<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
------------------------
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22026
RENT-WAY, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
(State or other jurisdiction of incorporation)
25-1407782
(I.R.S. Employer Identification No.)
3230 WEST LAKE ROAD, ERIE, PENNSYLVANIA 16505
(Address of principal executive offices)
(814) 836-0618
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class
------------------------------------------------------
Common Stock
Outstanding as of June 30, 1998
------------------------------------------------------
10,954,037
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RENT-WAY, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of June 30, 1998 and September 30,
1997.................................................. 3
Statements of Income, Three and Nine Months Ended June
30, 1998 and 1997..................................... 4
Statements of Cash Flows, Nine Months Ended June 30,
1998 and 1997......................................... 5
Notes to Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 13
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................... 20
Signatures.................................................. 21
</TABLE>
2
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RENT-WAY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash........................................................ $ 2,861,254 $ 598,664
Prepaid expenses............................................ 3,798,926 1,452,265
Rental merchandise, net..................................... 73,690,576 35,132,316
Deferred income taxes....................................... 461,862 1,071,927
Property and equipment, net................................. 17,339,920 8,518,222
Goodwill, net............................................... 130,149,662 43,446,776
Deferred financing costs, net............................... 1,677,439 1,475,088
Non-compete and prepaid consulting fee, net................. 3,525,304 1,743,514
Other assets................................................ 4,149,771 2,849,166
------------ -----------
Total assets........................................... $237,654,714 $96,287,938
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................................ $ 5,541,215 $ 3,067,294
Other liabilities........................................... 7,899,952 3,411,605
Income taxes payable........................................ 3,392,238 695,743
Debt........................................................ 116,003,950 48,156,426
------------ -----------
Total liabilities...................................... 132,837,355 55,331,068
Contingencies (see note 8).................................. -- --
Shareholders' equity:
Preferred stock, without par value; 1,000,000 shares
authorized; no shares issued and outstanding.............. -- --
Common stock, without par value; 20,000,000 shares
authorized; 10,954,037 and 7,059,451 shares issued and
outstanding, respectively................................. 87,862,653 32,759,595
Retained earnings........................................... 16,954,706 8,197,275
------------ -----------
Total shareholders' equity............................. 104,817,359 40,956,870
------------ -----------
Total liabilities and shareholders' equity............. $237,654,714 $96,287,938
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
RENT-WAY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Rental revenue......................... $46,928,610 $21,814,622 $111,322,659 $55,340,679
Other revenue.......................... 5,562,846 3,153,583 13,737,369 7,994,246
----------- ----------- ------------ -----------
Total revenues.................... 52,491,456 24,968,205 125,060,028 63,334,925
COSTS AND OPERATING EXPENSES:
Depreciation and amortization:
Rental merchandise................... 11,096,131 5,735,820 27,531,287 14,633,800
Property and equipment............... 744,669 432,403 1,961,500 1,025,920
Amortization of goodwill............. 1,318,916 564,374 2,970,340 1,338,416
Salaries and wages..................... 12,992,825 6,177,887 31,346,059 16,213,914
Advertising............................ 2,516,195 925,963 6,183,278 2,879,561
Occupancy.............................. 3,475,945 1,702,910 8,379,980 4,327,603
Other operating expenses............... 11,943,420 5,297,933 27,014,683 13,313,519
----------- ----------- ------------ -----------
Total costs and operating
expenses........................ 44,088,101 20,837,290 105,387,127 53,732,733
----------- ----------- ------------ -----------
Operating income.................. 8,403,355 4,130,915 19,672,901 9,602,192
OTHER INCOME (EXPENSE):
Interest expense....................... (1,971,553) (1,064,062) (4,346,005) (2,311,742)
Interest income........................ -- -- 109,655 920
Other income (expense), net............ (51,253) (38,903) (60,079) (62,698)
----------- ----------- ------------ -----------
Income before income taxes and
extraordinary item........... 6,380,549 3,027,950 15,376,472 7,228,672
Income tax expense..................... 2,743,636 1,422,144 6,619,041 3,378,194
----------- ----------- ------------ -----------
Income before extraordinary
item......................... 3,636,913 1,605,806 8,757,431 3,850,478
Extraordinary item..................... -- -- -- (269,017)
----------- ----------- ------------ -----------
Net income............................. 3,636,913 1,605,806 8,757,431 3,581,461
Net gain on redemption of preferred
stock................................ -- -- -- 280,175
----------- ----------- ------------ -----------
Earnings applicable to common shares... $ 3,636,913 $ 1,605,806 $ 8,757,431 $ 3,861,636
=========== =========== ============ ===========
EARNINGS PER COMMON SHARE (SEE NOTE 2):
Basic earnings per common share
(adjusted to give effect to the net
gain on redemption of preferred
stock):
Income before extraordinary
item............................ $ 0.34 $ 0.24 $ 0.87 $ 0.62
=========== =========== ============ ===========
Net income........................ $ 0.34 $ 0.24 $ 0.87 $ 0.58
=========== =========== ============ ===========
Diluted earnings per common share
(adjusted to give effect to the net
gain on redemption of preferred
stock):
Income before extraordinary
item............................ $ 0.30 $ 0.20 $ 0.77 $ 0.56
=========== =========== ============ ===========
Net income........................ $ 0.30 $ 0.20 $ 0.77 $ 0.53
=========== =========== ============ ===========
Weighted average common shares
outstanding:
Basic............................. 10,700,594 6,659,569 10,081,477 6,621,180
=========== =========== ============ ===========
Diluted........................... 12,964,863 9,434,819 12,225,712 8,603,817
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
RENT-WAY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 8,757,431 $ 3,581,461
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 32,718,036 17,156,370
Deferred income taxes..................................... 610,065 (351,801)
Extraordinary item........................................ -- 269,017
Changes in assets and liabilities:
Prepaid expenses.......................................... (1,983,479) (145,339)
Rental merchandise........................................ (43,599,000) (20,716,342)
Other assets.............................................. (267,822) (514,908)
Accounts payable.......................................... 1,473,921 (1,532,094)
Income taxes payable...................................... 2,696,495 1,909,972
Other current liabilities................................. 2,991,980 1,410,576
------------- ------------
Net cash provided by operating activities.............. 3,397,627 1,066,912
------------- ------------
INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired of $524,838
and $827,912 respectively.............................. (98,465,699) (24,082,407)
Purchases of property and equipment....................... (9,561,448) (3,603,093)
------------- ------------
Net cash used in investing activities.................. (108,027,147) (27,685,500)
------------- ------------
FINANCING ACTIVITIES:
Proceeds from borrowings.................................. 100,724,289 39,628,121
Payments on borrowings including early extinguishment..... (41,477,977) (11,447,956)
Redeemable preferred stock dividend....................... -- (32,252)
Redeemable preferred stock redemption..................... -- (840,525)
Deferred finance costs.................................... (457,260) (158,234)
Proceeds from common stock issuance....................... 48,103,058 772,485
------------- ------------
Net cash provided by financing activities.............. 106,892,110 27,921,639
------------- ------------
Increase in cash....................................... 2,262,590 1,303,051
Cash at beginning of period................................. 598,664 179,425
------------- ------------
Cash at end of period....................................... $ 2,861,254 $ 1,482,476
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................. $ 4,091,096 $ 1,800,756
Income taxes......................................... $ 3,312,480 $ 1,820,023
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Rent-Way, Inc., (the "Company" or "Rent-Way") is a corporation organized
under the laws of the Commonwealth of Pennsylvania. The Company operates a chain
of rental-purchase stores that rent durable household products such as home
entertainment equipment, furniture, and major appliances and jewelry to
consumers on a weekly or monthly basis. The accompanying unaudited condensed
financial statements have been prepared in accordance with the instructions to
Form 10-Q, and therefore, do not include all information and notes necessary for
a fair presentation of financial position, results of operations and cash flows
in conformity with generally accepted accounting principles. In the opinion of
management, all adjustments (consisting solely of normal recurring adjustments),
which are necessary for a fair statement of the financial position, results of
operations and cash flows of the Company have been made. Certain amounts in the
1997 financial statements have been reclassified to conform to the 1998
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
The Company utilizes derivative financial instruments to reduce its
exposure resulting from fluctuations in interest rates. The derivative financial
instruments in effect at June 30, 1998 consist of three interest rate swap
agreements. The interest rate swap agreements are used by the Company to convert
part of the Company's floating interest rate debt to a fixed interest rate.
Interest rate expense under swap agreements, which qualify for hedge accounting,
are recorded at the net effective interest rate of hedged transactions. The
Company's practice is not to hold or issue derivative financial instruments for
trading or speculative purposes.
These financial statements and the notes thereto should be read in
conjunction with the Company's audited financial statements included in its
Annual Report on Form 10-K for the fiscal year ended September 30, 1997.
2. EARNINGS PER COMMON SHARE:
Basic earnings per common share is computed using income available to
common shareholders divided by the weighted average number of common shares
outstanding. Diluted earnings per common share is computed using income
available to common shareholders adjusted for anticipated interest savings, net
of related taxes, for convertible subordinated debentures and the weighted
average number of shares outstanding is adjusted for the potential impact of
options, warrants and convertible subordinated debentures. Earnings per common
share ("EPS") for the three and nine month periods ended June 30, 1997 have been
restated in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 128.
6
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RENT-WAY, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. EARNINGS PER COMMON SHARE: (CONTINUED)
Reconciliation of Numerators and Denominators of the Basic and Diluted EPS
Computation are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
--------------------------- -------------------------
COMPUTATION OF EARNINGS PER SHARE: 1998 1997 1998 1997
---------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC
Net income.................................. $3,636,913 $1,605,806 $8,757,431 $3,581,461
Redeemable preferred stock net gain on
redemption................................ -- -- -- 280,175
---------- ---------- ---------- ----------
Earnings applicable to common shares........ $3,636,913 $1,605,806 $8,757,431 $3,861,636
========== ========== ========== ==========
Weighted average number of common shares
outstanding during the period............. 10,700,594 6,659,569 10,081,477 6,621,180
========== ========== ========== ==========
Basic earnings per common share:
Income before extraordinary item.......... $ 0.34 $ 0.24 $ 0.87 $ 0.62
========== ========== ========== ==========
Net income................................ $ 0.34 $ 0.24 $ 0.87 $ 0.58
========== ========== ========== ==========
DILUTED
Earnings applicable to common shares........ $3,636,913 $1,605,806 $8,757,431 $3,861,636
Interest on convertible debt (net of tax
benefit).................................. 210,000 315,000 635,000 665,000
---------- ---------- ---------- ----------
Earnings applicable to diluted earnings per
common share.............................. $3,846,913 $1,920,806 $9,392,431 $4,526,636
========== ========== ========== ==========
Weighted average number of common shares
used in calculating basic earnings per
common share.............................. 10,700,594 6,659,569 10,081,477 6,621,180
Add -- incremental shares representing:
Common equivalent shares (determined using
the "treasury stock" method)
representing shares issuable upon
exercise of stock options and
warrants............................... 768,379 575,135 648,345 472,933
Shares issuable on conversion of 10%
notes.................................. -- 704,225 -- 704,225
Shares issuable on conversion of 7%
debentures............................. 1,495,890 1,495,890 1,495,890 805,479
---------- ---------- ---------- ----------
Weighted average number of shares used in
calculation of diluted earnings per common
share..................................... 12,964,863 9,434,819 12,225,712 8,603,817
========== ========== ========== ==========
Diluted earnings per common share:
Income before extraordinary item.......... $ 0.30 $ 0.20 $ 0.77 $ 0.56
========== ========== ========== ==========
Net income................................ $ 0.30 $ 0.20 $ 0.77 $ 0.53
========== ========== ========== ==========
</TABLE>
7
<PAGE> 8
RENT-WAY, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. PUBLIC STOCK OFFERING:
On December 2, 1997, the Company completed a public stock offering
consisting of 2,500,000 shares of common stock offered by the Company and 87,250
shares of common stock offered by certain selling shareholders. In addition, on
December 30, 1997, the underwriters exercised a 30 day option to purchase
388,088 shares of common stock to cover over-allotments. The shares were offered
at a price of $17.25 per share. The Company received net proceeds (less
underwriters discount and selling expenses) of $46,982,586 including the
underwriters exercise of the over-allotment option. The Company used these
proceeds to repay outstanding borrowings of $23,022,110 under the Company's
credit agreement (see Note 6) and to fund the asset purchase of South Carolina
Rentals, Inc., Paradise Valley Holdings, Inc. and L & B Rents, Inc. ("ACE
Rentals") (see Note 4).
4. ACQUISITIONS:
On February 5, 1998, the Company signed a definitive purchase agreement to
acquire all the outstanding shares of Champion Rentals, Inc. ("Champion"). At
the time of the acquisition, Champion operated a chain of 145 rental-purchase
stores located in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana,
North Carolina, Ohio, South Carolina, Tennessee and Virginia with annual
revenues of approximately $75.0 million. The consideration paid in exchange for
all the outstanding shares of Champion was $69,650,000 in cash. Pursuant to
terms of the purchase agreement $2,500,000 of the purchase price was placed in
escrow subject to the terms of the escrow agreement to satisfy sellers'
representations and warranties and any purchase price adjustments. The escrow
agreement provides for the release of $1,500,000 pending the completion of an
audit of Champion's closing date financial statements. The balance of $1,000,000
will be held for a one year period from the date of the closing. The acquisition
was accounted for using the purchase method of accounting. Champion's assets and
liabilities were recorded at their estimated fair values at the time of the
acquisition. The fair value of rental merchandise, property and equipment,
intangible assets including non-compete agreements and customer lists, certain
liabilities and the purchase price will be finalized based on the completion of
the financial statement audit, valuation procedures and certain additional
procedures. The estimated excess of the acquisition cost over the estimated fair
value of the net assets acquired, ("goodwill") of $67,654,011 is being amortized
on a straight line basis over thirty years. The total estimated costs of net
assets acquired was $69,650,000 and consisted of assets of $88,978,898 less
liabilities assumed of $17,449,848 and acquisition costs of $1,879,050. The
acquisition of Champion was funded with borrowings drawn on the Company's
existing senior credit facility (see Note 6). The Statements of Income for both
the three and nine month periods ending June 30, 1998 include the result of
operations of Champion since February 5, 1998.
On January 7, 1998, the Company completed the asset purchase of South
Carolina Rentals, Inc., Paradise Valley Holdings, Inc., and L & B Rents, Inc.,
(collectively, "ACE Rentals"), assuming effective control of the results of
operations as of January 1, 1998. At the time of the acquisition, ACE Rentals
operated a chain of fifty rental-purchase stores located in California and South
Carolina with annual revenues of approximately $22.0 million. The consideration
paid in exchange for the assets of ACE Rentals was $25,348,514 in cash and the
assumption of liabilities of $477,851. In May 1998, $375,000 of the $750,000
escrow was released in accordance with the terms and conditions of the escrow
agreement with the balance to be released pending resolution of certain issues.
