 10, 1998 at 11:00 a.m. at the
offices of Hodgson, Russ, Andrews, Woods & Goodyear LLP, 20th Floor, One M&T
Plaza, Buffalo, New York 14203 (the "Home Choice Special Meeting").
Purpose of the Special Meeting
The purpose of the Home Choice Special Meeting is to consider and vote on
the approval and adoption of the Merger Agreement and to transact any other
business that is properly brought before the Home Choice Special Meeting.
Record Date; Votes Required
The Home Choice Board has fixed the close of business on October 29, 1998
(the "Home Choice Record Date"), as the record date for purposes of determining
the Home Choice stockholders entitled to receive notice of and to vote at the
Home Choice Special Meeting. Only those Home Choice stockholders as of the Home
Choice Record Date are entitled to notice of and to vote at the Home Choice
Special Meeting. As of the close of business on the Home Choice Record Date,
there were 17,025,938 shares of Home Choice common stock issued and outstanding
and entitled to vote at the Home Choice Special Meeting. Home Choice
stockholders as of the Home Choice Record Date are entitled to cast one vote on
the approval and adoption of the Merger Agreement and any other matter incident
to the conduct of the Home Choice Special Meeting.
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The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Home Choice common stock entitled to vote at the Home
Choice Special Meeting is necessary to constitute a quorum for the transaction
of business at the Home Choice Special Meeting. The affirmative vote of the
holders of a majority of the outstanding shares of Home Choice common stock
entitled to vote at the Home Choice Special Meeting is required to approve and
adopt the Merger Agreement.
At the Home Choice Special Meeting, abstentions will be treated as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum, but will not be counted in the number of votes cast on any matter.
If a broker does not receive voting instructions from the beneficial owner of
shares on a particular matter and indicates on the proxy that it does not have
discretionary authority to vote on that matter (a "broker non-vote"), those
shares will not be considered as present and entitled to vote with respect to
that matter. Abstentions and broker non-votes will not be counted as votes cast
either for or against the merger and thus will have the same effect as votes
cast against the proposal to approve and adopt the Merger Agreement.
Share Ownership of Management; Voting Agreement
As of the Home Choice Record Date, the directors and executive officers of
Home Choice, together with their affiliates, as a group beneficially owned
approximately 28.1% of the outstanding shares of Home Choice common stock
entitled to vote at the Home Choice Special Meeting. GDJ, Jr. Investments
Limited Partnership (which is controlled by George D. Johnson, Jr., Chairman of
Home Choice) and Michael D. Walts have entered into voting agreements with Home
Choice requiring them to vote all shares of Home Choice common stock
beneficially owned by them for approval of the Merger Agreement. As of the Home
Choice Record Date, these stockholders held of record and beneficially
approximately 26.2% of the outstanding shares of Home Choice common stock
entitled to vote at the Home Choice Special Meeting. See "The Voting
Agreements."
Solicitation and Revocation of Proxies
Shares of Home Choice common stock represented by duly executed proxies in
the enclosed form received prior to the Home Choice Special Meeting and not
revoked will be voted at the meeting or at any adjournments or postponements
thereof in accordance with the instructions specified on the proxy. If no
instructions are specified, such proxies will be voted FOR approval and adoption
of the Merger Agreement. A proxy may be revoked by the person executing it at
any time prior to its use by giving written notice to the Secretary of Home
Choice, by delivery of an executed proxy bearing a later date or by voting in
person at the Home Choice Special Meeting. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
to Home Choice as follows: Home Choice Holdings, Inc., 714 E. Kimbrough,
Mesquite, Texas 75149, Attention: Corporate Secretary. Attendance at the Home
Choice Special Meeting will not have the effect of revoking a proxy unless the
Home Choice stockholder in attendance notifies the secretary of the meeting in
writing prior to voting of the proxy.
The Home Choice Board is not aware of any other matters which may be
presented for consideration and a vote at the Home Choice Special Meeting. If
other matters incident to the conduct thereof do properly come before the Home
Choice Special Meeting, it is intended that shares of Home Choice common stock
represented by duly executed proxies in the enclosed form will be voted by the
persons named in the proxy in accordance with their best judgment.
Home Choice will pay all of the expenses of soliciting proxies for the Home
Choice Special Meeting, including the cost of mailing this Joint Proxy
Statement/Prospectus and the enclosed form of proxy. In addition to the
solicitation of proxies by mail, certain officers and regular employees of Home
Choice, without additional compensation, may use their personal efforts, by
telephone or otherwise, to obtain proxies. Home Choice will also request
persons, firms and corporations holding shares in their names, or in the names
of their nominees, which shares are beneficially owned by others, to send this
Joint Proxy Statement/Prospectus to and obtain proxies from such beneficial
owners, and will reimburse such holders for their reasonable expenses in so
doing. In addition, Georgeson has been jointly retained by Rent-Way and Home
Choice to assist in the solicitation of proxies. Georgeson will receive
reasonable and customary compensation for its services (estimated at $10,000),
will be reimbursed for certain reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities under the federal securities laws.
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THE MERGER
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to Rent-Way
shareholders in connection with the solicitation of proxies by the Rent-Way
Board for use at the Rent-Way Special Meeting, and at any adjournment or
postponement thereof. At the Rent-Way Special Meeting, the Rent-Way shareholders
will be asked to consider and vote upon a proposal to approve and adopt the
Merger Agreement and the transactions contemplated thereby, including the Stock
Issuance and the Articles Amendment.
This Joint Proxy Statement/Prospectus is also being furnished to the Home
Choice stockholders in connection with the solicitation of proxies by the Home
Choice Board for use at the Home Choice Special Meeting, and at any adjournment
or postponement thereof. At the Home Choice Special Meeting, the Home Choice
stockholders will be asked to consider and vote upon a proposal to approve and
adopt the Merger Agreement.
The Merger Agreement provides for the merger of Home Choice with and into
Rent-Way, with Rent-Way as the surviving corporation (the "Merger"). Pursuant to
the Merger Agreement, at the Effective Time of the Merger (as defined below),
each issued and outstanding share of common stock, par value $.01 per share, of
Home Choice (the "Home Choice Common Stock") will be cancelled and converted
into the right to receive 0.588 shares (the "Exchange Ratio") of common stock,
without par value, of Rent-Way (the "Rent-Way Common Stock"). No fractional
shares will be issued. Instead, Home Choice stockholders will receive cash in
payment for any fractional shares based on the market value of Rent-Way common
stock at the Effective Time. Each issued and outstanding share of Rent-Way
Common Stock will remain outstanding and unchanged as one share of Rent-Way
Common Stock.
BACKGROUND OF THE MERGER
On June 24, 1998, William E. Morgenstern, President and Chief Executive
Officer of Rent-Way, and George D. Johnson, Jr., Chairman of the Board of Home
Choice, discussed Rent-Way's unsuccessful bid to acquire the rental-purchase
stores of Thorn Americas, Inc. d/b/a Rent-A-Center. In this conversation, the
possibility of a business combination between Rent-Way and Home Choice arose;
however, no specific terms or structure of a combination were discussed. It was
agreed that Mr. Morgenstern would contact Mr. Johnson in July.
On July 16, Mr. Johnson contacted Mr. Morgenstern to set up a meeting to
discuss a potential business combination between Rent-Way and Home Choice. Mr.
Morgenstern and Mr. Johnson agreed to meet the following day in Charlotte, North
Carolina.
On July 17, Mr. Morgenstern, Mr. Johnson and John T. Egeland, Chief
Financial Officer of Home Choice, met in Charlotte, North Carolina. At this
meeting, the parties discussed the potential benefits and disadvantages of a
business combination. The parties also discussed the current operating trends,
management business plans and forecasts for Rent-Way and Home Choice through the
end of fiscal year 1999. The information that was discussed orally among the
parties included monthly revenues for fiscal year 1998 to date and projected
monthly revenues and earnings prepared by management of Rent-Way and Home Choice
for the remaining portion of fiscal year 1998 and for fiscal year 1999. No
specific terms of any business combination were discussed. The parties agreed
that they would authorize their financial advisors to begin modeling a potential
business combination of Rent-Way and Home Choice. Mr. Morgenstern advised Mr.
Johnson and Mr. Egeland that the Rent-Way Board would authorize a business
combination only on terms that would add to Rent-Way's earnings per share.
During the week of July 20, Mr. Morgenstern and Jeffrey A. Conway,
Rent-Way's Chief Financial Officer, had several telephone conversations with
representatives of Rent-Way's financial advisor, NationsBanc
Montgomery Securities LLC ("NationsBanc Montgomery Securities"), regarding the
modeling of the potential business combination. During the same week, Mr.
Johnson and Mr. Egeland held telephonic meetings with Home Choice's financial
advisors, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and
Stephens Inc. ("Stephens"), regarding the model for the potential business
combination.
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On July 27, 1998, the Home Choice Board participated in a telephone
conference call during which Mr. Johnson briefed the board members on his
discussions with Mr. Morgenstern regarding a potential business combination. The
Home Choice Board authorized Home Choice management to proceed with discussions
regarding a business combination.
On July 28, the Rent-Way Board met to discuss the proposed business
combination with Home Choice. Members of the Rent-Way Board inquired of Mr.
Morgenstern and Mr. Conway regarding the proposed terms of the transaction and
potential synergies achievable through the combination. The Rent-Way Board
authorized Rent-Way management to proceed with discussions regarding a business
combination.
On July 29, Mr. Morgenstern met with James G. Steckart, the new President
and Chief Executive Officer of Home Choice, and Mr. Egeland in Dallas. Messrs.
Steckart and Egeland presented to Mr. Morgenstern certain historical and
forward-looking business information regarding Home Choice and the potential
opportunities and risks of a combination of the two companies. The historical
information regarding Home Choice that was presented included monthly financial
statements for the first six months of fiscal year 1998, a list of one-time
charges incurred in the same period, information regarding average new store
performance by month and a comparative product cost breakdown, together with
additional information regarding Home Choice's organizational structure and
accounting policies and practices. The forward-looking information regarding
Home Choice that was presented consisted of earnings forecasts prepared by Home
Choice's management for the third and fourth quarters of fiscal year 1998 and
for the full year of fiscal year 1999.
On August 6, management of and financial advisors to Rent-Way and Home
Choice met to discuss the proposed combination in New York City. The parties
discussed the models prepared by the financial advisors for the proposed
combination and discussed an appropriate ratio at which shares of Home Choice
common stock would be exchanged for shares of Rent-Way common stock. After
discussing possible exchange ratios, both sides agreed to review the matter with
their Boards of Directors and advisors.
On August 10, the Rent-Way Board met and after a general discussion of the
proposed transaction authorized management to proceed with negotiation of a
business combination with Home Choice, subject to additional due diligence and
negotiation of a definitive Merger Agreement.
On August 11, 12 and 13, Rent-Way's financial advisor and Home Choice's
financial advisors, acting solely as intermediaries for their respective
clients, had several telephone conversations during which they communicated to
the other their client's position regarding the terms and conditions of the
proposed combination and a mutually acceptable exchange ratio.
On August 12, representatives of Rent-Way and Home Choice participated in a
conference call during which the parties again discussed possible exchange
ratios for the Merger.
On August 12, the Rent-Way Board met to discuss the status of negotiations
and the Home Choice information that had been provided. At this meeting, based
on the information provided by Home Choice and presentations by Rent-Way
management, the Rent-Way Board authorized management to proceed with negotiation
of a proposed combination at an exchange ratio of between 0.55 and 0.60, subject
to the performance of additional due diligence and negotiation of a definitive
Merger Agreement.
On August 14, Mr. Morgenstern contacted Mr. Johnson to advise him of
Rent-Way's desire to reach agreement on a combination and suggested a meeting to
be attended by only Mr. Morgenstern and Mr. Johnson.
On August 17, Mr. Morgenstern and Mr. Johnson met in Orlando, Florida.
After discussion regarding the financial information of Home Choice and
Rent-Way, Mr. Johnson agreed to request approval of a combination from the Home
Choice Board at an 0.588 exchange ratio.
On August 19, legal counsel to Rent-Way met with representatives of
Rent-Way management at Rent-Way's offices in Erie, Pennsylvania to discuss a
preliminary timetable and due diligence plan for the proposed transaction.
On August 21, representatives of Rent-Way's management, its financial
advisor and its legal counsel met with representatives of Home Choice's
management, its financial advisors and its legal counsel to discuss a
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preliminary timetable in connection with the transaction, the conduct of due
diligence and the terms and conditions of a definitive Merger Agreement.
On August 28, the Home Choice Board held a telephonic board meeting. At
this meeting, Mr. Johnson gave the board members a description of his
discussions with Mr. Morgenstern regarding a potential business combination
between Rent-Way and Home Choice. The Home Choice Board then discussed the
advantages and disadvantages of a merger with Rent-Way, reviewed financial
information about Home Choice and Rent-Way, discussed the preliminary results of
business, legal and accounting due diligence conducted on Rent-Way by Home
Choice management and its advisors, discussed the proposed terms of a merger
with Rent-Way, reviewed the process being followed by Home Choice's financial
advisors to express an opinion as to the fairness to the Home Choice
stockholders, from a financial point of view, of the Exchange Ratio of 0.588 and
discussed the accounting and tax treatment of a merger with Rent-Way. The Home
Choice Board authorized Mr. Johnson and management to continue their
negotiations with Rent-Way and requested that management present to the board
following those negotiations a definitive proposal for a merger between Rent-Way
and Home Choice.
On September 1, the Rent-Way Board met to review the results of business,
financial, accounting and legal due diligence on Home Choice and the proposed
terms and conditions of the transaction, including the terms and conditions of
the Merger Agreement, the Stock Option Agreements (as defined below), the Voting
Agreements (as defined below) and the non-competition agreement to be entered
into by Mr. Johnson in connection with the Merger. The Rent-Way Board also
received the opinion of NationsBanc Montgomery Securities as to the fairness to
Rent-Way, from a financial point of view, of the exchange ratio of 0.588.
Through materials presented by its financial advisor, the Rent-Way Board also
received projected income statements of Rent-Way, Home Choice and the combined
company for the 1998 and 1999 fiscal years. The projected income statements of
Rent-Way and the combined company were prepared by Rent-Way's management. The
projected income statements of Home Choice were prepared by Home Choice's
management. Certain additional information regarding these projections is set
forth in "Opinion of Financial Advisor to Rent-Way." The Rent-Way Board then
approved and authorized the execution of the Merger Agreement, including the
Stock Issuance and the Articles of Amendment, the Stock Option Agreements, the
Voting Agreements and the non-competition agreement.
On September 1, the Home Choice Board met in Atlanta, Georgia to review the
results of the business, legal and accounting due diligence on Rent-Way and to
discuss and consider the terms and conditions of a merger of Home Choice with
Rent-Way, including the terms and conditions of the Merger Agreement, the Stock
Option Agreements, the Voting Agreements and the non-competition agreement to be
entered into by Mr. Johnson in connection with the Merger. The Home Choice Board
also received the oral opinions of the financial advisors of Home Choice, DLJ
and Stephens, to the effect that as of such date the exchange ratio of 0.588 was
fair from a financial point of view to the Home Choice stockholders. These
opinions were confirmed in written opinions dated as of the same date. Through
materials presented by its financial advisors, the Home Choice Board also
received projected income statements of Home Choice, Rent-Way and the combined
company for the 1998 through 2002 fiscal years, including information regarding
potential revenue loss from closing and combining stores, potential improvement
in store operating margins and potential savings in corporate overhead. The
projected income statements of Home Choice were prepared by Home Choice's
management. The projected income statements of Rent-Way and the combined company
were prepared by Rent-Way's management. Certain additional information regarding
these projections is set forth in "Opinion of Financial Advisors to Home
Choice." The Home Choice Board then approved and authorized the execution of the
Merger Agreement, the Stock Option Agreements, the Voting Agreements and
noncompetition agreement and recommended the merger of Home Choice with Rent-Way
to the Home Choice stockholders.
On September 1, the Merger Agreement was executed and delivered on behalf
of Rent-Way and Home Choice.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Rent-Way
The Rent-Way Board, based upon the material factors discussed below,
believes that the Merger is fair to and in the best interests of Rent-Way and
its shareholders. Accordingly, the Rent-Way Board has unanimously
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approved the Merger Agreement and recommends that the Rent-Way shareholders
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Stock Issuance and the Articles Amendment.
The Rent-Way Board believes that the Merger is a unique opportunity to
enhance shareholder value by merging with the largest remaining acquisition
candidate in the rental-purchase industry. The Merger will more than double the
number of Rent-Way stores and will expand Rent-Way's geographic presence into 10
new states. Rent-Way currently operates in 25 states and, after the Merger, will
operate in 35 states. There is little significant geographic market overlap
between Rent-Way's stores and Home Choice's stores. Furthermore, the increased
size and financial resources of the combined company will improve its ability to
attract qualified managers.
The Rent-Way Board believes that the Merger will allow it to realize
certain cost savings available through, among other things, lower purchasing
costs through volume discounts, and eliminating duplicate corporate overhead.
The Rent-Way Board also believes that the Merger will allow the combined company
to reduce corporate overhead as a percentage of revenues by spreading the
overhead over a larger number of stores. Except as discussed in "Background of
the Merger" and "Opinion of Financial Advisors to Home Choice," the Rent-Way
Board did not quantify these cost savings or the expected reduction in corporate
overhead as a percentage of revenues.
The Rent-Way Board believes that there exists an opportunity to raise Home
Choice store operating margins. Home Choice's store operating margins are
significantly lower than Rent-Way's and increasing those margins to Rent-Way's
levels would significantly improve the combined company's profitability. Except
as discussed in "Background of the Merger" and "Opinion of Financial Advisors to
Home Choice," the Rent-Way Board did not quantify these potential margin
increases.
In addition to the factors discussed above, the Rent-Way Board considered
the following factors in approving the Merger Agreement and in recommending that
the Rent-Way shareholders approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Stock Issuance and the Articles
Amendment:
(i) the judgment, advice and analysis of its management on the
potential strategic, financial and operational benefits of the Merger,
which benefits were not quantified by the Rent-Way Board (including the
potential strategic benefits of combining Rent-Way's stores with Home
Choice's stores (which have no significant geographic overlap), the
potential financial benefits of larger size, such as increased access to
debt and equity capital on more favorable terms and creation of a larger
and more liquid market for Rent-Way's common stock, and the potential
operational benefits, such as lowering purchasing costs through volume
discounts, eliminating duplicate corporate overhead and reducing corporate
overhead as a percentage of revenues by spreading the overhead over a
larger number of stores), which was based in part on the business,
financial, accounting and legal due diligence investigations performed with
respect to Home Choice;
(ii) current industry, economic and market conditions, which suggest
that the rental-purchase industry will continue to consolidate and that
larger operators will be better able to compete for customers (by offering
better prices, selections and service), for additional acquisition
opportunities (by offering higher prices and utilizing stock as
consideration when appropriate) and for management talent (by offering
better compensation packages and better advancement opportunities);
(iii) the expectation that Rent-Way's management will be able to
successfully integrate Home Choice's operations;
(iv) the receipt of an opinion from NationsBanc Montgomery Securities,
Rent-Way's financial advisor, that the Exchange Ratio is fair from a
financial point of view to Rent-Way;
(v) information concerning the financial condition, results of
operations and cash flows and businesses of Rent-Way and Home Choice, both
on a historical and prospective basis which consisted specifically of
projected income for Rent-Way, Home Choice and the combined company for the
1999 fiscal years and which supported the Rent-Way Board's conclusion that
the Merger is fair to Rent-Way and its shareholders
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(certain additional information regarding the projected income information
considered by the Rent-Way Board is set forth in "Opinion of the Financial
Advisor of Rent-Way");
(vi) the terms and conditions of the Merger Agreement, including the
amount and form of consideration to be received by the Home Choice
stockholders and the nature of the parties' representations, warranties,
covenants and agreements;
(vii) the expectation, based upon the advice of Rent-Way's independent
auditors, that the Merger will qualify as a pooling of interests under
generally accepted accounting principles;
(viii) the expectation that the Merger will be treated as a tax-free
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code (the
"Code");
(ix) in order to measure the potential dilutive effects of the Merger
on existing Rent-Way shareholders, the number of shares of Rent-Way Common
Stock to be issued to the Home Choice stockholders in the Merger, and the
percentage ownership of the combined company represented by such shares;
(x) potential difficulties or delays in obtaining consents and
regulatory approvals required to consummate the Merger;
(xi) the need for certain other conditions to be satisfied in order to
consummate the Merger, including the approval of the Merger Agreement by
the Rent-Way shareholders and the Home Choice stockholders, and the
possibility that such conditions may not be satisfied; and
(xii) the potential difficulties and delays in integrating Home
Choice's store operations into Rent-Way's organization.
There can be no assurance that any expected benefits of the Merger,
including those considered by the Rent-Way Board, will be realized. The Rent-Way
Board did not quantify any such expected benefits.
The Rent-Way Board relied on the opinion of its financial advisor,
NationsBanc Montgomery Securities, to the effect that the Exchange Ratio was
fair to Rent-Way despite two cases within the premiums paid analysis performed
by NationsBanc Montgomery Securities that indicated a range of values suggesting
that the consideration paid in the Merger is greater than the mean and median
premiums paid with respect to comparable transactions. The Rent-Way Board
believes that, on the whole, the analyses performed by NationsBanc Montgomery
Securities supports the fairness conclusion of the opinion and the Rent-Way
Board's reliance thereon. See "Opinion of Financial Advisor to Rent-Way."
The foregoing discussion of the factors and information considered by the
Rent-Way Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with the evaluation of the Merger, the Rent-Way
Board did not find it practical to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Rent-Way Board may have
given different weights to different factors.
THE RENT-WAY BOARD HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS FAIR AND IN
THE BEST INTERESTS OF RENT-WAY AND ITS SHAREHOLDERS, HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND RECOMMENDS THAT THE RENT-WAY SHAREHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE STOCK ISSUANCE AND THE ARTICLES AMENDMENT.
Home Choice
The Home Choice Board, based upon the material factors discussed below,
believes that the Merger is fair to and in the best interests of Home Choice and
the Home Choice stockholders. Accordingly, the Home Choice Board has unanimously
approved the Merger Agreement and resolved to recommend that the Home Choice
stockholders approve and adopt the Merger Agreement and the transactions
contemplated thereby. Certain members of the Home Choice Board have interests in
the Merger that are different from, or in addition to, the
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interests of the Home Choice stockholders, and that create potential conflicts
of interest. See "Interests of Certain Persons in the Merger" on pages 45 and
46.
The Home Choice Board believes the Merger will allow the combined company
to capitalize on increased geographic diversity as there is no significant
geographic overlap in the markets where Home Choice and Rent-Way are currently
operating. Home Choice now operates in 26 states and after the Merger the
combined company will operate in 35 states.
In addition, the combined company will have experienced management, depth
and expertise in the rental-purchase industry, including management experienced
with successfully integrating acquisitions and solving difficulties associated
with growth through acquisition. Further, the size of the combined company will
enhance the combined company's ability to attract quality personnel both as
corporate officers and at the store level.
The Home Choice Board believes that the Merger will allow the combined
company to reduce expenses as a percentage of revenue by spreading certain fixed
expenses over a larger base of stores. The larger combined company will also
enjoy greater buying power and the benefit of a greater dollar volume of
purchases per year from selected vendors. The Home Choice Board did not quantify
the expected reduction in expenses as a percentage of revenue or the benefits of
greater buying power.
The Home Choice Board believes the Merger will create a combined company
with greater expertise and ability to acquire existing rental-purchase stores
and to open new rental-purchase stores. This will help the combined company
compete successfully in the rental-purchase industry.
In addition to the factors discussed above, the Home Choice Board
considered the following material factors described below in approving the
Merger Agreement and in making its recommendation that the Home Choice
stockholders approve and adopt the Merger Agreement:
(i) the judgment, advice and analysis of its management with respect
to the potential strategic, financial and operational benefits of the
Merger, which benefits were not quantified by the Home Choice Board
(including the potential strategic benefits of combining the Rent-Way and
Home Choice stores (which have no significant geographic overlap), the
potential financial benefits of spreading Home Choice's fixed expenses over
a larger number of stores and the potential operational benefits arising
from combining Home Choice's store base with Rent-Way's experienced
management), based in part on the business, financial, accounting and legal
due diligence investigations performed with respect to Rent-Way;
(ii) current industry, economic and market conditions which suggest
that the rental-purchase industry will continue to consolidate and that
larger operators will be better able to compete for customers (by offering
better prices, selections and service), for additional acquisition
opportunities (by offering higher prices and utilizing stock as
consideration when appropriate) and for management talent (by offering
better compensation packages and better advancement opportunities);
(iii) the belief that both Rent-Way and Home Choice have similar
operating philosophies, which should ease the effects of the Merger from an
operational standpoint and may enable the combined company to more easily
derive the expected synergies from the Merger;
(iv) the advice of, and financial analysis prepared by DLJ and
Stephens, Home Choice's financial advisors;
(v) information concerning the financial condition, results of
operations and cash flows and businesses of Home Choice and Rent-Way, both
on a historical and prospective basis which consisted specifically of
projected income for Home Choice, Rent-Way and the combined company for the
1999 fiscal years and which supported the Home Choice Board's conclusion
that the Merger is fair to Home Choice and its stockholders (certain
additional information regarding the projected income information
considered by the Home Choice Board is set forth in "Opinion of the
Financial Advisors of Home Choice");
(vi) the terms and conditions of the Merger Agreement, including the
amount and form of consideration to be received by the Home Choice
stockholders and the nature and of the parties' representations,
warranties, covenants and agreements;
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(vii) the expectation, based upon the advice of Home Choice's
independent auditors, that the Merger will qualify as a pooling of
interests under generally accepted accounting principles;
(viii) the expectation that the Merger will be treated as a tax-free
reorganization under Section 368(a)(1)(A) of the Code;
(ix) in order to consider whether the Home Choice stockholders would
receive an appropriate ownership interest in the combined company given the
value of Home Choice prior to the Merger, the number of shares of Rent-Way
Common Stock to be issued to the Home Choice stockholders in the Merger,
and the percentage ownership of the combined company represented by such
shares;
(x) potential difficulties or delays in obtaining consents and
regulatory approvals required to consummate the Merger;
(xi) the need for certain other conditions to be satisfied in order to
consummate the Merger, including the approval of the Merger Agreement by
the Rent-Way shareholders and the Home Choice stockholders, and the
possibility that such conditions may not be satisfied;
(xii) the execution by Rent-Way of its Stock Option Agreement and the
execution of the Voting Agreements by certain Rent-Way shareholders;
(xiii) the possibility that, under certain circumstances, Home Choice
may be required to pay a significant fee to Rent-Way in order to terminate
the Merger Agreement prior to consummation of the Merger;
(xiv) in the event that Home Choice receives an unsolicited
Acquisition Proposal (as hereinafter defined), the requirement under the
Merger Agreement that the Home Choice Board negotiate with Rent-Way to make
such adjustments in the terms and condition of the Merger Agreement as
would enable Home Choice to proceed with the Merger on such adjusted terms;
and
(xv) unless the fiduciary duties of the Home Choice Board to its
stockholders under Delaware law requires otherwise, the inability of Home
Choice under the terms of the Merger Agreement to pursue an alternative,
even if more favorable, transaction prior to consummation of the Merger.
There can be no assurance that the expected benefits of the Merger,
including those considered by the Home Choice Board, will be realized. The Home
Choice Board did not quantify any such expected benefits.
The Home Choice Board relied on the opinions of its financial advisors, DLJ
and Stephens, to the effect that the Exchange Ratio was fair from a financial
point of view to the Home Choice stockholders despite one case in the implied
exchange ratio analysis performed by DLJ and Stephens that indicated a range of
implied exchange ratios higher than the Exchange Ratio in the Merger and despite
that the contribution analysis performed by DLJ and Stephens indicated that Home
Choice's contribution to the combined pro forma entity's total revenues for the
six months ended June 30, 1998 and the projected year ending September 30, 1999
would be higher than the percentage ownership of Home Choice stockholders in the
combined entity following the Merger. The Home Choice Board believes that, on
the whole, the analyses performed by DLJ and Stephens support the fairness
conclusions of the opinions and the Home Choice Board's reliance thereon. See
"Opinion of Financial Advisors to Home Choice."
The foregoing discussion of the factors and information considered by the
Home Choice Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with the evaluation of the Merger, the Home
Choice Board did not find it practical to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Home Choice Board may have
given different weight to different factors.
THE HOME CHOICE BOARD HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF HOME CHOICE AND ITS STOCKHOLDERS, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE HOME CHOICE STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. CERTAIN MEMBERS OF THE HOME CHOICE BOARD
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HAVE INTERESTS IN THE MERGER THAT ARE DIFFERENT FROM, OR IN ADDITION TO, THE
INTERESTS OF THE HOME CHOICE STOCKHOLDERS, AND THAT CREATE POTENTIAL CONFLICTS
OF INTEREST. SEE "INTERESTS OF CERTAIN PERSONS IN THE MERGER" ON PAGES 45 AND
46.
TERMS OF THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, which is attached as Annex A and is incorporated herein by reference.
Such summary is qualified in its entirety by reference to the Merger Agreement.
General
The Merger Agreement provides that, following approval of the Merger
Agreement by the Rent-Way shareholders and the Home Choice stockholders and the
satisfaction or waiver of the other conditions to the Merger, Home Choice will
merge with and into Rent-Way at the Effective Time. Rent-Way will be the
surviving corporation in the Merger. As a result of the Merger, the separate
corporate existence of Home Choice will cease.
Effective Time of the Merger and Exchange of Shares
If the Merger Agreement is approved by the requisite vote of the Rent-Way
shareholders and approved and adopted by the requisite vote of the Home Choice
stockholders, all required governmental and other consents and approvals
specified in the Merger Agreement as conditions to consummation of the Merger
are obtained, and the other conditions to the respective obligations of the
parties to consummate the Merger are either satisfied or waived, the Merger will
be consummated and will become effective on the date and at the time that
Articles of Merger are duly filed with the Secretary of State of Pennsylvania
and a Certificate of Merger is duly filed with the Secretary of State of
Delaware (the "Effective Time"). Assuming satisfaction or waiver of all
conditions to consummation of the Merger, the Merger is expected to become
effective during the fourth quarter of calendar year 1998. The Merger cannot
become effective until all of the conditions to the Merger are either satisfied
or waived. Thus, there can be no assurance as to whether or when the Effective
Time will occur. See "The Merger--Terms of the Merger Agreement-Conditions to
the Merger."
Conversion of Shares
At the Effective Time, each issued and outstanding share of Home Choice
Common Stock will be cancelled and converted into 0.588 shares of Rent-Way
Common Stock. Each share of Home Choice Common Stock held in the treasury of
Home Choice, if any, and each share of Home Choice Common Stock held by Rent-Way
immediately prior to the Effective Time shall be cancelled and retired and shall
cease to exist. Each issued and outstanding share of Rent-Way Common Stock will
remain outstanding, unchanged, as one share of Rent-Way Common Stock.
If any Home Choice stockholder becomes entitled to receive a number of
shares of Rent-Way Common Stock that includes a fraction, then in lieu of a
fractional share, such Home Choice stockholder will be entitled to receive a
cash payment in an amount determined by multiplying the fractional share
interest by the average closing price of one share of Rent-Way Common Stock on
the NYSE for the last five trading days immediately preceding the day prior to
the Effective Time.
Based on the capitalization of Rent-Way and Home Choice on October 29,
1998, and the Exchange Ratio of 0.588 shares of Rent-Way Common Stock per share
of Home Choice Common Stock, following the Merger, approximately 52% of the
outstanding Rent-Way Common Stock will be owned by current Rent-Way shareholders
and approximately 48% will be owned by current Home Choice stockholders. The
value of the 0.588 shares of Rent-Way Common Stock to be received in exchange
for each share of Home Choice Common Stock was approximately $13.60 based on the
$23.13 closing price of a share of Rent-Way Common Stock on September 1, 1998,
the trading day preceding the public announcement of the Merger Agreement and
approximately $14.52 based upon the $24.69 closing price of a share of Rent-Way
Common Stock on November 4, 1998, the most recent date for which it was
practicable to obtain market price data prior to printing and mailing this Joint
Proxy Statement/Prospectus.
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Treatment of Home Choice Options
The Merger Agreement provides that, at the Effective Time, each Home Choice
stock option (a "Home Choice Option") which is outstanding and unexercised shall
be converted into an option to purchase Rent-Way Common Stock, and Rent-Way
shall assume each Home Choice Option in accordance with the terms of the
applicable Home Choice stock option plan. From and after the Effective Time, (i)
the number of shares of Rent-Way Common Stock subject to such Home Choice Option
shall be equal to the product of the number of shares of Home Choice Common
Stock subject to the Home Choice Option and the Exchange Ratio, provided that
any fractional share of Rent-Way Common Stock resulting from such multiplication
shall be rounded down to the nearest share, and Rent-Way shall pay an amount in
cash to the holder of such Home Choice Option equal to the fair market value
immediately prior to the Effective Time of such fractional share calculated
based on the average closing prices on the NYSE for the last five trading days
immediately preceding the day prior to the Effective Time, and (ii) the per
share exercise price under each such Home Choice Option shall be equal to the
aggregate exercise price of the original Home Choice Option divided by the total
number of full shares of Rent-Way Common Stock subject to such converted Home
Choice Option, provided that the exercise price shall be rounded up to the
nearest cent.
Management of Rent-Way Following the Merger
The Merger Agreement provides that, at the Effective Time, the Rent-Way
Board will consist of the directors of Rent-Way who are in office at the
Effective Time. The current executive officers of Rent-Way will also continue as
the executive officers of the combined company.
Conditions to the Merger
The respective obligations of Rent-Way and Home Choice to effect the Merger
are subject to the following conditions: (a) any applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") shall
have expired or terminated, and no action by the Antitrust Division of the
Department of Justice ("Antitrust Division") or the United States Federal Trade
Commission (the "FTC") shall be pending that challenges or seeks to enjoin the
consummation of the Merger; (b) the Registration Statement filed with respect to
the Rent-Way Common Stock issuable in the Merger shall have become effective and
shall not be the subject of a stop order; (c) the Merger Agreement shall have
been approved and adopted by the Home Choice stockholders and approved and
adopted by the Rent-Way shareholders; and (d) no preliminary or permanent
injunction or other order shall be in effect that prohibits the consummation of
the Merger; (e) the receipt of all required material consents from governmental
authorities or third parties; (f) the receipt by Rent-Way and Home Choice of a
letter from PricewaterhouseCoopers LLP stating that the Merger will qualify as a
pooling-of-interests transaction under generally accepted accounting principles;
and (g) the receipt by Rent-Way and Home Choice of an opinion of Hodgson, Russ,
Andrews, Woods & Goodyear LLP stating that the Merger will be treated as a
tax-free reorganization under the Code.
The conditions discussed in clauses (a), (b), (c) and (d) above, the
satisfaction of which is required by law to effect the Merger in accordance with
its terms, may not be waived by the parties. The other conditions discussed
above, although not required to be satisfied by law to effect the Merger in
accordance with its terms, will not be waived if such waiver would materially
affect either party's shareholders or the disclosure contained herein (including
the pro forma financial statement information) without prior approval of each
party's respective shareholders following circulation of a revised joint proxy
statement and prospectus. Rent-Way has undertaken to recirculate a proxy
statement/prospectus and resolicit shareholder approval of the Merger if the
condition regarding receipt of an opinion of counsel with respect to the
tax-free nature of the Merger is waived and the change in tax consequences to
the shareholders is material.
In addition to the foregoing, the obligation of Home Choice to effect the
Merger is subject to the following conditions: (a) Rent-Way shall have performed
in all material respects its obligations under the Merger Agreement and the
representations and warranties of Rent-Way contained in the Merger Agreement
shall be true and correct in all material respects at and as of the Effective
Time as if made at and as of such time (other than representations and
warranties that address matters only as of a particular date, which shall be
true and correct in
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all material respects as of such date), except as permitted by the Merger
Agreement, and Home Choice shall have received a certificate of the President of
Rent-Way to such effect; (b) Home Choice shall have received an opinion of
Hodgson, Russ, Andrews, Woods & Goodyear LLP regarding execution and delivery of
the Merger Agreement and related matters; (c) a listing application covering the
shares of Rent-Way Common Stock to be issued in connection with the Merger shall
have been approved by the NYSE; and (d) there shall not have occurred any change
in the financial condition, business or operations of Rent-Way that would have
or would be reasonably likely to have a material adverse effect on Rent-Way.
In addition to the foregoing, the obligation of Rent-Way to effect the
Merger is subject to the following conditions: (a) Home Choice shall have
performed in all material respects its obligations under the Merger Agreement
and the representations and warranties of Home Choice contained in the Merger
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as of such time (other than representations and
warranties that address matters only as of a particular date, which shall be
true and correct in all material respects as of such date), except as permitted
by the Merger Agreement, and Rent-Way shall have received a certificate of the
President and Chief Executive Officer of Home Choice to such effect; (b)
Rent-Way shall have received an opinion of King & Spalding regarding execution
and delivery of the Merger Agreement and related matters; (c) there shall not
have occurred any change in the financial condition, business or operations of
Home Choice or its subsidiaries, taken as a whole, that would have or would be
reasonably likely to have a material adverse effect on Home Choice and its
subsidiaries, taken as a whole; and (d) Rent-Way and George D. Johnson, Jr.
shall have entered into a noncompetition agreement, the form of which is
attached to the Merger Agreement.
Any of the conditions to Rent-Way's or Home Choice's respective obligations
to consummate the Merger discussed above may be waived by the other party. Any
determination to waive a condition would depend upon the facts and circumstances
existing at the time of such waiver and would be made by the waiving party's
Board, exercising its fiduciary duties to such party and its shareholders. Any
waiver that would materially affect the shareholders of Rent-Way or Home Choice
or the information contained herein (including the pro forma financial statement
information) will not be waived without prior approval of the affected
shareholders following circulation of a revised joint proxy statement and
prospectus. See " -- Amendment and Waiver."
Indemnification Obligations
Rent-Way has agreed in the Merger Agreement to indemnify each person who
was a director or officer of Rent-Way or Home Choice as of or before the date of
the Merger Agreement against liabilities arising at or prior to the Effective
Time and to maintain in effect for a period of six years from the Effective Time
directors' and officers' liability insurance covering Home Choice's directors
and officers. Rent-Way has also agreed in the Merger Agreement to keep in effect
the provisions in its Articles of Incorporation and By-laws providing for
exculpation of directors and officers and former directors and officers and for
Rent-Way's indemnification of directors and officers to the fullest extent
allowed by law. Rent-Way has agreed not to amend these provisions except as
required by law or to make changes permitted by law that would enlarge the
directors' and officers' rights of indemnification.
No Solicitation of Acquisition Proposals by Home Choice
The Merger Agreement provides that Home Choice will not permit its
officers, directors, employees or representatives to, directly or indirectly,
solicit, initiate or encourage the submission of any Acquisition Proposal (as
defined below), or participate in discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal. Neither Home
Choice's Board nor its authorized representatives shall be prohibited from
furnishing information to, or entering into discussions or negotiations with,
any person or entity that makes an unsolicited Acquisition Proposal if (a) Home
Choice's Board, based on the written advice of outside counsel, determines that
such action is required in order for Home Choice's Board of Directors to comply
with its fiduciary duties to its stockholders, (b) such person or entity
executes a confidentiality agreement in reasonably customary form, and (c) the
Acquisition Proposal contains an offer of consideration that is superior to the
consideration represented by the Exchange Ratio. Home Choice has
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agreed to provide prompt notice of any Acquisition Proposal or inquiry to
Rent-Way, including material terms and conditions and the identity of the person
making such Acquisition Proposal or inquiry, keep Rent-Way reasonably informed
regarding such Acquisition Proposal or inquiry, and negotiate with Rent-Way to
make adjustments to the terms and conditions of the Merger Agreement as would
allow the Merger to proceed. An "Acquisition Proposal" means any bona fide
proposal with respect to a merger, consolidation, share exchange or similar
transaction involving Home Choice and its subsidiaries, or any purchase of all
or any significant portion of the assets of Home Choice and its subsidiaries
other than the transactions contemplated by the Merger Agreement.
The Merger Agreement provides that if Home Choice receives an unsolicited
Acquisition Proposal and the Home Choice Board determines in good faith, based
on the advice of counsel, that it is necessary to do so in order to comply with
its fiduciary duties, the Home Choice Board may (a) withdraw or modify its
approval or recommendation of the Merger Agreement and the merger; (b) approve
or recommend such Acquisition Proposal; (c) cause Home Choice to enter into an
agreement with respect to such Acquisition Proposal; or (d) terminate the Merger
Agreement. Prior to taking such action Home Choice must, and must cause its
respective financial and legal advisors to, negotiate with Rent-Way to make such
adjustments in the terms and conditions of the Merger Agreement as would enable
Home Choice to proceed with the transactions contemplated therein on such
adjusted terms. For example, if the Home Choice Board receives an unsolicited
Acquisition Proposal that offers a higher exchange ratio than the Exchange Ratio
described in the Merger Agreement, Home Choice must disclose the material terms
and conditions of the Acquisition Proposal and the identity of the person making
the Acquisition Proposal to Rent-Way. In addition, Home Choice must continue to
negotiate with Rent-Way. If Rent-Way agrees to the same exchange ratio, Home
Choice and Rent-Way must amend the Merger Agreement and Home Choice may not
accept the unsolicited Acquisition Proposal.
Amendment and Waiver
The Merger Agreement may be amended by Home Choice and Rent-Way at any time
before the Effective Time, but after approval by the Rent-Way shareholders or
the Home Choice stockholders, whichever shall occur first, no such amendment may
alter or change the amount or kind of consideration to be received by the Home
Choice stockholders upon consummation of the Merger, alter or change any term of
Rent-Way's Articles of Incorporation or Home Choice's Certificate of
Incorporation, or alter or change any of the terms and conditions of the Merger
Agreement if such alteration or change would adversely affect the holders of any
class or series of securities of Rent-Way or Home Choice. Rent-Way and Home
Choice may extend the time for the performance of any of the obligations or
other acts of the other parties to the Merger Agreement, waive any inaccuracies
in the representations and warranties contained therein or in any document
delivered pursuant thereto, and waive compliance with any of the agreements or
conditions contained in the Merger Agreement. See " -- Conditions to the
Merger."
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the Effective
Time: (a) by mutual written consent of Rent-Way and Home Choice; or (b) by the
Rent-Way Board or the Home Choice Board, if (i) the Effective Time shall not
have occurred on or before February 28, 1999 (or April 30, 1999 if all
conditions but the receipt of the required statutory approvals and consents have
been or are capable of being fulfilled by April 30, 1999), except that neither
party may terminate the Merger Agreement if it caused such delay; or (ii) any
court of competent jurisdiction or any political, governmental or administrative
body shall have issued any order, decree or ruling or taken any other action
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable.
In addition to the foregoing, Home Choice may terminate the Merger
Agreement if: (a) there has been any material adverse change in the business,
financial condition, results of operations, properties, assets or liabilities of
Rent-Way, or if Rent-Way shall have breached certain covenants set forth in the
Merger Agreement, in any case which is not cured after 30 days notice thereof;
(b) the Merger Agreement, the Merger, the Articles Amendment and the Stock
Issuance shall not have been approved and adopted by the Rent-Way shareholders;
or (c) Home Choice receives an unsolicited Acquisition Proposal and the Home
Choice Board determines in good
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faith, based on the advice of counsel and in accordance with the procedures
discussed in " -- No Solicitation of Acquisition Proposals by Home Choice"
above, that it is necessary to terminate the Merger Agreement in order to comply
with its fiduciary duties to stockholders.
In addition to the foregoing, Rent-Way may terminate the Merger Agreement
if: (a) there has been any material adverse change in the business, financial
condition, results of operations, properties, assets or liabilities of Home
Choice and its subsidiaries taken as a whole, or if Home Choice shall have
breached certain covenants set forth in the Merger Agreement, in any case which
is not cured after 30 days notice thereof; (b) the Merger Agreement and the
Merger shall not have been approved and adopted by the Home Choice stockholders;
or (c) the Home Choice Board shall have (i) withdrawn or modified in a manner
adverse to Rent-Way its recommendation of the Merger Agreement and the Merger,
(ii) approved or recommended an Acquisition Proposal or (iii) caused Home Choice
to enter into an agreement with respect to an Acquisition Proposal.
In the event of the termination and abandonment of the Merger Agreement by
either Rent-Way or Home Choice as provided above, the Merger Agreement shall
become void and have no effect and there shall be no liability or obligation on
the part of either Rent-Way or Home Choice or their respective officers,
directors or stockholders thereunder except (a) to comply with the terms and
provisions of the confidentiality letter between Rent-Way and Home Choice, dated
August 24, 1998 (the "Confidentiality Letter"), which requires each party, among
other things, to hold in strict confidence all documents furnished to the other
in accordance with its terms and to comply with certain standstill provisions
described below under " -- Confidentiality Letter and Standstill Provisions";
(b) to pay certain fees and expenses pursuant to certain specified provisions of
the Merger Agreement described below under " -- Termination Fees" and " -- Fees
and Expenses"; and (c) to the extent that such termination results from the
willful breach by either party of any material representation, warranty or
covenant under the Merger Agreement.
Termination Fees
The Merger Agreement provides that if the Home Choice Board takes any
action described in clause (c) or (d) of the second paragraph under " -- No
Solicitation of Acquisition Proposals by Home Choice" above or if Rent-Way
exercises its right to terminate the Merger Agreement based on the Home Choice
Board having taken any action described in clause (a) or (b) of the second
paragraph under " -- No Solicitation of Acquisition Proposals by Home Choice"
above, then Home Choice shall pay to Rent-Way upon demand the sum of $10,000,000
plus all fees and expenses incurred by Rent-Way in connection with the
transactions contemplated by the Merger Agreement (such as legal, accounting,
investment banking, printing and filing fees and expenses). These termination
fees are estimated at approximately $13,000,000, which represents approximately
19% of an aggregate assumed merger consideration of $247,177,787 (based on
delivery of 10,011,251 Rent-Way shares (at the closing price of $24.69 per share
on November 4, 1998) and the assumption of approximately $63 million in Home
Choice indebtedness).
Fees and Expenses
Except as set forth above, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such expense, except that (a) the fee in connection
with any HSR Act filing and the expenses incurred in connection with printing
and mailing of this Joint Proxy Statement/Prospectus shall be shared equally by
Rent-Way and Home Choice, and (b) all transfer taxes shall be paid by Home
Choice.
Exchange of Home Choice Stock Certificates
Promptly after the Effective Time, an exchange agent selected by Rent-Way
and reasonably satisfactory to Home Choice (the "Exchange Agent") will mail (or
deliver at its principal office) to each Home Choice stockholder a letter of
transmittal and instructions for use in effecting the surrender of the
certificates held by such Home Choice stockholder that represent shares of Home
Choice Common Stock for certificates representing shares of Rent-Way Common
Stock. Upon surrender of a certificate representing shares of Home Choice Common
Stock to the Exchange Agent for cancellation, together with a duly executed
letter of transmittal and
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such other documents, if any, as the Exchange Agent may require, the holder of
such certificate or certificates will be entitled to receive a certificate
representing that number of whole shares of Rent-Way Common Stock and any cash
in lieu of a fractional share of Rent-Way Common Stock which such holder has the
right to receive pursuant to the provisions of the Merger Agreement. Until
surrendered, each certificate representing shares of Home Choice Common Stock
will be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of Rent-Way
Common Stock and cash in lieu of any fractional share of Rent-Way Common Stock.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of Rent-Way Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered certificate
representing shares of Home Choice Common Stock until such certificate is
surrendered. After such surrender, subject to applicable law, there will be paid
to such holder, without interest, any dividends which shall have become payable
with respect to the Rent-Way Common Stock between the Effective Time and the
time of such surrender.
HOME CHOICE STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES REPRESENTING
SHARES OF HOME CHOICE COMMON STOCK UNTIL THEY RECEIVE A TRANSMITTAL LETTER.
Access
Rent-Way and Home Choice have agreed to afford full access until the
Effective Time to the other's financial advisors, legal counsel, accountants,
consultants and other authorized agents and representatives to all of its books,
records, properties and personnel and will furnish promptly to the other (a) a
copy of each report, schedule and other document filed or received pursuant to
the requirements of federal or state securities laws, and (b) all other
information as reasonably requested by the other party provided that no
investigation may affect any representations or warranties made by each party or
the conditions to the obligation of each party to consummate the Merger.
CONFIDENTIALITY LETTER AND STANDSTILL PROVISIONS
Pursuant to the Confidentiality Letter, Rent-Way and Home Choice have each
agreed (other than as contemplated in the Merger Agreement or the Stock Option
Agreements (as defined herein)), that they will not, until six months from the
date of the Confidentiality Letter, (a) acquire or seek to acquire any of the
other party's assets or businesses or any securities issued by the other party,
or any rights or options to acquire such ownership; (b) seek or propose to
influence or control the management or policies of the other party; or (c) enter
into or propose any discussions, negotiations, arrangements or understandings
with any third party with respect to any of the foregoing.
OPINION OF FINANCIAL ADVISOR TO RENT-WAY
Pursuant to an engagement letter dated August 21, 1998, (the "Engagement
Letter") Rent-Way's Board retained NationsBanc Montgomery Securities to act as
its financial advisor in connection with the possible acquisition of Home
Choice. NationsBanc Montgomery Securities is a nationally recognized investment
banking firm and, as part of its activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Rent-Way's Board selected NationsBanc Montgomery Securities as its
financial advisor on the basis of such experience and expertise in transactions
similar to the Merger and its reputation in the industry and investment
community and its historical investment banking relationship with Rent-Way.
On September 1, 1998, NationsBanc Montgomery Securities delivered to the
Rent-Way Board its opinion, that the consideration to be paid by Rent-Way
pursuant to the Merger was fair to Rent-Way from a financial point of view, as
of that date. No limitations were imposed by the Rent-Way Board on NationsBanc
Montgomery Securities with respect to the investigations made or procedures
followed in rendering its opinion.
