================================================================================
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, 2000
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 25-1407782
------------ ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
One RentWay Place, Erie, Pennsylvania 16505
-------------------------------------------
(Address of principal executive offices)
(814) 455-5378
--------------
(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 Outstanding as of July 26, 2000
----- -------------------------------
Common Stock 24,366,242
================================================================================
<PAGE>
RENT-WAY, INC.
<TABLE>
<CAPTION>
Page
Part I Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited)
<S> <C> <C> <C>
and September 30, 1999 3
Condensed Consolidated Statements of Operations, three and nine months
ended June 30, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows, nine months ended
June 30, 2000 and 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RENT-WAY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(all dollars in thousands)
June 30, September 30,
2000 1999
--------------- ---------------
(unaudited)
ASSETS
<S> <C> <C>
Cash $ 11,087 $ 8,646
Prepaid expenses 15,673 9,610
Rental merchandise, net 287,103 202,145
Property and equipment, net 65,327 50,578
Goodwill, net 313,807 305,900
Deferred financing costs, net 5,261 3,688
Non-compete and prepaid consulting fees, net 3,797 5,494
Other assets 15,725 11,333
---------------- ---------------
Total assets $ 717,780 $ 597,394
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable $ 17,029 $ 8,417
Other liabilities 16,026 15,861
Income tax payable 18,237 2,316
Deferred income taxes 4,397 5,218
Debt 319,952 288,130
---------------- ---------------
Total liabilities 375,641 319,942
Contingencies (see note 9) - -
Shareholders' equity:
Preferred stock, without par value; 1,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, without par value; 50,000,000 shares
authorized; 24,331,000 and 21,976,401 shares issued and
outstanding for 2000 and 1999, respectively 288,805 256,755
Retained earnings 53,334 20,697
---------------- ---------------
Total shareholders' equity 342,139 277,452
---------------- ---------------
Total liabilities and shareholders' equity $ 717,780 $ 597,394
================ ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RENT-WAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(all dollars in thousands, except per share data)
For the three months ended For the nine months ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited)
Revenues:
<S> <C> <C> <C> <C>
Rental revenue $ 126,671 $ 105,357 $ 373,676 $ 321,824
Phone service revenue 4,256 - 4,256 -
Other revenue 21,159 16,594 63,955 49,837
-------------- -------------- -------------- --------------
Total revenues 152,086 121,951 441,887 371,661
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise 35,704 29,905 103,180 93,369
Property and equipment 4,214 2,487 11,797 6,912
Amortization of goodwill and other intangibles 3,291 2,300 9,828 7,249
Cost of prepaid phone service 2,657 - 2,657 -
Salaries and wages 37,624 31,956 108,918 97,440
Advertising 4,426 5,346 15,896 19,323
Occupancy 9,790 8,549 31,072 24,829
Name change expense - - - 86
Business combination costs - - - 16,800
Other operating expenses 29,157 23,742 85,521 78,721
-------------- -------------- -------------- --------------
Total costs and operating expenses 126,863 104,285 368,869 344,729
-------------- -------------- -------------- --------------
Operating income 25,223 17,666 73,018 26,932
Other income (expense):
Interest expense (6,999) (4,007) (19,973) (11,791)
Equity in loss of subsidiary - - (197) -
Interest income 36 - 120 29
Other income (expense), net 23 (116) (175) (337)
-------------- -------------- -------------- --------------
Income before income taxes and
extraordinary item 18,283 13,543 52,793 14,833
Income tax expense 6,706 5,420 20,156 9,126
-------------- -------------- -------------- --------------
Income before extraordinary item 11,577 8,123 32,637 5,707
Extraordinary item, net of tax benefit - - - (519)
-------------- -------------- -------------- --------------
Net income $ 11,577 $ 8,123 $ 32,637 $ 5,188
============== ============== =============== ==============
Earnings per common share (Note 2):
Basic earnings per commonshare:
Income before extraordinary item $ 0.48 $ 0.38 $ 1.42 $ 0.27
============== ============== ============== ==============
Net income $ 0.48 $ 0.38 $ 1.42 $ 0.24
============== ============== ============== ==============
Diluted earnings per common share:
Income before extraordinary item $ 0.47 $ 0.36 $ 1.37 $ 0.27
============== ============== ============== ==============
Net income $ 0.47 $ 0.36 $ 1.37 $ 0.24
============== ============== ============== ==============
Weighted average common shares outstanding:
Basic 23,984 21,335 22,932 21,222
============== ============== ============== ==============
Diluted 24,860 23,378 24,147 21,222
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RENT-WAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(all dollars in thousands)
For the nine months ended
June 30,
2000 1999
(unaudited) (unaudited)
Operating activities:
<S> <C> <C>
Net income $ 32,637 $ 5,188
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 125,202 109,832
Equity in loss of subsidiary 197 -
Deferred income taxes (821) 587
Extraordinary item - 519
Changes in assets and liabilities:
Prepaid expenses (6,063) (4,272)
Rental merchandise (187,438) (105,664)
Income tax receivable - 1,529
Other assets (2,390) 1,871
Accounts payable (4,644) (16,772)
Income taxes payable 15,921 6,971
Other liabilities (277) (1,825)
--------------- ---------------
Net cash used in operating activities (27,676) (2,036)
Investing activities:
Purchase of businesses, net of cash acquired (18,530) (1,054)
Purchases of property and equipment (26,546) (15,503)
--------------- ---------------
Net cash used in investing activities (45,076) (16,557)
Financing activities:
Proceeds from borrowings 313,172 273,556
Payments on borrowings including early extinguishment (261,350) (256,322)
Book overdraft 13,256 -
Deferred finance costs (2,650) (1,366)
Proceeds from common stock issuance 12,765 4,313
--------------- ---------------
Net cash provided by financing activities 75,193 20,181
--------------- ---------------
Increase in cash 2,441 1,588
Cash at beginning of period 8,646 5,326
--------------- ---------------
Cash at end of period $ 11,087 $ 6,914
=============== ===============
Supplemental disclosure of noncash financing activity:
Common stock issued to extinguish debt $ 20,000 $ -
=============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
RENT-WAY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(all dollars in thousands, except per share data)
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, major appliances and jewelry to consumers on
a weekly or monthly basis. The Company also provides prepaid local phone service
to consumers on a monthly basis through its majority-owned subsidiary, dPi
Teleconnect, L.L.C. The accompanying unaudited condensed consolidated 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 (which, except as discussed herein, consist 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. The results of operations for the interim periods are not necessarily
indicative of the results for the full year. Certain amounts in the June 30,
1999 financial statements have been reclassified to conform to the June 30, 2000
presentation.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
The Company has no items of other comprehensive income.
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, 1999.
In 1999, the Company adopted Statement of Financial Accounting Standards,
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information". This statement requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate, and their major customers. During fiscal 1999, the Company
determined it had only one segment and the adoption of SFAS No. 131 had no
impact on the consolidated financial statements and the related disclosure
information. The acquisition of dPi Teleconnect LLC (see Note 4) resulted in the
recognition of a separate operating segment (see Note 5).
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of SFAS No. 133-an Amendment
of FASB Statement 133." This Statement delays the effective date for this
standard until fiscal years beginning after June 15, 2000. The Company is
currently evaluating the provisions of this Statement.
The Accounting Standards Executive Committee Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"), issued in April
1998 and effective for fiscal years beginning after December 15, 1998 with
earlier application permitted, provides guidance on financial reporting of start
up costs and organization costs. The Company adopted this statement on October
1, 1999, resulting in no significant effect on the Company's financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The
Company is in the process of determining the impact this adoption will have on
its consolidated financial statements.
<PAGE>
RENT-WAY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements - continued
(all dollars in thousands, except per share data)
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, on conversion of the Company's convertible subordinated
debentures and the weighted average number of shares outstanding is adjusted
for the potential impact of options, warrants and the convertible subordinated
debentures where the effects are dilutive. Since the effect of shares issuable
upon exercise of stock options and upon conversion of 7% convertible
debentures was anti-dilutive for the nine months ended June 30, 1999, basic
and diluted earnings per common share were the same.
The following table discloses the reconciliation of numerators and
denominators of the basic and diluted earnings per common share computation:
<TABLE>
<CAPTION>
For the three months For the nine months
ended ended
June 30, June 30,
(unaudited) (unaudited)
Computation of EARNINGS per share: 2000 1999 2000 1999
---------------------------------- ------------ ------------ ------------ -----------
BASIC
<S> <C> <C> <C> <C>
Earnings applicable to common shares............... $ 11,577 $ 8,123 $ 32,637 $ 5,188
============ ============ ============ ============
Weighted average number of common shares
outstanding during the period.................... 23,984 21,335 22,932 21,222
============ ============ ============ ============
Basic earnings per common share:
Earnings before extraordinary item............... $ 0.48 $ 0.38 $ 1.42 $ 0.27
============ ============ ============ ============
Net income....................................... $ 0.48 $ 0.38 $ 1.42 $ 0.24
============ ============ ============ ============
Diluted
Earnings applicable to common shares............... $ 11,577 $ 8,123 $ 32,637 $ 5,188
Interest on 7% convertible debentures (net of tax). -- 210 350 --
------------ ------------ ----------- ------------
Earnings applicable for diluted earnings per share $ 11,577 $ 8,333 $ 32,987 $ 5,188
============ ============ ============ ============
Weighted average number of common shares
outstanding during the period used in basic
calculation...................................... 23,984 21,335 22,932 21,222
Shares issuable upon exercise of stock options,
warrants and escrowed shares..................... 876 547 472 --
Shares issued on conversion of 7% convertible
debentures....................................... -- 1,496 743 --
------------ ------------ ------------ ------------
Weighted average number of shares used in
calculation of diluted earnings per share ......... 24,860 23,378 24,147 21,222
============ ============ ============ ============
.......
Earnings per common share:
Earnings before extraordinary item............... $ 0.47 $ 0.36 $ 1.37 $ 0.27
============ ============ ============ ============
Net income....................................... $ 0.47 $ 0.36 $ 1.37 $ 0.24
============ ============ ============ ============
</TABLE>
3. Mergers and Acquisitions:
On March 22, 2000, the Company purchased a portion of the rental
merchandise and rental contracts of ABC Television and Appliance Rental, Inc.,
doing business as Prime Time Rentals ("Prime Time"), a thirty-store
rental-purchase chain. The Company purchased the assets of ten stores located in
Alabama and Tennessee with annual revenues of approximately $3,800 in exchange
for consideration of $3,000 in cash. Pursuant to the terms of the acquisition,
$400 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 acquisition was accounted for using the purchase
method of accounting. Prime Time's assets were recorded at their estimated fair
values at the date of the acquisition. The excess of the acquisition cost over
the estimated fair value of net assets acquired, ("goodwill") of $2,876 is being
amortized over 20 years on a straight-line basis. The total cost of net assets
acquired was $3,000 and consisted of assets of $3,636 less acquisition costs of
$636. Assets acquired at estimated fair value, other than goodwill, include
rental merchandise of $700 and a non-compete agreement of $60. The Company is in
the process of finalizing the purchase price allocation. The Condensed
Consolidated Statements of Operations for the three and nine months ended June
30, 2000, include the results of operations of Prime Time since the date of
acquisition.
