<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number 0-25370
RENT-A-CENTER, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 48-1024367
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 Tennyson Parkway, Third Floor
Plano, Texas 75024
(972) 801-1100
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
NONE
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 2, 1999:
Class Outstanding
------------------------------------------- ---------------
Common stock, $.01 par value per share 25,293,208
<PAGE> 2
RENT-A-CENTER, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 3
Consolidated Statements of Earnings for the nine months ended 4
September 30, 1999 and 1998
Consolidated Statements of Earnings for the three months ended 5
September 30, 1999 and 1998
Consolidated Statements of Cash Flows for the nine months ended 6
September 30, 1999 and 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
SIGNATURES
Exhibit 27.1
2
<PAGE> 3
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands of Dollars) September 30, December 31,
1999 1998
------------- ------------
Unaudited
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 15,198 $ 33,797
Rental merchandise, net
On rent 378,305 311,650
Held for rent 92,459 97,156
Accounts receivable - trade 3,361 3,296
Prepaid expenses and other assets 26,966 65,689
Property assets, net 82,503 85,018
Deferred income taxes 178,407 178,407
Intangible assets, net 708,956 727,976
------------ ------------
$ 1,486,155 $ 1,502,989
============ ============
LIABILITIES
Senior debt $ 608,340 $ 630,700
Subordinated notes payable 175,000 175,000
Accounts payable - trade 43,889 43,868
Accrued liabilities 199,782 239,032
------------ ------------
1,027,011 1,088,600
COMMITMENTS AND CONTINGENCIES -- --
PREFERRED STOCK
Redeemable convertible voting preferred stock, net of placement costs, $.01
par value; 5,000,000 shares authorized; 268,886 and 260,000 shares issued
and outstanding in 1999 and 1998, respectively 268,362 259,476
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 50,000,000 shares authorized; 25,292,708 and
25,073,583 shares issued in 1999 and 1998, respectively 253 251
Additional paid-in capital 105,024 101,781
Retained earnings 110,505 77,881
------------ ------------
215,782 179,913
Treasury stock, 990,099 shares at cost in 1999 and 1998 (25,000) (25,000)
------------ ------------
190,782 154,913
------------ ------------
$ 1,486,155 $ 1,502,989
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(In Thousands of Dollars, except per share data) Nine months ended September 30,
------------------------------------
1999 1998
--------------- ---------------
Revenues Unaudited
<S> <C> <C>
Store
Rentals and fees $ 935,985 $ 400,793
Merchandise sales 70,841 24,329
Other 1,724 2,094
Franchise
Merchandise sales 33,499 28,440
Royalty income and fees 4,488 3,777
--------------- ---------------
1,046,537 459,433
Operating expenses
Direct store expenses
Depreciation of rental merchandise 196,815 91,382
Cost of merchandise sold 59,002 16,600
Salaries and other expenses 569,916 238,577
Franchise cost of merchandise sold 32,493 27,318
--------------- ---------------
858,226 373,877
General and administrative expenses 31,770 18,054
Amortization of intangibles 20,091 7,767
--------------- ---------------
Total operating expenses 910,087 399,698
Operating profit 136,450 59,735
Interest expense 56,224 18,469
Non-recurring financing costs -- 5,017
Interest income (391) (1,932)
--------------- ---------------
Earnings before income taxes 80,617 38,181
Income tax expense 39,102 17,153
--------------- ---------------
NET EARNINGS 41,515 21,028
Preferred dividends 7,473 1,496
--------------- ---------------
Net earnings allocable to common stockholders $ 34,042 $ 19,532
=============== ===============
Basic earnings per common share $ 1.41 $ 0.79
=============== ===============
Diluted earnings per common share $ 1.22 $ 0.78
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(In Thousands of Dollars, except per share data) Three months ended September 30,
------------------------------------
1999 1998
--------------- ---------------
Revenues Unaudited
<S> <C> <C>
Store
Rentals and fees $ 318,119 $ 237,350
Merchandise sales 18,662 13,816
Other 404 1,813
Franchise
Merchandise sales 11,679 11,379
Royalty income and fees 1,556 1,528
--------------- ---------------
350,420 265,886
Operating expenses
Direct store expenses
Depreciation of rental merchandise 65,911 57,543
Cost of merchandise sold 15,664 8,298
Salaries and other expenses 191,804 143,290
Franchise cost of merchandise sold 11,316 10,932
--------------- ---------------
284,695 220,063
General and administrative expenses 9,920 10,860
Amortization of intangibles 6,845 4,496
--------------- ---------------
Total operating expenses 301,460 235,419
Operating profit 48,960 30,467
Interest expense 18,717 16,914
Non-recurring financing costs -- 5,017
Interest income (54) (1,694)
--------------- ---------------
Earnings before income taxes 30,297 10,230
Income tax expense 14,700 5,587
--------------- ---------------
NET EARNINGS 15,597 4,643
Preferred dividends 2,542 1,496
--------------- ---------------
Net earnings allocable to common stockholders $ 13,055 $ 3,147
=============== ===============
Basic earnings per common share $ 0.54 $ 0.13
=============== ===============
Diluted earnings per common share $ 0.46 $ 0.13
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
------------------------------------
(In Thousands of Dollars) 1999 1998
--------------- ---------------
Unaudited
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 41,515 $ 21,028
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities
Depreciation of rental merchandise 196,815 91,382
Depreciation of property assets 23,304 10,539
Amortization of intangibles 20,091 7,767
Non-recurring charges - assets retired related to name
change -- 2,451
Amortization of financing fees 1,956 546
Changes in operating assets and liabilities, net of effects of
acquisitions
Rental merchandise (258,773) (98,839)
Accounts receivable - trade (65) 464
Prepaid expenses and other assets 12,326 (19,036)
Deferred income taxes -- 1,826
Accounts payable - trade 21 20,812
Accrued liabilities (12,587) (75,816)
---------- -----------
Net cash provided by (used in) operating activities 24,603 (36,876)
---------- -----------
Cash flows from investing activities
Purchase of property assets (32,588) (9,732)
Proceeds from sale of property assets 8,501 1,029
Acquisitions of businesses, net of cash acquired -- (946,117)
---------- -----------
Net cash used in investing activities (24,087) (954,820)
---------- -----------
Cash flows from financing activities
Purchase of treasury stock -- (25,000)
Exercise of stock options 3,245 1,594
Financing fees paid -- (24,018)
Proceeds from issuance of preferred stock, net of issuance
costs -- 259,476
Proceeds from debt 157,175 1,250,863
Repayments of debt (179,535) (385,480)
---------- -----------
Net cash provided by (used in) financing activities (19,115) 1,077,435
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (18,599) 85,739
Cash and cash equivalents at beginning of period 33,797 4,744
---------- -----------
Cash and cash equivalents at end of period $ 15,198 $ 90,483
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim financial statements of Rent-A-Center, Inc. included herein
have been prepared by us pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Commission's rules and regulations,
although we believe that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
included in our Annual Report on Form 10-K, as amended by Form 10-K/A, for
the year ended December 31, 1998, and our Quarterly Reports on Form 10-Q
for the three months ended March 31, 1999 and six months ended June 30,
1999. In our opinion, the accompanying unaudited interim financial
statements contain all adjustments, consisting only of those of a normal
recurring nature, necessary to present fairly our results of operations and
cash flows for the periods presented. The results of operations for the
periods presented are not necessarily indicative of the results to be
expected for the full year.
2. On May 28, 1998, we acquired substantially all of the assets of Central
Rents, Inc. for approximately $100 million in cash. Central Rents operated
176 stores located primarily in California, the Southwest, Midwest, and
South. On August 5, 1998, we acquired Thorn Americas, Inc. for
approximately $900 million in cash, including the repayment of certain debt
of Thorn Americas. Prior to this acquisition, Thorn Americas was our
largest competitor with 1,409 company-owned stores and 65 franchised stores
in 49 states and the District of Columbia. During 1998, we also acquired
the assets of 51 rent-to-own stores in 13 separate transactions for
approximately $26.4 million in cash. The following pro-forma information
combines the results of operations as if the acquisitions of Central Rents
and Thorn Americas had been consummated as of the beginning of 1998, after
including the impact of adjustments for amortization of intangibles, and
the impact of interest expense and preferred dividends as a result of
acquisition financing. The results of operations of the other stores
acquired in 1998 were not material in relation to our consolidated results
of operations.
<TABLE>
<CAPTION>
(In Thousands of Dollars, except per share data) Nine months ended Three months ended
September 30, September 30,
------------------ ------------------
1998 1998
------------------ ------------------
Unaudited Unaudited
<S> <C> <C>
Revenues $ 1,027,581 $ 341,160
Net earnings allocable to common stockholders $ 4,208 $ 1,489
Basic earnings per common share $ 0.17 $ 0.06
Diluted earnings per common share $ 0.17 $ 0.06
</TABLE>
The pro-forma financial information is presented for informational purposes only
and is not necessarily indicative of operating results that would have occurred
had the acquisitions been consummated as of the above dates.
7
<PAGE> 8
3. EARNINGS PER SHARE
Basic and diluted earnings per common share is computed based on the
following information:
<TABLE>
<CAPTION>
(In Thousands, except for per share data) Three months ended September 30, 1999
-------------------------------------------------------
Net earnings Shares Per share
--------------- --------------- ---------------
<S> <C> <C> <C>
Basic earnings per common share $ 13,055 24,295 $ 0.54
Effect of dilutive stock options -- 195
Effect of preferred dividend 2,542 9,625
--------------- ---------------
Diluted earnings per common share $ 15,597 34,115 $ 0.46
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
(In Thousands, except for per share data) Three months ended September 30, 1998
-------------------------------------------------------
Net earnings Shares Per share
--------------- --------------- ---------------
<S> <C> <C> <C>
Basic earnings per common share $ 3,147 24,821 $ 0.13
Effect of dilutive stock options -- 201
--------------- ---------------
Diluted earnings per common share (1) $ 3,147 25,022 $ 0.13
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
(In Thousands, except for per share data) Nine months ended September 30, 1999
-------------------------------------------------------
Net earnings Shares Per share
--------------- --------------- ---------------
<S> <C> <C> <C>
Basic earnings per common share $ 34,042 24,204 $ 1.41
Effect of dilutive stock options -- 367
Effect of preferred dividend 7,473 9,538
--------------- ---------------
Diluted earnings per common share $ 41,515 34,109 $ 1.22
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
(In Thousands, except for per share data) Nine months ended September 30, 1998
-------------------------------------------------------
Net earnings Shares Per share
--------------- --------------- ---------------
<S> <C> <C> <C>
Basic earnings per common share $ 19,532 24,910 $ 0.79
Effect of dilutive stock options -- 232
Effect of preferred dividend 1,496 1,892
--------------- ---------------
Diluted earnings per common share $ 21,028 27,034 $ 0.78
=============== =============== ===============
</TABLE>
- --------
(1) The effect of the redeemable convertible voting preferred stock is
anti-dilutive for the three months ended September 30, 1998.
8
<PAGE> 9
4. ACQUISITION ACCRUED LIABILITIES
In conjunction with the acquisition of Thorn Americas, we recorded accrued
liabilities associated with (A) estimated probable losses on assumed
litigation, (B) severance costs relating to the termination of substantially
all of Thorn Americas' home office employees, and (C) costs relating to the
early termination of leases, incurred as a result of the discontinued use of
distribution facilities, and the relocation of stores identified at the time
of acquisition as being of insufficient size or inappropriate geographic
location. The following table summarizes the composition of these
liabilities.
<TABLE>
<CAPTION>
(In Thousands of Dollars) September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Litigation costs $ 66,300 $ 83,600
Severance costs -- 2,500
Lease termination costs 6,300 13,700
--------------- ---------------
$ 72,600 $ 99,800
=============== ===============
</TABLE>
All reductions in the accrued liabilities shown above are attributable to
payments against liabilities identified at the time of acquisition. The most
significant payment was approximately $17 million in May 1999, relating to
the settlement of Burney v. Thorn Americas, Inc., and associated legal costs.
During the quarterly period ended September 30, 1999, we evaluated the
adequacy of these accrued liabilities and concluded that no changes should be
recorded against goodwill.
5. PREFERRED STOCK DIVIDENDS
On May 18, 1999 and September 21, 1999 we declared 3.75% dividends on our
redeemable convertible voting preferred stock. These dividends were paid
through the issuance of 6,395 and 2,491 shares, respectively, of in-kind
preferred stock to holders of record on March 31, 1999 and June 30, 1999,
respectively.
6. SUBSIDIARY GUARANTORS
Pursuant to the terms of the indenture relating to our subordinated notes,
our direct and wholly owned subsidiaries, ColorTyme, Inc. and Advantage
Companies, Inc., have fully, jointly and severally, and unconditionally
guaranteed our obligations with respect to these notes. Our only direct or
indirect subsidiaries that are not guarantors are inconsequential
subsidiaries. There are no restrictions on any of the guarantors to transfer
funds to us in the forms of loans, advances or dividends, except as provided
by applicable law.