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THE FULL TEXT OF THE FAIRNESS OPINION RENDERED BY NATIONSBANC MONTGOMERY
SECURITIES TO THE RENT-WAY BOARD IS ATTACHED HERETO AS ANNEX B AND IS
INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS
ENTIRETY IN CONNECTION WITH THIS JOINT PROXY STATEMENT/PROSPECTUS. THE FOLLOWING
SUMMARY OF THIS FAIRNESS OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION. NATIONSBANC MONTGOMERY SECURITIES'S OPINION IS
DIRECTED TO THE RENT-WAY BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
RENT-WAY SHAREHOLDER AS TO HOW VOTE WITH RESPECT TO THE MERGER. THIS OPINION
ADDRESSES ONLY THE FINANCIAL FAIRNESS OF THE CONSIDERATION TO BE PAID BY
RENT-WAY PURSUANT TO THE MERGER AND DOES NOT ADDRESS THE RELATIVE MERITS OF THE
MERGER OR ANY ALTERNATIVES TO THE MERGER, THE UNDERLYING DECISION OF THE
RENT-WAY BOARD TO PROCEED WITH OR EFFECT THE MERGER OR ANY OTHER ASPECT OF THE
MERGER. IN FURNISHING ITS OPINION, NATIONSBANC MONTGOMERY SECURITIES DID NOT
ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS DEFINED IN
THE SECURITIES ACT, NOR DID IT ADMIT THAT ITS OPINION CONSTITUTES A REPORT OR
VALUATION AS DEFINED IN THE SECURITIES ACT, AND STATEMENTS TO SUCH EFFECT ARE
INCLUDED IN THIS FAIRNESS OPINION.
In connection with its opinion, NationsBanc Montgomery Securities among
other things: (i) reviewed publicly available financial and other data with
respect to Home Choice and Rent-Way, including the consolidated financial
statements for recent years and interim periods to June 30, 1998 and certain
other relevant financial and operating data relating to Home Choice and Rent-Way
made available to NationsBanc Montgomery Securities from published sources and
from the internal records of Home Choice and Rent-Way; (ii) reviewed the
financial terms and conditions of the Merger Agreement; (iii) reviewed certain
publicly available information concerning the trading of, and the trading market
for, Home Choice Common Stock and Rent-Way Common Stock; (iv) compared Home
Choice from a financial point of view with certain other companies in the
rent-to-own industry which it deemed to be relevant; (v) considered the
financial terms, to the extent publicly available, of selected recent business
combinations of companies in the rent-to-own industry which it deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of Home Choice and Rent-Way certain
information of a business and financial nature regarding Home Choice and
Rent-Way, furnished to NationsBanc Montgomery Securities by each of Rent-Way and
Home Choice, including financial forecasts and related assumptions of Home
Choice and Rent-Way; (vii) made inquiries regarding and discussed the Merger and
the Merger Agreement and other matters related thereto with Rent-Way's counsel;
and (viii) performed such other analyses and examinations as it deemed
appropriate.
In connection with its review, NationsBanc Montgomery Securities did not
assume any obligation to independently verify the foregoing information and
relied on its being accurate and complete in all material respects. With respect
to the financial forecasts for Home Choice and Rent-Way provided to NationsBanc
Montgomery Securities by management of Rent-Way and of Home Choice, upon their
advice and with Rent-Way's consent, NationsBanc Montgomery Securities has
assumed for purposes of its opinion that the forecasts (including the
assumptions of Rent-Way's management regarding cost savings and increased
operating margins) were reasonably prepared on bases reflecting the best
available estimates and judgments of their respective managements at the time of
preparation as to the future financial performance of Home Choice and Rent-Way
and that they provided a reasonable basis upon which NationsBanc Montgomery
Securities could form its opinion. The forecasts provided to NationsBanc
Montgomery Securities were prepared by management of Rent-Way with respect to
forecasts of Rent-Way and by management of Home Choice with respect to forecasts
of Home Choice. There can be no assurance that such forecasts will indicate the
actual financial results of Rent-Way, Home Choice or the combined company.
Rent-Way determined that the forecasts relied upon by NationsBanc Montgomery
Securities did not differ materially from the composite of research analysts'
estimates for the fiscal years of Rent-Way and Home Choice ended September 30,
1998 and December 31, 1998, respectively or from the composite of research
analysts' estimates for the 1999 fiscal year of Rent-Way. The material financial
forecasts for Home Choice for the 1999 fiscal year based on a December 31 fiscal
year end provided to NationsBanc Montgomery Securities were as follows:
projected total revenue of $305.4 million; projected EBIT and EBITDA of $32.1
million and $45.4 million, respectively; and projected net income of $15.6
million. Rent-Way and Home Choice determined that these forecasts did differ
materially from the composite of research analysts' estimates since projected
forecasted net income is $15.6 million and analysts' estimates of such net
income are $13.8 million. NationsBanc Montgomery Securities also assumed that
there have been no material changes in Home Choice's or Rent-Way's assets,
financial condition, results of operations,
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business or prospects since the respective dates of the last financial
statements made available to them. NationsBanc Montgomery Securities relied on
advice of counsel and independent accountants to Rent-Way as to all legal and
financial reporting matters with respect to Rent-Way, the Merger and the Merger
Agreement. NationsBanc Montgomery Securities assumed that the Merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and all other applicable federal and state statutes,
rules and regulations. In addition, NationsBanc Montgomery Securities did not
assume responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of Home Choice or Rent-Way, nor had it been furnished with any such
appraisals. Rent-Way informed NationsBanc Montgomery Securities, and NationsBanc
Montgomery Securities assumed, that the Merger will be recorded as a pooling of
interests under generally accepted accounting principles. Finally, this fairness
opinion was based on economic, monetary and market and other conditions as in
effect on, and the information made available to NationsBanc Montgomery
Securities as of the date of its opinion. Accordingly, although subsequent
developments may affect the opinion, NationsBanc Montgomery Securities did not
assume any obligation to update, revise or reaffirm its opinion.
Comparable Company Analysis. Based on public and other available
information including the financial forecasts and related assumptions of
Rent-Way and Home Choice previously discussed, NationsBanc Montgomery Securities
calculated the multiples of (a) aggregate value (defined as equity value plus
debt less cash and cash equivalents) to last twelve months ("LTM") revenues; (b)
aggregate value to the number of stores ("Store Average"); and (c) equity value
to projected calendar year 1999 net income for four companies in the rent-to-own
industry: Aaron Rents, Inc., Rainbow Rentals, Inc., Rent-Way and Renter's
Choice, each of which has securities which are publicly traded and which
NationsBanc Montgomery Securities believes have operations, market valuations
and trading valuations similar to what might be expected of Home Choice. Such
analysis indicated the following multiples: a range of 1.0x to 2.9x LTM
revenues, with a mean of 1.6x and a median of 1.2x; a Store Average range of
$1.1 million to $0.8 million, with a mean of $1.0 million and a median of $0.9
million; and a range of 12.7x to 22.2x calendar year projected 1999 net income,
with a mean of 16.2x and a median of 14.9x. NationsBanc Montgomery Securities
noted that the consideration to be paid by Rent-Way in connection with the
Merger implied multiples of 1.5x LTM revenues, $0.8 million Store Average and
16.2x projected calendar year 1999 net income for Home Choice.
Comparable Transactions Analysis. Based on public and other available
information including the financial forecasts and related assumptions of
Rent-Way and Home Choice previously discussed, NationsBanc Montgomery Securities
calculated the multiples of aggregate value to LTM revenues, Store Average and
monthly revenue implied in six of the largest, most comparable acquisitions of
rent-to-own companies that have been consummated since February 1998: (i) August
1998 acquisition of Thorn America, Inc. by Renter's Choice; (ii) May 1998
acquisition of Central Rents, Inc. by Renter's Choice; (iii) May 1998
acquisition of Thorn PLC by Future Rentals; (iv) February 1998 acquisition of
RTO, Inc. by Home Choice; (v) February 1998 acquisition of Champion Rentals,
Inc. by Rent-Way; and (vi) January 1998 acquisition of Ace TV Rentals by
Rent-Way. Such analysis yielded the following multiples for the six comparable
transactions: a range of 0.8x to 1.6x LTM revenues, with a mean of 1.2x and a
median of 1.2x; a Store Average range of $0.9 million to $0.5 million, with a
mean of $0.7 million and a median of $0.7 million; and a range of 9.9x to 19.4x
monthly revenue, with a mean of 14.1x and a median of 13.4x. NationsBanc
Montgomery Securities noted that aggregate value of Home Choice implied by the
Merger yielded multiples of 1.5x LTM revenues, $0.8 million Store Average and
16.3x monthly revenue.
No other company or transaction used in the comparable company or
comparable transactions analysis as a comparison is identical to Home Choice or
the Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which Home Choice and the Merger are being compared.
Discounted Cash Flow Analysis. NationsBanc Montgomery Securities applied a
discounted cash flow analysis to the financial cash flow forecasts for Home
Choice for fiscal years 1999 through 2003, as estimated by the managements of
Rent-Way and Home Choice. These cash flow forecasts for Home Choice, which
assume
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elimination of duplicate corporate overhead, are $12.5 million, $18.0 million,
$18.6 million, $19.2 million and $19.8 million, respectively, for the 1999
through 2003 fiscal years of Home Choice, based on a September 30 fiscal year
end. In conducting this analysis, NationsBanc Montgomery Securities first
calculated the present values of the forecasted cash flows. Second, NationsBanc
Montgomery Securities estimated the present value of the aggregate value of Home
Choice at the end of 2003 by applying multiples to Home Choice's estimated 2003
EBITDA, which multiples ranged from 9.5x to 10.5x. Such cash flows and aggregate
values were discounted to present values using discount rates ranging from 12%
to 14%. This analysis indicated a range of imputed equity values of Home Choice
from $286.4 million to $350.7 million. NationsBanc Montgomery Securities noted
that the equity value of Home Choice implied by the Merger was $301.8 million.
Premiums Paid Analysis. NationsBanc Montgomery Securities reviewed the
consideration paid in sixty-nine comparable U.S. pooling transactions involving
enterprise value paid between $100 million and $500 million announced since
January 1997 selected to provide a substantial and broad range of transactions
for purposes of comparison. NationsBanc Montgomery Securities calculated the
premiums paid or offered in these transactions over the applicable stock price
of the target company one day, one week and four weeks prior to the announcement
of the acquisition offer. Such analysis indicated median and mean premiums,
respectively, of 22.9% and 30.1%, 32.4% and 36.3%, and 42.9% and 47.3%.
NationsBanc Montgomery Securities noted that the premiums implied by the Merger
were 33.9%, 39.2% and 45.8% for the period one day, one week and four weeks
prior to the date of NationsBanc Montgomery's fairness opinion. NationsBanc
Montgomery Securities notes that the premiums implied by the Merger are higher
than the mean and median premiums indicated by two of three cases in the
premiums paid analysis; however, as further emphasized below, NationsBanc
Montgomery Securities believes that selecting portions of its analyses and of
the factors considered, without considering all analyses and all factors, would
create an incomplete view of the process underlying the analyses set forth in
its presentation to the Rent-Way Board.
Contribution Analysis. Using estimates and forecasts prepared by Rent-Way
with respect to Rent-Way, and Home Choice with respect to Home Choice, as
previously discussed, NationsBanc Montgomery Securities reviewed the estimated
contribution of each of Rent-Way and Home Choice to estimated fiscal year 1999
revenue, EBITDA, EBIT and net income for the combined company. NationsBanc
Montgomery Securities then compared such contributions to the pro forma share
ownership of the combined company to be owned by each of the Rent-Way
shareholders and the Home Choice stockholders, assuming consummation of the
Merger as described in the Merger Agreement. Such analysis indicated that
Rent-Way's shareholders would own approximately 43.0% of the combined company in
the fiscal year ended September 30, 1999. Such analysis also indicated that,
based on such estimates, Rent-Way would contribute approximately 43.5%, 51.1%,
50.1% and 49.0% of the combined company's estimated revenue, EBITDA, EBIT and
net income, respectively, for the fiscal year ended September 30, 1999.
While the foregoing summary describes all analyses and examinations that
NationsBanc Montgomery Securities deems material to its opinion, it is not a
comprehensive description of all analyses and examinations actually conducted.
The preparation of a fairness opinion necessarily is not susceptible to partial
analysis or summary description. NationsBanc Montgomery Securities believes that
its analyses and the summary set forth above must be considered as a whole and
that selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to the Rent-Way
Board. In addition, NationsBanc Montgomery Securities may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis.
Accordingly, the ranges of valuations resulting from any particular analysis
described above should not be taken to be NationsBanc Montgomery Securities's
view of the actual value of Home Choice.
In performing its analyses, NationsBanc Montgomery Securities made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Rent-Way
and Home Choice. The analyses performed by NationsBanc Montgomery Securities are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than those suggested by such analyses.
Such analyses were prepared solely as part of NationsBanc
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Montgomery Securities's analysis of the financial fairness of the consideration
to be paid by Rent-Way pursuant to the Merger and were provided to the Rent-Way
Board in connection with the delivery of NationsBanc Montgomery Securities's
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold or the prices at which any securities
may trade at any time in the future.
As described above, NationsBanc Montgomery Securities's opinion and
presentation to the Rent-Way Board were among the many factors taken into
consideration by the Rent-Way Board in making its determination to approve, and
to recommend that the Rent-Way shareholders approve, the Merger.
Upon execution of the Engagement Letter, Rent-Way agreed to pay NationsBanc
Montgomery Securities a transaction fee of 0.75% of the consideration involved
in the transaction (including assumed indebtedness of Home Choice), contingent
on the consummation of the Merger or the acquisition of a minority interest in
Home Choice; based on an estimated aggregate merger consideration of
$247,177,787 million (based on delivery of 10,011,251 Rent-Way shares (at the
closing price of $24.69 per share on November 4, 1998) and the assumption of
approximately $63 million in Home Choice indebtedness), such transaction fee
would equal $2,326,333 million. The Rent-Way Board was aware of this fee
structure and took it into account in considering NationsBanc Montgomery
Securities's opinion and in approving the Merger. The Engagement Letter also
calls for Rent-Way to reimburse NationsBanc Montgomery Securities for its
reasonable out-of-pocket expenses. Pursuant to a separate letter agreement,
Rent-Way has agreed to indemnify NationsBanc Montgomery Securities, its
affiliates, and their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws.
In the ordinary course of its business, NationsBanc Montgomery Securities
actively trades Rent-Way Common Stock for its own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
the Rent-Way Common Stock. NationsBanc Montgomery Securities also acted as
underwriter in connection with public offerings of Rent-Way's Common Stock and
has performed various investment banking services for Rent-Way. Since October
1996, Rent-Way has paid NationsBanc Montgomery Securities an aggregate of
approximately $1.1 million for services rendered.
The financial forecasts and projections of financial information referred
to herein have not been prepared pursuant to American Institute of Certified
Public Accountant guidelines. PricewaterhouseCoopers LLP has not examined,
compiled or applied any procedures with respect to such information and
expresses no opinion or any assurance on their reasonableness or achievability.
OPINION OF FINANCIAL ADVISORS TO HOME CHOICE
Home Choice asked each of DLJ and Stephens, in their role as financial
advisors to Home Choice, to render an opinion to the Home Choice Board as to the
fairness from a financial point of view of the Exchange Ratio to the holders of
Home Choice Common Stock. On September 1, 1998, each of DLJ and Stephens
delivered to the Home Choice Board a written opinion (the "DLJ Opinion," and the
"Stephens Opinion," respectively, and together the "DLJ and Stephens Opinion")
to the effect that, as of such date, and based on and subject to the
assumptions, limitations and qualifications set forth in such opinions, the
Exchange Ratio was fair from a financial point of view to the holders of Home
Choice Common Stock.
THE FULL TEXT OF THE DLJ OPINION AND THE STEPHENS OPINION ARE ATTACHED
HERETO AS ANNEX C AND D, RESPECTIVELY. THE SUMMARY OF THE DLJ OPINION AND THE
STEPHENS OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE DLJ OPINION AND THE
STEPHENS OPINION. SUBSEQUENT DEVELOPMENTS MAY AFFECT THE DLJ OPINION AND
STEPHENS OPINION. HOME CHOICE STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION AND
THE STEPHENS OPINION CAREFULLY AND IN THEIR ENTIRETY FOR THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW
UNDERTAKEN BY DLJ AND STEPHENS IN CONNECTION WITH SUCH OPINIONS. DLJ AND
STEPHENS HAVE EACH CONSENTED TO THE FOLLOWING DISCUSSION AND TO THE INCLUSION OF
THE DLJ OPINION AND THE STEPHENS OPINION AS ANNEXES TO THIS JOINT PROXY
STATEMENT/PROSPECTUS.
Opinion of DLJ. The DLJ Opinion was prepared for the Home Choice Board and
was directed only to the fairness from a financial point of view, as of the date
thereof, of the Exchange Ratio to the holders of Home
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Choice Common Stock. DLJ expressed no opinion in the DLJ Opinion as to the
prices at which Rent-Way Common Stock would actually trade at any time. The DLJ
Opinion does not address the relative merits of the Merger and the other
business strategies considered by the Home Choice Board nor does it address the
Home Choice Board's decision to proceed with the Merger. The DLJ Opinion does
not constitute a recommendation to any Home Choice stockholder as to how such
stockholder should vote on the Merger.
Home Choice selected DLJ as its financial advisor because it is an
internationally recognized investment banking firm that is familiar with Home
Choice and its business. As part of its investment banking business, DLJ is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Home Choice did not impose any restrictions or limitations upon DLJ
with respect to the investigations made or the procedures followed by DLJ in
rendering the DLJ Opinion.
In arriving at the DLJ Opinion, DLJ reviewed a draft dated August 29, 1998
of the Merger Agreement. DLJ also reviewed financial and other information that
was publicly available or furnished to DLJ by Home Choice and Rent-Way,
including information provided during discussions with their respective
managements. Included in the information provided during such discussions were
certain financial projections of Home Choice for the period beginning July 1,
1998 and ending December 31, 2002 prepared by the management of Home Choice and
certain financial projections of Rent-Way for the period beginning October 1,
1997 and ending September 30, 2002 prepared by the management of Rent-Way. There
can be no assurance that such projections will indicate the actual financial
results of Home Choice, Rent-Way or the combined company. According to Rent-Way
and Home Choice, the forecasts provided to DLJ did not differ materially from
the composite of research analysts' estimates for the fiscal years of Rent-Way
and Home Choice ended September 30, 1998 and December 31, 1998, respectively or
from the composite of research analysts' estimates for the 1999 fiscal year of
Rent-Way. The material financial projections of Home Choice for the 1999 and
2000 fiscal years, based on a September 30 fiscal year end, provided to DLJ were
as follows: projected revenue of $300.0 million and $312.8 million,
respectively; projected EBITdA of $39.6 million and $42.5 million, respectively;
projected operating income of $30.6 million and $33.9 million, respectively;
projected net income of $14.7 million, and $16.9 million, respectively. The
material financial projections of Rent-Way for the 2000 fiscal year provided to
DLJ were as follows: projected revenue of $235.3 million; projected EBITdA of
$50.9 million; and operating income of $40.3 million. The forecasts provided to
DLJ for the 1999 fiscal year of Home Choice did differ materially from the
composite of research analysts' estimates since the forecasts prepared by Home
Choice for use by DLJ projected earnings at $15.6 million and analysts'
estimates are at $13.8 million. In addition, DLJ compared certain financial and
securities data of Home Choice and Rent-Way with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of Home Choice Common Stock and Rent-Way Common Stock,
reviewed prices and premiums paid in certain other business combinations and
conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of rendering the DLJ Opinion.
In rendering the DLJ Opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available from public sources, that was provided to DLJ by Home Choice,
Rent-Way, their respective representatives, or that was otherwise reviewed by
DLJ. In particular, DLJ relied upon the estimates of the management of Rent-Way
of the operating synergies (the "Synergies") achievable as a result of the
Merger and upon DLJ's discussions of such Synergies with the management of Home
Choice. With respect to the financial projections supplied to DLJ, DLJ assumed
that they were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the managements of Home Choice and Rent-Way
as to the future operating and financial performance of Home Choice and
Rent-Way, respectively. DLJ did not assume responsibility for making any
independent evaluation of the assets or liabilities of Home Choice or Rent-Way,
or for making any independent verification of the information reviewed by DLJ.
DLJ further assumed that the Merger will qualify as a tax-free reorganization
for United States federal income tax purposes. The DLJ Opinion states that,
although subsequent developments may affect the DLJ Opinion, DLJ does not have
any obligation to update, revise or reaffirm its opinion.
THE DLJ OPINION IS NECESSARILY BASED ON ECONOMIC, MARKET AND OTHER
CONDITIONS IN EFFECT ON, AND THE INFORMATION MADE AVAILABLE TO DLJ AS OF THE
DATE THEREOF.
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Opinion of Stephens. The Stephens Opinion was provided to the Home Choice
Board and was directed only to the fairness from a financial point of view, as
of the date thereof, of the Exchange Ratio to Home Choice and to the holders of
Home Choice Common Stock. Stephens expressed no opinion in the Stephens Opinion
as to the prices at which Rent-Way Common Stock would actually trade at any
time. The Stephens Opinion does not address the relative merits of the Merger
and the other business strategies considered by the Home Choice Board nor does
it address the Home Choice Board's decision to proceed with the Merger. The
Stephens Opinion does not constitute a recommendation to any Home Choice
stockholder as to how such stockholder should vote on the Merger.
The Home Choice Board retained Stephens as an independent contractor to act
as financial advisor with respect to the Merger. Stephens is a nationally
recognized investment banking and advisory firm. Stephens, as part of the
investment banking business, is continually engaged in the valuation of
companies and their securities in connection with business reorganizations,
private placements, negotiated underwritings, mergers and acquisitions and
valuations for estate, corporate and other purposes. The Home Choice Board did
not impose any restrictions or limitations upon Stephens with respect to the
investigations made or the procedures followed by Stephens in rendering the
Stephens Opinion.
In connection with rendering the Stephens Opinion, Stephens: (1) analyzed
certain publicly available financial statements and reports regarding Home
Choice and Rent-Way; (2) analyzed certain internal financial statements and
other financial and operating data (including certain financial projections of
Home Choice for the period beginning July 1, 1998 and ending December 31, 2002
prepared by management of Home Choice and certain financial projections of
Rent-Way for the period beginning October 1, 1997 and ending September 30, 2002)
prepared by managements of Rent-Way (there can be no assurance that any
financial projections will indicate the actual financial results of Home Choice,
Rent-Way or the combined company); (3) analyzed, on a pro forma basis, the
effect of the Merger; (4) compared the financial performance of Home Choice and
Rent-Way and the prices and trading activity for the Home Choice Common Stock
and Rent-Way Common Stock with that of certain other comparable publicly-traded
companies and their securities; (5) reviewed the financial terms, to the extent
publicly available, of certain comparable transactions; (6) reviewed a draft
dated August 29, 1998 of the Merger Agreement; (7) discussed with the
managements of Home Choice and Rent-Way the operations of and future business
prospects for Home Choice and Rent-Way and the anticipated financial
consequences of the Merger; (8) assisted in deliberations regarding the material
terms of the Merger Agreement and negotiations with Rent-Way; and (9) performed
such other analyses and provided such other services as Stephens deemed
appropriate. According to Rent-Way and Home Choice, the forecasts provided to
Stephens did not differ materially from the composite of research analysts'
estimates for the fiscal years of Rent-Way and Home Choice ended September 30,
1998 and December 31, 1998, respectively or from the composite of research
analysts' estimates for the 1999 fiscal year of Rent-Way. The material financial
projections of Home Choice for the 1999 and 2000 fiscal years, based on a
September 30 fiscal year end, provided to Stephens were as follows: projected
revenue of $300.0 million and $312.8 million, respectively; projected EBITdA of
$39.6 million and $42.5 million, respectively; projected operating income of
$30.6 million and $33.9 million respectively; projected net income of $14.7
million and $16.9 million, respectively. The material financial projections of
Rent-Way for the 2000 fiscal year provided to Stephens were as follows:
projected revenue of $235.3 million; projected EBITdA of $50.9 million and
operating income of $40.3 million. The forecasts provided to Stephens for the
1999 fiscal year of Home Choice did differ materially from the composite of
research analysts' estimates since the forecasts prepared by Home Choice for use
by Stephens projected earnings at $15.6 million and analysts' estimates are at
$13.8 million.
Stephens relied on the accuracy and completeness of the information and
financial data prepared and provided by Home Choice and Rent-Way, and the
Stephens Opinion is based upon such information. Stephens inquired into the
reliability of such information and financial data only to the limited extent
necessary to provide a reasonable basis for its opinion, recognized that
Stephens rendered only an informed opinion and not an appraisal or certificate
of value. With respect to the financial projections prepared by the managements
of Home Choice and Rent-Way, Stephens assumed that the financial projections
were reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the managements of Home Choice and Rent-Way as to the
expected future financial performance of Home Choice and Rent-Way. Stephens also
relied on
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assurances from Home Choice and Rent-Way that neither Home Choice and Rent-Way
is aware of any information supplied to Stephens to be incomplete or misleading
in any material respect. Stephens further assumed that the Merger will qualify
as a tax-free reorganization for United States federal income tax purposes.
Finally, Stephens assumed that the Merger Agreement was substantially similar to
the draft dated August 29, 1998 that was reviewed by Stephens.
The Stephens Opinion was necessarily based on economic, market, financial
and other conditions as they existed on, and on the information made available
to Stephens as of the date of the Stephens Opinion. The Stephens Opinion states
that, although subsequent developments may affect the Stephens Opinion, Stephens
does not have any obligation to update, revise or reaffirm its opinion.
The following is a summary of the presentation made by DLJ and Stephens to
the Home Choice Board at its September 1, 1998 meeting in connection with
rendering the DLJ Opinion and the Stephens Opinion. Unless otherwise specified,
references to Synergies below assume $5.7 million of annual pre-tax synergies
realized in fiscal years 1999 through 2002. The amount of the Synergies was
determined by management of Rent-Way based on its estimates of the future
financial performance of the combined entity.
Earnings per Share Impact Analysis. Using the projected earnings of Home
Choice for the years 1999 and 2000 and the projected earnings of Rent-Way for
the same years as discussed above, DLJ and Stephens compared the projected
earnings per share ("EPS") of Rent-Way on a stand-alone basis (assuming the
Merger does not occur) to the projected pro forma EPS of the combined entity
with Synergies. The accretive effect of the Merger on EPS to holders of Rent-Way
Common Stock was an estimated 14.6% and 14.4% in 1999 and 2000, respectively.
DLJ and Stephens also compared the EPS of Home Choice on a stand-alone basis
(assuming the Merger does not occur) to the projected pro forma EPS of the
combined entity, with Synergies, multiplied by the Exchange Ratio. The accretive
effect of the Merger on EPS to holders of Home Choice Common Stock was an
estimated 2.3% and 2.0%, in 1999 and 2000, respectively.
Comparable M&A Transaction Analysis. DLJ and Stephens reviewed three
selected acquisitions involving rental-purchase companies (the "M&A
Transactions"): (i) Renters Choice, Inc./THORN Americas Inc.; (ii) Renters
Choice/Central Rents, Inc.; and (iii) Alrenco/RTO. In examining these
acquisitions, DLJ and Stephens compared the enterprise value (defined as equity
value plus total debt plus the liquidation value of the preferred stock, if any,
plus the value of minority interests, if any, minus cash and short-term
investments) of the acquired company implied by each of these transactions as a
multiple of latest twelve months ("LTM") revenue, monthly sales and LTM earnings
before interest, taxes, depreciation (excluding, depreciation of rental
merchandise) and amortization ("EBITdA"), to the implied enterprise value of
Home Choice in the Merger as a multiple of the same financial data. DLJ's and
Stephens' analysis of enterprise value as a multiple of (i) LTM revenue yielded
a range of 1.0x to 1.6x with an average of 1.2x, compared to 1.4x for Home
Choice in the Merger, (ii) monthly sales yielded a range of 11.9x to 19.2x with
an average of 14.6x compared to 16.2x for Home Choice in the Merger and (iii)
LTM EBITdA yielded a range of 7.7x to 29.7x with an average of 17.7x, compared
to 31.8x for Home Choice in the Merger. The analysis showed that the implied
enterprise value of Home Choice in the Merger as a multiple of the selected
financial data described in this paragraph was within the range or in excess of
the same enterprise multiples for the comparable acquisitions in (i), (ii) and
(iii) above.
Rental-Purchase Publicly Traded Company Analysis. DLJ and Stephens analyzed
selected historical and projected operating information, stock market data and
financial ratios for certain publicly traded rental-purchase companies. The
rental-purchase companies (collectively, the "Rental Purchase Companies") were
comprised of Aaron Rents, Inc., Home Choice, Renters Choice and Rent-Way. DLJ
and Stephens analyzed the equity value (using the stock prices as of August 27,
1998), measured as a multiple of selected financial data and the enterprise
value of each of the Rental Purchase Companies, measured as a multiple of
selected financial data. In examining these Rental Purchase Companies, DLJ and
Stephens analyzed the equity value of each company as a multiple of each
company's respective LTM EPS, estimated calendar year 1998 EPS ("1998 EPS"),
estimated calendar year 1999 EPS ("1999 EPS") and book value. DLJ and Stephens
also analyzed the enterprise value of each company as a multiple of each
company's respective LTM revenue, LTM EBITdA and LTM earnings before interest
and taxes ("EBIT"). DLJ's and Stephens' analysis of the Rental Purchase
Companies yielded the following: LTM EPS multiples ranged from 16.9x to 26.4x
with an average of 21.6x, 1998 EPS multiples ranged from 15.7x to
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42.2x with an average of 25.1x, compared to 60.3x for Home Choice in the Merger,
1999 EPS multiples ranged from 13.3x to 20.2x with an average of 16.7x, compared
to 18.6x for Home Choice in the Merger, book value multiples ranged from 1.7x to
4.6x with an average of 2.9x. LTM revenue multiples ranged from 1.2x to 2.6x
with an average of 1.6x, compared to 1.4x for Home Choice in the Merger, LTM
EBITdA multiples ranged from 7.6x to 27.7x with an average of 14.5x, compared to
31.8x for Home Choice in the Merger, and LTM EBIT multiples ranged from 10.6x to
16.6x with an average of 12.9x. Because of the historical losses of Home Choice,
DLJ and Stephens believed that it was not meaningful to compare the Rental
Purchase Companies' LTM EPS multiples and LTM EBIT multiples with the equivalent
multiples of Home Choice in the Merger. DLJ and Stephens noted that all of the
multiples for Home Choice were within or above the range of equivalent multiples
for the Rental Purchase Companies.
Stock Price History. To provide contextual data and comparative market
data, DLJ and Stephens examined the history of the trading prices and their
relative relationships for both Home Choice Common Stock and Rent-Way Common
Stock for the LTM period and the period beginning with Home Choice's initial
public offering (January 26, 1996) and ending August 27, 1998. DLJ and Stephens
also reviewed the daily closing prices of Home Choice Common Stock and compared
closing prices of the Home Choice Common Stock with the closing stock prices of
Aaron Rents, Inc., Renters Choice, Rent-Way, Inc. and the S&P 500. This
information was presented solely to provide the Board of Directors of Home
Choice Board with background information regarding the prices of Home Choice
Common Stock and Rent-Way Common Stock over the periods indicated.
Discounted Cash Flow Analysis. DLJ and Stephens performed a discounted cash
flow ("DCF") analysis of Home Choice using projections and assumptions provided
by the management of Home Choice as previously discussed. The DCF analysis for
Home Choice were estimated using discount rates ranging from 10% to 12% and
estimated terminal EBIT multiples in 2002 for Home Choice ranging from 10.5x to
12.5x. The analysis yielded per share equity values for Home Choice ranging from
approximately $12.05 to $15.98 (excluding Synergies) and from approximately
$14.85 to $19.44 (with Home Choice receiving full benefit of all the Synergies
expected to be realized in this Merger). DLJ and Stephens also performed a DCF
analysis of Rent-Way using projections and assumptions of Rent-Way's management
as previously discussed. The DCF analysis of Rent-Way was estimated using
discount rates ranging from 10% to 12% and estimated terminal EBIT multiples
ranging from 10.5x to 12.5x. This analysis yielded per share equity values for
Rent-Way Common Stock ranging from $21.06 to $28.40 (excluding Synergies). DLJ
and Stephens also performed a DCF analysis of the combined entity using
projections and assumptions of Home Choice and Rent-Way's management. The DCF
analysis of the combined entity were estimated using discount rates ranging from
10% to 12% and estimated terminal EBIT multiples ranging from 10.5x to 12.5x.
This analysis yielded per share equity values for the combined entity ranging
from $22.99 to $30.34 (including Synergies).
Implied Exchange Ratio Analysis. Based upon the estimated valuation range
of Home Choice and Rent-Way set forth above, DLJ and Stephens calculated an
implied exchange ratio of a share of Home Choice Common Stock to a share of
Rent-Way Common Stock ranging from: (i) 0.524 to 0.527, obtained by dividing the
highest estimated valuation of a share of Home Choice Common Stock (excluding
Synergies) by the highest estimated valuation of a share of common stock of the
combined entity (including Synergies) and the lowest estimated valuation of a
share of Home Choice Common Stock (excluding Synergies) by the lowest valuation
of a share of common stock of the combined entity (including Synergies); (ii)
0.559 to 0.575, obtained by dividing the highest estimated valuation of a share
of Home Choice Common Stock (excluding Synergies) by the highest estimated
valuation of a share of Rent-Way Common Stock (excluding Synergies) and the
lowest estimated valuation of a share of Home Choice Common Stock (excluding
Synergies) by the lowest estimated valuation of a share of common stock of the
combined entity (excluding Synergies); and (iii) 0.641 to 0.646, obtained by
dividing the highest estimated valuation of Home Choice Common Stock (including
Synergies) by the highest estimated valuation of a share of common stock of the
combined entity (including Synergies) and the lowest estimated valuation of a
share of Home Choice Common Stock (including Synergies) by the lowest estimated
valuation of a share of common stock of the combined entity (including
Synergies), and in each case compared the range of exchange ratios to the
Exchange Ratio of 0.588. DLJ and Stephens note that the Exchange Ratio of 0.588
is lower than the range of implied exchange ratios in one of three cases in the
implied exchange ratio analysis; however as further emphasized below, DLJ and
Stephens believe that selecting portions of their analyses and of the factors
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considered, without considering all analyses and all factors, would create an
incomplete view of the process underlying the analysis set forth in their
presentation to the Home Choice Board.
Contribution Analysis. DLJ and Stephens analyzed the relative contributions
of Home Choice and Rent-Way to the pro forma combined entity based on selected
financial data, assuming no Synergies. DLJ and Stephens estimated that Home
Choice would contribute 41.8% and Rent-Way would contribute 58.2% of the pro
forma combined entity's total enterprise value. DLJ and Stephens compared Home
Choice's 41.8% contribution to the pro forma combined entity's total enterprise
value with the relative contribution of Home Choice to certain financial data
for the pro forma combined entity, including revenue, EBITdA and EBIT for the
six months ended June 30, 1998 and projected for the year ended September 30,
1999. In each case, the financial data for the pro forma combined entity was
determined by adding the financial data for Home Choice and Rent-Way. This
analysis indicated that Home Choice would contribute 57.1% and 57.4% of the pro
forma combined entity's revenues for the six months ended June 30, 1998 and the
projected year ended September 30, 1999, respectively. This analysis also
indicated that Home Choice would contribute 31.4% and 45.5% of the pro forma
combined entity's EBITdA for the six months ended June 30, 1998 and the
projected year ended September 30, 1999, respectively. This analysis also
indicated that Home Choice would contribute 13.0% and 45.4% of the pro forma
combined entity's EBIT for the six months ended June 30, 1998 and the projected
year ended September 30, 1999, respectively. DLJ and Stephens note that Home
Choice's contribution to the combined pro forma entity's total revenues for the
six months ended June 30, 1998 and for the projected year ending September 30,
1999 would be higher than the percentage ownership of Home Choice stockholders
in the combined entity following the Merger resulting from the Exchange Ratio;
however as further emphasized below, DLJ and Stephens believe that selecting
portions of their analyses and of the factors considered, without considering
all analyses and all factors, would create an incomplete view of the process
underlying the analyses set forth in their presentation to the Home Choice
Board.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ and Stephens but describes, in summary form,
the principal elements of the presentation made by DLJ and Stephens to the Home
Choice Board on September 1, 1998. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Each of the analyses conducted by DLJ and Stephens was
carried out in order to provide a different perspective on the transaction and
to add to the total mix of information available. DLJ and Stephens did not form
a conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness from a financial point
of view. Rather, in reaching their conclusion, DLJ and Stephens considered the
results of the analyses in light of each other and ultimately reached their
opinion based on the results of all analyses taken as a whole. Accordingly,
notwithstanding the separate factors summarized above, DLJ and Stephens have
indicated to Home Choice that they believe that their analyses must be
considered as a whole and that selecting portions of their analyses and the
factors considered by them, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying their opinions.
The analyses performed by DLJ and Stephens are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses.
Pursuant to the terms of separate engagement agreements dated August 12,
1998, Home Choice has agreed to pay each of DLJ and Stephens a fee of $625,000
upon delivery of the DLJ Opinion and the Stephens Opinion and will pay each of
DLJ and Stephens an additional $1.375 million upon consummation of the Merger.
In the event the Merger is not consummated and Home Choice is entitled to
receive a "termination fee," "break-up fee," "topping fee" or other form of
compensation payable in cash or other assets, including, but not limited to, an
option to purchase securities from Rent-Way (such cash, securities, including,
in the case of options, the right to exercise such options or other assets
hereinafter referred to as the "Break-up Fee") or reimbursement of expenses,
then Home Choice shall pay to each of DLJ and Stephens, in cash, promptly upon
Home Choice receipt of such Break-up Fee or reimbursement of expenses, an amount
equal to 10% of the Break-up Fee, which amount shall not exceed $750,000. Any
fees paid to each of DLJ and Stephens under the first clause of this paragraph
shall be deducted from the portion of the Break-up Fee payable to DLJ and
Stephens, respectively. In addition, Home Choice agreed to reimburse DLJ and
Stephens, upon request by DLJ and Stephens from time to
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time, for all out-of-pocket expenses (including the reasonable fees and expenses
of counsel) incurred by DLJ and Stephens in connection with their engagement
thereunder (provided that such expense will not exceed $25,000 for each of DLJ
and Stephens without the prior approval of Home Choice) and to indemnify DLJ and
Stephens and certain related persons against certain liabilities in connection
with its engagement, including liabilities under U.S. federal securities laws.
DLJ and Stephens and Home Choice negotiated the terms of the respective fee
arrangement, and the Home Choice Board was aware of such arrangement, including
the fact that a significant portion of the aggregate fee payable to DLJ and
Stephens is contingent upon consummation of the Merger.
In the ordinary course of business, DLJ and Stephens and their affiliates
may own or actively trade the securities of Home Choice and Rent-Way for their
own accounts and for the accounts of their customers and, accordingly, may at
any time hold a long or short position in Home Choice or Rent-Way securities.
DLJ and Stephens, as part of their investment banking services, are regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. DLJ and Stephens have performed investment banking and other
services for Home Choice in the past, including acting as RTO's financial
advisor in connection with RTO's merger with Alrenco (currently known as Home
Choice). Stephens also has performed investment banking and other advisory
services for Rent-Way in the past. DLJ and Stephens have received usual advisory
and customary compensation for its past services to Home Choice and Rent-Way.
Since October 1996, Home Choice and its affiliates have paid DLJ an aggregate of
$1.0 million and have paid Stephens an aggregate of $1.6 million for services
rendered.
The financial forecasts and projections of financial information referred
to herein have not been prepared pursuant to American Institute of Certified
Public Accountant guidelines. PricewaterhouseCoopers LLP has not examined,
compiled or applied any procedures with respect to such information and
expresses no opinion or any assurance on their reasonableness or achievability.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the respective recommendations of the Rent-Way Board and the
Home Choice Board with respect to the Merger, you should be aware that, as
described below, certain members of Home Choice management and directors have
interests in the Merger that are different from, or in addition to, your
interests as stockholders, and that create potential conflicts of interest.
Home Choice Stock Options
In accordance with the terms of the Merger Agreement, all Home Choice
Options outstanding at the Effective Time under any Home Choice stock option
plans will be converted into similar awards with respect to Rent-Way Common
Stock, adjusted to reflect the Exchange Ratio of 0.588. The vesting of any such
Home Choice Options will not be accelerated as a result of the Merger except
that, pursuant to the terms of Home Choice Options granted to certain employees
and members of management by Home Choice and its predecessor under the 1998
Alrenco, Inc. Stock Incentive Plan, such Home Choice Options will become vested
at the Effective Time.
As of November 4, 1998, officers and directors of Home Choice held Home
Choice Options to purchase 308,583 shares of Home Choice Common Stock. These
Home Choice Options will be converted on the Effective Date into options to
purchase 181,446 shares of Rent-Way Common Stock. An aggregate of 249,500 of the
Home Choice Options held by officers of Home Choice will vest on the Effective
Date. The exercise price of these options was greater than the market price of
Home Choice common stock as of November 4, 1998.
Agreements with Home Choice Executive Officers
Home Choice and Rent-Way have entered into agreements with certain
executive officers of Home Choice as described below.
Home Choice and Rent-Way entered into a letter agreement with James G.
Steckart on September 1, 1998 that provides, among other things, that, so long
as he is employed by Home Choice at the Effective Time,
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Mr. Steckart will be paid $200,000 on January 1, 1999, $200,000 on April 30,
1999 and $307,400 on the date Rent-Way publishes the financial results of at
least 30 days of post-merger operations of Rent-Way and Home Choice (the
"Publication Date"). The agreement further provides that Rent-Way will employ
Mr. Steckart through the Publication Date on terms to be agreed upon. Mr.
Steckart has reached oral agreement with Rent-Way that he will be employed
following the Merger through January 31, 1999 at his current salary and benefits
and thereafter through April 30, 1999 at a salary of $1,000 per month without
benefits.
Home Choice and Rent-Way entered into a letter agreement with John T.
Egeland on September 1, 1998 that provides, among other things, that, so long as
he is employed by Home Choice at the Effective Time, Mr. Egeland will be paid
$200,000 on January 1, 1999, $200,000 on April 30, 1999 and $168,800 on the
Publication Date. The agreement further provides that Rent-Way will employ Mr.
Egeland through the Publication Date on terms to be agreed upon.
Home Choice and Rent-Way entered into a letter agreement with Tracy A.
Schrader on September 1, 1998 that provides, among other things, that, so long
as he is employed by Home Choice at the Effective Time, Mr. Schrader will be
paid $100,000 on January 1, 1999. The agreement further provides that Rent-Way
will employ Mr. Schrader through the Publication Date on terms to be agreed
upon. Additionally, Mr. Schrader has entered into an agreement with Home Choice
that provides for a payment of $62,500 if he maintains his employment with Home
Choice through April 30, 1999; however, Mr. Schrader will not be entitled to any
payments under this agreement if he is offered and accepts a position with
Rent-Way.
Other Benefits
Rent-Way has agreed in the Merger Agreement to provide benefits to Home
Choice employees following the Merger that are not less favorable to them than
those provided to similarly-situated Rent-Way employees.
Indemnification and Insurance
Pursuant to the Merger Agreement, Rent-Way will indemnify and hold harmless
from liability the current directors and officers of Home Choice and such other
persons currently entitled to indemnification from Home Choice for acts or
omissions occurring at or prior to the Effective Time. The Merger Agreement also
provides that if Rent-Way enters into indemnification agreements prior to the
Effective Time with current Rent-Way directors, it will enter into similar
agreements with the Home Choice directors. Pursuant to the Merger Agreement, for
six years after the Effective Time, Rent-Way has agreed to maintain liability
insurance covering acts or omissions occurring prior to the Effective Time with
respect to those persons who were covered by Home Choice's directors' and
officers' liability insurance policy on terms with respect to coverage and
amounts no less favorable than those in effect on the date of the Merger
Agreement.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion constitutes the opinion of Hodgson, Russ, Andrews,
Woods & Goodyear LLP, legal counsel to Rent-Way, and is a statement of the
material federal income tax consequences of the Merger to Home Choice
stockholders who hold shares of Home Choice Common Stock as a capital asset at
the Effective Time. The term "capital asset" is used as defined in Section 1221
of the Code. This discussion is based upon the Code, U.S. Treasury Regulations
promulgated thereunder, and judicial and administrative interpretations of the
Code, all as in effect on the date of this Joint Proxy Statement/Prospectus. The
tax consequences of the Merger may change as a result of any changes in or
differing interpretations of these or other laws occurring after the date
hereof.
The discussion does not address the effects of any state, local or foreign
tax laws. In addition, the tax consequences discussed do not address all aspects
of federal taxation that may be relevant to particular stockholders in light of
their personal circumstances (particularly any stockholder who, at the Effective
Time, is not a U.S. person, is a tax-exempt entity, securities dealer,
broker-dealer, insurance company or financial institution or is an individual
who acquired his or her Home Choice Common Stock pursuant to an employee stock
option or otherwise as compensation).
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YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN ANY APPLICABLE TAX LAWS.
The obligations of the parties to consummate the Merger are conditioned on
the receipt by Rent-Way and Home Choice of an opinion of Hodgson, Russ, Andrews,
Woods & Goodyear LLP, counsel to Rent-Way, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a)(1)(A) of the Code. The opinion of Hodgson, Russ,
Andrews, Woods & Goodyear LLP will be based on current law and on certain
representations regarding factual matters and certain covenants as to future
actions made by Rent-Way and Home Choice. If these representations are incorrect
in certain material respects or the covenants are not complied with, the
conclusions reached by counsel in its opinion may be jeopardized.
As a reorganization within Section 368(a)(1)(A) of the Code, the Merger
will have the U.S. federal income tax consequences discussed below.
Except to the extent that Home Choice stockholders receive cash in lieu of
fractional shares, Home Choice stockholders who exchange Home Choice Common
Stock in the Merger for Rent-Way Common Stock will not recognize gain or loss
for federal income tax purposes upon the receipt of the Rent-Way Common Stock.
The aggregate tax basis of Rent-Way Common Stock received as a result of the
Merger will be the same as the Home Choice stockholder's aggregate tax basis in
the Home Choice Common Stock surrendered in the exchange, reduced by the portion
of the Home Choice stockholder's tax basis properly allocated to any fractional
share for which cash is received. The holding period of the Rent-Way Common
Stock received by a Home Choice stockholder as a result of the Merger will
include the period during which such stockholder held the Home Choice Common
Stock exchanged in the Merger, provided that the Home Choice Common Stock so
exchanged was held as a capital asset at the Effective Time. A Home Choice
stockholder who receives cash in lieu of a fractional share of Rent-Way Common
Stock in the Merger will be treated first as having received the fractional
share in the Merger and then as having received the cash payment in redemption
of the fractional share. Under Section 302 of the Code, the Home Choice
stockholder will generally recognize gain or loss in the deemed redemption in an
amount equal to the difference between the amount of cash received and the Home
Choice stockholder's adjusted tax basis allocable to such fractional share. Such
gain or loss will be capital gain or loss if such stockholder's Home Choice
Common Stock is held as a capital asset at the Effective Time.
REGULATORY APPROVALS
Under the Merger Agreement, the obligations of both Rent-Way and Home
Choice to consummate the Merger are conditioned on the expiration of the waiting
period under the HSR Act, the absence of any action instituted by the Antitrust
Division or the FTC and the receipt of all other material consents from
governmental authorities. Under the HSR Act and the rules promulgated thereunder
the Merger may not be consummated unless notification has been given and certain
information has been furnished to the FTC and the Antitrust Division and the
waiting period has expired or has been terminated.
In compliance with the HSR Act, Rent-Way and Home Choice filed a
Notification and Report with the FTC and the Antitrust Division on September 18,
1998 with respect to the Merger. The applicable waiting period with respect to
the Merger expired on October 18, 1998. There can be no assurance that the
Merger will not be investigated or opposed by the FTC or the Antitrust Division,
or that at any time before the consummation of the Merger, the FTC, the
Antitrust Division or states or private parties will not take action under the
antitrust laws challenging the consummation of the Merger.
Other than the approvals discussed above, Rent-Way and Home Choice are not
aware of any federal or state regulatory requirements that must be complied with
or approval that must be obtained in connection with the Merger other than the
filing with the Securities and Exchange Commission of the Registration Statement
and this Joint Proxy Statement/Prospectus and compliance with applicable state
securities laws and regulations. Should any such approval be required, it is
currently contemplated that such approval will be sought.
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ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Accordingly, the book value of the assets,
liabilities and stockholders' equity of Home Choice will be combined with the
corresponding balance sheet categories of Rent-Way and carried forward to the
combined company, subject to any adjustments required to conform the accounting
policies and financial statement classifications of the two companies. In future
financial statements, the results of operations of the combined company will
include the results of both Rent-Way and Home Choice for the entire fiscal year
in which the Merger occurs and all prior fiscal periods presented therein.
Certain expenses incurred to effect the merger must be treated by the combined
company as current charges against income rather than adjustments to its balance
sheet.
Management of Rent-Way and Home Choice have been informed that Rent-Way and
Home Choice will receive from PricewaterhouseCoopers LLP, the independent
accountants for Rent-Way, a letter to the effect that PricewaterhouseCoopers LLP
concurs with the conclusions of Rent-Way's and Home Choice's management that no
conditions exist with respect to either company which would preclude accounting
for the Merger as a pooling of interests and that Rent-Way and Home Choice will
also receive from PricewaterhouseCoopers LLP, the independent accountants for
Home Choice, a letter to the effect that PricewaterhouseCoopers LLP concurs with
the conclusions of Home Choice's management that no conditions exist with
respect to Home Choice that would preclude accounting for the Merger as a
pooling of interests. Representatives of PricewaterhouseCoopers LLP are expected
to be present at both the Rent-Way Special Meeting and the Home Choice Special
Meeting. These representatives will be available to respond to questions and
will have an opportunity to make a statement if they desire to do so. See "The
Merger -- Terms of the Merger Agreement -- Conditions to the Merger" and
"Unaudited Pro Forma Combined Condensed Financial Statements."