The acquisition was accounted for using the purchase method of accounting. ACE
Rentals' assets and certain liabilities were recorded at their fair values at
the time of the acquisition. The excess of the acquisition cost over the fair
value of the net assets acquired, ("goodwill") of $21,459,821 is being amortized
on a straight line basis over thirty years. The total costs of net assets
acquired was $25,348,514 and consisted of assets of $26,732,525 less liabilities
assumed of $477,851 and acquisition costs of $906,160. The acquisition of ACE
Rentals was primarily funded with proceeds received in connection with the
Company's public stock offering (see Note 3) with the balance being drawn on the
Company's existing senior credit facility (see Note 6). Assets acquired (at fair
value) other than goodwill consisted
8
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RENT-WAY, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. ACQUISITIONS: (CONTINUED)
primarily of rental merchandise of $4,383,454, property and equipment of
$249,250, non-compete agreement of $500,000 and $140,000 in customer contracts.
The liability assumed (at fair value) was $477,851 of vehicle related debt. The
Statements of Income for both the three and nine month periods ending June 30,
1998 include the results of operations of ACE Rentals since January 1, 1998.
On January 24, 1997, the Company signed a definitive purchase agreement to
acquire all the outstanding shares of Perry Electronics, Inc. d/b/a Rental King
("Rental King"). On February 6, 1997, the Company consummated the transaction
and acquired all the outstanding shares of Rental King, assuming effective
control of the results of operations as of February 1, 1997. At the time of
acquisition, Rental King operated a chain of seventy rental-purchase stores in
Colorado, Florida, Indiana, Kentucky, Michigan, Ohio and West Virginia with
annual revenues of approximately $24.0 million. The consideration paid in
exchange for all the outstanding shares of Rental King was $17,284,618 in cash.
The acquisition was accounted for using the purchase method of accounting.
Rental King's assets and liabilities were recorded at their fair values as of
the date of the acquisition. The excess of the acquisition cost over the fair
value of the net assets acquired, ("goodwill") of $17,310,728 is being amortized
on a straight line basis over twenty years. The total cost of the net assets
acquired was $17,284,618 and consisted of assets of $25,451,775 less liabilities
assumed of $6,337,325 and acquisition costs of $1,829,832. The acquisition of
Rental King was primarily funded by the net proceeds received on a private
placement of $20.0 million in subordinated convertible debentures. The balance
of the cash paid on closing was drawn upon the Company's existing line of
credit. Assets acquired (at fair value) other than goodwill consisted primarily
of rental merchandise of $6,386,000, property and equipment of $744,615, other
assets of $347,101 and non-compete agreements of $500,000. Liabilities assumed
(at fair value) consisted primarily of trade payables of $488,561, accrued
liabilities of $2,085,270, bank debt of $2,939,494 and notes payable of
$824,000. The Statements of Income for the three and nine months ended June 30,
1998 include the results of operations of Rental King for the entire period.
On January 2, 1997, the Company acquired all the outstanding shares of Bill
Coleman TV, Inc., ("Coleman"), a privately owned chain of fifteen
rental-purchase stores operating in Michigan with annual revenues of
approximately $7.5 million, in exchange for consideration consisting of
$2,679,921 in cash and an option to purchase 25,000 shares of the Company's
common stock at an exercise price of $8.875 per share with a fair value of
$107,500. The 25,000 stock options are 100% exercisable and expire five years
from the date of the grant. The acquisition was accounted for using the purchase
method of accounting. Coleman's assets and liabilities were recorded at their
fair values as of the acquisition date. The excess of the acquisition cost over
the fair value of the net assets acquired, ("goodwill") of $3,763,420 is being
amortized on a straight line basis over twenty years. The total cost of the net
assets acquired was $2,787,421 ($2,679,921 in cash and $107,500 in stock
options) and consisted of assets of $7,696,513 less liabilities assumed of
$4,548,836 and acquisition costs of $360,256. Assets acquired (at fair value)
other than goodwill, consisted primarily of rental merchandise of $2,401,000,
property and equipment of $42,000, deferred tax assets of $787,487, a note
receivable of $244,454, a non-compete agreement of $300,000 and other assets of
$158,152. Liabilities assumed (at fair value) consisted primarily of trade
accounts payable of $1,838,190, debt of $2,474,155 and note payable of $236,491.
The Statements of Income for the three and nine months ended June 30, 1998
include the operations of Coleman for the entire period.
In July and September 1997, the Company purchased the rental merchandise
and rental-purchase contracts of seven rental-purchase stores located in
Pennsylvania, Maryland, and Virginia, with combined annual revenues of
approximately $4.3 million. The Company paid cash in exchange for the assets and
each acquisition was recorded using the purchase method of accounting. The
acquired assets were recorded at their estimated fair values at the date of
acquisition. The excess of the acquisition cost over the estimated fair values
of the assets acquired, ("goodwill") of $2,734,511 is being amortized on a
straight line basis over twenty years.
9
<PAGE> 10
RENT-WAY, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. ACQUISITIONS: (CONTINUED)
The total cost of the net assets acquired was $3,809,878 and consisted of assets
of $3,965,126 less acquisition costs of $155,248. The Statements of Income for
the three and nine months ended June 30, 1998 include the operating results for
these stores for the entire period.
Following are pro forma results of operations for the nine months ended
June 30, 1998 and 1997 assuming the acquisitions of Champion and ACE Rentals had
occurred on October 1, 1996. The results are not necessarily indicative of
future operations or what would have occurred had the acquisitions been
consummated as of October 1, 1996.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA OPERATIONS
NINE MONTHS ENDED JUNE 30,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues....................................... $156,750,275 $149,285,976
============ ============
Net income..................................... $ 9,792,901 $ 9,293.671
============ ============
Diluted earnings per common share (adjusted to
give effect to the net gain on redemption of
preferred stock)............................. $ 0.85 $ 0.81
============ ============
</TABLE>
5. PROPERTY AND EQUIPMENT:
On June 1, 1998, the Company closed on the purchase of a new building which
will serve as the Company's corporate headquarters. The total purchase price was
$3,650,000, of which $2,000,000 was paid at closing. The balance of $1,650,000,
in the form of a promissory note, is due on June 1, 1999 (see Note 6). The new
corporate headquarters is located in Erie, Pennsylvania, and the Company plans
to relocate during July 1998, after the completion of minor renovations.
6. DEBT:
On June 1, 1998, the Company signed a promissory note (the "Note"), to pay
Zurn Industries, Inc., $1,650,000 on June 1, 1999. The Note represents the
remaining balance to be paid for the purchase of the Company's new corporate
headquarters (see Note 5).
On February 5, 1998, the Company amended its existing senior credit
facility (the "Facility") with a syndicate of banks led by National City Bank of
Pennsylvania. The Facility, co-led by National City Bank of Pennsylvania, acting
as syndication and administrative agent, and NationsBank, N.A. as documentation
agent, provides for loans and letters of credit up to $120.0 million. The
syndicate members and their ratable share of the Facility are as follows:
<TABLE>
<S> <C>
National City Bank of Pennsylvania.......................... 15.0000%
NationsBank, N.A............................................ 14.1670%
Harris Trust and Savings Bank............................... 14.1670%
LaSalle National Bank....................................... 14.1670%
Sun Trust Bank, Central Florida, National Association....... 7.0825%
Manufacturers and Traders Trust Company..................... 14.1670%
CoreStates Bank, N.A........................................ 7.0825%
Star Bank, N.A.............................................. 14.1670%
</TABLE>
10
<PAGE> 11
RENT-WAY, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. DEBT: (CONTINUED)
Of the $120.0 million available under the Facility, approximately $7.0
million was outstanding at the date of the amendment and approximately $81.0
million was used for the acquisition of Champion and the extinguishment of their
existing debt (see Note 4). The Facility expires on February 5, 2001.
Under the Facility, the Company may borrow funds under a base rate option
plan or euro-rate option plan. Under the base rate option plan the Company may
borrow funds based on a spread of prime-rate plus 0.0% to 0.5%. The actual
spread is determined based on the ratio of debt to cash flow from operations
during the period. Under the euro-rate option, the Company may borrow funds
based on a spread of the London Interbank Offer Rate, ("LIBOR") plus 100 to 200
basis points. The actual spread is determined based on the ratio of debt to cash
flow generated from operations during the period. Borrowings under the euro-rate
option require the Company to select a fixed interest period during which the
euro-rate is applicable with the borrowed amount not to be repaid prior to the
last day of the selected interest period. In addition, borrowing tranches under
the euro-rate option must be in multiples of $250,000 and not less than
$1,000,000 in total. Commitment fees associated with the Facility are equal to
0.125% for each banks' commitment which existed prior to this amendment and
0.25% for each banks' commitment starting with the date of this amendment. The
Facility requires the Company to meet certain financial covenants and ratios
including maximum leverage, minimum interest coverage and minimum tangible net
worth ratios. In addition, the Company must meet requirements regarding monthly,
quarterly and annual financial reporting. The Facility also contains
non-financial covenants which restrict actions of the Company with respect to
the payment of dividends, acquisitions, mergers, disposition of assets or
subsidiaries, issuance of capital stock and capital expenditures. The Company
may at any time repay outstanding borrowings, in whole or part, without premium
or penalty, except with respect to restrictions identified above in connection
with the selection of the euro-rate option. As of June 30, 1998, the Company had
$80.0 million of floating rate debt under the euro-rate option and $10.8 million
of floating rate debt under the base rate option, with interest rates of 7.695%
and 9.0% respectively. As of June 30, 1998, the Company was in compliance with
all covenants contained in the Facility.
On October 8, 1997, the Company exercised its right to convert $7.0 million
in subordinated convertible notes ("the Notes") held by Massachusetts Mutual
Life Insurance Company. The Company was able to exercise this right when the
market price of the Company's common stock remained above $16.50 per share for a
twenty consecutive day period. The Notes converted into 704,223 shares of the
Company's common stock, at a conversion price of $9.94 per share.
7. DERIVATIVE FINANCIAL INSTRUMENT:
The Company uses derivative financial instruments to reduce the impact on
interest expense of fluctuations in interest rates on a portion of the Facility
(see Note 6). The Company does not enter into derivative financial instruments
for trading or speculative purposes. As of June 30, 1998, the Company had in
place three interest rate swaps, under which the Company agreed with
counterparties to exchange, at quarterly intervals, interest payments on a
variable pay rate of the three-month LIBOR and a fixed pay rate for the notional
amount of the interest rate swap agreements. The Company actively evaluates the
creditworthiness of the financial institutions which are counterparties to
interest rate swap agreements, and it does not appear that any counterparty will
fail to meet their obligation. The following table illustrates the notional
amounts
11
<PAGE> 12
RENT-WAY, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. DERIVATIVE FINANCIAL INSTRUMENT: (CONTINUED)
outstanding, maturity dates and the fixed pay and variable receive rates of each
of the interest rate swap agreements at June 30, 1998:
<TABLE>
<CAPTION>
FIXED VARIABLE
NOTIONAL MATURITY PAY RECEIVE
AMOUNT DATE RATE RATE
------ ---- ---- ----
<S> <C> <C> <C> <C>
Interest rate swap, National City Bank........... $30,000,000 May 2003 5.965% 5.695%
Interest rate swap, NationsBank.................. $20,000,000 May 2003 5.760% 5.695%
Interest rate swap, Manufacturers' and Traders
Trust Company.................................. $10,000,000 May 2003 5.925% 5.695%
</TABLE>
The fair value of the interest rate swap agreements based on settlement
cost as estimated by a dealer as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT FAIR VALUE
------ ----------
<S> <C> <C>
Interest rate swap, National City Bank............. $30,000,000 ($240,608)
Interest rate swap, NationsBank.................... $20,000,000 ($162,689)
Interest rate swap, Manufacturers' and Traders
Trust Company.................................... $10,000,000 ($ 63,100)
</TABLE>
8. CONTINGENCIES:
The Company is subject to legal proceedings and claims in the ordinary
course of its business that have not been finally adjudicated. Certain of these
cases have resulted in contingent liabilities ranging from $770,000 to
$2,590,000. The majority of such claims are, in the opinion of management,
covered by insurance policies and therefore should not have a material effect on
the financial position, results of operations or cash flows of the Company.
Additional claims exist in the range of $1,200,000 to $1,750,000 for which
management believes it has meritorious defenses but for which the likelihood of
an unfavorable outcome is currently not determinable. In management's opinion,
each of these claims will either be indemnified by the previous shareholders of
prior acquisitions or covered by insurance policies and therefore will not have
a material effect on the financial position, results of operations or cash flows
of the Company.
9. NEW ACCOUNTING STANDARDS:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal years beginning after
June 15, 1998. The Company is currently evaluating the impact of SFAS No. 133.
The Accounting Standards Executive Committee Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), issued in March 1998 and effective for fiscal years
beginning after December 15, 1998 with earlier application permitted, provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. The Company is currently evaluating the impact of SOP 98-1.
In February 1998, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 132 will have no impact on the Company's financial
statements.
12
<PAGE> 13
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
During the three month period ended June 30, 1998, the Company generated
record revenues, operating income, and net income. The Company's total revenues
increased by 110.2% compared to the same three month period last year. Operating
income and net income increased by 103.4% and 126.5%, respectively, when
compared to the same three month period last year. The increase in revenue,
operating income and net income are primarily due to acquisitions made during
fiscal 1998, improved same store operating profits, and a reduction in certain
expenses as a percentage of revenue resulting from economies of scale. In
addition, the Company experienced an 8.6% increase in same store revenue
compared to the same period last year.
On June 1, 1998, the Company closed on the purchase of a new building which
will serve as the Company's corporate headquarters. The total purchase price was
$3,650,000, of which $2,000,000 was paid at closing, with the balance deferred
for one year. The new corporate headquarters is located in Erie, Pennsylvania,
and the Company plans to relocate during July 1998, after the completion of
minor renovations.
On February 5, 1998, the Company amended its existing senior credit
facility with a syndicate of banks led by National City Bank of Pennsylvania.
The amended facility (the "Facility"), co-led by National City Bank of
Pennsylvania, acting as syndication and administrative agent, and NationsBank,
N.A. as documentation agent, provides for loans and letters of credit up to
$120.0 million.
On February 5, 1998, the Company completed the acquisition of Champion
Rentals, Inc. ("Champion"), a privately-owned rental purchase chain with 145
locations in the southeast United States. The Company paid approximately $69.7
million in cash plus the assumption of $17.4 million in liabilities. Pursuant to
the terms of the purchase agreement, $2.5 million of the purchase price was
placed in an escrow account as a source of payment for seller's breaches of
representations and warranties and final purchase price adjustments. The
acquisition of Champion was funded with borrowings drawn on the Company's
existing senior credit facility (see Note 6). The Champion acquisition
substantially increases market penetration in several of the Company's
established areas of operation, while opening the door to new markets such as
Alabama, Arkansas, Georgia, Louisiana, North Carolina and Tennessee. Of Champion
Rentals' 145 stores, 25 were opened in 1997.
On January 7, 1998, the Company signed an asset purchase agreement and
acquired Ace TV Rentals, ("ACE"), a privately-owned 50 store rental-purchase
chain with locations in South Carolina and California. The Company paid
approximately $25.2 million in cash plus the assumption of certain liabilities,
with $750,000 placed in an escrow account as a source of payment for seller's
breaches of representations and warranties and final purchase price adjustments.