The following summarized financial information includes ColorTyme, Inc. and
Advantage Companies, Inc. on a combined basis. Separate financial statements
and other disclosures concerning the guarantors have not been included
because management believes that they are not material to investors.
9
<PAGE> 10
<TABLE>
<CAPTION>
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
(In Thousands of Dollars)
Balance Sheet Data:
September 30, 1999
Rental merchandise, net $ 470,764 $ -- $ -- $ 470,764
Intangible assets, net 326,373 382,583 -- 708,956
Total assets 1,093,481 407,133 (14,459) 1,486,155
Total debt 608,340 -- -- 608,340
Total liabilities 1,021,617 5,394 -- 1,027,011
December 31, 1998
Rental merchandise, net $ 408,806 $ -- $ -- $ 408,806
Intangible assets, net 345,130 382,846 -- 727,976
Total assets 1,113,895 403,553 (14,459) 1,502,989
Total debt 630,700 -- -- 630,700
Total liabilities 1,084,819 3,781 -- 1,088,600
Statements of Earnings Data:
For the nine months ended September 30, 1999
Total revenues $1,008,550 $ 37,987 $ -- $ 1,046,537
Direct store expenses 825,733 -- -- 825,733
Franchise cost of merchandise sold -- 32,493 -- 32,493
Net earnings 39,549 1,966 -- 41,515
For the nine months ended September 30, 1998
Total revenues $ 428,788 $ 30,645 $ -- $ 459,433
Direct store expenses 346,559 -- -- 346,559
Franchise cost of merchandise sold 1,168 26,150 -- 27,318
Net earnings 19,558 1,470 -- 21,028
For the three months ended September 30, 1999
Total revenues $ 337,186 $ 13,234 $ -- $ 350,420
Direct store expenses 273,379 -- -- 273,379
Franchise cost of merchandise sold -- 11,316 -- 11,316
Net earnings 14,796 801 -- 15,597
For the three months ended September 30, 1998
Total revenues $ 254,550 $ 11,336 $ -- $ 265,886
Direct store expenses 209,131 -- -- 209,131
Franchise cost of merchandise sold 1,168 9,764 -- 10,932
Net earnings 4,041 602 -- 4,643
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This report contains forward-looking statements that involve risk and
uncertainties. Forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate" or "believe". We believe that the expectations
reflected in these forward-looking statements are accurate. However, we cannot
assure you that these expectations will occur. Our actual future performance
could differ materially from such statements. Factors that could cause or
contribute to these differences include, but are not limited to:
o our ability to enhance the performance of the stores acquired in the
Central Rents and Thorn Americas acquisitions;
o our ability to acquire additional rent-to-own stores on favorable
terms and our ability to integrate those stores into our operations;
o uncertainties regarding the ability to open new stores;
o the passage of legislation adversely affecting the rent-to-own
industry;
o interest rates;
o our ability to collect on our rental purchase agreements at the
current rate; and
o other risks detailed from time to time in our reports and statements
filed with the SEC.
You should not unduly rely on these forward-looking statements, which speak only
as of the date of this report. Except as required by law, we are not obligated
to publicly release any revisions to these forward-looking statements to reflect
events or circumstances occurring after the date of this report or to reflect
the occurrence of unanticipated events. Important factors that could cause our
actual results to differ materially from our expectations are discussed under
"Risk Factors" in our Annual Report on Form 10-K, as amended by our Form 10-K/A,
for our fiscal year ended December 31, 1998, in our Registration Statement on
Form S-3 filed on May 7, 1999, in our Quarterly Reports on Form 10-Q for the
three months ended March 31, 1999 and six months ended June 30, 1999, and
elsewhere in this report. All subsequent written and oral forward-looking
statements attributable to us, or persons acting on our behalf, are expressly
qualified in their entirety by the statements in those sections.
10
<PAGE> 11
OUR BUSINESS
We are the largest operator in the United States rent-to-own industry with an
approximate 26% market share based on store count. At September 30, 1999, we
operated 2,076 company-owned stores and had 349 franchised stores, providing
high quality durable goods in 50 states, the District of Columbia and Puerto
Rico.
We have pursued an aggressive growth strategy since we were acquired in 1989 by
J. Ernest Talley, our Chairman of the Board and Chief Executive Officer. We have
sought to acquire under-performing stores to which we could apply our operating
strategies. The acquired stores benefit from our administrative network,
improved product mix, sophisticated management information systems and the
greater purchasing power of a larger organization. Since May 1993, our store
base has grown from 27 to 2,076 primarily through acquisitions. During this
period we have acquired over 2,000 company-owned stores and over 300 franchised
stores in more than 60 separate transactions, including six transactions where
we acquired in excess of 70 stores. As a result, we have gained significant
experience in the acquisition and integration of other rent-to-own operators and
believe that the fragmented nature of the industry will result in ongoing growth
opportunities.
In May 1998, we acquired substantially all of the assets of Central Rents, Inc.,
which operated 176 stores, for approximately $100 million in cash. In August
1998, we acquired Thorn Americas, Inc. for approximately $900 million in cash,
including the repayment of certain debt of Thorn Americas. Prior to this
acquisition, Thorn Americas was our largest competitor, operating 1,409
company-owned stores and 65 franchised stores in 49 states and the District of
Columbia. During 1998, we also acquired the assets of 51 stores in 13 separate
transactions for approximately $26.4 million in cash. As a result of these
acquisitions, a total of 1,636 stores were added to our store base.
All of the aforementioned acquisitions were accounted for as purchases and,
accordingly, the operating results of the acquired stores have been included in
our operating results since their respective dates of acquisition. Because of
the significant growth since our formation, our historical results of
operations, period-to-period comparisons of such results, and certain financial
data may not be comparable, meaningful or indicative of future results.
RECENT DEVELOPMENTS
During 1998, we developed a comprehensive program for the integration of Central
Rents and Thorn Americas, which was successfully completed by the end of March
1999. The rapid completion of this integration process enabled us to begin to
realize most of the synergies identified at the time of the acquisitions, and
also enabled us to concentrate our efforts on improving the performance of the
acquired stores earlier than we had originally anticipated.
During the nine months ended September 30, 1999, we focused our efforts on
enhancing the operational performance and strengthening the depth of management
in the stores acquired from Central Rents and Thorn Americas. We sought to
improve store performance through strategies intended to produce gains in
operating efficiency and profitability. For instance, in conjunction with the
closure of the distribution centers and the change to our vendor drop shipment
system, we managed to significantly reduce the number of stock-keeping units
held, either through normal rental channels or through outright sales. These
stock-keeping units were replaced with our current product offerings, and with
the support of our marketing and advertising programs, we were able to increase
revenues and operating margins. In addition, our strategy of rationalizing the
product mix resulted in the average monthly revenue per unit for the acquired
stores increasing. This rationalization, as well as management's focus on
improving other processes that are essential to our operating model, is
enhancing margins and profitability in the acquired stores. Our focus for the
remainder of the year is to continue improving operations and to continue to
build strength in store management personnel. We have strengthened the depth of
management by continuing to aggressively recruit and train high quality
personnel.
Despite the increased investment in new merchandise necessary to achieve the
desired product mix, we still generated positive cash flow from operations of
$24.6 million for the nine months ended September 30, 1999. Under the terms of
our senior credit facility, we are obligated to repay $2.0 million in 1999.
However, our stronger than anticipated financial performance and cash flow
position has enabled us to meet this obligation and to additionally repay
approximately $109.7 million of our senior debt since the acquisition of Thorn
Americas through September 30, 1999, including $14.9 million during the three
months ended September 30, 1999. It is currently our
11
<PAGE> 12
intention to make further principal repayments on our senior debt whenever our
cash flow position is sufficiently strong.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Total revenue increased by $587.1 million, or 127.8%, to $1,046.5 million for
1999 from $459.4 million for 1998. The increase in total revenue was primarily
attributable to the inclusion of the 1,632 stores acquired during the nine
months ended September 30, 1998 for the entire nine month period ended September
30, 1999. Same store revenues increased by $16.8 million, or 7.2% to $251.5
million for 1999 from $234.6 million in 1998. Same store revenues represent
those revenues earned in stores that were operated by us for the entire
nine-month periods ending September 30, 1999 and 1998. This improvement was
primarily attributable to an increase in both the number of items on rent and in
revenue earned per item on rent.
Depreciation of rental merchandise increased by $105.4 million, or 115.4%, to
$196.8 million for 1999 from $91.4 million for 1998. Depreciation of rental
merchandise expressed as a percent of store rentals and fees revenue decreased
from 22.8% in 1998 to 21.0% in 1999. This decrease is primarily attributable to
Central Rents and Thorn Americas experiencing depreciation rates of 22.9% and
29.8%, respectively, upon their acquisition in 1998. These rates have decreased
following the implementation of our pricing strategies and inventory management
practices.
Salaries and other expenses expressed as a percentage of total store revenue
increased to 56.5% for 1999 from 55.8% for 1998. This increase is attributable
to the increase in salaries for employees and other expenses of the acquired
stores immediately following the acquisitions. Occupancy costs also increased as
a percentage of total store revenue due to the relocation of certain stores
acquired in 1998 to locations that are larger in square footage. Generally,
revenue from these stores increased gradually while the additional payroll and
occupancy costs were incurred immediately. General and administrative expenses
expressed as a percent of total revenue decreased from 3.9% in 1998 (3.4% before
the non-recurring expense detailed below), to 3.0% in 1999. This decrease was
the result of increased revenues from the stores acquired from Central Rents and
Thorn Americas, allowing us to leverage our fixed and semi-fixed costs over the
larger revenue base.
Operating profit increased by $76.7 million, or 128.4%, to $136.5 million for
1999 from $59.7 million for 1998. In the third quarter of 1998, we incurred a
pre-tax non-recurring expense of $2.5 million to effect a name change of the
Renters Choice stores to "Rent-A-Center." Stated before the effect of this
expense, operating profit increased by $74.2 million, or 119.4%. Operating
profit as a percentage of total revenue decreased to 13.0% in 1999 from 13.5% in
1998 (calculated before the effect of the non-recurring expense). This decrease
is attributable to the lower margins achieved at the acquired Central Rents and
Thorn Americas stores. Our efforts to improve the efficiency and profitability
of these acquired stores, as discussed elsewhere in this report, have resulted
in operating profit as a percentage of total revenue increasing from 10.7% for
the three months ended December 31, 1998 (calculated before the effect of an
$11.5 million non-recurring legal charge), to 12.1% for the three months ended
March 31, 1999, 13.0% for the three months ended June 30, 1999, and 14.0% for
the three months ended September 30, 1999.
Net earnings increased by $20.5 million, or 97.4%, to $41.5 million in 1999 from
$21.0 million in 1998. In addition to the $2.5 million pre-tax non-recurring
expense detailed earlier, we also incurred pre-tax non-recurring financing costs
of $5.0 million associated with interim financing utilized in the acquisition of
Thorn Americas, Inc. until permanent financing was obtained. The after-tax
effect of these items was $4.5 million. Calculated before the effects of these
non-recurring expenses, net earnings increased by $16.0 million, or 62.9%. The
improvement in net earnings was a result of the increase in operating profit
described above.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Total revenue increased by $84.5 million, or 31.8%, to $350.4 million for 1999
from $265.9 million for 1998. The increase in total revenue was primarily
attributable to the inclusion of the 1,450 stores purchased during the three
months ended September 30, 1998 for the entire three month period ended
September 30, 1999. Same store revenues increased by $7.5 million, or 7.6%, to
$106.3 million for 1999 from $98.8 million in 1998. Same store revenues
represent those revenues earned in stores that were operated by us for the
entire three-month period ending September
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30, 1999 and 1998. This improvement was primarily attributable to an increase in
both the number of items on rent and in revenue earned per unit on rent.
Depreciation of rental merchandise increased by $8.4 million, or 14.5%, to $65.9
million for 1999 from $57.5 million for 1998. Depreciation of rental merchandise
as a percent of store rentals and fees revenue decreased from 24.2% for 1998 to
20.7% for 1999. This decrease is primarily attributable to Central Rents and
Thorn Americas experiencing depreciation rates of 22.9% and 29.8%, respectively,
upon their acquisition in 1998. These rates have decreased following the
implementation of our pricing strategies and inventory management practices.
Salaries and other expenses as a percentage of total store revenue increased to
56.9% for 1999 from 56.6% for 1998. This increase is attributable to the
increase in salaries for employees and other expenses of the acquired stores
immediately following the acquisitions. Occupancy costs also increased as a
percentage of total store revenue due to the relocation of certain stores
acquired in 1998 to locations that are larger in square footage. Generally,
revenue from these stores increased gradually while the additional payroll and
occupancy costs were incurred immediately.