LISTING OF RENT-WAY COMMON STOCK
Rent-Way Common Stock is currently listed on the NYSE under the trading
symbol "RWY." Pursuant to the terms of the Merger Agreement, the Rent-Way Common
Stock to be issued in the Merger must be listed on either Nasdaq or the NYSE.
The listing of such shares on Nasdaq or the NYSE subject to notice of issuance,
is a condition precedent to Home Choice's obligation to consummate the Merger.
RESALES OF RENT-WAY COMMON STOCK
All shares of Rent-Way Common Stock received by Home Choice stockholders in
the Merger will be freely transferable, except that shares of Rent-Way Common
Stock received by persons deemed to be affiliates of Home Choice prior to the
Merger and/or affiliates of Rent-Way following the Merger may be resold by them
only in transactions permitted by the resale provisions of Rule 145 or as
otherwise permitted under the Securities Act. Affiliates of Rent-Way or Home
Choice generally include those that control, are controlled by, or are under
common control with Rent-Way or Home Choice, and may include officers and
directors as well as principal shareholders of Rent-Way or Home Choice. The
restrictions imposed will consist of certain volume and manner of sale
restrictions on the resale of shares of Rent-Way Common Stock. The Merger
Agreement requires each of Rent-Way and Home Choice to use all reasonable
efforts to cause each of its respective affiliates to execute a written
agreement to the effect that such affiliate will not offer or sell or otherwise
dispose of (i) any shares of Rent-Way Common Stock or Home Choice Common Stock
during the period beginning 30 days prior to the Effective Time and continuing
until such time as results covering at least 30 days of post-Effective Time
operations of Rent-Way have been published or (ii) any shares of Rent-Way Common
Stock issued to such affiliate in or pursuant to the Merger in violation of the
Securities Act or the rules and regulations promulgated by the Securities and
Exchange Commission (the "Commission") thereunder.
This Joint Proxy Statement/Prospectus does not cover any resale of the
shares of Rent-Way Common Stock that will be received by Home Choice
stockholders on the Merger. Therefore, no person is authorized to use and no
person should use this Joint Proxy Statement/Prospectus in connection with any
resale of these shares.
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DISSENTERS' RIGHTS OF APPRAISAL
Under Pennsylvania law, Rent-Way shareholders will not have any appraisal
rights in connection with the Merger Agreement and the consummation of the
transactions contemplated thereby.
Under Delaware law, Home Choice stockholders will not have any appraisal
rights in connection with the Merger Agreement and the consummation of the
transactions contemplated thereby.
THE STOCK OPTION AGREEMENTS
The following is a brief summary of the material terms of the Stock Option
Agreements, copies of which are attached as Annexes E and F and which are
incorporated herein by reference. The terms of the Stock Option Agreements are
similar in all material respects other than with respect to the shares which may
be purchased pursuant thereto and the exercise prices. The following summary
generally refers to the party granting the option as the issuer and the party to
whom the option was granted as the grantee. Such summary is qualified in its
entirety by reference to the Stock Option Agreements.
GENERAL
Pursuant to mutual Stock Option Agreements entered into concurrently with
the Merger Agreement (the "Stock Option Agreements"), Rent-Way and Home Choice
have granted to each other an irrevocable option to purchase up to approximately
19.9% of the other's total number of shares of Common Stock outstanding on the
date of the Stock Option Agreements, subject to adjustments provided therein.
Rent-Way and Home Choice have the right, under certain circumstances, to
purchase, respectively, up to (a) 4,229,847 shares of Home Choice Common Stock,
and (b) 2,740,908 shares of Rent-Way Common Stock. The option exercise price per
share for Home Choice Common Stock is $13.24. The option exercise price per
share for Rent-Way Common Stock is $29.42. The exercise price is payable in
cash.
EXERCISE OF THE OPTIONS
The options are exercisable only upon the occurrence of one of the
following events (each a "Purchase Event"):
(a) any person (other than the grantee or any of its subsidiaries)
shall have commenced (as defined in Rule 14d-2 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), or shall have filed a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") with respect to, a tender offer or exchange offer for
shares of the issuer's common stock if, upon consummation of such offer,
such person would own or control 10% or more of the outstanding common
stock of the issuer;
(b) the issuer or any of its subsidiaries (without the consent of the
grantee or except as permitted by the Merger Agreement or the option) shall
have authorized, recommended or proposed (or announced an intention to
authorize, recommend or propose), or shall have entered into an agreement
with any person (other than the grantee or any of its subsidiaries), to (i)
effect a merger, consolidation or similar transaction involving the issuer
or any of its material subsidiaries, (ii) sell, lease or otherwise dispose
of 15% or more of the consolidated assets of the issuer and its
subsidiaries, or (iii) issue, sell or otherwise dispose of (including by
merger, consolidation, share exchange or similar transaction) securities
representing 10% or more of the voting power of the issuer or any of its
significant subsidiaries (any of the foregoing, an "Acquisition
Transaction");
(c) any person (other than the grantee or its subsidiaries and other
than the issuer and its subsidiaries in a fiduciary capacity) shall have
acquired beneficial ownership of, or any "group" (as defined in the
Exchange Act) shall have been formed which beneficially owns or has the
right to acquire beneficial ownership of, 10% or more of the outstanding
common stock of the issuer; or
(d) the holders of common stock of the issuer shall not have approved
and adopted the Merger Agreement at the meeting of its stockholders held
for the purpose of voting on the Merger Agreement, such meeting shall not
have been held or shall have been canceled prior to termination of the
Merger Agreement
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or the Board of the issuer shall have withdrawn or modified in a manner
adverse to the grantee the recommendation of such Board with respect to the
Merger Agreement, in each case after any person (other than grantee or any
subsidiary of the grantee) shall have publicly announced a proposal, or
publicly disclosed an intention to make a proposal, to engage in an
Acquisition Transaction.
Each option expires upon the earliest to occur or (a) the Effective Time of
the Merger, (b) 12 months after the first occurrence of a Purchase Event, and
(c) termination of the Merger Agreement prior to the occurrence of a Purchase
Event.
ADJUSTMENT OF NUMBER OF SHARES SUBJECT TO OPTIONS
The number and type of securities subject to the options and the purchase
price of the shares will be adjusted for any change in the issuer's
capitalization such that the grantee will receive (upon exercise of the option)
the same number and type of securities as if the option had been exercised
immediately prior to the change in the issuer's common stock (or the record date
therefor). The number of shares of common stock subject to each option will also
be adjusted in the event the issuer issues additional shares of common stock,
such that the number of shares of common stock subject to the option represents
19.9% of the issuer's common stock then issued and outstanding, without giving
effect to shares subject to or issued pursuant to the option.
In the event the issuer enters into any agreement to (a) merge or
consolidate with any person other than the grantee or one of its subsidiaries
such that the issuer is not the surviving corporation, such that the issuer's
common stock is exchanged for any other securities or other property or such
that the outstanding shares of the issuer's common stock prior to such merger or
consolidation represent less than 50% of the issuer's common stock following
such merger or consolidation, or (b) sell or otherwise transfer all or
substantially all of its assets to a person other than the grantee or one of its
subsidiaries, the agreement governing the transaction must provide that, upon
consummation of the transaction, the option will be converted into or exchanged
for an equivalent option to purchase securities of either the acquiring person,
a person that controls the acquiring person or the issuer (if the issuer is the
surviving entity), in all cases at the option of the grantee.
REPURCHASE RIGHTS
The grantee has the right to require the issuer to repurchase the option
(unless previously expired) and any shares acquired by exercise of the option
upon the first occurrence of and for 12 months following a Purchase Event
(provided that in the case of a Purchase Event described in paragraph (a) of the
section above entitled "Exercise of the Options," the Purchase Event must be
followed by the holders of the issuer's common stock not approving the Merger
Agreement at a meeting called for the purpose of voting on the Merger Agreement
or the cancellation of or failure to hold a meeting called for that purpose
prior to the termination of the Merger Agreement).
Such repurchase will be at an aggregate price equal to the sum of (a) the
aggregate exercise price paid by grantee for any shares of the issuer's common
stock acquired pursuant to the option with respect to which grantee then has
beneficial ownership; (b) the excess, if any, of (i) the Applicable Price (as
defined below) for each share of the issuer's common stock over (ii) the
exercise price (subject to adjustment), multiplied by the number of shares of
the issuer's common stock with respect to which the option has not been
exercised; and (c) the excess, if any, of the Applicable Price over the exercise
price (subject to adjustment) paid by grantee for each share of the issuer's
common stock with respect to which the option has been exercised and with
respect to which grantee then has beneficial ownership, multiplied by the number
of such shares. For purposes of the Stock Option Agreements, "Applicable Price"
means the highest of (a) the highest price at which a tender offer or exchange
offer has been made for shares of the issuer's common stock, (b) the price per
share paid by a third party for shares of the issuer's common stock in
connection with a merger or other business combination or (c) the highest
closing sale price per share quoted on the NYSE (or, if the issuer's common
stock is not quoted on the NYSE, the highest bid price per share as quoted on
the Nasdaq or, if the issuer's common stock is not quoted thereon, on the
principal trading market on which such shares are traded as reported by a
recognized source) during the 60 business days prior to the grantee's exercise
of its right to require-the issuer to repurchase the option or the shares
acquired by exercise thereof.
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REGISTRATION RIGHTS; LISTING
The grantee has the right within three years after the first exercise of
the option to require the issuer to prepare and file up to two registration
statements under the Securities Act for the shares issued or issuable upon
exercise of the option and to use its best efforts to qualify the shares under
any applicable state securities laws if necessary for the grantee to be able to
sell the shares. If any shares of the issuer's common stock (or other securities
issuable upon exercise of the option) are then listed on the NYSE or Nasdaq, the
grantee has the right to require the issuer to file an application and use its
best efforts to list on the NYSE or Nasdaq the common stock (or other
securities) issuable upon exercise of the option.
EFFECT OF THE STOCK OPTION AGREEMENTS
The Stock Option Agreements are intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement. Consequently, certain aspects of the Stock Option Agreements may have
the effect of discouraging persons who might now or prior to the Effective Time
be interested in acquiring all of or a significant interest in, or otherwise
effecting a business combination with, Rent-Way or Home Choice from considering
or proposing such a transaction. The Stock Option Agreements may even discourage
persons who were prepared to offer to pay consideration to either the Rent-Way
shareholders or the Home Choice stockholders of a higher value than the shares
of Rent-Way Common Stock to be received for each share of Home Choice Common
Stock or to be retained by holders of Rent-Way Common Stock, as the case may be,
pursuant to the Merger Agreement.
THE VOTING AGREEMENTS
The following is a brief summary of the material terms of the Voting
Agreements, copies of the forms of which are attached as Annexes G and H and
which are incorporated herein by reference. Such summary is qualified in its
entirety by reference to the Voting Agreements.
GENERAL
Two Rent-Way shareholders, Gerald A. Ryan, Chairman of the Board and a
director of Rent-Way, and William E. Morgenstern, President, Chief Executive
Officer and a director of Rent-Way, have each entered into a Voting Agreement
with Home Choice, and two Home Choice Stockholders, Michael D. Walts and GDJ,
Jr. Investments Limited Partnership, of which George D. Johnson, Jr., Chairman
of the Board and a director of Home Choice is general partner, have each entered
into a Voting Agreement with Rent-Way (collectively, the "Voting Agreements").
The Voting Agreements provide that such Rent-Way shareholders and such Home
Choice stockholders shall vote their shares in favor of approval and adoption of
the Merger Agreement, the terms thereof and each of the other transactions
contemplated by the Merger Agreement, and against any action or agreement (other
than the Merger Agreement or the transactions contemplated thereby) that would
impede, interfere with, delay, postpone or attempt to discourage the Merger. The
Voting Agreements also provide, among other things, that such persons shall not
sell, transfer, assign, pledge or otherwise dispose of or hypothecate any of
their shares without the prior written consent of the other party subject to
certain limited exceptions.
The 954,287 shares of Rent-Way Common Stock subject to the Voting
Agreements represent approximately 8.6% of the outstanding shares of Rent-Way
Common Stock as of November 4, 1998. The 4,464,898 shares of Home Choice Common
Stock subject to the Voting Agreements represent approximately 26.2% of the
outstanding shares of Home Choice Common Stock as of November 4, 1998.
EFFECT OF THE VOTING AGREEMENTS
The Voting Agreements are intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Merger Agreement.
Consequently, certain aspects of the Voting Agreements may have the effect of
discouraging persons who might now or prior to the Effective Time be interested
in acquiring all of or a significant interest in, or otherwise effecting a
business combination with, Rent-Way or Home Choice from considering or proposing
such a transaction. The Voting Agreements may even discourage
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persons who were prepared to offer to pay consideration to either the Rent-Way
shareholders or the Home Choice stockholders of a higher value than the shares
of Rent-Way Common Stock to be received for each share of Home Choice Common
Stock or to be retained by holders of Rent-Way Common Stock, as the case may be,
pursuant to the Merger Agreement.
INFORMATION REGARDING RENT-WAY
Rent-Way has been engaged in the rental-purchase business since 1981 and is
currently one of the leading operators in the rental-purchase industry with 407
stores in 25 states. Rent-Way offers quality, brand-name home entertainment
equipment, furniture, major appliances and jewelry to customers under
full-service rental-purchase agreements that generally allow the customer to
obtain ownership of merchandise at the conclusion of an agreed upon rental
period or to return the merchandise at any time without obligation or penalty.
Rent-Way 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.
Rent-Way was formed in 1981 to operate a rental-purchase store in Erie,
Pennsylvania. By 1993, as a result of acquisitions and new store openings,
Rent-Way was operating 19 stores in three states and had completed its initial
public offering. Rent-Way subsequently accelerated its growth, primarily through
additional acquisitions and as of November 4, 1998 operates 407 stores in 25
states as follows: South Carolina (54), Ohio (50), Florida (42), North Carolina
(29), Michigan (28), Pennsylvania (25), Georgia (24), New York (20), Tennessee
(20), Virginia (20), Indiana (19), Nebraska (13), Maryland (11), Alabama (10),
Illinois (8), Iowa (7), Colorado (5), California (4), Delaware (4), Kentucky
(4), Louisiana (3), South Dakota (2), Arkansas (2), West Virginia (2), and
Missouri (1). On September 10, 1998, Rent-Way acquired the assets of the
23-store Cari Rentals rental-purchase chain. The Cari Rentals stores are located
in Nebraska, Iowa, South Dakota and Missouri, as reflected in the stores totals
above. The purchase price of the acquisition was approximately $7.3 million.
Rent-Way's principal executive offices are located at One Rent-Way Place,
Erie, Pennsylvania 16505, and its telephone number is (814) 455-5378.
INFORMATION REGARDING HOME CHOICE
Home Choice currently operates 459 rental-purchase stores in 26 states,
primarily located in the Midwestern, Southeastern and Southwestern United
States. Home Choice's stores offer high quality, brand-name consumer merchandise
under flexible, renewable rental-purchase agreements, also known as rent-to-own
agreements. Home Choice's rental-purchase agreements provide customers with the
option, but not the obligation, to obtain ownership of the merchandise following
a stated number of consecutive rental payments. Home Choice's customers are
typically low to middle income consumers with limited or no access to
traditional credit sources such as bank financing, installment credit and credit
cards. Home Choice also provides its products to consumers who desire only
temporary rental of a product. Home Choice's products include consumer
electronics, appliances, furniture, jewelry and home furnishing accessories.
Home Choice is the successor to Alrenco. In February 1998, Alrenco acquired
RTO, which operated 267 stores in 16 states. From its inception in 1980 until
the time of its acquisition of RTO, Alrenco grew both through new store openings
and various acquisitions. By the time of the acquisition of RTO, Alrenco
operated 165 stores in 18 states. In June 1998, Alrenco (then an Indiana
corporation), merged with Home Choice, its wholly-owned subsidiary, in order to
effect a reincorporation of the company in Delaware.
As of November 4, 1998, Home Choice operated 458 stores in 26 states as
follows: Texas (121), Florida (59), Louisiana (39), Arkansas (31), Georgia (18),
Ohio (17), Alabama (16), Arizona (15), Kentucky (14), South Carolina (13),
Oklahoma (12), Mississippi (12), Indiana (11), New Mexico (11), Virginia (11),
Missouri (10), North Carolina (10), Colorado (8), Nevada (7), West Virginia (6),
Tennessee (5), Washington (4), Illinois (3), Utah (3), Idaho (1) and Kansas (1).
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Home Choice's principal executive offices are located at 714 E. Kimbrough,
Mesquite, Texas 75185, and its telephone number is (972) 288-9237.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Rent-Way and Home Choice have each made "forward-looking statements" in
this document (and in certain documents incorporated by reference in this Joint
Proxy Statement/Prospectus) within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act). These forward-looking statements are
based on the beliefs and assumptions of management of Rent-Way and/or Home
Choice, and on information currently available to such management.
Forward-looking statements include expectations, beliefs and other information
concerning possible or assumed future results of operation of Home Choice or
Rent-Way set forth under "Summary", "Risk Factors," "The Merger -- Background of
the Merger," "-- Reasons for the Merger," "Recommendation of Each Company's
Board of Directors" "-- Opinion of Financial Advisor to Rent-Way," "-- Opinion
of Financial Advisors to Home Choice," and "Unaudited Proforma Condensed
Combined Financial Statements" and statements preceded by, followed by or that
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results of the combined company
following the Merger may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond Rent-Way's and Home Choice's ability to control or
predict. You are cautioned not to put undue reliance on any forward-looking
statements.
You should understand that the following important factors, in addition to
those discussed elsewhere in certain of the documents which are incorporated by
reference into this Joint Proxy Statement/Prospectus, could affect the future
results of the combined company and could cause results to differ materially
from those expressed in such forward-looking statement: (i) general economic and
business conditions; (ii) changes in the competitive environment within the
rental-purchase industry; (iii) Rent-Way's ability to improve the performance of
the Home Choice stores acquired in the Merger and to integrate the operations of
Home Choice into its operations following the Merger; (iv) Rent-Way's ability to
integrate and manage future acquired businesses, if any; (v) the ability to open
new rental-purchase stores on a profitable basis; (vi) Rent-Way's ability to
implement and to obtain anticipated cost savings related to the Merger and
realize anticipated cost savings following the Merger; (vii) the actual costs
required to effect the Merger and to realize Merger synergies and cost savings;
and (viii) the impact of state and federal laws regulating or otherwise
affecting the rental-purchase transaction.
DESCRIPTION OF RENT-WAY CAPITAL STOCK
The following description of certain provisions of the Rent-Way Common
Stock and the Rent-Way preferred stock (the "Preferred Stock") does not purport
to be complete and is subject to, and qualified in its entirety by, Rent-Way's
Articles of Incorporation (the "Rent-Way Articles") and By-laws and applicable
law. Rent-Way's Articles and By-laws are filed as exhibits to the Registration
Statement and are incorporated herein by this reference.
GENERAL
The authorized capital stock of Rent-Way consists of 20,000,000 shares of
Common Stock, without par value, and 1,000,000 shares of Preferred Stock. As of
November 4, 1998, there were (i) 11,088,949 shares of Rent-Way Common Stock
issued and outstanding, (ii) 3,122,627 shares of Rent-Way Common Stock reserved
for issuance upon the exercise of outstanding stock options, warrants and
convertible securities, and (iii) no shares of Preferred Stock outstanding.
RENT-WAY COMMON STOCK
Dividends. The shareholders are entitled to receive dividends out of assets
legally available for the payment of dividends, when and as declared by the
Rent-Way Board.
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Voting Rights. Each shareholder is entitled to one vote per share on all
matters to be voted on by such shareholders, except that pursuant to
Pennsylvania law, the shareholders are entitled to cumulative voting in the
election of directors. Cumulative voting means that a shareholder is entitled to
a number of votes equal to the number of shares held by such shareholder
multiplied by the number of directors to be elected, and all of such votes may
be cast for one nominee or distributed among any two or more nominees.
Liquidation Rights. On any liquidation, dissolution or winding up of
Rent-Way, whether voluntary or involuntary, the assets legally available for
distribution to shareholders shall belong to and be divided among the
shareholders based on the number of shares held by each shareholder.
Preemptive Rights. The shareholders have no right to participate in any
right of subscription to any increased or additional capital stock of Rent-Way.
Conversion and Other Rights. The Rent-Way Common Stock has no conversion,
redemption or sinking fund provisions applicable to it and is not liable to
further call or assessment by Rent-Way. All issued and outstanding shares of
Rent-Way Common Stock are fully paid and non-assessable.
RENT-WAY PREFERRED STOCK
The Rent-Way Board, without further action by the shareholders, is
authorized to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix and determine as to any series any and all of the rights and
preferences of shares in any such series, including, without limitation,
preferences, limitations or relative rights with respect to redemption rights,
conversion rights, voting rights, dividend rights and preferences on
liquidation.
COMPARATIVE RIGHTS OF HOLDERS OF COMMON STOCK
GENERAL
If the Merger is consummated, the persons who were holders of shares of
Home Choice Common Stock immediately prior to the Merger will become holders of
shares of Rent-Way Common Stock immediately after consummation of the Merger and
their rights will be governed by the Rent-Way Articles, By-laws and the
Pennsylvania Business Corporation Law. The Rent-Way Articles, as amended by the
Articles Amendment, will be the combined company's Articles at the Effective
Time.
The following discussion is a brief summary of the material differences
between the current rights of Rent-Way's shareholders and the rights of Home
Choice stockholders. The purpose of this summary is to indicate briefly the
differences between holding Rent-Way Common Stock and Home Choice Common Stock
to the extent such differences are created by state corporation laws applicable
to Rent-Way and Home Choice or arise because of differences between the Rent-Way
Articles and By-laws and the Home Choice Certificate of Incorporation (the "Home
Choice Certificate") and By-laws.
BOARD OF DIRECTORS
Rent-Way. Article IV of Rent-Way's By-laws provides that the number of
directors (never more than nine) shall be fixed from time to time by the
directors of the Company. Rent-Way's By-laws provide for a classified board of
directors with directors divided into three classes with three-year terms of
office which expire at different times. Each director is entitled to serve for
the longer of the term for which he or she was elected or until his or her
successor is elected and qualified. Pursuant to Rent-Way's By-laws, directors
may be removed only for cause by a majority vote of the shareholders entitled to
vote at a shareholder meeting called for that purpose.
Home Choice. Section 2.1 of the Home Choice Bylaws provides that directors
shall be elected annually and shall hold office until their successors are duly
elected and qualified. In addition, the Home Choice Bylaws state that the
directors of Home Choice or the Home Choice stockholders may fix the number of
directors; however, that number may never be less than three nor more than 15.
Delaware law provides that, unless the corporation has either classes of
directors or cumulative voting, any director or the entire board of directors
may be removed,
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with or without cause, by the holders of a majority of shares then entitled to
vote at an election of directors. Section 2.4 of the Home Choice Certificate
provides that directors may be removed with or without cause by an affirmative
vote of a majority of the stockholders entitled to vote at a stockholders'
meeting called for that purpose.
LIMITATION OF DIRECTOR LIABILITY
Rent-Way. Rent-Way's By-laws eliminate a director's liability to the
fullest extent permitted by Pennsylvania law. Under Pennsylvania law, this means
that a director has no monetary liability for any action taken or omitted unless
(i) the director breaches or fails to perform his or her duties and (ii) the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness. Under Pennsylvania law, a director also remains personally liable
where the responsibility or liability is pursuant to any criminal statute or is
for the non-payment of taxes under Federal, State or local law.
Home Choice. Article Seventh of the Home Choice Certificate provides that
directors of Home Choice shall not be liable personally to Home Choice or the
Home Choice stockholders for monetary damages for breach of fiduciary duty as a
director except to the extent such exemption from liability is not permitted
under Delaware law. This provision protects Home Choice directors against
personal liability for monetary damages from breaches of their duty of care.
Under Delaware law, absent adoption of Article Seventh, directors can be held
liable for gross negligence in connection with decisions made on behalf of the
corporation in the performance of their duty of care, but may not be liable for
simple negligence. Although Article Seventh provides Home Choice directors with
protection from certain awards of monetary damages for breaches of their duty of
care, it does not eliminate the director's duty of care. Accordingly, Article
Seventh has no effect on the availability of certain equitable remedies, such as
an injunction, based upon a director's breach of his or her duty of care.
Article Seventh does not apply to officers of Home Choice who are not directors
of Home Choice.
INDEMNIFICATION
Rent-Way. Rent-Way's By-laws provide for indemnification of its directors
and officers against any liability incurred in connection with serving as an
officer or director except where such indemnification is expressly prohibited by
Pennsylvania law.
Pennsylvania law permits a corporation to indemnify any person involved in
a third party action by reason of his or her agreeing to serve, serving or
formerly serving as an officer or director of the corporation, against expenses
(including attorneys' fees), judgments, fines and settlement amounts paid in
such third party action (and against expenses incurred in any derivative
action), if such person acted in good faith and reasonably believed that his or
her actions were in, or not opposed to, the best interests of the corporation
and, with respect to any criminal proceeding, had no reasonable cause to believe
that his or her conduct was unlawful. Furthermore, Pennsylvania law provides
that a corporation may advance expenses incurred in defending any action upon
receipt of an undertaking by the person to repay the amount advanced if it is
ultimately determined that such person is not entitled to indemnification.
In general, no indemnification for expenses in derivative actions is
permitted under Pennsylvania law where the person has been adjudged liable to
the corporation, unless a court finds such person is entitled to such
indemnification. If, however, the person has been successful in defending a
third party or derivative action, indemnification for expenses (including
attorneys' fees) incurred is mandatory.
Under Pennsylvania law, the statutory provisions for indemnification are
nonexclusive with respect to any other rights, such as contractual rights, under
any bylaw, vote of shareholders, vote of disinterested directors or otherwise,
to which a person seeking indemnification may be entitled.
Home Choice. Under Delaware law, directors, officers, employees and other
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits, or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation,
including derivative actions -- a "Corporation Action") if they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interests of the
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corporation, and, regarding any criminal action or proceeding, had no reasonable
cause to believe their conduct was unlawful. A similar standard is applicable in
the case of Corporation Actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense or
settlement of such actions. Delaware law further requires court approval before
there can be any indemnification where the person seeking indemnification has
been found liable to the corporation. To the extent that a director or officer
that is otherwise eligible to be indemnified is successful on the merits of any
claim or defense described above, indemnification for expenses (including
attorneys' fees) actually and reasonably incurred is mandated by Delaware law.
Article V of the Home Choice Bylaws provides that Home Choice shall
indemnify, to the fullest extent authorized by Delaware law, each person who was
or is made a party to, is threatened to be made a party to, or is involved in,
any action, suit or proceeding because he or she is or was a director or officer
of Home Choice, or of any subsidiary of Home Choice, while serving in such
capacity, against all expenses, liabilities or loss incurred by such person in
connection therewith.
The right to indemnification is not exclusive of any other right which any
person may have or acquire under any statute, any provision of the Home Choice
Certificate or the Home Choice Bylaws, or otherwise. Home Choice is authorized
to enter into contracts of indemnification.
ANTITAKEOVER STATUTES
Rent-Way. Pennsylvania law contains several anti-takeover provisions that
apply to registered corporations such as Rent-Way, including provisions relating
to: transactions with interested shareholders, engagement in a business
combination with an interested shareholder, control group transactions, control
share redemption and disgorgement by certain controlling shareholders following
attempts to acquire control. Pursuant to the Rent-Way Articles, these provisions
do not apply to Rent-Way.
Home Choice. Delaware law prohibits a Delaware corporation from engaging in
mergers, dispositions of 10% or more of its assets, certain issuances of stock
and other transactions with a person or group that owns 15% or more of the
voting stock of the corporation (an "interested stockholder") for a period of
three years after the interested stockholder crosses the 15% threshold. These
restrictions on transactions involving an interested stockholder do not apply to
Home Choice because Home Choice has a class of voting stock that is authorized
for quotation on Nasdaq.
PREFERRED STOCK
Rent-Way. The Rent-Way Articles provide for the issuance of up to 1,000,000
shares of Rent-Way Preferred Stock. The Rent-Way Articles authorize the
directors to determine the voting rights, preferences, qualifications,
privileges and designations of any class or series of Rent-Way Preferred Stock
prior to issuance by amending the Articles, which amendment may be made solely
by action of the directors.
Generally, the issuance of Rent-Way Preferred Stock could (a) result in a
class of securities outstanding which will have certain preferences regarding
distributions in a liquidation over the Rent-Way Common Stock and might provide
for certain rights (whether general, special, conditional or limited) that could
dilute the voting rights of Rent-Way Common Stock and (b) result in dilution of
the net income per share and net book value per share relating to Rent-Way
Common Stock. Further, the issuance of any additional shares of Rent-Way Common
Stock, pursuant to any conversion rights granted holders of any Rent-Way
Preferred Stock, may also result in dilution of the voting rights, net income
per share and net book value of Rent-Way Common Stock. The power of the Rent-Way
directors to issue Rent-Way Preferred Stock with voting or other powers,
preferences, and rights may be used to impede or discourage a takeover attempt.
Home Choice. The Home Choice Certificate authorizes the Home Choice
directors to issue shares of its preferred stock (the "Home Choice Preferred
Stock"), from time to time, in one or more series as the Home Choice directors
may determine, and to fix the powers, number of shares, and preferences and
rights (including, but not limited to, voting rights, dividend rights,
liquidation rights, conversion rights and redemption rights) of each such series
of Home Choice Preferred Stock. The power of the Home Choice directors to issue
Home
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Choice Preferred Stock with voting or other powers, preferences, and rights may
be used to impede or discourage a takeover attempt.
CUMULATIVE VOTING
Rent-Way. Under Pennsylvania law, unless the corporation's articles of
incorporation provide otherwise, shareholders automatically have cumulative
voting rights in the election of directors, which means that a shareholder is
entitled to a number of votes equal to the number of shares held by such
shareholder multiplied by the number of directors to be elected. All of such
votes may be cast for one nominee or distributed among any two or more nominees.
Because the Rent-Way Articles do not prohibit cumulative voting, Rent-Way
shareholders have cumulative voting rights in the election of directors.
Home Choice. Delaware law provides that cumulative voting rights, in
respect of elections of directors, exist if provided for in a corporation's
certificate of incorporation. The Home Choice Certificate does not provide for
cumulative voting in elections of directors.
ACTION WITHOUT A MEETING
Rent-Way. Under Pennsylvania law, shareholders of a registered corporation
such as the Company may authorize an action without a meeting by less than
unanimous consent only if permitted by the corporation's bylaws. Rent-Way's
By-laws currently do not permit such action.
Home Choice. Delaware law permits any action required or permitted to be
taken at a Home Choice stockholders' meeting to be taken by written consent
signed by the holders of the number of shares that would have been required to
effect the action at an actual meeting of the stockholders at which all shares
were present and voted. Delaware law also provides that a corporation's
certificate of incorporation may restrict or prohibit stockholders' action
without a meeting. Article Tenth of the Home Choice Certificate provides that
Home Choice stockholders may not consent in writing to any action without a
meeting.
SPECIAL MEETINGS
Rent-Way. Pennsylvania law permits a special meeting of the shareholders to
be called by the board of directors, by shareholders entitled to cast at least
twenty percent (20%) of the votes that all shareholders are entitled to cast at
the particular meeting, or by such other person as may be authorized by the
corporation's articles of incorporation or by-laws. Rent-Way's By-laws provide
that a special meeting of shareholders may be called by the board of directors.
Home Choice. Delaware law authorizes the board of directors or those
persons authorized by the corporation's certificate of incorporation or by-laws
to call a special meeting of the corporation's stockholders. Section 1.2 of the
Home Choice Bylaws provides that a special meeting may be called by the Chairman
of the Board and must be called by the Chairman of the Board at the written
request of a majority of the members of either the entire Home Choice board of
directors or the executive committee of the Home Choice board of directors.
VOTING, APPRAISAL OR DISSENTER RIGHTS AND CORPORATE REORGANIZATIONS
Rent-Way. Under Pennsylvania law, fundamental corporate transactions (such
as mergers, sales of all the corporation's assets, dissolutions, etc.) require
only the approval of a majority of the votes actually cast by the shareholders
at a meeting at which a quorum is present. While Pennsylvania law permits a
corporation to increase the minimum percentage of vote required to approve such
a transaction, the Rent-Way Articles do not contain any higher vote requirements
for such transactions.
The rights of shareholders to demand payment in cash by a corporation of
the fair value of their shares under certain circumstances are called
dissenters' rights under Pennsylvania law. Pennsylvania law does not afford
dissenters' rights to holders of shares which are either listed on a national
securities exchange or held of record by more than 2,000 shareholders when the
plan of merger or consolidation converts such shares solely into shares of the
surviving corporation or shares of another corporation, or cash in lieu of
fractional shares.
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Home Choice. Delaware law generally requires the vote of the holders of a
majority of the outstanding stock to approve a merger, sale of assets or similar
reorganization transaction. Delaware law does not provide for dissenters' rights
of appraisal for (a) the sale, lease or exchange of all or substantially all of
the assets of a corporation, (b) a merger by a corporation, the shares of which
are either listed on a national securities exchange or held by more than 2,000
stockholders if such stockholders receive shares of the surviving corporation or
of a listed or widely held corporation, or (c) certain mergers not requiring
stockholder approval.
AMENDMENT TO BY-LAWS
Rent-Way. Article VIII of Rent-Way's By-laws provides that, except for
matters exclusively reserved to shareholders by statute, the directors may
amend, repeal or adopt new By-laws by a majority vote. In addition, the
shareholders may amend, repeal or adopt new By-laws by vote of the shareholders
at any annual or special meeting.
Home Choice. Delaware law places the power to adopt, amend or repeal bylaws
in the corporation's stockholders, but permits the corporation, in its
certificate of incorporation, also to vest such power with the board of
directors. Although the board of directors of Home Choice has been vested with
such authority pursuant to Article Sixth of the Home Choice Certificate, Home
Choice stockholders' power to adopt, amend or repeal by-laws remains
unrestricted.
PREEMPTIVE RIGHTS
Rent-Way. Under Pennsylvania law, shareholders of a corporation do not have
a preemptive right to acquire a corporation's unissued shares except to the
extent the articles of incorporation so provide. Rent-Way's Articles do not
provide preemptive rights to shareholders.
Home Choice. Under Delaware law, no statutory preemptive rights will exist,
unless a corporation's certificate of incorporation specifies otherwise. The
Home Choice Certificate does not provide for any such preemptive rights.
DIVIDEND RIGHTS
Rent-Way. Pennsylvania law provides that unless otherwise restricted by the
corporation's bylaws, a corporation is permitted to pay dividends unless they
would render the corporation insolvent, meaning either (i) the corporation would
be unable to pay its debts as they become due in the ordinary course of
business, or (ii) the total assets of the corporation would be less than the sum
of its total liabilities plus the amount that would be needed upon dissolution
of the corporation to pay the holders of shares having a liquidation preference.
Rent-Way's By-laws do not restrict the payment of dividends.
Home Choice. Delaware corporations may pay dividends out of surplus or, if
there is no surplus, out of net profits for the fiscal year in which declared
and/or the preceding fiscal year. Delaware law also provides that dividends may
not be paid out of net profits if, after the payment of the dividend, capital is
less than the capital represented by the outstanding stock of all classes having
a preference upon the distribution of assets.
FIDUCIARY DUTIES
Rent-Way. Pennsylvania law provides that unless otherwise provided in a
corporation's bylaws, the board of directors has the ultimate responsibility for
managing the business and affairs of a corporation. In discharging this
function, directors of Pennsylvania corporations owe fiduciary duties of care
and loyalty to the corporations for which they serve as directors. Pennsylvania
law provides that a director of a Pennsylvania corporation owes a duty only to
the corporation (and not to the shareholders), and the duty of the board of
directors, committees of the board and individual directors of a Pennsylvania
corporation may be enforced directly by the corporation or may be enforced by a
shareholder, as such, by an action in the right of the corporation, but such
duty may not be enforced directly by a shareholder or by any other person or
group.
Home Choice. Under Delaware law, the business and affairs of a corporation
are managed by or under the direction of its board of directors. In exercising
their powers, directors are charged with fiduciary duties to the
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corporation and its stockholders. In contrast to Pennsylvania law, the duties of
a board of directors, committees of the board and individual directors of a
Delaware corporation may be enforced directly by a stockholder, as such, or by
any other person or group.
PRESUMPTION
Rent-Way. Absent a breach of fiduciary duty, a lack of good faith or
self-dealing (i.e., entering into contracts or transactions with a director or
an entity in which a director has a financial or other interest), any act of the
board of directors, a committee of the board or an individual director is
presumed to be in the corporation's best interests. In assessing whether a
director of a Pennsylvania corporation has met his or her statutory duty of
care, there is not any greater obligation to justify, or higher burden of proof
with respect to, any act relating to or affecting an acquisition or potential or
proposed acquisition of control of the corporation than is applied to any other
action.
Notwithstanding the preceding, any board action relating to or affecting an
acquisition or potential or proposed acquisition of control which is approved by
a majority of the corporation's "disinterested directors" (i.e., directors who
(i) are not affiliated with the person seeking control and (ii) are not officers
or employees of the corporation) is presumed to satisfy the statutory duty of
care under Pennsylvania law, unless it is proven by clear and convincing
evidence that the disinterested directors did not assent to such an act in good
faith, after reasonable investigation.
Home Choice. In making a business decision, directors of a Delaware
corporation are presumed to act on an informed basis, in good faith and in the
honest belief that the action taken was in the best interest of the corporation.
This presumption may be rebutted upon a showing that the directors' decision
involved a breach of fiduciary duty such as fraud, overreacting, lack of good
faith, failure of the board to inform itself properly or an action taken by the
board to entrench itself in office.
AMENDMENT TO RENT-WAY'S ARTICLES OF INCORPORATION
Rent-Way shareholders are being asked to consider and approve the Merger
Agreement, including the Articles Amendment, which will, if approved, amend the
Rent-Way Articles. The Articles Amendment increases the amount of authorized
Rent-Way Common Stock from 20,000,000 shares to 50,000,000 shares. The purpose
of the Articles Amendment is to facilitate consummation of the Merger and to
provide additional authorized shares of Rent-Way Common Stock which will be
available for general corporate purposes following the Merger. As of the close
of business on November 4, 1998, 11,088,949 shares of Rent-Way Common Stock were
issued and outstanding and approximately 3,122,627 shares were reserved for
issuance upon the exercise of outstanding stock options and warrants. There
were, therefore, as of such date, approximately 5,828,435 shares of authorized
Rent-Way Common Stock available for future issuances. Assuming that the Merger
is approved, approximately 10,011,251 shares will be issued to Home Choice
stockholders pursuant to the Merger Agreement.
The Rent-Way Board also believes that it would be desirable to increase the
number of shares of authorized Rent-Way Common Stock beyond the number of shares
necessary to complete the Merger, in order to make available additional shares
for any proper corporate purpose approved by the Rent-Way Board, including
future acquisitions, financings, issuances under employee benefit plans and for
other general corporate purposes. Having additional authorized shares of
Rent-Way Common Stock available for issuance will give Rent-Way greater
flexibility and allow additional shares of Rent-Way Common Stock, in excess of
the number of shares currently authorized, to be issued without the expense and
delay of a special meeting of the shareholders, unless a meeting is required by
applicable law, or otherwise.
The Rent-Way Board has not proposed the increase in the amount of
authorized shares with the intention of discouraging tender offers or takeover
attempts of Rent-Way. However, the availability of additional authorized shares
for issuance could make it more difficult or discourage a merger, tender offer,
proxy contest or other attempt to obtain control of Rent-Way, which may
adversely affect the ability of the Rent-Way shareholders to obtain a premium
for their shares of Rent-Way Common Stock.
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<PAGE> 68
Other than in connection with the Merger, Rent-Way has no specific plans
currently calling for the issuance of any of the additional shares of Rent-Way
Common Stock. The Rent-Way Board is also subject to certain restrictions on its
ability to issue additional shares of Rent-Way Common Stock without further
shareholder approval. In some instances, shareholder approval for the issuance
of additional shares may be required by law or the rules of the NYSE. In other
instances, shareholder approval may otherwise be necessary or desirable, but the
issuance of additional shares of authorized Rent-Way Common Stock would be
within the discretion of the Rent-Way Board without the specific requirement of
further action by the Rent-Way shareholders. All newly authorized shares of
Rent-Way Common Stock would have the same rights as the presently authorized
shares, including the right to cast one vote per share and to participate in
dividends when and to the extent declared and paid. Under the Rent-Way Articles,
Rent-Way shareholders do not have preemptive rights to subscribe for or purchase
any part of any new or additional issue of Rent-Way Common Stock. See
"Description of Rent-Way Capital Stock--Rent-Way Common Stock."
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of Rent-Way
Common Stock to be issued in connection with the Merger will be passed upon for
Rent-Way by Hodgson, Russ, Andrews, Woods & Goodyear LLP, Buffalo, New York,
counsel to Rent-Way. Hodgson, Russ, Andrews, Woods & Goodyear LLP, has given an
opinion as summarized under the heading, "Material U.S. Federal Income Tax
Consequences." Certain legal matters in connection with the Merger will be
passed on for Home Choice by King & Spalding, Atlanta, Georgia.
EXPERTS
The audited balance sheets 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 of Rent-Way, the audited
combined balance sheet as of December 31, 1997, and the related combined
statements of operations and accumulated deficit, and cash flows for the year
then ended of South Carolina Rentals, Inc., Paradise Valley Holdings, Inc. and
L&B Rents, Inc. and the balance sheets as of December 31, 1996 and 1995, and the
related statements of operations, shareholders' equity and cash flows for the
years then ended of Perry Electronics, Inc. (d/b/a Rental King) have been
incorporated by reference in this Joint Proxy Statement/ Prospectus from
Rent-Way's Annual Report on Form 10-K for the year ended September 30, 1997,
Current Report on Form 8-K/A dated March 23, 1998 and Current Report on Form
8-K/A dated April 21, 1997, respectively, in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
such firm as experts in accounting and auditing. The financial statements of
Champion Rentals, Inc. appearing in Rent-Way's Current Report on Form 8-K/A
dated April 16, 1998, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated balance sheets of Home Choice (formerly Alrenco) as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1997 (after restatement for the 1998
pooling of interests with RTO) included in the Home Choice's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and incorporated by reference in
this Joint Proxy Statement/Prospectus, have been incorporated herein in reliance
(a) on the report of PricewaterhouseCoopers LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing and (b) on
the report of Grant Thornton LLP, independent accountants, on the balance sheets
of Alrenco, Inc. as of December 31, 1996 and 1997 and the related statements of
earnings, stockholders equity and cash flows for each of the three years in the
period ended December 31, 1997 (prior to the restatement for the 1998 pooling of
interests with RTO) given on the authority of that firm as experts in accounting
and auditing. The report of PricewaterhouseCoopers LLP incorporated herein makes
reference to the report of Grant Thornton LLP.
On February 26, 1998, immediately following the merger of Alrenco and RTO,
the Home Choice Board replaced Grant Thornton LLP as the principal independent
auditor of Home Choice. Effective February 26, 1998,
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<PAGE> 69
PricewaterhouseCoopers LLP, previously the principal independent auditor for
RTO, was engaged by Home Choice to serve as the independent auditor of Home
Choice's financial statements for the 1998 fiscal year. Grant Thornton LLP
continued to serve as the independent auditor with respect to Home Choice's
financial statements for the fiscal year ended December 31, 1997, prior to
restatement for the 1998 pooling of interests with RTO. Neither of the reports
of Grant Thornton LLP on the financial statements of Home Choice for the fiscal
years ended December 31, 1997 and 1996 contained an adverse opinion or a
disclaimer of an opinion or was qualified or modified as to uncertainty, audit
scope or accounting principles. During the two fiscal years ended December 31,
1997, and during the interim periods preceding February 26, 1998, (i) there were
no disagreements with Grant Thornton LLP on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure and
(ii) there were no "reportable events" (as defined in Item 304(a)(1)(v) of
Regulation S-K).
The financial statements of Action TV & Appliance Rental, Inc. ("Action")
included in Home Choice's Registration Statement on Form S-4 (SEC File No.
333-44451) and incorporated by reference herein have been audited by the
following firms, as stated in their reports included in such Registration
Statement on Form S-4: (i) the financial statements of Action as of and for the
seven months ended July 31, 1996 have been audited by PricewaterhouseCoopers
LLP, independent accountants, and (ii) the financial statements of Action as of
and for the year ended December 31, 1995 have been audited by Ernst & Young LLP,
independent auditors. Such financial statements have been incorporated herein in
reliance on such reports given upon the authority of said firms as experts in
accounting and auditing.
SHAREHOLDER PROPOSALS
Any Rent-Way shareholder who intends to present a proposal at the 1998
Annual Meeting of Shareholders of Rent-Way must have submitted the proposal by
November 1, 1998 to Rent-Way's corporate office in Erie, Pennsylvania by
certified mail, return receipt requested, and directed to the Secretary of
Rent-Way.
OTHER BUSINESS
As of the date of this Joint Proxy Statement/Prospectus, the Rent-Way Board
and the Home Choice Board do not know of any other matters that will be
presented for consideration at either the Rent-Way Special Meeting or the Home
Choice Special Meeting other than as described in this Joint Proxy
Statement/Prospectus. However, if any other matter is properly presented at
either the Rent-Way Special Meeting or the Home Choice Special Meeting or any
adjournments of postponements thereof, the enclosed form of proxy will be deemed
to confer authority to the individuals named as proxies to vote your shares
represented by such proxy with respect to any additional matters that are within
the purposes set forth in the Notices of the Rent-Way Special Meeting and the
Home Choice Special Meeting as determined by a majority of the Rent-Way Board or
the Home Choice Board, as the case may be.
WHERE YOU CAN FIND MORE INFORMATION
Rent-Way and Home Choice file annual, quarterly and current reports, proxy
statements and other information with the Commission. You may read and copy any
reports, statements or other information that the companies file at the Public
Reference Section of the Commission's principal office, Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the Commission's
regional offices located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Rent-Way's and Home Choice's public
filings are also available to the public from commercial document retrieval
services and at the Internet World Wide Web site maintained by the Commission at
"http://www.sec.gov." Reports, proxy statements and other information concerning
Rent-Way and Home Choice also may be inspected at the offices of the National
Association of Securities Dealers, Inc. located at 1735 K Street, N.W.,
Washington, D.C. 20006.
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<PAGE> 70
Rent-Way has filed a Registration Statement on Form S-4 (together with all
amendments and exhibits thereto) under the Securities Act, to register with the
Commission the Rent-Way Common Stock to be issued to Home Choice stockholders in
the Merger. This Joint Proxy Statement/Prospectus is a part of the Registration
Statement and constitutes a prospectus of Rent-Way, a proxy statement of
Rent-Way for the Rent-Way Special Meeting and a proxy statement for Home Choice
for the Home Choice Special Meeting.
As allowed by the rules of the Commission, this Joint Proxy
Statement/Prospectus does not contain all the information that shareholders can
find in the Registration Statement or the exhibits to the Registration
Statement.
The Commission allows Rent-Way and Home Choice to "incorporate by
reference" information into this Joint Proxy Statement/Prospectus, which means
that the companies can disclose important information to you by referring you to
another document filed separately with the Commission. The information
incorporated by reference is deemed to be part of this Joint Proxy
Statement/Prospectus, except for any information superseded by information
contained directly in the Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that Rent-Way and Home Choice have previously filed with the Commission. These
documents contain important information about the companies and their financial
condition.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document that is
also incorporated or deemed to be incorporated by reference herein, modifies or
supersedes the earlier statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
RENT-WAY FILINGS (FILE NUMBER 0-22026) PERIOD
-------------------------------------- ------
<S> <C>
Annual Report on Form 10-K and Form 10-K/A... For the fiscal year ended September 30, 1997;
Quarterly Report on Form 10-Q................ For the three months ended December 31, 1997;
Quarterly Report on Form 10-Q and Form For the three months ended March 31, 1998;
10-Q/A.....................................
Quarterly Report on Form 10-Q................ For the three months ended June 30, 1998;
Current Report on Form 8-K and Form 8-K/A.... Filed February 6, 1997 and April 21, 1997,
respectively;
Current Report on Form 8-K................... Filed January 9, 1998;
Current Report on Form 8-K and Form 8-K/A.... Filed January 20, 1998 and March 24, 1998,
respectively;
Current Report on Form 8-K and Form 8-K/A.... Filed February 19, 1998 and April 16, 1998,
respectively;
Current Report on Form 8-K................... Filed July 22, 1998;
Current Report on Form 8-K................... Filed July 22, 1998;
Current Report on Form 8-K................... Filed August 12, 1998;
Current Report on Form 8-K................... Filed September 14,1998; and
Current Report on Form 8-K................... Filed September 16,1998.
The description of the Rent-Way Common Stock
contained in Rent-Way's registration
statement on
Form 8-A..................................... Dated September 30, 1998, including any
amendment or report filed for the purpose of
updating such description.
</TABLE>
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<PAGE> 71
The following documents previously filed with the Commission by Home Choice
(formerly known as Alrenco, Inc.) are incorporated by reference into this Joint
Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
HOME CHOICE FILINGS (FILE NUMBER 0-27490) PERIOD
----------------------------------------- ------
<S> <C>
Annual Report on Form 10-K and Form 10-K/A... For the fiscal year ended December 31, 1997;
Quarterly Report on Form 10-Q................ For the three months ended March 31, 1998
Quarterly Report on Form 10-Q and Form
10-Q/A..................................... For the three months ended June 30, 1998;
Current Report on Form 8-K................... Filed February 10, 1998;
Current Report on Form 8-K................... Filed March 5, 1998;
Current Report on Form 8-K................... Filed June 2, 1998;
Current Report on Form 8-K................... Filed June 30, 1998;
Current Report on Form 8-K................... Filed September 11, 1998; and
Current Report on Form 8-K................... Filed October 30, 1998.