In May 1998, $375,000 of the escrow was released in accordance with the terms
and conditions of the escrow agreement. The balance will be released pending
resolution of certain issues. ACE, with annualized revenues of approximately $22
million, operates 46 stores in South Carolina and four stores in California, two
new markets for the Company.
On December 2, 1997, the Company completed a public offering consisting of
2,500,000 shares of common stock offered by the Company and 87,250 shares of
common stock offered by certain selling shareholders. In addition, on December
30, 1997, the underwriters exercised a 30 day option to purchase 388,088 shares
of common stock to cover over-allotments. The shares were offered at a price of
$17.25 per share. The Company received net proceeds (less underwriters discount
and selling expenses) of $46,982,586 including the underwriters exercise of the
over-allotment option. The Company used these proceeds to repay outstanding
borrowings of $23.0 million under the Company's credit agreement with a
syndicate of banks led by National City Bank of Pennsylvania (see Note 6).
On October 8, 1997, the Company exercised its option to convert $7,000,000
in subordinated convertible notes, ("the Notes") held by Massachusetts Mutual
Life Insurance Company. The Company was able to exercise this option when the
market price of the Company's common stock remained above $16.50 per share
13
<PAGE> 14
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (CONTINUED)
for a twenty consecutive date period. The Notes converted into 704,223 shares of
the Company's common stock, at a conversion price of $9.94 per share.
Management is actively seeking merger and acquisition candidates with
financial and geographic profiles consistent with the Company's growth
objectives.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's unaudited Statements of Income,expressed as a percentage of
revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental revenue..................................... 89.4% 87.4% 89.0% 87.4%
Other revenue...................................... 10.6 12.6 11.0 12.6
----- ----- ----- -----
Total revenues.................................. 100.0 100.0 100.0 100.0
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise................................. 21.1 23.0 22.0 23.1
Property and equipment............................. 1.4 1.7 1.6 1.6
Amortization of goodwill........................... 2.5 2.3 2.4 2.1
----- ----- ----- -----
Total depreciation and amortization............. 25.0 27.0 26.0 26.8
Salaries and wages................................... 24.8 24.7 25.1 25.6
Advertising.......................................... 4.8 3.7 4.9 4.5
Occupancy............................................ 6.6 6.8 6.7 6.8
Other operating expenses............................. 22.8 21.2 21.6 21.1
----- ----- ----- -----
Total costs and operating expenses.............. 84.0 83.4 84.3 84.8
----- ----- ----- -----
Operating income..................................... 16.0 16.6 15.7 15.2
Interest expense..................................... (3.7) (4.3) (3.5) (3.7)
Other income......................................... (0.1) (0.2) -- (0.1)
----- ----- ----- -----
Income before income taxes and extraordinary item.... 12.2 12.1 12.2 11.4
Income tax expense................................... 5.3 5.7 5.2 5.3
----- ----- ----- -----
Income before extraordinary item..................... 6.9 6.4 7.0 6.1
Extraordinary item................................... -- -- -- (0.4)
----- ----- ----- -----
Net income........................................... 6.9 6.4 7.0 5.7
----- ----- ----- -----
Gain on redemption of preferred stock................ -- -- -- 0.4
----- ----- ----- -----
Earnings applicable to common shares................. 6.9% 6.4% 7.0% 6.1%
===== ===== ===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND 1997
For the three months ended June 30, 1998 compared to the three months ended
June 30, 1997, total revenues increased by $27.5 million (110.2%) to $52.5
million from $25.0 million. The increase was principally due to increased same
store revenues and the inclusion of the results for the stores acquired and
opened during fiscal 1998. The stores acquired in the Champion acquisition
accounted for $19.6 million
14
<PAGE> 15
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (CONTINUED)
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND 1997, (CONTINUED)
(71.3%) of the increase, the stores acquired in the ACE acquisition accounted
for $5.4 million (19.6%) of the increase, the stores acquired in fiscal 1997
acquisitions accounted for $1.2 million (4.4%) of the increase, the Company's
same stores accounted for $1.0 million (3.6%) of the increase, and stores opened
in fiscal 1998 accounted for $0.3 million (1.1%) of the increase. Other revenue
increased by $2.4 million (76.4%) to $5.6 million from $3.2 million principally
due to stores acquired in 1998.
For the three months ended June 30, 1998 compared to the three months ended
June 30, 1997, total costs and operating expenses increased to $44.1 million
from $20.8 million or 0.6% as a percentage of total revenues primarily as a
result of the costs and operating expenses associated with stores acquired in
fiscal 1997 and 1998. Depreciation expense related to rental merchandise
increased by $5.4 million to $11.1 million from $5.7 million, but decreased 1.9%
as a percentage of total revenues due to increases in weekly rental rates and
lower purchase costs of rental merchandise due to increased volume. Amortization
of goodwill increased by $0.7 million primarily because of the increase in
goodwill related to the stores acquired in fiscal 1997 and 1998. Amortization of
goodwill was 2.5% and 2.3% of total revenues for the three months ended June 30,
1998 and 1997, respectively. Salaries and wages increased to $13.0 million from
$6.2 million, and increased 0.1% as a percentage of total revenues. The $6.8
million increase is principally due to the addition of 198 new locations and an
overall strengthening of corporate personnel. The 198 stores from recent
acquisitions produced additional store payroll costs of approximately $5.4
million and regional manager payroll costs of approximately $0.7 million. The
strengthening of corporate personnel resulted in an increase in salaries and
wages of approximately $0.7 million. Salaries and wages increased to 24.8% from
24.7% of total revenue for the three months ended June 30, 1998 and 1997,
respectively. Advertising expense increased $1.6 million or 1.1% as a percentage
of total revenues to $2.5 million from $0.9 million principally due to the
addition of the stores acquired in fiscal 1997 and 1998. Occupancy expense
increased to $3.5 million from $1.7 million, but decreased 0.2% as a percentage
of total revenues to 6.6% from 6.8%. The $1.8 million increase is primarily due
to the addition of the stores acquired in fiscal 1997 and 1998. Other operating
expenses increased by $6.6 million to $11.9 million from $5.3 million, or 1.6%
as a percentage of total revenues mainly due to the addition of the stores
acquired in fiscal 1997 and 1998.
For the three months ended June 30, 1998 compared to the three months ended
June 30, 1997, operating income increased by $4.3 million (103.4%) to $8.4
million from $4.1 million. The improvement in operating income was principally
due to the stores acquired in 1997 and 1998 and the factors discussed above.
For the three months ended June 30, 1998 compared to the three months ended
June 30, 1997, interest expense increased $0.9 million to $2.0 million from $1.1
million due to an increase in debt of $69.3 million from $46.7 million to $116.0
million. This increase is principally the result of the purchase of Champion on
February 5, 1998 and the extinguishment of its existing debt with $81.0 million
in funds drawn on the Company's senior credit facility.
For the three months ended June 30, 1998 compared to the three months ended
June 30, 1997, income tax expense increased to $2.7 million from $1.4 million
because the Company generated greater taxable income. The Company's income tax
rate of 43.0% is higher than the statutory tax rates because amortization
expense related to goodwill incurred in connection with certain acquisitions is
not deductible for purposes of computing income tax.
For the three months ended June 30, 1998 compared to the three months ended
June 30, 1997, net income increased by $2.0 million (126.5%) to $3.6 million
from $1.6 million. The increase was due to the factors discussed above.
15
<PAGE> 16
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (CONTINUED)
COMPARISON OF NINE MONTHS ENDED JUNE 30, 1998 AND 1997
For the nine months ended June 30, 1998 compared to the nine months ended
June 30, 1997, total revenues increased by $61.8 million (97.5%) to $125.1
million from $63.3 million. The increase was principally due to increased same
store revenues and the inclusion of the stores acquired in fiscal 1997
acquisitions, the ACE acquisition, and the Champion acquisition. Stores acquired
in fiscal 1997 accounted for $16.6 million (26.9%) of the increase, stores
acquired in the ACE acquisition accounted for $11.0 million (17.8%) of the
increase, stores acquired in the Champion acquisition accounted for $31.9
million (51.6%) of the increase, the Company's same stores accounted for $1.8
million (2.9%) of the increase and stores opened in fiscal 1998 accounted for
$0.5 million (0.8%) of the increase. Other revenue increased $5.7 million
(71.8%) to $13.7 million from $8.0 million principally due to stores acquired in
1997 and 1998.
For the nine months ended June 30, 1998 compared to the nine months ended
June 30, 1997, total costs and operating expenses increased to $105.4 million
from $53.7 million primarily as a result of the costs and operating expenses
associated with stores acquired in 1997 and 1998, but decreased to 84.3% from
84.8% of total revenues. This decrease of 0.5% resulted primarily from a 1.1%
decrease in depreciation and amortization as a percentage of total revenues, a
0.5% decrease in salaries and wages as a percentage of total revenues, and a
0.1% decrease in occupancy expense as a percentage of total revenues offset by a
0.4% increase in advertising as a percentage of total revenues and a 0.5%
increase in other operating expenses. Depreciation expense related to rental
merchandise increased by $12.9 million to $27.5 million from $14.6 million, but
decreased by 1.1% as a percentage of total revenues primarily due to increases
in weekly rental rates and lower purchase costs of rental merchandise due to
increasing volume. Amortization of goodwill increased by $1.7 million primarily
because of the increase in goodwill related to stores acquired in 1997 and 1998.
Salaries and wages increased to $31.3 million from $16.2 million, but decreased
0.5% as a percentage of total revenues. The $15.1 million increase is
principally due to the addition of 283 new locations in fiscal 1997 and 1998
acquisitions and an overall strengthening of corporate personnel. The 283 stores
from fiscal 1997 and 1998 acquisitions produced additional store payroll costs
of approximately $12.0 million and regional manager payroll costs of
approximately $1.2 million. The strengthening of corporate personnel resulted in
an increase in salaries and wages of approximately $1.5 million. Same store
payroll increased $0.1 million. New store openings produced additional payroll
costs of approximately $0.3 million. Salaries and wages decreased to 25.1% from
25.6% of total revenues for the nine months ended June 30, 1998 and 1997,
respectively, principally due to same store revenue growth and more efficient
use of corporate personnel. Corporate payroll decreased 0.4% as a percentage of
total revenues. Advertising expense increased $3.3 million or 0.4% as a
percentage of total revenues to $6.2 million from $2.9 million principally due
to the addition of the stores acquired in 1997 and 1998. Occupancy expense
increased $4.1 million to $8.4 million from $4.3 million mainly due to the
addition of the stores acquired in 1997 and 1998. Other operating expenses
increased $13.7 million to $27.0 million from $13.3 million, or 0.5% as a
percentage of total revenues principally due to the addition of the stores
acquired in 1997 and 1998.
For the nine months ended June 30, 1998 compared to the nine months ended
June 30, 1997, operating income increased by $10.1 million (104.9%) to $19.7
million from $9.6 million, and increased to 15.7% from 15.2% of total revenues.
The improvement in operating income was principally due to the stores acquired
in 1997 and 1998 and the factors discussed above.
For the nine months ended June 30, 1998 compared to the nine months ended
June 30, 1997, interest expense increased by $2.0 million to $4.3 million from
$2.3 million due to an increase in debt of $69.3 million from $46.7 million to
$116.0 million. This increase is the result of the purchase of Champion on
February 5, 1998 and the extinguishment of its existing debt with $81.0 million
in funds drawn on the Company's senior credit facility.
16
<PAGE> 17
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (CONTINUED)
COMPARISON OF NINE MONTHS ENDED JUNE 30, 1998 AND 1997, (CONTINUED)
For the nine months ended June 30, 1998 compared to the nine months ended
June 30, 1997, income tax expense increased to $6.6 million from $3.4 million
because the Company generated greater taxable income. The Company is accruing
income tax expense based on an effective tax rate of 43.0%, which is higher than
the statutory tax rates, because amortization expense related to goodwill
incurred in connection with certain acquisitions is not deductible for purposes
of computing income tax.
For the nine months ended June 30, 1998 compared to the nine months ended
June 30, 1997, net income increased by $5.2 million (144.5%) to $8.8 million
from $3.6 million. The increase was due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On June 1, 1998, the Company signed a promissory Note (the "Note"), to pay
Zurn Industries Inc., $1,650,000 on June 1, 1999. The Note represents the
remaining balance to be paid for the purchase of the Company's new corporate
headquarters.
On February 5, 1998, the Company amended its existing senior credit
facility with a syndicate of banks led by National City Bank of Pennsylvania.
The amended facility (the "Facility"), co-led by National City Bank of
Pennsylvania, acting as syndication and administrative agent, and NationsBank,
N.A. as documentation agent, provides for loans and letters of credit up to
$120.0 million.
Of the $120.0 million available under the Facility, approximately $7.0
million was outstanding at the date of the amendment and approximately $81.0
million was used for the acquisition of Champion and the extinguishment of its
existing debt (see Note 4). The Facility expires on February 5, 2001.
On October 8, 1997, the Company exercised its right to convert $7,000,000
in subordinated convertible notes, ("the Notes") held by Massachusetts Mutual
Life Insurance Company. The indebture allowed the Company to force conversion
when the market price of the Company's common stock exceeded $16.50 per share
for a twenty consecutive day period. The Notes converted into 704,223 shares of
the Company's common stock, at a conversion price of $9.94 per share.
On December 2, 1997, the Company completed a public offering of 2,587,250
shares of Common Stock. Of the 2,587,250 shares of Common Stock offered,
2,500,000 shares were offered by the Company and 87,250 were offered by certain
selling shareholders. The Company also granted the underwriters an option to
purchase an additional 388,088 shares of Common Stock to cover over-allotments.
On December 30, 1997, the Underwriters exercised this option. The shares were
offered at a price of $17.25 per share. The Company received net proceeds (less
underwriters discount and selling expenses) of $46,982,586 including the
underwriters exercise of the over-allotment option. The Company used these
proceeds to repay outstanding borrowings of $23.0 million under the Company's
credit agreement with a syndicate of banks led by National City Bank of
Pennsylvania (see note 6).
For the nine months ended June 30, 1998 compared to the nine months ended
June 30, 1997, the Company's net cash provided by operating activities increased
to $3.4 million from $1.1 million. This increase was principally due to a $15.9
million increase in non-cash amortization and depreciation, a $3.0 million
increase in accounts payable, and a $5.2 million increase in net income offset
by a $22.9 million increase in rental merchandise purchases and $2.2 million
increase in prepaid expenses.
For the nine months ended June 30, 1998 compared to the nine months ended
June 30, 1997, the Company's net cash used in investing activities increased by
$80.3 million. This increase is primarily due to the acquisitions of Champion
Rentals and ACE Rentals.
17
<PAGE> 18
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES, (CONTINUED)
For the nine months ended June 30, 1998, compared to the nine months ended
June 30, 1997, the Company's net cash provided by financing activities increased
to $106.9 million from $28.2 million. The increase in net cash provided by
financing activities was principally due to funds received from the Company's
public stock offering and funds drawn on the Company's line of credit in
conjunction with the Champion acquisition (see Note 4).