General and administrative expenses expressed as a percentage of total revenue
decreased from 4.1% (3.2% before the non-recurring expense detailed below) in
1998 to 2.8% in 1999. This decrease was the result of increased revenues from
the stores acquired from Central Rents and Thorn Americas, allowing us to
leverage our fixed and semi-fixed costs over a larger revenue base.
Operating profit increased by $18.5 million, or 60.7%, to $49.0 million for 1999
from $30.5 million for 1998. In 1998 we incurred a pre-tax non-recurring expense
of $2.5 million to effect a name change from Renters Choice to "Rent-A-Center."
Stated before the effect of this expense, operating profit increased by $16.0
million or 48.7%. Operating profit as a percentage of total revenue increased to
14.0% in 1999 from 12.4% in 1998 (calculated before the effect of the
non-recurring expense). This increase is attributable to our success in
improving the efficiency and profitability of the acquired Central Rents and
Thorn Americas Stores, as discussed earlier in this report. Net earnings
increased by $11.0 million, or 235.9%, to $15.6 million in 1999 from $4.6
million in 1998. In addition to the $2.5 million pre-tax non-recurring expense
detailed earlier, we also incurred pre-tax non-recurring financing costs of $5.0
million associated with interim financing utilized in the acquisition of Thorn
Americas, Inc. until permanent financing was obtained. The after-tax effect of
these items was $4.5 million. Calculated before the effects of these
non-recurring expenses, net earnings increased by $6.5 million or 71.4%.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity requirements are for debt service under our senior credit
facilities, the subordinated notes, other indebtedness outstanding, working
capital and capital expenditures. At September 30, 1999, we had in place a
$962.3 million senior credit facility. The amounts outstanding under our senior
credit facility, subordinated notes, and other indebtedness outstanding as of
this date were approximately $606.0 million, $175.0 million, and $2.3 million,
respectively.
We purchased $358.9 million of rental merchandise during the nine months ended
September 30, 1999.
For the nine months ended September 30, 1999, cash provided by operating
activities increased by $61.5 million, from $(36.9) million in 1998 to $24.6
million in 1999, primarily due to increased earnings and cashflows being
generated from operations as a result of our strategy of rationalizing the
product mix in the acquired Central Rents and Thorn Americas stores, mitigated
by outflows representing the investment in new rental merchandise. Cash used in
investing activities decreased by $930.7 million from $954.8 million in 1998 to
$24.1 million in 1999, primarily due to the
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purchase of Central Rents and Thorn Americas occurring in 1998. Cash used in
financing activities was $19.1 million for the nine months ended September 30,
1999, compared to an inflow of $1,077.4 million in 1998, which represented the
source of funds for the purchase of Central Rents and Thorn Americas.
Borrowings under the senior credit facility bore interest at a rate equal to
0.25% to 1.75% over the designated prime rate, which was 8.25% per annum at
September 30, 1999, or 1.25% to 2.75% over LIBOR, which was 5.38% at September
30, 1999, at our option. At September 30, 1999, the average rate on outstanding
borrowings was 7.7%. During 1998, we entered into certain interest rate
protection agreements with two banks. Under the terms of the interest rate
agreements, the LIBOR rate used to calculate the interest rate charged on $500
million of the outstanding senior term debt has been fixed at an average rate of
5.59%. These interest rate agreements have terms of three and five years.
Borrowings were collateralized by a lien on substantially all of our assets. A
commitment fee equal to 0.25% to 0.50% of the unused portion of the term loan
facility is payable quarterly. The senior credit facility includes certain net
worth and fixed charge coverage requirements, as well as covenants which
restrict additional indebtedness and the disposition of assets not in the
ordinary course of business.
Principal and interest payments under the senior credit facilities, the
subordinated notes, and other indebtedness outstanding represent significant
liquidity requirements for us. Under the term loans, we will be required to make
principal payments totaling approximately $2.0 million in 1999 (which was paid
on September 30, 1999), $14.0 million in 2000, $22.0 million in 2001, $26.0
million in 2002, and $30.0 million in 2003. Loans under the senior credit
facilities not covered by interest rate swap agreements bear interest at
floating rates based upon the interest rate option selected by us. As discussed
earlier, we have repaid approximately $109.7 million of our senior debt since
the acquisition of Thorn Americas through September 30, 1999.
Capital expenditures are made generally to maintain existing operations and for
the acquisition and opening of stores. We spent $32.6 million in the nine months
ended September 30, 1999, and expect to spend a total of approximately $40.0
million in the year ended December 31, 1999 on capital expenditures, all of
which are to maintain existing operations.
Management is currently focusing its efforts on enhancing the operations and the
depth of management in the acquired stores. Towards the end of the year 2000, we
intend to resume our strategy of increasing our store base and annual revenues
and profits through the opening of new stores, as well as through opportunistic
acquisitions. It is our goal to increase the number of stores in which we
operate by between 100-150 in the year 2000.
We plan to accomplish our future growth through selective and opportunistic
acquisitions, with an increasing emphasis on new store development. Typically, a
newly opened rental store is profitable on a monthly basis in the sixth to
seventh month after its initial opening. Historically, a typical store has
achieved break-even profitability in twelve to fifteen months after its initial
opening. Total financing requirements of a typical new store approximates $0.4
million, with roughly 80% to 85% of that amount relating to the purchase of
rental merchandise inventory. A newly opened store historically has achieved
results consistent with other stores that have been operating within the system
for greater than two years by the end of its third year of operation. There can
be no assurance that we will open any new stores in the future, or as to the
number, location or profitability thereof.
We believe that cash flow from operations together with amounts available under
the senior credit facilities, including the revolving credit facility and letter
of credit/multidraw facility therein, will be sufficient to fund our debt
service requirements, working capital needs, capital expenditures and litigation
exposure during 1999. The revolving credit facility provides us with revolving
loans in an aggregate principal amount not exceeding $120.0 million and the
$122.3 million letter of credit/multidraw facility is currently being used to
support certain litigation assumed in connection with the Thorn Americas
acquisition via a letter of credit. Once the letter of credit is terminated, the
letter of credit/multidraw facility will convert to a $85.0 million term loan
facility. Based upon our extensive review and analysis of this litigation and
our potential exposure thereon, we believe that we will have sufficient funds
available to pay any litigation expenses related to our litigation.
In addition, to provide any additional funds necessary for the continued pursuit
of our operating and growth strategies, we may incur from time to time
additional short or long-term bank indebtedness and may issue, in public or
private transactions, equity and debt securities. The availability and
attractiveness of any outside sources of
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financing will depend on a number of factors, some of which will relate to our
financial condition and performance, and some of which will be beyond our
control, such as prevailing interest rates and general economic conditions.
There can be no assurance additional financing will be available, or if
available, will be on terms acceptable to us.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which will be effective for the fiscal year 2001. This statement
establishes accounting and reporting standards requiring that derivative
instruments, including certain derivative instruments imbedded in other
contracts, be recorded on the balance sheet as either an asset or a liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. We are currently evaluating the impact that this
statement will have on our financial statements.
YEAR 2000 OVERVIEW
Year 2000 issues exist when dates are recorded on computers using two digits,
rather than four, and are then used for arithmetic operations, comparisons or
sorting. A two digit recording may recognize a date using "00" as 1900, rather
than 2000, which could cause computer systems to perform inaccurate computations
or shut down. Many of the world's computer systems currently record years in
this two-digit format and will be unable to properly interpret dates beyond the
year 1999 if not remedied.
Management Information Systems. Our primary information technology system
controls all of our computer operations in our rent-to-own stores and home
office. This system has also been integrated into the retail outlets and
operations acquired from Central Rents and Thorn Americas. We have received
written assurance from our software vendor that the system is Year 2000
compliant, which means that it is equipped to interpret dates beyond the year
1999. We have engaged external resources to complete an independent review of
our information systems. Based in part upon the results of this review, we
believe that our management information systems are prepared for the Year 2000.
As of September 30, 1999, we have incurred costs of approximately $0.3 million
in assuring Year 2000 compliance through testing and upgrades. Additionally, as
part of our recent expansion, we purchased new hardware and software for our
home office that is warranted to be Year 2000 compliant. All upgrades in both
our headquarters and ColorTyme's offices have been completed.
Major Suppliers. We have received written assurances from approximately 95% of
our vendors, confirming that these vendors are Year 2000 compliant. We utilize
many suppliers and no single supplier is material to our operations. As a
result, we believe that we have the ability to obtain merchandise for our stores
from many different vendors. In the event any of our vendors are not Year 2000
compliant, we anticipate having sufficient alternate supply sources available to
serve our needs.
Other Systems. We have completed a review of our on-site non-information
technology systems such as alarms, elevators, irrigation systems, thermostats,
utility meters and switches, and as a result, we believe that these systems are
all Year 2000 compliant.
In the event of a complete failure of our information technology systems, our
contingency plan is to continue the affected functions either manually or
through the use of systems that are not Year 2000 compliant. The primary costs
associated with such a necessity would be (A) increased time delays in the
posting of information, and (B) increased personnel to manually process the
information. We believe that the increased costs associated with any additional
personnel would not have a material adverse affect on our operations or
financial conditions.
The cost of Year 2000 compliance and the estimated date of completion of
necessary modifications are based on our best estimates, which were derived from
various assumptions of future events, including the continued availability of
resources, third party modification plans and other factors. However, we cannot
guarantee these estimates are accurate and actual results could differ
materially from those anticipated.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
As of September 30, 1999 we had $175.0 million in subordinated notes at a fixed
interest rate of 11.0%, and $595.0 million in term loans, and $13.3 million
outstanding under revolving credit facilities indexed to the LIBOR rate. The
subordinated notes mature on August 15, 2008 and have a fixed interest rate of
11.0%. The fair value of the subordinated notes is estimated based on discounted
cash flow analysis using interest rates currently offered for loans with similar
terms to borrowers of similar credit quality. The fair value of the subordinated
notes is $174.1 million, which is $0.9 million below their carrying value of
$175.0 million. Unlike the subordinated notes, the $595.0 million in term loans
and $13.3 million outstanding under revolving credit facilities have variable
interest rates indexed to current LIBOR rates. Because the variable rate
structure exposes us to the risk of increased interest cost if interest rates
rise, we have entered into interest rate swap agreements to hedge this risk. In
1998, we entered into $500.0 million in interest rate swap agreements that lock
in a LIBOR rate of 5.59%. These contracts have an average life of four years.
Given the current capital structure, including our interest rate swap
agreements, we have $108.3 million, or 13.8% of our total debt, in variable rate
debt. A hypothetical 1.0% change in the LIBOR rate would affect pre-tax earnings
by approximately $0.3 million for the three month period.
MARKET RISK
Market risk is the potential change in an instrument's value caused by
fluctuations in interest rates. Our primary market risk exposure is fluctuations
in interest rates. Monitoring and managing this risk is a continual process
carried out by the Board of Directors and senior management. We manage our
market risk based on an ongoing assessment of trends in interest rates and
economic developments, giving consideration to possible effects on both total
return and reported earnings.
INTEREST RATE RISK
We hold long-term debt with variable interest rates indexed to prime or LIBOR
which exposes us to the risk of increased interest costs if interest rates rise.
To reduce the risk related to unfavorable interest rate movements, we have
entered into certain interest rate swap contracts on $500.0 million of debt to
pay a fixed rate of 5.59%.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we, along with our subsidiaries, are party to various legal
proceedings arising in the ordinary course of business. The majority of the
material proceedings involve claims that may be generally characterized into one
of two categories, recharacterization claims and statutory compliance claims.
Recharacterization claims generally involve claims:
o in states that do not have rent-to-own legislation;
o that rent-to-own transactions are disguised installment sales in
violation of applicable state installment statutes; and
o that allege greater damages.
Statutory compliance claims generally involve claims:
o in states that have rent-to-own legislation;
o that the operator failed to comply with applicable state rental
purchase statutes, such as notices and late fees; and
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o that allege lesser damages.
Except as described below, we are not currently a party to any material
litigation.
Abels v. Rent-A-Center, Inc. In April 1999, the plaintiff filed suit in state
court in Michigan alleging violations of the Michigan Consumer Protection Act
pertaining to our basis for setting the cash purchase price on goods rented by
plaintiff pursuant to two rental purchase agreements with us. Plaintiff's
complaint seeks individual declaratory, injunctive and monetary damages relief,
as well as monetary damages on behalf of a putative class of our past, current
and future customers in Michigan. We have filed an answer in the matter denying
plaintiff's claims and intend to vigorously defend this action. Discovery in the
case has only recently commenced. Given the early state of this proceeding,
there can be no assurance that we will be found to have no liability in this
matter.