RENT-WAY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(all dollars in thousands, except per share data)
3. Mergers and Acquisitions (continued):
On September 23, 1999, the Company acquired all of the outstanding shares of
RentaVision, Inc. ("RentaVision"), a rental-purchase chain located in 16 states
with annual revenues of approximately $75,000. The consideration paid in
exchange for all the outstanding shares of RentaVision was $73,874 consisting of
$68,774 in cash and 278,801 shares of the Company's common stock (restricted
shares). Pursuant to the terms of the purchase agreement, 181,201 shares of
common stock equivalent to $4,000 of the purchase price was placed in escrow
subject to the terms and conditions of the escrow agreement to secure seller's
representations and warranties and any purchase price adjustments. As of June
30, 2000, the Company had not released any funds from the escrow account due to
final settlement of the purchase price. The acquisition was accounted for using
the purchase method of accounting. RentaVision'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 estimated fair value of the net assets acquired
("goodwill") of $90,189 is being amortized on a straight-line basis over 30
years. The total cost of the net assets acquired was $73,874 and consisted of
assets of $106,179 less liabilities assumed of $25,610 and acquisition costs of
$6,695. Assets acquired (at fair value) other than goodwill consisted primarily
of rental merchandise of $12,267, non-compete agreement of $1,000, customer
contracts of $1,200, cash of $725, and other assets of $798. Liabilities assumed
(at fair value) consisted primarily of debt of $21,527, accrued liabilities of
$3,125, and trade accounts payable of $958. The Condensed Consolidated Statement
of Operations for the three and nine months ended June 30, 2000 includes the
results of operations of RentaVision for the entire period.
On June 30, 1999, the Company acquired all the outstanding shares of
America's Rent-To-Own Center, Inc., ("America's Rent-To-Own"). At the time of
the acquisition, America's Rent-To-Own operated a chain of 21 rental-purchase
stores located in Arkansas, Kansas, Missouri, and Oklahoma, with annual revenues
of approximately $8,000. The consideration paid in exchange for all the
outstanding shares of America's Rent-To-Own consisted of 231,140 shares of the
Company's common stock (restricted shares). Pursuant to the terms of the
purchase agreement approximately $800 or 32,454 shares of the Company's common
stock were placed in escrow subject to the terms and conditions of the escrow
agreement to secure seller's representations and warranties and any purchase
price adjustments. As of June 30, 2000, the Company had not released any funds
from the escrow account due to final settlement of the purchase price. The
acquisition was accounted for using the purchase method of accounting. America's
Rent-To-Own assets and liabilities were recorded at their fair value at the date
of the acquisition. The excess of the acquisition cost over the fair value of
net assets acquired, ("goodwill") of $4,858 is being amortized on a straight
line basis over 30 years. The total cost of the net assets acquired was $4,838
and consisted of assets of $7,284 less liabilities assumed of $2,149 and
acquisition costs of $297. Assets acquired, other than goodwill (at fair value)
consisted of rental merchandise of $1,269, receivables of $632, prepaid and
other assets of $65, a deferred tax asset of $400, and a non-compete agreement
of $60. Liabilities assumed (at fair value) consisted of debt of $1,295, accrued
liabilities of $474 and trade accounts payables of $380. The Company is in the
process of finalizing the purchase price allocation. The Condensed Consolidated
Statement of Operations for the three and nine months ended June 30, 2000,
includes the results of operations of America's Rent-To-Own for the entire
period.
4. dPi Teleconnect L.L.C. Acquisition:
On January 4, 2000, the Company acquired a 49% interest in dPi Teleconnect
L.L.C. ("DPI"). DPI, a privately held Delaware limited liability company,
provides prepaid local phone service on a month by month basis. In exchange for
its 49% interest, the Company paid consideration of $6,400 in cash. As part of
the purchase agreement with DPI, the Company retained an option to purchase an
additional 21% interest, which was exercised during the third quarter. The
consideration for the additional interest is $1,100 in cash. In addition to the
option to increase its ownership interest, the Company has agreed to fund
working capital requirements for DPI over the next three years, for a maximum
amount of $3,000 at the higher of the prime rate plus 200 basis points or the
rate at which the Company is able to borrow funds. As of June 30, 2000, the
Company had advanced working capital to DPI in the amount of $1,780. As a result
of the Company's purchase of an additional 21% interest in DPI, the acquisition
has been reported on a consolidated basis beginning in the third quarter in
accordance with FAS 94. The excess of the acquisition cost over the estimated
fair value of net assets acquired ("goodwill") of $8,161 is being amortized on a
straight-line basis over 15 years. The total cost of net liabilities acquired
was $386 with acquisition costs of $276. The purchase price allocation is
subject to refinement upon finalization of the review of fair value of assets
acquired.
RENT-WAY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(all dollars in thousands, except per share data)
5. Segment Information:
Rent-Way is a national rental-purchase chain, which provides a variety of
services to its customers including rental of house-hold items and local
telephone service on a week by week or month by month basis. The Company has
determined that its reportable segments are those that are based on the
Company's method of internal reporting, which disaggregates its business by
product category. The Company's reportable segments are: household rentals and
prepaid telephone service. Its household rental segment rents name brand
merchandise such as furniture, appliances, electronics and computers on a week
by week or month by month basis. Its prepaid telephone service segment provides
a local dial tone on a month by month basis.
The financial results of the Company's segments follow the same accounting
policies as described in "Summary of Significant Accounting Policies" (see Note
1). The information presented below does not include the results of the prepaid
telephone service segment prior to January 4, 2000 (see Note 4).
<TABLE>
<CAPTION>
Rental Phone Total
For the three months ended June 30, 2000 Segment Segment Segments
---------------------------------------- ------- ------- --------
<S> <C>
Total revenue.................................. $147,830 $ 4,488 $ 152,318
======== ======== ============
Operating income (loss)........................ 25,407 (184) 25,223
======== ======== ============
Net income (loss).............................. $ 11,705 (128) 11,577
======== ======== ============
For the nine months ended June 30, 2000
Total revenue.................................. $437,631 $ 8,080 445,711
======== ======== ============
Operating income (loss)........................ $ 73,202 (580) 72,622
======== ======== ============
Net income (loss).............................. $ 32,962 (368) 32,594
======== ======== ============
Total Assets................................... $716,757 $ 2,312 $ 719,069
======== ======== ============
</TABLE>
The following is a reconciliation of segment information to the Company's
Condensed Consolidated totals:
<TABLE>
<CAPTION>
Period Ended June 30, 2000
--------------------------
Three months Nine months
============ ===========
Total revenue:
<S> <C> <C>
Total segments................................. $ 152,318 $ 445,711
Elimination of non-consolidated revenue.... (232) (3,824)
---------- -----------
As reported................................ $ 152,086 $ 441,887
========== ===========
Net income:
Total segments............................. $ 11,577 $ 32,594
Elimination of non-consolidated loss - 43
---------- -----------
As reported................................ $11,577 $ 32,637
========== ===========
Total assets at June 30, 2000:
Total segments............................. $ 719,069
Elimination of non-consolidated assets..... (1,289)
-----------
As reported................................ $ 717,780
===========
</TABLE>
<PAGE>
RENT-WAY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(all dollars in thousands, except per share data)
6. Debt:
On June 28, 2000, the Company amended its existing collateralized term loan
and revolving credit facility ("Senior Credit Facility") with a syndicate of
banks led by National City Bank of Pennsylvania (the "Amended Facility"). The
Amended Facility, co-led by National City Bank, acting as administrative agent,
Bank of America, N.A., acting as documentation agent, and Bank of Montreal and
Harris Trust and Savings Bank, acting as syndication agents, provides for loans
and letters of credit of up to $435,000 (revolving notes and letters of credit
$114,444, Term Loans A $143,056 and Term Loans B $177,500). The syndicate
members and their ratable share of the Amended Facility are:
<TABLE>
<CAPTION>
<S> <C>
Bank of America, N.A 8.04598%
Harris Trust and Savings Bank 8.04598%
National City Bank of Pennsylvania 8.04598%
Bank of Montreal 7.18391%
National City Bank of Cleveland 7.18391%
Manufacturers and Traders Trust Company 6.89655%
Firstar Bank, National Association 5.74713%
LaSalle Bank National Association 5.17241%
Fleet Bank, N.A 4.59770%
PNC Bank, National Association 4.59770%
SunTrust Bank 4.59770%
Bank One, N.A. 3.44828%
Fifth Third Bank, Northeastern Ohio 3.44828%
Merrill Lynch Senior Floating Rate Fund, Inc. 2.75862%
Franklin Floating Rate Trust 2.29885%
Heller Financial 2.29885%
PPM Spyglass Funding Trust 2.29885%
Simsbury CLO, Limited 2.29885%
Maplewood (Cayman) Limited 1.91571%
Archimedes Funding III, Ltd. 1.14943%
Avalon Capital Ltd. 1.14943%
First Dominion Funding II 1.14943%
Morgan Guaranty Trust Company of New York 1.14943%
Olympic Funding Trust Series 1999-1 0.91954%
Archimedes Funding II, Ltd. 0.68966%
Merrill Lynch Senior Floating Rate Fund II, Inc. 0.68966%
Kemper Floating Rate Fund 0.45977%
KZH Riverside LLC 0.45977%
Muirfield Trading LLC 0.45977%
Sequils-ING I (HBDGM), Ltd. 0.45977%
Massachusetts Mutual Life Insurance Company 0.38314%
</TABLE>
Under the Amended 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 0.250% to 2.0%
(prime rate at June 30, 2000 of 9.5%). The actual spread is determined based on
the ratio of debt to cash flows 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 175 to 350 basis points (LIBOR at June 30,
2000 of 6.6525%). 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 $1,000. Commitment
fees associated with the Amended Facility are equal to 0.375% for each banks'
commitment starting with this facility. These borrowings may be repaid at any
time.
As of June 30, 2000, the Company's debt under both the euro-rate option and
base-rate option plans were as follows:
<TABLE>
<CAPTION>
Borrowing option plan Amount Rate Expiration Date
--------------------- ------ ---- ---------------
<S> <C> <C> <C> <C>
Base Rate...........................$143,055 10.75% 7/5/2000
Base Rate...........................$176,775 11.50% 7/3/2000
--------
$319,830
========
</TABLE>
The principal amount of the Term Notes A under the Amended Facility (with
maximum borrowings of $143,056 outstanding at June 30, 2000) shall be payable in
quarterly payments due on the last day of each December, March, June, and
September, beginning with the quarter ending September 30, 2000, and as follows:
<TABLE>
<CAPTION>
Quarter(s)Ending on Following Date or Percentage of Principal of Term A
Commitments In the Following Period Due on Each Payment Date
------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
9-30-00 through 6-30-01 3.0%
9-30-01 through 6-30-02 4.0%
9-30-02 through 6-30-03 5.0%
9-30-03 through 6-30-04 6.0%
9-30-04 through 6-30-05 7.0%
</TABLE>
The principal amount of each of the Term Notes B under the Amended Facility
(with maximum borrowings of $176,775 outstanding at June 30, 2000) shall be
payable as follows: (i) one payment due on June 30, 2000, in the amount of
$250,000 to be applied pro rata to the Term Loans B outstanding immediately
prior to Amendment No. 4 Closing Date, (ii) seventeen quarterly payments due on
the last day of each September, December, March, and June, beginning with the
quarter ending September 30, 2000, and continuing through the quarter ending
September 30, 2004, each such payment in an amount equal to one-fourth of one
percent (1/4%) of the term Loan B Commitments, (iii) one payment on September
30, 2005, in an amount equal to forty-seven and one-half percent (47-1/2%) of
the Term Loan B Commitments, and (iv) a final payment on September 30, 2006, of
the remaining principal balance of the Term Loans B.
