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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
MAY 28, 1998
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RENTERS CHOICE, INC.
(Exact name of registrant as specified in charter)
DELAWARE 0-25370 48-1024367
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
13800 MONTFORT DRIVE
SUITE 300
DALLAS, TEXAS 75240
(Address of Principal Executive Offices) (Zip Code)
(214) 701-0489
(Registrant's telephone
number, including area code)
NO CHANGE
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OF ASSETS
On May 28, 1998, the Registrant purchased substantially all of
the assets of Central Rents, Inc. used in or related to the
operation of 176 rent-to-own stores (the "Stores") for
approximately $103 million pursuant to that certain Asset
Purchase Agreement, dated May 1, 1998, by and among the
Registrant, Central Rents, Inc. ("Central"), Central Rents
Holding, Inc. ("Holdings") and Banner Holdings, Inc.
("Banner"), as amended by that certain Letter Agreement, dated
as of May 26, 1998, by and among the Registrant, Central,
Holdings and Banner (collectively, the "Asset Purchase
Agreement").
Pursuant to the Asset Purchase Agreement, the Registrant paid
the purchase price in cash. The Registrant also assumed
certain liabilities related to the assets acquired. The total
purchase price and structure of the consideration paid was
determined by negotiation between the Registrant, Central,
Holdings and Banner. The source of the cash consideration was
the proceeds from an advance under the Registrant's revolving
credit facility with Comerica Bank, N.A., as agent. Prior to
commencing negotiation of the Asset Purchase Agreement, there
was no material relationship between (i) the Registrant, any
of its affiliates, any of its officers or directors, or any
associate of such officers and directors, and (ii) Central,
Holdings, Banner, any affiliates of Central, Holdings or
Banner, any of the officers or directors of Central, Holdings
or Banner or any associate of such officers and directors.
The Registrant intends to continue operating the Stores as
rent-to-own stores. The Stores are located in 20 states and
generate approximately $100 million in annual revenue.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The required financial statements are not available as of the
date hereof. Such financial statements will be filed as an
amendment to this Report as soon as practicable, but in no
event later than sixty (60) days following the date hereof.
(b) PRO FORMA FINANCIAL INFORMATION.
The required pro forma financial information is not available
as of the date hereof. Such pro forma financial information
will be filed as an amendment to this Report as soon as
practicable, but in no event later than sixty (60) days
following the date hereof.
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(c) EXHIBITS
2.1 Asset Purchase Agreement, dated May 1, 1998, by and among the
Registrant, Central Rents, Inc., Central Rents Holding, Inc.
and Banner Holdings, Inc.
2.2 Letter Agreement, dated as of May 26, 1998, by and among the
Registrant, Central Rents, Inc., Central Rents Holding, Inc.
and Banner Holdings, Inc. with respect to Exhibit 2.1
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RENTERS CHOICE, INC.
DATE: June 11, 1998 BY: /s/ J. Ernest Talley
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J. Ernest Talley
Chief Executive Officer
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EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
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2.1 Asset Purchase Agreement, dated May 1, 1998, by and among the
Registrant, Central Rents, Inc., Central Rents Holding, Inc.
and Banner Holdings, Inc.
2.2 Letter Agreement, dated as of May 26, 1998, by and among the
Registrant, Central Rents, Inc., Central Rents Holding, Inc.
and Banner Holdings, Inc. with respect to Exhibit 2.1
</TABLE>
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
by and among
RENTERS CHOICE, INC.,
CENTRAL RENTS, INC.,
CENTRAL RENTS HOLDING, INC. AND
BANNER HOLDINGS, INC.
May 1, 1998
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TABLE OF CONTENTS
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ARTICLE 1
SALE AND PURCHASE OF ASSETS....................................................................... 1
1.1 Assets ............................................................................... 1
1.2 Excluded Assets.............................................................................. 3
1.3 Acquisition of Assets by Acquiror............................................................ 4
1.4 Allocation of Purchase Price................................................................. 4
1.5 Assumption of Liabilities by Acquiror........................................................ 5
1.6 Closing ............................................................................... 6
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR ................................................... 6
2.1 Organization ............................................................................... 6
2.2 Authority Relative to this Agreement......................................................... 6
2.3 Consents and Approvals; No Violations........................................................ 6
2.4 Broker's Fees ............................................................................... 7
2.5 Financing. ............................................................................... 7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................... 7
3.1 Organization ............................................................................... 7
3.2 Certain Corporate Matters.................................................................... 7
3.3 Authority Relative to this Agreement......................................................... 8
3.4 Note Repurchase.............................................................................. 8
3.5 Stockholder Consent.......................................................................... 8
3.6 Consents and Approvals; No Violations........................................................ 8
3.7 SEC Documents; Financial Statements; Liabilities............................................. 9
3.8 Events Subsequent to Financial Statements.................................................... 10
3.9 INTENTIONALLY OMITTED........................................................................ 10
3.10 Property..................................................................................... 10
3.11 Tangible Property............................................................................ 11
3.12 Inventory.................................................................................... 11
3.13 Rental Purchase Agreements................................................................... 11
3.14 Licenses and Permits......................................................................... 12
3.15 Assets Necessary to the Business............................................................. 12
3.16 Books and Records............................................................................ 12
3.17 Product Liability............................................................................ 12
3.18 Questionable Payments........................................................................ 12
3.19 Environmental Matters........................................................................ 12
3.20 Motor Vehicles and Equipment................................................................. 13
3.21 Ordinances, Regulations and Condition of Stores.............................................. 13
3.22 Intellectual Property........................................................................ 13
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TABLE OF CONTENTS
(Continued)
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3.23 Insurance.................................................................................... 13
3.24 Assumed Contracts............................................................................ 14
3.25 Litigation................................................................................... 14
3.26 Employees.................................................................................... 14
3.27 Employee Benefit Plans....................................................................... 14
3.28 Legal Compliance............................................................................. 15
3.29 Broker's Fees................................................................................ 15
3.30 Storage Unit Leases.......................................................................... 15
ARTICLE 4
PRE-CLOSING COVENANTS............................................................................. 15
4.1 HSR Act; Cooperation and Best Efforts........................................................ 15
4.2 Interim Operations of the Company............................................................ 16
4.3 No Solicitations............................................................................. 17
4.4 Press Releases............................................................................... 18
4.5 Access to Information and Confidentiality.................................................... 18
4.6 Notice of Developments....................................................................... 19
4.7 Reasonable Efforts; Consents, Approvals and Waivers.......................................... 19
4.8 Tax Matters ............................................................................... 19
4.9 Open Inventory Contracts..................................................................... 20
4.10 Trade Payables............................................................................... 20
4.11 Advertising.................................................................................. 20
4.12 Store Leases................................................................................. 20
4.13 Certain Inventory............................................................................ 20
ARTICLE 5
CLOSING CONDITIONS................................................................................ 21
5.1 Conditions to Obligation of all Parties...................................................... 21
5.2 Conditions to the Acquiror's Obligations..................................................... 21
5.3 Conditions to the Company's Obligations...................................................... 23
ARTICLE 6
POST-CLOSING COVENANTS............................................................................ 24
6.1 Inventory and FF&E Schedules................................................................. 24
6.2 Adjustment for Rental Merchandise Value...................................................... 24
6.3 License to Use Name.......................................................................... 26
6.4 Trade Payables............................................................................... 27
6.5 Non-Store Vehicles........................................................................... 27
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TABLE OF CONTENTS
(Continued)
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6.6 MIS Employees and Software................................................................... 28
6.7 INTENTIONALLY OMITTED........................................................................ 28
6.8 Apportionment ............................................................................... 28
6.9 Employees ............................................................................... 28
6.10 INTENTIONALLY OMITTED........................................................................ 28
6.11 Leasehold Deposits........................................................................... 29
6.12 Access to Headquarters Office................................................................ 29
6.13 Licenses for Use of Software................................................................. 29
ARTICLE 7
TERMINATION....................................................................................... 29
7.1 Termination by Mutual Consent................................................................ 30
7.2 Termination by Either the Acquiror or the Company............................................ 30
7.3 Termination by the Company................................................................... 30
7.4 Termination by the Acquiror.................................................................. 30
7.5 Effect of Termination and Abandonment........................................................ 30
ARTICLE 8
INDEMNIFICATION................................................................................... 30
8.1 Survival of Representations and Warranties. ................................................ 30
8.2 Indemnification by Holdings and Banner....................................................... 31
8.3 Indemnification by the Acquiror.............................................................. 32
8.4 Method of Asserting Claims, Etc.............................................................. 32
8.5 Limitations on Indemnification............................................................... 33
8.6 Exclusive Remedy............................................................................. 34
ARTICLE 9
GENERAL PROVISIONS................................................................................ 34
9.1 Fees of Investment Banker.................................................................... 34
9.2 Expenses ............................................................................... 34
9.3 Notices ............................................................................... 34
9.4 Interpretation............................................................................... 36
9.5 Severability ............................................................................... 36
9.6 Miscellaneous ............................................................................... 36
9.7 GOVERNING LAW ............................................................................... 36
9.8 Counterparts ............................................................................... 36
9.9 No Consequential Damages..................................................................... 36
ARTICLE 10
DEFINED TERMS..................................................................................... 37
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TABLE OF EXHIBITS AND SCHEDULES
EXHIBITS
EXHIBIT A Form of Bill of Sale, Assignment and Assumption Agreement
EXHIBIT B Form of Escrow Agreement
EXHIBIT C Form of Opinion of Counsel to the Company
EXHIBIT D Form of Non-Competition and Non-Solicitation Agreement
EXHIBIT E Form of Opinion of Counsel to the Acquiror
EXHIBIT F Form of Note Repurchase Agreement
SCHEDULES
SCHEDULE 1.1(f) Motor Vehicles Owned
SCHEDULE 1.1(g) Motor Vehicle Leases
SCHEDULE 1.1(h) Equipment Leases
SCHEDULE 1.1(j) Store Leases
SCHEDULE 1.1(o) Service Contracts
SCHEDULE 1.1(q) GECC Purchase Order
SCHEDULE 1.4 Purchase Price Allocation
SCHEDULE 1.2 Excluded Assets
SCHEDULE 2.3 Consents and Approvals
SCHEDULE 3.2 Jurisdictions in which the Company Operates
SCHEDULE 3.6 Consents and Approvals
SCHEDULE 3.7 Undisclosed Liabilities
SCHEDULE 3.8 Material Changes
SCHEDULE 3.10 Real Property
SCHEDULE 3.11 Liens
SCHEDULE 3.12 Inventory
SCHEDULE 3.13 Rental Purchase Agreements
SCHEDULE 3.14 Licenses and Permits
SCHEDULE 3.17 Product Liability
SCHEDULE 3.20 Motor Vehicles and Equipment
SCHEDULE 3.21 Leased Facilities
SCHEDULE 3.22 Intellectual Property
SCHEDULE 3.23 Insurance
SCHEDULE 3.24 Defaults under Assumed Contracts
SCHEDULE 3.25 Litigation
SCHEDULE 3.26 Employees
SCHEDULE 3.27 Employee Benefit Plans
SCHEDULE 3.28 Legal Compliance
SCHEDULE 4.2 Interim Operations of the Company
SCHEDULE 5.2(c) Consents Included as Conditions to Closing
SCHEDULE 5.3(h) Indemnity Obligations
SCHEDULE 6.6 MIS Employees
SCHEDULE 6.11 Prepaid Lease Deposits
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT, dated as of May 1, 1998 (this
"Agreement"), is by and among RENTERS CHOICE, INC., a Delaware corporation (the
"Acquiror"), CENTRAL RENTS, INC., a Delaware corporation (the "Company"),
CENTRAL RENTS HOLDING, INC., a Delaware corporation ("Holdings"), and BANNER
HOLDINGS, INC., a Delaware corporation ("Banner").
RECITALS
WHEREAS, the Company is engaged in the business of renting-to-own
consumer household durable goods, including televisions, video cassette
recorders, stereos, appliances, furniture, accessories and other like
merchandise to the public;
WHEREAS, the parties desire to enter into a transaction in which the
Acquiror will purchase (the "Acquisition") substantially all of the assets of
the Company used in, or related to, the operation of the 176 rent-to-own stores
(the "Business") at each location listed on Schedule 1.1(j) attached hereto
(collectively, the "Stores" and individually, a "Store"), upon the terms and
conditions set forth herein; and
WHEREAS, Holdings is the majority shareholder of the Company, and
Banner is the sole shareholder of Holdings.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the parties hereto
agree as follows:
ARTICLE 1
SALE AND PURCHASE OF ASSETS
1.1 Assets. Subject to the terms and conditions of this Agreement, on
the Closing Date (hereinafter defined), the Company shall sell, convey,
transfer, assign and deliver to the Acquiror, and the Acquiror shall accept and
purchase all of the Company's right, title and interest in and to all of the
assets used in, or related to, the Business, other than the Excluded Assets
(hereinafter defined) (collectively, the "Assets"). The Assets shall include,
without limitation, the following:
(a) All customer lease contracts, including any
rent-to-own, lease-purchase and rent-to-rent
contracts (the "Rental Purchase Agreements") relating
to the Business conducted at the Stores, including
all of the Company's rights under such Rental
Purchase Agreements;
(b) All products on rent pursuant to the Rental Purchase
Agreements;
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(c) Any information pertaining to the Rental Purchase
Agreements;
(d) Subject to Section 4.13, all idle inventory (defined
as inventory in the Stores or being serviced or
repaired and not on rent pursuant to a Rental
Purchase Agreement as of the Closing) and supplies in
the Stores;
(e) Except for those items of equipment, fixtures and
office furniture listed on Schedule 1.2, all
equipment, fixtures and office furniture which are
located within the Stores, as described on the
Company's FF&E report, a copy of which has been
provided to the Acquiror;
(f) All motor vehicles which are owned by the Company and
used by the Company in connection with the Business
as set forth on Schedule 1.1(f) attached hereto;
(g) Subject to Section 6.5 of this Agreement, all of the
motor vehicle leases (the "Motor Vehicle Leases")
listed on Schedule 1.1(g) attached hereto;
(h) Subject to Section 1.2(c), all of the equipment
leases (the "Equipment Leases") listed on Schedule
1.1(h) attached hereto;
(i) Except as set forth in Section 1.2 or as referenced
in Section 1.2 hereof, all books and records of the
Company relating to the Business, including, but not
limited to (i) all original Assumed Contracts
(hereinafter defined), (ii) all original books and
records of account and other financial records
relating to the Assets which are located at the
Stores, (iii) all catalogues, brochures, advertising
materials, forms of Rental Purchase Agreements and
similar sales or marketing materials currently used
by the Company, (iv) all price lists, customer lists
and correspondence, supplier lists and
correspondence, mailing lists, credit records and
correspondence and similar lists and correspondence
for the three (3) year period ending on the Closing
Date, (v) all manuals pertaining to materials,
operations, maintenance and similar matters and (vi)
all records or lists pertaining to supply,
distribution, transportation, administration and
similar matters;
(j) The real estate leases related to the locations of
the Stores (the "Store Leases") listed on Schedule
1.1(j) attached hereto;
(k) That certain lease agreement relating to the real
property located at 3029 Dixie Highway, Suite 201,
Edgewood, Kentucky 41017 (the "Eastern Zone Office")
and the equipment, fixtures and office furniture
located at such property;
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(l) All Company Registered Intellectual Property
(hereinafter defined) listed on Schedule 3.22
attached hereto;
(m) Agreements of the Company to lease storage units, as
described on the Company's rent roll report, a copy
of which has been provided to the Acquiror (the
"Storage Unit Leases");
(n) Agreements of the Company to purchase inventory for
the Stores that were entered into in the ordinary
course of business and are open and unfulfilled as of
the Closing Date, to the extent that such agreements
are not-cancelable by the Company using its best
efforts without cost or liability to the Company
between the date hereof and the Closing (the "Open
Inventory Contracts");
(o) Except for those services agreements listed on
Schedule 1.2, and subject to Section 1.2(c), the
agreements for the provision of services to the
Company that were entered into in the normal course
of business as described on Schedule 1.1(o) attached
hereto (the "Service Contracts" and together with the
Rental Purchase Agreements, the Motor Vehicle Leases,
the Store Leases, the Storage Unit Leases, the Open
Inventory Contracts and the Equipment Leases, the
"Assumed Contracts") with such Service Contracts that
are not cancelable by the Company on 30 days or less
notice specifically identified on such Schedule
1.1(o);
(p) Cash in an amount equal to the aggregate of all
deposits made by customers pursuant to special
rent-to-own orders placed at the Stores;
(q) The vehicles ordered under the terms of that certain
Motor Vehicle Lease with General Electric Capital
Corporation ("GECC") pursuant to a purchase order
(the "GECC Purchase Order") which are to be delivered
either before or after the Closing, with a copy of
the vehicle order status for the GECC Purchase Order
attached hereto as Schedule 1.1(q); and
(r) The Company's TIRM Software and Rental Partners
Software.