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is primarily due to possible
fluctuations in interest rates. The Company's policy is to manage interest rate
risk by utilizing interest rate swap agreements to convert a portion of the
floating interest rate debt to fixed interest rates. The Company does not enter
into derivative financial instruments for trading or speculative purposes. The
interest rate swap agreements are entered into with major financial institutions
thereby minimizing the risk of credit loss.
The following table presents information about the Company's market
sensitive financial instruments. The table illustrates the principle and
notional amounts, as well as the date of maturity, actual and weighted average
pay and receive rates for all significant financial and derivative financial
instruments in effect as of June 30, 1998:
<TABLE>
<CAPTION>
EXPECTED MATURITY DATES
(DOLLARS IN MILLIONS): 1998 1999 2001 2002 2003 THEREAFTER
---------------------- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Debt:
Existing credit facility Base rate option.... $10.8
--Actual floating rate....................... 9.0%
Euro-rate option............................. $80.0
--Actual floating rate....................... 5.695%
Convertible Subordinated Debentures.......... $20.0
--Actual fixed interest rate................. 7.0%
Interest rate swap agreements:
National City Bank, notional amount.......... $30.0
--Actual fixed interest rate pay rate........ 5.965%
NationsBank, notional amount................. $20.0
--Actual fixed interest rate pay rate........ 5.760%
Manufacturers and Traders Trust, notional
amount.................................... $10.0
--Actual fixed interest rate pay rate........ 5.925%
</TABLE>
INFLATION
During the three months ended June 30, 1998, the cost of rental
merchandise, lease rental expense and salaries and wages have increased
modestly. These increases have not had a significant effect on the results of
operations because the Company has been able to charge commensurably higher
rental for its merchandise. This trend is expected to continue in the
foreseeable future.
OTHER MATTERS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal years beginning after
June 15, 1998. The Company is currently evaluating the impact of SFAS No. 133.
18
<PAGE> 19
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (CONTINUED)
OTHER MATTERS, (CONTINUED)
The Accounting Standards Executive Committee Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), issued in March 1998 and effective for fiscal years
beginning after December 15, 1998 with earlier application permitted, provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. The Company is currently evaluating the impact of SOP 98-1.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits" effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 132 will have no
impact on the Company's financial statements.
The Company has created a task force to evaluate the potential impact on
the Company's resources resulting from Year 2000 issues. At the current time,
the Company feels that there are no material ramifications from Year 2000 issues
on its internal software. All major internal software applications are Year 2000
compliant. At this time, the task force is still determining the impact of Year
2000 issues with regard to its external relationships with customers, suppliers
and other constituents.
CAUTIONARY STATEMENT
This Report on Form 10-Q and the foregoing Management's Discussion and
Analysis of Financial Condition and Results of Operations contains various
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Forward-looking statements represent the Company's expectations or
beliefs concerning future events. Any forward-looking statements made by or on
behalf of the Company are subject to uncertainties and other factors that could
cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, (i) the ability
of the Company to acquire additional rental-purchase stores on favorable terms,
(ii) the ability of the Company to improve the performance of such acquired
stores and to integrate such acquired stores into the Company's operations, and
(iii) the impact of state and federal laws regulating or otherwise affecting the
rental-purchase transaction.
Undo reliance should not be placed on any forward-looking statements made
by or on behalf of the Company as such statements speak only as of the date
made. The Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, the
occurrence of future events or otherwise.
19
<PAGE> 20
RENT-WAY, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
The Exhibits filed as part of this report are listed below.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.1 Second Amendment to Credit Agreement by and
among the Company, the banks party thereto
and National City Bank of Pennsylvania, as
syndication and administrative agent, and
NationsBank, N.A., as documentation agent,
dated February 5, 1998 (the "Credit
Agreement").
10.2 Third Amendment to Credit Agreement, dated
July 13, 1998.
27 Financial data schedule
</TABLE>
B. REPORTS ON FORM 8-K/A
(1) On April 16, 1998, the Company filed a Form 8-K/A
containing audited financial statements of Champion
and pro forma financial statements with respect to the
Champion acquisition.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
July 14, 1998
- ------------------------------------------------------
Date
/s/ JEFFREY A. CONWAY
- ------------------------------------------------------
Jeffrey A. Conway
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer and
Duly Authorized Officer)
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.1 Second Amendment to Credit Agreement by and
among the Company, the banks party thereto
and National City Bank of Pennsylvania, as
syndication and administrative agent, and
NationsBank, N.A., as documentation agent,
dated February 5, 1998 (the "Credit
Agreement").
10.2 Third Amendment to Credit Agreement, dated
July 13, 1998.
27 Financial data schedule
</TABLE>
22
<PAGE> 1
Exhibit 10.1
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT is dated as of February 5,
1998 (the "Second Amendment") and is made by and among RENT-WAY, INC., a
Pennsylvania corporation (the "Borrower"), each of the GUARANTORS, each of the
BANKS (as defined in the Credit Agreement defined below), NATIONAL CITY BANK OF
PENNSYLVANIA in its capacity as syndication agent and administrative agent for
the Banks under the Credit Agreement (hereinafter referred to in such capacity
as the "Agent"), and NATIONSBANK, N.A., in its capacity as documentation agent
for the Banks.
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent entered
into that certain Credit Agreement dated as of November 22, 1996, as amended by
a First Amendment to Credit Agreement dated as of January 31, 1997 (the Credit
Agreement and the First Amendment thereto being as hereafter amended, the
"Credit Agreement");
WHEREAS, defined terms used herein shall have the meanings given to
them in the Credit Agreement as such Credit Agreement shall be amended hereby on
the Second Amendment Effective Date;
WHEREAS, the Borrower has entered into the Ace Acquisition Agreement,
pursuant to which Borrower purchased on January 7, 1998, substantially all the
assets of SCRI, Paradise Valley and L & B Rents;
WHEREAS, the Borrower has entered into the Champion Acquisition
Agreement, pursuant to which the Borrower proposes to purchase on the closing
date specified therein all of the issued and outstanding shares of the stock of
Champion;
WHEREAS, in connection with the Champion Acquisition Agreement, the
Borrower has requested the increase of the amount of Commitments from
$40,000,000 to $120,000,000 in order to finance a portion of the purchase price
of such acquisition and to provide for working capital for the Borrower and its
Subsidiaries;
WHEREAS, the parties hereto desire to amend the Credit Agreement to
acknowledge that the Ace Acquisition and the Champion Acquisition are Permitted
Acquisitions, and subject to the terms and conditions hereof, to increase the
amount of the Commitments and to make certain other changes to the Credit
Agreement as more fully provided herein.
1. NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
2. Amendments to Credit Agreement. The Credit Agreement is amended as
set forth below effective on the date set forth in Section 6 hereof:
<PAGE> 2
(a) Amended and Restated Definitions (Section 1.1). Each of the
following definitions now contained in Section 1.1 of the Credit Agreement is
hereby amended and restated to read as set forth below:
"Applicable Margin shall mean, as applicable:
(A) the percentage spread set forth on the pricing grid attached
hereto as Schedule 1.1(A) to be added to the Base Rate under the Base Rate
Option based upon the ratio of (i) the sum of Consolidated Funded Debt plus
three times the Occupancy Expense, as measured at the end of each fiscal quarter
of the Borrower for the four quarters then ended, to (ii) Consolidated Cash Flow
from Operations plus Occupancy Expense, as measured at the end of each fiscal
quarter of the Borrower for the four quarters then ended. For purposes of this
ratio, Consolidated Cash Flow from Operations and Occupancy Expense shall be
calculated based upon the fiscal quarter ended March 31, 1998, multiplied by
four (for the fiscal quarter ended March 31, 1998); the fiscal quarters ended
March 31, 1998 and June 30, 1998, multiplied by two (for the fiscal quarter
ended June 30, 1998); the fiscal quarters ended March 31, 1998, June 30, 1998,
and September 30, 1998, multiplied by one and one-third (for the fiscal quarter
ended September 30, 1998); and thereafter, for the four fiscal quarters of the
Borrower then ended (for the fiscal quarter ended December 31, 1998 and
thereafter).
(B) the percentage spread set forth on the pricing grid attached hereto
as Schedule 1.1(A) to be added to the Euro-Rate under the Euro-Rate Option based
upon the ratio of (i) the sum of Consolidated Funded Debt plus three times the
Occupancy Expense, as measured at the end of each fiscal quarter of the Borrower
for the four quarters then ended, to (ii) Consolidated Cash Flow from Operations
plus the Occupancy Expense, as measured at the end of each fiscal quarter of the
Borrower for the four quarters then ended. For purposes of this ratio,
Consolidated Cash Flow from Operations and Occupancy Expense shall be calculated
based upon the fiscal quarter ended March 31, 1998, multiplied by four (for the
fiscal quarter ended March 31, 1998); the fiscal quarters ended March 31, 1998
and June 30, 1998, multiplied by two (for the fiscal quarter ended June 30,
1998); the fiscal quarters ended March 31, 1998, June 30, 1998, and September
30, 1998, multiplied by one and one-third (for the fiscal quarter ended
September 30, 1998); and thereafter, for the four fiscal quarters of the
Borrower then ended (for the fiscal quarter ended December 31, 1998 and
thereafter).
The Applicable Margin initially shall be set at Level I of the pricing grid
attached hereto as Schedule 1.1(A). Thereafter, the Applicable Margin shall be
calculated at the time of delivery of the financial statements and compliance
certificates provided pursuant to Sections 8.3.2 and 8.3.3. Any change in the
Applicable Margin shall become effective as of the first day of the fiscal
quarter following the fiscal quarter upon which the change is based.
Base Net Worth shall mean the sum of 90% of the Consolidated Tangible
Net Worth as of September 30, 1997, plus the amounts set forth in (i), (ii) and
(iii) below which occur during the period from October 1, 1997, through the date
of determination: (i) 75% of consolidated net income without regard to
extraordinary items of gain or loss of the Borrower and its Subsidiaries for
each fiscal year in which net income was earned (as opposed to a net
-2-
<PAGE> 3
loss), (ii) 90% of any increase in the Consolidated Tangible Net Worth resulting
from a Permitted Acquisition, and (iii) 90% of the amount of the net proceeds
received by the Loan Parties from any offering consummated with respect to
equity securities of the Borrower.
Consolidated Adjusted Cash Flow from Operations for any period of
determination shall mean (i) the sum of net income, amortization, interest
expense and income tax expense minus (ii) non-cash credits to net income, in
each case of the Borrower and its Subsidiaries for such period determined and
consolidated in accordance with GAAP. If the Borrower or any Loan Party shall
have made one or more Permitted Acquisitions as permitted under Section 8.2.6(2)
during the period of determination, Consolidated Adjusted Cash Flow from
Operations for such period shall be adjusted on a pro forma basis reasonably
acceptable to the Agent and based upon the historical financial statements
reasonably acceptable to the Agent of the Person or assets acquired to give
effect to such Permitted Acquisitions as if they had occurred at the beginning
of such period. The pro forma adjustment shall include any income or loss
attributable to the ownership interests or assets purchased, excluding in the
case of a stock acquisition of the Person acquired any income on the historical
financial statements attributable to stock or asset dispositions made prior to
the time of the Permitted Acquisition. The pro forma adjustment shall exclude
any income on the historical financial statements attributable to stock or
assets acquired under the Permitted Acquisition which the Borrower or the Loan
Party contemplate disposing of following the Permitted Acquisition. The pro
forma adjustment shall not include any projected cost savings, cost reductions
or similar synergistic adjustments forecasted by the Borrower based upon the
Permitted Acquisition.
Consolidated Cash Flow from Operations for any period of determination
shall mean (i) the sum of net income, depreciation, amortization, other non-cash
charges to net income (excluding depreciation of Rental Merchandise), interest
expense and income tax expense minus (ii) non-cash credits to net income, in
each case of the Borrower and its Subsidiaries for such period determined and
consolidated in accordance with GAAP. If the Borrower or any Loan Party shall
have made one or more Permitted Acquisitions as permitted under Section 8.2.6(2)
during the period of determination, Consolidated Cash Flow from Operations for
such period shall be adjusted on a pro forma basis reasonably acceptable to the
Agent and based upon the historical financial statements reasonably acceptable
to the Agent of the Person or assets acquired to give effect to such Permitted
Acquisitions as if they had occurred at the beginning of such period. The pro
forma adjustment shall include any income or loss attributable to the ownership
interests or assets purchased, excluding in the case of a stock acquisition of
the Person acquired any income on the historical financial statements
attributable to stock or asset dispositions made prior to the time of the
Permitted Acquisition. The pro forma adjustment shall exclude any income on the
historical financial statements attributable to stock or assets acquired under
the Permitted Acquisition which the Borrower or the Loan Party contemplate
disposing of following the Permitted Acquisition. The pro forma adjustment shall
not include any projected cost savings, cost reductions or similar synergistic
adjustments forecasted by the Borrower based upon the Permitted Acquisition.
Expiration Date shall mean, with respect to the Commitments,
February 5, 2001.
-3-
<PAGE> 4
Landlord's Waiver shall mean a Landlord's Waiver in the form or forms
from time to time approved by the Agent in its sole discretion.
Loan Documents shall mean this Credit Agreement, the Agent's Letter,
the Collateral Assignment, the Guaranty Agreement, the Indemnity Agreement, the
Intercompany Subordination Agreement, the Mortgage, the Notes, the Patent,
Trademark and Copyright Assignment, the Pledge Agreement, the Security
Agreement, the First Amendment, the Second Amendment and any other instruments,
certificates or documents delivered or contemplated to be delivered hereunder,
thereunder or under the Second Amendment or in connection herewith or therewith,
as the same may be supplemented or amended from time to time in accordance
herewith or therewith, and Loan Document shall mean any of the Loan Documents.
Occupancy Expense for any period of determination shall mean the
consolidated rental expense under operating leases for the retail store sites
(including common area maintenance charges, taxes and other amounts payable
under lease agreements) of the Borrower and its Subsidiaries as lessees,
determined and consolidated in accordance with GAAP. If the Borrower or any Loan
Party shall have made one or more Permitted Acquisitions as permitted under
Section 8.2.6(2) during the period of determination, the Occupancy Expense for
such period shall be adjusted on a pro forma basis acceptable to the Agent and
based upon the historical financial statements of the Person or assets acquired
to give effect to such Permitted Acquisitions as if they had occurred at the
beginning of such period.
Syndications Period shall mean the period from the Second Amendment
Effective Date to the date which is the earlier of (i) the date the Commitments
of the Banks equal $120,000,000 or such lesser amount as the Borrower shall
elect, or (ii) 120 days after the Second Amendment Effective Date."
(b) New Definitions (Section 1.1). The following new definitions are
hereby added to Section 1.1 of the Credit Agreement in alphabetical order:
"Ace Entities shall mean collectively, SCRI, Paradise Valley and L & B
Rents, substantially all of the assets of which were acquired by the Borrower on
January 7, 1998 pursuant to the Ace Acquisition Agreement.
Ace Acquisition shall mean the acquisition by Borrower of substantially
all the assets of the Ace Entities pursuant to the Ace Acquisition Agreement and
the other transactions effected pursuant to or contemplated by the Ace
Acquisition Agreement.
Ace Acquisition Agreement shall mean that certain Asset Purchase
Agreement, dated November 21, 1997, by and among the Borrower, SCRI, Paradise
Valley, L & B Rents and James S. Archer, as amended from time to time.