By notice to the holders thereof dated December 10, 1999, the Company called
for a mandatory redemption of its $20 million 7% Convertible Subordinated
Debentures due 2007. The Company had the right to redeem the debentures on
February 5, 2000, at a price of 103%. On February 6, 2000, $20,000 of 7%
Subordinated Convertible Debentures converted into 1,495 shares of the Company's
common stock. The debentures were convertible into shares of common stock,
without par value, at a conversion price of $13.37 per share at the option of
the shareholders at any time on notice therefrom. Unamortized deferred financing
costs in the amount of $715 were charged to equity in connection with the
conversion.
<PAGE>
7. Derivative Financial Instruments:
The fair value of the interest rate swap agreements based on settlement cost
as estimated by independent dealers as of June 30, 2000 is as follows:
<TABLE>
<CAPTION>
Notional Fair
Amount Value
<S> <C>
Interest rate swap, National City Bank....................... $30,000 $ 878
Interest rate swap, Bank of America.......................... $20,000 $ 235
Interest rate swap, Manufacturers' and Traders Trust Company. $10,000 $ 293
Interest rate swap, Harris Bank.............................. $20,000 $ 1,219
Interest rate swap, SunTrust Bank............................ $10,000 $ 607
Interest rate swap, LaSalle Bank............................. $10,000 $ 608
Interest rate swap, Bank of America.......................... $10,000 $ 683
Interest rate swap, Harris Bank.............................. $10,000 $ 600
Interest rate swap, PNC Bank................................. $ 5,000 $ 31
</TABLE>
8. Related Party Transactions:
As of June 30, 2000, the Company had full recourse notes receivable (the
"Notes") of $766 from various officers and directors of the Company. The Notes
were approved by the Board of Directors for the purpose of certain option
exercises. The Notes are reflected as a reduction to common stock in the
Company's condensed consolidated balance sheets.
9. 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 in the aggregate from
$2,300 to $4,300. The majority of such claims are, in the opinion of management,
covered by insurance policies and therefore such claims should not have a
material effect on the financial position, results of operations or cash flows
of the Company.
Additional claims exist in the aggregate range of $69 to $135 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.
10. Income Taxes:
The fiscal 1999 effective tax rate has been adjusted for certain
non-deductible business combination costs which have been expensed in the
quarter ended December 31, 1998. As a result, the impact on the effective rate
for the year has been entirely reflected in the quarter ended December 31, 1998,
and without these charges would have been approximately 41.5%.
11. Changes in Shareholders' Equity
Changes in shareholders' equity for the nine months ended June 30, 2000,
are primarily due to the conversion of the Company's 7% Subordinated Convertible
Debentures, the sale of shares to Gateway Companies, Inc., the exercise of stock
options, and the issuance of shares to the Company's benefit plan.
<PAGE>
RENT-WAY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (all dollars in thousands)
Overview
Rent-Way is the second largest operator in the rental purchase industry
with 1,117 stores located in 41 states. The Company offers quality brand name
home entertainment equipment, furniture, appliances, and jewelry to customers
under full-service rental-purchase agreements that generally allow the customer
to obtain ownership of the merchandise at the conclusion of an agreed upon
rental period.The Company also provides prepaid local phone service to consumers
on a monthly basis through its majority-owned subsidiary, dPi Teleconnect,
L.L.C.
On June 30, 1999, the Company acquired America's Rent-To-Own Center, Inc.
("America's Rent-To-Own"). The transaction value was approximately $7 million
and was paid for with a combination of 231,140 shares of Rent-Way's common stock
and the assumption of certain liabilities. America's Rent-To-Own operated 21
rental-purchase stores in Arkansas, Kansas, Missouri, and Oklahoma, and had
annual revenues of approximately $8 million.
On September 23, 1999, the Company acquired all the stock of RentaVision,
Inc. ("RentaVision") for a purchase price of approximately $74 million.
RentaVision operated a chain of 250 rental-purchase stores in 16 states, 50 of
which have been opened during the past year. RentaVision had annual revenues of
approximately $75 million.
On March 22, 2000, the Company acquired a portion of the assets of ABC
Television and Appliance Rental Inc. ("Prime Time"), a thirty-store
rental-purchase chain. The Company purchased the assets of ten stores located in
Alabama and Tennessee with estimated annual revenue of $3,800 in exchange for
consideration of $3,000 in cash.
The Company completed the management information systems integration of all
stores acquired in the America's Rent-To-Own acquisition by July 31, 1999, all
stores acquired in the RentaVision acquisition by November 11, 1999, and all
stores acquired in the Prime Time acquisition by April 12, 2000. In addition,
the Company consolidated all back office functions such as accounting, payroll,
and human resources. The Company closed and merged 51 stores located in
overlapping markets. The Company also closed RentaVision's five warehouse
locations. The Company uses a direct-ship policy from their vendors to the
stores. This policy has minimized the amount of rental merchandise not on rent.
On January 4, 2000, the Company acquired a 49% interest in dPi Teleconnect,
L.L.C. ("DPI"), a privately-held provider of prepaid local phone service. The
Company had the option to acquire an additional 21% interest upon receipt of
regulatory approvals. During the third quarter, the Company exercised this
option. In fiscal 1999, the Company began to act as an agent for DPI. The
Company successfully tested this service in 70 of its stores and currently
offers this service in 392 stores. The Company received the benefit of
additional traffic in these stores, as well as, a 10% commission from the sale
of the service. DPI is currently licensed to offer prepaid local phone service
in 21 states and is working to expand to over 40 states by the end of 2000.
On February 6, 2000, $20,000 in subordinated convertible debentures were
converted at a conversion price of $13.37 per share into 1,495,986 shares of
common stock, with no par value. The Company had previously called the
debentures for redemption on February 5, 2000, at a price of 103%.
On April 21, 2000, the Company entered into an agreement with Gateway, Inc.
("Gateway") under which the Company will become the exclusive rental purchase
supplier of Gateway computers and technologies. Under the agreement, which calls
for an initial term of three years, Rent-Way will offer Gateway computers,
complete with Internet access, exclusively to customers on a weekly rental
basis. Also as part of the agreement, Gateway Companies, Inc. invested $7.0
million in Rent-Way.
Management continues to actively seek 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 Condensed Consolidated Statements of Operations,
expressed as a percentage of revenues.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30 Ended June 30
--------------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Rental revenue............................. 83.3% 86.4% 84.6% 86.6%
DPI revenue................................ 2.8 -- 0.9 --
Other revenue.............................. 13.9 13.6 14.5 13.4
------------- ------------- ------------- -------------
Total revenues.......................... 100.0 100.0 100.0 100.0
Costs and operating expenses:
Depreciation and amortization
Rental merchandise......................... 23.5 24.5 23.3 25.1
Property and equipment..................... 2.8 2.0 2.7 1.9
Amortization of goodwill................... 2.2 1.9 2.2 2.0
------------- ------------- ------------- -------------
Total depreciation and amortization..... 28.5 28.4 28.3 29.0
Cost of prepaid phone service 1.7 -- 0.6 --
Salaries and wages........................... 24.7 26.2 24.6 26.2
Advertising.................................. 2.9 4.4 3.6 5.2
Occupancy.................................... 6.4 7.0 7.0 6.7
Name change expense.......................... -- -- -- --
Business combination costs................... -- -- -- 4.5
Other operating expenses..................... 19.2 19.5 19.4 21.2
------------- ------------- ------------- -------------
Total costs and operating expenses...... 83.4 85.5 83.5 92.8
------------- ------------- ------------- -------------
Operating income........................ 16.6 14.5 16.5 7.2
Interest expense............................. (4.6) (3.3) (4.6) (3.2)
Equity in loss of subsidiary -- -- -- --
Interest income.............................. -- -- -- --
Other income................................. -- (0.1) -- --
------------- ------------- ------------- -------------
Income before income taxes and
extraordinary item...................... 12.0 11.1 11.9 4.0
Income tax expense .......................... 4.4 4.4 4.6 2.5
------------- ------------- ------------- -------------
Income before extraordinary item....... 7.6 6.7 7.4 1.5
Extraordinary item........................... -- -- -- (0.1)
------------- ------------- ------------- -------------
Net Income................................... 7.6% 6.7% 7.4% 1.4%
============= ============= ============= =============
</TABLE>
Comparison of Three Months Ended June 30, 2000 and 1999
Total revenues. Total revenues increased $30.1 million, or 24.7% to
$152.1 million from $122.0 million. The increase is attributable to the addition
of the stores acquired and opened in fiscal 1999 and 2000, DPI revenue, and
increased core store revenues offset by a decrease in revenue from stores
acquired from Home Choice Holdings, Inc. ("Home Choice") in December 1998. DPI
accounted for $4.2 million of the increase. The stores acquired in the
RentaVision, America's Rent-To-Own, and Prime Time acquisitions accounted for
$21.7 million, $2.1 million, and $0.9 million of the increase, respectively.
Stores opened in fiscal 1999 and 2000 accounted for $2.6 million of the
increase. Revenue increases in core stores accounted for $0.4 million of the
increase. These increases were offset by a $1.8 million decrease in revenues for
the Home Choice stores. This decrease is attributable to store mergers and
closings. The Company experienced a 3.2% increase in same store revenues
compared to the same period last year. Increase in same store revenues for the
Rent-Way stores and Home Choice stores were 5.1% and 1.4%, respectively. The
Company expects increased same store revenues for the rest of the fiscal 2000
due to, among many other factors, the addition of new products and services.
During the last quarter of fiscal 1999, the Company added personal computers to
its product line. The Company also acts as an agent to provide prepaid phone
service through DPI. The DPI service is currently offered in over 300 stores. In
April 2000 the Company began offering Gateway computers with Internet access to
customers on a weekly rental basis. Management believes that opportunities exist
to provide additional non-traditional merchandise to its customers.
Depreciation and amortization. Depreciation expense related to rental
merchandise decreased 1.0% as a percentage of total revenues to 23.5% from
24.5%. This decrease is primarily due to increases in weekly rental rates, lower
purchase costs of rental merchandise due to increased volume, and improved
realization of potential collectible rent. In addition, depreciation expense as
a percentage of total revenues has shown solid improvement in the stores
acquired in the Home Choice merger. Acquired merchandise with high remaining
values has worked its way out of the Company's system and the stores are
replacing poorly priced and termed agreements with new agreements priced and
termed in accordance with Rent-Way operating procedures.
Depreciation expense related to property and equipment increased to
2.8% as a percentage of total revenues from 2.0%. This increase is principally
due to the depreciation expense related to new store signage and remodels
associated with the Home Choice stores, new computers and equipment installed in
the RentaVision stores, and the computer and software costs associated with the
Company's implementation of the PeopleSoft software package in January 1999 and
the development of a new Windows-based POS system.
Amortization of goodwill increased to 2.2% as a percentage of total
revenues from 1.9%. This increase is primarily due to the addition of the
goodwill associated with the RentaVision, America's Rent-To-Own, and Prime Time
acquisitions.
Cost of prepaid phone service. Cost of prepaid phone service increased to
$2.7 million, or 1.7% as a percentage of total revenues. These are costs
associated with DPI telephone service.