1.2 Excluded Assets. The Company will retain and will not sell or
transfer to the Acquiror and the Acquiror will not purchase or acquire, the
following assets (collectively, the "Excluded Assets"):
(a) the assets listed on Schedule 1.2 attached hereto and all
books, records and other information relating solely thereto;
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(b) the Company's corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with registered agents
relating to foreign qualifications, taxpayer and other identification
numbers, seals, minute books, stock transfer books and other documents
relating to the organization, maintenance and existence of the Company
and all original books and records of account and other financial
records, except as otherwise provided in Section 1.1(i); provided that,
to the extent allowed by applicable law, the Acquiror shall be
permitted to review and, at the Acquiror's expense, copy such books and
records retained by the Company to the extent relevant to the Business;
and
(c) the contracts identified in Items 1-3 of Schedule 1.1(h),
and Items 1(c) and 2 of Schedule 1.1(o) but only to the extent that
such contracts are not terminable on 30 days' or less notice and the
Company has not provided the Acquiror with copies of such contracts
prior to the Closing. If copies of such contracts that are not
terminable on 30 days' or less notice are not provided to the Acquiror
prior to the Closing and accordingly become "Excluded Assets" hereunder
(x) all references in the representations and warranties of the Company
made in this Agreement relating to the Equipment Leases, the Service
Contracts and the Assumed Contracts shall exclude such contracts; and
(y) while such contracts shall be "Excluded Assets" and not assigned to
or assumed by the Acquiror hereunder, to the extent the Acquiror
accepts any services or performance pursuant to such contracts after
the Closing, the Acquiror shall promptly reimburse the Company for such
service or performance.
1.3 Acquisition of Assets by Acquiror. At the Closing, the Company and
the Acquiror shall enter into a Bill of Sale, Assignment and Assumption
Agreement in the form attached hereto as Exhibit A (the "Assignment and
Assumption Agreement"), and all such other assignments, endorsements and
instruments of transfer as shall be necessary or appropriate to carry out the
intent of this Agreement and as shall be sufficient to vest in the Acquiror
good, valid and marketable title to all of the Assets and all right, title and
interest of the Company thereto. Subject to the terms and conditions hereof and
in consideration of the sale, transfer, assignment and delivery of the Assets by
the Company to the Acquiror, the Acquiror hereby agrees that as of the Closing
Date it will acquire and accept all of the Company's right, title and interest
in and to the Assets, and shall pay to the Company an aggregate amount of
$102,400,000 plus an amount equal to the aggregate amount of petty cash located
at the Stores on the Closing Date (provided that such amount shall not exceed
$18,000) (the "Purchase Price"), of which $97,400,000 (the "Closing Date
Payment") shall be paid by the Acquiror to the Company, or, at the Company's
direction, on behalf of the Company directly to the Company's creditors, by wire
transfer of immediately available funds on the Closing Date, and the balance of
which shall be deposited into an escrow account to be held in escrow and
disbursed in accordance with the terms and conditions of the escrow agreement
(the "Escrow Agreement") to be entered into among the Company, the Acquiror and
the escrow agent named therein (the "Escrow Agent") in substantially the form of
Exhibit B attached hereto.
1.4 Allocation of Purchase Price. The Company and the Acquiror hereby
agree that, for all accounting and foreign, federal, state and local tax
reporting purposes, the Purchase Price
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shall be allocated in accordance with the relative fair market values of the
Assets, according to the principles as set forth on Schedule 1.4 hereto with
such Schedule to be updated as soon as practicable after the Closing to reflect
changes in the gross and net book value of the Assets between the date hereof
and the Closing Date. The Company and the Acquiror agree to work and cooperate
with each other in complying with the provisions of Section 1060 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder.
Without limiting the generality of the preceding sentence, the Company and the
Acquiror agree to coordinate the preparation and filing of their respective
asset acquisition statements on Form 8594, Asset Acquisition Statement under
Section 1060 ("Form 8594"), and, if required by Section 1060 of the Code or the
regulations thereunder, their respective supplemental asset acquisition
statements on Form 8594 so that the information reflected on such forms shall be
consistent.
1.5 Assumption of Liabilities by Acquiror.
(a) Notwithstanding anything to the contrary contained in this
Agreement, the Acquiror will not assume, pay, perform or discharge any
debt, liability or contract of the Company, of any kind or character
whatsoever (whether written or oral, existing, contingent or inchoate),
except for the liabilities identified in paragraph (b) of this Section
1.5.
(b) On the Closing Date, the Acquiror shall assume (i) any and
all liabilities or obligations of any kind or nature, whether absolute,
contingent, accrued, known or unknown arising under, accruing, or
relating to periods, events or circumstances after the Closing which
arise under, relate to or are in connection with the Assets, or the
ownership, use, possession, enjoyment or operation thereof (including,
without limitation, with respect to the Assumed Contracts); (ii) any
and all liabilities or obligations of the Company with respect to the
payment for and receipt of inventory delivered after the Closing which
arise under, relate to or are in connection with the Open Inventory
Contracts; (iii) any and all liabilities or obligations to repair or
service products on rent pursuant to the Rental Purchase Agreements
which arise before or after the Closing; (iv) any and all liabilities
or obligations of the Company in connection with deposits made by
customers pursuant to special rent-to-own orders placed at the Stores;
and (v) any and all liabilities or obligations of the Company with
respect to the payment for and receipt of the vehicles ordered pursuant
to the GECC Purchase Order which will be delivered either before or
after the Closing (collectively, the "Assumed Liabilities"). The
Acquiror and the Company shall enter into the Assignment and Assumption
Agreement with respect to the Assumed Liabilities. It is expressly
understood and agreed that the Acquiror shall assume only the Assumed
Liabilities and, except for the Assumed Liabilities, shall not assume
or have any responsibility with respect to any other obligation or
liability of the Company of any kind or nature whatsoever not
specifically included within the definition of Assumed Liabilities,
including but not limited to: (s) except as provided in paragraph (iii)
above, any liabilities or obligations of the Company arising prior to
the Closing Date as a result of any express or implied warranty
relating to products or services, (t) except as provided in paragraphs
(ii), (iii), (iv) and (v) above, any liabilities and obligations of the
Company under the
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Assumed Contracts arising prior to the Closing Date, (u) any
liabilities or obligations arising out of any contract or agreement of
the Company or by which the Company or the Excluded Assets are bound
that is not part of the Assets transferred hereunder, including any
sales commission agreements, (v) except as provided in paragraphs (ii),
(iii), (iv) and (v) above, any accounts payable, trade payables,
salaries, bonuses or accrued expenses of the Company, including,
without limitation any expenses related to products or receivables that
are not part of the Assets transferred hereunder, (w) any liabilities
or obligations arising out of actions taken, work done or contracts
entered into by the Company after the Closing Date, (x) except as
provided in Section 9.1 hereof, any liabilities or obligations of, or
expenses owed by, the Company for any brokerage or finder's commission
relating to this Agreement or any of the transactions contemplated
hereby, (y) any liabilities for any taxes that may become payable by
the Company in respect of the sale of the Assets, or (z) any
liabilities or obligations arising out of currently pending litigation
against the Company.
1.6 Closing. The closing of the Acquisition (the "Closing") shall take
place at 9:00 a.m., Pacific Time, at the offices of O'Melveny & Myers LLP, 400
South Hope Street, Los Angeles, California 90071 as soon as reasonably
practicable thereafter as the conditions set forth in Article 5 hereof have been
satisfied or waived (the date on which the Closing occurs being herein referred
to as the "Closing Date").
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
The Acquiror represents and warrants to Banner, Holdings and the
Company as follows:
2.1 Organization. The Acquiror is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation, and
has the requisite corporate power to carry on its business as now conducted.
2.2 Authority Relative to this Agreement. The Acquiror has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery and performance of this Agreement
by the Acquiror and the consummation by the Acquiror of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Acquiror and no other corporate action on the part of the Acquiror is necessary
to authorize this Agreement or the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Acquiror and
constitutes a valid and binding agreement of the Acquiror, enforceable against
the Acquiror in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
2.3 Consents and Approvals; No Violations. Except for applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), no filing with, and no
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permit, authorization, consent or approval of, any public body or authority is
necessary for the consummation by the Acquiror of the transactions contemplated
by this Agreement. Except as set forth on Schedule 2.3 hereto, neither the
execution and delivery of this Agreement by the Acquiror nor the consummation by
the Acquiror of the transactions contemplated hereby, nor compliance by the
Acquiror with any of the provisions hereof, will require any consent or approval
of any third party, or result in a material violation or breach of, or
materially conflict with or constitute a material default (or an event that,
with notice or lapse of time or both, would constitute a material default)
under, or permit the termination of, or result in the creation or imposition of
any lien, charge or encumbrance upon any properties, assets or business of the
Acquiror under any note, bond, indenture, mortgage, deed of trust, lease,
franchise, permit, authorization, license, contract, instrument or other
agreement or commitment or any order, judgment or decree to which, the Acquiror
is a party or by which the Acquiror or any of its assets or properties are bound
or encumbered, except those that have already been given, obtained or filed, all
as set forth on Schedule 2.3 hereto. Neither the execution and delivery of this
Agreement by the Acquiror, nor the consummation by the Acquiror of the
transactions contemplated hereby, nor compliance by the Acquiror with any of the
provisions hereof, will (i) conflict with or result in any breach of any
provisions of the Certificate of Incorporation or Bylaws of the Acquiror, or
(ii) violate in any material respect any existing judgment, order, writ,
injunction, decree, statute, rule or regulation applicable to the Acquiror or
any of its properties or assets.
2.4 Broker's Fees. Neither the Acquiror, nor anyone on its behalf, has
any liability to any broker, finder, investment banker (other than
Robinson-Humphrey Company, Inc.) or similar agent, or has agreed to pay any
brokerage fees, finder's fees or commissions (except to Robinson-Humphrey
Company, LLC), or to reimburse any expenses of any broker, finder, investment
banker (other than Robinson-Humphrey Company, Inc.) or agent in connection with
the Acquisition.
2.5 Financing. The Acquiror has received binding commitment letters
from Comerica Bank, N.A. ("Comerica") and other current and prospective members
of the Acquiror's bank group pursuant to which such parties have agreed to
provide the Acquiror with a loan to be funded on the Closing Date in an amount
sufficient to finance (i) the Purchase Price, and (ii) the payments required to
be made by the Acquiror under the Non-Competition and Non-Solicitation Agreement
(hereinafter defined). True and correct copies of such binding commitment
letters (the "Commitment Letters") have been provided to Holdings and the
Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Each of the Company, Holdings and Banner hereby jointly and severally
represents and warrants to the Acquiror as follows:
3.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the requisite corporate power to carry on its business as now conducted.
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3.2 Certain Corporate Matters. Except as set forth on Schedule 3.2, the
Company is duly licensed or qualified to do business as a foreign corporation
and is in good standing in each jurisdiction specified on Schedule 3.2 hereto,
which is every jurisdiction in which the character of the Company's properties
or nature of the Company's business requires it to be so licensed or qualified
other than such jurisdictions in which the failure to be so licensed or
qualified would not have a material adverse effect on its financial condition,
results of operations or business. The Company has full corporate power and
authority and all material authorizations, licenses and permits necessary to
carry on the Business. The Company has delivered to the Acquiror true, accurate
and complete copies of its Certificate of Incorporation and Bylaws, which
reflect all amendments made thereto at any time prior to the date of this
Agreement. The Company is not in default under or in violation of any provision
of its Certificate of Incorporation or Bylaws. To the best of its knowledge and
except as set forth on Schedule 3.2, the Company is not in material default or
in material violation of any restriction, Lien, encumbrance, indenture,
contract, lease, sublease, loan agreement, note or other obligation or liability
to which the Assets are subject.
3.3 Authority Relative to this Agreement. The Company has the corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly authorized by the Company's Board
of Directors and stockholders, and no other corporate action on the part of the
Company is necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, assuming due execution and delivery by the Acquiror, constitutes
the valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general principles of equity.
3.4 Note Repurchase. The Company has entered into a binding option
agreement in the form of Exhibit F attached hereto (each a "Note Repurchase
Agreement" and collectively the "Note Repurchase Agreements") with each
beneficial holder (a "Noteholder") of the Company's 12-7/8% Series B Senior
Notes due 2003 (the "Notes") to retire the Notes at a price of 103% of the
principal amount plus all accrued and unpaid interest thereon. An executed copy
of each Note Repurchase Agreement has been delivered to the Acquiror.