Murray v. Rent-A-Center, Inc. In May 1999, the plaintiffs filed a putative
nationwide class action suit in federal court in Missouri, alleging that we have
discriminated against African Americans in our hiring, compensation, promotion
and termination policies. Plaintiffs alleged no specific amount of damages in
their complaint. We have filed an answer in the matter denying plaintiffs'
allegations and intend to vigorously defend this action. No discovery in this
litigation has occurred to date. Members of the regional class defined in our
completed settlement of the Allen v. Thorn Americas, Inc. litigation would not
be included in the Murray case. We believe plaintiffs' claims in this suit are
without merit. However, given the early stage of this proceeding, there can be
no assurance that we will be found to have no liability.
Otero v. Rent-A-Center, Inc. In September 1999, the plaintiff filed this
putative class action in Los Angeles Superior Court in California alleging our
classification of and pay to our executive assistant managers and our
inside/outside managers is contrary to California wage and hour laws.
Plaintiff's complaint seeks:
o class certification;
o unspecified compensatory and penalty damages in an amount less than
$75,000 per class member;
o injunctive relief;
o attorney's fees, filing fees and costs of suit;
o pre-and post-judgment interest; and
o any further relief granted by the court.
We intend to vigorously defend ourselves in this matter. However, given the
early stage of this proceeding, there can be no assurance we will be found to
have no liability.
The following litigation matters were assumed with Thorn Americas pursuant to
the Thorn Americas acquisition. In connection with accounting for the Thorn
Americas acquisition, we made appropriate purchase accounting adjustments for
contingent liabilities associated with outstanding litigation.
Robinson v. Thorn Americas, Inc. The plaintiffs filed this class action on April
19, 1994 in state court in New Jersey. The class consists of all residents of
New Jersey who are or have been parties to Thorn Americas' rent-to-own contracts
since April 19, 1988. During this period, Thorn Americas operated approximately
23 stores in New Jersey. The plaintiffs' claims are for alleged violations of
the New Jersey Retail Installment Sales Act and the New Jersey Consumer Fraud
Act, usury, unlawful contractual penalty and conversion. On January 5, 1998, the
court entered a judgment against Thorn Americas and ordered Thorn Americas to
pay the plaintiffs the amount equal to (A) all reinstatement fees collected by
Thorn Americas since April 29, 1988, and (B) 40% of all rental revenue collected
by Thorn Americas from the plaintiffs from April 29, 1988, trebled. Later, the
court added an incentive award to the class representative, the inclusion of
attorneys' fees, and granted plaintiff's counsel 25% of the amount to be
distributed to the class. The judgment is secured by a supersedeas bond posted
by Thorn Americas in the amount of $163.0 million, which amount was derived from
an accounting by plaintiffs of the projected amount of the judgment liability
through April 1999. In December 1998, we settled this matter in principle, along
with Gallagher and Boykin, two similar matters pending in New Jersey involving
similar claims, for approximately $60.0
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million less certain amounts to be refunded to us based on unlocated class
members, subject to preliminary and final approval of the court. Final approval
of the court occurred on October 13, 1999. We anticipate funding the settlement
in late November 1999.
Colon v. Thorn Americas, Inc. The plaintiffs filed this class action in November
1997 in New York state court. Thorn Americas removed the case to the U.S.
District Court for the Southern District of New York. Plaintiffs filed a motion
to remand, which was granted. The plaintiffs acknowledge that rent-to-own
transactions in New York are subject to the provisions of New York's Rental
Purchase Statute but contend the Rental Purchase Statute does not provide Thorn
Americas immunity from suit for other statutory violations. Plaintiffs allege
Thorn Americas has a duty to disclose "effective interest" under New York
consumer protection laws, and seek damages and injunctive relief for Thorn
Americas' failure to do so. In their prayers for relief, the plaintiffs have
requested the following:
o class certification;
o injunctive relief requiring Thorn Americas to (A) cease certain
marketing practices, (B) price their rental purchase contracts in
certain ways, and (C) disclose effective interest;
o unspecified compensatory and punitive damages;
o rescission of the class members contracts;
o an order placing in trust all moneys received by Thorn Americas in
connection with the rental of merchandise during the class period;
o treble damages, attorney's fees, filing fees and costs of suit;
o pre-and post-judgment interest; and
o any further relief granted by the court.
This suit also alleges violations relating to late fees, harassment, undisclosed
charges, and the ease of use and accuracy of its payment records. The plaintiffs
did not specify a specific amount on their damages request.
The proposed class includes all New York residents who were party to Thorn
Americas' rent-to-own contracts from November 26, 1991 through November 26,
1997. We are vigorously defending this action and on September 24, 1998, filed
motions to deny class certification and dismiss the complaint. Plaintiff
responded and filed a motion for summary judgment asking the court to declare
that the transaction includes an undisclosed interest component. The court
denied our motion to dismiss plaintiffs' motion for summary judgement on August
24, 1999. We are appealing the court's ruling to the Appellate Division. There
can be no assurance that our position will prevail, or that we will be found not
to have any liability.
Anslono v. Thorn Americas, Inc. This action was was filed in Massachusetts state
court on January 6, 1998. Plaintiffs acknowledge that rent-to-own contracts
constitute "consumer leases" under Massachusetts' rent-to-own statute, but
contend that Thorn Americas failed to comply with certain statutory provisions
and Thorn Americas failed to provide certain disclosures. Plaintiffs seek actual
and statutory damages and an injunction to prohibit Thorn Americas from engaging
in the acts complained of. Specifically, the plaintiffs have requested in their
prayers for relief, the following:
o class certification;
o unspecified damages, together with an award of treble damages under
Massachusetts law;
o costs and expenses, including reasonable attorneys' fees;
o injunctive relief, enjoining Thorn Americas from engaging in unfair or
deceptive practices relating to certain advertising practices;
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o an order eliminating the plaintiffs' obligation to pay their final
periodic rent-to-own installment payment; and
o any other further relief that the plaintiffs may be entitled to.
The proposed class includes all Massachusetts residents who were parties to
Thorn Americas' rent-to-own contracts in the four-year period prior to the
January 6, 1998 filing. We settled this matter in principle in April 1999 for
$10.00 coupons to persons who were customers of Thorn Americas from January 6,
1994 to December 31, 1998, and less than $50,000 in Plaintiff's attorney's fees
and expenses. Final approval of the court occurred on August 5, 1999 and we are
in the process of distributing the coupons.
In connection with the Thorn Americas acquisition, Thorn plc agreed to indemnify
and hold us harmless from the following lawsuit:
Fogie v. Thorn Americas, Inc. The plaintiffs filed this class action on December
4, 1991 in Minnesota. The class consists of residents of Minnesota who entered
rental purchase contracts with Thorn Americas from August 1, 1990 through
November 30, 1996. The plaintiffs alleged that Thorn Americas' rent-to-own
contracts violated Minnesota's Consumer Credit Sales Act and the Minnesota
General Usury Statute. On April 15, 1998, the court entered a final judgment
against Thorn Americas and ordered it to pay approximately $30.0 million plus
interest after that date to the plaintiffs. Under certain provisions of the
judgment, Thorn Americas may receive certain credits against the judgment. On
May 15, 1998, Thorn Americas filed a notice of appeal from the damages finding
only. Oral argument in the appeal occurred on May 10, 1999. The Eighth Circuit
Court of Appeals affirmed the damages finding on August 8, 1999. Thorn plc
deposited the judgment amount in an escrow account supervised by plaintiff's
counsel and the court on October 15, 1999. The administration of the judgment
and payment of class members' claims is expected to occur during late 1999 and
early 2000.
The following litigation matters pending against us have been settled in
principle in connection with the settlement of the Robinson matter:
Gallagher v. Crown Leasing Corporation. On January 3, 1996, we were served with
a class action complaint adding us as a defendant in this action originally
filed in April 1994 against Crown and certain of its affiliates in state court
in New Jersey. The class consists of all New Jersey residents who entered into
rent-to-own contracts with Crown between April 25, 1988 and April 20, 1995.
During this period, Crown operated approximately five stores in New Jersey. The
lawsuit alleges, among other things, that under certain rent-to-own contracts
entered into between the plaintiff class and Crown, some of which were
purportedly acquired by us pursuant to the acquisition of Crown and certain of
its affiliates, the defendants failed to make the necessary disclosures and
charged the plaintiffs fees and expenses that violated the New Jersey Consumer
Fraud Act and the New Jersey Retail Installment Sales Act. The plaintiffs seek
damages including, among other things, a refund of all excessive fees and/or
interest charged or collected by the defendants in violation of such acts, state
usury laws and other related statutes and treble damages, as applicable.
Pursuant to the Asset Purchase Agreement entered into between Crown, its
controlling shareholder and us in connection with the Crown acquisition, we did
not contractually assume any liabilities pertaining to Crown's rent-to-own
contracts for the period prior to the acquisition of Crown. The plaintiffs have
obtained class certification and a summary judgment against Crown on the
liability issues. Subsequent to these decisions by the New Jersey state court,
Crown filed for protection from its creditors under Chapter 11 of the federal
bankruptcy laws. The bankruptcy court allowed the lawsuit to proceed in New
Jersey, where the state court granted summary judgment on the plaintiff's
damages formula against Crown. The plaintiffs calculated actual damages for
purposes of their summary judgment motion at approximately $7.6 million. The
court ruled that the plaintiffs are entitled to three times actual damages.
However, the state court's ruling requires certain minor adjustments pursuant to
an accounting. Together with the Boykin matter, we settled this matter in
principle for approximately $11.5 million, subject to preliminary and final
approval of the court. The final settlement documents were signed on April 23,
1999 and preliminarily approved by the court. Final approval of the court
occurred on October 13, 1999. We anticipate funding the settlement in late
November, 1999.
Michelle Newhouse v. Rent-A-Center, Inc./Handy Boykin v. Rent-A-Center, Inc. On
November 26, 1997 a class action complaint was filed against us by Michelle
Newhouse in New Jersey state court alleging, among other things, that under
certain rent-to-own contracts entered into between the plaintiffs and us, we
failed to make the necessary disclosures and charged the plaintiffs fees and
expenses that violated the New Jersey Consumer Fraud Act and the
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New Jersey Installment Sales Act. The claims arising from this action are
similar to the claims made in Robinson v. Thorn Americas, Inc. and Gallagher v.
Crown Leasing Corporation. The proposed class consists of all residents of New
Jersey who are or have been parties to contracts to rent-to-own merchandise from
us within the past six years. During this period, we operated approximately 17
stores in New Jersey.
We removed the case to federal court on January 21, 1998, and were then advised
by the plaintiffs' attorney that Michelle Newhouse no longer wished to serve as
class representative. A motion to voluntarily dismiss the Newhouse case filed by
the plaintiffs' attorney was granted shortly thereafter. However, on May 1,
1998, a new class action complaint against us made by Handy Boykin was filed by
the plaintiffs' attorney in the Newhouse matter in New Jersey state court
alleging the same causes of action with the same proposed class as that of the
Newhouse matter. This new filing essentially constitutes a replacement of the
named plaintiff in the Newhouse matter with a new named plaintiff, Handy Boykin.
We anticipated this replacement. We removed the Boykin case to federal court,
where Boykin's motion to remand to New Jersey state court is now pending.
Together with the Gallagher matter, we settled this matter in principle for
approximately $11.5 million, subject to preliminary and final approval by the
court. The final settlement documents were signed on April 23, 1999 and
preliminarily approved by the court.
As noted above, the settlements in Robinson, Gallagher and Boykin received final
approval from the court on October 13, 1999, and we anticipate funding the
settlement in late November, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
CURRENT REPORTS ON FORM 8-K.
None.
EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2.1(1) -- Asset Purchase Agreement, dated May 1, 1998, by and among
Renters Choice, Inc., Central Rents, Inc., Central Rents Holding,
Inc. and Banner Holdings, Inc. (Pursuant to the rules of the
Commission, the schedules and exhibits have been omitted. Upon the
request of the Commission, Renters Choice will supplementally
supply such schedules and exhibits to the Commission.)
2.2(2) -- Letter Agreement, dated as of May 26, 1998, by and among
Renters Choice, Inc., Central Rents, Inc., Central Rents Holding,
Inc. and Banner Holdings, Inc. (Pursuant to the rules of the
Commission, the schedules and exhibits have been omitted. Upon the
request of the Commission, Renters Choice will supplementally
supply such schedules and exhibits to the Commission.)
2.3(3) -- Stock Purchase Agreement, dated as of June 16, 1998, among
Renters Choice, Inc., Thorn International BV and Thorn plc
(Pursuant to the rules of the Commission, the schedules and
exhibits have been omitted. Upon the request of the Commission,
the Company will supplementally supply such schedules and exhibits
to the Commission.)
3.1(4) -- Amended and Restated Certificate of Incorporation of Renters
Choice
3.2(5) -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of Renters Choice
3.3(6) -- Amended and Restated Bylaws of Rent-A-Center
4.1(7) -- Form of Certificate evidencing Common Stock
4.2(8) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series A Preferred Stock of Renters Choice,
Inc.