The financial statements of Action TV &
Appliance Rental, Inc. for the year ended
December 31, 1995 and for the seven months
ended July 31, 1996 contained in Home
Choice's Registration Statement on Form S-4
(File No. 333-44451)......................... Filed January 16, 1998.
</TABLE>
All documents filed by Rent-Way or Home Choice pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Joint
Proxy Statement/Prospectus and prior to the Special Meetings shall be deemed to
be incorporated by reference into this Joint Proxy Statement/Prospectus and to
be a part hereof from the date of filing of such documents.
Rent-Way has supplied all information contained or incorporated by
reference in this Joint Proxy Statement/ Prospectus relating to Rent-Way and
Home Choice has supplied all information contained in or incorporated by
reference relating to Home Choice.
If you are a Rent-Way shareholder or Home Choice stockholder, Rent-Way or
Home Choice may have sent you some of the documents incorporated by reference,
but you may obtain any of them through Rent-Way or Home Choice, as the case may
be, or the Commission or the Commission's Internet World Wide Web site described
above.
Documents incorporated by reference are available from the companies
without charge, excluding all exhibits unless specifically incorporated by
reference as an exhibit to this Joint Proxy Statement/Prospectus. Rent-Way
shareholders and Home Choice stockholders may obtain documents incorporated by
reference in this Joint Proxy Statement/Prospectus by requesting them in writing
or by telephone from the appropriate company at the following addresses:
RENT-WAY, INC.
One Rent-Way Place
Erie, Pennsylvania 16505
Attention: Investor Relations
HOME CHOICE HOLDINGS, INC.
714 E. Kimbrough Street
Mesquite, Texas 75149
Attention: Investor Relations
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM EITHER COMPANY, PLEASE DO SO BY
DECEMBER 1, 1998 TO RECEIVE THEM BEFORE THE RENT-WAY SPECIAL MEETING AND/OR THE
HOME CHOICE SPECIAL MEETING. IF YOU REQUEST ANY INCORPORATED DOCUMENTS FROM US
WE WILL MAIL THEM TO YOU BY FIRST-CLASS MAIL, OR OTHER EQUALLY PROMPT MEANS,
WITHIN ONE BUSINESS DAY OF OUR RECEIPT OF YOUR REQUEST.
You should rely only on the information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus to vote your shares at the
Rent-Way Special Meeting and/or the Home Choice Special Meeting. Rent-Way and
Home Choice have not authorized anyone to provide you with information that is
different from what is contained in this Joint Proxy Statement/Prospectus. This
Joint Proxy Statement/Prospectus is dated November 5, 1998. You should not
assume that the information contained in the Joint Proxy Statement/ Prospectus
is accurate as of any date other than that date, and neither the mailing of this
Joint Proxy Statement/ Prospectus to the Rent-Way shareholders and the Home
Choice stockholders nor the issuance of the shares of Rent-Way Common Stock in
the Merger shall create any implication to the contrary.
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<PAGE> 72
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
and explanatory notes have been prepared to give effect to the Merger. The
Merger is being accounted for as a pooling-of-interests as defined by Accounting
Principles Board Opinion No. 16, ("APB 16"). In accordance with Article 11 of
Regulation S-X under the Securities Act, an unaudited pro forma condensed
combined balance sheet (the "Pro Forma Balance Sheet") as of June 30, 1998 and
unaudited pro forma condensed combined statements of income (loss) (the "Pro
Forma Statements of Income") for the twelve months ended September 30, 1997
("Fiscal 1997"), 1996 ("Fiscal 1996") and 1995 ("Fiscal 1995") and the nine
month periods ended June 30, 1998 and 1997 have been prepared. For both the Pro
Forma Balance Sheet and all periods included in the Pro Forma Statements of
Income, the average number of common and common equivalent shares gives effect
to the Exchange Ratio of 0.588 shares of Rent-Way common stock for one share of
Home Choice common stock.
Certain data and notes normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted. The following unaudited pro forma condensed combined financial
statements (the "Pro Forma Financial Statements") have been prepared based upon
the historical financial statements of Rent-Way and Home Choice. The Pro Forma
Financial Statements should be read in conjunction with (a) the historical
financial statements of Rent-Way for the years ended September 30, 1997, 1996
and 1995, and the unaudited financial statements for the nine month periods
ended June 30, 1998 and 1997; (b) the historical consolidated financial
statements of Home Choice for the years ended December 31, 1997, 1996 and 1995,
the unaudited consolidated financial statements for the six month periods ended
June 30, 1998 and 1997 and the unaudited internal consolidated statements of
income for the three month periods ended December 31, 1997 and 1996.
The Pro Forma Balance Sheet was prepared utilizing the historical balance
sheet data as of June 30, 1998 for both Rent-Way and Home Choice. The Pro Forma
Balance Sheet presents the historical financial position of Rent-Way and Home
Choice, adjusted to reflect the Merger as if it had occurred at June 30, 1998.
The Pro Forma Statements of Income have been prepared utilizing the
historical income statement data for both Rent-Way and Home Choice. The Pro
Forma Statements of Income for Fiscal 1997, 1996 and 1995 have been prepared
utilizing (a) the historical statements of income data of Rent-Way for the years
ended September 30, 1997, 1996 and 1995 and (b) the historical consolidated
statements of income data of Home Choice for the years ended December 31, 1997,
1996 and 1995, adjusted to reflect the Merger as if it had occurred at October
1, 1994. The Pro Forma Statements of Income for the nine month periods ended
June 30, 1998 and 1997 have been prepared utilizing (a) the historical
statements of income data of Rent-Way for the nine month periods ended June 30,
1998 and 1997; (b) the historical consolidated statements of income data of Home
Choice for the six month periods ended June 30, 1998 and 1997 and (c) internal
consolidated statements of income data of Home Choice for the three month
periods ended December 31, 1997 and 1996, adjusted to reflect the Merger as if
it had occurred at October 1, 1994. As a result of Rent-Way and Home Choice
having different fiscal year ends, the three month periods ended December 31,
1996 and 1997 for Home Choice were included in both the Pro Forma Statements of
Income for Fiscal 1997 and 1996, respectively, and the nine month periods ended
June 30, 1998 and 1997, respectively. Revenues of Home Choice were $61,541,358
and $42,739,933, and net losses were $5,142,156 and $1,553,946, respectively,
for the three month periods ended December 31, 1997 and 1996, respectively. Upon
consummation of the Merger, the loss for the three month period ended December
31, 1997 will be reflected as an adjustment to shareholders' equity. The Pro
Forma Statements of Income do not reflect any estimate of expenses directly
associated with the Merger. The amount of expenses directly associated with the
Merger which is not included in the Pro Forma Statements of Income but is
expected to be included in the Statements of Income of Rent-Way within the next
12 months is $10 million.
In addition to giving effect to the Merger, the Pro Forma Financial
Statements reflect the financial results of prior acquisitions, as determined to
be significant by management of Rent-Way and Home Choice and which are not
included for the entire period in the historical Fiscal 1997 income statements,
in accordance with Article 3 of Regulation S-X. For Rent-Way, the significant
acquisitions include Champion Rentals, Inc. ("Champion"), Ace TV Rentals Inc.
("Ace Rentals"), and Perry Electronics Inc. dba Rental King ("Rental King"), all
of which were accounted for as purchases as defined by APB 16. The Pro Forma
Statements of Income for Fiscal 1997 include
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<PAGE> 73
the results of operations for both Champion and Ace Rentals as if the
transactions had been consummated at the beginning of that period. In addition,
the Pro Forma Statements of Income reflect the effects of (a) Rent-Way's
issuance of $20,000,000 of convertible subordinated debentures used to finance
the purchase of Rental King and (b) Rent-Way's issuance of 2,888,088 shares of
common stock a portion of the proceeds of which were used to fund the
acquisition of Ace Rentals. Accordingly, the pro forma weighted average shares
outstanding for the periods presented have been adjusted to reflect such shares
as being outstanding for the appropriate periods. The Pro Forma Statement of
Income for the nine month period ended June 30, 1998 include the results of
operation of both Champion and Ace Rentals as if the transactions had been
consummated at October 1, 1996. The Pro Forma Statement of Income for the nine
month period ended June 30, 1997 includes the results of operations for
Champion, Ace Rentals and Rental King as if the transactions had been
consummated at October 1, 1996.
The Pro Forma Statements of Income for Fiscal 1996 and 1995 give effect
only to the Merger accounted for as a pooling-of-interests. In accordance with
Article 11 of Regulation S-X, the acquisitions of Champion, Ace Rentals and
Rental King are not reflected in the Pro Forma Statements of Income for Fiscal
1996 and 1995. Accordingly the Pro Forma Statements of Income for Fiscal 1996
and 1995 are not comparable to the Pro Forma Statements of Income for Fiscal
1997 and for the nine months periods ended June 30, 1998 and 1997.
The Pro Forma Financial Statements are provided for illustrative purposes
only, and are not necessarily indicative of the operating results or financial
position that would have occurred if the Merger and the purchase transactions
described above had been consummated at the beginning of the periods or on the
dates indicated, nor are they necessarily indicative of any future operating
results or financial position. The Merger has not been consummated as of the
date of the preparation of these Pro Forma Financial Statements and there can be
no assurances that the Merger will be consummated in the future.
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<PAGE> 74
RENT-WAY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
RENT-WAY AND
HOME CHOICE
RENT-WAY HOME CHOICE CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash.............................. $ 2,861,254 $ 7,548,967 $ -- $ 10,410,221
Prepaid expenses and other
assets.......................... 7,948,697 5,935,420 -- 13,884,117
Rental merchandise, net........... 73,690,576 97,893,748 -- 171,584,324
Deferred income taxes............. 461,862 8,815,740 -- 9,277,602
Property and equipment, net....... 17,339,920 18,097,657 -- 35,437,577
Goodwill and other intangibles,
net............................. 130,149,662 91,205,261 -- 221,354,923
Deferred financing costs, net..... 1,677,439 -- -- 1,677,439
Non-compete and prepaid
consulting, net................. 3,525,304 -- -- 3,525,304
Income tax and other
receivables..................... -- 2,779,381 -- 2,779,381
------------ ------------ ------------- ------------
Total assets................. $237,654,714 $232,276,174 $ -- $469,930,888
============ ============ ============= ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Accounts payable and book
overdraft....................... $ 5,541,215 $ 14,515,896 $ -- $ 20,057,111
Other liabilities................. 7,899,952 15,841,787 10,000,000 (1) 33,741,739
Income tax payable................ 3,392,238 -- -- 3,392,238
Deferred income taxes............. -- 1,293,919 1,293,919
Debt.............................. 116,003,950 66,264,725 -- 182,268,675
------------ ------------ ------------- ------------
Total liabilities............ 132,837,355 97,916,327 10,000,000 240,753,682
SHAREHOLDERS' EQUITY:
Common stock...................... 87,862,653 169,851 149,607,359 (2) 237,639,863
Paid-in capital................... -- 149,607,359 (149,607,359)(2) --
Retained earnings (deficit)....... 16,954,706 (15,417,363) (10,000,000)(1) (8,462,657)
------------ ------------ ------------- ------------
Total shareholders' equity... 104,817,359 134,359,847 (10,000,000) 229,177,206
------------ ------------ ------------- ------------
Total liabilities and
shareholders' equity....... $237,654,714 $232,276,174 $ -- $469,930,888
============ ============ ============= ============
</TABLE>
See Accompanying Notes
66
<PAGE> 75
RENT-WAY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTH PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
RENT-WAY,
RENT-WAY HOME CHOICE
1998 AND 1998 AND 1998
ACQUISITIONS ACQUISITIONS ACQUISITIONS
RENT-WAY PRO FORMA PRO FORMA HOME CHOICE CONFORMING PRO FORMA
HISTORICAL COMBINED (4(a)) COMBINED HISTORICAL ADJUSTMENTS COMBINED
---------- --------------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenues........ $125,060,028 $26,287,860 $151,347,888 $192,615,761 $ -- $343,963,649
------------ ----------- ------------ ------------ ----------- ------------
COST AND OPERATING
EXPENSES:
Operating expenses.... 102,416,787 23,905,335 126,322,122 190,662,498 -- 316,984,620
Cost of business
combinations........ -- -- -- 11,185,176 -- 11,185,176
Name change expense... -- -- -- 1,377,032 -- 1,377,032
Amortization of
intangibles......... 2,970,340 952,387 3,922,727 5,391,143 -- 9,313,870
------------ ----------- ------------ ------------ ----------- ------------
Total costs and
operating
expenses........ 105,387,127 24,857,722 130,244,849 208,615,849 -- 338,860,698
------------ ----------- ------------ ------------ ----------- ------------
Operating income
(loss).......... 19,672,901 1,430,138 21,103,039 (16,000,088) -- 5,102,951
OTHER INCOME
(EXPENSE):
Interest expense...... (4,346,005) (1,826,507) (6,172,512) (3,217,851) -- (9,390,363)
Interest income....... 109,655 36,447 146,102 118,906 -- 265,008
Other expense, net.... (60,079) 232,104 172,025 (926,059) -- (754,034)
------------ ----------- ------------ ------------ ----------- ------------
Income (loss)
before income
taxes........... 15,376,472 (127,818) 15,248,654 (20,025,092) -- (4,776,438)
Income tax expense
(benefit)........... 6,619,041 (54,961) 6,564,080 (4,852,945) -- 1,711,135
------------ ----------- ------------ ------------ ----------- ------------
Net income
(loss).......... $ 8,757,431 $ (72,857) $ 8,684,574 $(15,172,147) $ -- $ (6,487,573)
============ =========== ============ ============ =========== ============
EARNINGS (LOSS) PER
COMMON SHARE:
Basic............. $ 0.87 $ (0.89) $ (0.32)
============ ============ ============
Diluted........... $ 0.77 $ (0.89) $ (0.31)
============ ============ ============
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING:
Basic............. 10,081,477 16,965,178 20,488,209
============ ============ ============
Diluted........... 12,225,712 16,965,178 21,137,434
============ ============ ============
</TABLE>
See Accompanying Notes
67
<PAGE> 76
RENT-WAY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTH PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
RENT-WAY,
HOME CHOICE
RENT-WAY AND AND 1998
1998 AND 1997 1998 AND 1997 AND 1997
ACQUISITIONS ACQUISITIONS ACQUISITIONS
RENT-WAY PRO FORMA PRO FORMA HOME CHOICE CONFORMING PRO FORMA
HISTORICAL COMBINED(4(B)) COMBINED HISTORICAL ADJUSTMENTS COMBINED
---------- -------------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenues........ $63,334,925 $81,446,083 $144,781,008 $152,892,608 $ -- $297,673,616
----------- ----------- ------------ ------------ ---------- ------------
COST AND OPERATING
EXPENSES:
Operating expenses.... 52,394,317 74,398,352 126,792,669 141,146,473 -- 267,939,142
Cost of business
combinations........ -- -- -- 2,196,880 -- 2,196,880
Amortization of
intangibles......... 1,338,416 2,818,815 4,157,231 7,825,522 -- 11,982,753
----------- ----------- ------------ ------------ ---------- ------------
Total costs and
operating
expenses........ 53,732,733 77,217,167 130,949,900 151,168,875 -- 282,118,775
----------- ----------- ------------ ------------ ---------- ------------
Operating
income.......... 9,602,192 4,228,916 13,831,108 1,723,733 -- 15,554,841
OTHER INCOME
(EXPENSE):
Interest expense...... (2,311,742) (5,428,999) (7,740,741) (1,260,290) -- (9,001,031)
Interest income....... 920 104,090 105,010 668,691 -- 773,701
Other expense, net.... (62,698) (60,854) (123,552) 39,704 -- (83,848)
----------- ----------- ------------ ------------ ---------- ------------
Income (loss)
before income
taxes and
extraordinary
item............ 7,228,672 (1,156,847) 6,071,825 1,171,838 -- 7,243,663
Income tax expense
(benefit)........... 3,378,194 (497,444) 2,880,750 1,723,455 -- 4,604,205
----------- ----------- ------------ ------------ ---------- ------------
Income (loss)
before
extraordinary
item............ $ 3,850,478 $ (659,403) $ 3,191,075 $ (551,617) $ -- $ 2,639,458
=========== =========== ============ ============ ========== ============
PRO FORMA INFORMATION
(UNAUDITED)(4):
Income (loss)
before
extraordinary
item............ $ (551,617) $ 2,639,458
Pro forma income
tax expense
(benefit)....... (155,528) (155,528)
------------ ------------
Pro forma income
(loss) before
extraordinary
item............ $ (396,089) $ 2,794,986
============ ============
PRO FORMA EARNINGS
(LOSS) PER COMMON
SHARE:
Basic............. $ 0.58 $ (0.02) $ 0.15
=========== ============ ============
Diluted........... $ 0.53 $ (0.02) $ 0.15
=========== ============ ============
PRO FORMA WEIGHTED
AVERAGE COMMON
SHARES OUTSTANDING:
Basic............. 6,621,180 16,911,893 19,152,623
=========== ============ ============
Diluted........... 8,603,817 16,911,893 19,640,250
=========== ============ ============
</TABLE>
See Accompanying Notes
68
<PAGE> 77
RENT-WAY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1997 FOR RENT-WAY
YEAR ENDED DECEMBER 31, 1997 FOR HOME CHOICE
"FISCAL 1997"
<TABLE>
<CAPTION>
RENT-WAY,
RENT-WAY HOME CHOICE
1998 AND 1998 AND 1998
ACQUISITIONS ACQUISITIONS ACQUISITIONS
RENT-WAY PRO FORMA PRO FORMA HOME CHOICE CONFORMING PRO FORMA
HISTORICAL COMBINED (4(C)) COMBINED HISTORICAL ADJUSTMENTS COMBINED
---------- --------------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............ $88,043,534 $93,478,887 $181,522,421 $230,968,599 $ -- $412,491,020
----------- ----------- ------------ ------------ ---------- ------------
COST AND OPERATING
EXPENSES:
Operating expense......... 72,331,086 85,458,639 157,789,725 221,762,572 -- 379,552,297
Cost of business
combinations............ -- -- -- 934,717 -- 934,717
Name change expense....... -- -- -- 742,541 -- 742,541
Amortization of
intangibles............. 1,926,287 3,065,299 4,991,586 9,902,303 -- 14,893,889
----------- ----------- ------------ ------------ ---------- ------------
Total costs and
operating
expenses............ 74,257,373 88,523,938 162,781,311 233,342,133 -- 396,123,444
----------- ----------- ------------ ------------ ---------- ------------
Operating income
(loss).............. 13,786,161 4,954,949 18,741,110 (2,373,534) -- 16,367,576
OTHER INCOME (EXPENSE):
Interest expense.......... (3,368,980) (4,529,304) (7,898,284) (2,512,015) -- (10,410,299)
Interest income........... 920 19,389 20,309 218,118 -- 238,427
Other expense, net........ (103,681) (91,987) (195,668) (163,957) -- (359,625)
Gain or loss on sales of
stores.................. -- -- -- 950,366 -- 950,366
----------- ----------- ------------ ------------ ---------- ------------
Income (loss) before
income taxes and
extraordinary
item................ 10,314,420 353,047 10,667,467 (3,881,022) -- 6,786,445
Income tax expense........ 4,629,477 151,810 4,781,287 236,572 -- 5,017,859
----------- ----------- ------------ ------------ ---------- ------------
Income (loss) before
extraordinary
item................ $ 5,684,943 $ 201,237 $ 5,886,180 $ (4,117,594) $ -- $ 1,768,586
=========== =========== ============ ============ ========== ============
PRO FORMA INFORMATION
(UNAUDITED)(4):
Income (loss) before
extraordinary
item................ $ (4,117,594) $ 1,768,586
Pro forma income tax
(benefit)........... (213,835) (213,835)
------------ ------------
Pro forma net income
(loss) before
extraordinary
item................ $ (3,903,759) $ 1,982,421
============ ============
PRO FORMA EARNINGS (LOSS)
BEFORE EXTRAORDINARY
ITEM PER COMMON SHARE:
Basic................. $ 0.89 $ (0.23) $ 0.12
=========== ============ ============
Diluted............... $ 0.78 $ (0.23) $ 0.11
=========== ============ ============
PRO FORMA WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING:
Basic................. 6,692,008 16,940,945 19,240,534
=========== ============ ============
Diluted............... 8,921,515 17,117,142 19,902,577
=========== ============ ============
</TABLE>
See Accompanying Notes
69
<PAGE> 78
RENT-WAY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1996 FOR RENT-WAY
YEAR ENDED DECEMBER 31, 1996 FOR HOME CHOICE
"FISCAL 1996"
<TABLE>
<CAPTION>
RENT-WAY AND
HOME CHOICE
RENT-WAY HOME CHOICE CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Total revenues.......................... $51,171,337 $124,161,360 $ -- $175,332,697
----------- ------------ --------- ------------
COST AND OPERATING EXPENSES:
Operating expenses...................... 43,645,608 116,377,022 -- 160,022,630
Cost of business combinations........... -- 1,743,433 -- 1,743,433
Amortization of intangibles............. 874,668 3,982,093 -- 4,856,761
----------- ------------ --------- ------------
Total costs and operating
expense.......................... 44,520,276 122,102,548 -- 166,622,824
----------- ------------ --------- ------------
Operating income................... 6,651,061 2,058,812 -- 8,709,873
OTHER INCOME (EXPENSE):
Interest expense........................ (1,586,792) (1,571,808) -- (3,158,600)
Interest income......................... 60,267 645,291 -- 705,558
Other expense, net...................... 103,838 403,255 -- 507,093
Gain or loss on sales of stores......... -- 750,800 -- 750,800
----------- ------------ --------- ------------
Income before income taxes......... 5,228,374 2,286,350 -- 7,514,724
Income tax expense...................... 2,381,062 1,188,792 -- 3,569,854
----------- ------------ --------- ------------
Net income......................... $ 2,847,312 $ 1,097,558 $ -- $ 3,944,870
=========== ============ ========= ============
PRO FORMA INFORMATION (UNAUDITED)(4):)
Net income......................... $ 1,097,558 $ 3,944,870
Pro forma income tax expense....... 200,674 200,674
------------ ------------
Pro forma net income............... $ 896,884 $ 3,744,196
============ ============
PRO FORMA EARNINGS PER COMMON SHARE:
Basic.............................. $ 0.51 $ 0.09 $ 0.32
=========== ============ ============
Diluted............................ $ 0.46 $ 0.09 $ 0.30
=========== ============ ============
PRO FORMA WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic.............................. 5,345,878 10,219,487 11,354,936(3)
=========== ============ ============
Diluted............................ 5,960,506 10,261,840 11,994,468(3)
=========== ============ ============
</TABLE>
See Accompanying Notes
70
<PAGE> 79
RENT-WAY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1995 FOR RENT-WAY
YEAR ENDED DECEMBER 31, 1995 FOR HOME CHOICE
"FISCAL 1995"
<TABLE>
<CAPTION>
RENT-WAY AND
HOME CHOICE
RENT-WAY HOME CHOICE CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Total revenues............................ $28,194,423 $77,528,724 $ -- $105,723,147
----------- ----------- --------- ------------
COST AND OPERATING EXPENSES:
Operating expense......................... 25,280,439 73,009,166 -- 98,289,605
Amortization of intangibles............... 334,003 568,386 -- 902,389
----------- ----------- --------- ------------
Total costs and operating expense.... 25,614,442 73,577,552 -- 99,191,994
----------- ----------- --------- ------------
Operating income..................... 2,579,981 3,951,172 -- 6,531,153
OTHER INCOME (EXPENSE):
Interest expense.......................... (1,178,613) (2,467,652) -- (3,646,265)
Interest income........................... 66,277 35,415 -- 101,692
Other expense, net........................ (13,435) 261,537 -- 248,102
Gain or loss on sales of stores........... -- 1,048,923 -- 1,048,923
----------- ----------- --------- ------------
Income before income tax and
extraordinary item................. 1,454,210 2,829,395 -- 4,283,605
Income tax expense........................ 445,440 877,177 -- 1,322,617
----------- ----------- --------- ------------
Income before extraordinary
item(5)............................ $ 1,008,770 $ 1,952,218 $ -- $ 2,960,988
=========== =========== ========= ============
PRO FORMA INFORMATION (UNAUDITED)(4):
Income (loss) before extraordinary
item............................... $ 1,952,218 $ 2,960,988
Pro forma income tax expense......... 290,000 290,000
----------- ------------
Pro forma income before extraordinary
item............................... $ 1,662,218 $ 2,670,988
=========== ============
PRO FORMA EARNINGS PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM:
Basic................................ $ 0.25 $ 0.37 $ 0.40
=========== =========== ============
Diluted.............................. $ 0.22 $ 0.37 $ 0.37
=========== =========== ============
PRO FORMA WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic................................ 3,855,934 4,516,936 6,511,892(3)
=========== =========== ============
Diluted.............................. 4,400,066 4,516,936 7,056,024(3)
=========== =========== ============
</TABLE>
See Accompanying Notes
71
<PAGE> 80
RENT-WAY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Pro Forma Financial Statements reflect the combined operations and
financial position of Rent-Way and Home Choice as if the Merger had been
consummated and accounted for as a pooling-of-interests in accordance with
the provisions of APB 16. The Pro Forma Balance Sheet presents the combined
financial position of Rent-Way and Home Choice as if the Merger had been
consummated on June 30, 1998. The Pro Forma Statements of Income present the
combined operations of Rent-Way and Home Choice as if the Merger had been
consummated at October 1, 1994.
The pro forma adjustments are based on available information, including
certain estimates and assumptions made by management. Therefore it is
probable that the actual adjustments would differ from the pro forma
adjustments. Rent-Way and Home Choice believe that such adjustments provide a
reasonable basis for presenting the significant effects of the Merger.
Management's of Rent-Way and Home Choice also believe that the pro forma
adjustments give appropriate effect to those assumptions and are properly
applied in the Pro Forma Financial Statements.
The Pro Forma Financial Statements do not reflect any synergies, cost savings
and operational efficiencies that may become available to the combined
enterprise as a result of the Merger.
2. PRO FORMA ACCOUNTING ADJUSTMENTS--BALANCE SHEET
(1) Adjustment to reduce pro forma combined retained earnings for
non-recurring costs (as estimated by management) directly associated with
the Merger of approximately $10.0 million.
(2) Adjustment to reflect the issuance of approximately 9,975,529 shares of
Rent-Way's Common Stock, no par value, in exchange for all outstanding
shares of Home Choice, $0.01 par value Common Stock.
3. PRO FORMA ACCOUNTING ADJUSTMENTS -- STATEMENTS OF INCOME
(3) The pro forma weighted average shares outstanding of Home Choice have
been adjusted to reflect the Exchange Ratio of 0.588. In the Pro Forma
Statements of Income the pro forma weighted average shares outstanding
have been adjusted as if the Merger had been consummated at October 1,
1994.
(4) Represents the pro forma income taxes on income (loss) of acquired
companies accounted for as poolings-of-interests which were S
Corporations prior to acquisition. The pro forma income taxes have been
provided on income (loss) using an effective income tax rate of
approximately 38.6%.
(5) The historical statements of income of Rent-Way for the nine month period
ended June 30, 1997 and the year ended September 30, 1997 include an
extraordinary loss of $269,017 or $0.03 per share, which is not reflected
in the Pro Forma Statement of Income.
In addition the historical statement of income of Home Choice for the
year ended December 31, 1995, includes an extraordinary gain of
$3,335,851 or $.74 per share, which is not reflected in the Pro Forma
Statement of Income.
4. ACQUISITIONS
The following unaudited pro forma condensed combined statement of income data
gives effect to the Ace, Champion and Rental King acquisitions as if they
occurred at October 1, 1996. The data presented below reflects the results of
operations of the acquired companies from the beginning of the periods
presented.
72
<PAGE> 81
RENT-WAY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS, CONTINUED
(a) For the three months ended December 31, 1997 for Ace and the period from
October 1, 1997 to February 4, 1998 for Champion:
<TABLE>
<CAPTION>
1998 1998 PRO FORMA
ACE CHAMPION PURCHASE 1998
ACQUISITION ACQUISITION ACCOUNTING ACQUISITIONS
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA COMBINED
----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Total revenues.................. $5,730,135 $20,557,725 $ -- $26,287,860
---------- ----------- ----------- -----------
COST AND OPERATING EXPENSES:
Operating expenses.............. 5,660,970 19,459,601 (1,215,236)(A) 23,905,335
Amortization of intangibles..... -- 47,924 904,463 (B)(C) 952,387
---------- ----------- ----------- -----------
Total costs and operating
expenses................... 5,660,970 19,507,525 (310,773) 24,857,722
---------- ----------- ----------- -----------
Operating income.............. 69,165 1,050,200 310,773 1,430,138
OTHER INCOME (EXPENSE):
Interest expense................ (291,276) (307,181) (1,228,050)(D)(E) (1,826,507)
Interest income................. 36,447 -- -- 36,447
Other expense, net.............. 232,104 -- -- 232,104
---------- ----------- ----------- -----------
Income (loss) before income
taxes...................... 46,440 743,019 (917,277) (127,818)
Income tax expense (benefit).... 13,800 -- (68,761)(F) (54,961)
---------- ----------- ----------- -----------
Net income (loss)............. $ 32,640 $ 743,019 $ (848,516) $ (72,857)
========== =========== =========== ===========
</TABLE>
(b) For the nine months ended June 30, 1997 for Ace, nine months ended June
30, 1997 for Champion and the period from October 1, 1996 to February 1,
1997 for Rental King:
<TABLE>
<CAPTION>
1998 1998 1997 PRO FORMA 1998 AND 1997
ACE CHAMPION RENTAL KING PURCHASE ACQUISITIONS
ACQUISITION ACQUISITION ACQUISITION ACCOUNTING PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Total revenues........... $18,153,068 $56,420,050 $6,872,965 $ -- $81,446,083
----------- ----------- ---------- ----------- -----------
COST AND OPERATING
EXPENSES:
Operating expenses....... 17,626,629 53,655,467 6,417,258 (3,301,002)(G)(J) 74,398,352
Amortization of
intangibles............ -- 101,620 18,600 2,698,595 (H)(I) 2,818,815
----------- ----------- ---------- ----------- -----------
Total costs and
operating
expenses.......... 17,626,629 53,757,087 6,435,858 (602,407) 77,217,167
----------- ----------- ---------- ----------- -----------
Operating income.... 526,439 2,662,963 437,107 602,407 4,228,916
OTHER INCOME (EXPENSE):
Interest expense......... (1,200,403) (715,385) (210,081) (3,303,130)(J)(K) (5,428,999)
Interest income.......... 91,125 -- 12,965 -- 104,090
Other expense, net....... (132,100) -- 71,246 -- (60,854)
----------- ----------- ---------- ----------- -----------
Income (loss) before
income taxes...... (714,939) 1,947,578 311,237 (2,700,723) (1,156,847)
Income tax expense
(benefit).............. 35,000 -- 68,472 (600,916)(L) (497,444)
----------- ----------- ---------- ----------- -----------
Net income (loss)... $ (749,939) $ 1,947,578 $ 242,765 $(2,099,807) $ (659,403)
=========== =========== ========== =========== ===========
</TABLE>
73
<PAGE> 82
RENT-WAY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS, CONTINUED
(c) For the year ended December 31, 1997 for Ace and the year ended December
27, 1997 for Champion:
<TABLE>
<CAPTION>
1998 1998 PRO FORMA 1998
ACE CHAMPION PURCHASE ACQUISITIONS
ACQUISITION ACQUISITION ACCOUNTING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Total revenues.................... $22,264,752 $71,214,135 $ -- $93,478,887
----------- ----------- ----------- -----------
COST AND OPERATING EXPENSES:
Operating expenses................ 22,023,487 67,236,489 (3,801,337)(A) 85,458,639
Cost of business combinations..... -- -- -- --
Amortization of intangibles....... -- 165,000 2,900,299 (B)(C) 3,065,299
----------- ----------- ----------- -----------
Total costs and operating
expenses................... 22,023,487 67,401,489 (901,038) 88,523,938
----------- ----------- ----------- -----------
Operating income............. 241,265 3,812,646 901,038 4,954,949
OTHER INCOME (EXPENSE):
Interest expense.................. (1,557,692) (1,090,127) (1,881,485)(D)(E) (4,529,304)
Interest income................... 19,389 -- -- 19,389
Other expense, net................ (91,987) -- -- (91,987)
----------- ----------- ----------- -----------
Income (loss) before income
tax........................ (1,389,025) 2,722,519 (980,447) 353,047
Income tax expense (benefit)...... (336,000) -- 487,810 (F) 151,810
----------- ----------- ----------- -----------
Net income (loss)............ $(1,053,025) $ 2,722,519 $(1,468,257) $ 201,237
=========== =========== =========== ===========
</TABLE>
(A) Adjustment to eliminate salaries and wages paid to the former owner of Ace
Rentals and Champion. Salaries and wages include all bonuses and
distributions made to shareholders.
(B) Adjustment to recognize amortization of goodwill on a straight line basis
over thirty years net of the effect of the elimination of Champion
goodwill amortization expense.
(C) Adjustment for amortization of non-compete agreements and customer lists
on a straight line basis with a life of five and two years respectively.
(D) Adjustment to record interest expense on borrowings for acquisitions
offset by elimination of debt for Ace Rentals and Champion.
(E) Adjustment to record deferred financing expense associated with Rent-Way's
amendment to its credit facility, offset with the elimination of
Champion's deferred financing expense.
(F) Adjustment to record income tax expense based on an assumed effective tax
rate of 43% applies to tax deductible amounts.
(G) Adjustment to eliminate salaries and wages paid to the former owner of Ace
Rentals, Champion and Rental King. Salaries and wages include all bonuses
and distributions made to shareholders.
(H) Adjustment to recognize amortization of goodwill on a straight line basis
over thirty years for Ace Rentals and Champion and twenty years for Rental
King, net of any existing goodwill amortization expense.
74
<PAGE> 83
RENT-WAY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS, CONTINUED
(I) Adjustment for amortization of non-compete agreements and customer lists
on a straight line basis with a life of five and two years respectively.
(J) Adjustment to record interest expense on borrowings for acquisitions
offset by elimination of debt for Ace Rentals, Champion and Rental King.
(K) Adjustment to record deferred financing expense associated with Rent-Way's
amendment to its credit facility, offset with the elimination of
Champion's deferred financing expense and the increase in deferred
financing costs associated with the private placement of convertible
debentures used to finance the Rental King Acquisition.
(L) Adjustment to record income tax expense based on an assumed effective tax
rate of 43% applies to tax deductible amounts.
75
<PAGE> 84
ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
RENT-WAY, INC.
AND
HOME CHOICE HOLDINGS INC.
DATED AS OF SEPTEMBER 1, 1998
- --------------------------------------------------------------------------------
A-1
<PAGE> 85
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of September
1, 1998, is made by and between Rent-Way, Inc., a Pennsylvania corporation
("Rent-Way"), and Home Choice Holdings Inc., a Delaware corporation ("HCI").
WHEREAS, the Board of Directors of Rent-Way deems it advisable and in the
best interests of Rent-Way's shareholders, and the Board of Directors of HCI
deems it advisable and in the best interests of HCI's stockholders, that HCI
merge with and into Rent-Way, and such Boards of Directors have approved the
merger (the "Merger") of HCI with and into Rent-Way upon the terms and subject
to the conditions set forth herein; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting and financial reporting purposes, it is intended
that the Merger shall be treated as a pooling of interests; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Rent-Way and HCI have entered into Option Agreements dated the date
hereof as described herein.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto (each, a "Party"), intending to be legally
bound, hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time (as hereinafter defined), HCI
shall merge with and into Rent-Way in accordance with the applicable provisions
of the laws of the Commonwealth of Pennsylvania and the State of Delaware. At
the Effective Time, the separate corporate existence of HCI shall cease and
Rent-Way shall be the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all of the rights and obligations of HCI in
accordance with the Pennsylvania Business Corporation Law.
Section 1.2 Effective Time of The Merger. The Merger shall become effective
when a properly executed Certificate of Merger (as hereinafter defined) is duly
filed with the Secretary of State of the State of Delaware and properly executed
Articles of Merger (as hereinafter defined) are duly filed with the Secretary of
State of the Commonwealth of Pennsylvania, or at such later time which Rent-Way
and HCI have agreed upon and designated in such filings in accordance with
Applicable Law (as hereinafter defined). Such filings shall be made as soon as
practicable after satisfaction or, to the extent permitted hereunder, waiver of
each condition to each Party's obligation to consummate the Merger contained in
Article VIII. When used in this Agreement, the term "Effective Time" shall mean
the date and time at which such Certificate of Merger and Articles of Merger
become effective.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Articles of Incorporation; Amendment. The Articles of
Incorporation of the Surviving Corporation at the Effective Time shall be the
Articles of Incorporation of Rent-Way as in effect on the date of this Agreement
except that Article 5 of the Articles of Incorporation of the Surviving
Corporation shall be amended to increase the number of authorized shares of
Rent-Way Common Stock (as hereinafter defined) from 20,000,000 to 50,000,000
shares (the "Amendment"). The Amendment shall be effectuated in the Articles of
Merger.
A-2
<PAGE> 86
Section 2.2 By-Laws. Subject to Section 7.9 hereof, the By-Laws of the
Surviving Corporation at the Effective Time shall be the By-Laws of Rent-Way
that are in effect on the date of this Agreement with such changes, if any, as
may be mutually agreed upon by HCI and Rent-Way.
Section 2.3 Directors of Surviving Corporation. The initial directors of
the Surviving Corporation at the Effective Time shall be the persons who are the
directors of Rent-Way as of such date, which persons shall hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualify in the manner provided in the Articles of Incorporation and By-Laws
of the Surviving Corporation or as otherwise provided by Applicable Law.
Section 2.4 Name of Surviving Corporation. The name of the Surviving
Corporation shall be Rent-Way, Inc.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Exchange Ratio. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) Each of the shares of HCI's Common Stock, par value $.01 per share
(the "Shares"), issued and outstanding immediately prior to the Effective Time
(other than Shares held in the treasury of HCI) shall be converted into the
right to receive 0.588 (the "Exchange Ratio") shares of Rent-Way Common Stock,
without par value (the "Rent-Way Common Stock," and upon such conversion, the
"Rent-Way Shares"), issuable upon the surrender of the certificate formerly
representing such Share (provided, however, that the Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of securities convertible
into Rent-Way Common Stock or Shares), reorganization, recapitalization or other
like change with respect to Rent-Way Common Stock or Shares occurring after the
date hereof and prior to the Effective Time); and
(b) Each Share held in the treasury of HCI, if any, and each Share held
by Rent-Way or any subsidiary of Rent-Way immediately prior to the Effective
Time shall be canceled and retired and cease to exist, and no consideration
shall be delivered in exchange therefor.
Section 3.2 Exchange of Certificates Representing Shares.
(a) As of the Effective Time, Rent-Way shall deposit, or shall cause to
be deposited, with an exchange agent selected by Rent-Way and reasonably
satisfactory to HCI (the "Exchange Agent"), for the benefit of the holders of
Shares, for exchange in accordance with this Article III, (i) certificates
representing the number of Rent-Way Shares issuable in the Merger, to be issued
in respect of all Shares outstanding immediately prior to the Effective Time and
which are to be exchanged pursuant to the Merger (exclusive of Shares to be
canceled pursuant to Section 3.1(b)), and (ii) cash to be paid in lieu of the
issuance of fractional shares as provided in Section 3.4 hereof (such cash and
certificates for Rent-Way Shares being hereinafter referred to collectively as
the "Exchange Fund").
(b) Promptly after the Effective Time, Rent-Way shall cause the Exchange
Agent to mail (or deliver at its principal office) to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented Shares (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the certificates for Shares
shall pass, only upon delivery of the certificates for Shares to the Exchange
Agent and shall be in such form and have such other provisions, including
appropriate provisions with respect to back-up withholding, as Rent-Way may
reasonably specify, and (ii) instructions for use in effecting the surrender of
the certificates for Shares. Upon surrender of a certificate for Shares for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, the
holder thereof shall be entitled to receive in exchange therefor that portion of
the Exchange Fund which such holder has the right to receive pursuant to the
provisions of this Article III, after giving effect to any required withholding
tax, and the certificate for Shares so surrendered shall forthwith be canceled.
No interest will be paid or accrued on the cash to be paid which is in the
Exchange Fund as part of the Exchange Ratio. In the event of any transfer of
ownership of Shares which has not been registered in the transfer records of
HCI,
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certificates representing the proper number of Rent-Way Shares, if any, together
with a check in an amount equal to the proper amount of the cash component, if
any, of the Exchange Fund, will be issued to the transferee of the certificate
representing the transferred Shares presented to the Exchange Agent, accompanied
by all documents required to evidence and effect the prior transfer thereof and
to evidence that any applicable stock transfer taxes associated with such
transfer were paid.
Section 3.3 Dividends; Transfer Taxes. No dividends that are declared on
Rent-Way Shares will be paid to persons entitled to receive certificates
representing Rent-Way Shares until such persons surrender their certificates
representing Shares. Upon such surrender, there shall be paid to the person in
whose name the certificates representing such Rent-Way Shares shall be issued,
any dividends which shall have become payable with respect to such Rent-Way
Shares between the Effective Time and the time of such surrender. In no event
shall the person entitled to receive such dividends be entitled to receive
interest on such dividends. If any certificates for any Rent-Way Shares are to
be issued in a name other than that in which the certificate representing Shares
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the issuance of
certificates for such Rent-Way Shares in a name other than that of the
registered holder of the certificate surrendered or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, (i) neither the Exchange Agent nor
any Party hereto shall be liable to a holder of Shares for any Rent-Way Shares
or dividends thereon or, in accordance with Section 3.4 hereof, proceeds of the
sale of fractional interests, delivered to a public official pursuant to
Applicable Law and (ii) any Rent-Way Shares held by the Exchange Agent prior to
surrender of certificates representing Shares shall not be deemed issued.
Section 3.4 No Fractional Securities. No certificates or scrip representing
fractional Rent-Way Shares shall be issued upon the surrender for exchange of
certificates representing Shares pursuant to this Article III, and no dividend,
stock split or other change in the capital structure of HCI shall relate to any
fractional security, and such fractional interests shall not entitle the owner
thereof to vote or to any rights of a security holder of HCI. In lieu of any
such fractional securities, each holder of Shares who would otherwise have been
entitled to a fraction of a Rent-Way Share upon surrender of stock certificates
for exchange pursuant to this Article III will be paid cash upon such surrender
in an amount equal to the market value immediately prior to the Effective Time
of such fractional Rent-Way Share calculated based on the average closing price
on the Nasdaq National Market ("Nasdaq") or the New York Stock Exchange (the
"NYSE"), whichever is applicable, for the last five trading days immediately
preceding the day prior to the Effective Time. For this purpose, Shares of any
holder represented by two or more certificates may be aggregated, and in no
event shall any holder be paid a cash amount in respect of one or more than one
Rent-Way Share.
Section 3.5 Closing of HCI Transfer Books. At the Effective Time, the stock
transfer books of HCI shall be closed and no transfer of Shares shall thereafter
be made. If, after the Effective Time, certificates representing Shares are
presented to the Surviving Corporation, they shall be canceled and exchanged for
certificates representing Rent-Way Shares in accordance with this Article III.
Section 3.6 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hodgson, Russ,
Andrews, Woods & Goodyear, LLP, 1800 One M&T Plaza, Buffalo, New York 14203, at
10:00 a.m., local time, on the later of (a) the date of the Stockholders'
meetings referred to in Section 7.4 hereof or (b) the day on which each
condition set forth in Article VIII hereof is either satisfied or waived, or at
such other date, time and place as Rent-Way and HCI shall agree.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RENT-WAY
Except as otherwise disclosed to HCI in a letter delivered to it prior to
the execution hereof (which letter shall contain appropriate references to
identify the representations and warranties herein to which the information in
such letter relates) (the "Rent-Way Disclosure Letter"), Rent-Way represents and
warrants to HCI as follows:
Section 4.1 Organization. Rent-Way is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Pennsylvania
and has the corporate power to carry on its business as it is
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now being conducted or presently proposed to be conducted. Rent-Way is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities make such qualification necessary, except
where the failure to be so qualified would not individually or in the aggregate
have a Rent-Way Material Adverse Effect (as hereinafter defined). Rent-Way has
delivered to HCI prior to the execution of this Agreement complete and correct
copies of its Articles of Incorporation and By-Laws, as amended to date. In all
material respects, the minute books of Rent-Way contain accurate records of all
meetings and accurately reflect all other actions taken by the stockholders, the
Board of Directors and all committees of the Board of Directors of Rent-Way
since October 1, 1994. For purposes of this Agreement, a "Rent-Way Material
Adverse Effect" shall mean any effect that is material and adverse to the
business, assets, liabilities, results of operations or financial condition of
Rent-Way and the Rent-Way Subsidiaries (as hereinafter defined) taken as a
whole; provided, that a Rent-Way Material Adverse Effect shall not be deemed to
include the impact of (i) changes in Applicable Law of general applicability or
implementation thereof by courts or Governmental Authorities, (ii) acts or
omissions of HCI or any HCI Subsidiary (as hereinafter defined) taken with the
prior written consent of Rent-Way in contemplation of the transactions
contemplated hereby, (iii) circumstances affecting the rental-purchase industry
generally, and (iv) the effects of the Merger and the compliance by either Party
with the provisions of this Agreement on the business, assets, liabilities,
results of operations or financial condition of Rent-Way or any Rent-Way
Subsidiary.
Section 4.2 Capitalization. The authorized capital stock of Rent-Way
consists of 20,000,000 shares of Rent-Way Common Stock, and 1,000,000 shares of
preferred stock, no par value. As of August 27, 1998, (i) 11,032,500 shares of
Rent-Way Common Stock were issued and outstanding, (ii) options to acquire
1,534,527 shares of Rent-Way Common Stock (the "Rent-Way Employee Stock
Options") were outstanding under all stock option plans of Rent-Way (the
"Rent-Way Employee Stock Option Plans"), (iii) 1,534,527 shares of Rent-Way
Common Stock including the shares set forth in Section (ii) were reserved for
issuance in connection with the Rent-Way Employee Stock Option Plans, (iv)
warrants to purchase an aggregate of 105,000 shares of Rent-Way Common Stock
(the "Rent-Way Warrants") were outstanding; and (v) convertible subordinated
debentures in the aggregate principal amount of $20,000,000 were outstanding
which, at a conversion price of $13.37 per share, are convertible into 1,495,886
shares of Rent-Way Common Stock. Section 4.2 of the Rent-Way Disclosure Letter
sets forth a complete and correct list, as of August 31, 1998, of the number of
shares of Rent-Way Common Stock subject to Rent-Way Employee Stock Options, the
Rent-Way Warrants or other rights to purchase or to receive Rent-Way Common
Stock granted under the Rent-Way Employee Stock Option Plans and the Rent-Way
Warrants, the dates of grant and the exercise prices thereof. As of August 31,
1998, Rent-Way had no treasury shares and no shares of Rent-Way Common Stock
were held by Rent-Way Subsidiaries. All of the issued and outstanding shares of
Rent-Way Common Stock are validly issued, fully paid and nonassessable and free
of preemptive rights. All of the shares of Rent-Way Common Stock issuable in
exchange for Shares at the Effective Time in accordance with this Agreement will
be, when so issued, duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights. Except as set forth in this
Agreement and except as provided in the Rent-Way Option Agreement (as
hereinafter defined), as of the date of this Agreement, there are no shares of
capital stock of Rent-Way issued or outstanding or any options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating Rent-Way to issue, transfer, sell, redeem, repurchase or
otherwise acquire any shares of its capital stock. Except as set forth in this
Agreement and the Rent-Way Option Agreement, after the Effective Time, Rent-Way
will have no obligation to issue, transfer or sell any shares of its capital
stock pursuant to any employee benefit plan or otherwise. Except as set forth in
this Agreement and the Rent-Way Option Agreement, there are not now, and at the
Effective Time there will not be, any outstanding options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating Rent-Way to issue, transfer or sell any securities of
Rent-Way. Other than agreements contemplated by this Agreement, there are not
now, and at the Effective Time there will not be, any voting trusts, standstill,
stockholder or other agreements or understandings to which Rent-Way is a party
or is bound with respect to the voting of, requiring the registration of, or
granting any preemptive rights or antidilution rights with respect to, the
capital stock of Rent-Way.
Section 4.3 Subsidiaries. Section 4.3 of the Rent-Way Disclosure Letter
lists all corporations, partnerships, joint ventures and other business
associations and entities, foreign and domestic, in which Rent-Way has any
direct or indirect ownership or economic interest. Such corporations,
partnerships, joint ventures or other business
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entities of which Rent-Way owns, directly or indirectly, greater than 50% of the
shares of capital stock or other equity interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
cast at least a majority of the votes that may be cast by all shares of equity
interests having ordinary voting power for the election of directors or other
governing body of such entity are hereinafter referred to as the "Rent-Way
Subsidiaries."
(a) Each Rent-Way Subsidiary that is a corporation is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Rent-Way Subsidiary that is a partnership or
a limited liability company is duly formed, validly existing and in good
standing under the laws of its jurisdiction of formation.
(b) Each Rent-Way Subsidiary has the corporate power, the partnership
power or the company power, as the case may be, to carry on its business as it
is now being conducted or presently proposed to be conducted.
(c) Each Rent-Way Subsidiary that is a corporation is duly qualified as
a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate have a
Rent-Way Material Adverse Effect. Each Rent-Way Subsidiary that is a partnership
is duly qualified as a foreign partnership authorized to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not individually or
in the aggregate have a Rent-Way Material Adverse Effect. Each Rent-Way
Subsidiary that is a limited liability company is duly qualified as a foreign
limited liability company authorized to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified would not individually or in the aggregate
have a Rent-Way Material Adverse Effect.
