AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 2002
REGISTRATION NO. 333-81160
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
RENT-A-CENTER, INC.
COLORTYME, INC.
ADVANTAGE COMPANIES, INC.
(Exact name of co-registrants as specified in its charter)
DELAWARE 7359 48-1024367
TEXAS 6794 75-2651408
DELAWARE 7359 48-1156618
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
RENT-A-CENTER, INC. COLORTYME, INC. ADVANTAGE COMPANIES, INC.
5700 TENNYSON PARKWAY 5700 TENNYSON PARKWAY 5700 TENNYSON PARKWAY
THIRD FLOOR FIRST FLOOR THIRD FLOOR
PLANO, TEXAS 75024 PLANO, TEXAS 75024 PLANO, TEXAS 75024
(972) 801-1100 (972) 608-5376 (972) 801-1100
(Address, including zip code, and telephone number, including area code
of each Registrant's principal executive offices)
MARK E. SPEESE With Copies To:
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER THOMAS W. HUGHES, ESQ.
RENT-A-CENTER, INC. D. FORREST BRUMBAUGH, ESQ.
5700 TENNYSON PARKWAY JAMES R. GRIFFIN, ESQ.
THIRD FLOOR WINSTEAD SECHREST & MINICK P.C.
PLANO, TEXAS 75024 5400 RENAISSANCE TOWER
(972) 801-1100 1201 ELM STREET
(Name, address, including zip code, and telephone DALLAS, TEXAS 75270-2199
number, including area code, of Agent for service) (214) 745-5400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration number for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier, effective registration statement
for the same offering. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 28, 2002
PROSPECTUS
[RENT-A-CENTER LOGO]
EXCHANGE OFFER FOR
$275,000,000
11% SENIOR SUBORDINATED NOTES DUE 2008, SERIES D
GUARANTEED BY
COLORTYME, INC.
ADVANTAGE COMPANIES, INC.
Terms of Exchange Offer
- Expires 5:00 p.m., New York City time, , 2002, unless extended
- Not subject to any condition other than that the exchange offer not violate
applicable law or any applicable interpretation of the staff of the Securities
and Exchange Commission
- The notes to be issued shall be exchanged for up to all of our outstanding 11%
Senior Subordinated Notes due 2008 issued under an indenture we entered into
in 1998 and our outstanding 11% Senior Subordinated Notes due 2008, Series C,
issued under an indenture we entered into in 2001
- All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged
- Tenders of outstanding notes may be withdrawn any time prior to the expiration
of the exchange offer
- The exchange of notes should not be a taxable exchange for U.S. federal income
tax purposes
- We will not receive any proceeds from the exchange offer
- The terms of the exchange notes to be issued are substantially identical to
the outstanding 1998 and 2001 notes, except for certain transfer restrictions
and registration rights relating to the outstanding 2001 notes
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS THAT
YOU SHOULD CONSIDER BEFORE DECIDING WHETHER TO PARTICIPATE IN THE EXCHANGE
OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR
HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RENT-A-CENTER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF RENT-A-CENTER
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PAGE
----
Forward-Looking Statements............ ii
Prospectus Summary.................... 1
Risk Factors.......................... 12
Use of Proceeds of the Exchange
Notes............................... 17
Capitalization........................ 18
The Exchange Offer.................... 19
Selected Historical Consolidated
Financial Data...................... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
Business.............................. 45
Description of Certain Debt........... 58
PAGE
----
Description of the Notes and
Guarantees.......................... 61
2001 Notes Exchange and Registration
Rights Agreement.................... 103
Certain U.S. Federal Income Tax
Consequences........................ 106
Plan of Distribution.................. 107
Independent Certified Public
Accountants......................... 108
Legal Matters......................... 108
Where Can You Find More Information... 108
Incorporation of Certain Documents by
Reference........................... 109
Index to Financial Statements......... F-1
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. This
information is available without charge to you upon written or oral request to
the Chief Financial Officer of Rent-A-Center, Inc., 5700 Tennyson Parkway, Third
Floor, Plano, Texas 75024, telephone (972) 801-1100. To obtain timely delivery,
you must make your request no later than five days before the date you must make
your decision to participate in the exchange offer, or , 2002.
i
FORWARD-LOOKING STATEMENTS
The statements, other than statements of historical facts, included in this
prospectus are forward-looking statements. Forward-looking statements generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "would," "expect," "intend," "could," "estimate," "should," "anticipate"
or "believe." We believe that the expectations reflected in such forward-looking
statements are accurate. However, we cannot assure you that such expectations
will occur. Our actual future performance could differ materially from such
statements. Factors that could cause or contribute to such differences include,
but are not limited to:
- uncertainties regarding the ability to open new stores;
- our ability to acquire additional rent-to-own stores on favorable terms;
- the ability to enhance the performance of these acquired stores;
- our ability to control store level costs and implement our margin
enhancement initiatives;
- our ability to realize benefits from our margin enhancement initiatives;
- the results of our litigation;
- the passage of legislation adversely affecting the rent-to-own industry;
- interest rates;
- our ability to collect on our rental purchase agreements;
- our ability to effectively hedge interest rates on our outstanding debt;
- changes in our effective tax rate;
- the aggregate amount of old notes tendered for exchange notes in the
exchange offer;
- the liquidity of our exchange notes; and
- the other risks detailed from time to time in our Securities and Exchange
Commission reports.
Additional factors that could cause our actual results to differ materially
from our expectations are discussed under the section entitled "Risk Factors"
and elsewhere in this prospectus. You should not unduly rely on these
forward-looking statements, which speak only as of the date of this prospectus.