4.3(9) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series B Preferred Stock of Renters Choice,
Inc.
4.4(10) -- Indenture, dated as of August 18, 1998, by and among Renters
Choice, Inc., as Issuer, ColorTyme, Inc. and Rent-A-Center, Inc.,
as Subsidiary Guarantors, and IBJ Schroder Bank & Trust Company,
as Trustee
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EXHIBIT
NUMBER EXHIBIT DESCRIPTION
4.5(11) -- Form of Certificate evidencing Series A Preferred Stock
4.6(12) -- Form of Exchange Note
4.7(13) -- First Supplemental Indenture, dated as of December 31, 1998, by
and among Renters Choice Inc., Rent-A-Center, Inc., ColorTyme,
Inc., Advantage Companies, Inc. and IBJ Schroder Bank & Trust
Company, as Trustee.
10.1(14) -- Amended and Restated 1994 Renters Choice, Inc. Long-Term
Incentive Plan
10.3(15) -- Credit Agreement, dated August 5, 1998, among Renters Choice,
Inc., Comerica Bank, as Documentation Agent, NationsBank N.A., as
Syndication Agent, and The Chase Manhattan Bank, as Administrative
Agent, and certain other lenders
10.4(16) -- Guarantee and Collateral Agreement, dated August 5, 1998, made
by Renters Choice, Inc., and certain of its Subsidiaries in favor
of the Chase Manhattan Bank, as Administrative Agent
10.5(17) -- $175,000,000 Senior Subordinated Credit Agreement, dated as of
August 5, 1998, among Renters Choice, Inc., certain other lenders
and the Chase Manhattan Bank
10.6(18) -- Stockholders Agreement, dated as of August 5, 1998, by and
among Apollo Investment Fund IV, L.P., Apollo Overseas Partners
IV, L.P., J. Ernest Talley, Mark E. Speese, Renters Choice, Inc.,
and certain other persons
10.7* __ Agreements to be Bound to Stockholders Agreement, each dated
September 9, 1999, by and among Apollo Investment Fund IV, L.P.,
Apollo Overseas Partners IV, L.P., J. Ernest Talley, Mark E.
Speese, Rent-A-Center, Inc. and certain other persons.
10.8(19) -- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and
Apollo Overseas Partners IV, L.P., related to the Series A
Convertible Preferred Stock
10.9(20) -- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and
Apollo Overseas Partners IV, L.P., related to the Series B
Convertible Preferred Stock
10.10(21) -- Stock Purchase Agreement, dated August 5, 1998, among Renters
Choice, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P.
10.11(22) -- Exchange and Registration Rights Agreement, dated August 18,
1998, by and among Renters Choice, Inc. and Chase Securities Inc.,
Bear, Stearns & Co. Inc., NationsBanc Montgomery Securities LLC
and Credit Suisse First Boston Corporation
10.12(23) -- Employment Agreement, dated October 1, 1998, by and between
Rent-A-Center, Inc. and Bradley W. Denison
27.1* -- Financial Data Schedule
- ----------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K dated May 28, 1998
(2) Incorporated herein by reference to Exhibit 2.2 to the registrant's
Current Report on Form 8-K dated May 28, 1998
(3) Incorporated herein by reference to Exhibit 2.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(4) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
(5) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
21
<PAGE> 22
(6) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
(7) Incorporated herein by reference to Exhibit 4.1 to the registrant's
Form S-4 filed on January 19, 1999.
(8) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(9) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(10) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(11) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(12) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(13) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(14) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Registration Statement on Form S-8 (File No. 333- 53471)
(15) Incorporated herein by reference to Exhibit 10.18 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(16) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(17) Incorporated herein by reference to Exhibit 10.20 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(18) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(19) Incorporated herein by reference to Exhibit 10.22 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(20) Incorporated herein by reference to Exhibit 10.23 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(21) Incorporated herein by reference to Exhibit 2.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(22) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(23) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1998
- ----------
* Filed herewith.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned duly authorized officer.
RENT-A-CENTER, INC.
By: /s/ Robert D. Davis
------------------------------
Robert D. Davis
Senior Vice President-Finance
and Chief Financial Officer
Date: November 5, 1999
Rent-A-Center, Inc.
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
2.1(1) -- Asset Purchase Agreement, dated May 1, 1998, by and among
Renters Choice, Inc., Central Rents, Inc., Central Rents Holding,
Inc. and Banner Holdings, Inc. (Pursuant to the rules of the
Commission, the schedules and exhibits have been omitted. Upon the
request of the Commission, Renters Choice will supplementally
supply such schedules and exhibits to the Commission.)
2.2(2) -- Letter Agreement, dated as of May 26, 1998, by and among
Renters Choice, Inc., Central Rents, Inc., Central Rents Holding,
Inc. and Banner Holdings, Inc. (Pursuant to the rules of the
Commission, the schedules and exhibits have been omitted. Upon the
request of the Commission, Renters Choice will supplementally
supply such schedules and exhibits to the Commission.)
2.3(3) -- Stock Purchase Agreement, dated as of June 16, 1998, among
Renters Choice, Inc., Thorn International BV and Thorn plc
(Pursuant to the rules of the Commission, the schedules and
exhibits have been omitted. Upon the request of the Commission,
the Company will supplementally supply such schedules and exhibits
to the Commission.)
3.1(4) -- Amended and Restated Certificate of Incorporation of Renters
Choice
3.2(5) -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of Renters Choice
3.3(6) -- Amended and Restated Bylaws of Rent-A-Center
4.1(7) -- Form of Certificate evidencing Common Stock
4.2(8) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series A Preferred Stock of Renters Choice,
Inc.
4.3(9) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series B Preferred Stock of Renters Choice,
Inc.
4.4(10) -- Indenture, dated as of August 18, 1998, by and among Renters
Choice, Inc., as Issuer, ColorTyme, Inc. and Rent-A-Center, Inc.,
as Subsidiary Guarantors, and IBJ Schroder Bank & Trust Company,
as Trustee
4.5(11) -- Form of Certificate evidencing Series A Preferred Stock
4.6(12) -- Form of Exchange Note
4.7(13) -- First Supplemental Indenture, dated as of December 31, 1998, by
and among Renters Choice Inc., Rent-A-Center, Inc., ColorTyme,
Inc., Advantage Companies, Inc. and IBJ Schroder Bank & Trust
Company, as Trustee.
10.1(14) -- Amended and Restated 1994 Renters Choice, Inc. Long-Term
Incentive Plan
10.3(15) -- Credit Agreement, dated August 5, 1998, among Renters Choice,
Inc., Comerica Bank, as Documentation Agent, NationsBank N.A., as
Syndication Agent, and The Chase Manhattan Bank, as Administrative
Agent, and certain other lenders
10.4(16) -- Guarantee and Collateral Agreement, dated August 5, 1998, made
by Renters Choice, Inc., and certain of its Subsidiaries in favor
of the Chase Manhattan Bank, as Administrative Agent
10.5(17) -- $175,000,000 Senior Subordinated Credit Agreement, dated as of
August 5, 1998, among Renters Choice, Inc., certain other lenders
and the Chase Manhattan Bank
10.6(18) -- Stockholders Agreement, dated as of August 5, 1998, by and
among Apollo Investment Fund IV, L.P., Apollo Overseas Partners
IV, L.P., J. Ernest Talley, Mark E. Speese, Renters Choice, Inc.,
and certain other persons
10.7* __ Agreements to be Bound to Stockholders Agreement, each dated
September 9, 1999, by and among Apollo Investment Fund IV, L.P.,
Apollo Overseas Partners IV, L.P., J. Ernest Talley, Mark E.
Speese, Rent-A-Center, Inc. and certain other persons.
10.8(19) -- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and
Apollo Overseas Partners IV, L.P., related to the Series A
Convertible Preferred Stock
10.9(20) -- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and
Apollo Overseas Partners IV, L.P., related to the Series B
Convertible Preferred Stock
10.10(21) -- Stock Purchase Agreement, dated August 5, 1998, among Renters
Choice, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P.
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
10.11(22) -- Exchange and Registration Rights Agreement, dated August 18,
1998, by and among Renters Choice, Inc. and Chase Securities Inc.,
Bear, Stearns & Co. Inc., NationsBanc Montgomery Securities LLC
and Credit Suisse First Boston Corporation
10.12(23) -- Employment Agreement, dated October 1, 1998, by and between
Rent-A-Center, Inc. and Bradley W. Denison
27.1* -- Financial Data Schedule
</TABLE>
- ----------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K dated May 28, 1998
(2) Incorporated herein by reference to Exhibit 2.2 to the registrant's
Current Report on Form 8-K dated May 28, 1998
(3) Incorporated herein by reference to Exhibit 2.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(4) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
(5) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
(6) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
(7) Incorporated herein by reference to Exhibit 4.1 to the registrant's
Form S-4 filed on January 19, 1999.
(8) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(9) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(10) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(11) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(12) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(13) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(14) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Registration Statement on Form S-8 (File No. 333- 53471)
<PAGE> 26
(15) Incorporated herein by reference to Exhibit 10.18 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(16) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(17) Incorporated herein by reference to Exhibit 10.20 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(18) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(19) Incorporated herein by reference to Exhibit 10.22 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(20) Incorporated herein by reference to Exhibit 10.23 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(21) Incorporated herein by reference to Exhibit 2.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(22) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(23) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1998
- ----------
* Filed herewith.
<PAGE> 1
EXHIBIT 10.7
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) Mary Ann Talley, an individual ("Mrs.
Talley"), (ii) each of Apollo Investment Fund IV, L.P., a Delaware limited
partnership, and Apollo Overseas Partners IV, L.P., an exempted limited
partnership registered in the Cayman Islands acting through its general partner
(individually and collectively with their Permitted Transferees (as defined),
the "Purchaser"), (iii) J. Ernest Talley, an individual ("Talley"), (iv) Mark E.
Speese, an individual ("Speese"), and (v) Rent-A-Center, Inc., a Delaware
corporation (formerly known as Renters Choice, Inc.) (the "Company"). All terms
used herein but not defined herein shall have the meaning provided in the
Stockholders Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, it is currently contemplated that Mrs. Talley will acquire a
portion of the Shares from Talley and, from time to time, the Talley 1999 Trust,
a trust organized under the laws of the State of Texas (the "Trust"); and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, Mrs. Talley
hereby (i) acknowledges that she has read the Stockholders Agreement and (ii)
agrees to be bound by all the terms and conditions set forth in the Stockholders
Agreement as a Permitted Transferee and a Management Stockholder with respect to
all Shares in which she holds any direct or indirect pecuniary, beneficial or
voting interest, including as an individual, shareholder, trustee, beneficiary
or otherwise. Furthermore, Mrs. Talley acknowledges that the Shares acquired by
her will contain the legend set forth on Exhibit "A" hereto and the Company
covenants to place such a legend on any Shares that Mrs. Talley acquires. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, and their respective successors and permitted assigns; provided that
neither this Agreement nor any rights or obligations hereunder may be
transferred by Mrs. Talley except to a Permitted Transferee in accordance with
Section 2.2 of the Stockholders Agreement. This Agreement shall be attached to
and become a part of the Stockholders Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
/s/ MARY ANN TALLEY
------------------------------------------------
Mary Ann Talley
RENT-A-CENTER, INC.
By: /s/ ROBERT D. DAVIS
-----------------------------------------
Name: Robert D. Davis
-----------------------------------------
Title: Vice President - Finance and Chief
Financial Officer
-----------------------------------------
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
-----------------------------
Name: Larry Berg
-----------------------------
Title: V.P.
-----------------------------
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its Managing General Partner
By: /s/ LARRY BERG
-----------------------------
Name: Larry Berg
-----------------------------
Title: V.P.
-----------------------------
/s/ J. ERNEST TALLEY
------------------------------------------------
J. Ernest Talley
/s/ MARK E. SPEESE
------------------------------------------------
Mark E. Speese
<PAGE> 3
Exhibit "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER
TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM REGISTRATION OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<PAGE> 4
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) the Talley 1999 Trust, a trust organized
under the laws of the State of Texas (the "Trust"), (ii) each of Apollo
Investment Fund IV, L.P., a Delaware limited partnership, and Apollo Overseas
Partners IV, L.P., an exempted limited partnership registered in the Cayman
Islands acting through its general partner (individually and collectively with
their Permitted Transferees (as defined), the "Purchaser"), (iii) J. Ernest
Talley, an individual ("Talley"), (iv) Mary Ann Talley, an individual ("Mrs.
Talley"), (v) Mark E. Speese, an individual ("Speese"), and (vi) Rent-A-Center,
Inc., a Delaware corporation (formerly known as Renters Choice, Inc.) (the
"Company"). All terms used herein but not defined herein shall have the meaning
provided in the Stockholders Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, Mrs. Talley has previously agreed to be bound by the terms of
the Stockholders Agreement.