(d) All of the outstanding shares of capital stock of the Rent-Way
Subsidiaries that are corporations are duly authorized, validly issued, fully
paid and nonassessable and are free of preemptive rights. All of the outstanding
ownership interests of the Rent-Way Subsidiaries that are partnerships or
limited liability companies are duly authorized, validly issued, fully paid and
nonassessable and are free of preemptive rights.
(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Rent-Way Subsidiaries owned by Rent-Way or a
Rent-Way Subsidiary are owned by Rent-Way or by a Rent-Way Subsidiary free and
clear of any liens, claims, charges or encumbrances. Except as set forth in
Section 4.2 hereof, there are not now, and at the Effective Time there will not
be, any outstanding options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating Rent-Way or any
Rent-Way Subsidiary to issue, transfer or sell any securities of Rent-Way or any
Rent-Way Subsidiary.
(f) Other than agreements contemplated by this Agreement, there are not
now, and at the Effective Time there will not be, any voting trusts, standstill,
shareholder or other agreements or understandings to which Rent-Way or any of
the Rent-Way Subsidiaries is a party or is bound with respect to the voting of,
requiring the registration of, or granting any preemptive rights or antidilution
rights with respect to, the capital stock of Rent-Way or any of the Rent-Way
Subsidiaries.
Section 4.4 Authority Relative To This Agreement. Rent-Way has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation by Rent-Way of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Rent-Way and, except for the approval of Rent-Way's shareholders to
be sought at the shareholders' meeting contemplated by Section 7.4(b) hereof, no
other corporate action or proceedings on the part of Rent-Way are necessary to
authorize this Agreement or the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Rent-Way and constitutes a
valid and binding agreement of Rent-Way, enforceable against Rent-Way in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights generally or to general principles of equity.
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Section 4.5 Consents and Approvals; No Violations. Except for applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state laws
relating to takeovers, if applicable, state securities or blue sky laws, and the
filing and recordation of appropriate articles of merger (the "Articles of
Merger") in such form as required by, and executed in accordance with the
relevant provisions of, the Pennsylvania Business Corporation Law, no filing
with, and no permit, authorization, consent or approval of, any Governmental
Authority (as hereinafter defined) is necessary for the consummation by Rent-
Way of the transactions contemplated by this Agreement, except for such filings,
permits, authorizations, consents or approvals the failure of which to be made
or obtained would not individually or in the aggregate have a Rent-Way Material
Adverse Effect. Neither the execution and delivery of this Agreement by Rent-Way
nor the consummation by Rent-Way of the transactions contemplated hereby, nor
compliance by Rent-Way with any of the provisions hereof, will (a) conflict with
or result in any breach of any provisions of the Articles of Incorporation or
By-Laws of Rent-Way or any of the Rent-Way Subsidiaries, (b) result in a
violation or breach of, or constitute (with or without the notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, agreement or other instrument or
obligation to which Rent-Way or any of the Rent-Way Subsidiaries is a party or
by which any of them or any of their properties or assets may be bound, or (c)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Rent-Way or any of the Rent-Way Subsidiaries or any of their
properties or assets, except in the case of clauses (b) and (c) for violations,
breaches or defaults which would not individually or in the aggregate have a
Rent-Way Material Adverse Effect.
Section 4.6 Reports and Financial Statements. Rent-Way has timely filed all
reports required to be filed with the Securities and Exchange Commission (the
"SEC") pursuant to the Exchange Act since October 1, 1997 (collectively, the
"Rent-Way SEC Reports"). As of their respective dates, the Rent-Way SEC Reports
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Rent-Way SEC Reports. None of such
Rent-Way SEC Reports, as of their respective dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the audited
balance sheets of Rent-Way and the related audited statements of operations,
stockholders equity and cash flows and unaudited interim financial statements
included in the Rent-Way SEC Reports complied as to form, as of their respective
dates of filing with the SEC, in all material respects, with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and fairly presented the consolidated financial position and the
results of operations and the changes in financial position of Rent-Way and its
consolidated subsidiaries as of the respective dates or for the respective
periods set forth therein, all in conformity with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
otherwise noted therein.
Section 4.7 Absence of Certain Changes or Events. Except as set forth in
the Rent-Way SEC Reports or the Rent-Way Disclosure Letter, since September 30,
1997, Rent-Way has not: (a) taken any of the actions set forth in Section
6.2(b), 6.2(c) or 6.2(e) hereof; (b) suffered any material adverse change in the
business, financial condition, results of operations, properties, assets or
liabilities of Rent-Way or the Rent-Way Subsidiaries taken as a whole; or (c)
subsequent to such date, except as permitted by Section 6.2 hereof, conducted
its business and operations other than in the ordinary course of business and
consistent with past practices.
Section 4.8 Litigation. Except for litigation disclosed in (i) the notes to
the financial statements included in Rent-Way's Annual Report to Stockholders
for the year ended September 30, 1997 or (ii) the Rent-Way SEC Reports, there is
no suit, action or proceeding pending or, to the best of Rent-Way's knowledge,
threatened against or affecting Rent-Way, the outcome of which would
individually or in the aggregate have a Rent-Way Material Adverse Effect; nor is
there any judgment, decree, injunction, citation, settlement agreement, rule or
order of any federal, regional, state or local political subdivision, any
governmental or administrative body, instrumentality, department or agency or
any court, administrative hearing body, commission or similar dispute resolving
panel or body, or any other body exercising the executive, legislative,
judicial, regulatory or
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administrative functions of a government (collectively, a "Governmental
Authority") outstanding against Rent-Way having, or which, insofar as can
reasonably be foreseen, in the future may have, any such effect.
Section 4.9 Contracts and Commitments. Except as disclosed in the Rent-Way
SEC Reports or in the Rent-Way Disclosure Letter, neither Rent-Way nor any
Rent-Way Subsidiary is a party to or is bound by any of the following:
(i) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC);
(ii) any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner in
which, or the localities in which, the business of Rent-Way and the
Rent-Way Subsidiaries (including, for purposes of this Section 4.9, HCI and
the HCI Subsidiaries (as hereinafter defined), assuming the Merger has been
consummated) is or would be conducted; or
(iii) any contract or other agreement which would prohibit or
materially delay the consummation of the Merger or any of the other
transactions contemplated hereby (all such contracts of the type described
in clauses (i), (ii) and (iii) of this Section 4.9 being referred to herein
as "Rent-Way Material Contracts").
Each Rent-Way Material Contract is valid and binding on Rent-Way or, to the
extent that a Rent-Way Subsidiary is a party, such Rent-Way Subsidiary, and is
in full force and effect, and Rent-Way and each Rent-Way Subsidiary has in all
material respects performed all obligations to be performed by them to date
under each Rent-Way Material Contract, except where such nonperformance,
individually or in the aggregate, would not have a Rent-Way Material Adverse
Effect. Neither Rent-Way nor any Rent-Way Subsidiary knows of, or has received
notice of, any violation or default under (nor, to the knowledge of Rent-Way,
does there exist any condition which with the passage of time or the giving of
notice or both would result in such a violation or default under) any Rent-Way
Material Contract.
Section 4.10 Information in Disclosure Documents and Registration
Statement. None of the information to be supplied by Rent-Way for inclusion or
incorporation by reference in (a) the Registration Statement to be filed with
the SEC by Rent-Way on Form S-4 under the Securities Act for the purpose of
registering the offering of the Rent-Way Shares to be issued in the Merger (the
"Registration Statement") or (b) the joint proxy statement/prospectus to be
distributed in connection with Rent-Way's meeting of shareholders and HCI's
meeting of stockholders at which meetings this Agreement will be voted upon (the
"Proxy Statement") will, in the case of the Registration Statement, at the time
it becomes effective and at the Effective Time or, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments thereof or supplements thereto
and at the time of the meetings of shareholders and stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading, except that no representation or warranty is made
by Rent-Way with respect to statements made or incorporated by reference therein
based on written information supplied by HCI specifically for inclusion or
incorporation by reference in the Registration Statement or the Proxy Statement.
The Registration Statement and the Proxy Statement will comply as to form in all
material respects with the provisions of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations promulgated thereunder.
Section 4.11 Absence of Undisclosed Liabilities. Except for liabilities or
obligations which (i) are accrued or reserved against in Rent-Way's financial
statements (or reflected in the notes thereto) included in the Rent-Way SEC
Reports, or (ii) were incurred after September 30, 1997 in the ordinary course
of business and consistent in type and amount with past practices, neither
Rent-Way nor any Rent-Way Subsidiary has any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of a nature required by GAAP to be
reflected in a corporate balance sheet or the notes thereto.
Section 4.12 No Default. Neither Rent-Way nor any Rent-Way Subsidiary is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (a) its Articles of Incorporation or By-Laws, (b) any note,
bond, mortgage, indenture, license, agreement, contract, lease, commitment or
other obligation to which Rent-Way or any of the Rent-Way Subsidiaries is a
party or by which it or any of its properties or assets may be bound, or (c) any
order,
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writ, injunction, decree, statute, rule or regulation applicable to Rent-Way or
any of the Rent-Way Subsidiaries, except in the case of clauses (b) and (c)
above for defaults or violations which would not individually or in the
aggregate have a Rent-Way Material Adverse Effect.
Section 4.13 Tax Returns; Taxes.
(a) For purposes of this Agreement, "Tax" means any federal, state,
local or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental, customs
duty, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or not; "Tax Return" means any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto and any amendment thereto.
(b) Rent-Way has filed all Tax Returns that it has been required to file
to date and all such Tax Returns were correct and complete in all respects. All
Taxes owed by Rent-Way (whether or not shown on any Tax Return) which are due
and payable have been paid except for such Taxes as would not, individually or
in the aggregate, have a Rent-Way Material Adverse Effect. Rent-Way is not
currently the beneficiary of any extension of time within which to file any Tax
Return. No taxing authority in a jurisdiction where Rent-Way does not file Tax
Returns has claimed in writing that Rent-Way is or may be subject to taxation by
that jurisdiction.
(c) Rent-Way has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax liability of
Rent-Way either (i) claimed or raised by any taxing authority in writing or (ii)
as to which any shareholder or employee of Rent-Way responsible for Tax matters
of Rent-Way has knowledge based upon personal contact with any agent of such
authority.
(e) Rent-Way has not waived any statute of limitations with respect to
Taxes or agreed to any extension of time with respect to assessment of Taxes.
(f) All accounting periods and methods used by Rent-Way for Tax purposes
are permissible periods and methods, and Rent-Way is not required to make any
adjustments to its income under Section 481 of the Code in taxable years for
which Tax Returns have not yet been filed. Rent-Way has not filed a consent
under Section 341(f) of the Code concerning collapsible corporations. Rent-Way
has not made any payments, is not obligated to make any payments, and is not a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 280G of the Code.
Rent-Way is not a party to any Tax allocation or sharing agreement. Rent-Way (i)
has not been a member of an affiliated group filing a consolidated federal
income Tax return in any taxable year ending after September 30, 1993 and (ii)
has no liability for the Taxes of any person other than Rent-Way under Treasury
Regulation Section 1.1502-6 or any similar provision of state, local or foreign
law, as a transferee or successor, by contract, or otherwise.
(g) The unpaid Taxes of Rent-Way did not, as of September 30, 1997,
exceed the reserve for Taxes (excluding any reserve for deferred taxes
attributable to differences between the timing of income or deductions for tax
and financial accounting purposes) set forth on the balance sheet as of
September 30, 1997 (excluding any notes thereto) contained in the Rent-Way SEC
Reports.
(h) Neither Rent-Way nor any of the Rent-Way Subsidiaries has taken any
action or has notice of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a)(1)(A) of the Code.
(i) Rent-Way intends to continue the historic business of HCI and the
HCI Subsidiaries or to use a significant portion of the historic business assets
of HCI and the HCI Subsidiaries.
Section 4.14 Title to Properties; Encumbrances. Except as otherwise
provided in this Section 4.14, each of Rent-Way and the Rent-Way Subsidiaries
has good, valid and marketable title to, or a valid leasehold interest in, all
of its properties and assets (real, personal and mixed, tangible and
intangible), including, without limitation, all the properties and assets
reflected in the consolidated balance sheet of Rent-Way and the Rent-Way
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Subsidiaries as of September 30, 1997 included in Rent-Way's Annual Report on
Form 10-K for the period ended on such date (except for properties and assets
disposed of in the ordinary course of business and consistent with past
practices since September 30, 1997). None of such properties or assets are
subject to any liability, obligation, claim, lien, mortgage, pledge, security
interest, conditional sale agreement, charge or encumbrance of any kind (whether
absolute, accrued, contingent or otherwise), except for (i) minor imperfections
of title and encumbrances, if any, which are not substantial in amount, do not
materially detract from the value of the property or assets subject thereto and
do not impair the operations of Rent-Way, (ii) liens for Taxes that are not yet
due or that are being contested in good faith by appropriate proceedings and for
which adequate reserves have been established in accordance with GAAP, (iii)
mortgages on real property in an aggregate amount not greater than $50,000 and
(iv) with respect to leased property, the rights of the owner of such property.
Section 4.15 Compliance With Applicable Law. Each of Rent-Way and the
Rent-Way Subsidiaries is in compliance with all applicable laws (whether
statutory or otherwise), rules, regulations, orders, ordinances, judgments or
decrees of all governmental authorities (federal, state, local, or otherwise)
(collectively, "Applicable Law"), except where the failure to be in such
compliance would not individually or in the aggregate have a Rent-Way Material
Adverse Effect.
Section 4.16 Labor Matters.
(a) Neither Rent-Way nor any Rent-Way Subsidiary is a party to, or bound
by, any collective bargaining agreement with a labor union or labor
organization;
(b) There is no unfair labor practice or labor arbitration proceeding
pending or, to the knowledge of Rent-Way, threatened against Rent-Way or any of
the Rent-Way Subsidiaries relating to their business, except for such
proceedings which would not individually or in the aggregate have a Rent-Way
Material Adverse Effect; and
(c) To the knowledge of Rent-Way, there are no organizational efforts
with respect to the formation of a collective bargaining unit presently being
made or threatened involving employees of Rent-Way or any of the Rent-Way
Subsidiaries.
Section 4.17 Employee Benefit Plans; ERISA.
(a) With respect to each material bonus, deferred compensation,
incentive compensation, stock purchase, stock option, severance or termination
pay, hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement (including but not limited to employment agreements) or arrangement,
currently maintained or contributed to or required to be contributed to by (i)
Rent-Way or (ii) any Rent-Way Subsidiaries (the "Rent-Way Plans"), for the
benefit of any employee or former employee of Rent-Way or any Rent-Way
Subsidiary, Rent-Way has heretofore delivered to HCI true and complete copies of
each of the following documents:
(i) a copy of each written Rent-Way Plan (including all written
amendments thereto);
(ii) a copy of the annual report and actuarial report, if required
under the Employee Retirement Income Security Act of 1974, as amended, and
the rules and regulations promulgated thereunder ("ERISA"), with respect to
each such Rent-Way Plan for the last two plan years ending prior to the
date hereof;
(iii) a copy of the most recent Summary Plan Description, together
with each Summary of Material Modifications, if required under ERISA, with
respect to such Rent-Way Plan;
(iv) if the Rent-Way Plan is funded through a trust or any other third
Party funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements with
respect to the last reporting period ended immediately prior to the date
hereof; and
(v) the most recent determination letter received prior to the date
hereof from the Internal Revenue Service with respect to each Rent-Way Plan
intended to qualify under section 401 of the Code.
(b) No liability under Title IV of ERISA has been incurred by Rent-Way,
any Rent-Way Subsidiary, or any trade or business, whether or not incorporated,
that together with Rent-Way is a "single employer" within the
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meaning of section 4001 of ERISA (any "Rent-Way ERISA Affiliate") that has not
been satisfied in full when due, and no condition exists that presents a
material risk to Rent-Way, any Rent-Way Subsidiary or any Rent-Way ERISA
Affiliate of incurring a liability under such Title which would individually or
in the aggregate have a Rent-Way Material Adverse Effect or give rise to a lien
under Title IV of ERISA.
(c) No Rent-Way Plan subject to the minimum funding requirements of
section 412 of the Code or section 302 of ERISA or any trust established
thereunder has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of such Rent-Way Plan ended prior to
the date hereof; and all contributions required to be made with respect thereto
(whether pursuant to the terms of any such Rent-Way Plan or otherwise) on or
prior to the date hereof have been timely made.
(d) No Rent-Way Plan is a "multiemployer pension plan," as defined in
section 3(37) of ERISA, nor is any Rent-Way Plan a plan described in Section
4063(a) of ERISA.
(e) Each Rent-Way Plan intended to be "qualified" within the meaning of
section 401(a) of the Code either, (i) has received a favorable determination
letter from the Internal Revenue Service as to its qualification and, to the
knowledge of Rent-Way, no amendment has been made to any such Rent-Way Plan
since the date of such letter that is likely to result in the disqualification
of such Rent-Way Plan or (ii) is a standardized prototype plan, the form of
which has been approved by the Internal Revenue Service.
(f) Each of the Rent-Way Plans has been operated and administered in all
respects in accordance with Applicable Law, including, but not limited to, ERISA
and the Code, except for any failure to so operate or administer such Rent-Way
Plans that would not individually or in the aggregate have a Rent-Way Material
Adverse Effect.
(g) Neither the execution and delivery of this Agreement nor the Merger
nor the consummation of any of the other transactions contemplated by this
Agreement will:
(i) entitle any current or former officer, director, employee or
consultant of Rent-Way to severance pay, unemployment compensation or any
other payment, or
(ii) accelerate the time of payment or vesting, or increase the amount
of compensation due any such officer, director, employee or consultant.
(h) With respect to each Rent-Way Plan that is funded wholly or
partially through an insurance policy, Rent-Way and the Rent-Way Subsidiaries do
not have any current liability under any such insurance policy in the nature of
a retroactive rate adjustment or loss sharing arrangement arising wholly or
partially out of events occurring prior to the Closing other than any such
liability that individually or in the aggregate would not have a Rent-Way
Material Adverse Effect.
(i) There are no pending or, to the knowledge of Rent-Way, threatened
claims by or on behalf of any of the Rent-Way Plans, by any employee or
beneficiary covered under any such Rent-Way Plan involving any such Rent-Way
Plan (other than routine claims for benefits), other than any such claims that
would not individually or in the aggregate have a Rent-Way Material Adverse
Effect.
(j) Neither Rent-Way nor any Rent-Way Subsidiary or, to the knowledge of
Rent-Way, any Rent-Way ERISA Affiliate, any of the Rent-Way Plans, any trust
created thereunder, or any trustee or administrator thereof has engaged in a
transaction in connection with which Rent-Way or any Rent-Way Subsidiary or, to
the knowledge of Rent-Way, any Rent-Way ERISA Affiliate, any of the Rent-Way
Plans, any such trust, or any trustee or administrator thereof, or any party
dealing with the Rent-Way Plans or any such trust is likely to be subject to
either a civil liability under section 409 of ERISA or section 502(i) of ERISA,
or a tax imposed pursuant to section 4975 or 4976 of the Code, other than any
such liability or tax that would not individually or in the aggregate have a
Rent-Way Material Adverse Effect.
Section 4.18 Vote Required. Authorization of the Merger, the Amendment and
the issuance of the Rent-Way Shares to be issued in the Merger shall require the
affirmative vote of the holders of a majority of Rent-Way Common Stock voted at
the shareholders' meeting referred to in Section 7.4(b). No other vote of the
shareholders
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of Rent-Way is required by law, the Articles of Incorporation or By-Laws of
Rent-Way or otherwise in order for Rent-Way to consummate the Merger and the
transactions contemplated hereby.
Section 4.19 Vote of Board; Opinion of Financial Advisor. The Board of
Directors of Rent-Way (at a meeting duly called and held) has unanimously
determined that the transactions contemplated hereby are fair to and in the best
interests of Rent-Way. The Board of Directors of Rent-Way has received the
opinion of NationsBanc Montgomery Securities LLC ("NBM"), Rent-Way's financial
advisor, substantially to the effect that the Exchange Ratio is fair to the
shareholders of Rent-Way from a financial point of view.
Section 4.20 Takeover Status. The Board of Directors of Rent-Way has taken
all appropriate action so that the execution and delivery of this Agreement and
the Rent-Way Option Agreement and the consummation of the Merger and the other
transactions contemplated thereby will not be restricted by, or otherwise
subject to, the provisions of Section 2538 and Subchapters 25E, 25F, 25G and 25H
of the Pennsylvania Business Corporation Law.
Section 4.21 Accounting Matters. To Rent-Way's knowledge, neither Rent-Way
nor any of the Rent-Way Subsidiaries has taken or agreed to take any action that
would prevent the business combination to be effected by the Merger from being
accounted for as a pooling of interests and Rent-Way has no reason to believe
that the Merger will not qualify for pooling of interest accounting.
Section 4.22 Brokers. Except for NBM, Rent-Way's financial advisor, no
broker, finder or financial advisor is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Rent-Way, and Rent-Way's fee arrangements with NBM have been disclosed to HCI.
Section 4.23 Environmental Matters. Except as set forth in Section 4.23 to
the Rent-Way Disclosure Letter or except as to matters previously remediated in
accordance with Applicable Law, none of Rent-Way or any Rent-Way Subsidiaries
or, to Rent-Way's knowledge, any other person has caused or permitted (a) the
presence of any Hazardous Materials (as hereinafter defined) at, in, on, or
under any of Rent-Way's properties in any amount, form, or location that would
be unlawful, require investigation, notification of Government Authorities, or
remedial action, or otherwise result in potential material liabilities under any
applicable local, state, or federal environmental laws, or (b) any spills,
releases, discharges or disposal of Hazardous Materials to have occurred or be
presently occurring on or from Rent-Way's properties or at any other location as
a result of any construction on or operation and use of such properties, which
presence of occurrence would, individually or in the aggregate, have or is
reasonably likely to have a Rent-Way Material Adverse Effect; and in connection
with the use of Rent-Way's properties, Rent-Way and the Rent-Way Subsidiaries
have not failed to comply in any material respect with all applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, use, recycling, reuse, sale,
storage, handling, transport and disposal of any Hazardous Materials. "Hazardous
Materials" means those substances, materials, and items, in any form, whether
solid, liquid, gaseous, semisolid, or any combination thereof, whether waste
materials, raw materials, chemicals, finished products, byproducts, or any other
material or article, which are regulated by or form the basis of liability under
federal, state or local environmental, health, and safety statutes or
regulations including, without limitation, hazardous wastes, hazardous
substances, pollutants, contaminants, asbestos, polychlorinated biphyenyls,
petroleum (including, but not limited to, crude oil, petroleum-derived
substances, waste, or breakdown or decomposition products thereof or any
fraction thereof), and radioactive substances.
Section 4.24 Insurance. Rent-Way maintains fire and casualty, general
liability and product liability insurance policies with reputable insurance
carriers, which Rent-Way reasonably believes provide full and adequate coverage
for all normal risks incident to the business of Rent-Way and the Rent-Way
Subsidiaries and their respective properties and assets.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HCI
Except as otherwise disclosed to Rent-Way in a letter delivered to it prior
to the execution hereof (which letter shall contain appropriate references to
identify the representations and warranties herein to which the
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information in such letter relates) (the "HCI Disclosure Letter"), HCI
represents and warrants to Rent-Way as follows:
Section 5.1 Organization. HCI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to carry on its business as it is now being conducted or
presently proposed to be conducted. HCI is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not, individually or in the aggregate, have a HCI Material
Adverse Effect (as hereinafter defined). HCI has delivered to Rent-Way prior to
the execution of this Agreement complete and correct copies of its Certificate
of Incorporation and By-laws, as amended to date. In all material respects, the
minute books of HCI contain accurate records of all meetings and accurately
reflect all other actions taken by the stockholders, the Board of Directors and
all committees of the Board of Directors of HCI since April 24, 1998. For
purposes of this Agreement, an "HCI Material Adverse Effect" shall mean any
effect that is material and adverse to the business, assets, liabilities,
results of operations or financial condition of HCI and the HCI Subsidiaries
taken as a whole; provided, that a HCI Material Adverse Effect shall not be
deemed to include the impact of (i) changes in Applicable Law of general
applicability or implementation thereof by courts or Governmental Authorities,
(ii) acts or omissions of Rent-Way or any Rent-Way Subsidiary taken with the
prior written consent of HCI in contemplation of the transactions contemplated
hereby, (iii) circumstances affecting the rental-purchase industry generally,
and (iv) the effects of the Merger and the compliance by either Party with the
provisions of this Agreement on the business, assets, liabilities, results of
operations or financial condition of HCI or any HCI Subsidiary.
Section 5.2 Capitalization. The authorized capital stock of HCI consists of
100,000,000 Shares, and 25,000,000 shares of preferred stock, par value $.01 per
share. As of August 28, 1998, (i) 17,025,668 Shares were issued and outstanding,
(ii) stock options to acquire 1,276,588 Shares (the "HCI Stock Options") were
outstanding under all stock option plans of HCI (collectively, the "HCI Stock
Option Plans"), and (iii) 2,926,948 Shares were originally reserved for issuance
in connection with the HCI Stock Option Plans. Section 5.2 of the HCI Disclosure
Letter sets forth a complete and correct list, as of August 31, 1998, of the
number of shares of HCI Common Stock subject to HCI Stock Options or other
rights to purchase or to receive HCI Common Stock granted under the HCI Stock
Option Plans, the dates of grant and the exercise prices thereof. As of August
31, 1998, HCI had no treasury shares and no Shares were held by HCI
Subsidiaries. All of the issued and outstanding Shares are validly issued, fully
paid and nonassessable and free of preemptive rights. Except as set forth in
this Agreement and except as set forth in the HCI Option Agreement (as
hereinafter defined), there are not now, and at the Effective Time there will
not be, any shares of capital stock of HCI issued or outstanding or any options,
warrants, subscriptions, calls, rights, convertible securities or other
agreements or commitments obligating HCI to issue, transfer, sell, redeem,
repurchase or otherwise acquire any shares of its capital stock. Except as set
forth in this Agreement and the HCI Option Agreement, after the Effective Time,
HCI will have no obligation to issue, transfer or sell any shares of its capital
stock pursuant to any employee benefit plan or otherwise. Other than the
agreements contemplated by this Agreement and the HCI Option Agreement, there
are not now, and at the Effective Time there will not be, any voting trusts,
standstill, stockholder or other agreements or understandings to which HCI is a
party or is bound with respect to the voting of, requiring the registration of,
or granting any preemptive rights or antidilution rights with respect to, the
capital stock of HCI.
Section 5.3 Subsidiaries. Section 5.3 of the HCI Disclosure Letter lists
all corporations, partnerships, joint ventures and other business associations
and entities, foreign and domestic, in which HCI has any direct or indirect
ownership or economic interest. Such corporations, partnerships, joint ventures
or other business entities of which HCI owns, directly or indirectly, greater
than 50% of the shares of capital stock or other equity interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to cast at least a majority of the votes that may be cast by all
shares or equity interests having ordinary voting power for the election of
directors or other governing body of such entity are hereinafter referred to as
the "HCI Subsidiaries".
(a) Each HCI Subsidiary that is a corporation is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each HCI Subsidiary that is a partnership or a
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limited liability company is duly formed, validly existing and in good standing
under the laws of its jurisdiction of formation.
(b) Each HCI Subsidiary has the corporate power, the partnership power
or the company power, as the case may be, to carry on its business as it is now
being conducted or presently proposed to be conducted.
(c) Each HCI Subsidiary that is a corporation is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate have
an HCI Material Adverse Effect. Each HCI Subsidiary that is a partnership is
duly qualified as a foreign partnership authorized to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not individually or
in the aggregate have an HCI Material Adverse Effect. Each HCI subsidiary that
is a limited liability company is duly qualified as a foreign limited liability
company authorized to do business, and is in good standing, in each jurisdiction
where the character of its properties owned or held under lease or the nature of
its activities makes such qualification necessary, except where the failure to
be so qualified would not individually or in the aggregate have an HCI Material
Adverse Effect.
(d) All of the outstanding shares of capital stock of the HCI
Subsidiaries that are corporations are duly authorized, validly issued, fully
paid and nonassessable and are free of preemptive rights. All of the outstanding
ownership interests of the HCI Subsidiaries that are partnerships or limited
liability companies are duly authorized, validly issued, fully paid and
nonassessable and are free of preemptive rights.
(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the HCI Subsidiaries owned by HCI or an HCI
Subsidiary are owned by HCI or by an HCI Subsidiary free and clear of any liens,
claims, charges or encumbrances. Except as set forth in Section 5.2 hereof,
there are not now, and at the Effective Time there will not be, any outstanding
options, warrants, subscriptions, calls, rights, convertible securities or other
agreements or commitments obligating HCI or any HCI Subsidiary to issue,
transfer or sell any securities of HCI or any HCI Subsidiary.
(f) Other than agreements contemplated by this Agreement and except as
disclosed in Section 5.3 of the HCI Disclosure Letter, there are not now, and at
the Effective Time there will not be, any voting trusts, standstill, stockholder
or other agreements or understandings to which HCI or any of the HCI
Subsidiaries is a party or is bound with respect to the voting of, requiring the
registration of, or granting any preemptive rights or antidilution rights with
respect to, the capital stock of HCI or any of the HCI Subsidiaries.
Section 5.4 Authority Relative To This Agreement. HCI has the corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation by HCI of the
transactions contemplated hereby have been duly authorized by HCI's Board of
Directors and, except for the approval of HCI's stockholders to be sought at the
stockholders meeting contemplated by Section 7.4(a) hereof, no other corporate
action or proceedings on the part of HCI are necessary to authorize this
Agreement or the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by HCI and constitutes a valid and binding
agreement of HCI, enforceable against HCI in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally or to general
principles of equity.
Section 5.5 Consents and Approvals; No Violations. Except for applicable
requirements of the HSR Act, the Securities Act, the Exchange Act, state laws
relating to takeovers, if applicable, state securities or blue sky laws, and the
filing and recordation of an appropriate certificate of Merger (the "Certificate
of Merger") as required by the Delaware General Corporation Law (the "DGCL"), no
filing with, and no permit, authorization, consent or approval of, any
Governmental Authority is necessary for the consummation by HCI of the
transactions contemplated by this Agreement, except for such filings, permits,
authorizations, consents or approvals the failure of which to be made or
obtained would not individually or in the aggregate have an HCI Material Adverse
Effect. Neither the execution and delivery of this Agreement by HCI, nor the
consummation by HCI of the transactions
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contemplated hereby, nor compliance by HCI with any of the provisions hereof,
will (a) conflict with or result in any breach of any provisions of the
Certificate of Incorporation or By-Laws of HCI or any of the HCI Subsidiaries,
(b) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, contract,
agreement or other instrument or obligation to which HCI or any of the HCI
Subsidiaries is a Party or by which any of them or any of their properties or
assets may be bound, or (c) violate any other, writ, injunction, decree,
statute, rule or regulation applicable to HCI, any of the HCI Subsidiaries or
any of their properties or assets, except in the case of clauses (b) and (c) for
violations, breaches or defaults which would not individually or in the
aggregate have an HCI Material Adverse Effect.
Section 5.6 Reports and Financial Statements. HCI has timely filed all
reports required to be filed with the SEC pursuant to the Exchange Act since
January 1, 1998 (collectively, the "HCI SEC Reports"). As of their respective
dates, the HCI SEC Reports complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
HCI SEC Reports. None of such HCI SEC Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Each
of the audited balance sheets of HCI and the related audited statements of
operations, stockholders equity and cash flows and unaudited interim financial
statements included in the HCI SEC Reports complied as to form, as of their
respective dates of filing with the SEC, in all material respects, with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and fairly presented the consolidated financial
position and the results of operations and the changes in financial position of
HCI and its consolidated subsidiaries as of the respective dates or for the
respective periods set forth therein, all in conformity with GAAP consistently
applied during the periods involved, except as otherwise noted therein.
Section 5.7 Absence of Certain Changes or Events. Except as set forth in
the HCI SEC Reports or the HCI Disclosure Letter, since December 31, 1997,
neither HCI nor any of the HCI Subsidiaries has: (a) taken any of the actions
set forth in Section 6.1(b), 6.1(c) or 6.1(e) hereof; (b) suffered any material
adverse change in the business, financial condition, results of operations,
properties, assets or liabilities of HCI and the HCI Subsidiaries taken as a
whole; or (c) subsequent to such date, except as permitted by Section 6.1
hereof, conducted its business and operations other than in the ordinary course
of business and consistent with past practices.
Section 5.8 Litigation. Except for litigation disclosed in (i) the notes to
the financial statements included in HCI's Annual Report to Stockholders for the
year ended December 31, 1997 or (ii) the HCI SEC Reports, there is no suit,
action or proceeding pending or, to the best of HCI's knowledge, threatened
against or affecting HCI, the outcome of which would individually or in the
aggregate have an HCI Material Adverse Effect; nor is there any judgment,
decree, injunction, citation, settlement agreement, rule or order of any
Governmental Authority outstanding against HCI having, or which, insofar as can
reasonably be foreseen, in the future may have, any such effect.
Section 5.9 Contracts and Commitments. Except as disclosed in the HCI SEC
Reports or in the HCI Disclosure Letter, neither HCI nor any HCI Subsidiary is a
party to or is bound by any of the following:
(i) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC);
(ii) any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner in
which, or the localities in which, the business of HCI and the HCI
Subsidiaries (including, for purposes of this Section 5.9, Rent-Way and the
Rent-Way Subsidiaries, assuming the Merger has been consummated) is or
would be conducted; or
(iii) any contract or other agreement which would prohibit or
materially delay the consummation of the Merger or any of the other
transactions contemplated hereby (all such contracts of the type described
in clauses (i), (ii) and (iii) of this Section 5.9 being referred to herein
as "HCI Material Contracts").
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Each HCI Material Contract is valid and binding on HCI (or, to the extent that
an HCI Subsidiary is a party, such HCI Subsidiary) and is in full force and
effect, and HCI and each HCI Subsidiary has in all material respects performed
all obligations to be performed by them to date under each HCI Material
Contract, except where such non-performance, individually or in the aggregate,
would not have an HCI Material Adverse Effect. Neither HCI nor any HCI
Subsidiary knows of, or has received notice of, any violation or default under
(nor, to the knowledge of HCI, does there exist any condition which with the
passage of time or the giving of notice or both would result in such a violation
or default under) any HCI Material Contract.
Section 5.10 Information in Disclosure Documents and Registration
Statement. None of the information to be supplied by HCI for inclusion or
incorporation by reference in the Proxy Statement or the Registration Statement
will, in the case of the Registration Statement, at the time it becomes
effective and at the Effective Time or, in the case of the Proxy Statement or
any amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments thereof or supplements thereto and at the
time of the meetings of stockholders to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they made, not misleading,
except that no representation or warranty is made by HCI with respect to
statements made or incorporated by reference therein based on information
supplied by Rent-Way specifically for inclusion or incorporation by reference in
the Registration Statement or the Proxy Statement.
Section 5.11 Absence of Undisclosed Liabilities. Except for liabilities or
obligations which (i) are accrued or reserved against in HCI's financial
statements (or reflected in the notes thereto) included in the HCI SEC Reports,
or (ii) were incurred after December 31, 1997 in the ordinary course of business
and consistent in type and amount with past practices, neither HCI nor any HCI
Subsidiary has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of a nature required by GAAP to be reflected in a
corporate balance sheet or the notes thereto.
Section 5.12 No Default. Neither HCI nor any of the HCI Subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (a) its Certificate of Incorporation or By-Laws, (b) any note,
bond, mortgage, indenture, license, agreement, contract, lease, commitment or
other obligation to which HCI or any of the HCI Subsidiaries is a party or by
which it or any of its properties or assets may be bound, or (c) any order,
writ, injunction, decree, statute, rule or regulation applicable to HCI or any
of the HCI Subsidiaries, except in the case of clauses (b) and (c) above for
defaults or violations which would not individually or in the aggregate have an
HCI Material Adverse Effect.
Section 5.13 Tax Returns; Taxes.
(a) HCI has filed all Tax Returns that it has been required to file to
date and all such Tax Returns were correct and complete in all respects. All
Taxes owed by HCI (whether or not shown on any Tax Return) which are due and
payable have been paid except such Taxes as would not, individually or in the
aggregate, have an HCI Material Adverse Effect. HCI is not currently the
beneficiary of any extension of time within which to file any Tax Return. No
taxing authority in a jurisdiction where HCI does not file Tax Returns has
claimed in writing that HCI is or may be subject to taxation by that
jurisdiction.
(b) HCI has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(c) There is no dispute or claim concerning any Tax liability of HCI
either (i) claimed or raised by any taxing authority in writing or (ii) as to
which any shareholder or employee of HCI responsible for Tax matters of HCI has
knowledge based upon personal contact with any agent of such authority.
(d) HCI has not waived any statute of limitations with respect to Taxes
or agreed to any extension of time with respect to assessment of Taxes.
(e) All accounting periods and methods used by HCI for Tax purposes are
permissible periods and methods, and HCI is not required to make any adjustments
to its income under Section 481 of the Code in taxable
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years for which Tax Returns have not yet been filed. HCI has not filed a consent
under Section 341(f) of the Code concerning collapsible corporations. HCI has
not made nay payments, is not obligated to make any payments, and is not a party
to any agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Section 28OG of the Code. HCI is not
a party to any Tax allocation or sharing agreement. HCI (or its predecessors)
(i) has not been a member of an affiliated group filing a consolidated federal
income Tax return in any taxable year ending after December 31, 1993 and (ii)
has no liability for the Taxes of any person other than HCI under Treasury
Regulation Section 1.1502-6 or any similar provision of state, local or foreign
law, as a transferee or successor, by contract, or otherwise.
(f) The unpaid Taxes of HCI did not, as of December 31, 1997, exceed the
reserve for Taxes (excluding any reserve for deferred taxes attributable to
differences between the timing of income or deductions for tax and financial
accounting purposes) set forth on the balance sheet as of December 31, 1997
(excluding any notes thereto) contained in the HCI Financial Statements.
(g) Neither HCI nor any of the HCI Subsidiaries has taken any action or
has notice of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code.
Section 5.14 Title To Properties; Encumbrances. Except as otherwise
provided in this Section 5.14, each of HCI and the HCI Subsidiaries has good,
valid and marketable title to, or a valid leasehold interest in, all of its
properties and assets (real, personal and mixed, tangible and intangible),
including, without limitation, all the properties and assets reflected in the
consolidated balance sheet of HCI and the HCI Subsidiaries as of December 31,
1997 included in HCI's Annual Report on Form 10-K for the period ended on such
date (except for properties and assets disposed of in the ordinary course of
business and consistent with past practices since December 31, 1997). None of
such properties or assets are subject to any liability, obligation, claim, lien,
mortgage, pledge, security interest, conditional sale agreement, charge or
encumbrance of any kind (whether absolute, accrued, contingent or otherwise),
except for (i) minor imperfections of title and encumbrances, if any, which are
not substantial in amount, do not materially detract from the value of the
property or assets subject thereto, and do not impair the operations of HCI and
the HCI Subsidiaries, (ii) liens for Taxes that are not yet due or that are
being contested in good faith by appropriate proceedings and for which adequate
reserves have been established in accordance with GAAP, (iii) mortgages on real
property in an aggregate amount not greater than $50,000, and (iv) with respect
to leased property, the rights of the owner of such property.
Section 5.15 Compliance with Applicable Laws. Each of HCI and the HCI
Subsidiaries is in compliance with Applicable Law, except where the failure to
be in such compliance would not individually or in the aggregate have an HCI
Material Adverse Effect.
Section 5.16 Labor Matters.
(a) Neither HCI nor any of the HCI Subsidiaries is a party to, or bound
by, any collective bargaining agreement with a labor union or labor
organization;
(b) There is no unfair labor practice or labor arbitration proceeding
pending or, to the knowledge of HCI, threatened against HCI or any of the HCI
Subsidiaries relating to their business, except for any such proceeding which
would not individually or in the aggregate have an HCI Material Adverse Effect;
and
(c) To the knowledge of HCI, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened involving employees of HCI or any of the HCI Subsidiaries.
Section 5.17 Employee Benefit Plans; ERISA.
(a) With respect to each material bonus, deferred compensation,
incentive compensation, stock purchase, stock option, severance or termination
pay, hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement (including, but not limited to, employment agreements) or arrangement,
currently maintained or contributed to or required to be contributed to by (i)
HCI or (ii) any HCI Subsidiary for the benefit of any employee or former
employee of HCI or any HCI
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Subsidiary (the "HCI Plans"), HCI has heretofore delivered to Rent-Way true and
complete copies of each of the following documents:
(i) a copy of each written HCI Plan (including all written amendments
thereto);
(ii) a copy of the annual report and actuarial report, if required
under ERISA, with respect to each such HCI Plan for the last two plan years
ending prior to the date hereof;
(iii) a copy of the most recent Summary Plan Description, together
with each Summary of Material Modifications, if required under ERISA, with
respect to such HCI Plan;
(iv) if the HCI Plan is funded through a trust or any other third
Party funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements with
respect to the last reporting period ended immediately prior to the date
hereof; and
(v) the most recent determination letter received prior to the date
hereof from the Internal Revenue Service with respect to each HCI Plan
intended to qualify under section 401 of the Code.
(b) No liability under Title IV of ERISA has been incurred by HCI, any
HCI Subsidiary, or any trade or business, whether or not incorporated that
together with HCI or any HCI Subsidiary is a "single employer" within the
meaning of section 4001 of ERISA (an "HCI ERISA Affiliate") that has not been
satisfied in full when due, and no condition exists that presents a material
risk to HCI, any HCI Subsidiary or any HCI ERISA Affiliate of incurring a
liability under such Title which would individually or in the aggregate have an
HCI Material Adverse Effect, or give rise to a lien under Title IV of ERISA.
(c) No HCI Plan subject to the minimum funding requirements of section
412 of the Code or section 302 of ERISA or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of such HCI Plan ended prior to the date hereof; and
all contributions required to be made with respect thereto (whether pursuant to
the terms of any such HCI Plan or otherwise) on or prior to the date hereof have
been timely made.
(d) No HCI Plan is a "multiemployer pension plan," as defined in section
3(37) of ERISA, nor is any HCI Plan a plan described in section 4063(a) of
ERISA.
(e) Each HCI Plan intended to be "qualified" within the meaning of
section 401(a) of the Code either (i) has received a favorable determination
letter from the Internal Revenue Service as to its qualification and, to the
knowledge of HCI, no amendment has been made to any such HCI Plan since the date
of such letter that is likely to result in the disqualification of such HCI Plan
or (ii) is a standardized prototype plan, the form of which has been approved by
the Internal Revenue Service.
(f) Each of the HCI Plans has been operated and administered in all
respects in accordance with Applicable Law, including, but not limited to, ERISA
and the Code, except for any failure to so operate or administer such HCI Plans
that would not individually or in the aggregate have an HCI Material Adverse
Effect.
(g) Except as expressly provided in the HCI Disclosure Letter, neither
the execution and delivery of this Agreement nor the Merger nor the consummation
of any of the transactions contemplated by this Agreement will:
(i) entitle any current or former officer, director, employee or
consultant of HCI or any HCI Subsidiary to severance pay, unemployment
compensation or any other payment, or
(ii) accelerate the time of payment or vesting or increase the amount
of compensation due any such officer, director, employee or consultant.
(h) With respect to each HCI Plan that is funded wholly or partially
through an insurance policy, HCI and the HCI Subsidiaries do not have any
current liability under any such insurance policy in the nature of a retroactive
rate adjustment or loss sharing arrangement arising wholly or partially out of
events occurring prior to the Closing other than any such liability that
individually or in the aggregate would not have an HCI Material Adverse Effect.
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(i) There are no pending or, to the knowledge of HCI, threatened claims
by or on behalf of any of the HCI Plans, by any employee or beneficiary covered
under any such HCI Plan involving any such HCI Plan (other than routine claims
for benefits), other than any such claims that would not individually or in the
aggregate have an HCI Material Adverse Effect.
(j) Neither HCI nor any HCI Subsidiary or, to the knowledge of HCI, any
HCI ERISA Affiliate, any of the HCI Plans, any trust created thereunder, or any
trustee or administrator thereof has engaged in a transaction in connection with
which HCI or any HCI Subsidiary or, to the knowledge of HCI, any HCI ERISA
Affiliate, any of the HCI Plans, any such trust or trustee or administrator
thereof, or any Party dealing with the HCI Plans or any such trust is likely to
be subject to either a civil liability under section 409 of ERISA or section
502(i) of ERISA, or a tax imposed pursuant to section 4975 or 4976 of the Code
other than any such liability or tax that would not individually or in the
aggregate have an HCI Material Adverse Effect.
Section 5.18 Vote Required. Approval of the Merger by the stockholders of
HCI shall require the affirmative vote of the holders of a majority of the
outstanding Shares at the stockholders' meeting referred to in Section 7.4(a).
No other vote of the stockholders of HCI is required by law, the Certificate of
Incorporation or By-Laws of HCI or otherwise in order for HCI to consummate the
Merger and the transactions contemplated hereby.
Section 5.19 Vote of Board; Opinion of Financial Advisor. The Board of
Directors of HCI (at a meeting duly called and held) has unanimously determined
that the transactions contemplated hereby are fair to and in the best interests
of HCI. The Board of Directors of HCI has received the opinions of Donaldson,
Lufkin & Jenrette Securities Corporation and Stephens, Inc., HCI's financial
advisors, each substantially to the effect that the Exchange Ratio is fair to
the stockholders of HCI from a financial point of view.
Section 5.20 Takeover Status. The Board of Directors of HCI has taken all
appropriate action so that Rent-Way will not be an "interested stockholder"
within the meaning of Section 203 of the DGCL by virtue of the execution and
delivery of this Agreement or the HCI Option Agreement or the consummation of
the Merger or any of the other transactions contemplated hereby.
Section 5.21 Accounting Matters. To its knowledge, neither HCI nor any of
the HCI Subsidiaries has taken or agreed to take any action that would prevent
the business combination to be effected by the Merger from being accounted for
as a pooling of interests and HCI has no reason to believe that the Merger will
not qualify for pooling of interest accounting.
Section 5.22 Brokers. Except for Donaldson, Lufkin & Jenrette Securities
Corporation and Stephens, Inc., HCI's financial advisors, no broker, finder or
financial advisor is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of HCI, and HCI's
fee arrangements with Donaldson, Lufkin & Jenrette Securities Corporation and
Stephens, Inc. have been disclosed to Rent-Way.
Section 5.23 Environmental Matters. Except as set forth in Section 5.23 to
the HCI Disclosure Letter or except as to matters previously remediated in
accordance with Applicable Law, none of HCI or any HCI Subsidiaries or, to HCI's
knowledge, any other person has caused or permitted (a) the presence of any
Hazardous Materials at, in, on, or under any of HCI's properties in any amount,
form, or location that would be unlawful, require investigation, notification of
Government Authorities, or remedial action, or otherwise result in potential
material liabilities under any applicable local, state, or federal environmental
laws, or (b) any spills, releases, discharges or disposal of Hazardous Materials
to have occurred or be presently occurring on or from HCI's properties or at any
other location as a result of any construction on or operation and use of such
properties, which presence or occurrence would, individually or in the
aggregate, have or is reasonably likely to have a HCI Material Adverse Effect;
and in connection with the use of HCI's properties, HCI and the HCI Subsidiaries
have not failed to comply in any material respect with all applicable local,
state and federal environmental laws, regulations, ordinances and administration
and judicial orders relating to the generation, use, recycling, reuse, sale,
storage, handling, transport and disposal of any Hazardous Materials.
Section 5.24 Insurance. HCI maintains fire and casualty, general liability,
product liability, and professional liability insurance policies with reputable
insurance carriers, which HCI reasonably believes provide full and
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adequate coverage for all normal risks incident to the business of HCI and the
HCI Subsidiaries and their respective properties and assets.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by HCI Pending the Merger. From the date of
this Agreement to the Effective Time, unless Rent-Way shall otherwise agree in
writing, or as otherwise contemplated by this Agreement, any Exhibit hereto or
the HCI Disclosure Letter:
(a) the respective businesses of HCI and the HCI Subsidiaries shall be
conducted only in the ordinary and usual course of business consistent with past
practices, and there shall be no material changes in the conduct of the
operations of HCI or any HCI Subsidiary;
(b) HCI shall not (i) sell or pledge or agree to sell or pledge any
stock owned by it in any of the HCI Subsidiaries; (ii) amend its Certificate of
Incorporation or By-Laws; or (iii) split, combine or reclassify any shares of
its outstanding capital stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property, or redeem or otherwise acquire
any shares of its capital stock or shares of the capital stock of any of the HCI
Subsidiaries;
(c) neither HCI nor any of the HCI Subsidiaries shall (i) authorize for
issuance, issue or sell any additional shares of, or rights of any kind to
acquire any shares of, its capital stock of any class (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) or grant any stock appreciation rights; (ii) acquire,
dispose of, transfer, lease, license, mortgage, pledge or encumber any fixed or
other assets in any one or series of related transactions that would require the
filing by HCI of a Current Report on Form 8-K pursuant to the Exchange Act or
would require that the Proxy Statement or Registration Statement include or
incorporate by reference financial statements of any business acquired pursuant
to Section 3-05 of Regulation S-X under the Securities Act; (iii) incur, assume
or prepay any indebtedness or any other material liabilities other than in the
ordinary course of business consistent with past practices; (iv) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any person other than an HCI
Subsidiary in the ordinary course of business consistent with past practices;
(v) make any loans, advances or capital contributions to, or investments in, any
other person, other than to HCI Subsidiaries and other than in the ordinary
course of business consistent with past practices; (vi) authorize capital
expenditures substantially in excess of the amount currently budgeted therefor;
(vii) permit any insurance policy naming HCI or any HCI Subsidiary as a
beneficiary or a loss payee to be canceled or terminated other than in the
ordinary course of business; or (viii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(d) HCI shall use commercially reasonable efforts to preserve intact the
business organization of HCI and the HCI Subsidiaries, to keep available the
services of its and their present officers and key employees, and to preserve
the goodwill of those having business relationships with it and the HCI
Subsidiaries;
(e) neither HCI nor any of the HCI Subsidiaries shall make any change in
the compensation payable or to become payable to any of its officers, directors
or employees, enter into or amend any employment, severance, termination or
other similar agreement, adopt any new HCI Plan or amend in any material respect
any existing HCI Plan, or make any loans to any of its officers, directors or
employees or make any changes in its existing borrowing or lending arrangement
for or on behalf of any of such persons, whether contingent on consummation of
the Merger or otherwise, other than (i) in the ordinary course of business
consistent with past practices and (ii) as may be required under Applicable Law
or the terms of any existing HCI Plan; and
(f) neither HCI nor any of the HCI Subsidiaries shall (i) knowingly take
or allow to be taken any action which would jeopardize the treatment of the
Merger as a pooling of interests for accounting purposes; or (ii) knowingly
take, or allow any party related to HCI within the meaning of Treas. Reg.