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 prospectus or to reflect the occurrence of
unanticipated events.
ii
PROSPECTUS SUMMARY
This summary highlights the information contained elsewhere in this
prospectus. Because this is only a summary, it does not contain all material
features of the exchange offer or all of the information that may be important
to you. For a more complete understanding of the exchange offer, we encourage
you to read the entire prospectus and the documents to which we refer you. You
should read the following summary together with the more detailed information
and consolidated financial statements and the notes to those statements
elsewhere in this prospectus. Unless otherwise indicated, "we," "us" and "our"
means Rent-A-Center, Inc. and our wholly-owned subsidiaries. The term "1998
notes" refers to our outstanding 11% Senior Subordinated Notes due 2008, which
we issued under an indenture we entered into in 1998. The term "2001 notes"
refers to our outstanding 11% Senior Subordinated Notes due 2008, Series C,
which we issued under an indenture we entered into in 2001. The term "exchange
notes" refers to the 11% Senior Subordinated Notes due 2008, Series D, which are
offered for exchange in this prospectus. The term "old notes" refers,
collectively, to the 1998 notes and the 2001 notes, each of which are to be
exchanged for exchange notes in the exchange offer.
THE EXCHANGE OFFER
EXCHANGE NOTES................ The forms and terms of the exchange notes are
identical in all material respects to the terms
of the old notes, except for certain transfer
restrictions, registration rights and
liquidated damages provisions relating to the
2001 notes. These are described elsewhere in
this prospectus under "Description of the Notes
and Guarantees" and "2001 Notes Exchange and
Registration Rights Agreement."
OLD NOTES..................... In February 1999, we issued the 1998 notes in a
transaction registered under the Securities Act
of 1933 under an indenture that we entered into
in 1998 in exchange for previously issued
private notes. On December 19, 2001, we sold in
a private transaction the 2001 notes. The 2001
notes were issued under a new indenture, which
is substantially similar to the 1998 indenture.
The 2001 notes also contain certain transfer
restrictions and registration rights. The 1998
notes and the 2001 notes collectively make up
the old notes to be tendered in exchange for
the exchange notes offered by this prospectus.
THE EXCHANGE OFFER............ We are offering to exchange up to $175,000,000
of exchange notes for up to $175,000,000 of
1998 notes and up to $100,000,000 of exchange
notes for up to $100,000,000 of 2001 notes. The
objective of the exchange offer is to create a
single series of debt securities having a total
outstanding principal amount which is larger
than that of either the 1998 notes or the 2001
notes as separate series, thus resulting in
greater liquidity for the exchange notes.
However, see "Risk Factors -- Because the total
outstanding principal of the exchange notes
will include the total outstanding principal
amount of the 1998 notes and the 2001 notes,
you will experience an immediate dilution of
your percentage of ownership
1
of such series." Old notes may be exchanged
only in $1,000 increments.
EXPIRATION DATE; WITHDRAWAL OF
TENDER........................ Unless we extend the exchange offer, it will
expire at 5:00 p.m., New York City time, on
, 2002. We will not extend this time
period to a date later than , 2002.
You may withdraw any old notes you tender
pursuant to the exchange offer at any time
prior to , 2002. We will return, as
promptly as practicable after the expiration or
termination of the exchange offer, any old
notes not accepted for exchange for any reason
without expense to you.
CERTAIN CONDITIONS TO THE
EXCHANGE OFFER................ The exchange offer is subject to the following
conditions, which we may waive. These
conditions permit us to refuse acceptance of
the old notes or to terminate the exchange
offer if:
- a lawsuit is instituted or threatened in a
court or before a government agency which may
impair our ability to proceed with the
exchange offer;
- a law, statute, rule or regulation is
proposed or enacted or interpreted by the SEC
which may impair our ability to proceed with
the exchange offer; or
- any governmental approval is not received
which we think is necessary to consummate the
exchange offer.
PROCEDURES FOR TENDERING OLD
NOTES......................... If you wish to accept the exchange offer, you
must complete, sign and date the appropriate
letter(s) of transmittal in accordance with the
instructions, and deliver the appropriate
letter(s) of transmittal, along with the old
notes and any other required documentation, to
the exchange agent. A separate letter of
transmittal must be used for the 1998 notes and
the 2001 notes.
By executing the letter(s) of transmittal
relating to the old notes, you will represent
to us that, among other things:
- any exchange notes you receive will be
acquired in the ordinary course of your
business;
- you have no arrangement or understanding with
any person to participate in the distribution
of the exchange notes; and
- you are not an affiliate of Rent-A-Center or,
if you are an affiliate, you will comply with
the registration and prospectus delivery
requirements of the Securities Act to the
extent applicable.
If you hold your old notes through the
Depository Trust Corporation and wish to
participate in the exchange offer, you may do
so through the Depository Trust
2
Corporation's Automated Tender Offer Program.
By participating in the exchange offer, you
will agree to be bound by the appropriate
letter(s) of transmittal as though you had
executed such respective letter(s) of
transmittal.
INTEREST ON THE EXCHANGE
NOTES......................... Interest on the exchange notes accrues from
February 15, 2002 at the rate of 11% per annum.
PAYMENT OF INTEREST ON THE
EXCHANGE NOTES................ Interest is payable semi-annually in arrears on
each February 15 and August 15, commencing on
August 15, 2002.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. If you are a beneficial owner whose old notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and wish to tender such old notes in the
exchange offer, please contact the registered
holder as soon as possible and instruct them to
tender on your behalf and comply with our
instructions set forth elsewhere in this
prospectus.