Champion shall mean Champion Rentals, Inc., a Florida corporation, the
stock of which is to be acquired by the Borrower on the Second Amendment
Effective Date pursuant to the Champion Acquisition Agreement.
-4-
<PAGE> 5
Champion Acquisition shall mean the acquisition by Borrower of all the
outstanding capital stock of Champion to be consummated on the Second Amendment
Effective Date pursuant to the Champion Acquisition Agreement and the other
transactions to be effected pursuant to or contemplated by the Champion
Acquisition Agreement.
Champion Acquisition Agreement shall mean that certain Stock Purchase
Agreement, dated as of January 30, 1998, by and among the Borrower, Champion,
Bill C. Ogle, Sr. and the other shareholders of Champion, as amended from time
to time.
Fixed Charge Coverage Ratio shall mean, for any period of
determination, the ratio of (i) Consolidated Cash Flow from Operations plus
Occupancy Expense plus Rental Merchandise depreciation minus total capital
expenditures (including capitalized leases) to (ii) Fixed Charges, in each case
of the Borrower and its Subsidiaries for such period determined and consolidated
in accordance with GAAP.
Fixed Charges shall mean, for any period of determination, the sum of
interest expense, income taxes, Occupancy Expense and the current portion of
long term Indebtedness (including capitalized leases), in each case of the
Borrower and its Subsidiaries for such period determined and consolidated in
accordance with GAAP.
L & B Rents shall mean L & B Rents, Inc., a Georgia corporation.
Paradise Valley shall mean Paradise Valley Holdings, Inc., a Georgia
corporation.
Restrictive Ace Leases shall mean the leases set forth on Schedule
6.1.13 which relate to the leases acquired by the Borrower in the Ace
Acquisition which prohibit a transfer of the leasehold interest of the
applicable Ace Entity without the consent of the landlord.
Restrictive Champion Leases shall have meaning given to such term in
the Section 2 of this Second Amendment.
SCRI shall mean South Carolina Rentals, Inc., a Georgia corporation.
Second Amendment shall mean this Second Amendment to Credit Agreement,
dated as of February 5, 1998, as the same may be supplemented or amended from
time to time, including all schedules and exhibits thereto.
Second Amendment Effective Date shall have the meaning given to such
term in Section 6 of this Second Amendment."
(c) Obsolete Definitions (Section 1.1). The following definitions are
hereby deleted in Section 1.1 of the Credit Agreement and shall be of no force
or effect with respect to the terms of the Credit Agreement: "Average Monthly
Revenue, Borrowing Base and Borrowing Base Certificate".
-5-
<PAGE> 6
(d) Revolving Credit Commitments. Section 2.1 of the Credit Agreement is
hereby amended and restated to read as follows:
"2.1 Revolving Credit Commitments. Subject to the terms and conditions
hereof and relying upon the representations and warranties herein set forth,
each Bank severally agrees to make Loans to the Borrower at any time or from
time to time on or after the date hereof prior to the Expiration Date provided
that after giving effect to such Loan (i) the aggregate amount of Loans from
such Bank shall not exceed such Bank's Commitment minus such Bank's Ratable
Share of the Letters of Credit Outstanding and (ii) after giving effect to the
Loans, the Borrower shall not be in default of the covenants set forth in
Sections 8.2.16 or 8.2.17 of this Agreement, as evidenced by the Borrower
pursuant to the Loan Request delivered pursuant to Section 2.5 hereof. Within
such limits of time and amount and subject to the other provisions of this
Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section
2.1, provided, however, until the Agent has received the financial statements
required under Section 8.3.2, along with the certificate of the Borrower
required in Section 8.3.4 for the quarter ended March 31, 1998, the Loans
outstanding hereunder shall not exceed $102,000,000."
(e) Revolving Credit Facility Fee. Section 2.4 of the Credit Agreement is
hereby amended and restated to read as follows:
"2.4 Revolving Credit Facility Fee. The Borrower agrees to pay to the
Agent for the account of each Bank, as consideration for such Bank's Commitment,
a nonrefundable Facility Fee equal to (i) one-eighth percent (1/8%) of such
Bank's Commitment which existed prior to the execution and delivery of the
Second Amendment by the parties thereto, plus (ii) one-fourth percent (1/4%) of
such Bank's Commitment in excess of its Commitment prior to the execution and
delivery of the Second Amendment, such Facility Fee to be paid on the Second
Amendment Effective Date. If such Bank is not a party to this Agreement on the
Second Amendment Effective Date and provides its Commitment during the
Syndications Period in connection with an increase in the aggregate Commitments
of all the Banks, such Bank's Facility Fee shall be paid at the time such Bank
joins in this Agreement."
(f) Revolving Credit Loan Requests. Section 2.5 of the Credit Agreement
is hereby amended and restated to read as follows:
"2.5 Revolving Credit Loan Requests. Except as otherwise provided
herein, the Borrower may from time to time prior to the Expiration Date request
the Banks to make Loans, or renew or convert the Interest Rate Option applicable
to existing Loans pursuant to Section 4.2, by delivering to the Agent, not later
than 10:00 a.m., Pittsburgh time, (i) three (3) Business Days prior to the
proposed Borrowing Date with respect to the making of Loans to which the
Euro-Rate Option applies or the conversion to or the renewal of the Euro-Rate
Option for any Loans; and (ii) one (1) Business Day prior to either the proposed
Borrowing Date with respect to the making of a Loan to which the Base Rate
Option applies or the last day of the preceding Interest Period with respect to
the conversion to the Base Rate Option for any Loan, of a duly completed request
therefor substantially in the form of Exhibit 2.5 (each a "Loan Request"), which
includes a representation that the Borrower is in compliance with Sections
-6-
<PAGE> 7
8.2.16 and 8.2.17 after giving effect to the Loans subject to such Loan Request.
Each Loan Request shall be irrevocable and shall specify (i) the proposed
Borrowing Date; (ii) the aggregate amount of the proposed Loans comprising each
Borrowing Tranche, which shall be in integral multiples of $250,000 and not less
than $1,000,000 for each Borrowing Tranche to which the Euro-Rate Option applies
and not less than the lesser of $500,000 or the maximum amount available for
Borrowing Tranches to which the Base Rate Option applies; (iii) whether the
Euro-Rate Option or Base Rate Option shall apply to the proposed Loans
comprising the applicable Borrowing Tranche; and (iv) in the case of a Borrowing
Tranche to which the Euro-Rate Option applies, an appropriate Interest Period
for the proposed Loans comprising such Borrowing Tranche."
(g) Issuance of Letters of Credit. Section 2.9.1 of the Credit
Agreement is hereby amended and restated to read as follows:
"2.9.1 Issuance of Letters of Credit. Borrower may request the issuance
of one or more letters of credit (each a "Letter of Credit") on behalf of itself
or another Loan Party by delivering to the Agent (i) a completed application and
agreement for letters of credit in such form as the Agent may specify from time
to time by no later than 10:00 a.m., Pittsburgh time, at least three (3)
Business Days, or such shorter period as may be agreed to by the Agent, in
advance of the proposed date of issuance and (ii) a Loan Request which includes
the calculations showing compliance with Sections 8.2.16 and 8.2.17 after giving
effect to the issuance of the letter of credit or letters of credit. Each Letter
of Credit shall be a Standby Letter of Credit. Subject to the terms and
conditions hereof and in reliance on the agreements of the other Banks set forth
in this Section 2.9, the Agent will issue a Letter of Credit provided that each
Letter of Credit shall (A) have a maximum maturity of twelve (12) months from
the date of issuance, and (B) in no event expire later than one Business Day
prior to the Expiration Date and providing that in no event shall (i) the
Letters of Credit Outstanding exceed, at any one time, $5,000,000 or (ii) the
Revolving Facility Usage exceed, at any one time, the Commitments."
(h) Section 2.9.3.2 of the Credit Agreement is hereby amended by the
deletion of the phrase "and the Borrowing Base".
(i) Section 5.6.2 is hereby amended by the addition of the following
sentence at the end of such Section: "The Borrower shall also indemnify each
Bank in accordance with this Section 5.6.2 based upon the existence of any Loans
outstanding during the Syndications Period which accrue interest under the
Euro-Rate Option and have an Interest Period of more than one month."
(j) Section 5.5.2 of the Credit Agreement is hereby deleted in its
entirety.
(k) Continuation of Landlord's Waivers. Section 8.1.13 of the Credit
Agreement is hereby amended and restated to read as follows:
"8.1.13 Continuation of Landlord's Waivers. Each Loan Party shall cause
each Landlord's Waiver to remain in full force and effect in connection with any
extension of any lease, and from time to time as shall be necessary to meet the
requirements of Section
-7-
<PAGE> 8
8.2.24, shall cause the landlord of any additional leased locations to execute
and deliver a Landlord's Waiver prior to locating any property of such Loan
Party upon such premises."
(l) Principal Office of Champion. A new Section 8.1.16 is hereby added
to the Credit Agreement to immediately follow Section 8.1.15. Such Section
8.1.16 shall read as follows:
"8.1.16 Principal Office of Champion. On or before 150 days after the
Second Amendment Effective Date, Champion (or the Borrower if Champion has
merged into the Borrower) shall move the business conducted by Champion and the
Borrower from the office located at 661 Beville Road, South Daytona, Florida
32119 (the "South Daytona Office") and discontinue the use of such office in the
conduct of any business of the Loan Parties. The Borrower and Champion shall be
deemed to be continuing the use of the South Daytona Office if Borrower or any
Loan Party or any of their respective officers, managers or employees do any of
the following (i) maintain or store records of Champion or the Borrower, (ii)
conduct business of or manage Champion or the Borrower or (iii) convene for
matters relating to the business of Champion or the Borrower.
(m) Liquidations, Mergers, Consolidations, Acquisitions. Section
8.2.6(2) to the Credit Agreement is hereby amended and restated to read as
follows:
"(2) any Loan Party may acquire, whether by purchase or by merger, (A)
all of the ownership interests of another Person or (B) substantially all of the
assets of another Person or of a business or division of another Person (each an
"Permitted Acquisition"), provided that each of the following requirements is
met:
(i) such Person shall be a corporation, limited liability company
or other entity with respect to applicable state law provided that the owners of
all stock or other ownership interests in such entity shall not be liable for
any obligations of such entity or for the claims of any creditors thereof,
(ii) if the Loan Parties are acquiring the ownership interests in
such Person, such Person shall execute a Guarantor Joinder and join this
Agreement as a Guarantor pursuant to Section 11.18 and such Person and its
owners shall grant Liens in the assets and stock or other ownership interests in
such Person and otherwise comply with Section 11.18 on or before the date of
such Permitted Acquisition,
(iii) the board of directors or other equivalent governing body of
such Person shall have approved such Permitted Acquisition and the Loan Parties
shall have delivered to the Banks written evidence of such approval prior to
such Permitted Acquisition,
(iv) the business acquired, or the business conducted by the
Person whose ownership interests are being acquired, as applicable, shall be
substantially the same as one or more line or lines of business conducted by the
Loan Parties and shall comply with Section 8.2.10,
-8-
<PAGE> 9
(v) no Potential Default or Event of Default shall exist
immediately prior to and after giving effect to such Permitted Acquisition,
(vi) the Borrower shall have given the Agent written notice of the
acquisition at least fourteen (14) days prior to its consummation, which notice
shall include a quarterly compliance certificate of the Borrower in the form of
Exhibit 8.3.4 which evidences that after giving effect to the Permitted
Acquisition and any Loans to be made in connection therewith, the Borrower is
not in default with respect the covenants set forth in Sections 8.2.16 and
8.2.17,
(vii) any Consideration given by the Loan Parties in the form of
Indebtedness to be paid at a date after the closing date of the Permitted
Acquisition shall be subordinated to the Loans and other Obligations on terms
and conditions satisfactory to the Agent,
(viii) if the Consideration given by the Loan Parties for the
Permitted Acquisition is cash, preferred stock and/or other Consideration other
than common capital stock of the Borrower, the Consideration given by the Loan
Parties for such Permitted Acquisition shall not exceed $10,000,000 in value,
and after giving effect to such Permitted Acquisition, the aggregate
Consideration in cash, preferred stock and/or other Consideration other than
common capital stock of the Borrower given by the Loan Parties for all Permitted
Acquisitions made from the Closing Date through the date of the Permitted
Acquisition shall not exceed $30,000,000 in value,
(ix) if the Consideration given by the Loan Parties for such
Permitted Acquisition is exclusively common capital stock of the Borrower, the
Consideration given by the Loan Parties shall not exceed $15,000,000 in value,
and after giving effect to such Permitted Acquisition, the Consideration given
in shares of common capital stock of the Borrower for all Permitted Acquisitions
made from the Second Amendment Effective Date through the date of the Permitted
Acquisition shall not exceed $50,000,000 in value. For purposes of valuing the
common capital stock given as Consideration, each share shall be equal to the
listed closing market price per share on NASDAQ as of the closing date of the
Permitted Acquisition,
(x) if the Consideration given by the Loan Parties for such
Permitted Acquisition includes but is not exclusively common capital stock of
the Borrower, the Consideration other than shares of the common capital stock
Borrower shall not exceed $10,000,000 in value, the aggregate Consideration for
such Permitted Acquisition shall not exceed $15,000,000 in value, and after
giving effect to such Permitted Acquisition, the Consideration other than common
capital stock of the Borrower given by the Loan Parties for all Permitted
Acquisitions made from the Second Amendment Effective Date through the date of
the Permitted Acquisition shall not exceed the limitation set forth in
subsection (viii) above, and the Consideration in the form of common capital
stock of the Borrower given by the Loan Parties for all Permitted Acquisitions
made from the Second Amendment Effective Date through the date of the Permitted
Acquisition shall not exceed the limitation set forth in subsection (ix) above,
and
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<PAGE> 10
(xi) the Loan Parties shall have delivered to the Banks such
opinions of counsel in form and substance satisfactory to the Agent or such
other evidence as shall be satisfactory to the Agent in its sole discretion that
the Loan Parties are in compliance with all applicable Law in any additional
states in which the Loan Parties do business after the consummation of the
Permitted Acquisition.
The aggregate Consideration set forth in subsections (viii), (ix) and (x) above
shall be determined for all Permitted Acquisitions which occur after the Second
Amendment Effective Date and shall exclude Consideration paid with respect to
the Champion Acquisition."
(n) Maximum Leverage Ratio (Total Funded Debt). Section 8.2.16 to the
Credit Agreement is hereby amended and restated to read as follows:
"8.2.16 Maximum Leverage Ratio (Total Funded Debt). The Loan Parties
shall not permit the ratio of (a) Consolidated Funded Debt as of the end of each
fiscal quarter of the Borrower plus the product obtained by multiplying
Occupancy Expense by three (3) to (b) Consolidated Cash Flow from Operations
plus Occupancy Expense to be greater than (i) for the fiscal quarters ended
December 31, 1997, March 31, 1998, and June 30, 1998, 3.75 to 1.00, and (ii) for
the fiscal quarter ended September 30, 1998, and each fiscal quarter thereafter,
3.50 to 1.00. For purposes of this ratio, Consolidated Cash Flow from Operations
and Occupancy Expense shall be calculated based upon the fiscal quarter ended
March 31, 1998, multiplied by four (for the fiscal quarter ended March 31,
1998); the fiscal quarters ended March 31, 1998 and June 30, 1998, multiplied by
two (for the fiscal quarter ended June 30, 1998); the fiscal quarters ended
March 31, 1998, June 30, 1998, and September 30, 1998, multiplied by one and
one-third (for the fiscal quarter ended September 30, 1998); and thereafter, for
the four fiscal quarters of the Borrower then ended (for the fiscal quarter
ended December 31, 1998 and thereafter)."