3.5 Stockholder Consent. Holdings has executed a stockholder consent
(the "Consent") authorizing the execution and delivery by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
by this Agreement. An executed copy of the Consent has been delivered to the
Acquiror. Holdings shall not take any action to amend, modify or rescind the
Consent.
3.6 Consents and Approvals; No Violations.
(a) Except for applicable requirements of the HSR Act and as
set forth on Schedule 3.6 hereto, no filing with, and no permit,
authorization, consent or approval of,
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any public body or authority is necessary for the consummation by the
Company, Holdings or Banner of the transactions contemplated by this
Agreement.
(b) Except as otherwise provided on Schedule 3.6 hereto,
neither of the execution and delivery of this Agreement by the Company,
Holdings or Banner, nor the performance by the Company, Holdings or
Banner of their respective obligations hereunder nor the consummation
of the transactions contemplated hereby by the Company, Holdings or
Banner will require any consent or approval of any third party, or (x)
result in the imposition of any Lien against any Asset; (y) or result
in a material violation or material breach of, or materially conflict
with or constitute a material default (or an event that, with notice or
lapse of time or both, would constitute a material default) under an
Assumed Contract; or (z) permit the termination of any Assumed
Contract. Neither the execution and delivery of this Agreement by the
Company, Holdings or Banner, nor the consummation by the Company,
Holdings or Banner of the transactions contemplated hereby, nor
compliance by the Company, Holdings or Banner with any of the
provisions hereof, will (i) conflict with or result in any breach of
any provisions of the Certificate of Incorporation or Bylaws of the
Company, Holdings or Banner or (ii) violate in any material respect any
existing judgment, order, writ, injunction, decree, statute, rule or
regulation applicable to the Company, Holdings or Banner or any of the
Assets.
3.7 SEC Documents; Financial Statements; Liabilities.
(a) The Company has filed all reports, schedules, forms,
statements and other documents required to be filed with the SEC
pursuant to the Exchange Act since October 1994 (the "Company SEC
Documents"). Except to the extent that information contained in any
Company SEC Document has been superseded by a later filed Company SEC
Document, none of the Company SEC Documents, as of their respective
dates and insofar as they pertain to the Business, contained, any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The consolidated balance sheets and related consolidated
statements of income, stockholders' equity and cash flows, and the
related notes of the Company as of and for the years ended December 31,
1997, 1996 and 1995 and the period June 4, 1994 through December 31,
1994 (the "Company Audited Financial Statements") have been audited by
Arthur Andersen LLP, independent accountants, in accordance with
generally accepted auditing standards. The Company's internally
prepared consolidated balance sheet and related consolidated statement
of income and cash flows as of the three (3) month period ended March
31, 1998 (the "Company Internal Financial Statements") have been
prepared by the Company in accordance with the past practices of the
Company applied on a basis consistent with the Company Audited
Financial Statements, except that the Company Internal Financial
Statements do not contain notes and may be subject to normal annual
adjustments. The Company Audited Financial Statements and all interim
financial
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statements included in the Company SEC Documents (the "Company Interim
Financial Statements") have been or, with respect to the Company
Interim Financial Statements, will be prepared in accordance with
United States generally accepted accounting principles applied on a
basis consistent with prior periods, and present fairly the financial
position of the Company at such dates and the results of operations and
cash flows for the periods then ended, except, in the case of the
Company Interim Financial Statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC. The Company Interim Financial Statements
will reflect all adjustments (consisting only of normal, recurring
adjustments) that are necessary for a fair statement of the results for
the interim periods presented therein. Except as set forth in the
Company Audited Financial Statements or on Schedule 3.7 hereto, the
Assets are not subject to any liability, commitment, debt or obligation
(of any kind whatsoever whether absolute or contingent, accrued, fixed,
known or unknown, matured or unmatured) ("Undisclosed Liabilities"),
except (i) as may have been incurred or may have arisen since December
31, 1997 in the ordinary course of business, or (ii) that, individually
or in the aggregate, have not had and are not reasonably likely to have
a material adverse effect on the Assets, taken as a whole.
3.8 Events Subsequent to Financial Statements. Except as disclosed in
the Company Audited Financial Statements or on Schedule 3.8 hereto, since
December 31, 1997, there has not been:
(a) Any sale, lease, transfer, license or assignment of any
assets, tangible or intangible, of the Company, other than in the
ordinary course of business;
(b) Any damage, destruction or property loss, whether or not
covered by insurance, affecting adversely and materially the Assets;
(c) Any subjection to any Lien on any of the Assets (other
than Permitted Liens (hereinafter defined));
(d) Any incurrence of indebtedness or liability or assumption
of obligations by the Company relating to the Assets other than (i)
those incurred in the ordinary course of business, and (ii) those
incurred in the course of negotiating, documenting and consummating the
transactions contemplated by this Agreement;
(e) Any cancellation or compromise by the Company of any
material debt or claim relating to the Assets, except for adjustments
made in the ordinary course of business which, in the aggregate, are
not material;
(f) Any waiver or release by the Company of any right of any
material value relating to the Assets;
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(g) Any sale, assignment, transfer or grant by the Company of
any rights under the Assumed Contracts, except in the ordinary course
of business; or
(h) Any action or failure to take any action that would result
in the occurrence of any of the foregoing.
3.9 INTENTIONALLY OMITTED.
3.10 Property. The Company does not own, directly or indirectly, any
fee interest in real property used in the Business. Set forth on Schedule 1.1(j)
is a complete and accurate list of each Company location where real property
used in the Business is leased by the Company, except for (i) the real property
located at (x) 8548 Van Nuys Boulevard (Store #348), Panorama City, California
91402, (y) 5480 E. Ferguson Drive, Commerce, California 90022 and (z) 3029 Dixie
Highway, Suite 201, Edgewood, Kentucky 41017 and (ii) the Storage Units leased
pursuant to the Storage Unit Leases. With respect to each Store Lease, except as
set forth on Schedule 3.10, (a) the Store Lease has been validly executed and
delivered by the Company and, to the knowledge of the Company, by the other
party or parties thereto and is a binding agreement; (b) the Company is not and
to the Company's knowledge, no other party to the Store Lease is in material
breach or material default, and, no event has occurred on the part of the
Company or, to the Company's knowledge, on the part of any other party which,
with notice or lapse of time, would constitute such a breach or default or
permit termination, modification or acceleration under the Store Lease; (c) the
Store Lease will continue to be binding in accordance with its terms following
the Closing Date; (d) the Company has not repudiated and, to the Company's
knowledge, no other party to the Store Lease has repudiated any provision
thereof; (e) there are no material disputes, oral agreements or delayed payment
programs in effect as to the Store Lease; and (f) all facilities leased under
the Store Leases, taken as a whole, have been reasonably maintained.
3.11 Tangible Property. The Company has good and valid title to the
Assets, subject to no pledges, mortgages, security interests, liens, charges,
burdens, obligations, claims or other encumbrances whatsoever (whether absolute,
accrued, contingent or otherwise), including, without limitation, chattel
mortgages, conditional sales contracts, collateral security arrangements and
other title or interest retention arrangements ("Liens"), except (i) Liens for
taxes not yet due and payable or being contested in good faith; (ii)
warehouseman, mechanics', carriers', workmens', landlord's statutory and common
law Liens either not delinquent or being contested in good faith; (iii) with
respect to the right of the Company to use any property leased to the Company,
arises by the terms of the applicable lease; (iv) with respect to the right of a
lessee to use any property leased from or financed by the Company, arises by the
terms of the applicable lease; (v) with respect to any Assumed Contract, arises
by the terms of the applicable Assumed Contract; (vi) imperfections of title,
restrictions, variances and easements that do not materially detract from value;
and (vii) Liens listed on Schedule 3.11 hereto (collectively, the "Permitted
Liens"); provided, however, that "Liens" shall not mean any restrictions on
transfer generally arising under any applicable federal or state securities
laws. At the Closing, the Company shall deliver the Assets to the Acquiror, free
and clear of any Liens except for Permitted Liens and as set forth on Schedule
3.11.
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3.12 Inventory. Except as set forth on Schedule 3.12 hereto, all
inventory relating to the Business was purchased, acquired or ordered in the
ordinary and regular course of business and consistent with the regular
inventory practices of the Company. The Company represents and warrants that the
Company's rental merchandise is of a quality usable and merchantable in the
Business; provided, however, that any breach of this representation shall be
subject to and governed solely by the payment mechanisms and time for filing
claims set forth in Section 6.2 and no separate claim for breach of the second
sentence of this Section 3.12 shall be made.
3.13 Rental Purchase Agreements. All Rental Purchase Agreements
relating to the Business were entered into in the ordinary and regular course of
business in a manner consistent with the Company's regular business practices.
To the Company's knowledge, except as disclosed on Schedule 3.13, with respect
to each Rental Purchase Agreement relating to the Business:
(a) Such Rental Purchase Agreement is in full force and effect
and constitutes a valid, legal and binding obligation of the
contracting parties, enforceable against each of them in accordance
with its terms; and
(b) The enforceability of such Rental Purchase Agreement and
the enjoyment of the rights and benefits thereunder will not be
affected in any material respect by the execution and delivery of this
Agreement, the performance by the parties of their obligations
hereunder or the consummation of the transactions contemplated hereby.
3.14 Licenses and Permits. To the Company's knowledge, the Company has
obtained all material licenses, product and establishment registrations,
franchises, permits, easements, certificates and consents necessary to the
conduct of the Business and to own the Assets, except as provided on Schedule
3.14.
3.15 Assets Necessary to the Business. Except as set forth in Section
3.12 or Section 3.20 hereof, the tangible personal property of the Company
comprising the Assets, taken as a whole, is fit for the purposes for which they
are presently being used and are in reasonably good operating condition and
repair, ordinary wear and tear excepted; provided, however, that any breach of
this representation and warranty relating to the Company's rental merchandise
shall be subject to and governed solely by the payment mechanisms and time for
filing claims set forth in Section 6.2 and no separate claim for breach of this
representation relating to rental merchandise shall be made.
3.16 Books and Records. The books and records of the Company relating
to the Assets fairly reflect the transactions to which the Company is a party or
by which the Assets are bound, and such books and records are and have been
properly kept and maintained.
3.17 Product Liability. Except as set forth on Schedule 3.17 hereto,
the Company has not given or made any express warranties to third parties with
respect to any products rented or sold by it except for the warranties imposed
by the provisions of applicable law and vendor warranties relating to the
Company's rental merchandise. Except as set forth on Schedule 3.17,
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the Company has no knowledge of any fact or event forming the basis of a claim
against the Company for product liability on account of any express warranty
which is not fully covered by insurance.
3.18 Questionable Payments. Neither the Company nor to the Company's
knowledge, any employee, agent, representative or shareholder of the Company
has, directly or indirectly, made any bribes, kickbacks, illegal payments or
illegal political contributions using Company funds or made any illegal payments
from the Company's funds to obtain or retain business.
3.19 Environmental Matters. There are no claims, actions, suits,
proceedings or investigations pending against or affecting the Business at law
or in equity before any court or before or by any federal, state, municipal or
other governmental department, commission, board, agency or instrumentality,
relating to environmental matters. The Company is not subject to any continuing
court or administrative order, writ, injunction or decree applicable to the
Business relating to any environmental matter. With respect to the Business, the
Company to its knowledge is not in violation of or in default in any material
respect with regards to any existing statute, regulation, order, writ,
injunction or decree of any court or federal, state, municipal or other
governmental department, commission, board, agency or instrumentality relating
to any environmental matter.
3.20 Motor Vehicles and Equipment. Except as set forth on Schedule
3.20, all vehicles and items of equipment included in the Assets, taken as a
whole, are (a) mechanically sound and in a condition to perform in the manner
needed for the operation of the Business, ordinary wear and tear excepted; (b)
in good cosmetic condition, ordinary wear and tear excepted; and (c) in material
compliance with all applicable statutes, ordinances and regulations, including,
without limitation, those related to safety.
3.21 Ordinances, Regulations and Condition of Stores. To the knowledge
of the Company and except as set forth on Schedule 3.21, the Stores and the
operation and maintenance thereof, as now operated or maintained, do not
contravene any material zoning ordinance or other administrative regulations
(either because the Store is in compliance with such material zoning ordinances
or other administrative regulations or because compliance with such material
zoning ordinances or other administrative regulations is not required due to a
prior nonconforming use) or violate in any material respect any existing
restrictive covenant or any provision of existing and applicable law, the effect
of which in any respect would materially interfere with or prevent the continued
use of the properties for the purposes for which they are now being used or
would materially reduce the value thereof. Except as set forth on Schedule 3.21,
the Stores and other facilities, taken as a whole, are in good condition and
repair, ordinary wear and tear excepted.
3.22 Intellectual Property. Set forth on Schedule 3.22 hereto is a true
and complete list of all United States patents and patent applications; all
copyright registrations and applications to register copyrights; and all trade
name, trademark, service mark, and trade dress registrations and applications to
register the same that are part of the Assets being transferred hereunder
("Company Registered Intellectual Property"). The Company is not obligated or
under any liability
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whatsoever to make any payments by way of royalties, fees, or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service mark,
trade name, or other intangible asset, with respect to the use thereof or in
connection with the conduct of the Business or otherwise. The Company has no
reason to believe that there are any conflicting rights which might impair the
Company's use of the Company Registered Intellectual Property and has not
received any notice of a conflict with the asserted rights of others with
respect to any patent, copyright, trade secret, or trademark right that could,
singly or in the aggregate, materially and adversely affect the Business;
furthermore, to the Company's knowledge, no other persons or entities have
infringed upon or are infringing upon the Company Registered Intellectual
Property.
3.23 Insurance. Except as set forth on Schedule 3.23, the Company
currently maintains fire and casualty and general liability, workers
compensation and automobile policies with reputable insurance carriers. The
Company reasonably believes that such insurance policies together with any
self-insurance maintained by the Company provides full and adequate coverage for
all normal risks incident to the Business and the Assets.
3.24 Assumed Contracts. Except as disclosed on Schedule 3.24, the
Company is not in default in any material respect under any of the Assumed
Contracts, and the Assumed Contracts are legal, valid and binding obligations of
the Company, and to the Company's knowledge, the respective parties thereto, in
accordance with their terms and, except to the extent reflected in Schedule
3.24, have not been amended; and no defenses, offsets or counterclaims thereto
have been asserted nor has the Company waived any substantial rights thereunder.