GUARANTEED DELIVERY
PROCEDURE..................... If you wish to tender your old notes, you may,
in certain instances, do so according to the
guaranteed delivery procedures set forth
elsewhere in this prospectus under "The
Exchange Offer -- Guaranteed Delivery
Procedures."
REGISTRATION RIGHTS
AGREEMENT..................... On December 19, 2001, we sold the 2001 notes
and the related guarantees to the initial
purchasers in a transaction exempt from the
registration requirements of the Securities
Act. At that time, we entered into a
registration rights agreement with the initial
purchasers that grants the holders of the 2001
notes certain exchange and registration rights.
The exchange offer satisfies those rights,
which terminate upon consummation of the
exchange offer. You will not be entitled to any
exchange or registration rights with respect to
the exchange notes. Because the 1998 notes were
issued pursuant to an effective registration
statement, the ability of holders of 1998 notes
to reoffer, resell or otherwise dispose of
their 1998 notes will not be affected by their
failure to participate in the exchange offer.
However, both 1998 notes and 2001 notes that
are not tendered in the exchange offer may
experience a significantly more limited trading
market, which might adversely affect the
liquidity of any remaining 1998 notes or 2001
notes. See "Risk Factors -- The market value of
your current notes may be lower if you do not
exchange your old notes or fail to properly
tender your old notes for
exchange -- Consequences of Failure to
Exchange."
3
CERTAIN FEDERAL TAX
CONSIDERATIONS................ With respect to the exchange of the old notes
for the exchange notes:
- the exchange should not constitute a taxable
exchange for U.S. federal income tax
purposes;
- you should not recognize gain or loss upon
receipt of the exchange notes;
- you must include interest in gross income to
the same extent as the old notes; and
- you should be able to tack the holding period
of the exchange notes to the holding period
of the old notes.
USE OF PROCEEDS............... We will not receive any proceeds from the
exchange of notes pursuant to the exchange
offer.
EXCHANGE AGENT................ We have appointed The Bank of New York as the
exchange agent for the exchange offer. The
address and telephone number of the Exchange
Agent are The Bank of New York, 15 Broad
Street, 16th Floor, New York, New York 10007,
Attn: Diane Amoroso -- Reorganization Unit,
facsimile (212) 235-2361, telephone (212)
235-2353.
4
TERMS OF THE EXCHANGE NOTES AND GUARANTEES
Pursuant to the exchange offer, we are offering to exchange up to $275.0
million aggregate principal amount of the exchange notes for up to an equal
aggregate principal amount of 1998 notes and 2001 notes. The form and terms of
the exchange notes are the same as the form and terms of the 1998 notes, except
for the total outstanding principal amount. The form and terms of the exchange
notes are the same as the form and terms of the 2001 notes, except for the total
outstanding principal amount and except that the exchange notes will have been
registered under the Securities Act and will not bear legends restricting their
transfer. The holders of exchange notes will not be entitled to certain rights
of holders of 2001 notes under the Exchange and Registration Rights Agreement,
which rights will terminate upon the consummation of the exchange offer.
The exchange notes will evidence the same debt of the 1998 notes and the
2001 notes and will be issued under, and be entitled to the benefits of, the
indenture, dated December 19, 2001, between us, our subsidiary guarantors and
The Bank of New York. This indenture has terms substantially similar to the
indenture, dated August 18, 1998, between us, our subsidiary guarantors and The
Bank of New York, as successor in interest to IBJ Schroder Bank & Trust Company,
which governs the 1998 notes.
ISSUER........................ Rent-A-Center, Inc.
GUARANTORS.................... ColorTyme, Inc. and Advantage Companies, Inc.
SECURITIES OFFERED............ $275,000,000 aggregate principal amount of 11%
Senior Subordinated Notes due 2008, Series D.
MATURITY...................... August 15, 2008.
INTEREST PAYMENT DATES........ February 15 and August 15 of each year,
commencing August 15, 2002.
SINKING FUND.................. None.
OPTIONAL REDEMPTION........... Except as described below and under "Change of
Control," we may not redeem the exchange notes
prior to August 15, 2003. After August 15,
2003, we may redeem any amount of the exchange
notes at any time at the redemption prices
(expressed as percentages of principal amount)
set forth below, plus accrued and unpaid
interest to the redemption date, if redeemed
during the twelve-month period beginning on
August 15 of the years indicated below.
REDEMPTION
YEAR PRICE
---- ----------
2003................................. 105.500%
2004................................. 103.667%
2005................................. 101.833%
2006 and thereafter.................. 100.000%
CHANGE OF CONTROL............. Upon the occurrence of a change of control, we
will be required to offer to repurchase the
exchange notes at a price equal to 101% of the
original aggregate principal amount, together
with accrued and unpaid interest, if any, to
the date of repurchase. See "Description of the
Notes and Guarantees -- Change of Control."
5
RANKING....................... The exchange notes will be unsecured and will
be subordinated to all existing and future
senior indebtedness. The exchange notes will
rank pari passu with all existing and future
senior subordinated indebtedness and will rank
senior to all existing and future subordinated
obligations. The exchange notes will be fully
and unconditionally guaranteed on an unsecured,
senior subordinated basis by our existing and
future restricted subsidiaries.
GUARANTEES.................... The exchange notes will be guaranteed by all of
our direct subsidiaries. Future subsidiaries
will also be required to guarantee the exchange
notes offered hereby, unless we designate the
subsidiary as an "unrestricted subsidiary" or
the subsidiary has insignificant assets.