(o) Maximum Leverage Ratio (Senior Funded Debt). Section 8.2.17 to the
Credit Agreement is hereby amended and restated to read as follows:
"8.2.17 Maximum Leverage Ratio (Senior Funded Debt). The Loan Parties
shall not permit the ratio of (a) Consolidated Funded Senior Debt as of the end
of each fiscal quarter of the Borrower plus the product obtained by multiplying
Occupancy Expense by three (3) to (b) Consolidated Cash Flow from Operations
plus Occupancy Expense to be greater than (i) for the fiscal quarters ended
December 31, 1997, March 31, 1998, and June 30, 1998, 3.25 to 1.00, and (ii) for
the fiscal quarter ended September 30, 1998, and each fiscal quarter thereafter,
3.00 to 1.00. For purposes of this ratio, Consolidated Cash Flow from Operations
and Occupancy Expense shall be calculated based upon the fiscal quarter ended
March 31, 1998, multiplied by four (for the fiscal quarter ended March 31,
1998); the fiscal quarters ended March 31, 1998 and June 30, 1998, multiplied by
two (for the fiscal quarter ended June 30, 1998); the fiscal quarters ended
March 31, 1998, June 30, 1998, and September 30, 1998, multiplied by one and
one-third (for the fiscal quarter ended September 30, 1998); and thereafter, for
the four fiscal quarters of the Borrower then ended (for the fiscal quarter
ended December 31, 1998 and thereafter)."
-10-
<PAGE> 11
(p) Minimum Interest Coverage Ratio. Section 8.2.18 to the Credit
Agreement is hereby amended and restated to read as follows:
"8.2.18 Minimum Interest Coverage Ratio. The Loan Parties shall not
permit the Interest Coverage Ratio to be less than 3.5 to 1.0, as calculated at
the end of each fiscal quarter of the Borrower. For purposes of this ratio,
Consolidated Adjusted Cash Flow from Operations and interest expense shall be
calculated based upon the fiscal quarter ended March 31, 1998, multiplied by
four (for the fiscal quarter ended March 31, 1998); the fiscal quarters ended
March 31, 1998 and June 30, 1998, multiplied by two (for the fiscal quarter
ended June 30, 1998); the fiscal quarters ended March 31, 1998, June 30, 1998,
and September 30, 1998, multiplied by one and one-third (for the fiscal quarter
ended September 30, 1998); and thereafter, for the four fiscal quarters of the
Borrower then ended (for the fiscal quarter ended December 31, 1998 and
thereafter)."
(q) Subordinated Loan Document Covenants; Amendment. Section 8.2.20 is
hereby amended and restated to read as set forth below:
"8.2.20 Fixed Charge Coverage Ratio, Subordinated Loan Document
Amendments. The Borrower shall not at any time permit the Fixed Charge Coverage
Ratio to be less than 1.2 to 1.0. For purposes of this ratio, Consolidated Cash
Flow from Operations, Occupancy Expense, Rental Merchandise depreciation and
Fixed Charges shall be calculated based upon the fiscal quarter ended March 31,
1998, multiplied by four (for the fiscal quarter ended March 31, 1998); the
fiscal quarters ended March 31, 1998 and June 30, 1998, multiplied by two (for
the fiscal quarter ended June 30, 1998); the fiscal quarters ended March 31,
1998, June 30, 1998, and September 30, 1998, multiplied by one and one-third
(for the fiscal quarter ended September 30, 1998); and thereafter, for the four
fiscal quarters of the Borrower then ended (for the fiscal quarter ended
December 31, 1998 and thereafter). The Loan Parties shall not amend the terms of
the NWB Subordinated Loan Documents without the prior written consent of the
Agent."
(r) Landlord's Waivers. Section 8.2.24 of the Credit Agreement is
hereby amended and restated to read as set forth below:
"8.2.24 Landlord's Waivers. The Loan Parties shall not fail to deliver
to the Agent an executed Landlord's Waiver from the lessors of at least 50% of
the leased Collateral locations listed on Schedule A to the Security Agreement
within sixty (60) days following the Second Amendment Effective Date. In the
event that any Loan Party makes additional Permitted Acquisitions or locates
Collateral at new locations of business leased to such Loan Party, the Loan
Parties shall not fail to deliver to the Agent an executed Landlord's Waiver
from the lessors of at least 50% of the aggregate amount of the leased
Collateral locations which exist from time to time (as set forth on Schedule A
to the Security Agreement, as amended from time to time), and in the case of
Permitted Acquisitions, such Landlord's Waivers shall be delivered within sixty
(60) days of the closing of such Permitted Acquisition."
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<PAGE> 12
(s) Consents of Landlords Under Leases of Champion Stores. A new
Section 8.2.26 is hereby added to the Credit Agreement to immediately follow
Section 8.2.25. Such Section 8.2.26 shall read as follows:
"8.2.26 Consents of Landlords Under Leases of Champion Stores. Borrower
and Champion shall each use its best efforts to not fail to obtain consents in a
form acceptable to the Agent consenting (i) to the purchase and sale of the
stock of Champion to the Borrower from landlords and shall obtain such consents
under at least 50% of the Restrictive Champion Leases within sixty (60) days
after the Second Amendment Effective Date, and (ii) to the purchase and sale of
the assets of the Ace Entities to the Borrower from landlords and shall obtain
such consents under at least 50% of the Restrictive Ace Leases within sixty (60)
days after the Second Amendment Effective Date."
(t) The last sentence of Section 8.3.1 of the Credit Agreement is
hereby deleted.
(u) Modifications, Amendments or Waivers; Miscellaneous. Section 11.1.4
of the Credit Agreement is hereby amended and restated to read as set forth
below:
"11.1.4 Miscellaneous. Amend Section 5.2 [Pro Rata Treatment of Banks],
10.6 [Exculpatory Provisions, etc.], 10.13 [Equalization of Banks] or this
Section 11.1, alter any provision regarding the pro rata treatment of the Banks,
change the definition of Required Banks, or change any requirement providing for
the Banks or the Required Banks to authorize the taking of any action hereunder;
provided, further, that no agreement, waiver or consent which would modify the
interests, rights or obligations of the Agent in its capacity as Agent or as the
issuer of Letters of Credit shall be effective without the written consent of
the Agent."
(v) Amendments to Exhibits to Credit Agreement. The following Exhibits
to the Credit Agreement are hereby amended and restated in their entirety in the
forms of such Exhibits attached hereto:
Exhibit 1.1(S) Security Agreement, including
Schedule A - list of office and asset locations
Exhibit 2.5 Loan Request
Exhibit 8.3.4 Quarterly Compliance Certificate
(w) Amendments to Schedules to Credit Agreement. The following
Schedules to the Credit Agreement are hereby amended and restated in their
entirety in the forms of such Schedules attached hereto:
-12-
<PAGE> 13
Schedule 1.1(B) - Commitments of Banks and Addresses for Notices
Schedule 1.1(P) - Permitted Liens
Schedule 6.1.1 - Qualifications to do Business
Schedule 6.1.2 - Capitalization
Schedule 6.1.3 - Subsidiaries
Schedule 6.1.7 - Litigation
Schedule 6.1.8 - Owned and Leased Real Property
Schedule 6.1.13 - Consents and Approvals
Schedule 6.1.15 - Patents, Trademarks, Copyrights, Licenses
Schedule 6.1.18 - Partnership Agreements; LLC Agreements
Schedule 6.1.19 - Insurance Policies
Schedule 6.1.21 - Material Contracts
Schedule 6.1.23 - Employee Benefit Plan Disclosures
Schedule 6.1.25 - Environmental Disclosures
Schedule 8.2.1 - Permitted Indebtedness
Schedule 8.2.10 - Business of Loan Parties
3. Waivers, Warranties and Covenants. The Loan Parties and the Banks
acknowledge and agree as set forth in this Section 2, effective on the date set
forth in Section 6 hereof.
(a) Ace Acquisition.
(i) Delivery Due Dates. The Agent and the Banks waive the
requirement that the Loan Parties must satisfy the requirements contained in
Subsections 8.2.6(2)(ii), (vi) and (xi) of the Credit Agreement in connection
with the Ace Acquisition on or before the due dates specified in such
Subsections, provided that the Loan Parties shall satisfy the conditions
contained in such Subsections on or before the Second Amendment Effective Date.
(ii) Consideration Limitations. The Agent and the Banks waive the
requirement in Subsection 8.2.6(2)(viii) in connection with the Ace Acquisition
that the Loan Parties shall not give Consideration in cash, preferred stock
and/or other Consideration other than common capital stock of the Borrower in
excess of $10,000,000 in connection with any individual Permitted Acquisition
and further waive the requirement in such Subsection 8.2.6(2)(x) that the
Consideration in connection with all Permitted Acquisitions may not exceed in
the aggregate $30,000,000 after the Closing Date, in each instance as more fully
provided in Subsection 8.2.6(2)(viii) and (x), provided that the Loan Parties
covenant and agree that the total Consideration given by the Loan Parties in
connection with the Ace Acquisition shall not exceed $25,250,000, all of which
consists of either cash paid or Indebtedness assumed by the Borrower.
(b) Champion Acquisition.
(i) Notice. The Agent and the Banks waive the requirement that the
Loan Parties deliver to the Agent written notice of the Champion Acquisition
under Subsection 8.2.6(2)(vi) (as more fully described in such Subsection) at
least fourteen (14) days before the consummation of such acquisition, provided
that the Loan Parties shall deliver such notice and
-13-
<PAGE> 14
otherwise comply with such Subsection in connection with the Champion
Acquisition on or before the Second Amendment Effective Date.
(ii) Consideration Limitations. The Agent and the Banks waive the
requirement in Subsection 8.2.6(2)(viii) in connection with the Champion
Acquisition that the Loan Parties shall not give Consideration in cash,
preferred stock and/or other Consideration other than common capital stock of
the Borrower in excess of $10,000,000 in connection with any individual
Permitted Acquisition and further waive the requirement in such Subsection
8.2.6(2)(x) that the Consideration in connection with all Permitted Acquisitions
may not exceed in the aggregate $30,000,000 after the Closing Date, in each
instance as more fully provided in Subsection 8.2.6(2)(viii) and (x), provided
that the Loan Parties covenant and agree that the total Consideration given by
the Loan Parties in connection with the Champion Acquisition shall not exceed
$90,000,000, all of which consists of either cash paid or Indebtedness assumed
by the Borrower.
(iii) Consents. With the exception of the pending premerger
notification filings made by the Borrower and Champion with respect to the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and any
supplementary information required in connection therewith, there are no
material consents required to effectuate the purchase and sale of the stock of
Champion and the other transactions under the Champion Acquisition Agreement,
except that the Borrower might be required to obtain the consent of landlords
under leases (the "Restrictive Champion Leases") listed on Schedule 6.1.13 for
the purchase and sale of the stock of Champion to the Borrower. The Restrictive
Champion Leases comprise no more than 50% of the leases of Champion for its
stores.
(c) Both Acquisitions.
(i) Other Conditions in Section 8.2.6(2) Satisfied. The Loan
Parties represent, warrant and covenant to the Agent and each of the Banks that
after giving effect to the waivers in this Section 2 above and upon satisfaction
of the conditions set forth in Section 3 of this Amendment, each of the
conditions in Section 8.2.6(2) of the Credit Agreement shall be satisfied with
respect to each of the Ace Acquisition and the Champion Acquisition and each
such acquisition shall constitute a "Permitted Acquisition" as such term is
defined in Section 8.2.6(2).
(ii) Covenant to Obtain Landlord's Waivers. The Loan Parties shall
deliver to the Agent an executed Landlord's Waiver from lessors of at least 50%
of the Collateral locations added pursuant to the Ace Acquisition and the
Champion Acquisition in accordance with Section 8.2.24 of the Credit Agreement,
except that the term "closing date" as used in Section 8.2.24 as it relates to
the Ace Acquisition and the Champion Acquisition shall be deemed to mean the
Second Amendment Effective Date.
(iii) Delivery of Documents. Borrower has delivered to the Agent
for the benefit of the Banks true and correct copies of the Ace Acquisition
Agreement and the Champion Acquisition Agreement.
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<PAGE> 15
4. Conditions Precedent. The provisions contained in Sections 1 and 2
of this Amendment shall not become effective until each of the conditions set
forth in this Section 3 has been satisfied.
(a) Satisfaction of Conditions in Section 6(a). Each of the conditions
set forth in Section 6(a) hereof (execution of this Amendment and completion of
Schedules and Exhibits hereto) shall have been satisfied.
(b) Events of Default; Potential Defaults, Compliance Certificate. No
Event of Default or Potential Default which might not be cured before it results
in an Event of Default shall have occurred and be continuing after giving effect
to the Champion Acquisition to be consummated simultaneously with the Second
Amendment Effective Date.
(c) Other Loan Document Deliveries by Champion and the Borrower. Each
of Champion and the Borrower, as applicable, shall execute and deliver each of
the following documents:
(i) Guaranty Agreement. Champion shall execute and deliver to the
Agent for the benefit of each of the Banks the Guaranty Agreement in the form of
Exhibit 1.1(G)(2) of the Credit Agreement.
(ii) Security Agreement. Champion and the Borrower shall (1)
execute and deliver to the Agent for the benefit of each of the Banks the
Security Agreement in the form of Exhibit 1.1(S) and (2) complete and deliver to
the Agent the Schedule A (list of office and asset locations) to such Security
Agreement.
(iii) UCC-1 Financing Statements.
(A) Champion UCC-1 Statements. Champion shall execute and
deliver to the Agent for the benefit of each of the Banks UCC-1 financing
statements sufficient to perfect Liens in its personal property in all
jurisdictions where filing of such statements is necessary or appropriate to
perfect such Liens in the discretion of the Agent.
(B) Borrower UCC-1 Statements. Borrower shall execute and
deliver to the Agent for the benefit of each of the Banks UCC-1 financing
statements sufficient to perfect Liens in the personal property formerly owned
by the Ace Entities and owned by Champion (assuming in the case of the Champion
property that such property is hereafter transferred to the Borrower) in all
appropriate jurisdictions where filing of such statements would be necessary or
appropriate to maintain perfection of such Liens following such transfer.
(iv) Pledge Agreement and Related Documents. The Borrower shall
execute and deliver, as applicable, to the Agent for the benefit of each of the
Banks (1) the Pledge Agreement in the form of Exhibit 1.1(P)(2) of the Credit
Agreement, pledging its stock in Champion, (2) the schedule of pledged
securities to be attached thereto, (3) the original stock certificates
representing such stock, (4) stock powers respecting such certificates, and (5)
UCC-1 financing statements to be filed in order perfect Liens in such stock.