WHEREAS, it is currently contemplated that the Trust will acquire a
portion of the Shares from Mrs. Talley; and
WHEREAS, Talley will serve as sole trustee (the "Trustee") of the
Trust; and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, the Trust
and the Trustee each hereby (i) acknowledges that each of them has read the
Stockholders Agreement and (ii) agrees to be bound by all the terms and
conditions set forth in the Stockholders Agreement as a Permitted Transferee and
a Management Stockholder with respect to all Shares in which it holds any direct
or indirect pecuniary, beneficial or voting interest. Furthermore, the Trust and
Trustee each hereby acknowledges that the Shares acquired by the Trust will
contain the legend set forth on Exhibit "A" hereto, and the Company covenants to
place such a legend on any Shares that the Trust acquires. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto, and their
respective successors and permitted assigns, including, without limitation, any
successor Trustee under the Trust; provided that neither this Agreement nor any
rights or obligations hereunder may
<PAGE> 5
be transferred by the Trust or Trustee except to a Permitted Transferee in
accordance with Section 2.2 of the Stockholders Agreement. Except as permitted
by Section 2.2 of the Stockholders Agreement, the Trust, Trustee, Talley and
Mrs. Talley covenant and agree that no Person other than Talley, Mrs. Talley,
Matthew Talley or Mark Talley can or will (A) be a Trustee or a beneficiary of
the Trust, or (B) have any direct or indirect pecuniary, beneficial or voting
interest in the Trust or Shares held by the Trust. This Agreement shall be
attached to and become a part of the Stockholders Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TALLEY 1999 TRUST
By: /s/ J. ERNEST TALLEY
---------------------------------------------
J. Ernest Talley, as Trustee
RENT-A-CENTER, INC.
a Delaware corporation
By: /s/ ROBERT D. DAVIS
------------------------------------------
Name: Robert D. Davis
------------------------------------------
Title: Vice President - Finance and Chief
Financial Officer
------------------------------------------
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
--------------------------------
Name: Larry Berg
--------------------------------
Title: V.P.
--------------------------------
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its Managing General Partner
By: /s/ LARRY BERG
--------------------------------
Name: Larry Berg
--------------------------------
Title: V.P.
--------------------------------
/s/ J. ERNEST TALLEY
-------------------------------------------------
J. Ernest Talley
/s/ MARY ANN TALLEY
-------------------------------------------------
Mary Ann Talley
/s/ MARK E. SPEESE
-------------------------------------------------
Mark E. Speese
<PAGE> 7
Exhibit "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER
TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM REGISTRATION OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<PAGE> 8
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) Talley Management, Inc., a Texas corporation
("Talley Management") and the general partner of Talley Partners, Ltd., a Texas
limited partnership (the "Partnership"), (ii) each of Apollo Investment Fund IV,
L.P., a Delaware limited partnership, and Apollo Overseas Partners IV, L.P., an
exempted limited partnership registered in the Cayman Islands acting through its
general partner (individually and collectively with their Permitted Transferees
(as defined), the "Purchaser"), (iii) J. Ernest Talley, an individual
("Talley"), (iv) Mary Ann Talley, an individual ("Mrs. Talley") (v) Mark E.
Speese, an individual ("Speese"), and (vi) Rent-A-Center, Inc., a Delaware
corporation (formerly known as Renters Choice, Inc.) (the "Company"). All terms
used herein but not defined herein shall have the meaning provided in the
Stockholders Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, Mrs. Talley has previously agreed to be bound by the terms of
the Stockholders Agreement; and
WHEREAS, it is currently contemplated that Talley Management will
acquire a portion of the Shares from Talley and Mrs. Talley; and
WHEREAS, Talley and Mrs. Talley, as the sole stockholders, directors
and officers of Talley Management, will have sole dispositive and voting control
over all Shares held by Talley Management; and
WHEREAS, Talley Management, as the general partner of the Partnership,
will have sole dispositive and voting control over all of the Shares held by the
Partnership; and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, Talley
Management hereby (i) acknowledges that it has read the Stockholders Agreement
and (ii) agrees to be bound by all the terms and conditions set forth in the
Stockholders Agreement as a Permitted Transferee and a Management Stockholder
with respect to all Shares in which it or the Partnership holds any direct or
indirect pecuniary, beneficial or voting interest. Furthermore, Talley
Management acknowledges that the Shares acquired by it or the Partnership will
contain the legend set forth on Exhibit "A" hereto, and the Company covenants to
place such a legend on any Shares that Talley Management or the Partnership
acquires. This Agreement shall be binding upon and shall inure to the benefit of
<PAGE> 9
the parties hereto, and their respective successors and permitted assigns;
provided that neither this Agreement nor any rights or obligations hereunder may
be transferred by Talley Management or the Partnership except to a Permitted
Transferee in accordance with Section 2.2 of the Stockholders Agreement. Except
as permitted by Section 2.2 of the Stockholders Agreement, Talley, Mrs. Talley
and Talley Management covenant and agree that (A) no Person other than Talley,
Mrs. Talley, Matthew Talley or Mark Talley can or will have any direct or
indirect pecuniary, beneficial or voting interest in any Shares held by Talley
Management or the Partnership, including as a result of any liquidation,
dissolution or other distribution, (B) Talley will at all times control Talley
Management, and (C) no Person other than Talley, Mrs. Talley, Matthew Talley or
Mark Talley can or will own any direct or indirect pecuniary, beneficial or
voting interest in Talley Management or the Partnership. This Agreement shall be
attached to and become a part of the Stockholders Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TALLEY MANAGEMENT, INC.
a Texas corporation
By: /s/ J. ERNEST TALLEY
---------------------------------------------
Name: J. Ernest Talley
--------------------------------------------
Title: President
-------------------------------------------
RENT-A-CENTER, INC.
a Delaware corporation
By: /s/ ROBERT D. DAVIS
------------------------------------------
Name: Robert D. Davis
------------------------------------------
Title: Vice President - Finance and Chief
Financial Officer
------------------------------------------
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
--------------------------------
Name: Larry Berg
--------------------------------
Title: V.P.
--------------------------------
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its Managing General Partner
By: /s/ LARRY BERG
--------------------------------
Name: Larry Berg
--------------------------------
Title: V.P.
--------------------------------
/s/ J. ERNEST TALLEY
-------------------------------------------------
J. Ernest Talley
/s/ MARY ANN TALLEY
-------------------------------------------------
Mary Ann Talley
/s/ MARK E. SPEESE
-------------------------------------------------
Mark E. Speese
<PAGE> 11
Exhibit "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER
TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM REGISTRATION OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<PAGE> 12
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) Talley Partners, Ltd., a Texas limited
partnership (the "Partnership"), (ii) Talley Management, Inc., a Texas
corporation and the general partner of the Partnership ("Talley Management"),
(iii) each of Apollo Investment Fund IV, L.P., a Delaware limited partnership,
and Apollo Overseas Partners IV, L.P., an exempted limited partnership
registered in the Cayman Islands acting through its general partner
(individually and collectively with their Permitted Transferees (as defined),
the "Purchaser"), (iv) J. Ernest Talley, an individual ("Talley"), (v) Mary Ann
Talley, an individual ("Mrs. Talley") (vi) Mark E. Speese, an individual
("Speese"), and (vii) Rent-A-Center, Inc., a Delaware corporation (formerly
known as Renters Choice, Inc.) (the "Company"). All terms used herein but not
defined herein shall have the meaning provided in the Stockholders Agreement (as
defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, Mrs. Talley and Talley Management have previously agreed to be
bound by the terms of the Stockholders Agreement; and
WHEREAS, it is currently contemplated that the Partnership will acquire
a portion of the Shares from Talley, Mrs. Talley and Talley Management; and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, the
Partnership hereby (i) acknowledges that it has read the Stockholders Agreement
and (ii) agrees to be bound by all the terms and conditions set forth in the
Stockholders Agreement as a Permitted Transferee and a Management Stockholder
with respect to all Shares in which it holds any direct or indirect pecuniary,
beneficial or voting interest. Furthermore, the Partnership acknowledges that
the Shares acquired by it will contain the legend set forth on Exhibit "A"
hereto, and the Company covenants to place such a legend on any Shares that the
Partnership acquires. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto, and their respective successors and assigns;
provided that neither this Agreement nor any rights or obligations hereunder may
be transferred by the Partnership except to a Permitted Transferee in accordance
with Section 2.2 of the Stockholders Agreement. Except as permitted by Section
2.2 of the Stockholders Agreement, Talley, Mrs. Talley, Talley
<PAGE> 13
Management and the Partnership covenant and agree that (A) no Person other than
Talley, Mrs. Talley, Matthew Talley, Mark Talley and Talley Management can or
will have any direct or indirect pecuniary, beneficial or voting interest in any
Shares held by the Partnership, including as a result of any liquidation,
dissolution or other Transfer, (B) Talley will at all times control Talley
Management, and (C) no Person other than Talley, Mrs. Talley, Matthew Talley,
Mark Talley or Talley Management will own any direct or indirect pecuniary,
beneficial or voting interest in the Partnership. This Agreement shall be
attached to and become a part of the Stockholders Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TALLEY MANAGEMENT, INC.
a Texas corporation
By: /s/ J. ERNEST TALLEY
---------------------------------
Name: J. Ernest Talley
---------------------------------
Title: President
---------------------------------
TALLEY PARTNERS, LTD.
a Texas limited partnership
By: Talley Management, Inc.
its General Partner
By: /s/ J. ERNEST TALLEY
------------------------
Name: J. Ernest Talley
------------------------
Title: President
------------------------
RENT-A-CENTER, INC.
a Delaware corporation
By: /s/ ROBERT D. DAVIS
---------------------------------
Name: Robert D. Davis
---------------------------------
Title: Vice President - Finance and
Chief Financial Officer
---------------------------------
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital
Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
---------------
Name: Larry Berg
---------------
Title: V.P.
---------------
<PAGE> 15
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its Managing General Partner
By: /s/ LARRY BERG
---------------------------
Name: Larry Berg
---------------------------
Title: V.P.
---------------------------
/s/ J. ERNEST TALLEY
--------------------------------------------
J. Ernest Talley
/s/ MARY ANN TALLEY
--------------------------------------------
Mary Ann Talley
/s/ MARK E. SPEESE
--------------------------------------------
Mark E. Speese
<PAGE> 16
Exhibit "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER
TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM REGISTRATION OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<PAGE> 17
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) Matthew Talley, an individual ("Matt
Talley"), (ii) Talley Partners, Ltd., a Texas limited partnership (the
"Partnership"), (iii) Talley Management, Inc., a Texas corporation ("Talley
Management") and the general partner of the partnership, (iv) each of Apollo
Investment Fund IV, L.P., a Delaware limited partnership, and Apollo Overseas
Partners IV, L.P., an exempted limited partnership registered in the Cayman
Islands acting through its general partner (individually and collectively with
their Permitted Transferees (as defined), the "Purchaser"), (v) J. Ernest
Talley, an individual ("Talley"), (vi) Mary Ann Talley, an individual ("Mrs.
Talley"), (vii) Mark E. Speese, an individual ("Speese"), and (viii)
Rent-A-Center, Inc., a Delaware corporation (formerly known as Renters Choice,
Inc.) (the "Company"). All terms used herein but not defined herein shall have
the meaning provided in the Stockholders Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, Mrs. Talley, Talley Management and the Partnership have
previously agreed to be bound by the terms of the Stockholders Agreement; and
WHEREAS, it is currently contemplated that Matt Talley may, in the
future, acquire a portion of the Shares from Talley, Mrs. Talley or an entity
created by either or both of them; and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, Matt Talley
hereby (i) acknowledges that he has read the Stockholders Agreement and (ii)
agrees to be bound by all the terms and conditions set forth in the Stockholders
Agreement as a Permitted Transferee and a Management Stockholder with respect to
all Shares in which he may hold any direct or indirect pecuniary, beneficial or
voting interest, including as an individual, shareholder, trustee, beneficiary
or otherwise. Furthermore, Matt Talley acknowledges that any Shares acquired by
him will contain the legend set forth on Exhibit "A" hereto, and the Company
covenants to place such a legend on any Shares that he acquires. Except as
permitted by Section 2.2 of the Stockholders Agreement, Matt Talley, Talley,
Mrs. Talley, the Partnership and Talley Management covenant and agree that no
Person other than Talley, Mrs. Talley, Matt Talley and Mark Talley can or will
have any direct or indirect pecuniary, beneficial or voting interest in the
Partnership or any Shares held by the Partnership. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, and their
respective successors and permitted assigns; provided that neither this
Agreement nor any rights or obligations hereunder may be transferred by Matt
Talley except to a Permitted Transferee in accordance with Section 2.2 of the
Stockholders Agreement. This Agreement shall be attached to and become a part of
the Stockholders Agreement.