RESTRICTIVE COVENANTS......... The indenture under which the exchange notes
will be issued, and under which the 2001 notes
were issued, limits:
- the incurrence of additional indebtedness by
us and our restricted subsidiaries;
- the payment of dividends on, and redemption
of, our capital stock and our restricted
subsidiaries' capital stock and the
redemption of certain subordinated
obligations of ours and our restricted
subsidiaries';
- investments;
- sales of assets and subsidiary stock;
- transactions with affiliates;
- sale and leaseback transactions; and
- liens.
In addition, the indenture limits our ability
to engage in consolidations, mergers and
transfers of substantially all of our assets
and also contains certain restrictions on
distributions from our subsidiaries. However,
all of these limitations and prohibitions are
subject to a number of important qualifications
and exceptions. See "Description of the Notes
and Guarantees -- Certain Covenants."
ABSENCE OF A PUBLIC MARKET FOR
THE EXCHANGE NOTES............ In general, you may freely transfer the
exchange notes. However, there are exceptions
to this general statement. Holders may not
freely transfer the exchange notes if:
- they acquire the exchange notes outside of
their ordinary course of business;
- they have an arrangement with any person to
participate in the distribution of the
exchange notes; or
- they are an affiliate of Rent-A-Center.
Further, the exchange notes will be new
securities for which there will not initially
be a market. As a result, the
6
development or liquidity of any market for the
exchange notes may not occur. The initial
purchasers of the 2001 notes have advised us
that they currently intend to make a market in
the exchange notes. However, you should be
aware that the initial purchasers are not
obligated to do so. In the event such a market
may develop, the initial purchasers may
discontinue it at any time without notice. We
do not intend to apply for a listing of the
exchange notes on any securities exchange or on
any automated dealer quotation system.
7
RENT-A-CENTER
COMPANY OVERVIEW
We are the largest rent-to-own operator in the United States with an
approximate 29% market share based on store count. At December 31, 2001, we
operated 2,281 company-owned stores in 50 states, the District of Columbia and
Puerto Rico. Our subsidiary, ColorTyme, Inc., is a national franchisor of
rent-to-own stores. At December 31, 2001, ColorTyme had 342 franchised stores in
42 states, 330 of which operated under the ColorTyme name and 12 of which
operated under the Rent-A-Center name. These franchise stores represent a
further 4% market share based on store count.
Our stores offer high quality, durable products such as home electronics,
appliances, computers, and furniture and accessories under flexible rental
purchase agreements that typically allow the customer to obtain ownership of the
merchandise at the conclusion of an agreed upon rental period. These rental
purchase agreements are designed to appeal to a wide variety of customers by
allowing them to obtain merchandise that they might otherwise be unable to
obtain due to insufficient cash resources or a lack of access to credit. These
agreements also cater to customers who only have a temporary need, or who simply
desire to rent rather than purchase the merchandise. We estimate that
approximately 62% of our business is from repeat customers. We offer well known
brands such as Philips, Sony, JVC, Toshiba and Mitsubishi home electronics,
Whirlpool appliances, Dell, Compaq and Hewlett Packard computers and Ashley,
England and Benchcraft furniture. For the year ended December 31, 2001, home
electronics merchandise generated 41% of our store rental revenue, 32% was
derived from furniture and home furnishing accessories, 17% from appliances and
10% from computers.
INDUSTRY OVERVIEW
According to industry sources and our estimates, the rent-to-own industry
consists of approximately 8,000 stores and provides approximately 7.0 million
products to over 3.0 million households each year. We estimate the six largest
rent-to-own industry participants account for 4,700 of the total number of
stores, and the majority of the remainder of the industry consists of operations
with fewer than 20 stores. The rent-to-own industry is highly fragmented and,
due primarily to the decreased availability of traditional financing sources,
has experienced, and we believe will continue to experience, consolidation.
STRATEGY
Our strategy includes:
- Enhancing Store Operations -- We continually seek to improve store
performance through strategies intended to produce gains in operating
efficiency and profitability. We have recently refocused our efforts to
control and improve store-level expenses as well as enhance store
revenues.
- Opening New Stores and Acquiring Existing Rent-To-Own Stores -- We intend
to expand our business both by opening new stores in targeted markets and
by acquiring existing rent-to-own stores.
- Building Our National Brand -- We have implemented a strategy to increase
our name recognition and enhance our national brand. As a part of a
national branding strategy, in April 2000 we launched a national
advertising campaign featuring John Madden as our national advertising
spokesperson.
8
RISK FACTORS
You should carefully consider, along with the other information set forth
in this prospectus, the specific factors set forth under the section entitled
"Risk Factors" before deciding whether to participate in the exchange offer.
9
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The data for the three years ended December 31, 2001 have been derived from
the audited consolidated financial statements included elsewhere in this
prospectus.