3.25 Litigation. Except as set forth on Schedule 3.25, there are no
existing claims, actions, suits, proceedings or investigations against the
Company or affecting the Assets that has, or if determined adversely to the
interests of the Company, might reasonably be expected to have a material
adverse effect on the value of the Company, taken as a whole. Except as set
forth on Schedule 3.25, the Company has no knowledge of any fact or event
forming the basis of a claim against the Company that, if determined adversely
to the interests of the Company, might reasonably be expected to have a material
adverse effect on the value of the Company, taken as a whole.
3.26 Employees. Schedule 3.26 hereto contains a complete list as of
April 23, 1998 of employees (other than home office employees, service center
employees, auditors, and those employees employed at the Eastern Zone Office who
are not directly involved in the supervision or management of Store operations
and those employees listed on Schedule 6.6) of the Company who are employed by
the Company principally in the operation of the Business (the "Employees"),
including name, job title, current compensation and date of hire. During the
twelve (12) month period preceding the date hereof, the Company has not
experienced any strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes. The Company does not have any knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to the Employees.
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3.27 Employee Benefit Plans. The Company has listed on Schedule 3.27
hereto and has made available to the Acquiror true and complete copies of (a)
any nonqualified deferred or incentive compensation or retirement plans or
arrangements, (b) any qualified retirement plans or arrangements, (c) any other
employee compensation, severance or termination pay or welfare benefit plans,
programs or arrangements, (d) any material employee benefit plans, programs, or
arrangements, and (e) any related trusts, insurance contracts or other funding
arrangements main tained, established or contributed to by the Company or any
entity (a "Company ERISA Affiliate") required to be aggregated with the Company
pursuant to the provisions of Sections 414(b), (c), (m) or (o) of the Code or
Section 4001(a)(14) of ERISA currently in effect to which the Company or any
Company ERISA Affiliate is a party or otherwise is bound ("Central Rents
Employee Benefit Plans"), excluding any such plan, program, arrangement or
funding arrangement as to which the Company is not (and has not been) a
participating employer and has no current or potential liability under the Code
or ERISA. One or more of the Central Rents Employee Benefit Plans or the Banner
Holdings, Inc. Employee Welfare Plan (the "Banner Welfare Plan") may be covered
by COBRA. If so, each such plan has been operated in, and is in, compliance with
COBRA in all material respects. To the best knowledge of Company, Holdings and
Banner, all notices required to be given under COBRA for each such plan have
been timely and properly given in accordance with COBRA, and the rules and
regulations promulgated thereunder. No employee, former employee or "qualified
beneficiary" (as defined in COBRA) has any claim or contingent claim against the
Company, any Subsidiary or any Company ERISA Affiliate for failure to comply
with COBRA or the rules and regulations promulgated thereunder. The Company has
not communicated to any employee or former employee any intention or commitment
to modify any Central Rents Employee Benefit Plan or to establish or implement
any other employee or retiree benefit or compensation plans or arrangements.
3.28 Legal Compliance. To the Company's knowledge and except as set
forth in the Company SEC Documents or on Schedule 3.28 hereto, no material
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed or commenced against the Company alleging a
violation of any applicable law or regulation of any foreign, federal, state or
local government thereof in the conduct of the Business. To the Company's
knowledge and except as set forth on Schedule 3.28 hereto, the Company has
conducted the Business in compliance in all material respects with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges thereunder) except where the
failure to comply would not have a material adverse effect on the Company, taken
as a whole.
3.29 Broker's Fees. Neither the Company nor anyone on its behalf has
any liability to any broker, finder, investment banker or agent, or has agreed
to pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Acquisition.
3.30 Storage Unit Leases. All of the Storage Unit Leases are cancelable
by the Company upon thirty (30) days' prior written notice.
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ARTICLE 4
PRE-CLOSING COVENANTS
4.1 HSR Act; Cooperation and Best Efforts.
(a) The parties hereto shall cooperate in good faith and take
all actions reasonably necessary or appropriate to file, and
expeditiously and diligently prosecute to a favorable conclusion, the
pre-merger notification and report forms required by the HSR Act to be
filed by each of Holdings, the Company and the Acquiror in connection
herewith with the Federal Trade Commission (the "FTC") and the
Department of Justice (the "DOJ").
(b) If the DOJ or the FTC imposes any conditions to the
Acquisition that would require the divestiture (or holding separate) by
the Acquiror of any of its stores, or that would prohibit the Acquiror
from acquiring pursuant to the Acquisition any of the Stores, subject
to paragraph (c) below, the parties hereto shall consummate the
Acquisition and if the DOJ or the FTC does not expressly state whether
the stores to be divested or not acquired must be Acquiror stores or
Stores, then the Acquiror shall have the sole authority in its absolute
discretion to determine whether it shall divest its stores or whether
the Acquiror shall not acquire such Stores. Subject to paragraph (c)
below, if any of the Stores (the "Excluded Stores") are not acquired by
the Acquiror pursuant to this Section 4.1 as a result of the DOJ or the
FTC requiring divestiture, the Purchase Price shall be reduced by an
amount equal to (i) the aggregate revenue of the Excluded Stores over
the three (3) calendar months most recently ended immediately prior to
the Closing Date, divided by the aggregate revenues of all of the
Stores (including the Excluded Stores) over such three month time
period times (ii) $102,400,000. If any of the Stores are not acquired
by the Acquiror pursuant to this Section 4.1, the definitions of
Assets, Excluded Assets and Assumed Liabilities shall be revised
accordingly and Annex I of the Non- Competition and Non-Solicitation
Agreement (hereinafter defined) shall be revised to exclude such
Stores.
(c) Notwithstanding anything to the contrary herein, if the
DOJ or the FTC imposes any conditions to the Acquisition that would
require the divestiture (or holding separate) by the Acquiror of more
than an aggregate of ten of its stores or that would prohibit the
Acquiror from acquiring pursuant to the Acquisition an aggregate of
more than ten of the Stores, either the Acquiror or the Company may
terminate this Agreement within twenty (20) days of receipt of such
notice from the DOJ or the FTC, provided, however, that the parties
agree to use their best efforts to resolve any divestiture issue prior
to the exercise of the termination right provided in this Section
4.1(c).
(d) Each party shall execute and file, or join in the
execution and filing of, any application or other document that may be
necessary in order to obtain the authorization, approval or consent of
any court, administrative agency or commission or other governmental
agency or instrumentality, domestic or foreign, which may be reasonably
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required, or that the other party hereto may reasonably request, in
connection with the consummation of the transactions contemplated by
this Agreement. Each party shall cooperate with the other and use its
reasonable best efforts to (i) receive all other necessary and
appropriate consents of third parties listed on Schedules 2.3 and
5.2(c), (ii) satisfy all other requirements prescribed by law for, and
all conditions set forth in this Agreement to, the consummation of the
Acquisition, and (iii) effect the Acquisition in accordance with this
Agreement at the earliest practicable date.
4.2 Interim Operations of the Company.
(a) Except as set forth on Schedule 4.2, each of the Company,
Holdings and Banner covenants and agrees that, after the date hereof
and prior to the Closing Date (unless the Acquiror shall otherwise
approve in writing, which approval shall not be unreasonably withheld
or delayed, and except as otherwise expressly contemplated by this
Agreement):
(i) the Business shall be conducted in the ordinary
and usual course and, to the extent consistent therewith, the
Company shall use its best efforts to preserve its business
organization intact and maintain its existing relations and
goodwill with customers, suppliers, distributors, creditors,
lessors, employees and business associates;
(ii) the Company shall not sell, transfer, mortgage,
encumber or otherwise dispose of the Assets or the Assumed
Contracts, except for sales of the Assets in the ordinary
course of business;
(iii) the Company shall not, except in the ordinary
and usual course of business modify, amend or terminate any of
the Assumed Contracts or waive, release or assign any material
rights or claims relating thereto;
(iv) the Company shall not permit any insurance
policy naming it as a beneficiary or loss-payable payee
covering the Assets to be cancelled or terminated except in
the ordinary and usual course of business;
(v) the Company shall not take any action or omit to
take any action that would cause any of the representations
and warranties of the Company herein to become untrue in any
material respect;
(vi) the Company shall not take any action to change
its accounting policies as in effect at December 31, 1997,
including, without limitation, charge-off policies (i.e., with
respect to skips and stolens); and
(vii) the Company shall not authorize or enter into
an agreement to do any of the foregoing.
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(b) The Company shall not modify or amend the Note Repurchase
Agreements without the prior written consent of the Acquiror, such
consent to be in the sole discretion of Acquiror.
4.3 No Solicitations.
(a) Neither Banner, Holdings nor the Company shall directly or
indirectly, through any officer, director, employee, representative or
agent of Banner, Holdings or the Company solicit or encourage the
initiation or submission of any inquiries, proposals or offers
regarding any acquisition, merger, take-over bid, sale of all or
substantially all of the assets of (other than a sale of the Excluded
Assets), or sales of shares of capital stock of the Company, whether or
not in writing and whether or not delivered to the stockholders of the
Company generally (including without limitation by way of a tender
offer), or similar transactions involving the Company (any of the
foregoing inquiries or proposals being referred to herein as an
"Acquisition Proposal"); provided, however, that nothing contained in
this Agreement shall prevent the Board of Directors of the Company from
referring any third party to this Section 4.3. Banner, Holdings and the
Company further agree that none of them nor any of the officers and
directors of any of them shall, and that they shall direct and use
their best efforts to cause their employees, agents and representatives
(including any investment banker, attorney or accountant retained by
any of them) not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have
any discussions with, any person relating to an Acquisition Proposal,
or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal.
(b) The Company shall promptly notify the Acquiror after
receipt (after the date hereof) of any Acquisition Proposal or any
request for nonpublic information relating to the Company in connection
with an Acquisition Proposal or for access to the properties, books or
records of the Company that informs the Board of Directors of the
Company that it is considering making, or has made, an Acquisition
Proposal. The Company also agrees that it will promptly request each
person that has heretofore executed a confidentiality agreement in
connection with any such person's consideration of acquiring it to
return all confidential information heretofore furnished to such person
by or on behalf of it.
(c) The Company agrees that it will immediately cease and
cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
of the foregoing. The Company agrees that it will take the necessary
steps to promptly inform the individuals or entities referred to above
of the obligations undertaken in this Section 4.3.
4.4 Press Releases. Banner, Holdings, the Company and the Acquiror will
consult with each other before issuing, and provide each other the opportunity
to review and comment upon, any press releases or other public statements with
respect to any transactions described in this Agreement, including the
Acquisition, and shall not issue any such press releases or make any
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<PAGE> 24
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to a listing agreement
with the Nasdaq National Market System and then, if practicable, only after
consulting with the other parties hereto.
4.5 Access to Information and Confidentiality.
(a) Prior to the Closing Date, the Company shall provide to
the Acquiror and its officers, employees, accountants, counsel and
financial advisors, reasonable access during normal business hours to
the Company's premises (including the Stores), books and records and
will furnish to the Acquiror (i) a copy of each report, schedule,
registration statement and other documents filed by it during such
period pursuant to the requirements of federal or state securities
laws, and (ii) such other information with respect to the Assets and
the Assumed Liabilities as the Acquiror reasonably requests; provided,
however, that the Company shall not be required to provide to the
Acquiror or its representatives access to (i) tax returns filed by the
Company or any of its affiliates; (ii) any information or materials
subject to confidentiality agreements with third parties or required to
be kept confidential by law; or (iii) any privileged attorney-client
communications or attorney work-product unless required to do so by law
or court order. Prior to the Closing Date, the Acquiror shall have,
with the prior consent of the Company (such consent not to be
unreasonably withheld), reasonable access to the Company's regional and
store managers; provided, however, that any such reasonable access
shall not disrupt the Company's normal operations between the date
hereof and the Closing.
(b) Each of the Company and the Acquiror will, and will cause
its officers, directors, employees, agents and representatives to, (i)
hold in confidence, unless compelled to disclose by judicial or
administrative process, or, in the opinion of its counsel, by other
requirements of law, all nonpublic information concerning the other
party furnished in connection with the transactions contemplated by
this Agreement until such time as such information becomes publicly
available (otherwise than through the wrongful act of such person),
(ii) not release or disclose such information to any other person,
except in connection with this Agreement to its auditors, attorneys,
financial advisors, other consultants and advisors, and (iii) not use
such information for any competitive or other purpose other than with
respect to its consideration and evaluation of the transactions
contemplated by this Agreement. In the event of termination of this
Agreement for any reason, the parties hereto will promptly return or
destroy all documents containing nonpublic information so obtained from
any other party hereto and any copies made of such documents and any
summaries, analyses or compilations made therefrom.
4.6 Notice of Developments. Prior to the Closing, each of the parties
hereto shall promptly notify the other in writing of all events, circumstances,
facts and occurrences, whether arising prior to or subsequent to the date of
this Agreement, that will or are reasonably likely to result in any breach of a
representation or warranty or covenant made by the notifying party in this
Agreement or any failure to be satisfied of any condition to the obligations of
the party receiving such notice under this Agreement.
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4.7 Reasonable Efforts; Consents, Approvals and Waivers. Upon the terms
and subject to the conditions set forth in this Agreement, each of the parties
agrees to use reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the other party in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Acquisition, and the
other transactions contemplated by this Agreement, including, without
limitation, (i) obtaining termination of the waiting period under the HSR Act
and all consents, approvals or waivers identified in Schedules 2.3 and 5.2(c)
(provided that no such consent, approval or waiver shall require such party to
take any action that would impair the value that such party reasonably
attributes to the Acquisition), and (ii) the execution and delivery of any
additional instruments necessary to consummate the transactions contemplated by
this Agreement. To the extent that the approval of a third party is required in
connection with the transactions contemplated by this Agreement but is not
obtained prior to the Closing, the parties hereto shall cooperate in good faith
to develop an alternative arrangement to ensure that the Acquiror obtains the
benefits of each such Assumed Contract consistent with the economic results
intended by this Agreement.
4.8 Tax Matters. The Company shall be responsible for the timely
payments of, and shall indemnify and hold harmless the Acquiror against, all
sales (including, without limitation, bulk sales), use, value added,
documentary, stamp, gross receipts, registration, transfer, conveyance, excise,
recording, firearm, ammunition, license and other similar taxes and fees
("Transfer Taxes"), arising out of or in connection with or attributable to the
transactions effected pursuant to this Agreement. The Company shall prepare and
timely file all tax returns required to be filed in respect of Transfer Taxes
(including, without limitation, all notices required to be given with respect to
bulk sales laws), provided that the Acquiror shall be permitted to prepare any
such tax returns that are the primary responsibility of the Acquiror under
applicable law. The Acquiror's preparation of such tax returns shall be subject
to the Company's approval, which approval shall not be withheld unreasonably.