Salaries and wages. Salaries and wages increased by $5.7 million to
$37.6 million from $32.0 million, but decreased 1.5% as a percentage of total
revenues to 24.7% from 26.2%. This 1.5% decrease as a percentage of total
revenues is due to the Company's ability to spread corporate and regional
managers' payroll over an increased store revenue base. The decrease is also
attributable to the Company bringing Home Choice payroll and store personnel
levels within the Company's standards. As a result of these factors, the Company
expects a further decline in salaries and wages as a percentage of total
revenues during the remainder of fiscal 2000.
Advertising. Advertising expense decreased to $4.4 million from $5.3
million and decreased to 2.9% as a percentage of total revenues from 4.4%. This
decrease is due to the Company's ability to focus advertising efforts in cluster
markets. It is also due to the Company's participation in co-operative
advertising programs with its vendors. As part of these co-operative programs,
the Company is able to recoup a portion of its advertising costs from its
vendors in the form of rebates for advertising their products in Rent-Way ads.
Occupancy. Occupancy expense increased to $9.8 million from $8.5
million, but decreased 0.6% as a percentage of total revenues to 6.4% from 7.0%.
This 0.6% decrease as a percentage of total revenues is due to the Company's
ability to spread these fixed costs over an increased revenue base.
Other operating expenses. Other operating expenses increased to $29.2
million from $23.7 million but decreased to 19.2% as a percentage of total
revenues from 19.5%. This decrease is the result of the efficiencies gained by
the Company from its ability to spread certain fixed costs over an increased
store revenue base. These decreased fixed costs include liability insurance,
legal and professional fees, state and local taxes, and office supplies.
Operating income. Operating income increased to 16.6% of total revenues
from 14.5% of total revenues due to the factors discussed above. The Company
anticipates its operating income to remain between 16% and 17% in fiscal 2000 as
a result of its continued ability to leverage costs over an increased store
revenue base.
Interest expense. Interest expense increased to 4.6% from 3.3% as a
percentage of total revenues. This increase is mainly due to the $68.8 million
in funds drawn on the Company's senior credit facility to consummate the
RentaVision acquisition. The Company has also purchased rental merchandise at a
higher rate in an effort to supplement the merchandise in the RentaVision stores
with newer merchandise and a broader product selection. In addition, the Company
has begun purchasing Gateway computers at a rapid pace to support the new
initiative to offer customers Gateway computers with Internet access on a weekly
rental basis.
Income tax expense. Income tax expense remained constant at 4.4% as a
percentage of total revenues.
Net income. Net income increased to 7.6% of total revenues from 6.7% of
total revenues due to the factors discussed above.
Comparison of Nine Months Ended June 30, 2000 and 1999
Total revenues. Total revenues increased $70.2 million, or 18.9% to
$441.9 million from $371.7 million. The increase is attributable to the addition
of the stores acquired and opened in fiscal 1999 and 2000, DPI revenue, and
increased core store revenues offset by a decrease in Home Choice revenue. The
stores acquired in the RentaVision, America's Rent-To-Own, and Prime Time
acquisitions accounted for $63.1 million, $6.2 million, and $0.9 million of the
increase, respectively. DPI accounted for $4.3 million of the increase. Stores
opened in fiscal 1999 and 2000 accounted for $5.6 million of the increase.
Revenue increases in core stores accounted for $1.2 million of the increase.
These increases were offset by a $11.0 million decrease in revenues for the Home
Choice stores. This decrease is attributable to store mergers and closings. The
Company experienced a 2.2% increase in same store revenues compared to the same
period last year. Increase (decrease) in same store revenues for the Rent-Way
stores and Home Choice stores were 5.1% and (0.3)% respectively. The Company
expects increased same store revenues for the rest of the fiscal 2000 due to,
among many other factors, the addition of new products and services. During the
last quarter of fiscal 1999, the Company added personal computers to its product
line. The Company also acts as an agent to provide prepaid phone service through
DPI. The DPI service is currently offered in over 300 stores. In April 2000, the
Company began offering Gateway computers with Internet access to customers on a
weekly rental basis. Management believes that opportunities exist to provide
additional non-traditional merchandise to its customers.
Depreciation and amortization. Depreciation expense related to rental
merchandise decreased 1.8% as a percentage of total revenues to 23.3% from
25.1%. This decrease is primarily due to increases in weekly rental rates, lower
purchase costs of rental merchandise due to increased volume, and improved
realization of potential collectible rent. In addition, depreciation expense as
a percentage of total revenues has shown solid improvement in the stores
acquired in the Home Choice merger. Acquired merchandise with high remaining
values has worked its way out of the Company's system and the stores are
replacing poorly priced and termed agreements with new agreements priced and
termed in accordance with Rent-Way operating procedures.
Depreciation expense related to property and equipment increased to
2.7% as a percentage of total revenues from 1.9%. This increase is principally
due to the depreciation expense related to new store signage and remodels
associated with the Home Choice stores, new computers and equipment installed in
the RentaVision stores, and the computer and software costs associated with the
Company's implementation of the PeopleSoft software package in January 1999 and
the development of a new Windows-based POS system.
Amortization of goodwill increased to 2.2% as a percentage of total
revenues from 2.0%. This increase is due to the addition of the goodwill
associated with the RentaVision, America's Rent-To-Own, and Prime Time
acquisitions.
Cost of prepaid phone service. Cost of prepaid phone service increased to
$2.7 million, or 0.6% as a percentage of total revenues. These are costs
associated with DPI telephone service.
Salaries and wages. Salaries and wages increased by $11.5 million to
$108.9 million from $97.4 million, but decreased 1.6% as a percentage of total
revenues to 24.6% from 26.2%. This 1.6% decrease as a percentage of total
revenues is due to the Company's ability to spread corporate and regional
managers' payroll over an increased store revenue base. The decrease is also
attributable to the Company bringing Home Choice payroll and store personnel
levels within the Company's standards. As a result of these factors, the Company
expects a further decline in salaries and wages as a percentage of total
revenues during the remainder of fiscal 2000.
Advertising. Advertising expense decreased to $15.9 million from $19.3
million and decreased to 3.6% as a percentage of total revenues from 5.2%. This
decrease is due to the Company's ability to focus advertising efforts in cluster
markets. It is also due to the Company's participation in co-operative
advertising programs with its vendors. As part of these co-operative programs,
the Company is able to recoup a portion of its advertising costs from its
vendors in the form of rebates for advertising their products in Rent-Way ads.
Occupancy. Occupancy expense increased to $31.1 million from $24.8
million, or 0.3% as a percentage of total revenues to 7.0% from 6.7%. This
increase is primarily due to the addition of the RentaVision stores. The
RentaVision stores have lower revenue averages to charge fixed rental costs
against. The Company expects occupancy expense as a percentage of total revenues
to decrease as the RentaVision per store revenue averages increase. Fifty of the
250 stores acquired were opened in the past twelve months.
Name change expense. Name change expense decreased to zero from $0.1
million. In 1997, HomeChoice launched a program to change the name of all of its
stores from the various trade names acquired to "HomeChoice Lease or Own." In
connection with this program, Home Choice incurred nonrecurring costs which
included the write-off of the net carrying values of old signs and branded
supplies and the expensing of new vehicle decals. The Company currently operates
under both the RentWay and HomeChoice trade names.
Business combination costs. In conjunction with the Company's merger
with Home Choice Holdings, Inc. on December 10, 1998, the Company incurred $16.8
million in costs in the nine months ended June 30, 1999. These costs included
investment banker fees of $6.5 million, proxy preparation, printing, and other
professional fees of $1.3 million, employee severance and stay-put arrangements
of $4.5 million, due diligence and other costs of $0.9 million, costs related to
closing or disposing of duplicate corporate headquarters, equipment and stores
in overlapping markets of $2.1 million, and the write-off of prepaid assets
which could not be used of $1.5 million.
Other operating expenses. Other operating expenses increased to $85.5
million from $78.7 million but decreased to 19.4% as a percentage of total
revenues from 21.2%. This decrease is due in part to a decrease in inventory
write-offs. In connection with the merger with Home Choice, the Company
identified a large number of rental merchandise items, which failed to meet the
accepted quality standards of the company's operating procedures. Accordingly,
the Company experienced an excessive amount of inventory deletions during the
three month period ended December 31, 1998. The amount of these excessive
inventory write-offs was approximately $1.1 million. This decrease is also the
result of the efficiencies gained by the Company from its ability to spread
certain fixed costs over an increased store revenue base. These decreased fixed
costs include liability insurance, legal and professional fees, state and local
taxes, and office supplies.
Operating income. Operating income increased to 16.5% of total revenues
from 7.2% of total revenues due to the factors discussed above. The Company
anticipates its operating income to remain between 16.0% and 17.0% in fiscal
2000 as a result of its continued ability to leverage costs over an increased
store revenue base.
Interest expense. Interest expense increased to 4.5% from 3.2% as a
percentage of total revenues. This increase is mainly due to the $68.8 million
in funds drawn on the Company's senior credit facility to consummate the
RentaVision acquisition. The Company has purchased rental merchandise at a
higher rate in an effort to supplement the merchandise in the RentaVision stores
with newer merchandise and a broader product selection. In addition, the Company
has begun purchasing Gateway computers at a rapid pace to support the new
initiative to offer customers Gateway computers with Internet access on a weekly
rental basis.
Equity in earnings of subsidiary. In conjunction with the Company's initial
purchase of 49% ownership interest in DPI, a charge of $0.2 million reflects the
unconsolidated loss for the period. The Company used the equity method to
account for this acquisition. In the third quarter, the Company exercised its
option to acquire an additional 21% of DPI. The Company consolidated DPI upon
reaching majority ownership.
Income tax expense. Income tax expense increased to 4.6% as a
percentage of total revenues from 2.5% of total revenues. The increase was due
to an increase in pretax income and operating income. The Company's effective
tax rate is 38.2%
Net income. Net income increased to 7.4% of total revenues from 1.4% of
total revenues due to the factors discussed above.
Liquidity and Capital Resources
The Company's capital requirements relate primarily to acquisitions, new
store openings, and purchasing additional rental merchandise and replacing
rental merchandise that has been sold or is no longer suitable for rent. The
Company intends to increase the number of stores it operates through
acquisitions and new store openings. Such acquisitions will vary in size and the
Company will consider large acquisitions that could be material to the Company.
To provide any additional funds necessary for the continued pursuit of its
growth strategies, the Company may incur, from time-to-time, additional short
and long-term bank or other institutional indebtedness and may issue, in public
or private transactions, its equity and debt securities, depending upon market
and other conditions. There can be no assurance that such additional financing
will be available on terms acceptable to the Company.
Net cash used in operating activities increased to $27.7 million for the
nine month period ended June 30, 2000, from $2.0 million for the nine month
period ended June 30, 1999. This increase is principally due to a $27.4 million
increase in net income, a $15.4 million increase in depreciation expense, a
$21.4 million increase in accounts payable, and a $9.0 million increase in
income taxes payable offset by a $81.8 million increase in rental merchandise
purchases.
Net cash used in investing activities increased $28.5 million to $45.1
million in the nine month period ended June 30, 2000, compared to $16.6 million
in the nine month period ended June 30, 1999. The increase in cash used for the
purchase of business was primarily due to the Prime Time acquisition for $3.6
and the purchase of DPI for $8.2. Capital expenditures in the nine month period
ended June 30, 2000, included the purchase of new store signage and store
remodeling costs and the purchase of computers and equipment for the stores
acquired from RentaVision.
The Company has begun to construct a 30,000 square foot addition to its
current corporate headquarters facility. The Company estimates the cost at
approximately $3.5 million. The Company plans to fund this project with
borrowings on its senior credit facility. As of June 30, 2000, the Company
incurred $1.3 million in costs related to this project.