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 2000 2001
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues
Store
Rentals and fees............................. $1,270,885 $1,459,664 $1,650,851
Merchandise sales............................ 88,516 81,166 94,733
Other........................................ 2,177 3,018 3,476
Franchise
Merchandise sales............................ 49,696 51,769 53,584
Royalty income and fees...................... 5,893 5,997 5,884
---------- ---------- ----------
Total revenue................................... 1,417,167 1,601,614 1,808,528
Operating expenses
Direct store expenses
Depreciation of rental merchandise........... 265,486 299,298 343,197
Cost of merchandise sold..................... 74,027 65,332 72,539
Salaries and other expenses.................. 770,572 866,234 1,019,402
Franchise cost of merchandise sold.............. 47,914 49,724 51,251
---------- ---------- ----------
1,157,999 1,280,588 1,486,389
General and administrative expenses............... 42,029 48,093 55,359
Amortization of intangibles....................... 27,116 28,303 30,194
Class action litigation settlements............... -- (22,383)(1) 52,000(2)
---------- ---------- ----------
Total operating expenses........................ 1,227,144 1,334,601 1,623,942
Operating profit.................................. 190,023 267,013 184,586
Interest expense, net............................. 74,769 72,618 59,780
---------- ---------- ----------
Earnings before income taxes...................... 115,254 194,395 124,806
Income tax expense................................ 55,899 91,368 58,589
---------- ---------- ----------
Net earnings...................................... 59,355 103,027 66,217
Preferred dividends............................... 10,039 10,420 15,408
---------- ---------- ----------
Net earnings allocable to common stockholders..... $ 49,316 $ 92,607 $ 50,809
========== ========== ==========
OTHER OPERATING AND FINANCIAL DATA:
Number of owned stores (end of period)............ 2,075 2,158 2,281
Same store revenue growth(3)...................... 7.7% 12.6% 8.0%
Franchise stores (end of period).................. 365 364 342
EBITDA(4)......................................... $ 248,452 $ 306,077 304,690
EBITDA margin..................................... 17.5% 19.1% 16.8%
Depreciation and amortization(5).................. 58,429 61,447 68,104
Capital expenditures.............................. 36,211 37,937 57,532
Cash interest expense(6).......................... 72,395 70,978 57,420
Ratio of EBITDA to cash interest expense.......... 3.4x 4.3x 5.3x
Ratio of total net debt to EBITDA................. 3.3x 2.3x 2.0x
Ratio of earnings to fixed charges(7)............. 2.2x 2.9x 2.3x
10
YEARS ENDED DECEMBER 31,
------------------------------------
1999 2000 2001
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT THE END OF PERIOD):
Cash and cash equivalents.............................. $ 21,679 $ 36,495 $ 107,958
Rental merchandise, net................................ 531,223 587,232 653,701
Total assets........................................... 1,485,000 1,486,910 1,619,920
Total debt............................................. 847,160 741,051 702,506
Convertible preferred stock............................ 270,902 281,232 291,910
Stockholders' equity................................... 206,690 309,371 405,378
---------------
(1) Includes the effects of a pre-tax legal reversion of $22.4 million for
unlocated class members associated with the coordinated settlement of three
class action lawsuits in the state of New Jersey.
(2) Includes the effects of a pre-tax legal settlement of $52.0 million
associated with the 2001 settlement of class action lawsuits in the states
of Missouri, Illinois, and Tennessee.
(3) Same store revenue for each period presented includes revenues only of
stores open and operated by us throughout the full period and the comparable
prior period.
(4) EBITDA is defined as operating profit plus depreciation (exclusive of
depreciation of rental merchandise), amortization of intangibles and
non-recurring litigation settlements. EBITDA should not be considered as a
substitute for income from operations, net income or cash flow from
operating activities (as determined in accordance with generally accepted
accounting principles) for the purpose of analyzing operating performance,
financial position and cash flows.
(5) Excludes depreciation of rental merchandise and amortization other than
amortization of intangible assets.
(6) Cash interest expense is defined as interest expense less amortization of
financing fees.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income tax expense, plus fixed charges. Fixed
charges consist of interest expense (which includes amortization of deferred
financing costs) whether expensed or capitalized and one-fourth of rental
expense, deemed representative of that portion of rental expense estimated
to be attributable to interest.
11
RISK FACTORS
Our business, operations and financial condition are subject to various
risks. Some of these risks are described below, and you should take these risks
into account in evaluating us or any investment decision involving us or in
deciding whether to participate in the exchange offer. This section does not
describe all risks applicable to us, our industry or our business, and it is
intended only as a summary of certain material factors.
RISKS RELATING TO THE EXCHANGE OFFER
THE MARKET VALUE OF YOUR CURRENT NOTES MAY BE LOWER IF YOU DO NOT EXCHANGE YOUR
OLD NOTES OR FAIL TO PROPERLY TENDER YOUR OLD NOTES FOR EXCHANGE.
Consequences of Failure to Exchange. To the extent that the old notes are
tendered and accepted for exchange pursuant to the exchange offer, the trading
market for old notes that remain outstanding may be significantly more limited,
which might adversely affect the liquidity of the old notes not tendered for
exchange. The extent of the market and the availability of price quotations for
old notes would depend upon a number of factors, including the number of holders
of old notes remaining at such time and the interest in maintaining a market in
such old notes on the part of securities firms. An issue of securities with a
smaller outstanding market value available for trading, or float, may command a
lower price than would a comparable issue of securities with a greater float.
Therefore, the market price for old notes that are not exchanged in the exchange
offer may be affected adversely to the extent that the amount that old notes
exchanged pursuant to the exchange offer reduces the float. The reduced float
also may tend to make the trading price of the old notes that are not exchanged
more volatile.
Consequences of Failure to Properly Tender. Issuance of the exchange notes
in exchange for the old notes pursuant to the exchange offer will be made
following the prior satisfaction, or waiver, of the conditions set forth in "The
Exchange Offer -- Certain Conditions to the Exchange Offer" and only after
timely receipt by the exchange agent of such old notes, a properly completed and
duly executed applicable letter(s) of transmittal and all other required
documents. Therefore, holders of old notes desiring to tender such old notes in
exchange for exchange notes should allow sufficient time to ensure timely
delivery of all required documentation. Neither we, the exchange agent nor any
other person is under any duty to give notification of defects or irregularities
with respect to the tenders of old notes for exchange. The old notes that may be
tendered in the exchange offer but which are not validly tendered will,
following consummation of the exchange offer, remain outstanding. Any 2001 notes
that remain outstanding following consummation of the exchange offer will
continue to be subject to the same transfer restrictions currently applicable to
the 2001 notes.