4.9 Open Inventory Contracts. The Company covenants and agrees that as
of the Closing Date, the Company's Open Inventory Contracts for the following
types of inventory shall not exceed $50,000 in the aggregate: jewelry, pagers,
cell phones, computers and air conditioners. The Company shall provide to the
Acquiror, at or prior to Closing, a copy of each Open Inventory Contract with
respect to the "RTO" Stores. The Company represents that the Open Inventory
Contacts with respect to the "Rentronics" Stores will be comparable to those
provided for the "RTO" Stores (taking into account the percentage that such
Stores represent of all of the Company's Stores).
4.10 Trade Payables. The Company shall cause to be prepared no more
than five (5) business days prior to the Closing Date a list of the ten largest
outstanding trade payables of the Company for which invoices have been received
by the Company, although such amounts may not, by the terms of such invoice, be
currently due and payable, and the name of each vendor to whom such amount is
owed. The Company shall cause to be mailed on the date of the Closing checks
made payable to each such vendor in the full amount owing to such vendor with
copies of such checks to be delivered to the Acquiror at the Closing.
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4.11 Advertising. Notwithstanding anything herein to the contrary, not
less than five (5) business days prior to the Closing, the Company shall provide
the Acquiror with a list of all advertising commitments of the Company including
but not limited to obligations for radio advertising, television advertising and
direct mail programs, but excluding Yellow Pages advertising and any local Store
advertising (the "Advertising Commitments") indicating the type of advertising,
the cost of such advertising and the amount prepaid, if any, and the amount of
notice, if any, required to terminate such Advertising Commitment. The Company
and the Acquiror shall mutually agree whether to terminate any such Advertising
Commitments as of the Closing Date, to the extent such Advertising Commitments
may be so terminated. The Acquiror shall be responsible for all costs associated
with any Advertising Commitments not so terminated and shall promptly reimburse
the Company for any amounts prepaid (other than expenses incurred for printing
any direct mail materials) with respect to any Advertising Commitment for which
the Acquiror recognizes the benefit of after Closing. The Acquiror shall not be
responsible for reimbursing the Company for any prepaid Yellow Pages
advertising.
4.12 Store Leases. Prior to the date of the Closing, the Company shall
provide the Acquiror with copies of each of the leases listed in Item 1 of
Schedule 3.10.
4.13 Certain Inventory. Prior to the Closing, the Company shall remove
from the Stores all items of rental merchandise (other than rental merchandise
that has never been rented before) that have not been rented by the Company at
any time during the 180 days immediately preceding the Closing (the "Aged
Inventory"). Such assets shall be Excluded Assets. The Company shall provide to
the Acquiror a schedule of any such Aged Inventory that has not been so disposed
of by the Company by the Closing Date (the "Aged Inventory Schedule").
ARTICLE 5
CLOSING CONDITIONS
5.1 Conditions to Obligation of all Parties. The obligations of the
parties to effect the Acquisition and the other transactions contemplated by
this Agreement are subject to the satisfaction of the following conditions at or
prior to the Closing:
(a) HSR Act. (i) The waiting periods (and any extensions
thereof) applicable to the Acquisition under the HSR Act shall have
been terminated or shall have expired, and (ii) no condition shall have
been imposed on the Company or the Acquiror to obtain such termination
that would require the divestiture of any assets, except as provided by
Section 4.1 hereof.
(b) Other Governmental Approvals. All material governmental
consents and approvals, if any, necessary to permit the consummation of
the transactions contemplated by this Agreement will have been
obtained.
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(c) Retirement of Notes. The Company shall close the
transactions contemplated by the Note Purchase Agreements
simultaneously with the Closing.
(d) No Restraining Action. No action, suit, or proceeding
before any court or governmental or regulatory authority will be
pending, no investigation by any governmental or regulatory authority
will have been commenced against the Company or the Acquiror, or any of
the principals, officers or directors of any of them, seeking to
restrain, prevent or change the transactions contemplated hereby or
questioning the legality or validity of any such transactions or
seeking damages in connection with any such transactions.
5.2 Conditions to the Acquiror's Obligations. The obligations of the
Acquiror to effect the Acquisition and the other transactions contemplated by
this Agreement are subject to the satisfaction of the following conditions at or
prior to the Closing except to the extent waived in writing by the Acquiror.
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of the Company in this Agreement or in
any certificate delivered to the Acquiror pursuant hereto as of the
date hereof will be deemed to have been made again at and as of the
Closing Date and will then be true and correct in all material
respects, and (ii) the Company will have performed and complied in all
material respects with all agreements and conditions required by this
Agreement to be performed or complied with by the Company prior to or
on the Closing Date.
(b) Closing Certificate. The receipt by the Acquiror of a
certificate executed by the Chief Executive Officer and Chief Financial
Officer of the Company dated the Closing Date, certifying that the
conditions specified in Section 5.2(a) hereof have been fulfilled.
(c) Consents and Approvals. The consents listed on Schedule
5.2(c) will have been received.
(d) Non-Competition and Non-Solicitation Agreement. Banner,
Holdings, the Company and Gary Cypres shall have entered into an
agreement (the "Non-Competition and Non-Solicitation Agreement"), in
substantially the form of Exhibit D hereto, pursuant to which, among
other things, the Acquiror shall pay to Banner, Holdings, the Company
and Gary Cypres a non-competition fee in the aggregate amount of
$600,000, payable at Closing in cash by wire transfer of immediately
available funds to accounts designated by the Company.
(e) Escrow Agreement. The Company and the Escrow Agent shall
have entered into the Escrow Agreement.
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(f) Assignment and Assumption Agreement. The Company shall
have entered into the Assignment and Assumption Agreement.
(g) Financing. The Acquiror shall have entered into a
definitive agreement on or before the Closing Date with Comerica Bank
and other current and prospective members of the Acquiror's bank group
in an amount of no less than One Hundred Forty Million Dollars
($140,000,000.00) and otherwise on terms as contemplated by the
Commitment Letters.
(h) Motor Vehicle Titles. The receipt by the Acquiror of
certificates of title to all vehicles owned by the Company which
constitute Assets endorsed by the Company together with completed
originals of any forms required by the states in which such vehicles
are located to transfer the same, free and clear of Liens other than
Permitted Liens.
(i) UCC-3 Termination Statements. The receipt by the Acquiror
of UCC-3 Termination Statements, executed by the appropriate secured
party, evidencing the release of the Liens listed on Schedule 3.11,
unless such Liens have been released prior to the Closing, in which
case the Company shall provide UCC financing statement searches from
the appropriate governmental officials of the states and counties in
which the Assets are located indicating that there are no financing
statements affecting any of the Assets other than those evidencing
Permitted Liens.
(j) Opinion of Counsel. The receipt by the Acquiror of the
opinion of O'Melveny & Myers LLP, counsel for the Company, dated as of
the Closing Date, covering the matters set forth in Exhibit C hereto.
5.3 Conditions to the Company's Obligations. The obligations of the
Company to effect the Acquisition and the other transactions contemplated by
this Agreement are subject to the satisfaction of the following conditions at or
prior to the Closing except to the extent waived in writing by the Company:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of the Acquiror in this Agreement or in
any certificate delivered to the Company pursuant hereto as of the date
hereof will be deemed to have been made again at and as of the Closing
Date and will then be true and correct in all material respects, and
(ii) the Acquiror will have performed and complied in all material
respects with all agreements and conditions required by this Agreement
to be performed or complied with by them prior to or on the Closing
Date.
(b) Closing Certificate. The receipt by the Company of a
certificate executed by the Chief Executive Officer and Chief Financial
Officer of the Acquiror dated the Closing Date, certifying that the
conditions specified in Section 5.3(a) hereof have been fulfilled.
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<PAGE> 29
(c) Consents and Approvals. The consents listed on Schedule
2.3 will have been received.
(d) Non-Competition and Non-Solicitation Agreement. The
Acquiror shall have entered into the Non-Competition and
Non-Solicitation Agreement and made the payment provided for therein.
(e) Escrow Agreement. The Acquiror and the Escrow Agent shall
have entered into the Escrow Agreement.
(f) Assignment and Assumption Agreement. The Acquiror shall
have entered into the Assignment and Assumption Agreement.
(g) Opinion of Counsel. The receipt by the Company of an
opinion from Winstead Sechrest & Minick P.C., counsel for the Acquiror,
dated as of the Closing Date covering the matters set forth in Exhibit
E hereto.
(h) Indemnity Obligations. The Acquiror or any of its
affiliates (or such other person as may be acceptable to the obligee)
shall have been substituted for the Company with respect to each
guaranty, bond or other indemnity obligation of the Company relating to
the Assets as set forth on Schedule 5.3(h) hereto, and the Company and
its affiliates shall have been forever released from all liability in
respect thereof for events which occur after the Closing Date.
(i) Closing Date Payment. The receipt by the Company of the
Closing Date Payment pursuant to the terms of Section 1.3 hereof.
ARTICLE 6
POST-CLOSING COVENANTS
6.1 Inventory and FF&E Schedules. The Company shall deliver to the
Acquiror (using its best efforts to do so within five business days following
the Closing) (i) a complete list of inventory included in the Assets as of the
close of business on the Closing Date and (ii) a complete list of FF&E included
in the Assets as of the close of business on the Closing Date.
6.2 Adjustment for Rental Merchandise Value.
(a) The Company agrees that the value of the Company's rental
merchandise (other than the value of any rental merchandise listed on
the Aged Inventory Schedule) at cost at the Closing Date determined in
accordance with generally accepted accounting principles ("GAAP") (the
"Closing Date Rental Merchandise Value") shall be an amount equal to at
least $66,002,000 (the "Expected Closing Date Rental Merchandise
Value"). If the actual amount of the Closing Date Rental Merchandise
Value as determined by the
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<PAGE> 30
Company in accordance with GAAP (the "Company Determined Closing Date
Rental Merchandise Value") is less than the Expected Closing Date
Rental Merchandise Value, the Company shall pay and deliver to the
Acquiror within thirty (30) days of the Closing Date an amount equal to
the difference between the Expected Closing Date Rental Merchandise
Value ($66,002,000) and the Company Determined Closing Date Rental
Merchandise Value in cash by wire transfer of immediately available
funds.
(b) The Company Determined Closing Date Rental Merchandise
Value and the condition of the Company's rental merchandise as of the
Closing shall be subject to verification by audits conducted by the
Acquiror within ninety (90) days following the Closing. Upon completion
of such audits, the Acquiror shall provide the Company with a written
notice (the "Audit Statement") setting forth the results of such audits
including a statement of what the Acquiror believes to be the Closing
Date Rental Merchandise Value based on its audits (the "Audited Closing
Date Rental Merchandise Value"). If the Audited Closing Date Rental
Merchandise Value is less than the Company Determined Closing Date
Rental Value, the Audit Statement shall state if such discrepancy is
due to an overstatement of the rental merchandise as a result of the
fact that such rental merchandise is not actually owned by the Company
because it is not in existence (an "Overstatement") and the amount of
the Overstatement, setting forth in reasonable detail the basis for
such conclusion. In addition, the Audit Statement shall indicate
whether any individual items of rental merchandise (that were actually
owned by the Company as of the Closing and not missing) that are not on
the Aged Inventory Schedule are not of a quality usable and
merchantable in the ordinary course of the Business (the "Non-Rentable
Items"), including an itemized list by Store of the Non-Rentable Items,
setting forth in reasonable detail the basis for such conclusions. The
Audit Statement shall also include the Acquiror's calculations of the
amount it believes to be due to the Acquiror pursuant to paragraph (e)
below and the amount of the claim it believes can be made pursuant to
paragraph (f) below. Such Audit Statement shall be provided to the
Company within five (5) days following the completion of such audits.
(c) The Company shall review the Audit Statement and, not
later than thirty (30) days thereafter, deliver to the Acquiror a
certificate signed by its chief financial officer setting forth its
objections to the Audit Statement together with a summary of the
reasons therefore and calculations supporting any adjustments that in
its view are necessary to eliminate such objections. In the event that
the Company does not object within such thirty (30) day period, the
findings in the Audit Statement shall be final and the payments
contemplated by paragraphs (e) and (f) below shall be made as indicated
therein. If, however, the Company objects to the Audit Statement in
such thirty (30) day period, the Acquiror will conduct a second audit
(the "Second Audit") whereby the Acquiror will provide the Company
prior written notice of the Second Audit and will permit the Company to
observe such audit. Upon the completion of the Second Audit, the
Acquiror will prepare a Second Audit Statement (the "Second Audit
Statement") setting forth the results of the Second Audit in the form
and substance required under Section 6.2(b). Such Second Audit
Statement shall be provided to the Company within five (5) days
following
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<PAGE> 31
the completion of the Second Audit. The Company shall review the Second
Audit Statement and, not later than fifteen (15) days thereafter,
deliver to the Acquiror a certificate signed by its chief financial
officer setting forth its objections to the Second Audit Statement
together with a summary of the reasons therefore and calculations
supporting any adjustments that in its view are necessary to eliminate
such objections. In the event that the Company does not object within
such fifteen (15) day period, the findings in the Second Audit
Statement shall be final and the payments contemplated by paragraphs
(e) and (f) below shall be made as indicated thereon. If, however, the
Company objects to the Second Audit Statement in such fifteen (15) day
period, the Acquiror and the Company shall endeavor to resolve by
written agreement any differences and, in the event they so resolve the
differences, the agreed amounts shall be used in order to determine the
payments to be made, if any, pursuant to paragraphs (e) and (f). In the
event the parties are not able to resolve any differences within the
thirty (30) day period next following the fifteen (15) day period, then
the parties shall jointly select a national accounting firm acceptable
to both parties (or, if they cannot agree on such selection, they shall
select a national big-six accounting firm by lot after eliminating the
Acquiror's and the Company's independent public accountants) and shall
direct the firm so selected (the "Auditors") to conduct, as promptly as
practicable, but in any event not later than 45 days after such
direction a review of the Second Audit Statement and the objections (it
being understood that under no circumstances shall they be charged with
reconsidering or conducting an audit of any elements of the Second
Audit Statement as to which no objection has been lodged and which do
not bear directly on the matters or conclusions objected to), and to
deliver a written notice (the "Auditor's Report") to each of the
parties setting forth the adjustments, if any, to the Second Audit
Statement that the Auditors believe to be required under GAAP, and the
amount of the calculations to be made pursuant to paragraphs (e) and
(f) after giving effect to such adjustments. In such event, the
Auditor's Report shall be final and binding and the amounts so
determined shall be used to determine the payments, if any, to be made
pursuant to paragraphs (e) and (f) of this Section 6.2. If the Auditors
should conclude that they are unable to determine one or more issues or
amounts necessary to complete such audit and prepare and deliver the
Auditor's Report, it shall promptly so notify the parties who shall
endeavor to jointly agree on such issue or amount. If the parties are
unable to reach a written agreement concerning such issue or amount
within thirty (30) days the parties shall be entitled to seek other
remedies for resolution of the dispute. The Acquiror shall make
available to the Company and the Auditors such books, records and other
information (including work papers) as any of them may reasonably
request to audit the Audited Closing Date Rental Merchandise Value, the
Non-Rentable Items and the Second Audit Statement and prepare and
review the Auditor's Report hereunder. The fees and expenses of the
Auditors, if any, shall be paid 50% by the Acquiror and 50% by the
Company.