Net cash provided by financing activities increased to $75.2 million in the
nine month period ended June 30, 2000, from $20.2 million in the nine month
period ended June 30, 1999. Cash flows from financing activities have
historically represented the Company's financing of its long term growth.
On June 28,2000, the Company amended its existing collaterized term loan and
revolving credit facility with a syndicate of banks led by Bank of Montreal and
National City Bank (the "Amended Facility"). The Amended Facility provides for
loans and letters of credit up to $435.0 million. Borrowings under the Amended
Facility bear interest at the Company's option either at a base rate or a LIBOR
based rate. The Amended Facility requires the Company to meet certain financial
covenants and ratios including maximum leverage, minimum interest coverage,
minimum tangible net worth, fixed charge coverage, and rental merchandise usage
ratios. As of June 30, 2000, the Company was in compliance with all covenants
contained in the Amended Facility. As of July 21, 2000, $319.5 million in
borrowings is outstanding under the Amended Facility.
On January 10, 2000, the Company acquired a 49% interest in DPI for $6.4
million in cash. The Company acquired an additional 21% interest during the
third quarter for $1.1 million in cash. The Company has also committed to
provide DPI $3.0 million in funds to meet working capital requirements as needed
and has provided $1.8 million through June 30, 2000.
Management believes that sufficient resources will be available to meet the
Company's short-term cash requirements. The Company believes that it can
adequately fund its short-term cash needs through borrowings under the Amended
Facility and cash generated from operations. Cash requirements for periods
beyond the next twelve months depend on the Company's profitability, its ability
to manage working capital requirements, and its rate of growth.
Seasonality and Inflation
Management believes that operating results may be subject to seasonality.
The first quarter typically has a greater percentage of rentals because of
traditional holiday shopping patterns. Management plans for these seasonal
variances and takes particular advantage of the first quarter with product
promotions, marketing campaigns, and employee incentives. Because many of the
Company's expenses do not fluctuate with seasonal revenue changes, such revenue
changes may cause fluctuations in the Company's quarterly earnings.
During the nine months ended June 30, 2000, the cost of rental merchandise,
store lease rental expense and salaries and wages have increased modestly. These
increases have not had a significant effect on the Company's results of
operations because the Company has been able to charge commensurately higher
rental for its merchandise. This trend is expected to continue in the
foreseeable future.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging-Activities-Deferral of the Effective Date of SFAS No. 133-an Amendment
of FASB Statement 133." This Statement delays the effective date for this
standard until fiscal years beginning after June 15, 2000. The Company is
currently evaluating the provisions of this Statement.
The Accounting Standards Executive Committee Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"), issued in April
1998 and effective for fiscal years beginning after December 15, 1998 with
earlier application permitted, provides guidance on financial reporting of start
up costs and organization costs. The Company adopted this statement effective
October 1, 1999, resulting in no significant effect on the Company's financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The
Company is in the process of determining the impact this adoption will have on
its consolidated financial statements.
Year 2000 Issues
As of the date hereof, the Company has not experienced any significant
business disruptions as a result of Year 2000 issues. However, Year 2000 issues
may arise that are not apparent currently. The Company utilizes management
information systems and software technology that may be affected by Year 2000
issues throughout its operations. During fiscal 1998, the Company began to
implement plans to ensure those systems continue to meet its internal and
external requirements. All the Company's remote locations operate on an
internally developed point of sale system. This system utilizes a peer to peer,
Windows 95 local area network. Communications between remote locations and the
corporate office are handled via e-mail through the internet. After completion
of testing, the Company has determined that its point of sale system is Year
2000 compliant. As a result of the Company's growth, a decision was made to
upgrade information systems at the corporate office. The installation and
implementation of a Year 2000 compliant PeopleSoft software package was
completed in January 1999. This package encompasses all accounting functions,
payroll, human resources and benefit administration requirements. The system
operates in an n-tier environment on a Windows NT platform. The cost of all
hardware, software, training and implementation costs were approximately $1.5
million, the majority of which was incurred in fiscal 1998. In addition to the
PeopleSoft package, the Company has implemented a Year 2000 compliant J.
Driscoll Package for cash management. This package operates on the same platform
as the PeopleSoft package.
The Company developed questionnaires and contacted key suppliers regarding
their Year 2000 compliance to determine any impact on its operations. The
Company will continue to monitor its suppliers on this matter. The Company has
reviewed and continues to review its non-information technology systems to
determine the extent of any changes that may be necessary and believes that
there will be minimal changes required for compliance.
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,
(iii) the ability of the Company to improve the performance of the Home Choice
stores and other stores acquired in fiscal 1999 and fiscal 2000, (iv) the
Company's ability to open new stores in favorable locations and on favorable
terms and to cause such stores to become profitable in a timely manner or at
all, and (v) the impact of state and federal laws regulating or otherwise
affecting the rental-purchase transaction.
Undue 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.
<PAGE>
ITEM 3. 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, 2000:
<TABLE>
<CAPTION>
Expected Maturity Dates
(dollars in millions): 1999 2000 2001 2002 2003 2004 Thereafter
-------------------------------------- ---- ---- ---- ---- ---- ---- ----------
Debt:
<S> <C> <C> <C> <C> <C> <C>
Term Loan A Euro-rate option........ $4.3 $19.0 $24.0 $30.0 $35.7 $30.0
--Actual floating rate.............. 8.684% 8.780% 8.780% 8.780% 8.780%
Term Loan B Euro-rate option........ $1.0 $1.0 $1.0 $1.0 $1.0 $171.0
--Actual floating rate.............. 9.780% 9.780% 9.780% 9.780% 9.780% 9.780%
Interest rate swap agreements:
National City Bank, notional amount. $30.0
--Actual fixed interest rate pay rate 5.965%
--Actual variable interest rate receive
rate, (based on 3 month LIBOR)..... 6.280%
Bank of America, notional amount.... $20.0
--Actual fixed interest rate pay rate 5.760%
--Actual variable interest rate receive
rate, (based on 3 month LIBOR)..... 6.280%
Manufacturers and Traders Trust, notional
amount.............................. $10.0
--Actual fixed interest rate pay rate 5.925%
--Actual variable interest rate receive
rate, (based on 3 month LIBOR)..... 6.280%
Harris Bank, notional amount........ $20.0
--Actual fixed interest rate pay rate 5.090%
--Actual variable interest rate receive
rate, (based on 3 month LIBOR)..... 6.280%
SunTrust Bank, notional amount...... $10.0
--Actual fixed interest rate pay rate 5.105%
--Actual variable interest rate receive
rate, (based on 3 month LIBOR)..... 6.280%
LaSalle Bank, notional amount....... $10.0
--Actual fixed interest rate pay rate 5.095%
--Actual variable interest rate receive
rate, (based on 3 month LIBOR)..... 6.280%
Bank of America, notional amount.... $10.0
--Actual fixed interest rate pay rate 5.120%
--Actual variable interest rate receive
rate, (based on 3 month LIBOR)..... 6.280%
Harris Bank, notional amount........ $10.0
--Actual fixed interest rate pay rate 5.120%
--Actual variable interest rate receive
rate, (based on 3 month LIBOR)..... 6.280%
PNC Bank, notional amount........... $5.0
--Actual fixed interest rate pay rate 6.740%
--Actual variable interest rate receive
rate, (based on 3 month LIBOR)..... 6.280%
Letters of credit:
Letter of credit, Base rate option.. $650
--Actual floating rate............... N/A
Letter of credit, Base rate option.. $300
--Actual floating rate............... N/A
Letter of credit, Base rate option.. $450
--Actual floating rate............... N/A
Letter of credit, Base rate option.. $300
--Actual floating rate............... N/A
</TABLE>
<PAGE>
RENT-WAY, INC.
PART II OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
On May 1, 2000, the Company sold 348,910 of its common stock to Gateway
Companies, Inc. for aggregate consideration of $7.0 million. The shares were
offered and sold in a transaction exempt from registration under section 4(2) of
the Securities Act of 1933, as amended.
<PAGE>
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.
Exhibit No. Description
----------- -----------
10.16 Amendment to credit agreement dated June 28, 2000
27 Financial data schedule
b. Reports on Form 8-K
(1) On June 29, 2000, the Company filed a Current Report on Form 8-K
announcing its purchase of an additional 21 percent stake in dPi
Teleconnect, LLC, a provider of pre-paid local telephone service.
Rent-Way has now invested a total of $7.5 million in dPi and now
owns 70 percent of dPi. As a result of this transaction, Rent-Way
will report dPi's results on a consolidated basis, starting in
the current quarter.
(2) On July 7, 2000, the Company filed a Current Report on Form 8-K
announcing that it has amended its existing credit facility to
increase the size of the facility to $435 million. The amended
facility consists of approximately $115 million in a revolving
line of credit and approximately $320 million in term loans. The
amended facility is provided through a syndicate of banks led by
National City Bank, Harris Trust and Savings Bank, Bank of
Montreal and Bank of America, N.A.
<PAGE>
RENT-WAY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENT-WAY, INC.
By
July 31, 2000 /s/ William A. McDonnell
--------------------------- -----------------------------------------
Date William A. McDonnell
Vice President and Chief Financial Officer
July 31, 2000 /s/ Matthew J. Marini
-------------------------- -----------------------------------------
Date Matthew J. Marini
Corporate Controller and Chief Accounting Officer
<PAGE>
Exibit 10.16
AMENDMENT NO. 4 to credit agreement
THIS AMENDMENT NO. 4 TO CREDIT AGREEMENT (the "Amendment") is dated as
of June 28, 2000, and is made by and among RENT-WAY, INC., a Pennsylvania
corporation (the "Borrower"), RENT-WAY OF TTIG, L.P., an Indiana limited
partnership, and RENTAVISION INC., a New York Corporation (Rent-Way of TTIG,
L.P. and Rentavision Inc. are referred to herein collectively as the
"Co-Borrowers" and each separately as a "Co-Borrower"), each of the GUARANTORS,
each of the LENDERS (as defined in the Credit Agreement defined below), NATIONAL
CITY BANK OF PENNSYLVANIA in its capacity as administrative agent for the
Lenders under the Credit Agreement (hereinafter referred to in such capacity as
the "Administrative Agent"), BANK OF AMERICA, N.A., in its capacity as
documentation agent for the Lenders, and BANK OF MONTREAL and HARRIS TRUST AND
SAVINGS BANK, in their capacity as syndication agents.
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Credit
Agreement dated as of September 23, 1999, as amended by Amendment No. 1 thereto
dated as of November 17, 1999, Amendment No. 2 thereto dated as of December 6,
1999, and Amendment No. 3 thereto dated as of December 7, 1999 (collectively,
the "Credit Agreement"), pursuant to which the Lenders provided to the Borrower
and the Co-Borrowers a $100,000,000 revolving credit facility, $125,000,000 in
Term Loans A and $100,000,000 in Term Loans B;
WHEREAS, the Borrower and the Co-Borrowers have requested the
Lenders to amend the Credit Agreement to increase the amount of Revolving Credit
Loans, Term Loans A and Term Loans B available to the Borrower and the
Co-Borrowers, to modify the amortization of the Term Loans A and extend the
maturity dates with respect to the Revolving Credit Loans and Term Loans A, to
modify the financial covenants set forth in the Credit Agreement and to effect
certain other changes to the terms of the Credit Agreement. The foregoing
increases and modifications have been agreed to by the Lenders, subject to the
terms and conditions set forth in this Amendment.