IF YOU FAIL TO TENDER YOUR 2001 NOTES FOR EXCHANGE, YOUR ABILITY TO TRANSFER
SUCH 2001 NOTES WILL BE LIMITED.
We issued the 2001 notes in a private offering. As a result, the 2001 notes
have not been registered under the Securities Act, and may not be resold by
purchasers thereof unless the 2001 notes are subsequently registered or an
exemption from the registration requirements of the Securities Act is available.
The 2001 notes that are not tendered in the exchange offer will continue to be
subject to the existing restrictions upon their transfer. We will have no
obligation to provide for the registration under the Securities Act of
unexchanged 2001 notes.
THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES AND WE CANNOT BE SURE AN ACTIVE
TRADING MARKET FOR THE EXCHANGE NOTES WILL DEVELOP.
The exchange notes will be new securities for which there will not
initially be a market. Accordingly, we cannot assure you as to the development
or liquidity of any market for the
12
exchange notes, and we will have no obligation to create such a market. At the
time of the private placement of the 2001 notes, the initial purchasers of the
2001 notes advised us that they intended to make a market in the 2001 notes and,
if issued, the exchange notes. However, the initial purchasers are not obligated
to make a market in any of the notes, and they may discontinue at any time in
their sole discretion.
The liquidity of any market for the exchange notes will depend upon the
number of holders of the exchange notes, the overall market for high yield
securities, our financial performance or prospects or in the prospects for
companies in our industry generally, the interest of securities dealers in
making a market in the exchange notes and other factors.
BECAUSE THE TOTAL OUTSTANDING PRINCIPAL OF THE EXCHANGE NOTES WILL INCLUDE THE
TOTAL OUTSTANDING PRINCIPAL AMOUNT OF THE 1998 NOTES AND THE 2001 NOTES, YOU
WILL EXPERIENCE AN IMMEDIATE DILUTION OF YOUR PERCENTAGE OF OWNERSHIP OF SUCH
SERIES.
If all of the outstanding 1998 notes and 2001 notes are exchanged for
exchange notes, $275.0 million aggregate principal amount of exchange notes will
be outstanding following the consummation of the exchange offer, and the
exchange notes will be deemed to be a single series of notes outstanding under
the indenture. As a result, any actions requiring the consent of each holder or
the holders of a majority in outstanding principal amount of exchange notes
under the indenture will therefore require the consent of each holder of
exchange notes or the holders of a majority in aggregate principal amount of
outstanding exchange notes, and the current individual voting interest of each
holder of 1998 notes and 2001 notes will accordingly be diluted.
RISKS RELATING TO THE EXCHANGE NOTES
OUR DEBT AGREEMENTS IMPOSE RESTRICTIONS ON US WHICH MAY LIMIT OR PROHIBIT US
FROM ENGAGING IN CERTAIN TRANSACTIONS. IF A DEFAULT WERE TO OCCUR, OUR LENDERS
COULD ACCELERATE THE AMOUNTS OF DEBT OUTSTANDING, AND HOLDERS OF OUR SECURED
INDEBTEDNESS COULD FORCE US TO SELL OUR ASSETS TO SATISFY ALL OR A PART OF WHAT
IS OWED.
Covenants under our senior credit facilities and the indentures governing
the 1998 notes, the 2001 notes and the exchange notes restrict our ability to
engage in various operational matters as well as require us to maintain
specified financial ratios and satisfy specified financial tests. Our ability to
meet these financial ratios and tests may be affected by events beyond our
control. These restrictions could limit our ability to obtain future financing,
make needed capital expenditures or other investments, repurchase our
outstanding debt or equity, withstand a future downturn in our business or in
the economy, dispose of operations, engage in mergers, acquire additional stores
or otherwise conduct necessary corporate activities. Various transactions that
we may view as important opportunities, such as specified acquisitions, are also
subject to the consent of lenders under the senior credit facilities, which may
be withheld or granted subject to conditions specified at the time that may
affect the attractiveness or viability of the transaction.
If a default were to occur, the lenders under our senior credit facilities
could accelerate the amounts outstanding under the credit facilities and our
other lenders could declare immediately due and payable all amounts borrowed
under other instruments that contain certain provisions for cross-acceleration
or cross-default. In addition, the lenders under these agreements could
terminate their commitments to lend to us. If the lenders under these agreements
accelerated the repayment of borrowings, we may not have sufficient liquid
assets at that time to repay the amounts then outstanding under our indebtedness
or be able to find additional alternative financing. Even if we could obtain
additional alternative financing, the terms of the financing may not be
favorable or acceptable to us.
13
The existing indebtedness under our senior credit facilities is secured by
substantially all of our assets. Should a default or acceleration of this
indebtedness occur, the holders of this indebtedness could sell the assets to
satisfy all or a part of what is owed. Our senior credit facilities also contain
provisions prohibiting the modification of the 1998 notes, the 2001 notes and
the exchange notes, as well as limiting our ability to refinance such notes.
A CHANGE OF CONTROL COULD ACCELERATE OUR OBLIGATION TO PAY OUR OUTSTANDING
INDEBTEDNESS, AND WE MAY NOT HAVE SUFFICIENT LIQUID ASSETS TO REPAY THESE
AMOUNTS.