(d) In order to determine any amounts owing by the Company to
the Acquiror as a result of the audits pursuant to this Section 6.2,
all calculations shall be made first by determining the amount of any
Overstatement and then the amount of any Non-Rentable Items.
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<PAGE> 32
(e) If the Audited Closing Date Rental Merchandise Value is
finally determined to be less than the Company Determined Closing Date
Rental Merchandise Value and such difference is due to an
Overstatement, the Company shall pay and deliver to the Acquiror within
thirty (30) days after the date of such determination the amount by
which the Audited Closing Date Rental Merchandise Value is less than
the Company Determined Closing Date Rental Merchandise as a result of
the Overstatement; provided, however, that: (x) no such payment shall
be required if the Audited Closing Date Rental Merchandise Value is
equal to or greater than the Expected Closing Date Rental Merchandise
Value; and (y) any such payment shall be limited to the amount that,
when added to the Audited Closing Date Rental Merchandise Value, shall
equal the Expected Closing Date Rental Merchandise Value.
(f) After determining the amount payable pursuant to paragraph
(e) of this Section 6.2, if the Audit Statement or the Second Audit
Statement, as the case may be, is finally determined to include
Non-Rentable Items, the Company shall be deemed to have breached the
representation set forth in the second sentence of Section 3.12 of this
Agreement but only with respect to the Non-Rentable Items; provided,
however, that: (x) such representation shall only survive for the time
period for resolving the rental merchandise disputes pursuant to this
Section 6.2; (y) any claim made for breach of such representation shall
be subject to the Basket (hereinafter defined); and (z) the amount of
the claim to be made for a breach of such representation shall be equal
to the net book value (rental merchandise at cost less depreciation)
for the Non-Rentable Items as listed on the Company's books as of the
Closing Date.
6.3 License to Use Name. From and after the Closing, the Company
shall grant to the Acquiror for a one-year transition period a non-exclusive,
royalty-free license (the "License") to use the names "Central Rents" and
"Central Rental and Purchase" (collectively, the "Central Names") but only in
connection with the business conducted by the Acquiror at the Stores. The
License is granted strictly on a non-exclusive basis, and in this regard, the
Company shall, after the Closing, have all rights to use and to grant and
license to others the right to use the Central Names in whole or in part, in any
location and in any manner whatsoever; provided, however, that at all times
during which the Company and the Acquiror are bound by the provisions of
paragraph 1 of the Non-Competition and Non-Solicitation Agreement, the Company
shall only use the Central Names in connection with the activities described on
Annex II of the Non-Competition and Non-Solicitation Agreement and shall not
grant or license to others the right to use the Central Names during such
period. The Acquiror acknowledges that as of the Closing it will have no
property rights in and to the Central Names other than the License specifically
granted herein and will not use the Central Names except pursuant to this
Agreement. The License shall not be sublicensed or assigned by the Acquiror in
any manner, except that the Acquiror may assign the License to any wholly-owned
subsidiary of the Acquiror in connection with a transfer of the entire Business
to such entity (the "Permitted Transferee") provided that prior to such
transfer, the Permitted Transferee agrees to be bound by the provisions of the
License and the Acquiror and the Acquiror continue to be liable for breach of
the License by the Permitted Transferee. The Acquiror further agrees that it
will not, and will not at any time, do or suffer to be done any act
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<PAGE> 33
or thing which will in any way jeopardize, dilute, derogate, or adversely affect
any rights of the Company in and to the Central Names or any registration
thereof which, directly or indirectly, will reduce the value of the Central
Names or which would demean, ridicule or reflect adversely upon the Central
Names or the Company. The Company may terminate the License effective
immediately if: (i) the Acquiror commits any material breach of the terms
relating to the License; (ii) the Acquiror attempts to assign, sublicense or
transfer to any person any right, interest or obligations with respect to the
License; or (iii) any voluntary or involuntary proceeding seeking liquidation,
reorganization, or other relief under any bankruptcy, insolvency, receivership,
conservatorship, or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian, conservator, or other
similar official is instituted with respect to the Acquiror, the Permitted
Transferee, if any, or any entity controlling either the Acquiror or the
Permitted Transferee, if any. Termination of the License for cause as set forth
above shall be without prejudice to any other remedy otherwise available to the
Company pursuant to this Agreement. The Acquiror acknowledges that a breach of
the terms of the License granted to it pursuant to this Section 6.3 would cause
immediate and irreparable harm to the Company for which money damages could not
adequately compensate the Company. Therefore, the Company shall have the right
to enforce the License not only by an action or actions for damages, but also by
an action or actions for specific performance or injunctive or other equitable
relief in order to enforce or prevent any violation of the terms and conditions
of the License.
6.4 Trade Payables. Other than those trade payables referred to in
Section 4.10, on the Closing Date, or as soon as practicable thereafter, the
Company shall pay, in immediately available funds, all outstanding trade
payables of the Company which have become due and payable.
6.5 Non-Store Vehicles. Prior to the Closing Date, the Company shall
attempt to obtain the consent of GECC and Enterprise Leasing to the partial
assignment of the GECC Lease and of the Enterprise Lease, respectively, to the
Acquiror such that all right, title and interest of the Company in and to such
leases are transferred to the Acquiror pursuant to this Agreement other than the
Company's interest pursuant to such leases in and to those certain non-store
vehicles covered by such leases that are commonly referred to as "cube trucks
and vans" that are assigned to the Company's service centers together with
individual vehicles assigned to and used by the Company's Regional and
Divisional Managers (the "Non-Store Vehicles"). The Non-Store Vehicles shall be
Excluded Assets and shall not be used by the Acquiror or the Company's Regional
or Divisional Managers after the Closing. All such Non-Store Vehicles shall be
picked up by the Company within three (3) days before or after the Closing.
6.6 MIS Employees and Software. The Company shall offer continued
employment to those employees of the Company responsible for management
information systems listed on Schedule 6.6 attached hereto for a period of up to
ninety (90) days following the Closing to assist the Acquiror in the conversion
to the Acquiror's systems. The Acquiror shall reimburse the Company for (i) the
salary expense (at current rates of salary) of such employees and (ii) the
actual costs incurred by the Company in respect of such employees which are
directly attributable to efforts made by such employees on behalf of the
Acquiror. During such period, the Company
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<PAGE> 34
shall make available to the Acquiror and the Acquiror's employees any software
not included in the Assets transferred hereunder necessary to effect an orderly
transition from the Company's management information systems to the Acquiror's
systems.
6.7 INTENTIONALLY OMITTED.
6.8 Apportionment. The Company shall be entitled to all income earned
in or from the ownership or operation of the Assets prior to and on the Closing
Date and the Acquiror will be entitled to all income earned in or from the
ownership or operation of the Assets with respect to events occurring after the
Closing Date. Without limiting the generality of the foregoing, all cash
receipts received at the Stores on or prior to the Closing Date shall be the
property of the Company, and all cash receipts received at the Stores after the
Closing Date shall be the property of the Acquiror. The parties hereto agree to
cooperate with each other to ensure that any amounts received are delivered to
the party entitled to such amounts as provided herein. All property taxes and
rents due under the Assumed Contracts for the month in which the Closing occurs
shall be apportioned on an accrual basis as of the close of business on the
Closing Date between the Company and the Acquiror.
6.9 Employees. Effective as of the Closing Date, the Acquiror may
offer employment to such Employees as the Acquiror shall determine in its sole
discretion at wage or salary levels acceptable to the Acquiror, and with
employee benefits that are acceptable to the Acquiror. The Acquiror shall not
assume the liability of the Company in respect of the Employees for accrued but
unpaid salaries (including deferred compensation), wages, vested vacation and
sick pay and fiscal 1998 incentive compensation, and the Company shall remain
responsible for the payment of all the foregoing items through the Closing Date,
such payment to be made as soon as practicable after the Closing Date or when
such payment would otherwise be due. The Company shall also remain responsible
for payment of any and all retention, change in control or other similar
compensation or benefits which are or may become payable to the Employees in
connection with the Acquisition, including without limitation any severance
payments or other such obligations to Employees in accordance with the terms of
the Central Rents Employee Benefit Plans as of the Closing Date.
6.10 INTENTIONALLY OMITTED.
6.11 Leasehold Deposits. Schedule 6.11 attached hereto sets forth, with
respect to each Store Lease for which a Prepaid Lease Deposit (hereinafter
defined) is outstanding, the amount of such Prepaid Lease Deposit. Immediately
following the Closing, the Company shall cause to be delivered to the applicable
landlord under each Store Lease a letter in a form acceptable to the Acquiror
advising such landlord that the Company's interest in such Store Lease has been
assigned to the Acquiror and requesting that the sum of any (i) security
deposits paid by the Company pursuant to such Store Lease and (ii) last month's
rent or other prepaid rent for a period after the Closing paid by the Company
pursuant to such Store Lease (collectively, the "Prepaid Lease Deposits") be
refunded to the Company. The Company agrees to diligently pursue the refund of
such Prepaid Lease Deposits during the 180-day period following the Closing. The
Acquiror shall
29
<PAGE> 35
cause to be delivered to the Company with respect to each Store Lease for which
a Prepaid Lease Deposit remains outstanding 180 days following the Closing Date
a company check jointly payable to the Company and the applicable landlord in
the amount of such outstanding Prepaid Lease Deposit that the Company shall use
to facilitate the release of such outstanding Prepaid Lease Deposits by
encouraging the landlord to either (x) endorse such check over to the Company
and credit the Acquiror with the Prepaid Lease Deposit held by such landlord; or
(y) retain such check for the benefit of the Acquiror under the applicable Store
Lease after paying to the Company the amount of the Prepaid Lease Deposit in the
landlord's possession.
6.12 Access to Headquarters Office. Following the Closing, employees of
the Acquiror shall be entitled to occupy concurrently with the Company that
portion only of the premises located at 5480 East Ferguson Drive, Commerce,
California that is currently used by the Company to manage and operate the
Business (the "Company Headquarters") for a period not to exceed ninety (90)
days. The Acquiror shall pay to the Company an amount equal to $10,000 per month
(or portion thereof on a pro rata basis) for each month (or portion thereof) the
Acquiror occupies the Company Headquarters. Employees of the Acquiror may enter
the Company Headquarters and occupy the Company Headquarters during the normal
business hours of the Company.
6.13 Licenses for Use of Software. From and after the Closing, the
Company shall grant to the Acquiror for a transition period not to exceed one
hundred and eighty days a royalty-free, non-exclusive license to use the
Company's Real World Software (which is an Excluded Asset) to enable Buyer to
convert certain information relating to the Assets to its own accounting
systems. From and after the Closing, Acquiror shall grant to the Company a
perpetual, non-exclusive, royalty-free license to use TIRM Software and Rental
Partners Software (which are Assets acquired by Acquiror hereunder) to enable
the Company to operate POS systems in Store #348 and any other locations that
the Company subsequently operates as permitted by the Non-Competition and
Non-Solicitation Agreement.
ARTICLE 7
TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated and
the Acquisition may be abandoned at any time prior to Closing Date, by mutual
written consent of the Company and the Acquiror, by action of their respective
Boards of Directors.
7.2 Termination by Either the Acquiror or the Company. This Agreement
may be terminated and the Acquisition may be abandoned at any time prior to the
Closing Date by action of the Board of Directors of either the Acquiror or the
Company if (i) the Acquisition shall not have been consummated by the sixtieth
(60th) day (without giving effect to the cure periods set forth in Sections 7.3
and 7.4) following the date on which this Agreement is signed, (ii) any order
permanently restraining, enjoining or otherwise prohibiting the Acquisition
shall become final and nonappealable or (iii) as provided in Section 4.1;
provided, that the right to terminate this Agreement pursuant to clause (i)
above shall not be available to any party that has breached in any
30
<PAGE> 36
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the occurrence of the failure of the Acquisition
to be consummated.
7.3 Termination by the Company. This Agreement may be terminated and
the Acquisition may be abandoned at any time prior to the Closing Date by action
of the Board of Directors of the Company if there has been a material breach by
the Acquiror of any representation, warranty, covenant or agreement contained in
this Agreement that is not curable or, if curable, is not cured within 30 days
after written notice of such breach is given by the Company to the party
committing such breach.
7.4 Termination by the Acquiror. This Agreement may be terminated and
the Acquisition may be abandoned at any time prior to the Closing Date, by
action of the Board of Directors of the Acquiror if there has been a material
breach by the Company, Holdings or Banner of any representation, warranty,
covenant or agreement contained in this Agreement that is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Acquiror to the party committing such breach.
7.5 Effect of Termination and Abandonment. In the event of termination
of this Agreement and the abandonment of the Acquisition pursuant to this
Article 7, this Agreement (except for Sections 4.5(b) and 9.2 hereof which shall
survive) shall become void and of no effect with no liability of any party
hereto (or any of its directors, officers, employees, agents, legal and
financial advisors or other representatives) provided, however, except as
otherwise provided herein, no such termination shall relieve any party hereto of
any liability or damages resulting from any willful breach of this Agreement.
ARTICLE 8
INDEMNIFICATION
8.1 Survival of Representations and Warranties. All of the
representations and warranties of the Acquiror contained in Article 2 of this
Agreement and all of the representations and warranties of the Company, Holdings
and Banner contained in Article 3 (other than the second sentence of Section
3.12 and any breach of Section 3.15 relating to the Company's rental
merchandise, the survival of which is governed by Section 6.2) of this Agreement
shall survive the Acquisition and shall continue in full force and effect for a
period of twelve (12) months following the Closing Date.