Section 1.368-1(e)(3) to take, any action that would jeopardize qualification of
the Merger as a reorganization within the meaning of section 368(a)(1)(A) of the
Code, including, but not limited to, the redemption or other acquisition of any
shares of capital stock of HCI or any HCI Subsidiary.
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Section 6.2 Conduct of Business by Rent-Way Pending the Merger. From the
date of this Agreement to the Effective Time, unless HCI shall otherwise agree
in writing, or as otherwise contemplated by this Agreement, any Exhibit hereto
or the Rent-Way Disclosure Letter:
(a) the businesses of Rent-Way and the Rent-Way Subsidiaries shall be
conducted only in the ordinary and usual course of business consistent with past
practices, and there shall be no material changes in the conduct of the
operations of Rent-Way or any Rent-Way Subsidiary;
(b) Rent-Way shall not (i) sell, pledge or agree to sell or pledge any
stock owned by it in any of the Rent-Way Subsidiaries, (ii) amend its Articles
of Incorporation or By-Laws or (iii) split, combine or reclassify any shares of
its outstanding capital stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property, or redeem or otherwise acquire
any shares of its capital stock or shares of the capital stock of any of the
Rent-Way Subsidiaries;
(c) Neither Rent-Way nor any of the Rent-Way Subsidiaries shall (i)
authorize for issuance, issue or sell any additional shares of, or rights of any
kind to acquire any shares of, its capital stock of any class (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise) or grant any stock appreciation rights, except
for the issuance of shares of Rent-Way Common Stock in connection with a
transaction permitted under clause (ii) of this Section 6.2(c); (ii) acquire,
dispose of, transfer, lease, license, mortgage, pledge or encumber any fixed or
other assets in any one or series of related transactions that would require the
filing by Rent-Way of a Current Report on Form 8-K pursuant to the Exchange Act
or required that the Proxy Statement or Registration Statement include or
incorporate by reference financial statements of any business acquired pursuant
to Section 3-05 of Regulation S-X under the Securities Act; (iii) incur, assume
or prepay any indebtedness or any other material liabilities other than in the
ordinary course of business consistent with past practices; (iv) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any person other than in the
ordinary course of business and consistent with past practices; (v) make any
loans, advances or capital contributions to, or investments in, any other
person, other than in the ordinary course of business and consistent with past
practices; (vi) authorize capital expenditures substantially in excess of the
amount currently budgeted therefor; (vii) permit any insurance policy naming
Rent-Way or any Rent-Way Subsidiary as a beneficiary or a loss payee to be
canceled or terminated other than in the ordinary course of business; or (viii)
enter into any contract, agreement, commitment or arrangement with respect to
any of the foregoing;
(d) Rent-Way shall use commercially reasonable efforts to preserve
intact the business organization of Rent-Way and the Rent-Way Subsidiaries, to
keep available the services of its and their present officers and key employees,
and to preserve the goodwill of those having business relationships with it and
the Rent-Way Subsidiaries;
(e) Neither Rent-Way nor any of the Rent-Way Subsidiaries shall make any
change in the compensation payable or to become payable to any of its officers,
directors or employees, enter into or amend any employment, severance,
termination or other similar agreement, adopt any new Rent-Way Plan or amend in
any material respect any existing Rent-Way Plan, or make any loans to any of its
officers, directors or employees or make any changes in its existing borrowing
or lending arrangement for or on behalf of any of such persons, whether
contingent on consummation of the Merger or otherwise, other than (i) in the
ordinary course of business and consistent with past practices and (ii) as may
be required under Applicable Law or the terms of any existing Rent-Way Plan; and
(f) Neither Rent-Way nor any of the Rent-Way Subsidiaries shall (i)
knowingly take or allow to be taken any action which would jeopardize the
treatment of the Merger as a pooling of interests for accounting purposes; or
(ii) knowingly take, or allow any party related to Rent-Way within the meaning
of Treas. Reg. Section 1.368-1(e)(3) to take, any action that would jeopardize
qualification of the Merger as a reorganization within the meaning of section
368(a)(1)(A) of the Code, including, but not limited to, the redemption or other
acquisition of any shares of HCI or any HCI Subsidiary other than as set forth
in Article III of this Agreement.
Section 6.3 Other Actions. Each of Rent-Way and HCI shall not, and shall
use commercially reasonable efforts to cause its respective subsidiaries not to,
take any action that would result in (i) any of the representations
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and warranties of such party become untrue or (ii) except as contemplated by
Section 7.2, any of the conditions to the Merger set forth in Article VIII not
being satisfied.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information. HCI and Rent-Way shall each afford to
the other and to the other's financial advisors, legal counsel, accountants,
consultants and other agents and representatives full access at all reasonable
times throughout the period prior to the Effective Time to all of its books,
records, properties and personnel and, during such period, each shall furnish
promptly to the other (a) a copy of each report, schedule and other document
filed or received by it pursuant to the requirements of federal or state
securities laws, and (b) all other information as such other Party may
reasonably request, provided that no investigation pursuant to this Section 7.1
shall affect any representations or warranties made herein or the conditions to
the obligations of the respective Parties to consummate the Merger. Each Party
and its affiliates, advisors, legal counsel, accountants, consultants and other
agents and representatives shall hold in confidence all nonpublic information in
accordance with the terms of the confidentiality letter agreement dated August
24, 1998 (the "Confidentiality Agreement") between HCI and Rent-Way and, if this
Agreement is terminated, each Party will deliver to the other documents, work
papers and other material (including copies) obtained by such Party or on its
behalf from the other Party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof, in
accordance with the terms of the Confidentiality Agreement.
Section 7.2 Acquisition Proposals.
(a) HCI shall not, nor shall HCI authorize or permit any officer,
director or employee of, or investment banker, attorney or other advisor or
representative or agent of, HCI or any HCI Subsidiary to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any Acquisition
Proposal (as hereinafter defined) or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action intended to facilitate any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal; provided, however, that nothing contained in this Section
7.2(a) shall prohibit HCI's Board of Directors (and its authorized
representatives) from furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Acquisition
Proposal if, and only to the extent that (A) HCI's Board of Directors, after
consultation with and based on the written opinion of outside legal counsel,
determines in good faith that in order for such HCI's Board of Directors to
comply with its fiduciary duties to stockholders under Applicable Law it should
take such action, (B) prior to taking such action, HCI receives from such person
or entity an executed agreement in reasonably customary form relating to the
confidentiality of information to be provided to such person or entity, and (C)
the Acquisition Proposal contains an offer of consideration that is superior to
the consideration represented by the Exchange Ratio.
Notwithstanding anything in this Agreement to the contrary, HCI shall
(i) promptly advise Rent-Way orally and in writing of (A) the receipt by it (or
any of the other entities or other persons referred to above) after the date
hereof of any Acquisition Proposal, or any inquiry which could reasonably be
expected to lead to any Acquisition Proposal, (B) the material terms and
conditions of such Acquisition Proposal or inquiry and (C) the identity of the
person making any such Acquisition Proposal or inquiry, (ii) keep Rent-Way
reasonably informed of the status and details of any such Acquisition Proposal
or inquiry, and (iii) negotiate with Rent-Way to make such adjustments in the
terms and conditions of this Agreement as would enable HCI to proceed with the
transactions contemplated herein. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the first
sentence of this Section 7.2 by any officer, director or employee of HCI or the
HCI Subsidiaries or any investment banker, attorney or other advisor,
representative or agent of HCI or the HCI Subsidiaries, whether or not such
person is purporting to act on behalf of HCI or otherwise, shall be deemed to be
a breach of this Section 7.2 by HCI. For purposes of this Agreement,
"Acquisition Proposal" means any bona fide proposal with respect to a merger,
consolidation, share exchange or similar transaction involving HCI or the HCI
Subsidiaries, or any purchase of all or any significant portion of the assets of
HCI or the HCI Subsidiaries other than the transactions contemplated hereby.
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(b) Except as set forth below, HCI's Board of Directors shall not (i)
withdraw, or modify in a manner materially adverse to Rent-Way, the approval or
recommendation by HCI's Board of Directors of this Agreement or the Merger, or
(ii) approve, recommend or cause HCI to enter into any agreement with respect to
any Acquisition Proposal. Notwithstanding the foregoing, if HCI receives an
unsolicited Acquisition Proposal and HCI's Board of Directors determines in good
faith, following consultation with and based on the written opinion of outside
legal counsel, that it is necessary to do so in order to comply with its
fiduciary duties to stockholders under Applicable Law, HCI's Board of Directors
may (w) withdraw or modify its approval or recommendation of this Agreement and
the Merger, (x) approve or recommend such Acquisition Proposal to HCI's
stockholders, (y) cause HCI to enter into an agreement with respect to such
Acquisition Proposal or (z) terminate this Agreement pursuant to Section 9.3(c);
provided, however, that prior to taking such action, HCI shall, and shall cause
its respective financial and legal advisors to, negotiate with Rent-Way to make
such adjustments in the terms and conditions of this Agreement as would enable
HCI to proceed with the transactions contemplated herein on such adjusted terms.
Notwithstanding anything contained in this Agreement to the contrary, any action
by the Board of Directors of HCI permitted by this Section 7.2(b) shall not
constitute a breach of this Agreement by HCI.
(c) If the Board of Directors of HCI takes any action described in
clause (y) or (z) of Section 7.2(b) or Rent-Way exercises its right to terminate
this Agreement under Section 9.4(d), based on HCI's Board of Directors having
taken any action described in clause (w), (x) or (y) of Section 7.2(b), HCI
shall, simultaneously with the taking of such action or upon such termination
pay to Rent-Way upon demand the sum of $10,000,000 plus all fees and expenses
incurred by Rent-Way in connection with the transactions contemplated by this
Agreement (including without limitation, investment bankers' fees and expenses),
payable in same-day funds, as liquidated damages and not as a penalty. If HCI
fails to pay to Rent-Way any amounts due under this Section 7.2(c), HCI shall
pay the costs and expenses (including reasonable legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other action,
taken by Rent-Way to collect payment, together with interest on the amount of
any unpaid fee at the publicly announced prime rate of Citibank, N.A. in effect
from time to time from the date such fee was required to be paid.
Section 7.3 Registration Statement; Listing Application.
(a) As promptly as practicable, Rent-Way and HCI shall prepare and file
with the SEC the Proxy Statement in form and substance satisfactory to each of
Rent-Way and HCI, and Rent-Way shall prepare and file with the SEC the
Registration Statement, in which the Proxy Statement will be included as a
prospectus. Rent-Way shall use commercially reasonable efforts to (i) respond to
any comments of the SEC and (ii) have the Registration Statement declared
effective under the Securities Act as promptly as practicable and to keep the
Registration Statement effective as long as is reasonably necessary to
consummate the Merger. Each Party will notify the other promptly of the receipt
of any comments from the SEC and of any request by the SEC for amendments or
supplements to the Registration Statement or the Proxy Statement or for
additional information and will supply the other with copies of all
correspondence between such Party or any of its representatives and the SEC with
respect to the Registration Statement or the Proxy Statement. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Registration Statement or the Proxy Statement, Rent-Way or HCI, as the case may
be, shall promptly inform the other of such occurrences and cooperate in filing
with the SEC and or mailing to the shareholders of Rent-Way and the stockholders
of HCI such amendment or supplement. The Proxy Statement shall include the
recommendations of the Board of Directors of Rent-Way in favor of the Merger
Agreement, the Amendment and the issuance of the Rent-Way Shares and the Board
of Directors of HCI as to the Merger Agreement, subject to the provisions of
Section 7.2. Rent-Way shall use commercially reasonable efforts to take any
action required to be taken under state securities or blue sky laws in
connection with the issuance of the Rent-Way Shares pursuant hereto and will pay
or cause to be paid all expenses incident thereto. HCI shall furnish Rent-Way
with all information concerning HCI and the holders of its capital stock and
shall take such other action as Rent-Way may reasonably request in connection
with such Proxy Statement and Registration Statement and issuance of Rent-Way
Shares.
(b) Rent-Way shall promptly prepare and submit to Nasdaq or the NYSE a
listing application covering the Rent-Way Shares to be issued in connection with
the Merger and this Agreement and shall use commercially
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reasonable efforts to obtain, prior to the Effective Time, approval for the
listing of such Rent-Way Shares, subject to official notice of issuance.
Section 7.4 Proxy Statements; Stockholder Approvals.
(a) Rent-Way and HCI shall cause the definitive Proxy Statement to be
mailed to their respective shareholders and stockholders as promptly as
practicable after the Registration Statement is declared effective under the
Securities Act. It shall be a condition precedent to HCI's obligation to mail
the Proxy Statement that the opinions of Donaldson, Lufkin & Jenrette Securities
Corporation and of Stephens, Inc. referred to Section 5.19 not have been
withdrawn. It shall be a condition precedent to Rent-Way's obligation to mail
the Proxy Statement that the opinion of NBM referred to in Section 4.19 not have
been withdrawn. At the shareholders and stockholders' meetings, each of Rent-Way
and HCI shall vote or cause to be voted in favor of authorization, approval and
adoption of this Agreement and the Merger and, in the case of Rent-Way, the
Amendment and the issuance of the Rent-Way Shares to be issued in the Merger,
all capital stock entitled to vote as to which it holds proxies at such time.
(b) In connection with the preparation of the Proxy Statement and the
Registration Statement, Rent-Way shall use reasonable efforts to cause to be
delivered to Rent-Way and HCI prior to the mailing of the Proxy Statement to the
stockholders of Rent-Way and HCI the opinion of Hodgson, Russ, Andrews, Woods &
Goodyear LLP, dated the date of the Proxy Statement, substantially to the effect
that the Merger will constitute a reorganization for federal income tax purposes
within the meaning of Section 368(a)(1)(A) of the Code.
(c) Each of HCI's and Rent-Way's obligations under this Section 7.4
shall at all times remain subject to their fiduciary duties imposed under
Applicable Law and Section 7.2 of this Agreement, in the event that, if required
by such fiduciary duties as advised in writing by outside counsel, the Board of
Directors of HCI or Rent-Way, as the case may be, shall have withdrawn or
modified its recommendation that shareholders or stockholders authorize, approve
and adopt this Agreement and the Merger, in the case of Rent-Way and HCI, or
that shareholders authorize the Amendment and the issuance of the Rent-Way
Shares to be issued in connection with the Merger, in the case of Rent-Way.
(d) HCI, acting through its Board of Directors, shall, in accordance
with Applicable Law and its Certificate of Incorporation and By-Laws:
(i) promptly and duly call, give notice of, convene and hold as soon
as practicable (but in no event sooner than 20 business days following the
date the Proxy Statement is mailed to its Stockholders) following the date
upon which the Registration Statement becomes effective a meeting of its
stockholders for the purpose of voting to authorize, approve and adopt this
Agreement and the Merger and shall use commercially reasonable efforts to
obtain such stockholder approval; and
(ii) recommend authorization, approval and adoption of this Agreement
and the Merger by the stockholders of HCI and take all lawful action to
solicit such approval.
(e) Rent-Way, acting through its Board of Directors, shall, in
accordance with Applicable Law and its Articles of Incorporation and By-Laws:
(i) promptly and duly call, give notice of, convene and hold as soon
as practicable (but in no event sooner than 20 business days following the
date the Proxy Statement is mailed to its shareholders) following the date
upon which the Registration Statement becomes effective a meeting of its
shareholders for the purpose of voting to authorize; approve and adopt this
Agreement and the Merger, the Amendment and the issuance of the Rent-Way
Shares to be issued in the Merger and shall use commercially reasonable
efforts to obtain such shareholder approval; and
(ii) recommend authorization, approval and adoption of this Agreement
and the Merger, the Amendment and the issuance of the Rent-Way Shares to be
issued in the Merger by the shareholders of Rent-Way and include in the
Proxy Statement such recommendation and take all lawful action to solicit
such approval.
Section 7.5 Antitrust Laws. As promptly as practicable, HCI and Rent-Way
shall make all filings and submissions under the HSR Act as may be reasonably
required to be made in connection with this Agreement
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and the transactions contemplated hereby. Subject to Section 7.1 hereof, HCI
will furnish to Rent-Way, and Rent-Way will furnish to HCI, such information and
assistance as the other may reasonably request in connection with the
preparation of any such filings or submissions. Subject to Section 7.1 hereof,
HCI will provide Rent-Way, and Rent-Way will provide HCI, with copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between such Party or any of its representatives, on the one
hand, and any Governmental Authority or members of its staff, on the other hand,
with respect to this Agreement and the transactions contemplated hereby.
Section 7.6 Voting Agreements and Option Agreements. Concurrently herewith,
HCI is entering into voting agreements with each of Gerald A. Ryan and William
E. Morgenstern substantially in the form attached hereto as Exhibit A (together,
the "Rent-Way Voting Agreements"); Rent-Way is entering into voting agreements
with each of GDJ, Jr. Investments, L.P., and Michael D. Walts substantially in
the form attached hereto as Exhibit B (collectively, the "HCI Voting Agreements"
and together with the Rent-Way Voting Agreements referred to herein as the
"Voting Agreements"); HCI and Rent-Way are entering into an option agreement
substantially in the form attached hereto as Exhibit C (the "HCI Option
Agreement"); and Rent-Way and HCI are entering into an option agreement
substantially in the form attached hereto as Exhibit D (the "Rent-Way Option
Agreement" and together with the HCI Option Agreement referred to herein as the
"Option Agreements").
Section 7.7 HCI Employee Stock Options and HCI Director Stock Options.
Except as provided in this Agreement or as may occur automatically pursuant to
the provisions of the HCI Stock Option Plans as in effect on the date hereof
from the date hereof HCI will not accelerate the vesting or exerciseability of
or otherwise modify the terms and conditions applicable to the HCI Stock
Options. Except as provided in this Agreement, Rent-Way will not exercise any
right under any of the Rent-Way Employee Stock Option Plans from the date hereof
to accelerate the vesting or exerciseability of or otherwise modify the terms
and conditions applicable to the Rent-Way Employee Stock Options. At the
Effective Time, each of the HCI Stock Options which is outstanding and
unexercised at the Effective Time shall be converted automatically into an
option to purchase Rent-Way Shares in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the HCI
Stock Option Plans governing the HCI Stock Options):
(1) The number of Rent-Way Shares to be subject to the new option
shall be equal to the product of the number of Shares subject to the
original option and the Exchange Ratio, provided that any fractional Rent-
Way Share resulting from such multiplication shall be rounded down to the
nearest share and Rent-Way shall pay an amount in cash to the holder of
such HCI Stock Option within thirty (30) days after the Effective Time
equal to the fair market value immediately prior to the Effective Time of
such fractional Rent-Way Share calculated based on the average closing
price on Nasdaq or the NYSE National Market for the last five trading days
immediately preceding the day prior to the Effective Time; and
(2) The exercise price per Rent-Way Share under the new option shall
be equal to the aggregate exercise price of the shares issuable pursuant to
the original option divided by the total number of full Rent-Way Shares
subject to the new option (as determined under (1) immediately above),
provided that such exercise price shall be rounded up the nearest cent.
Rent-Way shall assume the obligations of HCI under the HCI Stock Option Plans in
respect of each such new option. The duration and other terms of the new option
shall be the same as that of the original option, except that all references to
HCI shall be deemed to be references to Rent-Way. Rent-Way shall file with the
SEC a registration statement on Form S-8 (or other appropriate form) as promptly
as practicable after the Effective Time for purposes of registering all Rent-Way
Shares issuable after the Effective Time upon exercise of the HCI Stock Options,
and shall have such registration statement or post-effective amendment become
effective and comply, to the extent applicable, with state securities or blue
sky laws with respect thereto at the Effective Time.
Section 7.8 Benefit Plans. After the Effective Time, Rent-Way shall provide
benefits to employees of HCI and the HCI Subsidiaries that are not less
favorable to such employees than those provided to similarly situated employees
of Rent-Way and the Rent-Way Subsidiaries. With respect to any Rent-Way Plan
that is an "employee benefit plan" as defined in Section 3(3) of ERISA, solely
for purposes of satisfying the service requirements, if any, to participate in
such plans and to vest in benefits payable under such plans (but not for
purposes of computing the amount of the benefits, or the existence of a benefit,
under such plans), service with HCI or any
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HCI Subsidiary (or a predecessor entity to either of them) shall be treated as
service with Rent-Way or the Rent-Way Subsidiaries (as applicable); provided,
however, that such service shall not be recognized to the extent that such
recognition would result in a duplication of benefits (or is not otherwise
recognized for such purposes under the Rent-Way Plans.
Section 7.9 Public Announcements. Rent-Way, on the one hand, and HCI, on
the other hand, agree that they will not issue any press release or otherwise
make any public statement or respond to any press inquiry with respect to this
Agreement or the transactions contemplated hereby without the prior approval of
the other Party, except as may be required by Applicable Law.
Section 7.10 Continuance of Existing Indemnification Rights.
(a) From and after the Effective Time, Rent-Way shall indemnify, defend
and hold harmless to the fullest extent permitted under Applicable Law each
person who is now, or has been at any time prior to the date hereof, an officer
or director of Rent-Way or HCI or any HCI Subsidiary (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties"), against all
losses, claims, damages, liabilities, costs or expenses (including attorneys'
fees and expenses), judgments, fines, penalties and amounts paid in settlement
in connection with any claim, action, suit, proceeding or investigation arising
out of or pertaining to acts or omissions, or alleged acts or omissions, by them
in their capacities as such occurring at or prior to the Effective Time. In the
event of any such claim, action, suit, proceeding or investigation (an
"Action"), (i) any Indemnified Party wishing to claim indemnification shall
promptly notify Rent-Way thereof, (ii) Rent-Way shall pay the reasonable fees
and expenses of counsel selected by the Indemnified Party, which counsel shall
be reasonably acceptable to Rent-Way, in advance of the final disposition of any
such Action to the full extent permitted by Applicable Law, upon receipt of any
undertaking required by Applicable Law, and (iii) Rent-Way will cooperate in the
defense of any such matter; provided, however, that Rent-Way shall not be liable
for any settlement effected without its written consent (which consent will not
be unreasonably withheld) and provided, further, that Rent-Way shall not be
obligated pursuant to this Section 7.9 to pay the fees and disbursements of more
than one counsel for all Indemnified Parties in any single Action except to the
extent that, in the opinion of counsel for the Indemnified Parties, two of more
of such Indemnified Parties have conflicting interests in the outcome of such
action.
(b) Rent-Way shall keep in effect provisions in its Articles of
Incorporation and Bylaws providing for exculpation of director and officer
liability and its indemnification of the Indemnified Parties to the fullest
extent permitted under Applicable Law, which provisions shall not be amended
except as required by Applicable Law or except to make changes permitted by law
that would enlarge the Indemnified Parties' right of indemnification.
(c) Rent-Way shall cause to be maintained in effect for a period ending
not sooner than the sixth anniversary of the Effective Time directors' and
officers' liability insurance providing at least the same coverage with respect
to the officers and directors of HCI and the HCI Subsidiaries as the policies
maintained on behalf of directors and officers of HCI and the HCI Subsidiaries
as of the date hereof, and containing terms and conditions which are no less
advantageous, with respect to matters occurring on or prior to the Effective
Time (to the extent such insurance is available with respect to such matters).
(d) If in the event that Rent-Way or any of its successors and assigns
(i) consolidates or merges into any other person or shall not be the continuing
or surviving corporation or entity of which consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then, and in each such case, to the extent necessary, proper provision shall be
made so that the successors and assigns of Rent-Way shall assume the obligations
of Rent-Way under this Section 7.10.
(e) The provisions of this Section 7.10 are intended to be for the
benefit of, and shall be enforceable by, the officers and directors of HCI and
each HCI Subsidiary and his or her heirs and representatives.
Section 7.11 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the Party incurring such
expenses except that (a) (i) a filing fee in connection with any HSR Act filing
and (ii) the expenses incurred in connection with the printing and mailing of
the Proxy Statement shall be shared equally by Rent-Way and HCI and (b) all
transfer taxes shall be paid by HCI.
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Section 7.12 Additional Agreements.
(a) Subject to terms and conditions herein provided, each of the Parties
hereto agrees to use all commercially reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under Applicable Law and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using all
commercially reasonable efforts to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, Rent-Way and HCI shall cause their
respective proper officers and/or directors to take all such necessary action.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the Parties agree that, to the extent that the consummation of the
transactions contemplated hereby requires that HCI or any HCI Subsidiary obtain
the consent of a landlord under any store lease of HCI or such HCI Subsidiary,
HCI will use commercially reasonable efforts to obtain the consent of the
landlord under each such store lease specified by Rent-Way to HCI in writing
within ten (10) days after the date hereof, and the Parties further agree that,
if despite its commercially reasonable efforts HCI is not able to obtain any
such consent prior to the Effective Time, such failure by HCI shall not
constitute a breach by HCI of any representation, warranty, covenant or
agreement in this Agreement or constitute a failure by HCI to satisfy any
condition of Rent-Way to its obligation to consummate the transactions
contemplated hereby at the Effective Time or otherwise give Rent-Way the right
to terminate this Agreement.
Section 7.13 Affiliate Agreements.
(a) HCI shall, prior to the Effective Time, deliver to Rent-Way a list
(reasonably satisfactory to counsel for Rent-Way), setting forth the names and
addresses of all persons who are, at the time of the HCI stockholder's meeting
referred to in Section 7.4(a) hereof, in HCI's reasonable judgment, "affiliates"
of HCI for purposes of Rule 145 under the Securities Act or under applicable SEC
accounting releases with respect to pooling of interests accounting treatment.
HCI shall furnish such information and documents as Rent-Way may reasonably
request for the purpose of reviewing such list. HCI shall use commercially
reasonable efforts to cause each person who is identified as an "affiliate" in
the list furnished pursuant to this Section 7.12 to execute a written agreement
on or prior to the Effective Time, in substantially the form of Exhibit E
attached hereto (the "HCI Affiliate Agreements").
(b) Rent-Way shall, prior to the Effective Time, deliver to HCI a list
(reasonably satisfactory to counsel for HCI) setting forth the names and
addresses of all persons who are, at the time of the Rent-Way stockholders
meeting referred to in Section 7.4(b) hereof, in Rent-Way's reasonable judgment,
"affiliates" of Rent-Way under applicable SEC accounting releases with respect
to pooling of interests accounting treatment. Rent-Way shall furnish such
information and documents as HCI may reasonably request for the purpose of
reviewing such list. Rent-Way shall use its commercially reasonable efforts to
cause each person who is identified as an affiliate in the list furnished
pursuant to this Section 7.12 to execute a written agreement on or prior to the
Effective Time, in substantially the form of Exhibit F attached hereto (the
"Rent-Way Affiliate Agreements" and, together with the HCI Affiliate Agreements
referred to collectively herein as the "Affiliate Agreements").
Section 7.14 Publication of Post Merger Financial Results. HCI and Rent-Way
agree that the Surviving Corporation shall publish financial results covering at
least thirty (30) days of combined operations as soon as practicable after the
Effective Time; provided that if the Effective Time occurs after February 28,
1999, HCI and Rent-Way agree that upon the written request of any person who
shall have executed an Affiliate Agreement pursuant to Section 7.12, the
Surviving Corporation shall publish such combined financial results at the end
of the first full calendar month following the Effective Date which notice shall
be given at least thirty (30) days prior to the end of such first full calendar
month following the Effective Date.
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ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each Party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated, and no action shall
have been instituted by the Department of Justice or Federal Trade Commission
challenging or seeking to enjoin the consummation of this transaction, which
action shall have not been withdrawn or terminated.
(b) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no proceeding
for such purpose shall be pending before or threatened by the SEC.
(c) This Agreement and the Merger shall have been authorized, approved
and adopted by the requisite vote of the stockholders of HCI and the
shareholders of Rent-Way, and the Amendment and the issuance of the Rent-Way
Shares in connection with the Merger shall have been authorized and approved by
the requisite vote of the shareholders of Rent-Way, in each case in accordance
with Applicable Law.
(d) No temporary restraining order, preliminary or permanent injunction
or other order by any federal or state court in the United States which
prohibits the consummation of the Merger shall have been issued and remain in
effect.
(e) Subject to Section 7.12(b), each of HCI and Rent-Way shall have
obtained such consents from third parties and Governmental Authorities in
addition to the HSR Act as shall be required and which are material to Rent-Way
and HCI and to consummation of the transactions contemplated hereby.
(f) Each of Rent-Way and HCI shall have received a letter from
PricewaterhouseCoopers, LLP dated the Effective Time, addressed to Rent-Way and
HCI stating that the Merger will qualify as a pooling of interests transaction
under Opinion No. 16 of the Accounting Principles Board and that Rent-Way and
HCI meet the conditions to qualify for a pooling of interests transaction under
opinion No. 16 of the Accounting Principles Board, "Business Combinations," and
the related published interpretations of the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board, and the
published rules and regulations of the SEC.
(g) Each of Rent-Way and HCI shall have received an opinion of Hodgson,
Russ, Andrews, Woods & Goodyear, LLP, in form and substance reasonably
satisfactory to Rent-Way and HCI, dated the date of the Proxy Statement, which
opinion shall be reconfirmed as of the Effective Time, substantially to the
effect that the Merger will constitute a reorganization for federal income tax
purposes within the meaning of section 368(a)(1)(A) of the Code.
Section 8.2 Conditions to Obligation of HCI to Effect the Merger. The
obligation of HCI to effect the Merger shall be subject to the satisfaction at
or prior to the Effective Time of the following additional conditions:
(a) Rent-Way shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time and the representations and warranties of Rent-Way contained
in this Agreement shall be true and correct in all material respects at and as
of the Effective Time as if made at and as of such time, except (i) for changes
specifically permitted by this Agreement and (ii) that those representations and
warranties which address matters only as of a particular date shall remain true
and correct in all material respects as of such date, and HCI shall have
received a certificate of the President of Rent-Way as to the satisfaction of
this condition.
(b) HCI shall have received an opinion from Hodgson, Russ, Andrews,
Woods & Goodyear, LLP, counsel to Rent-Way, dated the Effective Time,
substantially to the effect that:
(i) Rent-Way is a corporation validly existing under the laws of the
Commonwealth of Pennsylvania.
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(ii) Rent-Way has the corporate power to enter into this Agreement
and to consummate the transactions contemplated hereby; and the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by requisite corporate action
taken on the part of Rent-Way.
(iii) This Agreement has been executed and delivered by Rent-Way and
is a valid and binding obligation of Rent-Way, enforceable against Rent-Way
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and general principles of equity.
(iv) Neither the execution and delivery of this Agreement by
Rent-Way, nor the consummation by Rent-Way of the transactions contemplated
hereby, will violate the Articles of Incorporation or By-Laws of Rent-Way
or, to the knowledge of such counsel, and except as set forth in the
Rent-Way Disclosure Letter without having made any independent
investigation, will constitute a violation of or a default under (except
for any such violation or default as to which requisite waivers or consents
either shall have been obtained by Rent-Way prior to the Effective Time or
shall have been waived by HCI in writing) any material contract, agreement
or instrument to which Rent-Way or any of the Rent-Way Subsidiaries is
subject and which has been specifically identified to such counsel by
Rent-Way in connection with rendering such opinion.
(v) The Rent-Way Shares to be issued in connection with the
transactions contemplated by this Agreement are duly authorized and
reserved for issuance and, when issued as contemplated by this Agreement,
will be validly issued, fully paid and nonassessable.
(vi) While such counsel assumes no responsibility for any event,
occurrence or statement of fact relating to Rent-Way or for the accuracy
completeness or fairness of any statements contained or incorporated by
reference in or omitted from the Registration Statement or the Proxy
Statement, and while such counsel expresses no opinion as to the financial
statements or other financial or statistical data contained or incorporated
by reference therein with respect to information in the Registration
Statement or the Proxy Statement relating to Rent-Way, the Registration
Statement complies as to form in all material respects with the
requirements of the Securities Act and the applicable rules and regulations
promulgated thereunder.
In addition, in such opinion, such counsel shall state that such
counsel has no reason to believe that the Registration Statement or the
Proxy Statement, as amended or supplemented to the date of such opinion,
insofar as it relates to Rent-Way, contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, except
such counsel expresses no belief as to the financial statements or other
financial or statistical data contained or incorporated by reference in the
Registration Statement or the Proxy Statement.
As to any matter in such opinion which involves matters of fact, such
counsel may rely upon the certificates of officers and directors of
Rent-Way and of public officials and as to any matter in such opinion which
involves matters relating to laws other than the laws of the United States
or the corporate laws of the State of Delaware and the Commonwealth of
Pennsylvania, such counsel may rely on opinions of local counsel,
reasonably acceptable to HCI.
(c) The listing application referred to in Section 7.3(b) shall have
been approved by the National Association of Securities Dealers for listing of
the Rent-Way Shares on Nasdaq or shall have been approved by the NYSE for
listing on the NYSE, subject to official notice of issuance.
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any condition or event relating to the financial
condition, business or operations of Rent-Way or the Rent-Way Subsidiaries,
taken as a whole, that has had or would be reasonably likely to have a Rent-Way
Material Adverse Effect and HCI shall have received a certificate of the
President or Chief Financial Officer of Rent-Way as to the satisfaction of such
condition.
(e) Rent-Way shall have executed indemnification agreements with the
members of the HCI Board of Directors if, immediately prior to the Effective
Time, any such agreements are in effect between Rent-Way and its
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Board of Directors, in which case, the form of agreement shall be substantially
similar to any such Rent-Way agreement.
Section 8.3 Conditions to Obligations of Rent-Way to Effect the Merger. The
obligations of Rent-Way to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions:
(a) HCI shall have performed in all material respects its obligations
under this Agreement required to be performed by it at or prior to the Effective
Time and the representations and warranties of HCI contained in this Agreement
shall be true and correct in all material respects at and as of the Effective
Time as if made at and as of such time, except (i) for changes specifically
permitted by this Agreement and (ii) that those representations and warranties
which address matters only as of a particular date shall remain true and correct
in all material respects as of such date and Rent-Way shall have received a
Certificate of the President and Chief Executive Officer of HCI as to the
satisfaction of this condition.
(b) Rent-Way shall have received an opinion from King & Spalding,
counsel for HCI, dated the Effective Time, substantially to the effect that:
(i) HCI is a corporation validly existing under the laws of the State
of Delaware.
(ii) HCI has the corporate power to enter into this Agreement and to
consummate the transactions contemplated hereby; and the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by requisite corporate action
taken on the part of HCI.
(iii) This Agreement has been executed and delivered by HCI and is a
valid and binding obligation of HCI, enforceable against HCI in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and general principles of equity.
(iv) Neither the execution and delivery of this Agreement by HCI, nor
the consummation by HCI of the transactions contemplated hereby, will
violate the Certificate of Incorporation or By-Laws of HCI or, to the
knowledge of such counsel, and except as set forth in the HCI Disclosure
Letter without having made any independent investigation, will constitute a
violation of or a default under (except for any such violation or default
as to which requisite waivers or consents either shall have been obtained
by HCI prior to the Effective Time or shall have been waived by Rent-Way in
writing) any material contract, agreement or instrument to which HCI or any
of the HCI Subsidiaries is subject and which has been specifically
identified to such counsel by HCI in connection with rendering such
opinion.
In addition, in such opinion, such counsel shall state that such
counsel has no reason to believe that the Registration Statement or the
Proxy Statement, as amended or supplemented to the date of such opinion,
insofar as it relates to HCI, contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, except such
counsel expresses no belief as to the financial statements or other
financial or statistical data contained or incorporated by reference in the
Registration Statement or the Proxy Statement.
As to any matter in such opinion which involves matters of fact, such
counsel may rely upon the certificates of officers and directors of HCI and
of public officials and as to any matter in such opinion which involves
matters relating to laws other than the laws of the United States or the
corporate laws of the State of Delaware, such counsel may rely on opinions
of local counsel, reasonably acceptable to HCI.
(c) From the date of this Agreement through the Effective Time, there
shall not have occurred any condition or event relating to the financial
condition, business or operations of HCI or the HCI Subsidiaries, taken as a
whole, that has had or would be reasonably likely to have an HCI Material
Adverse Effect and Rent-Way shall have received a certificate of the President
or Chief Financial Officer of HCI as to the satisfaction of this condition.
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(d) Rent-Way and George D. Johnson, Jr. shall have entered into a
noncompetition agreement in the form attached hereto as Exhibit G (the "Johnson
Noncompetition Agreement").
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Effective Time by mutual written consent of the
Parties.
Section 9.2 Termination by Either Rent-Way or HCI. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of Rent-Way or HCI if:
(a) The Merger is not consummated on or before February 28, 1999 (or
such later date as shall have been approved by Rent-Way and HCI) (the
"Termination Date"), provided, however, that the right to terminate this
Agreement under this Section 9.2(a) shall not be available to any Party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date, and provided, further, that if on the Termination Date the
conditions to the Closing set forth in Section 8.1(a) or (e) shall not have been
fulfilled, but all other conditions to the Closing shall be fulfilled or shall
be capable of being fulfilled, then the Termination Date shall automatically be
extended to April 30, 1999; and provided, further that if on the Termination
Date the condition to the Closing set forth in Section 8.1(b) shall not have
been fulfilled, but all other conditions to the Closing shall be fulfilled or
shall be capable of being fulfilled, the Termination Date shall automatically be
extended to April 30, 1999; or
(b) A court of competent jurisdiction or Governmental Authority shall
have issued an order, decree or ruling or taken any other action (which order,
decree or ruling the parties shall use their commercially reasonable efforts to
lift), in each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement, and such order, decree, ruling
or other action shall have become final and nonappealable.
Section 9.3 Termination by HCI. This Agreement may be terminated and the
Merger may be abandoned by action of the Board of Directors of HCI if:
(a) There shall have been any event or condition that has had a Rent-Way
Material Adverse Effect since the date hereof which is not cured within thirty
(30) days after notice thereof to Rent-Way, or if Rent-Way shall have breached
Section 7.2, 7.4 or 7.5 and, in the case of Sections 7.4 and 7.5, such breach
has not been cured within thirty (30) days' notice thereof to Rent-Way;
(b) This Agreement and the Merger, the Amendment and the issuance of the
Rent-Way Shares in connection with the Merger shall not have been authorized,
approved and adopted by the requisite vote of the stockholders of Rent-Way; or
(c) The Board of Directors of HCI shall have exercised any of its rights
set forth in Section 7.2(b).
Section 9.4 Termination by Rent-Way. This Agreement may be terminated and
the Merger may be abandoned by action of the Board of Directors of Rent-Way if:
(a) There shall have been any event or condition that has had a HCI
Material Adverse Effect since the date hereof which is not cured within thirty
(30) days after notice thereof to HCI, or if HCI shall have breached Section
7.2, 7.4 or 7.5 and, in the case of Sections 7.4 and 7.5, such breach has not
been cured within thirty (30) days' notice thereof to HCI;
(b) This Agreement and the Merger shall not have been authorized,
approved and adopted by the requisite vote of the stockholders of HCI; or
(c) The Board of Directors of HCI shall have (i) withdrawn or modified
in a manner adverse to Rent-Way its recommendation of this Agreement and the
Merger; (ii) approved or recommended an Acquisition Proposal; or (iii) caused
HCI to enter into an agreement with respect to an Acquisition Proposal.
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Section 9.5 Effect of Termination and Abandonment. In the event of the
termination and abandonment of this Agreement under this Article IX, this
Agreement shall become void and have no effect, without any liability on the
part of any Party or its Directors, officers or stockholders except (i) as
provided in Sections 7.1, 7.2 and 7.10 and (ii) to the extent that such
termination results from the willful breach by any Party hereto of any material
representation, warranty, covenant or agreement hereunder.
Section 9.6 Amendment. This Agreement may be amended by the Parties
pursuant to a writing adopted by action taken by all of the Parties at any time
before the Effective Time, provided, however, that after approval by the
stockholders of HCI or Rent-Way, whichever shall occur first, no amendment may
be made which would (a) alter or change the amount or kinds of consideration to
be received by the holders of Shares upon consummation of the Merger, (b) alter
or change any term of the Certificate of Incorporation of HCI or the Articles of
Incorporation of Rent-Way, or (c) alter or change any of the terms and
conditions of this Agreement if such alteration or change would adversely affect
the holders of any class or series of securities of HCI or Rent-Way. This
Agreement may not be amended except by an instrument in writing signed by the
Parties.
Section 9.7 Waiver. At any time before the Effective Time, any Party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other Parties (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a Party to any such extension of waiver shall be
valid only as against such Party and only if set forth in an instrument in
writing signed by such Party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Survival of Representations, Warranties and Agreements. No
representations, warranties, covenants or agreements contained herein shall
survive beyond the Effective Time, except that the representations, warranties,
covenants or agreements contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 7.1, 7.8,
7.9, 7.10, 7.11 and 7.13 and this Article X shall survive beyond the Effective
Time.
Section 10.2 Notices. All notices and other communications required or
permitted by this Agreement shall be made in writing and any such notice or
communication shall be deemed delivered when delivered in person, transmitted by
telex or telecopier, or seven (7) days after it has been sent by air mail, as
follows:
Rent-Way: Rent-Way, Inc.
One RentWay Place
Erie, Pennsylvania 16505
Attention: William E. Morgenstern
Tel: (814) 455-5378
Fax: (814) 455-3267
with a copy to: Hodgson, Russ, Andrews, Woods & Goodyear, LLP
1800 One M&T Plaza
Buffalo, New York 14203
Attention: Robert B. Fleming, Jr.
Tel: (716) 856-4000
Fax: (716) 849-0349
HCI: Home Choice Holdings Inc.
714 East Kimbrough Street
Mesquite, Texas 75149
Attention: James G. Steckart
Tel: (972) 288-9327
Fax: (972) 288-7753
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with a copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: John D. Capers, Jr.
Tel: (404) 572-4658
Fax: (404)572-5145
The Parties shall promptly notify each other in the manner provided in this
Section 10.2 of any change in its address. A notice of change of address shall
not be deemed to have been given until received by the addressee. Communications
by telex or telecopier shall also be sent concurrently by mail, but shall in any
event be effective as stated above.
Section 10.3 Assignment. No Party shall assign this Agreement or any
rights, interests or obligations hereunder, or delegate performance of any of
its obligations hereunder, without the prior written consent of the other Party.
Section 10.4 Entire Agreement. This Agreement, the Exhibits hereto, the
Rent-Way Disclosure Letter, the HCI Disclosure Letter, the Voting Agreements,
the Option Agreements, the Johnson Noncompetition Agreement, the Affiliate
Agreements and the Confidentiality Agreement embody the entire agreement and
understanding of the Parties in respect of the subject matter contained herein.
This Agreement supersedes all prior agreements and understandings between the
Parties with respect to such subject matter.
Section 10.5 Waiver, Amendment, etc. This Agreement may not be amended or
supplemented, and no waivers of or consents to departures from the provisions
hereof shall be effective, unless set forth in a writing signed by, and
delivered to, both Parties. No failure to delay of a Party in exercising any
power or right under this Agreement will operate as a waiver thereof, nor will
any single or partial exercise of any right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other or
further exercise thereof or the existence of any other right or power.
Section 10.6 Binding Agreement; No Third Party Beneficiaries. This
Agreement will be binding upon and inure to the benefit of the Parties and their
successors and permitted assigns. Nothing expressed or implied herein is
intended or will be construed to confer upon or to give any third Party any
rights or remedies by virtue hereof.
Section 10.7 Governing Law; Dispute Resolution; Equitable Relief.
(a) HIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE (REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAW).
(b) EACH PARTY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION,
SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ITS OBLIGATIONS OR LIABILITIES
UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT
ONLY IN THE UNITED STATES DISTRICT COURT FOR THE STATE OF DELAWARE OR, IN THE
EVENT (BUT ONLY IN THE EVENT) SUCH COURT DOES NOT HAVE SUBJECT MATTER
JURISDICTION OVER SUCH ACTION, SUIT OR PROCEEDING, IN THE COURTS OF THE STATE OF
DELAWARE, AND EACH PARTY HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO THE
JURISDICTION OF EACH OF THE AFORESAID COURTS IN PERSONAM, WITH RESPECT TO ANY
SUCH ACTION, SUIT OR PROCEEDING (INCLUDING CLAIMS FOR INTERIM RELIEF,
COUNTERCLAIMS, ACTIONS WITH MULTIPLE DEFENDANTS AND ACTIONS IN WHICH SUCH PARTY
IS IMPLED). EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT THAT IT
MAY HAVE TO A JURY TRIAL IN ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT
TO, OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
(c) EACH PARTY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM (IN SUCH
CAPACITY, THE "PROCESS AGENT"), AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE,
FOR AND ON ITS BEHALF, SERVICE OF PROCESS IN SUCH JURISDICTION IN ANY LEGAL
ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, AND SUCH SERVICE
SHALL BE
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DEEMED COMPLETE UPON DELIVERY THEREOF TO THE PROCESS AGENT, PROVIDED THAT IN THE
CASE OF ANY SUCH SERVICE UPON THE PROCESS AGENT, THE PARTY EFFECTING SUCH
SERVICE SHALL ALSO DELIVER A COPY THEREOF TO THE OTHER PARTY IN THE MANNER
PROVIDED IN SECTION 10.2. EACH PARTY SHALL TAKE ALL SUCH ACTION AS MAY BE
NECESSARY TO CONTINUE SAID APPOINTMENT IN FULL FORCE AND EFFECT OR TO APPOINT
ANOTHER AGENT SO THAT SUCH PARTY WILL AT ALL TIMES HAVE AN AGENT FOR SERVICE OF
PROCESS FOR THE ABOVE PURPOSES IN THE STATE OF DELAWARE. IN THE EVENT OF THE
TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS AND BUSINESS OF THE PROCESS
AGENT TO ANY OTHER CORPORATION BY CONSOLIDATION, MERGER, SALE OF ASSETS OR
OTHERWISE, SUCH OTHER CORPORATION SHALL BE SUBSTITUTED HEREUNDER FOR THE PROCESS
AGENT WITH THE SAME EFFECT AS IF NAMED HEREIN IN PLACE OF CT CORPORATION SYSTEM.
EACH PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION, SUIT OR PROCEEDING BY THE MAILING
OF COPIES THEREOF BY REGISTERED AIR MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS
ADDRESS SET FORTH IN THIS AGREEMENT, SUCH SERVICE OF PROCESS TO BE EFFECTIVE
UPON ACKNOWLEDGMENT OF RECEIPT OF SUCH REGISTERED MAIL. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW. EACH PARTY EXPRESSLY ACKNOWLEDGES THAT THE FOREGOING WAIVER IS
INTENDED TO BE IRREVOCABLE UNDER THE LAWS OF THE STATE OF DELAWARE AND OF THE
UNITED STATES OF AMERICA.
(d) EACH PARTY AGREES THAT MONEY DAMAGES WOULD NOT BE A SUFFICIENT
REMEDY FOR THE OTHER PARTY FOR ANY BREACH OF THIS AGREEMENT BY IT, AND THAT IN
ADDITION TO ALL OTHER REMEDIES THE OTHER PARTY MAY HAVE, SUCH OTHER PARTY SHALL
BE ENTITLED TO SPECIFIC PERFORMANCE AND TO INJUNCTIVE OR OTHER EQUITABLE RELIEF
AS A REMEDY FOR ANY SUCH BREACH. EACH PARTY AGREES NOT TO OPPOSE THE GRANTING OF
SUCH RELIEF IN THE EVENT A COURT DETERMINES THAT A BREACH HAS OCCURRED, AND
AGREES TO WAIVE ANY REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND IN
CONNECTION WITH SUCH REMEDY.
Section 10.8 Severability. The invalidity or unenforceability of any
provision hereof in any jurisdiction will not affect the validity or
enforceability of the remainder hereof in that jurisdiction or the validity or
enforceability of this Agreement, including that provision in any other
jurisdiction. To the extent permitted by Applicable Law, each Party waives any
provision of Applicable Law that renders any provision hereof prohibited or
unenforceable in any respect. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than avoided, if
possible, in order to achieve the intent of the Parties to the extent possible.
Section 10.9 Counterparts. This Agreement may be executed in one or more
counterparts each of which when so executed and delivered will be deemed an
original but all of which will constitute one and the same Agreement.
Section 10.10 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
Section 10.11 Incorporation of Exhibits. The Rent-Way Disclosure Letter,
the HCI Disclosure Letter, the Voting Agreements, the Option Agreements, the
Johnson Noncompetition Agreement, the Affiliate Agreements and the
Confidentiality Agreement attached hereto or referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
RENT-WAY, INC.
By: /s/ WILLIAM E. MORGENSTERN
--------------------------------------------------------
William E. Morgenstern
President and Chief Executive Officer
HOME CHOICE HOLDINGS INC.
By: /s/ JAMES G. STECKART
--------------------------------------------------------
James G. Steckart
President and Chief Executive Officer
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ANNEX B
September 1, 1998
Board of Directors
Rent-Way, Inc.