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<PAGE> 16
(v) Intercompany Subordination Agreement. The Borrower and
Champion each shall execute and deliver to the Agent for the benefit of each of
the Banks the Intercompany Subordination Agreement in the form attached as
Exhibit 1.1(I)(2) to the Credit Agreement.
(vi) Joinder to Credit Agreement. Champion shall execute and
deliver to the Agent for the benefit of each of the Banks a joinder agreement in
a form acceptable to the Agent pursuant to which it shall acknowledge that it
has joined the Credit Agreement as a Loan Party. Such joinder may be included in
the Guaranty Agreement described in (i) above.
(vii) Collateral Assignment. The Borrower and Champion shall
execute and deliver to the Agent for the benefit of each of the Banks the
Collateral Assignments in the form attached as Exhibit 1.1(C) to the Credit
Agreement pursuant to which they shall assign their interests in (1) the Rental
Contracts of the Borrower and Champion, (2) the leases acquired by the Borrower
from the Ace Entities and the leases of Champion and (3) the Ace Acquisition
Agreement and the Champion Acquisition Agreement.
(viii) Patent, Trademark and Copyright Assignment. The Borrower
and Champion shall execute and deliver to the Agent for the benefit of each of
the Banks the Patent, Trademark and Copyright Assignment in the form of Exhibit
1.1(P)(1) of the Credit Agreement.
(d) Lien Search. The Borrower shall deliver to the Agent the
results of a Lien search satisfactory to the Agent evidencing that the Liens
granted in the assets of the Borrower formerly owned by the Ace Entities and in
the assets of Champion will be first priority Liens.
(e) Payoff Letters; Lien Releases. The Borrower shall have
delivered Payoff Letters and copies of Lien releases evidencing that all
Indebtedness except Indebtedness permitted under Section 8.2.1 of the Credit
Agreement has been repaid and that the Liens against the assets and stock of
Champion securing the same have been terminated of record such that the Agent
for the benefit of the Banks shall have a first priority security interest in
the all of the assets and stock of Champion subject only to Permitted Liens.
Such Indebtedness to be paid off and liens to be terminated includes without
limitation:
All Indebtedness to State Street Bank and Trust Company.
(f) Secretary's Certificates. The Secretary or Assistant Secretary
of each of the Borrower and Champion shall execute and deliver to the Agent for
the benefit of the Banks a certificate dated as of the date hereof, certifying
as to
(i) all corporate or partnership action taken by it in connection
with the documents listed in this Section 3;
(ii) the names of the officer or officers authorized to sign this
Amendment and the related documents and the true signatures of such officer or
officers and specifying the Authorized Officers permitted to act on behalf of
them for purposes of this
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<PAGE> 17
Amendment and the true signatures of such officers, on which the Agent and each
Bank may conclusively rely; and
(iii) copies of the organizational documents of, including the
certificate of incorporation, bylaws and corporate resolutions as in effect on
the Second Amendment Effective Date, together with certificates from the
appropriate state officials as to the continued existence and good standing of
it in each state where it is organized or qualified to do business.
(g) Opinion of Counsel.
(i) Hodgson Russ Andrews Wood & Goodyear, LLP, counsel for the
Borrower and Champion (who may rely on the opinions of such other counsel as may
be acceptable to the Agent), shall have delivered to the Agent for the benefit
of each Bank a written opinion dated as of the date hereof and in form and
substance satisfactory to the Agent and its counsel as to the matters set forth
in Exhibit 3(g) hereto.
(ii) In-house counsel for the Borrower and Champion (following the
acquisitions by the Borrower of the assets of the Ace Entities and the stock of
Champion), shall have delivered to the Agent for the benefit of each Bank a
written opinion dated as of the date hereof and in form and substance
satisfactory to the Agent and its counsel as to the rent-to-own regulatory
matters set forth in Exhibit 3(g) hereto with respect to jurisdictions in which
the Loan Parties conduct business which such counsel did not addressed in his
prior opinion.
(iii) The opinion of counsel for the shareholders of Champion to
be delivered to the Borrower pursuant to the Champion Acquisition shall provide
that the Banks may rely thereon.
(h) Delivery of Documents; No Modifications; Consummation of Transactions.
Borrower shall have delivered true and correct copies of all the
documents executed or delivered in connection with the Ace Acquisition and the
Champion Acquisition. There shall have been no amendments to the Ace Acquisition
Agreement or the Champion Acquisition Agreement between the date on which
Borrower delivered such documents to the Agent (which shall be on or before the
date of this Amendment) and the Second Amendment Effective Date unless the Agent
and the Banks shall have consented to the same in writing. The transactions
under the Ace Acquisition Agreement and the Champion Acquisition Agreement shall
have been consummated.
(i) Consents. All material consents required to effectuate the
transactions contemplated by the Ace Acquisition Documents and the Champion
Acquisition Documents (except for the consents of the landlords under the
Restrictive Champion Leases which consents are addressed in Section 8.2.26 of
the Credit Agreement) shall have been obtained.
(j) Champion and Ace Entities Leases. Borrower shall deliver to
the Agent either (i) copies of each of the leases of Champion and the Ace
Entities for their sales offices or (ii) summaries of such leases prepared by
Borrower or its counsel in a form acceptable to the Agent, such summaries to
include (without limitation) a description of the principal terms of
-17-
<PAGE> 18
such lease, any restrictions on the transfer of the lease or of the ownership of
the Borrower and a confirmation that the lease does not by its terms grant to
the lessor any Liens in the assets of the lessee.
(k) Fixed Assets; Equipment. The Borrower shall have delivered to the
Agent a detailed listing of all equipment and fixed assets of the Borrower and
the other Loan Parties, in form and content satisfactory to the Agent.
(l) Fees and Expenses. Borrower shall have paid all outstanding fees
and expenses due to the Agent or the Banks, including the fees of Agent's
counsel in connection with this Amendment.
(m) Legal Details. All legal details and proceedings in connection with
the transactions contemplated by this Amendment and the other Loan Documents
shall be in form and substance satisfactory to the Agent and counsel for the
Agent, and the Agent shall have received all such other counterpart originals or
certified or other copies of such documents and proceedings in connection with
such transactions, in form and substance satisfactory to the Agent and said
counsel, as the Agent or said counsel may reasonably request.
5. Full Force and Effect. The Credit Agreement and each of other Loan
Documents shall remain in full force and effect on and after the date of this
Amendment except as expressly amended hereby or pursuant hereto. On and after
the date hereof, each reference in the Credit Agreement to "this Agreement",
"hereunder" or words of like import shall mean and be a reference to the Credit
Agreement, as amended by this Amendment, and each reference in each other Loan
Document to the "Credit Agreement" shall mean and be a reference to the Credit
Agreement, as previously amended and as amended by this Amendment. The parties
hereto do not amend or waive any provisions of the Credit Agreement or the other
Loan Documents except as expressly set forth herein.
6. Counterparts. This Amendment may be executed by different parties
hereto on any number of separate counterparts, each of which, when so executed
and delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument.
7. Effective Date.
(a) Second Amendment Effective Date. All provisions of this Amendment
shall be effective on the date on which the conditions listed in (i) and (ii)
below have been satisfied and each of the conditions precedent in Section 3
above have occurred or been waived by the Banks (the "Second Amendment Effective
Date"):
(i) Execution and Delivery. this Amendment has been executed, in
counterparts or otherwise, and delivered to the Agent for the benefit of the
Banks; and
(ii) Completion of Schedules and Exhibits. Each of the Schedules
and Exhibits hereto has been completed and attached hereto.
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<PAGE> 19
[SIGNATURES APPEAR ON THE NEXT PAGE]
-19-
<PAGE> 20
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Amendment as of the day and year first above
written.
RENT-WAY, INC., "Borrower"
By:
-------------------------------
Title:
----------------------------
<PAGE> 21
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
NATIONAL CITY BANK OF PENNSYLVANIA,
individually and as Agent
By:
-------------------------------
Title:
----------------------------
<PAGE> 22
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
LASALLE NATIONAL BANK
By:
-------------------------------
Title:
----------------------------
<PAGE> 23
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
HARRIS TRUST AND SAVINGS BANK
By:
-------------------------------
Title:
----------------------------
<PAGE> 24
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By:
-------------------------------
Title:
----------------------------
<PAGE> 25
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
MANUFACTURERS AND TRADERS TRUST COMPANY
By:
-------------------------------
Title:
----------------------------
<PAGE> 26
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
NATIONSBANK, N.A., individually and as
documentation agent for the Banks
By:
-------------------------------
Title:
----------------------------
<PAGE> 27
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
CORESTATES BANK, N.A.
By:
-------------------------------
Title:
----------------------------
<PAGE> 28
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
STAR BANK, N.A.
By:
-------------------------------
Title:
----------------------------
<PAGE> 29
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Schedules
Schedule 1.1(A) - Pricing Grid
Schedule 1.1(B) - Commitments of Banks and Addresses for
Notices
Schedule 1.1(P) - Permitted Liens
Schedule 6.1.1 - Qualifications to do Business
Schedule 6.1.2 - Capitalization
Schedule 6.1.3 - Subsidiaries
Schedule 6.1.7 - Litigation
Schedule 6.1.8 - Owned and Leased Real Property
Schedule 6.1.13 - Consents and Approvals
Schedule 6.1.15 - Patents, Trademarks, Copyrights, Licenses
Schedule 6.1.18 - Partnership Agreements; LLC Agreements
Schedule 6.1.19 - Insurance Policies
Schedule 6.1.21 - Material Contracts
Schedule 6.1.23 - Employee Benefit Disclosures
Schedule 6.1.25 - Environmental Disclosures
Schedule 8.2.1 - Permitted Indebtedness
Schedule 8.2.10 - Business of Loan Parties
Exhibits
Exhibit 1.1(S) - Second Amended and Restated Security
Agreement
Exhibit 2.5 - Loan Request
-
Exhibit 1.1(C) - Collateral Assignment of Contract Rights
(Leases)
Exhibit 3(g) - Opinion of Hodgson, Russ, Andrews, Wood &
Goodyear, LLP
Exhibit 8.3.4 - Quarterly Compliance Certificate
</TABLE>
<PAGE> 30
SCHEDULE 1.1(A)
PRICING GRID
<TABLE>
<CAPTION>
Ratio of Consolidated Funded Debt
Plus (Occupancy Expense) x 3 to
Consolidated Cash Flow from Operations Euro-Rate Spread Base Rate Spread
- -------------------------------------- ---------------- ----------------
<S> <C> <C>
Level I
Greater than or equal to 3.0 to 1.0 2.00% 0.50
Level II
Greater than or equal to 2.5 to 1.0 1.75% 0.25
but less than 3.0 to 1.0
Level III
Greater than or equal to 2.0 to 1.0 1.50% 0.00
but less than 2.5 to 1.0
Level IV
Greater than or equal to 1.5 to 1.0 1.25% 0.00
but less than 2.0 to 1.0
Level V
Less than 1.5 to 1.0 1.00% 0.00
</TABLE>
<PAGE> 31
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
PART 1--COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES TO BANKS
<TABLE>
<CAPTION>
BANK COMMITMENT RATABLE SHARE
- ---- ---------- -------------
<S> <C> <C>
National City Bank of Pennsylvania
National City Center, 20 Stanwix Street Pittsburgh,
PA 15222-4802
Attention: Stephen C. Findlay, $18,000,000 15%
Corporate Banking Group
Telephone: (814) 871-1375
Telecopy: (814) 455-5495
LaSalle National Bank
135 South LaSalle Street
Chicago IL 60603 $17,000,000 14.167%
Attention: David P. Gibson,
Commercial Banking
Telephone: (312) 904-7641
Telecopy: (312) 904-5483
Harris Trust and Savings Bank
111 West Monroe, P.O. Box 755
Chicago, IL 60609 $17,000,000 14.167%
Attention: William A. McDonnell,
Vice President
Telephone: (312) 461-5244
Telecopy: (312) 461-5225
$17,000,000 14.167%
M & T Bank One Fountain Plaza
Buffalo, NY 14203-1495
Attention: Geoff Fenn,
Vice President
Telephone: (716) 848-7335
Telecopy: (716) 848-7318
$17,000,000 14.167%
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C>
NationsBank
NationsBank Corporate Center
100 N. Tryon Street, 8th Floor
NC1-007-08-04
Charlotte, NC 28255
Attention: Rajesh Sood
Telephone:
Telecopy: (704) 388-0960
$ 17,000,000 14,167%
Star Bank
425 Walnut Street, ML 9220
Cincinnati, OH 45202
Attention: Nick Sypniewski
Telephone: (513) 632-3019Telecopy:
(513) 632-2040
$ 8.500,000 7.083%
Sun Trust Bank
200 South Orange Avenue, Tower 4
Orlando, FL 32801
Attention: Rhonda Smith,
Vice President
Telephone: (407) 237-4924
Telecopy: (407) 237-6894
CoreStates Bank, N.A.
FC1-8-4-16 $ 8,500,000 7.083%
1339 Chestnut Street, 4th Floor
Philadelphia, PA 19107-3579
Attention: Mark S. Supple,
Vice President
Telephone: (215) 973-2562
Telecopy: (215) 973-6680
Total $120,000,000 100.00%
============ ======
</TABLE>
<PAGE> 33
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
PART 2--ADDRESSES FOR NOTICES TO AGENT, BORROWERS AND GUARANTORS
AGENT
NATIONAL CITY BANK OF PENNSYLVANIA
National City Center
20 Stanwix Street
Pittsburgh, PA 15222-4802
Attention: Stephen C. Findlay
Senior Vice President, Corporate Banking Group
Telephone: (814) 871-1375
Telecopy: (814) 455-5495
BORROWER
RENT-WAY, INC.
3230 West Lake Road
Erie, PA 16505
Attention: Jeffrey A. Conway
Vice President and Chief Financial Officer
Telephone: (814) 836-0618
Telecopy: (814) 835-6865
GUARANTORS
Send to each Guarantor, in care of the Borrower, at Borrower's address.
<PAGE> 1
Exhibit 10.2
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT is dated as of July ___, 1998
(the "Third Amendment") and is made by and among RENT-WAY, INC., a Pennsylvania
corporation (the "Borrower"), each of the GUARANTORS, each of the BANKS (as
defined in the Credit Agreement defined below), NATIONAL CITY BANK OF
PENNSYLVANIA in its capacity as syndication agent and administrative agent for
the Banks under the Credit Agreement (hereinafter referred to in such capacity
as the "Agent"), and NATIONSBANK, N.A., in its capacity as documentation agent
for the Banks.