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:
Definitions. Defined terms used herein unless otherwise defined herein shall
have the meanings ascribed to them in the Credit Agreement. The following
definitions set forth in Section 1.1 are hereby amended and restated as follows:
"Expiration Date shall mean, with respect to the
Revolving Credit Commitments, June 30, 2005.
Line of Business shall mean the rent-to-own business, the rental purchase
business, the rental business, related lines of business and other complementary
or compatible business activities intended to service the Borrower's and
Co-Borrowers' marketing demographics.
Syndications Period shall mean the period between
June 28, 2000, and the date upon which the Syndication
Agents and National City Bank notify the Borrower and the Co-Borrowers in
writing that the syndication of the Loans is completed.
Term Loan A Maturity Date shall mean June 30, 2005.
The following new definition is hereby added in Section 1.1 of the Credit
Agreement in alphabetical order: "Adjusted Leverage Ratio shall mean the ratio
of (i) the sum of Consolidated Funded Debt plus three times the Occupancy
Expense minus Cash Equivalents, 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.
Amendment No. 4 Closing Date shall mean June 28, 2000.
Cash Equivalents shall mean cash and all investments permitted by the Loan
Parties described in items (i) through (v) in the definition of Permitted
Investments."
Sections 3.1 through 3.4 of the Agreement are hereby amended and restated as
follows:
"3.1 Term Loan Commitments.
3.1.1 Term Loan A Commitments.
Subject to the terms and conditions hereof, and relying upon
the representations and warranties herein set forth, each Lender with a Term
Loan A Commitment severally agrees to make a term loan (the "Term Loan A") to
the Borrower and the Co-Borrowers on Amendment No. 4 Closing Date in an amount
equal to such Lender's Term Loan A Commitment. With respect to each Lender which
previously made a Term Loan A to the Borrower and the Co-Borrowers prior to
Amendment No. 4 Closing Date, such Lender shall fund an amount equal to the
difference between such Lender's Term Loan A Commitment and the principal
balance outstanding on the prior Term Loan A, with such prior outstanding
balance to be included as part of the Lender's Term Loan A Commitment. The prior
Term Loan A of a Lender (if any) and the Term Loan A funds advanced on Amendment
No. 4 Closing Date, shall together constitute a Lender's Term Loan A.
3.1.2 Term Loan B Commitments.
Subject to the terms and conditions hereof, and relying upon
the representations and warranties herein set forth, each Lender with a Term
Loan B Commitment severally agrees to make a term loan (the "Term Loan B") to
the Borrower and the Co-Borrowers in an amount equal to such Lender's Term Loan
B Commitment. With respect to each Lender which has a Term Loan B outstanding to
the Borrower and the Co-Borrowers immediately prior to Amendment No. 4 Closing
Date and is not increasing the amount of its Term Loan B Commitment, such Term
Loans B shall continue outstanding after giving effect to the increases in the
Commitments effective on Amendment No. 4 Closing Date. With respect to each
Lender which is increasing the amount of its Term Loan B Commitment on Amendment
No. 4 Closing Date or which did not have a Term Loan B outstanding to the
Borrower and the Co-Borrowers immediately prior to Amendment No. 4 Closing Date,
such Lender shall fund an amount equal to the difference between such Lender's
new Term Loan B Commitment and the Term Loan B Commitment which existed prior to
Amendment No. 4 Closing Date The prior Term Loan B of a Lender (if any) and the
Term Loan B funds advanced on Amendment No. 4 Closing Date (if any), shall
together constitute a Lender's Term Loan B.
3.2 Nature of Lenders' Obligations with Respect to Term Loans.
The obligations of each Lender to make Term Loans A to the
Borrower and the Co-Borrowers shall be in the proportion that such Lender's Term
Loan A Commitment bears to the Term Loan A Commitments of all Lenders; the
obligations of each Lender to make Term Loans B to the Borrower and the
Co-Borrowers shall be in the proportion that such Lender's Term Loan B
Commitment bears to the Term Loan B Commitments of all Lenders. Each Lender's
Term Loans to the Borrower and the Co-Borrowers shall never exceed its Term Loan
Commitments. The failure of any Lender to make a Term Loan shall not relieve any
other Lender of its obligations to make a Term Loan nor shall it impose any
additional liability on any other Lender hereunder. The Lenders shall have no
obligation to make Term Loans hereunder after Amendment No. 4 Closing Date. The
Term Loan Commitments are not revolving credit commitments, and the Borrower and
the Co-Borrowers shall not have the right to borrow, repay and reborrow under
Section 3.1.
3.3 Term Loan Notes.
The Obligation of the Borrower and the Co-Borrowers to repay
the unpaid principal amount of the Term Loans made to the Borrower and the
Co-Borrowers by each Lender, together with interest thereon, shall be evidenced
by a Term Note dated either the Closing Date (in the case of a Lender with Term
Loan B which is not increasing its Term Loan B Commitment, or if such Lender was
not a party to this Agreement on the Closing Date, the date that such Lender
joined in this Agreement) or Amendment No. 4 Closing Date (or if such Lender is
not a party to this Agreement on Amendment No. 4 Closing Date, the date that
such Lender joins in this Agreement), payable to the order of each Lender in a
face amount equal to the Term Loan of such Lender. The principal amount of the
Term Notes A shall be payable in quarterly payments due on the last day of each
September, December, March and June, beginning with the quarter ending September
30, 2000, and as follows:
<TABLE>
<CAPTION>
Quarters Ending on Following Date or In The Percentage of Principal of Term Loan A Commitments
Following Period Due on Each Payment Date
------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
9-30-00 through 6-30-01 three percent (3%)
9-30-01 through 6-30-02 four percent (4%)
9-30-02 through 6-30-03 five percent (5%)
9-30-03 through 6-30-04 six percent (6%)
9-30-04 through 6-30-05 seven percent (7%)
</TABLE>
The principal amount of the Term Notes B shall be payable as
follows: (i) one payment due on June 30, 2000, in the amount of $250,000 to be
applied pro rata to the Term Loans B outstanding immediately prior to Amendment
No. 4 Closing Date, (ii) seventeen quarterly payments due on the last day of
each September, December, March and June, beginning with the quarter ending
September 30, 2000, and continuing through the quarter ending September 30,
2004, each such payment in an amount equal to one-fourth of one percent (1/4%)
of the Term Loan B Commitments, (iii) one payment on September 30, 2005 in an
amount equal to forty-seven and one-half percent (47-1/2%) of the Term Loan B
Commitments, and (iv) a final payment on September 30, 2006 of the remaining
principal balance of the Term Loans B."
The first paragraph of Section 4.2 of the Credit Agreement is hereby amended and
restated as follows:
"4.2 Interest Periods.
At any time when the Borrower and the Co-Borrowers shall
select, convert to or renew a Euro-Rate Option, the Borrower and the
Co-Borrowers shall notify the Administrative Agent thereof at least three (3)
Business Days prior to the effective date of such Euro-Rate Option by delivering
a Loan Request. The notice shall specify an interest period (the "Interest
Period") during which such Interest Rate Option shall apply, such Interest
Period to be (i) two weeks if the Borrower and the Co-Borrowers select the
Euro-Rate Option to apply to the Loans during the Syndications Period, and (ii)
after the Syndications Period has ended, one, two, three or six Months.
Notwithstanding the preceding sentence, the following provisions shall apply to
any selection of, renewal of, or conversion to a Euro-Rate Option:"
The first paragraph of Section 5.4.1 of the Credit Agreement is
hereby amended and restated as follows: 5.4.1 Right to Prepay.
The Borrower and the Co-Borrowers shall have the
right at their option from time to time to pay the Loans
in whole or part without premium or penalty, except for such premiums, penalties
and other payments provided for in Section 5.4.3 below or in Section 5.6:
(i) at any time with respect to any Loan to which the Base Rate
Option or Euro-Rate Option applies;
(ii) on the date specified in a notice by any Lender pursuant to
Section 4.4 [Euro-Rate Unascertainable] with respect to any Loan to which a
Euro-Rate Option applies.
Section 5.5.1 of the Credit Agreement is hereby amended and restated as follows:
"5.5.1 Excess Cash Flow.
Within five (5) Business Days of the delivery of the
Borrower's annual financial statements pursuant to Section 8.3.3 [Annual
Financial Statements] commencing with the financial statements for the fiscal
year ended September 30, 2001, but in any event no later than January 5 of each
year commencing January 5, 2002 (each, a "Mandatory Prepayment Date"), and in
the event that the Leverage Ratio for the fiscal year in question is greater
than 2.5 to 1.0, as determined on a pro forma basis after giving effect to any
prepayments under this Section 5.5.1, the Borrower and the Co-Borrowers shall
make a mandatory prepayment of principal on the Term Loans equal to 50% of
Excess Cash Flow for the immediately preceding fiscal year, subject to a credit
for voluntary prepayments made pursuant to Section 5.4 [Voluntary Prepayments]
during the immediately preceding fiscal year, together with accrued interest on
such principal amount (each, a "Mandatory Prepayment of Excess Cash Flow"). Each
Mandatory Prepayment of Excess Cash Flow shall be applied by the Administrative
Agent to the outstanding principal balance of the Term Loans A and Term Loans B
based upon the Ratable Share of such Term Loan to all the Term Loans, in each
case by application to the unpaid installments of principal in the inverse order
of scheduled maturities. Upon its receipt of the annual financial statements of
the Borrower and receipt of payment by the Borrower and the Co-Borrowers of the
Mandatory Prepayment of Excess Cash Flow, the Administrative Agent shall give
the Lenders with outstanding principal on the Term Loans B notice of the amount
of the Mandatory Prepayment of Excess Cash Flow. In the event that any one or
more Lender with Term Loans B outstanding elects not to receive its pro rata
share of such prepayment, such Lender shall provide written notice of the amount
it elects not to receive in prepayment of its Term Loan B, and such amount shall
be reallocated to payment of the Term Loans A based upon the Ratable Share of
the Lenders with Term Loans A, to be applied by the Lenders with Term Loans A in
the inverse order of scheduled maturities. To the extent that a Mandatory
Prepayment of Excess Cash Flow exceeds the outstanding principal amount of the
Term Loans, such prepayment shall be limited to the amount necessary to prepay
the Term Loans in full."
Section 5.5.2 of the Credit Agreement is hereby amended and restated as follows:
"5.5.2 Sale of Assets; Issuance of Stock.