3230 West Lake Road
Erie, PA 16505
Gentlemen:
We understand that Home Choice Holdings, Inc., a Delaware corporation
("Seller"), and Rent-Way, Inc., a Pennsylvania corporation ("Buyer"), propose to
enter into an Agreement and Plan of Merger, a draft of which has been provided
to us by management of Buyer dated August 29, 1998 (the "Merger Agreement")
pursuant to which Seller will be merged with and into Buyer, which will be the
surviving entity (the "Merger"). Pursuant to the Merger, as more fully described
in the Merger Agreement and as further described to us by management of Buyer,
we understand that each outstanding share of the common stock, $0.01 par value
per share ("Seller Common Stock"), of Seller will be converted into and
exchangeable for 0.588 shares of the common stock, no par value per share,
("Buyer Common Stock") of Buyer (the "Consideration"). The terms and conditions
of the Merger are set forth in more detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by Buyer pursuant to the Merger is fair to Buyer from a
financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
publicly available financial and other data with respect to Seller and Buyer,
including the consolidated financial statements for recent years and interim
periods to June 30, 1998 and certain other relevant financial and operating data
relating to Seller and Buyer made available to us from published sources and
from the internal records of Seller and Buyer; (ii) reviewed the financial terms
and conditions of the Merger Agreement; (iii) reviewed certain publicly
available information concerning the trading of, and the trading market for,
Seller Common Stock and Buyer Common Stock; (iv) compared Seller from a
financial point of view with certain other companies in the rent-to-own industry
which we deemed to be relevant; (v) considered the financial terms, to the
extent publicly available, of selected recent business combinations of companies
in the rent-to-own industry which we deemed to be comparable, in whole or in
part, to the Merger; (vi) reviewed and discussed with representatives of the
management of Seller and Buyer certain information of a business and financial
nature regarding Seller and Buyer, furnished to us by them, including financial
forecasts and related assumptions of Seller and Buyer; (vii) made inquiries
regarding and discussed the Merger and the Merger Agreement and other matters
related thereto with Buyer's counsel; and (viii) performed such other analyses
and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller and Buyer provided to us by their respective managements,
upon their advice and with your consent we have assumed for purposes of our
opinion that the forecasts (including the assumptions of Buyer's management
regarding cost savings and increased operating margins) have been reasonably
prepared on bases reflecting the best available estimates and judgments of their
respective managements at the time of preparation as to the future financial
performance of Seller and Buyer and that they provide a reasonable basis upon
which we can form our opinion. We have also assumed that there have been no
material changes in Seller's or Buyer's assets, financial condition, results of
operations, business or prospects since the respective dates of their last
financial statements made available to us. We have relied on advice of counsel
and independent accountants to Buyer as to all legal and financial reporting
matters with respect to Buyer, the Merger and the Merger Agreement. We have
assumed that the Merger will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934 and all
other applicable federal and state statutes, rules and regulations. In addition,
we have not assumed responsibility for making an independent evaluation,
appraisal or physical
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inspection of any of the assets or liabilities (contingent or otherwise) of
Seller or Buyer, nor have we been furnished with any such appraisals. You have
informed us, and we have assumed, that the Merger will be recorded as a pooling
of interests under generally accepted accounting principles. Finally, our
opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this opinion, we have
not assumed any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Buyer of any of
the conditions to its obligations thereunder. We also have assumed that in the
course of obtaining the necessary regulatory approvals for the Merger, no
restrictions, including any divestiture requirements, will be imposed that could
have a material adverse effect on the contemplated benefits of the Merger to
Rent-Way.
We have acted as financial advisor to Buyer in connection with the Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
In the ordinary course of our business, we actively trade the Buyer Common Stock
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in Buyer Common Stock. We have also acted
as an underwriter in connection with offerings of Buyer Common Stock and
performed various investment banking services for Buyer.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by Buyer pursuant to the
Merger is fair to Buyer from a financial point of view, as of the date hereof.
This opinion is directed to the Board of Directors of Buyer in its
consideration of the Merger and is not a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to be paid by
Buyer and does not address the relative merits of the Merger and any
alternatives to the Merger, Buyer's underlying decision to proceed with or
affect the Merger or any other aspect of the Merger. This opinion may not be
used or referred to by Buyer, or quoted or disclosed to any person in any
manner, without our prior written consent, which consent is hereby given to the
inclusion of this opinion in any proxy statement or prospectus filed with the
Securities and Exchange Commission in connection with the Merger. In furnishing
this opinion, we do not admit that we are experts within the meaning of the term
"experts" as used in the Securities Act and the rules and regulations
promulgated thereunder, nor do we admit that this opinion constitutes a report
or valuation within the meaning of Section 11 of the Securities Act.
Very truly yours,
NATIONSBANC MONTGOMERY
SECURITIES LLC
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ANNEX C
[LETTERHEAD OF DLJ]
September 1, 1998
Board of Directors
Home Choice Holdings, Inc.
714 E. Kimbrough
Mesquite, Texas 75149
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Home Choice Holdings, Inc. (the "Company") of the
Exchange Ratio (as defined below) pursuant to the terms of the Agreement and
Plan of Merger, dated as of September 1, 1998 (the "Agreement"), by and between
Rent-Way, Inc. ("Rent-Way") and the Company, pursuant to which the Company will
be merged (the "Merger") with and into Rent-Way.
Pursuant to the Agreement, each share of common stock, par value $0.01 per
share, ("Company Common Stock") of the Company will be converted into the right
to receive 0.588 shares (the "Exchange Ratio") of common stock, without par
value, of Rent-Way ("Rent-Way Common Stock").
In arriving at our opinion, we have reviewed the draft dated August 29,
1998 of the Agreement. We also have reviewed financial and other information
that was publicly available or furnished to us by the Company and Rent-Way
including information provided during discussions with their respective
managements. Included in the information provided during discussions with the
respective managements were certain financial projections of the Company for the
period beginning July 1, 1998 and ending December 31, 2002 prepared by the
management of the Company and certain financial projections of Rent-Way for the
period beginning October 1, 1997 and ending September 30, 2003 prepared by the
management of Rent-Way. In addition, we have compared certain financial and
securities data of the Company and Rent-Way with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the Company Common Stock and Rent-Way Common Stock,
reviewed prices paid in certain other business combinations and conducted such
other financial studies, analyses and investigations as we deemed appropriate
for purposes of this opinion. We were not requested to, nor did we, solicit the
interest of any other party in acquiring the Company.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and Rent-Way or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of Rent-Way of
the operating synergies achievable as a result of the Merger and upon our
discussion of such synergies with the management of the Company. With respect to
the financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company and Rent-Way as to the
future operating and financial performance of the Company and Rent-Way,
respectively. We have not assumed any responsibility for making an independent
evaluation of assets or liabilities or for making any independent verification
of any of the information reviewed by us. We have relied as to certain legal
matters on advice of counsel to the Company.
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Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which Rent-Way Common Stock will actually trade at any time. Our
opinion does not address the relative merits of the Merger and the other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for RTO, Inc. in the past, including acting as its
financial advisor in connection with its merger with the Company (formerly known
as Alrenco, Inc.) in February 1998, and has been compensated for such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the stockholders of the
Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ JEFFREY A. KLEIN
------------------------------------
Jeffrey A. Klein
Managing Director
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<PAGE> 123
ANNEX D
September 1, 1998
Members of the Board of Directors
of HOME CHOICE HOLDINGS, INC.
714 E. Kimbrough
Mesquite, TX 75149
Members of the Board:
We have acted as your financial advisor in connection with the proposed
merger of Home Choice Holdings, Inc. (the "Company"), with and into Rent-Way,
Inc. ("Rent-Way") in a transaction (the "Transaction") in which each outstanding
share of the Company's common stock, par value $0.01 per share (the "Company
Shares"), will be converted into the right to receive 0.588 shares (the
"Exchange Ratio") of common stock of Rent-Way (the "Rent-Way Shares").
You have requested our opinion as to whether the Exchange Ratio is fair
from a financial point of view to the Company and its stockholders.
In connection with rendering our opinion set forth below we have:
(i) analyzed certain publicly available financial statements and
reports regarding the Company and Rent-Way;
(ii) analyzed certain internal financial statements and other financial
and operating data (including financial projections) concerning
the Company and Rent-Way prepared by managements of the Company
and Rent-Way;
(iii) analyzed, on a pro forma basis, the effect of the Transaction;
(iv) compared the financial performance the Company and Rent-Way and
the prices and trading activity of the Company Shares and Rent-Way
Shares with that of certain other comparable publicly-traded
companies and their securities;
(v) reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
(vi) reviewed a draft dated August 29, 1998 of an Agreement and Plan of
Merger by and between Rent-Way and the Company;
(vii) discussed with managements of the Company and Rent-Way the
operations of and future business prospects for the Company and
Rent-Way and the anticipated financial consequences of the
Transaction;
(viii) assisted in your deliberations regarding the material terms of the
Transaction and your negotiations with Rent-Way; and
(ix) performed such other analyses and provided such other services as
we have deemed appropriate.
We have relied on the accuracy and completeness of the information and
financial data provided to us by the Company and Rent-Way, and our opinion is
based upon such information. We have inquired into the reliability of such
information and financial data only to the limited extent necessary to provide a
reasonable basis for our opinion, recognizing that we are rendering only an
informed opinion and not an appraisal or certification of value. With respect to
the financial projections prepared by managements of the Company and Rent-Way,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and
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judgments of the managements of the Company and Rent-Way as to the future
financial performance of the Company and Rent-Way.
As part of our investment banking business, we regularly issue fairness
opinions and are continually engaged in the valuation of companies and their
securities in connection with business reorganizations, private placements,
negotiated underwritings, mergers and acquisitions and valuations for estate,
corporate and other purposes. We are familiar with the Company and Rent-Way and
regularly provide investment banking services to the Company and Rent-Way and
issue periodic research reports on both the Company and Rent-Way regarding their
business activities and prospects. In the ordinary course of business, Stephens
Inc. and its affiliates at any time may hold long or short positions, and may
trade or otherwise effect transactions as principal or for the accounts of
customers, in debt or equity securities or options on securities of the Company
and Rent-Way. We are acting as financial advisor to the Company in connection
with the Transaction and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the
Transaction.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Transaction and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote on the proposed Transaction.
We are not expressing any opinion herein as to the prices at which the
Company Shares will trade following the announcement or consummation of the
Transaction.
Based on the foregoing and our general experience as investment bankers,
and subject to the qualifications stated herein, we are of the opinion on the
date hereof that the Exchange Ratio is fair from a financial point of view to
the Company.
This opinion and a summary discussion of our underlying analyses and role
as your financial advisor may be included in communications to the Company
stockholders provided that we approve of such disclosures prior to publication.
Very truly yours,
STEPHENS INC.
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ANNEX E
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated as of September 1, 1998 (this
"Agreement"), by and between RENT-WAY, INC., a Pennsylvania corporation
("Issuer"), and HOME CHOICE HOLDINGS INC., a Delaware corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer propose to enter into an Agreement and Plan of
Merger dated as of September 1, 1998 (the "Merger Agreement"; capitalized terms
not defined herein shall have the meanings set forth in the Merger Agreement),
providing for, among other things, the merger of Grantee with and into Issuer,
with Issuer as the surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's willingness to enter
into the Merger Agreement, Grantee has requested that Issuer agree, and Issuer
has agreed, to grant Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Merger
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Issuer and Grantee agree as
follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 19.9% (as adjusted as set forth herein) shares (the "Option Shares") of
Common Stock, without par value ("Issuer Common Stock"), of Issuer at a purchase
price of $29.42 per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise the Option, in whole or in
part, at any time and from time to time following the occurrence of a Purchase
Event (as defined below); provided, however, that, except as provided in the
last sentence of this Section 2(a), the Option shall terminate and be of no
further force and effect upon the earliest to occur of (i) the Effective Time,
(ii) twelve (12) months after the first occurrence of a Purchase Event or (iii)
termination of this Agreement in accordance with Section 11(k); and provided,
further that any purchase of shares upon exercise of the Option shall be subject
to compliance with Applicable Law. The rights set forth in Sections 7 and 8
shall not terminate when the right to exercise the Option terminates as set
forth herein, but shall extend to such time as is provided in Sections 7 and 8,
respectively. Notwithstanding the termination of the Option, Grantee shall be
entitled to purchase those Option Shares with respect to which it has exercised
the Option in accordance with the terms hereof prior to the termination of the
Option.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), or shall have filed
a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to, a tender offer or exchange offer to
purchase any shares of Issuer Common Stock such that, upon consummation of
such offer, such person would own or control 10% or more of the then
outstanding Issuer Common Stock;
(ii) Issuer or any subsidiary of Issuer, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced an intention to authorize, recommend or
propose, or entered into, an agreement with any person (other than Grantee
or any subsidiary of Grantee) to (A) effect a merger, consolidation or
similar transaction involving Issuer or any subsidiary of Issuer, (B) sell,
lease or otherwise dispose of assets of Issuer or its subsidiaries
representing 15% or more of the consolidated assets of Issuer and its
subsidiaries or (C) issue, sell or otherwise dispose of (including by way
of merger, consolidation, share exchange or any similar transaction)
securities representing 10% or more of the voting power of Issuer or any of
its subsidiaries (any of the foregoing an "Acquisition Transaction");
provided, however, that neither (x) any transaction permitted by Section
6.2(c)(ii) nor (y) any merger of a Rent-Way Subsidiary into Rent-Way shall
constitute an Acquisition Transaction.
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(iii) any person (other than any person or "group" (as such term is
defined under the Exchange Act) that, at the date hereof, beneficially owns
or has the right to acquire beneficial ownership (as such term is defined
in Rule 13d-3 under the Exchange Act) of 10% or more of the outstanding
shares of Issuer Common Stock shall have acquired beneficial ownership or
the right to acquire beneficial ownership of, or any group shall have been
formed which beneficially owns or has the right to acquire beneficial
ownership of, 10% or more of the then outstanding Issuer Common Stock; or
(iv) the holders of Issuer Common Stock shall not have authorized,
approved and adopted the Merger Agreement, the Merger, the Amendment and
the issuance of the shares of Common Stock of Issuer in connection with the
Merger at the meeting of such stockholders held for the purpose of voting
on the Merger Agreement and the Merger, such meeting shall not have been
held or shall have been canceled prior to termination of the Merger
Agreement or Issuer's Board of Directors shall have withdrawn or modified
in a manner adverse to Grantee the recommendation of Issuer's Board of
Directors with respect to the Merger Agreement and the Merger, in each case
after any person (other than Grantee or any subsidiary of Grantee) shall
have publicly announced a proposal, or publicly disclosed an intention to
make a proposal, to engage in an Acquisition Transaction. As used in this
Agreement, "person" shall have the meaning specified in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act.
(c) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three (3) business days nor later than fifteen (15) business days from the
Notice Date for the closing of such purchase (the "Closing Date"); provided that
if the closing of the purchase and sale pursuant to the Option cannot be
consummated by reason of any Applicable Law, the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which
such restriction on consummation has expired or been terminated.
(d) Notwithstanding Section 2(c), in no event shall any Closing Date be
more than eighteen (18) months after the related Notice Date, and if the Closing
Date shall not have occurred within eighteen (18) months after the related
Notice Date, the exercise of the Option effected on the Notice Date shall be
deemed to have expired.
3. Payment and Delivery of Certificates. (a) On each Closing Date, Grantee
shall pay to Issuer in immediately available funds by wire transfer to a bank
account designated by Issuer in writing an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased on such Closing Date.
(b) At each closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such closing, which Option Shares shall be free and clear of all liens, claims,
charges and encumbrances of any kind whatsoever, and Grantee shall deliver to
Issuer a letter agreeing that Grantee shall not offer to sell or otherwise
dispose of such Option Shares in violation of Applicable Law.
(c) Certificates for the Option Shares delivered at each closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act.
4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Issuer. This Agreement has been duly
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executed and delivered by Issuer and constitutes a valid and binding obligation
of Issuer, enforceable in accordance with its terms.
(b) Authorized Stock. Issuer has taken all necessary corporate and other
action to authorize and reserve and, subject to obtaining the governmental and
other approvals and consents referred to herein, to permit it to issue, and, at
all times from the date hereof until the obligation to deliver Issuer Common
Stock upon the exercise of the Option terminates, will have reserved for
issuance, upon exercise of the Option, shares of Issuer Common Stock necessary
for Grantee to exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 6 upon
exercise of the Option. The shares of Issuer Common Stock to be issued upon due
exercise of the Option, including all additional shares of Issuer Common Stock
or other securities which may be issuable pursuant to Section 6, upon issuance
pursuant hereto, shall be duly and validly issued, fully paid and nonassessable,
and shall be delivered free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever, including any preemptive rights
of any stockholder of Issuer.
(c) No Conflicts. Except as disclosed pursuant to the Merger Agreement, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation pursuant to any provision of the Certificate of Incorporation or
By-laws of Issuer or any subsidiary of Issuer or, subject to obtaining any
approvals or consents contemplated hereby, result in any violation of any loan
or credit agreement, note, mortgage, indenture, lease or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Issuer or any
subsidiary of Issuer or their respective properties or assets which violation
would have an HCI Material Adverse Effect (as defined in the Merger Agreement).
(d) Board Action. The Board of Directors of Issuer has taken all necessary
action to approve this Agreement and the consummation of the transactions
contemplated hereby and the provisions of Section 2538 and Subchapters 25E, 25F,
25G and 25H of the Pennsylvania Business Corporation Law will not apply to this
Agreement or the purchase of shares of Issuer Common Stock pursuant to this
Agreement.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee and constitutes a valid and binding obligation of
Grantee, enforceable in accordance with its terms.
(b) No Conflicts. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby will not result in
any violation pursuant to any provision of the Articles of Incorporation or
By-laws of Grantee or, subject to obtaining any approvals or consents
contemplated hereby, result in any violation of any loan or credit agreement,
note, mortgage, indenture, lease or other agreement, obligation, instrument
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Grantee or its properties or assets
which violation would have a Rent-Way Material Adverse Effect (as defined in the
Merger Agreement).
(c) Purchase Not for Distribution. Any Option Shares or other securities
acquired by Grantee upon exercise of the Option will not be taken with a view to
the public distribution thereof and will not be transferred or otherwise
disposed of except in a transaction registered or exempt from registration under
the Securities Act.
6. Adjustment upon Changes in Capitalization, etc. (a) In the event of any
change in Issuer Common Stock by reason of a stock dividend, split-up,
recapitalization, combination, exchange of shares or similar transaction, the
type and number of shares or securities subject to the Option shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction, so that Grantee shall receive upon exercise of the Option and
payment of the aggregate Purchase Price hereunder the number and class of shares
or other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised in full immediately prior
to such event, or the record date therefor, as applicable. Whenever the
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number of shares of Issuer Common Stock purchasable upon exercise of the Option
is adjusted as provided in this Section 6, the Purchase Price shall be adjusted
by multiplying the Purchase Price by a fraction, the numerator of which shall be
equal to the number of shares of Issuer Common Stock purchasable prior to the
adjustment and the denominator of which shall be equal to the number of shares
of Issuer Common Stock purchasable after the adjustment. If any additional
shares of Issuer Common Stock are issued after the date of this Agreement (other
than pursuant to an event described in the first sentence of this Section 6(a)
and other than in connection with the exercise of stock options of Issuer
outstanding on the date hereof), the number of shares of Issuer Common Stock
subject to the Option shall be adjusted so that, after such issuance, it equals
19.9% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the Option.
(b) In the event that Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or a subsidiary of
Grantee, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or a
subsidiary of Grantee, to merge into Issuer and Issuer shall be the continuing
or surviving corporation, but, in connection with such merger, the then
outstanding shares of Issuer Common Stock shall be changed into or exchanged for
stock or other securities of Issuer or any other person or cash or any other
property or the then outstanding shares of Issuer Common Stock shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or a
subsidiary of Grantee, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute Option")
to purchase, at the election of Grantee, of either (X) shares of capital stock
of the Acquiring Corporation (as defined below) or (Y) shares of capital stock
of any person that controls the Acquiring Corporation.
(c) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (B) Issuer in a merger in which Issuer is the continuing or
surviving person, and (C) the transferee of all or substantially all of
Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(iii) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Grantee
may elect.
(d) The Substitute Option shall have the same terms as the Option, provided
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to the Grantee. The issuer of the Substitute Option shall also
enter into an agreement with the Grantee of the Substitute Option in
substantially the same form as this Agreement, which shall be applicable to the
Substitute Option. Without limiting the generality of the foregoing, the
provisions of Sections 7, 8, 9 and 10 shall apply with respect to the Substitute
Option and any securities for which the Substitute Option becomes exercisable
with the same effect as if all references to "Issuer" in such Sections were
references to the "Substitute Option Issuer," all references to "Issuer Common
Stock" were references to "Substitute Common Stock," and all references to the
"Option" were references to the "Substitute Option."
(e) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Applicable Price (as defined below)
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Purchase
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
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denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (f), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Grantee equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (f)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (f). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Grantee.
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 6 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
7. Repurchase at the Option of Grantee. (a) At the request of Grantee at
any time during the period commencing upon the first occurrence of a Repurchase
Event (as defined below) and ending twelve (12) months immediately thereafter,
Issuer (or any successor entity thereof) shall repurchase from Grantee (x) the
Option, unless the Option shall have expired or been terminated in accordance
with the terms hereof, and (y) all shares of Issuer Common Stock purchased by
Grantee pursuant to the Option with respect to which Grantee then has beneficial
ownership. The date on which Grantee exercises its rights under this Section 7
is referred to as the "Request Date." Such repurchase shall be at an aggregate
price (the "Section 7 Repurchase Consideration") equal to the sum of:
(i) the aggregate exercise price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to which
Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 6), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 6) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Grantee for each share of
Issuer Common Stock with respect to which the Option has been exercised and
with respect to which Grantee then has beneficial ownership, multiplied by
the number of such shares.
(b) If Grantee exercises its rights under this Section 7, Issuer shall,
within ten (10) business days after the Request Date, pay the Section 7
Repurchase Consideration to Grantee in immediately available funds, and Grantee
shall surrender to Issuer the Option and the certificates evidencing the shares
of Issuer Common Stock purchased thereunder with respect to which Grantee then
has beneficial ownership, and Grantee shall warrant that it has sole record and
beneficial ownership of such shares and that the same are then free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever. If any
regulatory authority disapproves of any part of Issuer's proposed repurchase
pursuant to this Section 7, Issuer shall promptly give notice of such fact to
Grantee and redeliver to Grantee the Option Shares it is then prohibited from
repurchasing, and Grantee shall have the right to exercise the Option as to the
number of Option Shares for which the Option was exercisable at the Request Date
less the number of shares as to which payment has been made pursuant to Section
7(a)(ii); provided that if the Option shall have terminated prior to the date of
such notice or shall be scheduled to terminate at any time before the expiration
of a period ending on the thirtieth (30th) business day after such date, Grantee
shall nonetheless have the right so to exercise the Option or exercise its
rights under Section 8 until the expiration of such period of thirty (30)
business days.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share at which a tender or exchange offer
has been made for shares of Issuer Common Stock after the date hereof and on or
prior to the Request Date, (ii) the price per share to be paid by any third
party for shares of Issuer Common Stock or the consideration per share to be
received by holders of Issuer Common Stock, in each case
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pursuant to an agreement for a merger or other business combination transaction
with Issuer entered into on or prior to the Request Date or (iii) the highest
closing sales price per share of Issuer Common Stock quoted on the New York
Stock Exchange (the "NYSE") (or, if Issuer Common Stock is not quoted on the
NYSE, the highest bid price per share as quoted on the Nasdaq National Market
("Nasdaq") or, if the shares of Issuer Common Stock are not quoted thereon, on
the principal trading market on which such shares are traded as reported by a
recognized source) during the sixty (60) business days preceding the Request
Date. If the consideration to be offered, paid or received pursuant to either of
the foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Grantee and reasonably acceptable
to Issuer, which determination shall be conclusive for all purposes of this
Agreement.
(d) As used herein, a "Repurchase Event" means any of the following events:
(i) the occurrence of any of the Purchase Events specified in Section
2(b)(ii), (iii) or (iv); or
(ii) there shall have occurred any of the Purchase Events specified in
Section 2(b)(i) and thereafter the holders of Issuer Common Stock shall not
have authorized, approved and adopted the Merger Agreement and the Merger,
the Amendment and the issuance of Issuer Common Stock in connection with
the Merger at the meeting of such stockholders held for the purpose of
voting on the Merger Agreement and the Merger or such meeting shall not
have been held or shall have been canceled prior to termination of the
Merger Agreement.
8. Registration Rights. Issuer shall, if requested by Grantee at any time
and from time to time within three (3) years of the first exercise of the
Option, as expeditiously as possible, prepare and file up to two registration
statements under the Securities Act if such registration is necessary in order
to permit the sale or other disposition of any or all shares of Issuer Common
Stock or other securities that have been acquired by or are issuable to Grantee
upon exercise of the Option in accordance with the intended method of sale or
other disposition stated by Grantee, including a "shelf" registration statement
under Rule 415 under the Securities Act or any successor provision, and Issuer
shall use its best efforts to qualify such shares or other securities under any
applicable state securities laws. Grantee agrees to use all reasonable efforts
to cause, and to cause any underwriters of any sale or other disposition to
cause, any sale or other disposition pursuant to such registration statement to
be effected on a widely distributed basis so that upon consummation thereof no
purchaser or transferee shall own beneficially more than 2% of the then
outstanding voting power of Issuer. Issuer shall use all reasonable efforts to
cause each such registration statement to become effective, to obtain all
consents or waivers of other parties which are required therefor and to keep
such registration statement effective for such period not in excess of 180 days
from the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition. The obligations
of Issuer hereunder to file a registration statement and to maintain its
effectiveness may be suspended for one or more periods of time not exceeding
sixty (60) days in the aggregate if the Board of Directors of Issuer shall have
determined that the filing of such registration statement or the maintenance of
its effectiveness would require disclosure of nonpublic information that would
materially and adversely affect Issuer. Any registration statement prepared and
filed under this Section 8, and any sale covered thereby, shall be at Issuer's
expense except for underwriting discounts or commissions, brokers' fees and the
fees and disbursements of Grantee's counsel related thereto. Grantee shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If during the time period referred
to in the first sentence of this Section 8 Issuer effects a registration under
the Securities Act of Issuer Common Stock for its own account or for any other
stockholders of Issuer (other than on Form S-4 or Form S-8, or any successor
form), it shall allow Grantee the right to participate in such registration, and
such participation shall not affect the obligation of Issuer to effect two
registration statements for Grantee under this Section 8; provided that, if the
managing underwriters of such offering advise Issuer in writing that in their
opinion the number of shares of Issuer Common Stock requested to be included in
such registration exceeds the number which can be sold in such offering, Issuer
shall include the shares requested to be included therein by Grantee pro rata
with the shares intended to be included therein by Issuer. In connection with
any registration pursuant to this Section 8, Issuer and Grantee shall provide
each other and any underwriter of the offering with customary representations,
warranties, covenants, indemnification and contribution in connection with such
registration.
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9. Listing. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE or the Nasdaq, Issuer,
upon the request of Grantee, will promptly file an application to list the
shares of Issuer Common Stock or other securities to be acquired upon exercise
of the Option on the NYSE or Nasdaq, as applicable, and will use its best
efforts to obtain approval of such listing as soon as practicable.
10. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
11. Miscellaneous. (a) Expenses. Except as otherwise provided in Sections 7
and 8, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability, etc. Except
as otherwise set forth in the Merger Agreement, this Agreement (including the
Merger Agreement and the other documents and instruments referred to herein and
therein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (b) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or a federal or state regulatory agency to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Grantee to acquire,
or does not require Issuer to repurchase, the full number of shares of Issuer
Common Stock as provided in Sections 2 and 7 (as adjusted pursuant to Section
6), it is the express intention of Issuer to allow Grantee to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible
without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard to
any applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Issuer to: Rent-Way, Inc.
One Rent Way Place
Erie, Pennsylvania 16505
Attention: William E. Morgenstern
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with copies to: Hodgson, Russ, Andrews, Woods & Goodyear, LLP
1800 One M&T Plaza
Buffalo, New York 14203
Attention: Robert B. Fleming, Jr., Esq.
If to Grantee to: Home Choice Holdings Inc.
714 East Kimbrough Street
Mesquite, Texas 75149
Attention: James G. Steckart
with a copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: John D. Capers, Jr., Esq.
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
(k) Termination. This Agreement and all rights and obligations hereunder
shall terminate upon the termination of the Merger Agreement prior to the
occurrence of a Purchase Event.
[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
RENT-WAY, INC.
By: /s/ WILLIAM E. MORGENSTERN
------------------------------------
William E. Morgenstern
President
HOME CHOICE HOLDINGS INC.
By: /s/ JAMES G. STECKART
------------------------------------
James G. Steckart
President and Chief Executive
Officer
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ANNEX F
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated as of September 1, 1998 (this
"Agreement"), by and between HOME CHOICE HOLDINGS INC., a Delaware corporation
("Issuer"), and RENT-WAY, INC., a Pennsylvania corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer propose to enter into an Agreement and Plan of
Merger dated as of September 1, 1998 (the "Merger Agreement"; capitalized terms
not defined herein shall have the meanings set forth in the Merger Agreement),
providing for, among other things, the merger of Issuer with and into Grantee,
with Grantee as the surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's willingness to enter
into the Merger Agreement, Grantee has requested that Issuer agree, and Issuer
has agreed, to grant Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Merger
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Issuer and Grantee agree as
follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 19.9% (as adjusted as set forth herein) shares (the "Option Shares") of
Common Stock, par value $.01 per share ("Issuer Common Stock"), of Issuer at a
purchase price of $13.24 per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise the Option, in whole or in
part, at any time and from time to time following the occurrence of a Purchase
Event (as defined below); provided, however, that, except as provided in the
last sentence of this Section 2(a), the Option shall terminate and be of no
further force and effect upon the earliest to occur of (i) the Effective Time,
(ii) twelve (12) months after the first occurrence of a Purchase Event or (iii)
termination of this Agreement in accordance with Section 11(k); and provided,
further that any purchase of shares upon exercise of the Option shall be subject
to compliance with Applicable Law. The rights set forth in Sections 7 and 8
shall not terminate when the right to exercise the Option terminates as set
forth herein, but shall extend to such time as is provided in Sections 7 and 8,
respectively. Notwithstanding the termination of the Option, Grantee shall be
entitled to purchase those Option Shares with respect to which it has exercised
the Option in accordance with the terms hereof prior to the termination of the
Option.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), or shall have filed
a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to, a tender offer or exchange offer to
purchase any shares of Issuer Common Stock such that, upon consummation of
such offer, such person would own or control 10% or more of the then
outstanding Issuer Common Stock;
(ii) Issuer or any subsidiary of Issuer, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced an intention to authorize, recommend or
propose, or entered into, an agreement with any person (other than Grantee
or any subsidiary of Grantee) to (A) effect a merger, consolidation or
similar transaction involving Issuer or any subsidiary of Issuer, (B) sell,
lease or otherwise dispose of assets of Issuer or its subsidiaries
representing 15% or more of the consolidated assets of Issuer and its
subsidiaries or (C) issue, sell or otherwise dispose of (including by way
of merger, consolidation, share exchange or any similar transaction)
securities representing 10% or more of the voting power of Issuer or any of
its subsidiaries (any of the foregoing an "Acquisition Transaction");
provided, however, that any merger of an HCI Subsidiary into HCI shall not
constitute an Acquisition Transaction;
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(iii) any person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of, or any group shall have been formed
which beneficially owns or has the right to acquire beneficial ownership
of, 10% or more of the then outstanding Issuer Common Stock; provided,
however, that it shall not constitute a Purchase Event for any person who
on the date of this Agreement owns or has the right to acquire beneficial
ownership of Issue Common Stock to continue to own or to acquire such
Issuer Common Stock; or
(iv) the holders of Issuer Common Stock shall not have authorized,
approved and adopted the Merger Agreement and the Merger at the meeting of
such stockholders held for the purpose of voting on the Merger Agreement
and the Merger, such meeting shall not have been held or shall have been
canceled prior to termination of the Merger Agreement or Issuer's Board of
Directors shall have withdrawn or modified in a manner adverse to Grantee
the recommendation of Issuer's Board of Directors with respect to the
Merger Agreement and the Merger, in each case after any person (other than
Grantee or any subsidiary of Grantee) shall have publicly announced a
proposal, or publicly disclosed an intention to make a proposal, to engage
in an Acquisition Transaction. As used in this Agreement, "person" shall
have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the Exchange
Act.
(c) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three (3) business days nor later than fifteen (15) business days from the
Notice Date for the closing of such purchase (the "Closing Date"); provided that
if the closing of the purchase and sale pursuant to the Option cannot be
consummated by reason of any Applicable Law, the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which
such restriction on consummation has expired or been terminated.
(d) Notwithstanding Section 2(c), in no event shall any Closing Date be
more than eighteen (18) months after the related Notice Date, and if the Closing
Date shall not have occurred within eighteen (18) months after the related
Notice Date, the exercise of the Option effected on the Notice Date shall be
deemed to have expired.
3. Payment and Delivery of Certificates. (a) On each Closing Date, Grantee
shall pay to Issuer in immediately available funds by wire transfer to a bank
account designated by Issuer in writing an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased on such Closing Date.
(b) At each closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such closing, which Option Shares shall be free and clear of all liens, claims,
charges and encumbrances of any kind whatsoever, and Grantee shall deliver to
Issuer a letter agreeing that Grantee shall not offer to sell or otherwise
dispose of such Option Shares in violation of Applicable Law.
(c) Certificates for the Option Shares delivered at each closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act.
4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Issuer. This Agreement has been duly executed and delivered by Issuer and
constitutes a valid and binding obligation of Issuer, enforceable in accordance
with its terms.
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(b) Authorized Stock. Issuer has taken all necessary corporate and other
action to authorize and reserve and, subject to obtaining the governmental and
other approvals and consents referred to herein, to permit it to issue, and, at
all times from the date hereof until the obligation to deliver Issuer Common
Stock upon the exercise of the Option terminates, will have reserved for
issuance, upon exercise of the Option, shares of Issuer Common Stock necessary
for Grantee to exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 6 upon
exercise of the Option. The shares of Issuer Common Stock to be issued upon due
exercise of the Option, including all additional shares of Issuer Common Stock
or other securities which may be issuable pursuant to Section 6, upon issuance
pursuant hereto, shall be duly and validly issued, fully paid and nonassessable,
and shall be delivered free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever, including any preemptive rights
of any stockholder of Issuer.
(c) No Conflicts. Except as disclosed pursuant to the Merger Agreement, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation pursuant to any provision of the Certificate of Incorporation or
By-laws of Issuer or any subsidiary of Issuer or, subject to obtaining any
approvals or consents contemplated hereby, result in any violation of any loan
or credit agreement, note, mortgage, indenture, lease or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Issuer or any
subsidiary of Issuer or their respective properties or assets which violation
would have an HCI Material Adverse Effect (as defined in the Merger Agreement).
(d) Board Action. The Board of Directors of Issuer has taken all necessary
action to approve this Agreement and the consummation of the transactions
contemplated hereby and the provisions of Section 243 of the Delaware General
Corporation Law will not apply to this Agreement or the purchase of shares of
Issuer Common Stock pursuant to this Agreement.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee and constitutes a valid and binding obligation of
Grantee, enforceable in accordance with its terms.
(b) No Conflicts. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby will not result in
any violation pursuant to any provision of the Articles of Incorporation or
By-laws of Grantee or, subject to obtaining any approvals or consents
contemplated hereby, result in any violation of any loan or credit agreement,
note, mortgage, indenture, lease or other agreement, obligation, instrument
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Grantee or its properties or assets
which violation would have a Rent-Way Material Adverse Effect (as defined in the
Merger Agreement).
(c) Purchase Not for Distribution. Any Option Shares or other securities
acquired by Grantee upon exercise of the Option will not be taken with a view to
the public distribution thereof and will not be transferred or otherwise
disposed of except in a transaction registered or exempt from registration under
the Securities Act.
6. Adjustment upon Changes in Capitalization, etc. (a) In the event of any
change in Issuer Common Stock by reason of a stock dividend, split-up,
recapitalization, combination, exchange of shares or similar transaction, the
type and number of shares or securities subject to the Option shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction, so that Grantee shall receive upon exercise of the Option and
payment of the aggregate Purchase Price hereunder the number and class of shares
or other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised in full immediately prior
to such event, or the record date therefor, as applicable. Whenever the number
of shares of Issuer Common Stock purchasable upon exercise of the Option is
adjusted as provided in this Section 6, the Purchase Price shall be adjusted by
multiplying the Purchase Price by a fraction, the numerator of
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which shall be equal to the number of shares of Issuer Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Issuer Common Stock purchasable after the adjustment. If any
additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 6(a) and other than in connection with the exercise of stock
options of Issuer outstanding on the date hereof), the number of shares of
Issuer Common Stock subject to the Option shall be adjusted so that, after such
issuance, it equals 19.9% of the number of shares of Issuer Common Stock then
issued and outstanding, without giving effect to any shares subject to or issued
pursuant to the Option.
(b) In the event that Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or a subsidiary of
Grantee, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or a
subsidiary of Grantee, to merge into Issuer and Issuer shall be the continuing
or surviving corporation, but, in connection with such merger, the then
outstanding shares of Issuer Common Stock shall be changed into or exchanged for
stock or other securities of Issuer or any other person or cash or any other
property or the then outstanding shares of Issuer Common Stock shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or a
subsidiary of Grantee, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute Option")
to purchase, at the election of Grantee, of either (X) shares of capital stock
of the Acquiring Corporation (as defined below) or (Y) shares of capital stock
of any person that controls the Acquiring Corporation.
(c) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (B) Issuer in a merger in which Issuer is the continuing or
surviving person, and (C) the transferee of all or substantially all of
Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(iii) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Grantee
may elect.
(d) The Substitute Option shall have the same terms as the Option, provided
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to the Grantee. The issuer of the Substitute Option shall also
enter into an agreement with the Grantee of the Substitute Option in
substantially the same form as this Agreement, which shall be applicable to the
Substitute Option. Without limiting the generality of the foregoing, the
provisions of Sections 7, 8, 9 and 10 shall apply with respect to the Substitute
Option and any securities for which the Substitute Option becomes exercisable
with the same effect as if all references to "Issuer" in such Sections were
references to the "Substitute Option Issuer," all references to "Issuer Common
Stock" were references to "Substitute Common Stock," and all references to the
"Option" were references to the "Substitute Option."
(e) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Applicable Price (as defined below)
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Purchase
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
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(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (f), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Grantee equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (f)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (f). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Grantee.
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 6 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
7. Repurchase at the Option of Grantee. (a) At the request of Grantee at
any time during the period commencing upon the first occurrence of a Repurchase
Event (as defined below) and ending twelve (12) months immediately thereafter,
Issuer (or any successor entity thereof) shall repurchase from Grantee (x) the
Option, unless the Option shall have expired or been terminated in accordance
with the terms hereof, and (y) all shares of Issuer Common Stock purchased by
Grantee pursuant to the Option with respect to which Grantee then has beneficial
ownership. The date on which Grantee exercises its rights under this Section 7
is referred to as the "Request Date." Such repurchase shall be at an aggregate
price (the "Section 7 Repurchase Consideration") equal to the sum of:
(i) the aggregate exercise price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to which
Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 6), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 6) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Grantee for each share of
Issuer Common Stock with respect to which the Option has been exercised and
with respect to which Grantee then has beneficial ownership, multiplied by
the number of such shares.
(b) If Grantee exercises its rights under this Section 7, Issuer shall,
within ten (10) business days after the Request Date, pay the Section 7
Repurchase Consideration to Grantee in immediately available funds, and Grantee
shall surrender to Issuer the Option and the certificates evidencing the shares
of Issuer Common Stock purchased thereunder with respect to which Grantee then
has beneficial ownership, and Grantee shall warrant that it has sole record and
beneficial ownership of such shares and that the same are then free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever. If any
regulatory authority disapproves of any part of Issuer's proposed repurchase
pursuant to this Section 7, Issuer shall promptly give notice of such fact to
Grantee and redeliver to Grantee the Option Shares it is then prohibited from
repurchasing, and Grantee shall have the right to exercise the Option as to the
number of Option Shares for which the Option was exercisable at the Request Date
less the number of shares as to which payment has been made pursuant to Section
7(a)(ii); provided that if the Option shall have terminated prior to the date of
such notice or shall be scheduled to terminate at any time before the expiration
of a period ending on the thirtieth (30th) business day after such date, Grantee
shall nonetheless have the right so to exercise the Option or exercise its
rights under Section 8 until the expiration of such period of thirty (30)
business days.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share at which a tender or exchange offer
has been made for shares of Issuer Common Stock after the date hereof and on or
prior to the Request Date, (ii) the price per share to be paid by any third
party for shares of Issuer Common Stock or the consideration per share to be
received by holders of Issuer Common Stock, in each case pursuant to an
agreement for a merger or other business combination transaction with Issuer
entered into on or prior to the Request Date or (iii) the highest closing sales
price per share of Issuer Common Stock quoted on the
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New York Stock Exchange (the "NYSE") (or, if Issuer Common Stock is not quoted
on the NYSE, the highest bid price per share as quoted on the Nasdaq National
Market ("Nasdaq") or, if the shares of Issuer Common Stock are not quoted
thereon, on the principal trading market on which such shares are traded as
reported by a recognized source) during the sixty (60) business days preceding
the Request Date. If the consideration to be offered, paid or received pursuant
to either of the foregoing clauses (i) or (ii) shall be other than in cash, the
value of such consideration shall be determined in good faith by an independent
nationally recognized investment banking firm selected by Grantee and reasonably
acceptable to Issuer, which determination shall be conclusive for all purposes
of this Agreement.
(d) As used herein, a "Repurchase Event" means any of the following events:
(i) the occurrence of any of the Purchase Events specified in Section
2(b)(ii), (iii) or (iv); or
(ii) there shall have occurred any of the Purchase Events specified in
Section 2(b)(i) and thereafter the holders of Issuer Common Stock shall not
have authorized, approved and adopted the Merger Agreement and the Merger
at the meeting of such stockholders held for the purpose of voting on the
Merger Agreement and the Merger or such meeting shall not have been held or
shall have been canceled prior to termination of the Merger Agreement.
8. Registration Rights. Issuer shall, if requested by Grantee at any time
and from time to time within three (3) years of the first exercise of the
Option, as expeditiously as possible, prepare and file up to two registration
statements under the Securities Act if such registration is necessary in order
to permit the sale or other disposition of any or all shares of Issuer Common
Stock or other securities that have been acquired by or are issuable to Grantee
upon exercise of the Option in accordance with the intended method of sale or
other disposition stated by Grantee, including a "shelf" registration statement
under Rule 415 under the Securities Act or any successor provision, and Issuer
shall use its best efforts to qualify such shares or other securities under any
applicable state securities laws. Grantee agrees to use all reasonable efforts
to cause, and to cause any underwriters of any sale or other disposition to
cause, any sale or other disposition pursuant to such registration statement to
be effected on a widely distributed basis so that upon consummation thereof no
purchaser or transferee shall own beneficially more than 2% of the then
outstanding voting power of Issuer. Issuer shall use all reasonable efforts to
cause each such registration statement to become effective, to obtain all
consents or waivers of other parties which are required therefor and to keep
such registration statement effective for such period not in excess of 180 days
from the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition. The obligations
of Issuer hereunder to file a registration statement and to maintain its
effectiveness may be suspended for one or more periods of time not exceeding
sixty (60) days in the aggregate if the Board of Directors of Issuer shall have
determined that the filing of such registration statement or the maintenance of
its effectiveness would require disclosure of nonpublic information that would
materially and adversely affect Issuer. Any registration statement prepared and
filed under this Section 8, and any sale covered thereby, shall be at Issuer's
expense except for underwriting discounts or commissions, brokers' fees and the
fees and disbursements of Grantee's counsel related thereto. Grantee shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If during the time period referred
to in the first sentence of this Section 8 Issuer effects a registration under
the Securities Act of Issuer Common Stock for its own account or for any other
stockholders of Issuer (other than on Form S-4 or Form S-8, or any successor
form), it shall allow Grantee the right to participate in such registration, and
such participation shall not affect the obligation of Issuer to effect two
registration statements for Grantee under this Section 8; provided that, if the
managing underwriters of such offering advise Issuer in writing that in their
opinion the number of shares of Issuer Common Stock requested to be included in
such registration exceeds the number which can be sold in such offering, Issuer
shall include the shares requested to be included therein by Grantee pro rata
with the shares intended to be included therein by Issuer. In connection with
any registration pursuant to this Section 8, Issuer and Grantee shall provide
each other and any underwriter of the offering with customary representations,
warranties, covenants, indemnification and contribution in connection with such
registration.
9. Listing. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE or the Nasdaq, Issuer,
upon the request of Grantee, will promptly file an application to list the
shares of Issuer Common Stock or other securities to be acquired upon exercise
of the Option on the
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NYSE or Nasdaq, as applicable, and will use its best efforts to obtain approval
of such listing as soon as practicable.
10. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
11. Miscellaneous. (a) Expenses. Except as otherwise provided in Sections 7
and 8, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability, etc. Except
as otherwise set forth in the Merger Agreement, this Agreement (including the
Merger Agreement and the other documents and instruments referred to herein and
therein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (b) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or a federal or state regulatory agency to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Grantee to acquire,
or does not require Issuer to repurchase, the full number of shares of Issuer
Common Stock as provided in Sections 2 and 7 (as adjusted pursuant to Section
6), it is the express intention of Issuer to allow Grantee to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible
without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
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(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Issuer to: Home Choice Holdings Inc.
714 East Kimbrough Street
Mesquite, Texas 75149
Attention: James G. Steckart
with copies to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: John D. Capers, Jr., Esq.
If to Grantee to: Rent-Way, Inc.
One Rent Way Place
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.
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
(k) Termination. This Agreement and all rights and obligations hereunder
shall terminate upon the termination of the Merger Agreement prior to the
occurrence of a Purchase Event.
[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
HOME CHOICE HOLDINGS INC.
By: /s/ JAMES G. STECKART
------------------------------------
James G. Steckart
President and Chief Executive
Officer
RENT-WAY, INC.
By: /s/ WILLIAM E. MORGENSTERN
------------------------------------
William E. Morgenstern
President
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<PAGE> 143
ANNEX G
FORM OF STOCKHOLDER VOTING AGREEMENT
THIS STOCKHOLDER VOTING AGREEMENT (this "Agreement") dated as of September
1, 1998, is made by and between Home Choice Holdings Inc., a Delaware
corporation ("HCI"), and the shareholder named on the signature page hereto
("Shareholder"). On the date hereof, the Shareholder Beneficially Owns (as
defined in Section 11(a) hereof) the number of shares of common stock, without
par value (the "Rent-Way Shares"), of Rent-Way, Inc., a Pennsylvania corporation
("Rent-Way"), set forth next to the Shareholder's name on the signature page
hereto.
W I T N E S S E T H:
WHEREAS, HCI and Rent-Way concurrently herewith are entering into an
Agreement and Plan of Merger, dated as of September 1, 1998 (the "Merger
Agreement"), providing for, among other things, the merger (the "Merger") of HCI
with and into Rent-Way, with Rent-Way as the surviving corporation; and
WHEREAS, as an essential condition and inducement to HCI's execution of the
Merger Agreement, HCI has requested that the Shareholder agree, and the
Shareholder has agreed, to vote (or consent with regard to) all Rent-Way Shares
as to which the Shareholder has voting power in favor of the Merger as provided
herein.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Merger
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto (each, a
"Party"), intending to be legally bound hereby, agree as follows:
1. Voting Agreement. The Shareholder agrees that at any time the Merger
Agreement remains in effect, he will vote all Shareholder Shares (as defined
below) on matters as to which the Shareholder is entitled to vote at any annual,
special or other meeting of the Shareholders of Rent-Way, and at any adjournment
or adjournments thereof, or by written consent without a meeting, with respect
to all Shareholder Shares, as follows: (i) in favor of the authorization,
approval and adoption of the Merger Agreement and the Merger, the Amendment (as
defined in the Merger Agreement) and the issuance of shares of common stock of
Rent-Way in connection with the Merger, and each of the other transactions
contemplated by the Merger Agreement; and (ii) against any action or agreement
(other than the Merger Agreement or the transactions contemplated thereby) that
would impede, interfere with, delay, postpone or attempt to discourage the
Merger, including without limitation: (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving Rent-Way and its subsidiaries; or (B) a sale or transfer of a material
amount of assets of Rent-Way and its subsidiaries or a reorganization,
recapitalization or liquidation of Rent-Way and its subsidiaries.
"Shareholder Shares" shall mean the shares of capital stock of Rent-Way
(including without limitation the Rent-Way Shares) Beneficially Owned by such
Shareholder as of the date hereof, or Beneficially Owned by such Shareholder at
any time hereafter (including, without limitation, by way of exercise of options
or by way of dividend, distribution, exchange, merger, consolidation,
recapitalization, reorganization, stock split, grant of proxy or otherwise) by
such Shareholder (as adjusted as set forth herein). The Shareholder hereby
agrees to promptly notify HCI in writing of the number of any new Shareholder
Shares acquired by the Shareholder, if any, after the date hereof. In the event
of any change in the Rent-Way Shares by reason of a stock dividend, stock split,
split up, recapitalization, combination, exchange of shares or similar
transaction, the type and number of shares or securities that constitute
Shareholder Shares hereunder shall be adjusted appropriately.
2. Termination.
a. This Agreement shall terminate upon the earlier to occur of (i) the
termination of the Merger Agreement in accordance with its terms pursuant
to Section 9.1, 9.2, 9.3(a), 9.3(b), 9.3(c), 9.4(a), 9.4(b) or 9.4(c)
thereof, or (ii) the Effective Time (as defined in the Merger Agreement).