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
/s/ MATTHEW TALLEY
---------------------------------------------
Matthew Talley
TALLEY PARTNERS, LTD.
a Texas Limited Partnership
By: Talley Management, Inc.
its General Partner
By: /s/ J. ERNEST TALLEY
------------------------------------
Name: J. Ernest Talley
----------------------------------
Title: President
---------------------------------
TALLEY MANAGEMENT, INC.
a Texas corporation
By: /s/ J. ERNEST TALLEY
-----------------------------------------
Name: J. Ernest Talley
---------------------------------------
Title: President
--------------------------------------
RENT-A-CENTER, INC.
a Delaware corporation
By: /s/ ROBERT B. DAVIS
------------------------------------------
Name: Robert B. Davis
---------------------------------------
Title: Vice President - Finance and
Chief Financial Officer
--------------------------------------
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
-------------------------------
Name: Larry Berg
------------------------------
Title: V.P.
----------------------------
<PAGE> 19
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its Managing General Partner
By: /s/ LARRY BERG
-------------------------------
Name: Larry Berg
-----------------------------
Title: V.P.
----------------------------
/s/ J. ERNEST TALLEY
---------------------------------------------
J. Ernest Talley
/s/ MARY ANN TALLEY
---------------------------------------------
Mary Ann Talley
/s/ MARK E. SPEESE
---------------------------------------------
Mark E. Speese
<PAGE> 20
Exhibit "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER
TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM REGISTRATION OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<PAGE> 21
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) the Matthew Talley Family Trust #1, a trust
organized under the laws of the State of Texas ("Matt Trust #1"), (ii) Matthew
Talley, an individual ("Matt Talley") and the trustee under Matt Trust #1, (iii)
Talley Partners, Ltd., a Texas limited partnership (the "Partnership"), (iv)
Talley Management, Inc., a Texas corporation ("Talley Management") and the
general partner of the partnership, (v) each of Apollo Investment Fund IV, L.P.,
a Delaware limited partnership, and Apollo Overseas Partners IV, L.P., an
exempted limited partnership registered in the Cayman Islands acting through its
general partner (individually and collectively with their Permitted Transferees
(as defined), the "Purchaser"), (vi) J. Ernest Talley, an individual ("Talley"),
(vii) Mary Ann Talley, an individual ("Mrs. Talley"), (viii) Mark E. Speese, an
individual ("Speese"), and (ix) Rent-A-Center, Inc., a Delaware corporation
(formerly known as Renters Choice, Inc.) (the "Company"). All terms used herein
but not defined herein shall have the meaning provided in the Stockholders
Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, Mrs. Talley, Talley Management and the Partnership have
previously agreed to be bound by the terms of the Stockholders Agreement; and
WHEREAS, it is currently contemplated that Matt Trust #1 may, in the
future, acquire a direct or indirect interest in the Shares from Talley, Mrs.
Talley or an entity created by either or both of them; and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, Matt Trust
#1 hereby (i) acknowledges that it has read the Stockholders Agreement and (ii)
agrees to be bound by all the terms and conditions set forth in the Stockholders
Agreement as a Permitted Transferee and a Management Stockholder with respect to
all Shares in which it may hold any direct or indirect pecuniary, beneficial or
voting interest. Matt Trust #1 acknowledges that any Shares acquired by it will
contain the legend set forth on Exhibit "A" hereto, and the Company covenants to
place such a legend on any Shares that the Matt Trust #1 acquires. Furthermore,
Matt Trust #1 and Matt Talley, as trustee and beneficiary under Matt Trust #1,
hereby covenant and agree that no Person other than Matt Talley can or will (A)
be the trustee or beneficiary of Matt Trust #1 or (B) have any direct or
indirect
<PAGE> 22
pecuniary, beneficial or voting interest in Matt Trust #1 or any Shares held by
Matt Trust #1, except as permitted under Section 2.2 of the Stockholders
Agreement. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto, and their respective successors and permitted assigns;
provided that neither this Agreement nor any rights or obligations hereunder may
be transferred by Matt Trust #1 or Matt Talley except to a Permitted Transferee
in accordance with Section 2.2 of the Stockholders Agreement. This Agreement
shall be attached to and become a part of the Stockholders Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MATTHEW TALLEY FAMILY
TRUST #1
a trust organized under the laws and the State of Texas
By: /s/ MATTHEW TALLEY
-------------------------------------------------
Matthew Talley, as trustee
/s/ MATTHEW TALLEY
-----------------------------------------------------
Matthew Talley
TALLEY PARTNERS, LTD.
a Texas Limited Partnership
By: Talley Management, Inc.
its General Partner
By: /s/ J. ERNEST TALLEY
----------------------------------------------
Name: J. Ernest Talley
--------------------------------------------
Title: President
-------------------------------------------
TALLEY MANAGEMENT, INC.
a Texas corporation
By: /s/ J. ERNEST TALLEY
-------------------------------------------------
Name: J. Ernest Talley
-----------------------------------------------
Title: President
----------------------------------------------
RENT-A-CENTER, INC.
a Delaware corporation
By: /s/ ROBERT D. DAVIS
-------------------------------------------------
Name: Robert D. Davis
-----------------------------------------------
Title: Vice President -- Finance and Chief Financial
Officer
----------------------------------------------
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
--------------------------------------
Name: Larry Berg
------------------------------------
Title: VP
-----------------------------------
<PAGE> 24
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its Managing General Partner
By: /s/ LARRY BERG
-----------------------------------------
Name: Larry Berg
---------------------------------------
Title: V.P.
--------------------------------------
/s/ J. ERNEST TALLEY
-------------------------------------------------------
J. Ernest Talley
/s/ MARY ANN TALLEY
-------------------------------------------------------
Mary Ann Talley
/s/ MARK E. SPEESE
-------------------------------------------------------
Mark E. Speese
<PAGE> 25
EXHIBIT "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER
TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM REGISTRATION OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<PAGE> 26
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) the Matthew Talley Family Trust #2, a trust
organized under the laws of the State of Texas ("Matt Trust #2"), (ii) Matthew
Talley, an individual ("Matt Talley") and the trustee under Matt Trust #2, (iii)
Talley Partners, Ltd., a Texas limited partnership (the "Partnership"), (iv)
Talley Management, Inc., a Texas corporation ("Talley Management") and the
general partner of the partnership, (v) each of Apollo Investment Fund IV, L.P.,
a Delaware limited partnership, and Apollo Overseas Partners IV, L.P., an
exempted limited partnership registered in the Cayman Islands acting through its
general partner (individually and collectively with their Permitted Transferees
(as defined), the "Purchaser"), (vi) J. Ernest Talley, an individual ("Talley"),
(vii) Mary Ann Talley, an individual ("Mrs. Talley"), (viii) Mark E. Speese, an
individual ("Speese"), and (ix) Rent-A-Center, Inc., a Delaware corporation
(formerly known as Renters Choice, Inc.) (the "Company"). All terms used herein
but not defined herein shall have the meaning provided in the Stockholders
Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, Mrs. Talley, Talley Management and the Partnership have
previously agreed to be bound by the terms of the Stockholders Agreement; and
WHEREAS, it is currently contemplated that Matt Trust #2 may, in the
future, acquire a direct or indirect interest in the Shares from Talley, Mrs.
Talley or an entity created by either or both of them; and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, Matt Trust
#2 hereby (i) acknowledges that it has read the Stockholders Agreement and (ii)
agrees to be bound by all the terms and conditions set forth in the Stockholders
Agreement as a Permitted Transferee and a Management Stockholder with respect to
all Shares in which it may hold any direct or indirect pecuniary, beneficial or
voting interest. Matt Trust #2 acknowledges that any Shares acquired by it will
contain the legend set forth on Exhibit "A" hereto, and the Company covenants to
place such a legend on any Shares that the Matt Trust #2 acquires. Furthermore,
Matt Trust #2 and Matt Talley, as trustee and beneficiary under Matt Trust #2,
hereby covenant and agree that no Person other than Matt Talley can or will (A)
be the trustee or beneficiary of Matt Trust #2 or (B) have any direct or
indirect
<PAGE> 27
pecuniary, beneficial or voting interest in Matt Trust #2 or any Shares held by
Matt Trust #2, except as permitted under Section 2.2 of the Stockholders
Agreement. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto, and their respective successors and permitted assigns;
provided that neither this Agreement nor any rights or obligations hereunder may
be transferred by Matt Trust #2 or Matt Talley except to a Permitted Transferee
in accordance with Section 2.2 of the Stockholders Agreement. This Agreement
shall be attached to and become a part of the Stockholders Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MATTHEW TALLEY FAMILY
TRUST #2
a trust organized under the laws and the State of Texas
By: /s/ MATTHEW TALLEY
--------------------------------------------------
Matthew Talley, as trustee
/s/ MATTHEW TALLEY
------------------------------------------------------
Matthew Talley
TALLEY PARTNERS, LTD.
a Texas Limited Partnership
By: Talley Management, Inc.
its General Partner
By: /s/ J. ERNEST TALLEY
---------------------------------------------
Name: J. Ernest Talley
-------------------------------------------
Title: President
------------------------------------------
TALLEY MANAGEMENT, INC.
a Texas corporation
By: /s/ J. ERNEST TALLEY
--------------------------------------------------
Name: J. Ernest Talley
------------------------------------------------
Title: President
-----------------------------------------------
RENT-A-CENTER, INC.
a Delaware corporation
By: /s/ ROBERT B. DAVIS
--------------------------------------------------
Name: Robert B. Davis
------------------------------------------------
Title: Vice President - Finance and
Chief Financial Officer
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
---------------------------------------------
Name: Larry Berg
-------------------------------------------
Title: V.P.
------------------------------------------
<PAGE> 29
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its Managing General Partner
By: /s/ LARRY BERG
-------------------------------------
Name: Larry Berg
-----------------------------------
Title: VP
----------------------------------
/s/ J. ERNEST TALLEY
--------------------------------------------------
J. Ernest Talley
/s/ MARY ANN TALLEY
--------------------------------------------------
Mary Ann Talley
/s/ MARK E. SPEESE
--------------------------------------------------
Mark E. Speese
<PAGE> 30
Exhibit "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER
TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM REGISTRATION OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<PAGE> 31
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) Mark Talley, an individual ("Mark Talley"),
(ii) Talley Partners, Ltd., a Texas limited partnership (the "Partnership"),
(iii) Talley Management, Inc., a Texas corporation ("Talley Management") and the
general partner of the partnership, (iv) each of Apollo Investment Fund IV,
L.P., a Delaware limited partnership, and Apollo Overseas Partners IV, L.P., an
exempted limited partnership registered in the Cayman Islands acting through its
general partner (individually and collectively with their Permitted Transferees
(as defined), the "Purchaser"), (v) J. Ernest Talley, an individual ("Talley"),
(vi) Mary Ann Talley, an individual ("Mrs. Talley"), (vii) Mark E. Speese, an
individual ("Speese"), and (viii) Rent-A-Center, Inc., a Delaware corporation
(formerly known as Renters Choice, Inc.) (the "Company"). All terms used herein
but not defined herein shall have the meaning provided in the Stockholders
Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, Mrs. Talley, Talley Management and the Partnership have
previously agreed to be bound by the terms of the Stockholders Agreement; and
WHEREAS, it is currently contemplated that Mark Talley may, in the
future, acquire a portion of the Shares from Talley, Mrs. Talley or an entity
created by either or both of them; and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, Mark Talley
hereby (i) acknowledges that he has read the Stockholders Agreement and (ii)
agrees to be bound by all the terms and conditions set forth in the Stockholders
Agreement as a Permitted Transferee and a Management Stockholder with respect to
all Shares in which he may hold any direct or indirect pecuniary, beneficial or
voting interest, including as an individual, shareholder, trustee, beneficiary
or otherwise. Furthermore, Mark Talley acknowledges that any Shares acquired by
him will contain the legend set forth on Exhibit "A" hereto, and the Company
covenants to place such a legend on any Shares that he may acquire. Except as
permitted by Section 2.2 of the Stockholders Agreement, Mark Talley, Talley,
Mrs. Talley, the Partnership and Talley Management covenant and agree that no
Person other than Talley, Mrs. Talley, Matt Talley and Mark Talley can or will
have any direct or indirect pecuniary, beneficial or voting interest in the
Partnership or any Shares held by the Partnership. This
<PAGE> 32
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, and their respective successors and permitted assigns; provided that
neither this Agreement nor any rights or obligations hereunder may be
transferred by Mark Talley except to a Permitted Transferee in accordance with
Section 2.2 of the Stockholders Agreement. This Agreement shall be attached to
and become a part of the Stockholders Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
/s/ MARK TALLEY
------------------------------------------------------
Mark Talley
TALLEY PARTNERS, LTD.
a Texas Limited Partnership
By: Talley Management, Inc.
its General Partner
By: /s/ J. ERNEST TALLEY
---------------------------------------------
Name: J. Ernest Talley
-------------------------------------------
Title: President
------------------------------------------
TALLEY MANAGEMENT, INC.
a Texas corporation
By: /s/ J. ERNEST TALLEY
--------------------------------------------------
Name: J. Ernest Talley
------------------------------------------------
Title: President
-----------------------------------------------
RENT-A-CENTER, INC.
a Delaware corporation
By: /s/ ROBERT B. DAVIS
---------------------------------------------
Name: Robert B. Davis
-------------------------------------------
Title: Vice President - Finance and
Chief Financial Officer
------------------------------------------
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
-----------------------------------
Name: Larry Berg
---------------------------------
Title: V.P.