Within five (5) Business Days of any sale of assets authorized by Section
8.2.7(v) which involves the sale of assets having a market value or book value
in an amount equal to or greater than $10,000,000 in the aggregate in any fiscal
year, the Borrower and the Co-Borrowers shall make a mandatory prepayment of
principal equal to the after-tax proceeds of such sale (as estimated in good
faith by the Borrower and the Co-Borrowers), together with accrued interest on
such principal amount. In the event that the Adjusted Leverage Ratio at the time
of any issuance of equity by the Borrower authorized by Section 8.2.13(iv) is
greater than 2.5 to 1.0, as determined on a pro forma basis at such time and
after giving effect to cash received by the Borrower upon issuance of such
equity and any prepayment required under this Section 5.5.2, then simultaneously
with the issuance of such capital stock by the Borrower, the Borrower shall make
a mandatory prepayment of principal equal to the net proceeds of such issuance
to the extent that the Adjusted Leverage Ratio continues to be greater than 2.5
to 1.0 as a result of such mandatory prepayment of the net proceeds or a portion
thereof. In the event that the Required Lenders permit the incurrence of
Indebtedness other than as permitted under Section 8.2.1, the Borrower shall
make a mandatory prepayment of principal equal to the net proceeds of such
Indebtedness. In the event that the Administrative Agent does not disburse
insurance proceeds in excess of $250,000 to the Loan Parties pursuant to Section
8.1.3, such proceeds shall be applied as a mandatory prepayment of principal
equal to the amount of such insurance proceeds. All prepayments pursuant to this
Section 5.5.2 shall be applied in accordance with the provisions of Section
5.5.1, and upon payment in full of the Term Loans, then as a permanent reduction
to the Revolving Credit Commitments. In the event that any one or more Lenders
with Term Loans B outstanding elects not to receive its pro rata share of such
prepayments, such Lender shall provide written notice of the amount it elects
not to receive in prepayment of its Term Loan B, and such amount shall be
reallocated to payment of the Term Loans A based upon the Ratable Share of the
Lenders with Term Loans A, to be applied by the Lenders with Term Loans A in the
inverse order of scheduled maturities. Notwithstanding the foregoing and in the
case of asset sales authorized by Section 8.2.7(v), to the extent that the
after-tax proceeds of such sale are used by the applicable Loan Party prior to
the due date of the mandatory prepayment to acquire substitute assets in the
ordinary course of business of such Loan Party and such substitute assets are
subject to a Prior Security Interest in favor of the Administrative Agent for
the benefit of the Lenders, then the mandatory prepayment shall be
correspondingly reduced or terminated, as the case may be."
Section 8.1.13 of the Credit Agreement is hereby amended and restated
as follows:
"8.1.13 Interest Rate Protection.
Within ninety (90) days after Amendment No. 4 Closing Date, the Loan
Parties shall enter into one or more interest rate protection agreements with
one or more of the Lenders and with the prior consent of the Administrative
Agent, which consent shall not be unreasonably withheld. Such interest rate
protection agreements shall be in an amount such that when aggregated with the
interest rate protection agreements of the Borrower in effect on Amendment No. 4
Closing Date, provide for interest rate protection in a notional principal
amount of at least $200,000,000 (the interest rate protection agreements in
effect on Amendment No. 4 Closing Date and those entered into pursuant to this
Section 8.1.13 are collectively referred to as the "Interest Rate Protection
Agreements"). Such Interest Rate Protection Agreements shall contain such terms
and conditions as shall be acceptable to the Administrative Agent. Documentation
for the Interest Rate Protection Agreement shall be in a standard International
Swap Dealer Association Agreement and shall provide for the method of
calculating the reimbursable amount of the provider's credit exposure in a
reasonable and customary manner. Such financial institution (if other than a
Lender) may be granted a security interest in the Collateral pursuant to the
Loan Documents and receive a Lien pari passu with the Lien of the Administrative
Agent upon terms acceptable to the Administrative Agent."
Section 8.2.1 of the Credit Agreement is hereby amended and restated 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(including any
extensions or renewals thereof, provided there is no increase in the amount
thereof or other significant change in the terms thereof unless otherwise
specified on Schedule 8.2.1;
(iii)Capitalized and operating leases as and to the extent permitted under
Section 8.2.15;
(iv) Indebtedness secured by Purchase Money Security Interests not
exceeding $100,000;
(v) Indebtedness of a Loan Party to another Loan
Party which is subordinated in accordance with the
provisions of Section 8.1.12;
(vi) Indebtedness incurred in connection with
Permitted Acquisitions provided that after giving effect
thereto, no Potential Default or Event of Default exists; and
(vii)other unsecured Indebtedness not exceeding $15,000,000 at any one time
outstanding."
Section 8.2.4 of the Credit Agreement is hereby amended and restated as follows:
"8.2.4 Loans and Investments.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time make or suffer to remain outstanding any loan or
advance to, or purchase, acquire or own any stock, bonds, notes or securities
of, or any partnership interest (whether general or limited) or limited
liability company interest in, or any other investment or interest in, or make
any capital contribution to, any other Person, or agree, become or remain liable
to do any of the foregoing, except:
(i) trade credit extended on usual and customary terms in the ordinary
course of business;
(ii) advances to employees to meet expenses incurred by such
employees in the ordinary course of business;
(iii) Permitted Acquisitions;
(iv) Permitted Investments;
(v) loans, advances and investments in other Loan Parties, provided
however, that additional loans, advances and investments in Action Rent-to-Own
Holdings of South Carolina, Inc., a South Carolina corporation, shall be limited
to $500,000 in the aggregate; and
(vi) an investment not in excess of $7,500,000 for the purchase of a
seventy percent (70%) ownership interest in the limited liability company
interests of dPi Teleconnect, L.L.C., a Delaware limited liability company
("dPi"), and loans and advances not in excess of $3,500,000 to dPi at any one
time outstanding, provided however, that the Loan Parties' ownership interests
in dPi and the note obligations of dPi to the Loan Parties shall be pledged to
the Administrative Agent for the benefit of the Lenders. For purposes of this
Credit Agreement, the financial results of dPi shall be included in the
consolidated financial statements of the Borrower, as determined and
consolidated in accordance with GAAP, but dPi shall not otherwise constitute a
Subsidiary subject to the terms and conditions of this Credit Agreement and the
Loan Documents which relate to the Subsidiaries of the Loan Parties."
Section 8.2.6 of the Credit Agreement is hereby amended and restated as follows:
"8.2.6 Liquidations, Mergers, Consolidations, Acquisitions.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a party
to any merger or consolidation, or acquire by purchase, lease or otherwise all
or substantially all of the assets or capital stock of any other Person,
provided that
(1) any Loan Party other than the Borrower and the
Co-Borrower may consolidate or merge into another Loan
Party which is wholly-owned by one or more of the other Loan Parties, and
Rentavision may merge with and into the Borrower so long as the Borrower is the
surviving corporation, provided, that Borrower and the Co-Borrowers shall
deliver to the Administrative Agent copies of the applicable merger or
consolidation documentation within five (5) Business Days after the effective
date of such merger or consolidation and the appropriate Loan Parties shall
promptly thereafter (but in no event in less than five (5) Business Days after
the Administrative Agent's request therefore) execute and deliver to the
Administrative Agent new UCC-1 financing statements or amendments to filed UCC-1
financing statements, as appropriate in the discretion of the Administrative
Agent, and take such other action as is necessary to maintain first priority
Liens in the assets of the parties to such merger or consolidation; and
(2) any Loan Party may acquire, whether by purchase or by merger, (A) all
of the ownership interests of another Person or (B) substantially all of assets
of another Person or of a business or division of another Person (each an
"Permitted Acquisition"), provided that each of the following requirements is
met:
(i)such Person shall be a corporation, limited liability company or other
entity with respect to applicable state law providing 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 Lenders 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 the Line of Business and shall comply with Section 8.2.10,
(v)no Potential Default or Event of Default shall exist immediately prior
to and after giving effect to such Permitted Acquisition,
(vi) the Borrower and the Co-Borrowers shall
have given the Administrative Agent written notice
of the acquisition at least five (5) 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 Section 8.2.16,
(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 Administrative Agent,
(viii) the Loan Parties shall have delivered
to the Lenders such opinions of counsel in form and
substance satisfactory to the Administrative Agent or such other evidence as
shall be satisfactory to the Administrative 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, and
(ix) if after giving effect to a Permitted
Acquisition the Leverage Ratio is greater than or
equal to 2.0 to 1.0, the Consideration given by the Loan Parties for such
Permitted Acquisition shall not exceed $20,000,000 in value, and after giving
effect to such Permitted Acquisition, the aggregate Consideration given by the
Loan Parties for all Permitted Acquisitions made during the then fiscal quarter
of the Permitted Acquisition and during the prior three fiscal quarters shall
not exceed $50,000,000."
Section 8.2.7 of the Credit Agreement is hereby amended and restated as follows:
"8.2.7 Disposition of Assets or Subsidiaries.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or
dispose of, voluntarily or involuntarily, any of its properties or assets,
tangible or intangible (including sale, assignment, discount or other
disposition of accounts, contract rights, chattel paper, equipment or general
intangibles with or without recourse or of capital stock, shares of beneficial
interest, partnership interests or limited liability company interests of a
Subsidiary of such Loan Party), except:
(i)transactions involving the sale of inventory in the ordinary course of
business;
(ii) any sale, transfer, rental or lease of
assets in the ordinary course of business which are
no longer necessary or required in the conduct of such Loan Party's or such
Subsidiary's business, including, without limitation, (a) the Real Property
located at 3230 West Lake Road, Erie, Pennsylvania, (b) assets relating to
closings of retail store sites of the Loan Parties, provided however, that the
market value of the assets disposed of pursuant to this subsection (ii), when
aggregated with permitted dispositions described in subsection (iv) below, shall
not exceed $5,000,000 in any fiscal year of the Borrower;
(iii) any sale, transfer or lease of assets
by any wholly owned Subsidiary of such Loan Party to
another Loan Party;
(iv) any sale, transfer or lease of assets
in the ordinary course of business which does not
cause the aggregate market value or the aggregate book value of all such sales,
transfers and leases, when aggregated with the permitted dispositions in
subsection (ii) above, to exceed $5,000,000 in any fiscal year of the Borrower
and which are replaced by substitute assets acquired or leased within the
parameters of Section 8.2.15, provided such substitute assets are subject to the
Lenders' Prior Security Interest; or
(v)any sale, transfer or lease of assets, other than those specifically
excepted pursuant to clauses (i) through (iv) above, which is approved by the
Required Lenders so long as the after-tax proceeds (as reasonably estimated by
the Borrower and the Co-Borrowers) are applied as a mandatory prepayment of the
Term Loans in accordance with the provisions of Section 5.5.2 above."
Section 8.2.13 of the Credit Agreement is hereby amended and restated
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 and 401(k) plans set
forth on Schedule 6.1.21 as in effect on the Closing Date, (iii) in connection
with the Mass Mutual Warrants, and (iv) to the extent required under Section
5.5.2,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
Lenders."
Section 8.2.16 of the Credit Agreement is hereby amended and restated
as follows:
"8.2.16 Maximum Leverage Ratio.
The Loan Parties shall not permit the Leverage Ratio of the Borrower and
its Subsidiaries to exceed the ratio set forth below for the four fiscal
quarters then ended.
<TABLE>
<CAPTION>
Period Ratio
<S> <C> <C> <C> <C>
6/30/00 3.25 to 1.00
9/30/00 through 12/31/00 3.50 to 1.00
3/31/01 3.25 to 1.00
6/30/01 3.00 to 1.00
9/30/01 through 6/30/02 2.75 to 1.00
9/30/02 and thereafter 2.50 to 1.00"
</TABLE>
Section 8.2.18 of the Credit Agreement is hereby amended and restated
as follows:
"8.2.18 Minimum Interest Coverage Ratio.
The Loan Parties shall not permit the Interest
Coverage Ratio to be less than the ratio set forth below for
the four fiscal quarters then ended, as calculated at the end of each fiscal
quarter of the Borrower.
<TABLE>
<CAPTION>
Period Ratio
<S> <C> <C> <C> <C>
6/30/00 4.00 to 1.00
9/30/00 through 12/31/00 3.75 to 1.00
3/31/01 through 6/30/01 4.00 to 1.00
9/30/01 through 12/31/01 4.25 to 1.00
3/31/02 4.75 to 1.00
6/30/02 and thereafter 5.00 to 1.00"
</TABLE>
Section 8.2.20 of the Credit Agreement is hereby amended and restated
as follows:
"8.2.20 Fixed Charge Coverage Ratio.