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b. Upon termination, this Agreement shall have no further force or
effect, except for Section 7 which shall continue to apply to any case,
action or proceeding relating to the enforcement of this Agreement.
3. Representations and Warranties of Shareholder. The Shareholder hereby
represents and warrants to HCI as follows:
a. Due Authorization. The Shareholder has the legal capacity and all
necessary power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. As of the date hereof, the
Shareholder Beneficially Owns the number of the Shareholder Shares listed
on the signature page hereof and specified as so owned with no restrictions
on the voting rights (except as specified in this Agreement) or rights of
disposition pertaining thereto, which constitute all Rent-Way Shares
Beneficially Owned by such Shareholder. Assuming this Agreement has been
duly and validly authorized, executed and delivered by HCI, this Agreement
constitutes a valid and binding agreement of the Shareholder, enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally or by the principles governing the availability
of equitable remedies.
b. No Conflicts. Neither the execution and delivery of this Agreement
nor the consummation by the Shareholder of the transactions contemplated
hereby will conflict with or constitute a violation of or default under any
contract, commitment, agreement, arrangement or restriction of any kind to
which the Shareholder is a party or by which the Shareholder is bound.
4. Representations and Warranties of HCI. HCI hereby represents and
warrants to the Shareholder as follows:
a. Due Authorization. HCI has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of HCI and this
Agreement has been duly executed by a duly authorized officer of HCI.
Assuming this Agreement has been duly and validly executed and delivered by
the Shareholder, this Agreement constitutes a valid and binding agreement
of HCI, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally or by the
principles governing the availability of equitable remedies.
b. No Conflicts. Neither the execution and delivery of this Agreement
nor the consummation by HCI of the transactions contemplated hereby will
conflict with or constitute a violation of or default under any contract,
commitment, agreement, arrangement or restriction of any kind to which HCI
is a party or by which HCI is bound.
5. No Transfer. Except as provided in this Agreement or the Merger
Agreement, the Shareholder hereby agrees, without the prior written consent of
HCI, except pursuant to the terms hereof, not to (i) sell, transfer, assign,
pledge or otherwise dispose of or hypothecate any of his Shareholder Shares
other than to a "Permitted Transferee" (as defined below) and except that the
Shareholder may transfer Shareholder Shares to Rent-Way in order to pay the
exercise price or withholding taxes applicable in connection with the exercise
of employee stock options; (ii) grant any proxies, deposit any Shareholder
Shares into a voting trust or enter into a voting agreement with respect to any
Shareholder Shares; (iii) take any action that would make any representation or
warranty of the Shareholder contained herein untrue or incorrect or have the
effect of preventing or disabling the Shareholder from performing his
obligations under this Agreement; or (iv) take any action which would jeopardize
the treatment of the Merger as a pooling of interests for accounting purposes.
For purposes of this Agreement, "Permitted Transferee" shall mean an
organization that qualifies for treatment under section 501(c)(3) of the
Internal Revenue Code of 1986, as amended. Any Permitted Transferee of
Shareholder Shares must become a party to this Agreement and any purported
transfer of Shareholder Shares to a person or entity that has not become a party
hereto shall be null and void. In furtherance of this Agreement, concurrently
herewith the Shareholder shall and hereby does hereby agree to authorize
Rent-Way to notify the Rent-Way transfer agent that there is a stop transfer
order with respect to all of the Shareholder Shares (and that this Agreement
places limits on the voting and transfer of such shares).
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<PAGE> 145
6. Entire Agreement. Other than the Merger Agreement (including the
exhibits, schedules and other documents and instruments referred to therein),
this Agreement (including the documents and instruments referred to herein) (a)
constitutes the entire agreement among the Parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the Parties, or any of them, with
respect to the subject matter hereof; (b) shall not be assigned by operation of
law or otherwise without the prior written consent of the other Party hereto;
(c) shall not be amended, altered or modified in any manner whatsoever, except
by a written instrument executed by the other Party hereto; and (d) shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the Commonwealth of Pennsylvania (without giving effect to the
provisions thereof relating to conflicts of law).
7. Remedies. The Parties acknowledge that it would be impossible to fix
money damages for violations of this Agreement and that such violations will
cause irreparable injury for which adequate remedy at law is not available and,
therefore, this Agreement must be enforced by specific performance or injunctive
relief. The Parties hereto agree that any Party may, in its sole discretion,
apply to any court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper in order
to enforce this Agreement or prevent any violation hereof and, to the extent
permitted by applicable law, each Party waives any objection or defense to the
imposition of such relief. Nothing herein shall be construed to prohibit any
Party from bringing any action for damages in addition to an action for specific
performance or an injunction for a breach of this Agreement.
8. Legends on Certificates. Until such time as this Agreement shall
terminate pursuant to Section 2 hereof, all certificates representing
Shareholder Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF
A SHAREHOLDER VOTING AGREEMENT, DATED AS OF SEPTEMBER 1, 1998, BY AND
BETWEEN HOME CHOICE HOLDINGS INC. AND THE SHAREHOLDER. ANY TRANSFEREE OF
THESE SHARES TAKES SUBJECT TO THE TERMS OF SUCH AGREEMENT, COPIES OF WHICH
ARE ON FILE AT THE OFFICES OF RENT-WAY, INC.
9. Parties in Interest. Subject to the provisions of Sections 5 and 6(b)
hereof, this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the Parties hereto and their respective successors, permitted
assigns, heirs, executors, administrators and other legal representatives, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
11. Definitions. The following terms shall have the following respective
meanings:
a. "Beneficial Owner" has the meaning set forth in Rule 13d-3 of the
Rules and Regulations to the Exchange Act, and "Beneficially Owned" and
"Beneficially Owns" shall have correlative meanings; provided, however,
that for purposes of this Agreement, a person shall be deemed to be the
Beneficial Owner of Rent-Way Shares that may be acquired pursuant to the
exercise of an option or other right regardless of when such option is
exercisable.
b. "Person" shall mean a corporation, association, partnership, joint
venture, organization, business, individual, trust, estate or any other
entity or group (within the meaning of Section 13(d)(3) of the Exchange
Act).
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<PAGE> 146
12. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or mailed by registered or certified mail (return receipt requested)
to the Parties at the following addresses (or at such other address for a Party
as shall be specified by like notice):
a. If to HCI to: Home Choice Holdings Inc.
714 E. Kimbrough Street
Mesquite, Texas 75149
Telecopy No.: 972/288-7753
Attention: James G. Steckart
with a copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Telecopy No.: 404/572-5145
Attention: John D. Capers, Jr.
b. If to the Shareholder, to the address set forth on the signature
page hereto.
13. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
15. Further Assurances. The Shareholder further agrees to execute all
additional writings, consents and authorizations as may be reasonably requested
by HCI to evidence the agreements herein.
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<PAGE> 147
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
HOME CHOICE HOLDINGS INC.
By:
------------------------------------
James G. Steckart
President and Chief Executive
Officer
SHAREHOLDER
--------------------------------------
Name:
No. of Shares Beneficially Owned:
--------------------------------------
Address for Notices:
--------------------------------------
--------------------------------------
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<PAGE> 148
ANNEX H
FORM OF STOCKHOLDER VOTING AGREEMENT
THIS STOCKHOLDER VOTING AGREEMENT (this "Agreement") dated as of September
1, 1998, is made by and between Rent-Way, Inc., a Pennsylvania corporation
("Rent-Way") and the stockholder named on the signature page hereto
("Stockholder"). On the date hereof, the Stockholder Beneficially Owns (as
defined in Section 11(a) hereof) the number of shares of common stock, par value
$.01 per share (the "HCI Shares"), of Home Choice Holdings Inc., a Delaware
corporation ("HCI"), set forth next to the Stockholder's name on the signature
page hereto.
W I T N E S S E T H:
WHEREAS, HCI and Rent-Way concurrently herewith are entering into an
Agreement and Plan of Merger, dated as of September 1, 1998 (the "Merger
Agreement"), providing for, among other things, the merger (the "Merger") of HCI
with and into Rent-Way, with Rent-Way as the surviving corporation; and
WHEREAS, as an essential condition and inducement to Rent-Way's execution
of the Merger Agreement, Rent-Way has requested that the Stockholder agree, and
the Stockholder has agreed, to vote (or consent with regard to) all HCI Shares
as to which the Stockholder has voting power in favor of the Merger as provided
herein.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Merger
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto (each, a
"Party"), intending to be legally bound hereby, agree as follows:
1. Voting Agreement. The Stockholder agrees that at any time the Merger
Agreement remains in effect, he will vote all Stockholder Shares (as defined
below) on matters as to which the Stockholder is entitled to vote at any annual,
special or other meeting of the Stockholders of HCI, and at any adjournment or
adjournments thereof, or by written consent without a meeting, with respect to
all Stockholder Shares, as follows: (i) in favor of authorization, approval and
adoption of the Merger Agreement and the Merger and each of the other
transactions contemplated by the Merger Agreement; and (ii) against any action
or agreement (other than the Merger Agreement or the transactions contemplated
thereby) that would impede, interfere with, delay, postpone or attempt to
discourage the Merger, including without limitation: (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving HCI and its subsidiaries; or (B) a sale or transfer of a
material amount of assets of HCI and its subsidiaries or a reorganization,
recapitalization or liquidation of HCI and its subsidiaries.
"Stockholder Shares" shall mean the shares of capital stock of HCI
(including without limitation the HCI Shares) Beneficially Owned by such
Stockholder as of the date hereof, or Beneficially Owned by such Stockholder at
any time hereafter (including, without limitation, by way of exercise of options
or by way of dividend, distribution, exchange, merger, consolidation,
recapitalization, reorganization, stock split, grant of proxy or otherwise) by
such Stockholder (as adjusted as set forth herein). The Stockholder hereby
agrees to promptly notify Rent-Way in writing of the number of any new
Stockholder Shares acquired by the Stockholder, if any, after the date hereof.
In the event of any change in the HCI Shares by reason of a stock dividend,
stock split, split up, recapitalization, combination, exchange of shares or
similar transaction, the type and number of shares or securities that constitute
Stockholder Shares hereunder shall be adjusted appropriately.
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<PAGE> 149
2. Termination.
a. This Agreement shall terminate upon the earlier to occur of (i) the
termination of the Merger Agreement in accordance with its terms pursuant
to Section 9.1, 9.2, 9.3(a), 9.3(b), 9.3(c), 9.4(a), 9.4(b) or 9.4(c)
thereof, or (ii) the Effective Time (as defined in the Merger Agreement).
b. Upon termination, this Agreement shall have no further force or
effect, except for Section 7 which shall continue to apply to any case,
action or proceeding relating to the enforcement of this Agreement.
3. Representations and Warranties of Stockholder. The Stockholder hereby
represents and warrants to Rent-Way as follows:
a. Due Authorization. The Stockholder has the legal capacity and all
necessary power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. As of the date hereof, the
Stockholder Beneficially Owns the number of the Stockholder Shares listed
on the signature page hereof and specified as so owned with no restrictions
on the voting rights (except as specified in this Agreement) or rights of
disposition pertaining thereto, which constitute all HCI Shares
Beneficially Owned by such Stockholder. Assuming this Agreement has been
duly and validly authorized, executed and delivered by Rent-Way, this
Agreement constitutes a valid and binding agreement of the Stockholder,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by the principles governing the
availability of equitable remedies.
b. No Conflicts. Neither the execution and delivery of this Agreement
nor the consummation by the Stockholder of the transactions contemplated
hereby will conflict with or constitute a violation of or default under any
contract, commitment, agreement, arrangement or restriction of any kind to
which the Stockholder is a party or by which the Stockholder is bound.
4. Representations and Warranties of Rent-Way. Rent-Way hereby represents
and warrants to the Stockholder as follows:
a. Due Authorization. Rent-Way has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of Rent-Way and
this Agreement has been duly executed by a duly authorized officer of
Rent-Way. Assuming this Agreement has been duly and validly executed and
delivered by the Stockholder, this Agreement constitutes a valid and
binding agreement of Rent-Way, enforceable against it in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by the principles governing the availability of equitable
remedies.
b. No Conflicts. Neither the execution and delivery of this Agreement
nor the consummation by Rent-Way of the transactions contemplated hereby
will conflict with or constitute a violation of or default under any
contract, commitment, agreement, arrangement or restriction of any kind to
which Rent-Way is a party or by which Rent-Way is bound.
5. No Transfer. Except as provided in this Agreement or the Merger
Agreement, the Stockholder hereby agrees, without the prior written consent of
Rent-Way, except pursuant to the terms hereof, not to (i) sell, transfer,
assign, pledge or otherwise dispose of or hypothecate any of his Stockholder
Shares other than to a "Permitted Transferee" (as defined below) and except that
the Stockholder may transfer Stockholder Shares to HCI in order to pay the
exercise price or withholding taxes applicable in connection with the exercise
of employee stock options; (ii) grant any proxies, deposit any Stockholder
Shares into a voting trust or enter into a voting agreement with respect to any
Stockholder Shares; (iii) take any action that would make any representation or
warranty of the Stockholder contained herein untrue or incorrect or have the
effect of preventing or disabling the Stockholder from performing his
obligations under this Agreement; or (iv) take any action which would jeopardize
the treatment of the Merger as a pooling of interests for accounting purposes.
For purposes of this Agreement, "Permitted Transferee" shall mean an
organization that qualifies for treatment under section 501(c)(3) of the
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<PAGE> 150
Internal Revenue Code of 1986, as amended. Any Permitted Transferee of
Stockholder Shares must become a party to this Agreement and any purported
transfer of Stockholder Shares to a person or entity that has not become a party
hereto shall be null and void. In furtherance of this Agreement, concurrently
herewith the Stockholder shall and hereby does hereby agree to authorize HCI to
notify the HCI transfer agent that there is a stop transfer order with respect
to all of the Stockholder Shares (and that this Agreement places limits on the
voting and transfer of such shares).
6. Entire Agreement. Other than the Merger Agreement (including the
exhibits, schedules and other documents and instruments referred to therein),
this Agreement (including the documents and instruments referred to herein) (a)
constitutes the entire agreement among the Parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the Parties, or any of them, with
respect to the subject matter hereof; (b) shall not be assigned by operation of
law or otherwise without the prior written consent of the other Party hereto;
(c) shall not be amended, altered or modified in any manner whatsoever, except
by a written instrument executed by the other Party hereto; and (d) shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the State of Delaware (without giving effect to the provisions thereof
relating to conflicts of law).
7. Remedies. The Parties acknowledge that it would be impossible to fix
money damages for violations of this Agreement and that such violations will
cause irreparable injury for which adequate remedy at law is not available and,
therefore, this Agreement must be enforced by specific performance or injunctive
relief. The Parties hereto agree that any Party may, in its sole discretion,
apply to any court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper in order
to enforce this Agreement or prevent any violation hereof and, to the extent
permitted by applicable law, each Party waives any objection or defense to the
imposition of such relief. Nothing herein shall be construed to prohibit any
Party from bringing any action for damages in addition to an action for specific
performance or an injunction for a breach of this Agreement.
8. Legends on Certificates. Until such time as this Agreement shall
terminate pursuant to Section 2 hereof, all certificates representing
Stockholder Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF
A STOCKHOLDER VOTING AGREEMENT, DATED AS OF SEPTEMBER 1, 1998, BY AND
BETWEEN RENT-WAY, INC. AND THE STOCKHOLDER. ANY TRANSFEREE OF THESE SHARES
TAKES SUBJECT TO THE TERMS OF SUCH AGREEMENT, COPIES OF WHICH ARE ON FILE
AT THE OFFICES OF HOME CHOICE HOLDINGS INC.
9. Parties in Interest. Subject to the provisions of Sections 5 and 6(b)
hereof, this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the Parties hereto and their respective successors, permitted
assigns, heirs, executors, administrators and other legal representatives, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
11. Definitions. The following terms shall have the following respective
meanings:
a. "Beneficial Owner" has the meaning set forth in Rule 13d-3 of the
Rules and Regulations to the Exchange Act, and "Beneficially Owned" and
"Beneficially Owns" shall have correlative meanings; provided, however,
that for purposes of this Agreement, a person shall be deemed to be the
Beneficial Owner of HCI Shares that may be acquired pursuant to the
exercise of an option or other right regardless of when such option is
exercisable.
b. "Person" shall mean a corporation, association, partnership, joint
venture, organization, business, individual, trust, estate or any other
entity or group (within the meaning of Section 13(d)(3) of the Exchange
Act).
H-3
<PAGE> 151
12. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or mailed by registered or certified mail (return receipt requested)
to the Parties at the following addresses (or at such other address for a Party
as shall be specified by like notice):
a. If to Rent-Way to: Rent-Way, Inc.
3230 West Lake Road
Erie, Pennsylvania 16505
Attention: William E. Morgenstern
Telephone: (814) 836-0618
Facsimile: (814) 835-6908
with a copy to: Hodgson, Russ, Andrews, Woods
& Goodyear, LLP
1800 One M&T Plaza
Buffalo, New York 14203
Attention: Robert B. Fleming, Jr.
Telephone: (716) 856-4000
Facsimile: (716) 849-0349
b. If to the Stockholder, to the address set forth on the signature
page hereto.
13. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
15. Further Assurances. The Stockholder further agrees to execute all
additional writings, consents and authorizations as may be reasonably requested
by Rent-Way to evidence the agreements herein.
[SIGNATURES FOLLOW ON NEXT PAGE]
H-4
<PAGE> 152
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
RENT-WAY, INC.
By:
------------------------------------
William E. Morgenstern
President and Chief Executive
Officer
STOCKHOLDER
--------------------------------------
Name:
No. of Shares Beneficially Owned:
--------------------------------------
Address for Notices:
--------------------------------------
--------------------------------------
H-5
<PAGE> 153
ANNEX I
RENT-WAY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gerald A. Ryan and William E.
Morgenstern, and each of them, as proxies, with full power of
substitution, and authorizes them, and each of them, to vote and act
with respect to all shares of common stock of Rent-Way, Inc. which the
undersigned is entitled to vote at the Special Meeting of Shareholders
to be held on December 10, 1998, at 10:00 a.m. local time, at the
offices of Hodgson, Russ, Andrews, Woods & Goodyear LLP which are
located at the 20th Floor, One M&T Plaza, Buffalo, New York 14203, and
at any and all adjournments or postponements thereof.
The Board of Directors recommends a vote FOR the following
proposal:
TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF
SEPTEMBER 1, 1998, BY AND BETWEEN RENT-WAY, INC. AND HOME CHOICE
HOLDINGS, INC. (THE "MERGER AGREEMENT") AND THE TRANSACTIONS
CONTEMPLATED THEREBY INCLUDING THE ISSUANCE OF SHARES OF RENT-WAY
COMMON STOCK PURSUANT TO THE MERGER AGREEMENT (THE "STOCK
ISSUANCE") AND THE AMENDMENT OF RENT-WAY'S ARTICLES OF
INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF RENT-WAY COMMON
STOCK FROM 20,000,000 TO 50,000,000 (THE "ARTICLES AMENDMENT").
PURSUANT TO THE MERGER AGREEMENT, EACH SHARE OF HOME CHOICE COMMON
STOCK OUTSTANDING AT THE EFFECTIVE TIME OF THE MERGER WILL BE
CONVERTED INTO THE RIGHT TO RECEIVE 0.588 SHARES OF RENT-WAY
COMMON STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such
other matters incident to the conduct of the meeting.
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
(Continued on reverse side)
P
R
O
X
Y
(Continued from other side)
THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A
CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL OF THE MERGER
AGREEMENT, INCLUDING THE STOCK ISSUANCE AND THE ARTICLES AMENDMENT.
Date , 1998
------------------------------
Signature
------------------------------
Signature
NAME(S) SHOULD BE SIGNED
EXACTLY AS SHOWN TO THE LEFT
HEREOF. TITLE SHOULD BE ADDED
IF SIGNING AS EXECUTOR,
ADMINISTRATOR, TRUSTEE, ETC.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE
Proxy Card
<PAGE> 154
ANNEX J
HOME CHOICE HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George D. Johnson, Jr. and James
G. Steckart and each of them, as proxies, with full power of
substitution, and authorizes them, and each of them, to vote and act
with respect to all shares of common stock of Home Choice Holdings,
Inc. which the undersigned is entitled to vote at the Special Meeting
of Stockholders to be held on December 10, 1998, at 11:00 a.m., local
time, at the offices of Hodgson, Russ, Andrews, Woods & Goodyear LLP
which are located at the 20th Floor, One M&T Plaza, Buffalo, New York
14203, and at any and all adjournments or postponements thereof.
The Board of Directors recommends a vote FOR the following
proposal:
TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF
SEPTEMBER 1, 1998, BY AND BETWEEN RENT-WAY, INC. AND HOME CHOICE
HOLDINGS, INC. (THE "MERGER AGREEMENT"). PURSUANT TO THE MERGER
AGREEMENT, EACH SHARE OF HOME CHOICE COMMON STOCK OUTSTANDING AT
THE EFFECTIVE TIME OF THE MERGER WILL BE CONVERTED INTO THE RIGHT
TO RECEIVE 0.588 SHARES OF RENT-WAY COMMON STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such
other matters incident to the conduct of the meeting.
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
(Continued on reverse side)
P
R
O
X
Y
(Continued from other side)
THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A
CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
Date , 1998
------------------------------
Signature
------------------------------
Signature
NAME(S) SHOULD BE SIGNED
EXACTLY AS SHOWN TO THE LEFT
HEREOF. TITLE SHOULD BE ADDED
IF SIGNING AS EXECUTOR,
ADMINISTRATOR, TRUSTEE, ETC.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE
Proxy Card
<PAGE> 155
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The provisions of Sections 1741 through 1750 of the Pennsylvania Business
Corporation Law provide that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any action
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a representative of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
the action or proceeding if they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation. To the extent that a representative of the corporation has been
successful on the merits or otherwise in defense of any action or proceeding or
in defense of any claim, issue or matter therein, the corporation is required by
the Pennsylvania Business Corporation Law to indemnify them against expenses
actually and reasonably incurred by them in connection with such defense.
Rent-Way's By-Laws provide that it shall indemnify its officers and
directors against claims arising from actions taken in their official capacity
except where the conduct giving rise to the claim is finally determined by a
court or in arbitration to have constituted willful misconduct or recklessness
or to have involved the receipt from Rent-Way of a personal benefit to which the
officer or director was not entitled, or where such indemnification has been
determined in a final adjudication to be unlawful. Rent-Way may create a fund,
trust or other arrangement to secure the indemnification. In addition, Rent-Way
is required to pay the expenses of defending the claim in advance of final
adjudication upon the receipt of an undertaking by the officer or director to
repay such advanced amounts if it is ultimately determined that the officer or
director is not entitled to be indemnified. These provisions of the By-Laws are
expressly permitted pursuant to the Pennsylvania Business Corporation Law.
Item 21. Exhibits
(a) EXHIBITS: See Exhibit Index.
(b) FINANCIAL STATEMENT SCHEDULES: All financial statement schedules are
omitted as the required information is inapplicable.
(c) FAIRNESS OPINIONS: The fairness opinion of NationsBanc Montgomery
Securities LLC is attached as Annex B to the Joint Proxy
Statement/Prospectus.
The fairness opinion of Donaldson, Lufkin & Jenrette Securities
Corporation is attached as Annex C to the Joint Proxy Statement/Prospectus.
The fairness opinion of Stephens Inc. is attached as Annex D
to the Joint Proxy Statement/Prospectus.
Item 22. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the
II-1
<PAGE> 156
Exchange Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(e) The undersigned Registrant also hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
Provided, however, that paragraphs (e)(1)(i) and (e)(1)(ii) do
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or 15(d) of
the Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offer thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(f) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
Prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(g) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (f) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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<PAGE> 157
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized in the City of Erie, State of Pennsylvania, on
November 5, 1998.
RENT-WAY, INC.
By: /s/ William E. Morgenstern
------------------------------
William E. Morgenstern, President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of William E. Morgenstern and Jeffrey A. Conway, with full power to act
without the other, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, to sign any
and all applications, registration statements, notices and other documents
necessary or advisable to comply with the applicable state securities laws, and
to file the same, together with all other documents in connection therewith,
with the appropriate state securities authorities, granting unto said
attorneys-in-fact and agents or any of them, or their or his substitutes or
substitute, full power and authority to perform and do each and every act and
thing necessary and advisable as fully to all intents and purposes and he might
or could perform and do in person, thereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
II-3
<PAGE> 158
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Gerald A. Ryan
- --------------------------- Chairman of the Board November 5, 1998
Gerald A. Ryan and Director
/s/ William E. Morgenstern
- --------------------------- President, Chief Executive November 5, 1998
William E. Morgenstern Officer and Director
(Principal Executive
Officer)
/s/ Jeffrey A. Conway
- --------------------------- Vice President and Chief November 5, 1998
Jeffrey A. Conway Financial Officer
(Principal Financial and
Accounting Officer)
/s/ William Lerner
- --------------------------- Director November 5, 1998
William Lerner
/s/ Vincent A. Carrino
- --------------------------- Director November 5, 1998
Vincent A. Carrino
/s/ Robert B. Fagenson
- --------------------------- Director November 5, 1998
Robert B. Fagenson
/s/ Marc W. Joseffer
- --------------------------- Director November 5, 1998
Marc W. Joseffer
/s/ Paul N. Upchurch
- --------------------------- Director November 5, 1998
Paul N. Upchurch
II-4
<PAGE> 159
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Agreement and Plan of Merger, dated as of September 1, 1998, by and between
Rent-Way and Home Choice (included as Annex A to the accompanying Joint
Proxy Statement/Prospectus).
2.2 Form of Stockholder Voting Agreement, dated as of September 1, 1998, by and
between Home Choice and each of Gerald A. Ryan and William E. Morgenstern
(included as Annex G to the accompanying Joint Proxy Statement/
Prospectus).
2.3 Form of Stockholder Voting Agreement, dated as of September 1, 1998, by and
between Rent-Way and each of Michael D. Walts and GDJ, Jr. Investments
Limited Partnership (included as Annex H to the accompanying Joint Proxy
Statement/Prospectus).
3.1 The Articles of Incorporation of Rent-Way, incorporated by reference to
Exhibit 3.1 of Rent-Way's Annual Report on Form 10-K for the year ended
September 30, 1997 (as amended pursuant to the Agreement and Plan of Merger
which amendment is included as Annex A to the accompanying Joint Proxy
Statement/ Prospectus).
3.2 The By-laws of Rent-Way, incorporated by reference to Rent-Way's
Registration Statement on Form S-18 (No. 33-55562-NY).
5.1 Opinion of Hodgson, Russ, Andrews, Woods & Goodyear, LLP as to the legality
of the securities being registered.
8.1 Opinion of Hodgson, Russ, Andrews, Woods & Goodyear, LLP concerning certain
federal income tax consequences of the merger.
10.1 Form of Noncompetition Agreement by and between Rent-Way and Mr. George
Johnson.
23.1 Consent of Hodgson, Russ, Andrews, Woods & Goodyear LLP (included in
Exhibit 5.1).
23.2 Consent of Hodgson, Russ, Andrews, Woods & Goodyear LLP (included in
Exhibit 8.1).
23.3 Consent of NationsBanc Montgomery Securities LLC (included in the fairness
opinion attached as Annex B to the accompanying Joint Proxy
Statement/Prospectus).
23.4 Consent of Donaldson, Lufkin & Jenrette Securities Corporation.
23.5 Consent of Stephens Inc.
23.6 Consent of PricewaterhouseCoopers LLP.
23.7 Consent of PricewaterhouseCoopers LLP.
23.8 Consent of Ernst & Young LLP.
23.9 Consent of Grant Thornton LLP.
24.1 Power of Attorney (included on the signature page filed here).
99.1 Stock Option Agreement, dated as of September 1, 1998, by and between
Rent-Way and Home Choice (included as Annex E to the accompanying Joint
Proxy Statement/Prospectus).
99.2 Stock Option Agreement, dated as of September 1, 1998, by and between Home
Choice and Rent-Way (included as Annex F to the accompanying Joint Proxy
Statement/Prospectus).
99.3 Form of Proxy for Special Meeting of Shareholders of Rent-Way (included as
Annex I to the accompanying Joint Proxy Statement/Prospectus).
99.4 Form of Proxy for Special Meeting of Stockholders of Home Choice (included
as Annex J to the accompanying Joint Proxy Statement/Prospectus).
<PAGE> 1
EXHIBIT 5.1
HODGSON, RUSS, ANDREWS, WOODS & GOODYEAR, LLP
1800 ONE M&T PLAZA
BUFFALO, NEW YORK 14203
November 5, 1998
Rent-Way, Inc.
3230 West Lake Road
Erie, Pennsylvania 16505
Ladies and Gentlemen:
Re: Registration Statement on Form S-4 (No. 333- )
We are delivering this opinion at your request in connection
with the registration by Rent-Way, Inc. (the "Company") under the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations thereunder, of
10,011,093 shares of Common Stock, without par value, of the Company (the
"Shares") to be issued by the Company to holders of common stock of Home Choice
Holdings, Inc. ("Home Choice") in exchange for each share of Home Choice common
stock acquired by Rent-Way in the Merger, as set forth in the Joint Proxy
Statement/Prospectus (the "Prospectus") forming a part of the above-referenced
registration statement (the "Registration Statement").
The opinion set forth in this letter is based upon (1) our
review of (a) the Agreement and Plan of Merger in the form included as Exhibit
2.1 to the Registration Statement (the "Underwriting Agreement"), (b) originals,
or copies authenticated to our satisfaction, of the Company's Articles of
Incorporation, as amended, its By-Laws, as amended, and records of certain of
its corporate proceedings and (c) such other certificates, opinions and
instruments we have deemed necessary and (2) our review of published sources of
law as we have deemed necessary. We have assumed that when the Shares are issued
either appropriate certificates complying with applicable law evidencing the
Shares will be properly executed or such Shares will be uncertificated shares
complying with applicable law.
Based upon the foregoing, it is our opinion that the Shares
have been duly authorized, and when the Shares are issued in exchange for shares
of Home Choice common stock as contemplated by the Prospectus, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this letter as Exhibit 5.1
to the Registration Statement and the reference to this firm in the Prospectus
under the caption "Legal Matters."
Very truly yours,
HODGSON, RUSS, ANDREWS, WOODS & GOODYEAR, LLP
By /s/ JOHN J. ZAK
------------------------------------------
John J. Zak
<PAGE> 1
EXHIBIT 8.1
TAX OPINION OF HODGSON, RUSS, ANDREWS, WOODS & GOODYEAR LLP
November 5, 1998
Ladies and Gentlemen:
Re: Agreement and Plan of Merger by and between
Rent-Way, Inc. and Home Choice Holdings Inc.
We have acted as counsel to Rent-Way, Inc., a Pennsylvania
corporation ("Rent-Way"), in connection with the proposed merger (the "Merger")
of Home Choice Holdings Inc., a Delaware corporation ("HCI") with and into
Rent-Way, pursuant to the terms of the Agreement and Plan of Merger by and
between Rent-Way and HCI dated as of September 1, 1998 (the "Agreement") and the
Form S-4 Registration Statement filed by Rent-Way with the Securities and
Exchange Commission on November __, 1998 (as thereafter amended from time to
time with all exhibits thereto, the "Registration Statement") which includes the
Joint Proxy Statement of Rent-Way and HCI and the Prospectus of Rent-Way (the
"Proxy Statement/Prospectus"). This opinion is being rendered pursuant to
Section 8.1(g) of the Agreement. All capitalized terms, unless otherwise
specified, have the meaning assigned to them in the Agreement.
In connection with this opinion, we have examined and are
familiar with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Agreement, (ii) the Registration Statement including
the Proxy Statement/Prospectus, and (iii) such other documents as we have deemed
necessary or appropriate in order to enable us to render the opinions below. In
our examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. In rendering the opinion set forth below, we have
relied upon certain written representations and covenants contained in letters
to us from each of Rent-Way and HCI, which are annexed hereto.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, pertinent judicial authorities, interpretive rulings of
the Internal Revenue Service and such other authorities as we have considered
relevant.
<PAGE> 2
- 2 -
Based upon and subject to the foregoing, we are of the opinion
that the Merger will, under current law, constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the Code, and Rent-Way and HCI
will each be a party to the reorganization within the meaning of Section 368(b)
of the Code.
As a tax-free reorganization, the Merger will have the
following Federal income tax consequences for HCI stockholders, HCI and
Rent-Way:
1. No gain or loss will be recognized by holders of common
stock of HCI ("HCI Common Stock") as a result of the
exchange of such shares for shares of Rent-Way common
stock ("Rent-Way Common Stock") pursuant to the Merger,
except that gain or loss will be recognized on the
receipt of cash, if any, received in lieu of fractional
shares. Any cash received by a stockholder of HCI in
lieu of a fractional share will be treated as received
in exchange for such fractional share, and if such
stockholder holds HCI Common Stock as a capital asset at
the Effective Time, any gain or loss recognized as a
result of the receipt of such cash will be capital gain
or loss equal to the difference between the cash
received and the portion of the stockholder's basis in
HCI Common Stock allocable to such fractional share
interest.
2. The tax basis of the shares of Rent-Way Common Stock
received by each stockholder of HCI will equal the tax
basis of such stockholder's shares of HCI Common Stock
(reduced by any amount allocable to fractional share
interests for which cash is received) exchanged in the
Merger.
3. The holding period for the shares of Rent-Way Common
Stock received by each stockholder of HCI will include
the holding period for the shares of HCI Common Stock of
such stockholder exchanged in the Merger, provided that
the HCI Common Stock so exchanged are held as capital
assets at the Effective Time.
4. Rent-Way will not recognize gain or loss as a result of
the Merger.
5. HCI will not recognize gain or loss as a result of the
Merger.
We confirm that the discussion in the Proxy
Statement/Prospectus under the caption "Certain Federal Income Tax Consequences
of the Merger" insofar as it constitutes statements of federal income tax law
or legal conclusions, subject to the assumptions, limitations and qualifications
set forth therein, constitutes our opinion with respect to such matters.
<PAGE> 3
- 3 -
Except as set forth above, we express no opinion as to the tax
consequences to any party, whether Federal, state, local or foreign, of the
Merger or of any transactions related to the Merger or contemplated by the
Agreement. This opinion is being furnished only to you in connection with the
Merger and for your benefit in connection therewith and, except for the
disclosure of such opinion in the Proxy Statement/Prospectus and except for
reliance thereon by the stockholders, each of which we hereby consent to, may
not be used or relied upon for any other purpose and may not be circulated,
quoted or otherwise referred to for any other purpose without our express
written consent.
Very truly yours,
HODGSON, RUSS, ANDREWS, WOODS & GOODYEAR LLP
By /s/ Alice A. Joseffer
------------------------------------------
<PAGE> 1
EXHIBIT 10.1
NON-COMPETITION AGREEMENT
This NON-COMPETITION AGREEMENT (the "Agreement") is entered
into as of ___________________, 1998 (the "Effective Date") by and among
Rent-Way, Inc., a Pennsylvania corporation (the "Surviving Corporation"), and
George D. Johnson, an individual residing at 1022 Glendalyn Circle, Spartenburg,
South Carolina 29302 (the "Executive").
RECITALS
A. Home Choice Holdings Inc., a Delaware corporation (the
"Company") and the Surviving Corporation have entered into a certain Agreement
and Plan of Merger dated as of September 1, 1998 (the "Merger Agreement"),
pursuant to which the Company will merge with and into the Surviving Corporation
(the "Merger"). Capitalized terms not defined herein shall have the meanings
ascribed to them in the Merger Agreement.
B. The Executive is a major stockholder of the Company and has
had extensive experience in the rental purchase industry as a director,
stockholder and executive of the Company and its predecessors and subsidiaries.
C. It is a condition to the Surviving Corporation's
obligations to consummate the transactions contemplated by the Merger Agreement
that the Executive enter into this Non-Competition Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and in the Merger Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and affirmed, the parties hereto, intending to be legally bound,
hereby agree as follows:
AGREEMENT
1. NON-COMPETITION. As material consideration for the
Surviving Corporation's performance of its obligations under and as provided for
in the Merger Agreement, for all benefits to be conferred on the Executive and
his affiliates pursuant to and in connection with the transactions contemplated
by the Merger Agreement, and in order to protect the confidential information of
the Company and the Surviving Corporation, Executive covenants and agrees, for
the benefit of the Surviving Corporation and each subsidiary of the Surviving
Corporation, that for three years after the Effective Date the Executive shall
not, directly or indirectly, do any of the following:
(a) engage in any rental purchase, rental or rent-to-own
business or any related business activities that are competitive with the
current rental purchase, rental, rent-to-own and related business of the Company
or of the Surviving Corporation in the states, or otherwise within a twenty-
<PAGE> 2
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five mile radius of any store location, at which the Surviving Corporation
conducts or at which, immediately prior to the Merger, the Company conducted its
rental purchase, rental, rent-to-own and related business all of which states
and locations are set forth on Exhibit A attached hereto [TO BE ATTACHED AT
SIGNING]. As used herein, the term "engage in any business" shall mean and be
deemed to include, but not be limited to: (i) directly engaging in a business;
or (ii) carrying on a business through: (a) a general or limited or partnership
in which Executive is a general or limited partner; (b) any joint venture in
which Executive is an owner; or (c) any corporation in which Executive is an
officer, director, employee, shareholder, option holder or consultant.
Notwithstanding the foregoing, the Executive shall be entitled (A) to own
Rent-Way Common Stock, including RWI Shares received in connection with the
Merger and (B) to purchase or own, solely as a passive investment, up to two
percent (2%) of the issued and outstanding shares of any securities of any
corporation the shares of common stock of which are traded on a national
securities exchange or on the Nasdaq National Market which is engaged in
business that is competitive to that of the Surviving Corporation; provided that
Executive renders no advice of any kind to management of such corporation and
does not actively participate in or control, directly or indirectly, any
investment or other decision with respect to such corporation or other entity
without the express prior written consent of Surviving Corporation exercisable
in its sole discretion;
(b) solicit any employee of the Surviving Corporation with
whom the Executive has had contact or any subsidiary of the Surviving
Corporation with whom the Executive has had contact to terminate his or her
employment with the Surviving Corporation or such subsidiary of the Surviving
Corporation; or
(c) intentionally cause, by word or deed, any person, firm,
corporation or other entity having a business relationship with the Surviving
Corporation or any subsidiary of the Surviving Corporation to sever such
relationship with, or commit any act inimical to, the Surviving Corporation or
such subsidiary of the Surviving Corporation.
2. CONFIDENTIALITY. As material consideration for the
Surviving Corporation's performance of its obligations under and as provided for
in the Merger Agreement, for all benefits to be conferred on Executive and his
affiliates pursuant to and in connection with the consummation of the
transactions contemplated by the Merger Agreement, and in order to protect the
confidential information of the Company and the Surviving Corporation and their
subsidiaries, Executive covenants and agrees, for the benefit of the Surviving
Corporation and each subsidiary of the Surviving Corporation, that the Executive
shall not for a period of three years after the Effective Date use for his
personal benefit, or disclose, communicate, or divulge to, or use for the direct
or indirect benefit of any person, firm, association, or company other than the
Surviving Corporation or any subsidiary of the Surviving Corporation, any
Confidential Information. "Confidential Information" means information relating
to the products, services, customers, or operations of the Company, the
Surviving Corporation or any subsidiary of the Surviving Corporation, that (a)
is not generally known, (b) is or was proprietary to the Company, the Surviving
Corporation or any subsidiary of the Surviving Corporation, and (c) is made
known to Executive or learned or acquired by Executive while serving
<PAGE> 3
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the Company, or any subsidiary or predecessor thereof, in any capacity. However,
Confidential Information shall not include under any circumstances any
information with respect to the foregoing matters that becomes publicly
available through no fault of Executive.
3. REMEDIES; RESOLUTION OF DISPUTES. The parties hereto
acknowledge that the Surviving Corporation and each subsidiary of the Surviving
Corporation would be irreparably harmed by a breach of this Agreement by
Executive and that it would not be possible to estimate damages resulting from
such a breach and, consequently, the parties hereto agree that the Surviving
Corporation and each subsidiary of the Surviving Corporation (each of which may
act alone to enforce the provisions of this Agreement) shall be entitled to
injunctive or other equitable relief to prevent a breach or continuing breach of
this Agreement, or any part hereof, and to secure the enforcement of this
Agreement, in addition to any other remedy which may be available to the
Surviving Corporation or each subsidiary of the Surviving Corporation at law or
in equity, and shall be entitled to recover from Executive reasonable attorneys'
fees and all costs and expenses incurred in connection with any such action.
4. AMENDMENT; WAIVER. This Agreement may not be amended or
modified except by a writing signed by each of Executive and the Surviving
Corporation. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provisions, whether or not
similar, nor shall any waiver of any other provision constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party
making the waiver.
5. ENTIRE AGREEMENT. This Agreement supersedes any other
agreement, whether written or oral, that may have been made or entered into by
the Company or Surviving Corporation (or by any director, officer or
representative of the Surviving Corporation or Company) or by Executive with
respect to the subject matter hereof. This Agreement constitutes the entire
agreement by and between the parties hereto with respect to the subject matter
hereof.
6. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given on the earlier
of (a) the date actually received by the party in question, by whatever means
and however addressed, or (b) the date sent if sent by telecopy (answerback
received), or on the date of personal delivery if delivered by hand, or on the
date signed for if sent by an overnight delivery service, to the following
addresses, or to such other address for a party as shall be specified by like
notice:
To Executive:
George D. Johnson
1022 Glendalyn Circle
Spartenburg, South Carolina 29302
Telecopier: (864) 585-9244
<PAGE> 4
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With a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: John D. Capers, Jr.
Telecopy: (404) 572-5100
To Surviving Corporation:
Rent-Way, Inc.
One Rent-Way Place
Erie, Pennsylvania 16505
Telecopy: (814) 455-3267
Attention: President
With a copy to:
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
1800 One M&T Plaza
Buffalo, New York 14203
Attn: Robert B. Fleming, Jr.
Telecopy: (716) 849-0349
The failure of any party to deliver any notice to any of the
above persons specified to receive copies of notices, demands or requests shall
not limit the effectiveness of any notice given in accordance herewith to either
Executive or Surviving Corporation. The foregoing shall not preclude the
effectiveness of actual written notice actually received by any party delivered
by any means other than those specified above.
7. ASSIGNMENT; SUCCESSORS; BENEFITS. This Agreement shall not
be assignable by the parties hereto, except that Surviving Corporation may
assign its rights and obligations hereunder to any affiliate of Surviving
Corporation that directly or indirectly acquires all or substantially all of the
assets of Surviving Corporation whether by sale, merger, consolidation,
reorganization or otherwise. The parties hereto acknowledge and agree that each
subsidiary of the Surviving Corporation shall be a third party beneficiary of
this Agreement. Nothing herein, expressed or implied, is intended to or shall
confer on any person other than the parties hereto (and each subsidiary of the
Surviving Corporation) and their respective successors and permitted assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
8. CONSTRUCTION; SEVERABILITY. (a) It is the agreement of the
parties hereto that the maximum protection available under the law shall be
provided to the Surviving Corporation and
<PAGE> 5
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each subsidiary of the Surviving Corporation by this Agreement, to protect the
Company's, the Surviving Corporation's and each such subsidiary's interest in
the assets and business acquired under the terms of the Merger Agreement and
that, if the restrictions hereby imposed are held by a court to be unreasonably
broad in time, territory or scope, this Agreement shall be construed to impose
such restrictions in this regard as are not unreasonable as to time, territory
or scope, as the case may be.
(b) In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein and, in lieu and reformation of each such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible to cause such illegal, invalid and
unenforceable provision to be legal, valid and enforceable.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original and all of which
taken together will constitute one and the same instrument.
10. HEADINGS. The headings set forth in this Agreement are for
convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
11. FURTHER ASSURANCES. After the date hereof, each party
shall from time to time, at the request of the other party and without further
cost or expense to such party, execute and deliver such other instruments and
take such other actions as may reasonably be requested in order to more
effectively consummate the transactions contemplated hereby.
12. GOVERNING LAW. This Agreement, including, without
limitation, the interpretation, construction, validity and enforceability
hereof, shall be governed by the internal laws of the State of Delaware without
regard to the principles of conflict of laws thereof.
13. SUBMISSION TO JURISDICTION. (a) Any legal action or
proceeding with respect to this Agreement, the Shares or any document related
thereto may be brought in the courts of the State of Delaware or of the United
States of America for the Western District of Delaware, and, by execution and
delivery of this Agreement, each party hereby accepts generally and
unconditionally, the jurisdiction of the aforesaid courts. The parties hereto
hereby irrevocably waive any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which any of them may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions.
<PAGE> 6
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(b) Each party irrevocably consents to the service of process
of any of the aforesaid courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to such
party, respectively, at its address provided herein.
(c) Nothing contained in this Section 13 shall affect the
right of any party hereto to serve process in any other manner permitted by law.
14. WAIVER OF JURY TRIAL. Each of the parties hereto waives
any right it may have to trial by jury in respect of any litigation based on, or
arising out of, under or in connection with this Agreement or any course of
conduct, course of dealing, verbal or written statement or action of any party
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Non-Competition Agreement as of the date first above written.
------------------------------------
George D. Johnson
RENT-WAY, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 23.4
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated
September 1, 1998, to the Board of Directors of Home Choice Holdings, Inc.
("Home Choice") as Annex C to the Joint Proxy Statement/Prospectus which forms a
part of a Registration Statement on Form S-4 relating to the Merger of Home
Choice with and into Rent-Way, Inc. and (ii) the references therein to
Donaldson, Lufkin & Jenrette Securities Corporation in the sections captioned
"The Merger--Background of the Merger," "The Merger--Reasons for the Merger;
Recommendations of the Board of Directors" and "The Merger--Opinion of Financial
Advisors to Home Choice." In giving such consent, we do not admit that we come
within the category of persons whose consent is required under, and we do not
admit that we are "experts" for purposes of, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Jeff Klein
---------------------------------
Name: Jeff Klein
---------------------------------
Title: Managing Director
---------------------------------
New York, New York
November 5, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF STEPHENS INC.
We hereby consent to (i) the inclusion of our opinion letter, dated
September 1, 1998, to the Board of Directors of Home Choice Holdings, Inc.
("Home Choice") as Annex D to the Joint Proxy Statement/Prospectus which forms a
part of the Registration Statement on Form S-4 relating to the Merger of Home
Choice with and into Rent-Way, Inc. and (ii) the references therein to Stephens
Inc. in the sections captioned "The Merger-Background of the Merger," "The
Merger-Reasons for the Merger; Recommendations of the Board of Directors" and
"The Merger-Opinion of Financial Advisors to Home Choice." In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under, and we do not admit that we are "experts" for
purposes of, the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
STEPHENS INC.
By: /s/ David Linch
---------------------------------
Name: David Linch
---------------------------------
Title: Managing Director
---------------------------------
Atlanta, Georgia
November 5, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this
registration statement of Rent-Way, Inc. on Form S-4 (SEC File No. 333-_______)
of our report dated March 3, 1998 on our audits of the consolidated financial
statements of Home Choice Holding, Inc. (formerly Alrenco, Inc.) and
subsidiaries, after restatement for the 1998 pooling of interest with RTO, Inc.
as described in Note 1 to those financial statements, as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997,
which report is included in the Quarterly Report on Form 10-Q of Home Choice
Holdings, Inc. for the quarter ended March 31, 1998 as filed with the Securities
and Exchange Commission. We also consent to the incorporation by reference in
this registration statement of Rent-Way, Inc. on the aforementioned Form S-4 of
our report dated January 31, 1997, on our audit of the financial statements of
Action TV and Appliance Rental, Inc. as of and for the seven month period ended
July 31, 1996, appearing in the registration statement on Form S-4 (SEC File No.
333-44451) of Home Choice Holdings, Inc. filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933. We also consent to the
reference to our firm under the caption "Experts" and "Home Choice Selected
Historical Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Raleigh, North Carolina
November 5, 1998
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this
Registration Statement of Rent-Way, Inc. on Form S-4 (SEC File No. __________)
of our report dated October 31, 1997, on our audits of the financial statements
of Rent-Way, Inc. We also consent to the incorporation by reference to this
Registration Statement of Rent-Way, Inc. on the aforementioned Form S-4 of our
report dated March 6, 1998, on our audit of the combined financial statements of
South Carolina Rentals, Inc., Paradise Valley Holdings, Inc. and L&B Rents,
Inc. (collectively referred to as Ace Rentals) and of our report dated March 28,
1997, on our audits of the financial statements of Perry Electronics, Inc.
(d/b/a Rental King). We also consent to the references to our firm under the
captions "Experts" and "Rent-Way Selected Historical Financial Data".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
November 5, 1998
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" in
the Registration Statement (Form S-4) of Rent-Way, Inc. and related Joint Proxy
Statement/Prospectus of Rent-Way, Inc. for the registration of 10,011,093 shares
of its common stock and to the incorporation therein by reference of our reports
(a) dated November 4, 1996, with respect to the financial statements of Action
TV & Appliance Rental, Inc. included in the Registration Statement on Form S-4
(No. 333-44451) of Alrenco, Inc. and (b) dated February 11, 1998, with respect
to the financial statements of Champion Rentals, Inc. included in its Current
Report on Form 8-K/A dated April 16, 1998, both filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Dallas, Texas
November 5, 1998
<PAGE> 1
EXHIBIT 23.9
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 30, 1998 accompanying the
consolidated financial statements of Home Choice Holdings, Inc., (formerly
Alrenco, Inc.) and subsidiaries, as of December 31, 1996 and 1997 and for each
of the three years in the period ended December 31, 1997, after restatement for
the 1998 pooling of interests with RTO, Inc., included in the Quarterly Report
on Form 10-Q of Home Choice Holdings, Inc. (formerly Alrenco, Inc.), for the
quarter ended March 31, 1998. We consent to the incorporation by reference in
the Registration Statement of the aforementioned report and to the use of our
name as it appears under the caption "Experts."
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Dallas, Texas
November 5, 1998