Under our senior credit facilities, an event of default would result if
Apollo Management IV, L.P. and its affiliates cease to own at least 50% of the
amount of our voting stock that they owned on August 5, 1998. An event of
default would also result under the senior credit facilities if a third party
became the beneficial owner of 33.33% or more of our voting stock at a time when
certain permitted investors owned less than the third party or Apollo owned less
than 35% of the voting stock owned by the permitted investors. As of December
31, 2001, we are required to pay under our senior credit facilities $1.9 million
in each of 2002 and 2003, $26.4 million in 2004, $100.0 million in 2005 and
$297.8 million after 2005. These payments reduce our operating cash flow. If the
lenders under our debt instruments accelerated these obligations, we may not
have sufficient liquid assets to repay amounts outstanding under these
agreements.
Under the indentures governing the 1998 notes, the 2001 notes and the
exchange notes, in the event that a change in control occurs, we may be required
to offer to purchase all of our outstanding senior subordinated notes at 101% of
their original aggregate principal amount, plus accrued interest to the date of
repurchase. A change in control also would result in an event of default under
our senior credit facilities, which could then be accelerated by our lenders,
and would require us to offer to redeem our Series A preferred stock.
THE INCURRENCE OF THE SUBSIDIARY GUARANTEES MAY BE VOIDED BY A COURT IF THE
COURT DETERMINES THAT THE INCURRENCE OF THIS INDEBTEDNESS RESULTED IN A
FRAUDULENT TRANSFER.
In the event of the bankruptcy or insolvency of any of the subsidiary
guarantors, the incurrence by each subsidiary guarantor of its guarantee of the
exchange notes would be subject to review under relevant federal and state
fraudulent conveyance and similar statutes in a bankruptcy or reorganization
case or a lawsuit by or on behalf of creditors of such subsidiary guarantor.
Under those statutes, if a court were to find that the subsidiary guarantee was
incurred with the intent of hindering, delaying or defrauding creditors or that
such subsidiary guarantor received less than a reasonably equivalent value or
fair consideration therefor and, at the time of its incurrence, the subsidiary
guarantor either (A) was insolvent or rendered insolvent by reason thereof, (B)
was engaged in a business or transaction for which its remaining unencumbered
assets constituted unreasonably small capital, or (C) intended to or believed
that it would incur debts beyond its ability to pay as they matured or became
due, the court could void those obligations.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at a particular time is greater than the then fair value of its
assets, or if the fair saleable value of its assets is less than the amount that
would be required to pay its probable liability on its existing debts as they
become absolute and mature. As of December 31, 2001, we had total indebtedness
of approximately $702.5 million. We believe that each of our subsidiary
guarantors is (A) neither insolvent nor rendered insolvent by the incurrence of
its subsidiary guarantee, (B) in possession of sufficient capital to run its
business effectively, and (C) incurring debts within its ability to pay as the
same mature or become due. We cannot assure you, however, that the assumptions
14
and methodologies used by us in reaching our conclusions about the solvency of
the subsidiary guarantors would be adopted by a court or that a court would
concur with those conclusions.
In the event the subsidiary guarantee of a subsidiary guarantor was voided
as a fraudulent conveyance, such guarantees would effectively be subordinated to
all indebtedness and other liabilities and commitments of such subsidiary
guarantor.
RISKS RELATING TO OUR BUSINESS
WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH STRATEGY, WHICH COULD
CAUSE OUR FUTURE EARNINGS TO GROW MORE SLOWLY OR EVEN DECREASE.
Our growth strategy could place a significant demand on our management and
our financial and operational resources. This growth strategy is subject to
various risks, including uncertainties regarding the ability to open new stores
and our ability to acquire additional stores on favorable terms. We may not be
able to continue to identify profitable new store locations or underperforming
competitors as we currently anticipate. If we are unable to implement our growth
strategy, our earnings may grow more slowly or even decrease.
IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH AND INTEGRATE NEW STORES, OUR
FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED.
The benefits we anticipate from our growth strategy may not be realized.
The addition of new stores, both through store openings and through
acquisitions, requires the integration of our management philosophies and
personnel, standardization of training programs, realization of operating
efficiencies and effective coordination of sales and marketing and financial
reporting efforts. In addition, acquisitions in general are subject to a number
of special risks, including adverse short-term effects on our reported operating
results, diversion of management's attention and unanticipated problems or legal
liabilities. Further, a newly opened store generally does not attain positive
cash flow during its first year of operations.
THERE ARE LEGAL PROCEEDINGS PENDING AGAINST US SEEKING MATERIAL DAMAGES. THE
COSTS WE INCUR IN DEFENDING OURSELVES OR ASSOCIATED WITH SETTLING ANY OF THESE
PROCEEDINGS, AS WELL AS A MATERIAL FINAL JUDGMENT OR DECREE AGAINST US, COULD
MATERIALLY ADVERSELY AFFECT OUR FINANCIAL CONDITION BY REQUIRING THE PAYMENT OF
THE SETTLEMENT AMOUNT, A JUDGMENT OR THE POSTING OF A BOND.
Some lawsuits against us involve claims that our rental agreements
constitute installment sales contracts, violate state usury laws or violate
other state laws enacted to protect consumers. We are also defending class
action lawsuits alleging we violated the securities laws and have entered into a
proposed settlement covering claims associated with three alleged class actions
asserting gender discrimination in our employment practices. Because of the
uncertainties associated with litigation, we cannot estimate for you our
ultimate liability for these matters, if any. The failure to pay any judgment
would be a default under our senior credit facilities and the indentures
governing the 1998 notes, the 2001 notes and exchange notes.