8.2 Indemnification by Holdings and Banner. Subject to the other
provisions of this Article 8, from and after the Closing, each of Holdings and
Banner shall indemnify and hold the Acquiror and its respective officers,
directors, employees, attorneys and agents harmless from, against and in respect
of any and all claims, demands, lawsuits, proceedings, losses, assessments,
taxes, fines, penalties, administrative orders, obligations, costs, expenses,
liabilities and damages, including interest, penalties, reasonable attorneys'
fees and costs of investigation (all of the
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<PAGE> 37
foregoing hereinafter referred to collectively as "Claims"), which arise or
result from and to the extent they are attributable to:
(a) the untruth, breach or failure of any representation or
warranty made by the Company, Holdings or Banner pursuant to this
Agreement or any other agreement or document executed and delivered by
the Company, Holdings or Banner in connection with the transactions
contemplated hereby;
(b) the breach of, or failure to perform, any of the
covenants, commitments, agreements or obligations of the Company,
Holdings or Banner under or contained in this Agreement or any other
agreement or document executed and delivered by the Company, Holdings
or Banner in connection with the transactions contemplated hereby;
(c) the noncompliance by the Company, Holdings or Banner with
the provisions of any bulk sales laws, including, without limitation,
the bulk transfer provisions of the Uniform Commercial Code of any
state or any similar statute, if and to the extent applicable to the
transactions contemplated by this Agreement;
(d) the Excluded Assets;
(e) any claims or counterclaims made against the Acquiror by
GECC in connection with the Company's pending claims against GECC in
connection with that certain Preferred Stock and Note Purchase
Agreement dated March 18, 1994 between GECC and the Company;
(f) the continued sponsorship by Banner of the Banner Welfare
Plan and any and all liability for violations under COBRA occurring
prior to the Closing Date, it being understood and agreed to by the
parties that the sponsorship and maintenance of the Banner Welfare Plan
shall in no way be the responsibility of the Acquiror on or after the
Closing Date;
(g) the noncompliance by the Company with provisions of the
WARN Act; or
(h) any claims made against the Acquiror arising out of or in
connection with those certain pending EEOC state/local agency charges
described in Item 2 of Schedule 3.25 hereto.
8.3 Indemnification by the Acquiror. Subject to the other provisions of
this Article 8, from and after the Closing the Acquiror shall indemnify and hold
each of the Company, Holdings, Banner and their respective officers, directors,
employees, attorneys and agents harmless from, against and in respect of any and
all Claims which arise or result from and to the extent they are attributable
to:
32
<PAGE> 38
(a) the untruth, breach or failure of any representation or
warranty made by the Acquiror pursuant to this Agreement or any other
agreement or document executed and delivered by the Acquiror in
connection with the transactions contemplated hereby;
(b) the breach of, or failure to perform, any of the
covenants, commitments, agreements or obligations of the Acquiror under
or contained in this Agreement or any other agreement or document
executed and delivered by the Acquiror in connection with the
transactions contemplated hereby; or
(c) the Assumed Liabilities.
8.4 Method of Asserting Claims, Etc. All claims for
indemnification by any party under this Section 8.4 shall be asserted and
resolved as follows:
(a) In the event that any claim or demand in respect of which
any party would be entitled to indemnification hereunder is asserted
against such party by a third party, said party shall within 45 days
thereof notify the indemnifying party of such claim or demand,
specifying the nature of and specific basis for such claim or demand
and the amount or the estimated amount thereof to the extent then
feasible, which estimate shall not be conclusive of the final amount of
such claim or demand (the "Claim Notice"). The indemnified party shall
not be entitled to indemnification with respect to any such claim or
demand if the indemnified party fails to notify the indemnifying party
thereof in accordance with the provisions of this Agreement in
reasonably sufficient time so that the indemnifying party's ability to
defend against the claim or demand is not materially prejudiced. The
indemnifying party shall have thirty (30) days from the personal
delivery or mailing of the Claim Notice (the "Notice Period") to notify
the indemnified party (i) whether or not it disputes entitlement of the
indemnified party to indemnification hereunder with respect to such
claim or demand, and (ii) whether or not it desires at no cost or
expense to the indemnified party, to defend the indemnified party
against such claim or demand; provided, however, that any indemnified
party is hereby authorized prior to and during the Notice Period to
file any motion, answer or other pleading which it shall deem necessary
or appropriate to protect its interests, provided that the indemnified
party provides the indemnifying party with a copy of its proposed
motion, answer or other pleading and of its intention to file such
document. The indemnifying party shall have five (5) days, or such
shorter period of time as may be required in order that the motion,
answer or other pleading may be timely filed, to review such document
and respond to the Claim Notice prior to the filing of such document.
The indemnified party shall be authorized to file the motion, answer or
other pleading if the indemnifying party fails to respond within such
time period. In the event that the indemnifying party notifies the
indemnified party within the Notice Period that it desires to defend
the indemnified party against such claim or demand and except as
hereinafter provided, the indemnifying party shall have the right to
defend by all appropriate proceedings, which proceedings shall be
promptly settled or prosecuted by it to a final conclusion. If the
indemnified party desires to participate in, but not control, any such
defense or settlement it may do so at its sole cost and expense.
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<PAGE> 39
If requested by the indemnifying party, the indemnified party agrees to
cooperate with the indemnifying party and its counsel in contesting any
claim or demand which the indemnifying party elects to contest, or, if
appropriate and related to the claim in question, in making any
counterclaim against the person asserting the third cross complaint
against any person. No claim may be settled without the consent of the
indemnifying party.
(b) In the event any indemnified party should have an
indemnification claim hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a
third party, the indemnified party shall send a Claim Notice with
respect to such claim to the indemnifying party and, if applicable,
otherwise comply with the provisions of the Escrow Agreement.
(c) The amount to be paid by any indemnifying party to an
indemnified party hereunder shall be reduced by the amount of any Net
Tax Benefit realized by the indemnified party as a result of such
indemnification claim. "Net Tax Benefit" means an amount equal to the
net reduction in any year in the liability for taxes (that are based
upon or measured by income) of the indemnified party or any member of a
consolidated or combined tax group of which the indemnified party is,
or was at any time, part, which reduction is actually realized and
which reduction would not have been realized but for the amount paid
(or any audit adjustment or deficiency with respect thereto, if
applicable) in respect of an indemnification claim, or amounts paid by
the indemnified party pursuant to this Article 8. The parties hereto
agree to provide the other parties or their designated representatives
with such assistance and such documents and records reasonably
requested by them that are relevant to their ability to determine
whether there is a Net Tax Benefit, including but not limited to copies
of tax returns, estimated tax payments, schedules and related
supporting documents.
8.5 Limitations on Indemnification. None of the Company, Holdings
or Banner, on the one hand, and the Acquiror, on the other hand, shall be
required to indemnify any other person under Section 8.2 or 8.3 until the
aggregate of all amounts for which indemnity would otherwise be payable by them
exceeds $400,000 (the "Basket"), and in such event, they shall be responsible
only for the amount in excess of the Basket; provided, however, that any amounts
for which indemnity would be payable which are attributable to or arise out of
(i) liabilities for taxes (including any federal, state, local or foreign
income, gross receipts, license, payroll, employment, severance, stamp,
occupation, premium, customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum or estimated tax); (ii) fees payable in respect of
common area maintenance charges, operating expenses or insurance imposed under
the Store Leases which are attributable to periods prior to the Closing; (iii)
liabilities relating to the failure to obtain zoning permits with respect to
additions made to Store #13 as described on Schedule 3.21 attached hereto (iv)
liabilities relating to the fire damage suffered at Store #89 as described on
Schedule 3.8; (v) liabilities relating to the damaged vehicle as described on
Schedule 3.8; (vi) claims arising out of or in connection with the failure of
the Company to pay its operating expenses prior to Closing in accordance with
past practices
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<PAGE> 40
to the extent that such operating expenses are not specifically included in
Assumed Liabilities; (vii) claims which arise or result from the noncompliance
by the Company with the provisions of the WARN Act; or (viii) those certain
pending EEOC/state/local agency charges described in Item 2 of Schedule 3.25
hereto shall not be counted toward the Basket, but shall be an immediately
indemnifiable expense. The indemnification obligations of the Company, Holdings
and Banner under Section 8.2 shall be limited, in the aggregate, to $8,000,000,
provided however that if the Company, Banner or Holdings shall be found to have
committed fraud or willful misconduct, the indemnification obligations of the
Company, Holdings and Banner under Section 8.2 shall be unlimited. The
indemnification obligations of the Acquiror under Section 8.3 shall be limited,
in the aggregate, to $5,000,000, provided, however, that if the Acquiror shall
be found to have committed fraud or willful misconduct, the indemnification
obligations of the Acquiror under Section 8.3 shall be unlimited.
8.6 Exclusive Remedy. Subject to Section 6.3 of this Agreement,
following the Closing Date, the rights of the indemnified parties to
indemnification pursuant to Article 8 shall be the sole and exclusive remedy of
such indemnified parties for any breach of any representation, warranty or
covenant set forth in this Agreement.
ARTICLE 9
GENERAL PROVISIONS
9.1 Fees of Investment Banker. The fees of the Robinson-Humphrey
Company, Inc. incurred in connection with the Acquisition shall be paid by the
Acquiror.
9.2 Expenses. Except as otherwise specifically set forth herein, each
party hereto shall pay all of its own costs and expenses in connection with (i)
the preparation, negotiation, execution and delivery of this Agreement and all
related agreements, and (ii) the consummation of the transactions contemplated
hereby and thereby.
9.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
sent by telex, telecopy, facsimile or overnight courier, or mailed by registered
or certified mail (postage prepaid and return receipt requested), to the party
to whom the same is so delivered, sent or mailed at the following addresses (or
at such other address for a party as shall be specified by like notice):
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<PAGE> 41
(a) if to the Acquiror:
Renters Choice, Inc.
13800 Montfort Drive
Suite 300
Dallas, Texas 75240
Attention: J. Ernest Talley, Chief Executive Officer
Telecopy: (214) 385-1625
With a copy to:
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Thomas W. Hughes, Esq.
Telecopy: (214) 745-5390
(b) if to the Company:
Central Rents, Inc.
5480 East Ferguson Drive
Commerce, California 90022
Attention: Gary Cypres
Telecopy: (213) 720-8647
With a copy to:
O'Melveny & Myers
400 South Hope Street
Los Angeles, California 90071
Attention: Frederick B. McLane, Esq.
Telecopy: (213) 669-6407
(c) if to Holdings or Banner:
5480 East Ferguson Drive
Commerce, California 90022
Attention: Gary Cypres
Telecopy: (213) 720-8647
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<PAGE> 42
With a copy to:
O'Melveny & Myers
400 South Hope Street
Los Angeles, California 90071
Attention: Frederick B. McLane, Esq.
Telecopy: (213) 669-6407
Notices delivered personally or by telex, telecopy or facsimile shall be deemed
delivered as of actual receipt, mailed notices shall be deemed delivered three
days after mailing and overnight courier notices shall be deemed delivered one
day after the date of sending.
9.4 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated.
9.5 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated and the parties shall negotiate
in good faith to modify this Agreement to preserve each party's anticipated
benefits under this Agreement.
9.6 Miscellaneous. This Agreement (together with all other documents
and instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties with respect to the subject matter hereof; (b) except as
expressly set forth herein, is not intended to confer upon any other person any
rights or remedies hereunder and (c) shall not be assigned by operation of law
or otherwise.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE STATE
OF DELAWARE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS
THEREOF.
9.8 Counterparts. This Agreement may be executed in two or more
counterparts which together shall constitute a single agreement.
9.9 No Consequential Damages. Notwithstanding anything to the contrary
elsewhere in this Agreement, no party (or its affiliates) shall, in any event,
be liable to any other party (or its affiliates) for any consequential damages,
including, but not limited to, loss of revenue or income, cost of capital, or
loss of business reputation or opportunity relating to the breach or alleged
breach of this Agreement.
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<PAGE> 43
ARTICLE 10
DEFINED TERMS
The following terms are defined in the following Sections of this
Agreement.
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Acquiror Introductory Paragraph
Acquiror Financial Statements 4.7(b)
Acquisition Recitals
Acquisition Proposal 4.3(a)
Agreement Introductory Paragraph
Assets 1.1
Assignment and Assumption Agreement 1.3
Assumed Contracts 1.1
Assumed Liabilities 1.5
Audit Statement 6.2(b)
Audited Closing Date Rental Merchandise Value 6.2(b)
Auditor's Report 6.2(c)
Auditors 6.2(c)
Banner Introductory Paragraph
Basket 8.5
Business Recitals
Central Names 6.3
Central Rents Employee Benefit Plans 7
Claim Notice 8.4(a)
Claims 8.2
Closing 1.6
Closing Date 1.6
Closing Date Payment 1.3
Closing Date Rental Merchandise Value 6.2(a)
Code 1.4
Comerica 2.5
Commitment Letters 2.5
Company Introductory Paragraph
Company Audited Financial Statements 3.7(b)
Company Determined Closing Date Rental Merchandise Value 6.2(a)
Company ERISA Affiliate 3.27
Company Headquarters 6.12
Company Interim Financial Statements 3.7(b)
Company Internal Financial Statements 3.7(b)
Company Registered Intellectual Property 3.22
Company SEC Documents 3.7(a)
Consent 3.5
</TABLE>
38
<PAGE> 44
<TABLE>
<S> <C>
Contract 3.24(a)
DOJ 4.1
Employees 3.26
Equipment Leases 1.1(g)
Escrow Agent 1.3
Escrow Agreement 1.3
Excluded Assets 1.2
Expected Closing Date Rental Merchandise Value 6.2(a)
FTC 4.1(a)
GAAP 6.2(a)
GECC 1.1(q)
GECC Purchase Order 1.1(q)
Holdings Introductory Paragraph
HSR Act 2.3
Landlord Consent 6.8
License 6.3
Lien 3.11
Motor Vehicle Leases 1.1(f)
Net Tax Benefit 8.4(c)
Non-Competition and Non-Solicitation Agreement 5.2(b)
Non-Rentable Items 6.2(b)
Non-Store Vehicles 6.5
Note Repurchase Agreement 3.4
Noteholder 3.4
Notes 3.4
Notice Period 8.4(a)
Overstatement 6.2(b)
Permitted Lien 3.11
Permitted Transferee 6.3
Prepaid Lease Deposits 6.11
Rental Purchase Agreements 1.1(a)
Store Recitals
Store Leases 1.1(i)
Undisclosed Liabilities 3.7(b)
</TABLE>
39
<PAGE> 45
ASSET PURCHASE AGREEMENT
Signature Page
IN WITNESS WHEREOF, the Acquiror, the Company, Holdings and Banner have
executed or caused this Agreement to be executed on the date first written
above.
RENTERS CHOICE, INC.
By:
----------------------------------------------
Name: J. Ernest Talley
----------------------------------------
Title: Chairman of the Board
----------------------------------------
and Chief Executive Officer
----------------------------------------
CENTRAL RENTS, INC.
By:
----------------------------------------------
Name: Gary Cypres
----------------------------------------
Title: Chief Executive Officer
----------------------------------------
CENTRAL RENTS HOLDING, INC.
By:
----------------------------------------------
Name: Gary Cypres
----------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
BANNER HOLDINGS, INC.