The Borrower shall not at any time permit the Fixed
Charge Coverage Ratio to be less that the amount set
forth below for the four fiscal quarters then ended, as calculated at the end of
each fiscal quarter of the Borrower.
<TABLE>
<CAPTION>
Period Ratio
<S> <C> <C> <C> <C> <C> <C>
6/30/00 through 9/30/00 1.10 to 1.00
12/31/00 1.15 to 1.00
3/31/01 and thereafter 1.20 to 1.00"
</TABLE>
Section 8.2.21 of the Credit Agreement is hereby amended and restated
as follows:
"8.2.21 Rental Merchandise Usage.
The Loan Parties shall not permit the value of the Rental Merchandise other
than personal computers held for rental under rental contracts (but including in
the calculations made pursuant to this sentence personal computers held for
rental under rental-purchase contracts) under lease pursuant to Rental Contracts
to be less than (i) 70% of the total value of Rental Merchandise other than
personal computers held for rental under rental contracts (but including in the
calculations made pursuant to this sentence personal computers held for rental
under rental-purchase contracts), as measured at the fiscal quarter of the
Borrower ending June 30, 2000, and (ii) 75% of the total value of Rental
Merchandise other than personal computers held for rental under rental contracts
(but including in the calculations made pursuant to this sentence personal
computers held for rental under rental-purchase contracts), as measured at the
end of each fiscal quarter of the Borrower commencing September 30, 2000 and
thereafter. The Loan Parties shall not permit the value of the Rental
Merchandise comprised of personal computers held for rental under rental
contracts (but excluding from the calculations made pursuant to this sentence
personal computers held for rental under rental-purchase contracts) under lease
pursuant to Rental Contracts to be less than (i) 75% of the total value of
Rental Merchandise comprised of personal computers held for rental under rental
contracts (but excluding from the calculations made pursuant to this sentence
personal computers held for rental under rental-purchase contracts), as measured
at the fiscal quarter of the Borrower ending September 30, 2000, and (ii) 85% of
the total value of Rental Merchandise comprised of personal computers held for
rental under rental contracts (but excluding from the calculations made pursuant
to this sentence personal computers held for rental under rental-purchase
contracts), as measured at the end of each fiscal quarter of the Borrower
commencing December 31, 2000 and thereafter. For purposes of this Section
8.2.21, the value of the Rental Merchandise shall be as it is recorded on the
books and records of the Loan Parties, determined in accordance with GAAP and
the value of any jewelry shall be excluded from all calculations made. The Loan
Parties shall not permit the value of idle jewelry to exceed 7.5% of the total
value of Rental Merchandise, as measured at the end of each fiscal quarter of
the Borrower commencing June 30, 2000."
Section 11.1.1 of the Credit Agreement is hereby amended and restate
as follows:
"11.1.1 Increase of Commitment; Extension or Expiration Date.
With the exception of the Commitments provided by the Lenders on Amendment
No. 4 Closing Date and Commitments provided during the Syndications Period,
increase the amount of the Revolving Credit Commitment, the Term Loan A
Commitment or the Term Loan B Commitment of any Lender hereunder, provided
however, that no Commitment of a Lender may be increased without such Lender's
written consent, or extend the Expiration Date, the Term Loan A Maturity Date or
the Term Loan B Maturity Date. In addition to increases during the Syndications
Period, the Administrative Agent and the syndication agents, with the written
consent of the Borrower and the Co-Borrowers and written notice to the other
Lenders, may reallocate Term Loans B in an amount not to exceed $50,500,000 to
Revolving Credit Loans and Term Loans A; provided however, that no Term Loan B
Commitment of a Lender may be reallocated without such Lender's written consent;
Section 11.1.2 of the Credit Agreement is hereby amended and restated as
follows: "11.1.2 Extension of Payment; Reduction of Principal Interest or Fees;
Modification of Terms of Payment.
Whether or not any Loans are outstanding, extend the time for any regularly
scheduled payment (it is acknowledged that a mandatory prepayment of a Loan, and
any Commitment reduction in connection with such mandatory prepayment, is not a
"regularly scheduled payment" of such Loan) of principal or interest of any
Loan, the Commitment Fee or any other fee payable to any Lender, or reduce the
principal amount of or the rate of interest borne by any Loan or reduce the
Commitment Fee or any other fee payable to any Lender, or otherwise affect the
terms of any regularly scheduled payment of the principal of or interest of any
Loan, the Commitment Fee or any other fee payable to any Lender;"
New Lenders. Each Lender which was not previously a party to the Credit
Agreement hereby agrees that upon its execution of this Amendment it will become
a party to and be bound by the Credit Agreement as if it were an original Lender
thereunder and will have the rights and obligations of a Lender thereunder and
will perform in accordance with their terms all of the obligations which by the
terms of the Credit Agreement and the Loan Documents are required to be
performed by it as a Lender. Solvency. As of the date hereof and after giving
effect to the Revolving Credit Loans, Term Loans A and Term Loans B advanced on
the date hereof: (i) the fair value of the assets of the Borrower, the
Co-Borrowers and each of their Subsidiaries will exceed the total amount of
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) of the Borrower, the Co-Borrower and each of their Subsidiaries,
(ii) the present fair saleable value of the assets of the Borrower, the
Co-Borrowers and each of their Subsidiaries, on a going concern basis, will
exceed the probable total liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities) of the Borrower, the Co-Borrowers and
each of their Subsidiaries as they become absolute and matured, (iii) the
Borrower, the Co-Borrowers and each of their Subsidiaries will be able to pay
their respective debts, including contingent liabilities, as they mature and
become due, (iv) the Borrower, the Co-Borrowers and each of their Subsidiaries
is not, and will not be, engaged in a business for which its capital is, or
would be, unreasonably small, and (v) the Borrower, the Co-Borrowers and each of
their Subsidiaries has not incurred (by way of assumption or otherwise) any
obligation or liability (contingent or otherwise) under the Credit Agreement, or
any of the other Loan Documents to which it is a party, nor has it made any
conveyance pursuant to or in connection therewith, with actual intent to hinder,
delay or defraud either present or future creditors of the Borrower, the
Co-Borrowers or each of their Subsidiaries. Revised Schedule 1.1(A). Schedule
1.1(A) to the Credit Agreement is hereby amended and restated as set forth on
Schedule 1.1(A) attached to this Amendment No. 4 and made a part hereof. From
and after the date of this Amendment No. 4 and subject to the terms of the
Credit Agreement, the Loans, Commitment Fees and Letter of Credit Fees shall
bear interest or be determined, as the case may be, as set forth on Schedule
1.1(A) attached to this Amendment No. 4. Revised Schedule 1.1(B). Schedule
1.1(B) to the Credit Agreement is hereby amended and restated as set forth on
Schedule 1.1(B) attached to this Amendment No. 4 and made a part hereof Revised
Compliance Certificate. Exhibit 8.3.4 to the Credit Agreement is hereby amended
and restated as set forth on Exhibit 8.3.4 attached to this Amendment No. 4 and
made a part hereof. Conditions of Effectiveness of this Amendment and
Restatement. The effectiveness of this Amendment is expressly conditioned upon
satisfaction of each of the following conditions precedent: Representations and
Warranties; No Defaults. The representations and warranties of the Borrower and
the Co-Borrowers contained in Article 6 of the Credit Agreement shall be true
and accurate on the date hereof with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein), and the Borrower and the
Co-Borrowers shall have performed and complied with all covenants and conditions
hereof; no Event of Default or Potential Default under the Credit Agreement
shall have occurred and be continuing or shall exist. The execution by the
Borrower and the Co-Borrowers of this Amendment shall be deemed to be a
certification of all such matters as of the date hereof. Legal Details;
Counterparts. All legal details and proceedings in connection with the
transactions contemplated by this Amendment shall be in form and substance
satisfactory to the Administrative Agent. The Administrative Agent shall have
received counterparts of this Amendment duly executed by the Borrower, the
Co-Borrowers, the Guarantors and the Required Lenders, and the Administrative
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 Administrative Agent,
including without limitation, replacement Notes and a modification agreement to
the Mortgage to evidence that the increased Commitments are secured by the Real
Property. The Administrative Agent shall have received such officers' and
secretaries' certificates of the Loan Parties and opinions of counsel with
respect to this Amendment and the Loan Documents delivered pursuant hereto as
shall be satisfactory to the Administrative Agent. The Borrower shall pay or
cause to have been paid to the Administrative Agent and the Lenders to the
extent not previously paid the fees accrued through the date hereof and the cost
and expenses of the Administrative Agent and the Lenders which are reimbursable
under the Agreement, the Loan Documents or any related documents. This Amendment
may be executed by the parties hereto in any number of separate counterparts,
each of which when taken together and duly executed and delivered shall together
constitute one and the same instrument. Force and Effect. Except as expressly
modified by this Amendment, the Credit Agreement and the other Loan Documents
are hereby ratified and confirmed and shall remain in full force and effect
after the date hereof. By their execution and delivery of this Amendment, the
Guarantors acknowledge and agree that their respective obligations and
liabilities under the Guaranty Agreement extend to all Obligations of the
Borrower and the Co-Borrowers, or either one of them. The Loan Parties
acknowledge and agree that the Security Agreements previously executed by the
Loan Parties and all other Loan Documents, including without limitation, all
documents which grant liens and security interests in favor of the
Administrative Agent for the benefit of the Lenders, remain in full force and
effect and secure the joint and several Obligations of the Borrower and the
Co-Borrowers, and to the extent set forth in such Loan Documents, the other Loan
Parties. Governing Law. This Amendment shall be deemed to be a contract under
the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles. Effective Date. This Amendment shall be dated as of and shall be
effective as of the date and year first above written, which date shall be the
date of the satisfaction of all conditions precedent to effectiveness set forth
in this Amendment.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.1(A)
PRICING GRID
------------------------------------------------------------------------------------------------------------------------------------
Revolving Credit Revolving Credit
Leverage Ratio and Term Loan A and Term Loan A Term Loan B Term Loan B
Level Euro-Rate Spread Base Rate Spread Euro-Rate Base Rate Commitment Fee*
----- and Letter of Spread Spread rate
Credit Fee
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I Less than 2.0 to 1.0 1.750% 0.250% 3.500% 2.000% .375%
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
II Equal to or greater than 2.0 2.000% 0.500% 3.500% 2.000% .375%
to 1.0 but less than 2.5 to
1.0
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
III Equal to or greater than 2.5 2.375% 0.875% 3.500% 2.000% .375%
to 1.0 but less than 3.0 to
1.0
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
IV** Equal to or greater than 3.0 2.750% 1.250% 3.500% 2.000% .500%
to 1.0
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Applicable Margin, Applicable Commitment Fee Rate and Letter of
Credit Fee shall be adjusted, and any increase or decrease therein shall become
effective on the first day of each month following the due date for the delivery
of each Compliance Certificate in the form of Exhibit 8.3.4, based on the
Leverage Ratio as calculated in such Compliance Certificate.
* For each day in a period when the Revolving Facility Usage is less
than one half (1/2) of the aggregate amount of the Revolving Credit Commitments,
the Applicable Commitment Fee Rate used to calculate the Commitment Fees in
accordance with Section 2.3 shall be one and one-half times the amount set forth
in the Pricing Grid.
** The default rate in Section 4.3 may increase these interest rates.