--------------------------------
<PAGE> 34
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its Managing General Partner
By: /s/ LARRY BERG
--------------------------------------
Name: Larry Berg
-----------------------------------
Title: V.P.
----------------------------------
/s/ J. ERNEST TALLEY
--------------------------------------------------
J. Ernest Talley
/s/ MARY ANN TALLEY
--------------------------------------------------
Mary Ann Talley
/s/ MARK E. SPEESE
--------------------------------------------------
Mark E. Speese
<PAGE> 35
Exhibit "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER
TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM REGISTRATION OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<PAGE> 36
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) the Mark Andrew Talley Family Trust #1, a
trust organized under the laws of the State of Texas ("Mark Trust #1"), (ii)
Mark Andrew Talley, an individual ("Mark Talley") and the trustee under Mark
Trust #1, (iii) Talley Partners, Ltd., a Texas limited partnership (the
"Partnership"), (iv) Talley Management, Inc., a Texas corporation ("Talley
Management") and the general partner of the partnership, (v) each of Apollo
Investment Fund IV, L.P., a Delaware limited partnership, and Apollo Overseas
Partners IV, L.P., an exempted limited partnership registered in the Cayman
Islands acting through its general partner (individually and collectively with
their Permitted Transferees (as defined), the "Purchaser"), (vi) J. Ernest
Talley, an individual ("Talley"), (vii) Mary Ann Talley, an individual ("Mrs.
Talley"), (viii) Mark E. Speese, an individual ("Speese"), and (ix)
Rent-A-Center, Inc., a Delaware corporation (formerly known as Renters Choice,
Inc.) (the "Company"). All terms used herein but not defined herein shall have
the meaning provided in the Stockholders Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, Mrs. Talley, Talley Management and the Partnership have
previously agreed to be bound by the terms of the Stockholders Agreement; and
WHEREAS, it is currently contemplated that Mark Trust #1 may, in the
future, acquire a direct or indirect interest in the Shares from Talley, Mrs.
Talley or an entity created by either or both of them; and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, Mark Trust
#1 hereby (i) acknowledges that it has read the Stockholders Agreement and (ii)
agrees to be bound by all the terms and conditions set forth in the Stockholders
Agreement as a Permitted Transferee and a Management Stockholder with respect to
all Shares in which it may hold any direct or indirect pecuniary, beneficial or
voting interest. Mark Trust #1 acknowledges that any Shares acquired by it will
contain the legend set forth on Exhibit "A" hereto, and the Company covenants to
place such a legend on any Shares that the Mark Trust #1 acquires. Furthermore,
Mark Trust #1 and Mark Talley, as trustee and beneficiary under Mark Trust #1,
hereby covenant and agree that no Person other than Mark Talley can or will (A)
be the trustee or beneficiary of Mark Trust #1 or (B) have any direct or
<PAGE> 37
indirect pecuniary, beneficial or voting interest in Mark Trust #1 or any Shares
held by Mark Trust #1, except as permitted under Section 2.2 of the Stockholders
Agreement. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto, and their respective successors and permitted assigns;
provided that neither this Agreement nor any rights or obligations hereunder may
be transferred by Mark Trust #1 or Mark Talley except to a Permitted Transferee
in accordance with Section 2.2 of the Stockholders Agreement. This Agreement
shall be attached to and become a part of the Stockholders Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 38
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MARK ANDREW TALLEY FAMILY
TRUST #1
a trust organized under the laws and the State of Texas
By: /s/ MARK ANDREW TALLEY
---------------------------------------------------------
Mark Andrew Talley, as trustee
/s/ MARK ANDREW TALLEY
---------------------------------------------------------
Mark Andrew Talley
TALLEY PARTNERS, LTD.
a Texas Limited Partnership
By: Talley Management, Inc.
its General Partner
By: /s/ J. ERNEST TALLEY
---------------------------------------------------
Name: J. Ernest Talley
--------------------------------------------------
Title: President
-------------------------------------------------
TALLEY MANAGEMENT, INC.
a Texas corporation
By: /s/ J. ERNEST TALLEY
---------------------------------------------------------
Name: J. Ernest Talley
-------------------------------------------------------
Title: President
------------------------------------------------------
RENT-A-CENTER, INC.
a Delaware corporation
By: /s/ ROBERT B. DAVIS
---------------------------------------------------------
Name: Robert B. Davis
-------------------------------------------------------
Title: Vice President - Finance and Chief Financial Officer
-------------------------------------------------------
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
------------------------------------------------
Name: Larry Berg
----------------------------------------------
Title: V.P.
---------------------------------------------
<PAGE> 39
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its Managing General Partner
By: /s/ LARRY BERG
-------------------------------------
Name: Larry Berg
-----------------------------------
Title: V.P.
----------------------------------
/s/ J. ERNEST TALLEY
--------------------------------------------------
J. Ernest Talley
/s/ MARY ANN TALLEY
--------------------------------------------------
Mary Ann Talley
/s/ MARK E. SPEESE
--------------------------------------------------
Mark E. Speese
<PAGE> 40
Exhibit "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER
TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM REGISTRATION OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO
TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<PAGE> 41
AGREEMENT TO BE BOUND
This Agreement to be Bound (the "Agreement") is made this 9th day of
September, 1999, by and between (i) the Mark Andrew Talley Family Trust #2, a
trust organized under the laws of the State of Texas ("Mark Trust #2"), (ii)
Mark Andrew Talley, an individual ("Mark Talley") and the trustee under Mark
Trust #2, (iii) Talley Partners, Ltd., a Texas limited partnership (the
"Partnership"), (iv) Talley Management, Inc., a Texas corporation ("Talley
Management") and the general partner of the partnership, (v) each of Apollo
Investment Fund IV, L.P., a Delaware limited partnership, and Apollo Overseas
Partners IV, L.P., an exempted limited partnership registered in the Cayman
Islands acting through its general partner (individually and collectively with
their Permitted Transferees (as defined), the "Purchaser"), (vi) J. Ernest
Talley, an individual ("Talley"), (vii) Mary Ann Talley, an individual ("Mrs.
Talley"), (viii) Mark E. Speese, an individual ("Speese"), and (ix)
Rent-A-Center, Inc., a Delaware corporation (formerly known as Renters Choice,
Inc.) (the "Company"). All terms used herein but not defined herein shall have
the meaning provided in the Stockholders Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Purchaser, the Company, Talley and Speese have each
entered into that certain Stockholders Agreement of Renters Choice, Inc., dated
as of August 5, 1998 (the "Stockholders Agreement") to impose certain
restrictions and obligations upon themselves and the Shares of the Company held
by them; and
WHEREAS, Mrs. Talley, Talley Management and the Partnership have
previously agreed to be bound by the terms of the Stockholders Agreement; and
WHEREAS, it is currently contemplated that Mark Trust #2 may, in the
future, acquire a direct or indirect interest in the Shares from Talley, Mrs.
Talley or an entity created by either or both of them; and
WHEREAS, pursuant to Section 2.2(d) of the Stockholders Agreement, all
Transferees acquiring any or all of the Shares must enter into an instrument
confirming that the Transferee agrees to be bound by the terms of the
Stockholders Agreement in the same manner as the Transferee's transferor.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the acquisition of the Shares in the Company, Mark Trust
#2 hereby (i) acknowledges that it has read the Stockholders Agreement and (ii)
agrees to be bound by all the terms and conditions set forth in the
Stockholders Agreement as a Permitted Transferee and a Management Stockholder
with respect to all Shares in which it may hold any direct or indirect
pecuniary, beneficial or voting interest. Mark Trust #2 acknowledges that any
Shares acquired by it will contain the legend set forth on Exhibit "A" hereto,
and the Company covenants to place such a legend on any Shares that the Mark
Trust #2 acquires. Furthermore, Mark Trust #2 and Mark Talley, as trustee and
beneficiary under Mark Trust #2, hereby covenant and agree that no Person other
than Mark Talley can or will (A) be the trustee or beneficiary of Mark Trust #2
or (B) have any direct or
<PAGE> 42
indirect pecuniary, beneficial or voting interest in Mark Trust #2 or any
Shares held by Mark Trust #2, except as permitted under Section 2.2 of the
Stockholders Agreement. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto, and their respective successors and
permitted assigns; provided that neither this Agreement nor any rights or
obligations hereunder may be transferred by Mark Trust #2 or Mark Talley except
to a Permitted Transferee in accordance with Section 2.2 of the Stockholders
Agreement. This Agreement shall be attached to and become a part of the
Stockholders Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 43
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MARK ANDREW TALLEY FAMILY
TRUST #2
a trust organized under the laws and the
State of Texas
By: /s/ MARK ANDREW TALLEY
----------------------------------------
Mark Andrew Talley, as trustee
/s/ MARK ANDREW TALLEY
--------------------------------------------
Mark Andrew Talley
TALLEY PARTNERS, LTD.
a Texas Limited Partnership
By: Talley Management, Inc.
its General Partner
By: /s/ J. ERNEST TALLEY
----------------------------------
Name: J. Ernest Talley
--------------------------------
Title: President
--------------------------------
TALLEY MANAGEMENT, INC.
a Texas corporation
By: /s/ J. ERNEST TALLEY
---------------------------------------
Name: J. Ernest Talley
--------------------------------------
Title: President
-------------------------------------
RENT-A-CENTER, INC.
a Delaware corporation
By: /s/ ROBERT D. DAVIS
---------------------------------------
Name: Robert D. Davis
--------------------------------------
Title: Vice President-Finance and
Chief Financial Officer
-------------------------------------
APOLLO INVESTMENT FUND IV, L.P.
a Delaware limited partnership
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
-----------------------------
Name: Larry Berg
---------------------------
Title: V.P.
--------------------------
<PAGE> 44
APOLLO OVERSEAS PARTNERS IV, L.P.
an exempted limited partnership registered
in the Cayman Islands
By: Apollo Advisors IV, L.P.
its General Partner
By: Apollo Capital Management IV, Inc.
its General Partner
By: /s/ LARRY BERG
-----------------------------
Name: Larry Berg
---------------------------
Title: V.P.
--------------------------
/s/ J. ERNEST TALLEY
--------------------------------------------
J. Ernest Talley
/s/ MARY ANN TALLEY
--------------------------------------------
Mary Ann Talley
/s/ MARK E. SPEESE
--------------------------------------------
Mark E. Speese
<PAGE> 45
Exhibit "A"
Legend
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO
DELIVER TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL
(REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT
THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR FROM
REGISTRATION OR QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH
RESPECT TO ANY TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR
QUALIFIED).
THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF AUGUST 5, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.
NO TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY
AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS
FOUND ON PAGES 3 AND 4 OF OUR FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,198
<SECURITIES> 0
<RECEIVABLES> 3,361
<ALLOWANCES> 14
<INVENTORY> 92,459<F1>
<CURRENT-ASSETS> 0<F2>
<PP&E> 123,881
<DEPRECIATION> 41,378
<TOTAL-ASSETS> 1,486,155
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 175,000
268,362
0
<COMMON> 253
<OTHER-SE> 190,529<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,486,155
<SALES> 104,340<F4>
<TOTAL-REVENUES> 1,046,537
<CGS> 91,495<F5>
<TOTAL-COSTS> 858,226
<OTHER-EXPENSES> 51,861<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,833
<INCOME-PRETAX> 80,617
<INCOME-TAX> 39,102
<INCOME-CONTINUING> 41,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,515
<EPS-BASIC> 1.41
<EPS-DILUTED> 1.22
<FN>
<F1>RENTAL MERCHANDISE, HELD FOR RENT.
<F2>BALANCE SHEET IS UNCLASSIFIED.
<F3>ADDITIONAL PAID IN CAPITAL, RETAINED EARNINGS AND TREASURY STOCK.
<F4>STORE AND FRANCHISE MERCHANDISE SALES.
<F5>STORE AND FRANCHISE COST OF MERCHANDISE SOLD.
<F6>GENERAL AND ADMINISTRATIVE EXPENSE AND AMORTIZATION OF INTANGIBLES.
</FN>
</TABLE>