By:
----------------------------------------------
Name: Gary Cypres
----------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
40
<PAGE> 46
EXHIBIT A
FORM OF BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT
<PAGE> 47
EXHIBIT B
FORM OF ESCROW AGREEMENT
<PAGE> 48
EXHIBIT C
FORM OF OPINION OF COUNSEL TO THE COMPANY
<PAGE> 49
EXHIBIT D
FORM OF NON-COMPETITION AND NON-SOLICITATION AGREEMENT
<PAGE> 50
EXHIBIT E
FORM OF OPINION OF COUNSEL TO THE ACQUIROR
<PAGE> 51
EXHIBIT F
FORM OF NOTE REPURCHASE AGREEMENT
<PAGE> 52
SCHEDULE 2.3
CONSENTS AND APPROVALS
1. Revolving Credit Agreement dated as of November 27, 1996 between
Comerica Bank, as agent, Renters Choice, Inc. and certain other
lenders, and related documents.
<PAGE> 1
EXHIBIT 2.2
RENTERS CHOICE, INC.
13800 MONTFORT ROAD, SUITE 300
DALLAS, TEXAS 75240
Agreement dated as of
May 26, 1998
Central Rents, Inc.
Central Rents Holding, Inc.
Banner Holdings, Inc.
5480 East Ferguson Drive
Commerce, California 90022
Re: Asset Purchase Agreement, dated as of May 1, 1998, by and
among Renters Choice, Inc., Central Rents, Inc., Central Rents
Holding, Inc. and Banner Holdings, Inc.
Gentlemen:
Reference is made to that certain Asset Purchase Agreement (the "Asset
Purchase Agreement"), dated as of May 1, 1998, by and among Renters Choice,
Inc., a Delaware corporation (the "Acquiror"), Central Rents, Inc., a Delaware
corporation (the "Company"), Central Rents Holding, Inc., a Delaware
corporation ("Holdings"), and Banner Holdings, Inc., a Delaware corporation
("Banner"), pursuant to which the Acquiror has agreed to purchase (the
"Acquisition") substantially all of the assets of the Company used in, or
related to, the operation of 176 rent-to-own stores. Capitalized terms used
herein without definition shall be as defined in the Asset Purchase Agreement.
This letter agreement (this "Agreement") amends, modifies and supplements the
Asset Purchase Agreement as follows:
1. Bulk Transfer Matters. Notwithstanding the provisions of
Section 4.8 of the Asset Purchase Agreement, the Company and
the Acquiror acknowledge and agree that the notice provisions
with respect to the bulk sales laws of Georgia, South Carolina
and Tennessee will not be complied with at Closing. The
indemnification obligations of Holdings and Banner as provided
in Section 8.2(c) of the Asset Purchase Agreement are hereby
ratified and confirmed.
2. Open Inventory Contracts. The parties acknowledge and agree
that notwithstanding the provisions of Section 4.9 of the
Asset Purchase Agreement, the Company shall provide to the
Acquiror a list of the Open Inventory Contracts with respect
to the "RTO" Stores rather than a copy of each such Open
Inventory Contract. In addition, the parties acknowledge and
agree that
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Dated as of May 26, 1998
Page 2
notwithstanding the provisions of Section 1.1(n) of the Asset
Purchase Agreement, no agreements of the Company to purchase
inventory for the Stores that were entered into in the
ordinary course of business were cancelled pursuant to mutual
agreement between the Company and the Acquiror.
3. Store Leases. The Company shall use its reasonable efforts to
provide to the Acquiror fully executed copies of each of the
leases listed in Item 1 of Schedule 3.10 to the Asset Purchase
Agreement (the "Schedule 3.10 Leases") prior to Closing Date,
as provided by Section 4.12 of the Asset Purchase Agreement.
The Company and the Acquiror acknowledge and agree that fully
executed copies of some of the Schedule 3.10 Leases may not be
available to be delivered as of the Closing Date due to
circumstances beyond the control of the Company. Prior to the
Closing Date, the Company shall use its reasonable efforts to
provide to the Acquiror unsigned copies of the Schedule 3.10
Leases which the Company believes to be true and correct
copies of such Schedule 3.10 Leases. Within thirty (30) days
of the Closing Date, the Company shall provide to the Acquiror
with respect to each Schedule 3.10 Lease not provided prior to
the Closing either a fully executed copy of such lease or a
written confirmation from the landlord of the term and monthly
rent for such lease.
4. Certain Inventory.
(a) Aged Inventory Schedule and Charge Offs.
Notwithstanding the provisions of Section 4.13 of the Asset
Purchase Agreement, the Company shall not be required to
remove the Aged Inventory from the Stores prior to the
Closing. The Company, with the cooperation of the Acquiror
and its employees, shall determine which items of inventory
are Aged Inventory and the employees shall prepare an initial
Aged Inventory Schedule no later than the close of business on
Monday, June 1, 1998. The Company shall review and audit, and
in its sole and absolute discretion, revise the initial Aged
Inventory Schedule and cause to be prepared a final Aged
Inventory Schedule that shall include all items of Aged
Inventory to be charged off (and excluded from the Closing
Date Rental Merchandise Value pursuant to Section 6.2 of the
Asset Purchase Agreement). The Company shall coordinate with
the Acquiror to arrange for those items of Aged Inventory
listed on the final Aged Inventory Schedule to be charged off
by the Stores no later than the close of business on Monday,
June 1, 1998, with such charge off to be effective as of the
Closing Date. The Company and the Acquiror shall instruct the
Store employees to provide the final Aged Inventory Schedule,
together with the backup for such
<PAGE> 3
Dated as of May 26, 1998
Page 3
schedule to the Company by overnight mail for delivery on
Tuesday, June 2, 1998. No later than the close of business on
Monday, June 8, 1998, the Company shall provide such final
Aged Inventory Schedule and backup to the Acquiror together
with the Company's calculation of the Company Determined
Closing Date Rental Merchandise Value pursuant to Section 6.2
of the Asset Purchase Agreement. In accordance with Section
6.2 of the Asset Purchase Agreement, the Company shall pay to
the Acquiror the difference between the Expected Closing Date
Rental Merchandise Value ($66,002,000) and the Company
Determined Closing Date Rental Merchandise Value within thirty
(30) days of the Closing Date.
(b) Disposal of Aged Inventory. No later than the close
of business on June 1, 1998, the Company, with the cooperation
and assistance of the Acquiror, shall use its reasonable
efforts to ship out of the Stores all small items of Aged
Inventory which have been charged-off. Within ten (10) days
of the Closing, the Company shall use its reasonable efforts
to pick up from those Stores located in California and Arizona
those items of Aged Inventory not already shipped out of the
Stores by the Company. All items of Aged Inventory remaining
in the Stores after the tenth day following the Closing shall
be tagged as Aged Inventory and picked up by the Company
within forty-five days following the Closing. All shipping
and delivery costs of the Company in disposing of the Aged
Inventory in the forty-five days following the Closing shall
be borne by the Company. Any items of Aged Inventory
remaining in the Stores after the forty-fifth day following
the Closing may be disposed of by the Acquiror in its
discretion and at its cost and expense.
5. Repurchase of Notes. The Note Repurchase Agreements require
that the Noteholder receive notice of the anticipated date of
closing the purchase of the Seller Notes (as defined in the
Note Repurchase Agreements) in writing no earlier than five
(5) business days prior to such scheduled closing date. Such
five (5) day notice period shall not have expired as of the
Closing Date and, therefore, the Company and the Acquiror
acknowledge and agree that all of the Notes may not be
repurchased simultaneously with the Closing. To the extent
that all of the Notes are not repurchased simultaneously with
the Closing due to the pendency of the five (5) day notice
period, the parties waive the condition contained in Section
5.1(c) of the Asset Purchase Agreement and agree to effect the
Closing despite the nonoccurrence of such condition.
Notwithstanding the foregoing, the Company shall use its
reasonable efforts to repurchase all of the
<PAGE> 4
Dated as of May 26, 1998
Page 4
Notes simultaneously with the Closing. In the event that any
of the Notes are not repurchased on the Closing Date, the
Acquiror shall withhold from the Closing Date Payment an
amount equal to the amount required to repurchase, in
accordance with the Note Repurchase Agreements, the Notes
which remain outstanding on the Closing Date.
6. Certain Equipment Leases and Service Contracts. The Company
shall use its reasonable efforts to provide to the Acquiror
prior to the Closing copies of the contracts identified in
Items 1-3 of Schedule 1.1(h) to the Asset Purchase Agreement
and Items 1(c) and 2 of Schedule 1.1(o) to the Asset Purchase
Agreement which are not terminable on 30 days' or less notice,
as provided by Section 1.2(c) of the Asset Purchase Agreement,
provided, however, that any such contracts for which copies
are not provided as of the Closing will not become Excluded
Assets as of the Closing Date, but shall become Excluded
Assets pursuant to Section 1.2(c) of the Asset Purchase
Agreement only to the extent that the Company fails to deliver
copies of such contracts within thirty (30) days following the
Closing.
7. Payroll. The Company has arranged for its Employees to be
paid through May 31, 1998. To the extent that the Closing
Date occurs prior to May 31, 1998, the Acquiror shall pay to
the Company an amount equal to the payroll expense for all
Employees for the number of paydays elapsed between the
Closing Date and May 31, 1998 (except for any Employees which
the Acquiror notifies the Company of in writing no later than
the close of business on the Closing Date that it will not
hire following the Closing). Such payment shall be made in
accordance with Section 13 hereof.
8. Liens. Attached hereto as Annex I is a list of additional
Liens which were inadvertently omitted from Schedule 3.11 to
the Asset Purchase Agreement. The parties acknowledge and
agree that Schedule 3.11 shall be deemed to include the Liens
listed on Annex I as of the date of the Asset Purchase
Agreement.
9. Intellectual Property. The parties acknowledge and agree that
none of the trademarks or service marks listed on Schedule
3.22 to the Asset Purchase Agreement are subject to current
federal or state registration. Accordingly, the Company shall
transfer, pursuant to the Asset Purchase Agreement, all of its
common law right, title and interest, if any, in and to the
trademarks and service marks listed on Schedule 3.22 to the
Asset Purchase Agreement.
<PAGE> 5
Dated as of May 26, 1998
Page 5
10. Interim Operations of the Company. The Company and the
Acquiror acknowledge that in connection with the replacement
of the Company's existing line of credit and letters of credit
as contemplated by Item 5 of Schedule 4.2, the Company amended
the Credit Agreement.
11. Indemnification. The Acquiror agrees to indemnify and hold
harmless the Company and its directors, officers, employees,
affiliates, agents and assigns from and against any and all
Losses (as defined below) of the Company which arise or result
from and to the extent they are attributable to the failure of
the Company to obtain the consent of any of its employees to
the release of employment information about such employees to
the Acquiror. For the purposes of this Section 11, "Losses"
means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation,
penalty, fine or settlement of any kind or nature, whether
foreseeable or unforeseeable, including but not limited to,
penalties, legal, accounting and other professional fees and
expenses incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or
suffered by the Company or any of its directors, officers,
employees, affiliates, agents and assigns.
12. Waiver of Condition. The Acquiror hereby waives the condition
set forth in Section 5.2(c) of the Asset Purchase Agreement.
The Company and the Acquiror shall use their reasonable
efforts to obtain the consents set forth on Schedule 5.2(c) to
the Asset Purchase Agreement as soon as practicable after the
Closing.
13. Proration. The Company has prepared the schedule attached
hereto as Annex II which reflects certain proration items
known to the Company as of the Closing Date (the "Closing Date
Proration Schedule"). The Acquiror agrees to review the
Closing Date Proration Schedule and provide to the Company
within ten (10) days after the Closing Date the payments
called for by the Closing Date Proration Schedule, other than
any individual proration items that Acquiror disputes, which
the Company and the Acquiror shall resolve in accordance with
the terms of the Asset Purchase Agreement. The parties
acknowledge and agree that there will be additional items to
be prorated after the Closing pursuant to Section 6.8 of the
Asset Purchase Agreement.
14. Reasonable Access to Employees. The Acquiror shall provide
the Company with reasonable access to its employees after the
Closing Date to enable the
<PAGE> 6
Dated as of May 26, 1998
Page 6
Company to comply with the provisions of Section 4 of this
Agreement. In addition, the Acquiror shall, and shall cause
its affiliates to, cooperate fully with the Company and its
representatives and provide the Company and its
representatives with reasonable access to those employees of
the Acquiror that were previously employees of the Company in
connection with any action, suit, arbitration, proceeding,
hearing, investigation, charge, complaint, claim, demand,
notice, audit or investigation of the Company relating to any
matters or periods (or portion thereof) on or before the
Closing Date.
15. Entire Agreement. Notwithstanding the provisions of Section
9.6(a) of the Asset Purchase Agreement, this Agreement,
together with the Asset Purchase Agreement and all other
documents and instruments referred to therein, constitutes the
entire agreement and supersedes all other prior agreements and
undertakings, both written and oral, among the parties with
respect to the Acquisition.
16. No Further Amendments. Except as expressly provided in this
Agreement, the Asset Purchase Agreement is not further amended
or modified and shall remain in full force and effect in
accordance with its terms.
17. Governing Law. The provisions of Section 9.7 of the Asset
Purchase Agreement shall apply to this Agreement.
[Remainder of page intentionally blank]
<PAGE> 7
Dated as of May 26, 1998
Page 7
Please evidence your agreement and acceptance of the foregoing by
signing below. This Agreement may be executed in two or more counterparts
which together shall constitute a single agreement.
Very truly yours,
RENTERS CHOICE, INC.,
a Delaware corporation
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
AGREED TO AND
ACCEPTED BY:
CENTRAL RENTS, INC.,
a Delaware corporation
By:
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
CENTRAL RENTS HOLDING, INC.,
a Delaware corporation
By:
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 8
Dated as of May 26, 1998
Page 8
BANNER HOLDINGS, INC.,
a Delaware corporation
By:
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 9
ANNEX I
ADDITIONAL LIENS
<TABLE>
<CAPTION>
FINANCING
STATEMENT
NUMBER JURISDICTION SECURED PARTY
------------ ------------------------------ -------------
<S> <C> <C>
5855 City of Newport News, Virginia Wells Fargo
5854 City of Newport News, Virginia Wells Fargo
63-95-0950 Glynn County, Georgia Wells Fargo
148-1995-640 Ware County, Georgia Wells Fargo
0143597 Henderson County, Kentucky Wells Fargo
95-25754 Pulaski County, Arkansas Wells Fargo
17-1107303 East Baton Rouge Parish, Louisiana Wells Fargo
</TABLE>
<PAGE> 10
ANNEX II
CLOSING DATE PRORATION SCHEDULE
Begins on the following page.