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent entered
into that certain Credit Agreement dated as of November 22, 1996, as amended by
a First Amendment to Credit Agreement dated as of January 31, 1997, and a Second
Amendment to Credit Agreement dated as of February 5, 1998 (the Credit
Agreement, as amended by the First Amendment and the Second Amendment being
hereafter referred to as the "Credit Agreement");
WHEREAS, defined terms used herein and not otherwise defined herein
shall have the meanings given to them in the Credit Agreement;
WHEREAS, the Borrower has proposed to sell certain subordinated
debentures in the principal amount of $75,000,000;
WHEREAS, in connection with the proposed issuance of such debentures,
the Borrower has requested the Agent and the Banks consent to the Borrower
incurring additional indebtedness evidenced by the debentures. The Borrower has
also requested that the Agent and the Banks amend the net worth covenant set
forth in the Credit Agreement; and
WHEREAS, the parties hereto desire to amend the Credit Agreement to
accommodate the Borrower's issuance of certain debentures and to modify the net
worth covenant of the Borrower, subject to the terms and conditions hereof and
as more fully provided herein.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is amended as
set forth below effective on the date set forth in Section 6 hereof:
(a) Amended and Restated Definitions (Section 1.1). The following
definitions now contained in Section 1.1 of the Credit Agreement are hereby
amended and restated to read as set forth below:
"Base Net Worth shall mean the sum of $90,000,000 plus the amounts
set forth in (i), (ii) and (iii) below which occur during the period from March
31, 1998, through the
<PAGE> 2
date of determination: (i) 75% of consolidated net income without regard to
extraordinary items of gain or loss of the Borrower and its Subsidiaries for
each fiscal quarter in which net income was earned (as opposed to a net loss),
(ii) 90% of any increase in the Consolidated Net Worth resulting from a
Permitted Acquisition, and (iii) 90% of the amount of the net proceeds received
by the Loan Parties from any offering consummated with respect to equity
securities of the Borrower.
Subordinated Debt shall mean (i) Indebtedness of the Borrower to
the Securityholders (as such term is defined in the NWB Indenture) and their
successors and assigns, evidenced by the NWB Subordinated Loan Documents and
subject to the subordination terms set forth in Section 11 thereof, (ii)
Indebtedness of the Loan Parties to Persons which sell ownership interests or
assets to the Loan Parties under a Permitted Acquisition in accordance with
Section 8.2.6, and (iii) Indebtedness permitted under Section 8.2.1(vii).
Subordinated Loan Documents shall mean (i) the NWB Subordinated
Loan Documents, (ii) all agreements evidencing the Subordinated Debt owed to
Persons which sell ownership interests or assets to the Loan Parties under a
Permitted Acquisition in accordance with Section 8.2.6, and (iii) all agreements
evidencing the Subordinated Debt owed to Persons which acquire any of the
Indebtedness permitted under Section 8.2.1(vii)."
(b) New Definitions (Section 1.1). The following new definitions are
hereby added to Section 1.1 of the Credit Agreement in alphabetical order:
"Consolidated Net Worth shall mean, as of any date of
determination, total stockholders' equity plus preferred stock (to the extent it
is not already included in the stockholders' equity) of the Borrower and its
Subsidiaries as of such date, determined and consolidated in accordance with
GAAP.
Permitted Debentures Sales shall mean the Borrower's incurrence of
Indebtedness and related issuance of debentures which meet all of the following
criteria: (i) such Indebtedness is subordinated to the Obligations (including,
without limitation, all obligations of the Borrower to the Banks under Interest
Rate Protection Agreements) on standard terms of subordination acceptable to the
Required Banks, which terms shall include, without limitation, the right of the
Banks upon the occurrence of an Event of Default to block payments on such
Indebtedness for a minimum of 179 days at least one time in any 365 day period,
(ii) the interest rate payable with respect to such Indebtedness does not exceed
six and one-half percent (6-1/2%) per annum, (iii) the scheduled maturity date
of all the principal amount of such Indebtedness is a date not less than seven
years from the date of issuance, (iv) until the Obligations are paid in full and
the Commitments have terminated, no prepayment can be made with respect to such
Indebtedness, (v) the covenants in the Subordinated Loan Documents relating to
such Indebtedness are not more restrictive than the covenants set forth in this
Agreement, and (vi) the net proceeds of such Indebtedness are used to repay
principal and interest outstanding on the Loans .
-2-
<PAGE> 3
Third Amendment shall mean this Third Amendment to Credit
Agreement, dated as of July ___, 1998, as the same may be supplemented or
amended from time to time, including all schedules and exhibits thereto.
Third Amendment Effective Date shall have the meaning given to
such term in Section 6 of this Third Amendment."
(c) Obsolete Definitions (Section 1.1). The following definition
is hereby deleted in Section 1.1 of the Credit Agreement and shall be of no
force or effect with respect to the terms of the Credit Agreement: "Consolidated
Tangible Net Worth".
(d) Amendment to Section 8.2.1. Section 8.2.1 of the Credit
Agreement is hereby amended and restated to read as follows:
"8.2.1 Indebtedness.
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as set forth on Schedule 8.2.1 as of
February 5, 1998 (including any extensions or renewals thereof, provided there
is no increase in the amount thereof or other significant change in the terms
thereof subsequent to February 5, 1998, unless otherwise specified on Schedule
8.2.1);
(iii) Capitalized and operating leases as and to the extent
permitted under Section 8.2.15;
(iv) Indebtedness secured by Purchase Money Security Interests not
exceeding $100,000;
(v) Indebtedness of a Loan Party to another Loan Party which is
subordinated in accordance with the provisions of Section 8.1.12;
(vi) Indebtedness incurred in connection with Permitted
Acquisitions provided that after giving effect thereto, no Potential Default or
Event of Default exists, and
(vii) Indebtedness incurred under Permitted Debenture Sales not
exceeding $75,000,000 in the aggregate plus an additional $11,250,000 in an
overallotment option, provided that after giving effect to the sale of such
debentures, no Potential Default or Event of Default exists."
(e) Amendment to Section 8.2.5. Section 8.2.5 to the Credit
Agreement is hereby amended and restated to read as follows:
-3-
<PAGE> 4
"8.2.5 Dividends and Related Distributions.
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, make or pay, or agree to become or remain liable to make or
pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its shares of
capital stock, partnership interests or limited liability company interests on
account of the purchase, redemption, retirement or acquisition of its shares of
capital stock (or warrants, options or rights therefor), partnership interests
or limited liability company interests, except that (i) the Loan Parties may pay
dividends or other distributions payable to another Loan Party, and (ii) the
Borrower may pay principal, interest or dividends on the Subordinated Debt,
subject to (i) the restrictions on prepayments in Section 8.2.23 and (ii) the
restrictions on payments contained in the subordination and other provisions
contained in the Subordinated Loan Documents. "
(f) Amendment of Section 8.2.13. Section 8.2.13 is hereby amended
and restated to read as follows:
"8.2.13 Issuance of Stock.
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, issue any additional shares of its capital stock or any
options, warrants or other rights in respect thereof, except that the Borrower
may issue additional shares of capital stock (i) for Permitted Acquisitions in
accordance with the provisions of Section 8.2.6, (ii) for distribution to
employees as provided for under the stock option plans set forth on Schedule
6.1.21 as in effect on the Closing Date, (iii) in connection with the conversion
of Indebtedness incurred pursuant to Permitted Debenture Sales into capital
stock of the Borrower, or (iv) if the net proceeds of the issuance are used by
the Borrower to reduce (a) the Loans outstanding under this Agreement, and (b)
the Commitments of the Banks."
(g) Amendment to Section 8.2.19. Section 8.2.19 to the Credit
Agreement is hereby amended and restated to read as follows:
"8.2.19 Minimum Net Worth.
The Borrower shall not at any time permit Consolidated Net Worth
to be less than the Base Net Worth."
(h) Amendment of Section 8.2.20. Section 8.2.20 is hereby amended
and restated to read as set forth below:
"8.2.20 Fixed Charge Coverage; Subordinated Loan Document
Amendments.
The Borrower shall not at any time permit the Fixed Charge
Coverage Ratio to be less than 1.2 to 1.0. For purposes of this ratio,
Consolidated Cash Flow from
-4-
<PAGE> 5
Operations, Occupancy Expense, Rental Merchandise depreciation and Fixed Charges
shall be calculated based upon the fiscal quarter ended March 31, 1998,
multiplied by four (for the fiscal quarter ended March 31, 1998); the fiscal
quarters ended March 31, 1998 and June 30, 1998, multiplied by two (for the
fiscal quarter ended June 30, 1998); the fiscal quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998, multiplied by one and one-third (for the
fiscal quarter ended September 30, 1998); and thereafter, for the four fiscal
quarters of the Borrower then ended (for the fiscal quarter ended December 31,
1998 and thereafter). The Loan Parties shall not amend the terms of the NWB
Subordinated Loan Documents without the prior written consent of the Agent. The
Loan Parties shall not amend the Subordinated Loan Documents with respect to any
Indebtedness permitted under Section 8.2.1(vii) in a manner such that the
Indebtedness would cease to meet the requirements for such Indebtedness under
the definition of "Permitted Debenture Sales"."
(i) Amendments to Exhibits to Credit Agreement. The following
Exhibit to the Credit Agreement is hereby amended and restated in its entirety
in the form of such Exhibit attached hereto:
Exhibit 8.3.4 Quarterly Compliance Certificate
(j) Amendments to Schedules to Credit Agreement. The following
Schedule to the Credit Agreement is hereby amended and restated in its entirety
in the form of such Schedule attached hereto:
Schedule 6.1.2 - Capitalization
2. Waivers Regarding Tangible Net Worth. The Loan Parties and the Banks
acknowledge and agree that the restatement of the Consolidated Tangible Net
Worth covenant set forth in former Section 8.2.19 to the Consolidated Net Worth
covenant set forth in restated Section 8.2.19, as set forth in this Section 1(g)
above, shall be effective on and as of March 31, 1998.
3. Conditions Precedent. The provisions contained in Sections 1 and 2 of
this Amendment shall not become effective until each of the conditions set forth
in this Section 3 has been satisfied.
(a) Satisfaction of Conditions in Section 6(a). Each of the conditions
set forth in Section 6(a) hereof (execution of this Amendment and completion of
Schedules and Exhibits hereto) shall have been satisfied.
(b) Secretary's Certificates. The Secretary or Assistant Secretary of
the Borrower and each other Loan Party shall execute and deliver to the Agent
for the benefit of the Banks a certificate dated as of the date hereof,
certifying as to:
(i) all corporate action taken by it in connection with the
documents executed and delivered pursuant to this Amendment;
-5-
<PAGE> 6
(ii) the names of the officer or officers authorized to sign this
Amendment and the related documents and the true signatures of such officer or
officers and specifying the Authorized Officers permitted to act on behalf of
them for purposes of this Amendment and the true signatures of such officers, on
which the Agent and each Bank may conclusively rely; and
(iii) copies of the organizational documents of, including the
certificate of incorporation, bylaws and corporate resolutions as in effect on
the Third Amendment Effective Date, together with certificates from the
appropriate state officials as to the continued existence and good standing of
it in each state where it is organized.
(c) Opinion of Counsel. Hodgson Russ Andrews Wood & Goodyear, LLP,
counsel for the Borrower, shall have delivered to the Agent for the benefit of
each Bank a written opinion dated as of the date hereof and in form and
substance satisfactory to the Agent and its counsel as to the matters set forth
in Exhibit 3(c) hereto.
(d) Fees and Expenses. Borrower shall have paid all outstanding
fees and expenses due to the Agent or the Banks, including the fees of Agent's
counsel in connection with this Amendment.
(e) Legal Details. All legal details and proceedings in connection
with the transactions contemplated by this Amendment and the other Loan
Documents shall be in form and substance satisfactory to the Agent and counsel
for the Agent, and the Agent shall have received all such other counterpart
originals or certified or other copies of such documents and proceedings in
connection with such transactions, in form and substance satisfactory to the
Agent and said counsel, as the Agent or said counsel may reasonably request.
4. Full Force and Effect. The Credit Agreement and each of other
Loan Documents shall remain in full force and effect on and after the date of
this Amendment except as expressly amended hereby or pursuant hereto. On and
after the date hereof, each reference in the Credit Agreement to "this
Agreement", "hereunder" or words of like import shall mean and be a reference to
the Credit Agreement, as amended by this Amendment, and each reference in each
other Loan Document to the "Credit Agreement" shall mean and be a reference to
the Credit Agreement, as previously amended and as amended by this Amendment.
The parties hereto do not amend or waive any provisions of the Credit Agreement
or the other Loan Documents except as expressly set forth herein.
5. Counterparts. This Amendment may be executed by different
parties hereto on any number of separate counterparts, each of which, when so
executed and delivered, shall be an original, and all such counterparts shall
together constitute one and the same instrument.
6. Effective Date.
(a) Third Amendment Effective Date. Except as otherwise provided in
Section 2 above, all provisions of this Amendment shall be effective on the date
on which the conditions listed in (i) and (ii) below have been satisfied and
each of the conditions precedent
-6-
<PAGE> 7
in Section 3 above have occurred or been waived by the Banks (the "Third
Amendment Effective Date"):
(i) Execution and Delivery. this Amendment has been executed, in
counterparts or otherwise, and delivered to the Agent for the benefit of the
Banks; and
(ii) Completion of Schedules and Exhibits. Each of the Schedules
and Exhibits hereto has been completed and attached hereto.
[SIGNATURES APPEAR ON THE NEXT PAGE]
-7-
<PAGE> 8
[SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Amendment as of the day and year first above
written.
RENT-WAY, INC., "Borrower"
By:
----------------------------
Title:
-------------------------
CHAMPION RENTALS, INC., "Guarantor"
By:
----------------------------
Title:
-------------------------
NATIONAL CITY BANK OF PENNSYLVANIA,
individually and as Agent
By:
----------------------------
Title:
-------------------------
NATIONSBANK, N.A., individually and as
documentation agent for the Banks
By:
----------------------------
Title:
-------------------------
<PAGE> 9
[SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT AGREEMENT]
LASALLE NATIONAL BANK
By:
----------------------------
Title:
-------------------------
HARRIS TRUST AND SAVINGS BANK
By:
----------------------------
Title:
-------------------------
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By:
----------------------------
Title:
-------------------------
<PAGE> 10
[SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT AGREEMENT]
MANUFACTURERS AND TRADERS TRUST COMPANY
By:
----------------------------
Title:
-------------------------
CORESTATES BANK, N.A.
By:
----------------------------
Title:
-------------------------
STAR BANK, N.A.
By:
----------------------------
Title:
-------------------------
<PAGE> 11
LIST OF SCHEDULES AND EXHIBITS
Schedules
Schedule 6.1.2 - Capitalization
Exhibits
Exhibit 3(c) - Opinion of Hodgson, Russ, Andrews, Wood &
Goodyear, LLP
Exhibit 8.3.4 - Quarterly Compliance Certificate
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,861,254
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 73,690,576
<CURRENT-ASSETS> 0
<PP&E> 17,339,920
<DEPRECIATION> 0
<TOTAL-ASSETS> 237,654,714
<CURRENT-LIABILITIES> 0
<BONDS> 116,003,950
0
0
<COMMON> 87,862,653
<OTHER-SE> 16,954,706
<TOTAL-LIABILITY-AND-EQUITY> 237,654,714
<SALES> 46,928,610
<TOTAL-REVENUES> 52,491,456
<CGS> 11,096,131
<TOTAL-COSTS> 44,088,101
<OTHER-EXPENSES> 51,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,971,553
<INCOME-PRETAX> 6,380,549
<INCOME-TAX> 2,743,636
<INCOME-CONTINUING> 3,636,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,636,913
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.30
</TABLE>