RENT-TO-OWN TRANSACTIONS ARE REGULATED BY LAW IN MOST STATES. ANY ADVERSE CHANGE
IN THESE LAWS OR THE PASSAGE OF ADVERSE NEW LAWS COULD EXPOSE US TO LITIGATION
OR REQUIRE US TO ALTER OUR BUSINESS PRACTICES.
As is the case with most businesses, we are subject to various governmental
regulations, including specifically in our case, regulations regarding
rent-to-own transactions. There are currently 47 states that have passed laws
regulating rental purchase transactions and another state that has a retail
installment sales statute that excludes rent-to-own transactions from its
coverage if certain criteria are met. These laws generally require certain
contractual and
15
advertising disclosures. They also provide varying levels of substantive
consumer protection, such as requiring a grace period for late fees and contract
reinstatement rights in the event the rental purchase agreement is terminated.
The rental purchase laws of nine states limit the total amount of rentals that
may be charged over the life of a rental purchase agreement. Several states also
effectively regulate rental purchase transactions under other consumer
protection statutes. We are currently subject to outstanding judgments and other
litigation alleging that we have violated some of these statutory provisions.
Although there is no comprehensive federal legislation regulating
rental-purchase transactions, adverse federal legislation may be enacted in the
future. From time to time, legislation has been introduced in Congress seeking
to regulate our business. In addition, various legislatures in the states where
we currently do business may adopt new legislation or amend existing legislation
that could require us to alter our business practices.
OUR BUSINESS DEPENDS ON A LIMITED NUMBER OF KEY PERSONNEL, WITH WHOM WE DO NOT
HAVE EMPLOYMENT AGREEMENTS. THE LOSS OF ANY ONE OF THESE INDIVIDUALS COULD
DISRUPT OUR BUSINESS.
Our continued success is highly dependent upon the personal efforts and
abilities of our senior management, including Mark E. Speese, our Chairman and
Chief Executive Officer, Mitchell E. Fadel, our President, and Dana F. Goble and
David A. Kraemer, our Executive Vice-Presidents of Operations. We do not have
employment contracts with or maintain key-man insurance on the lives of any of
these officers and the loss of any one of them could disrupt our business.
A SMALL GROUP OF OUR DIRECTORS AND THEIR AFFILIATES HAVE SIGNIFICANT INFLUENCE
ON ALL STOCKHOLDER VOTES. AS A RESULT, THEY WILL CONTINUE TO HAVE THE ABILITY TO
EXERCISE EFFECTIVE CONTROL OVER THE OUTCOME OF ACTIONS REQUIRING THE APPROVAL OF
OUR STOCKHOLDERS, INCLUDING POTENTIAL ACQUISITIONS, ELECTIONS OF OUR BOARD OF
DIRECTORS AND SALES OR CHANGES IN CONTROL.
Mr. Speese, our Chairman and Chief Executive Officer, Apollo Investment
Fund IV, L.P. and Apollo Overseas Partners IV, L.P. are parties to a
stockholders agreement relating to the voting of our securities held by them at
meetings of our stockholders. Approximately 30.4% of our voting stock on a fully
diluted basis, assuming the conversion of our Series A preferred stock and all
outstanding options, is controlled by Mr. Speese and Apollo.
16
USE OF PROCEEDS OF THE EXCHANGE NOTES
The exchange offer is intended to satisfy our obligations under the
Exchange and Registration Rights Agreement dated as of December 19, 2001, by and
between Rent-A-Center, ColorTyme and Advantage Companies and J.P. Morgan
Securities Inc., Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc. and
Lehman Brothers Inc., as initial purchasers. We will not receive any cash
proceeds from the issuance of the exchange notes. We will only receive old notes
with a total principal amount equal to the total principal amount of the
exchange notes issued in the exchange offer. The 1998 notes and the 2001 notes
tendered for exchange will be retired and canceled and cannot be reissued.
Accordingly, the issuance of the exchange notes will not result in any increase
in our debt.
17
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of December 31, 2001 on an actual basis and as adjusted to
give effect to the application of the proceeds from the 2001 notes. This table
should be read in conjunction with our financial statements and related notes
and the other financial information contained in this prospectus.
AS OF
DECEMBER 31, 2001
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN MILLIONS)
Cash and cash equivalents................................... $ 108.0 $ 73.3
======== ========
Debt:
Revolving credit facilities (1)........................... $ 0.0 $ 0.0
Term loans................................................ 428.0 428.0
1998 and 2001 subordinated notes.......................... 274.5 274.5
-------- --------
702.5 702.5
Convertible preferred stock................................. 291.9 291.9
Total stockholders' equity.................................. 405.4 370.7
-------- --------
Total capitalization...................................... $1,399.8 $1,365.1
======== ========
---------------
(1) We have $130.0 million of commitments under our revolving credit facilities.
Availability under the revolving credit facilities is reduced by commitments
on letters of credit. As of December 31, 2001, we had approximately $63.6
million commitments on our letters of credit outstanding.
18
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
At the time we issued the 2001 notes, we agreed to file a registration
statement to register the exchange of the 2001 notes for the exchange notes on
or prior to February 17, 2002, and to use our reasonable best efforts to cause
the registration statement to become effective under the Securities Act on or
prior to May 18, 2002. In the event that applicable interpretations of the staff
of the SEC do not permit us to effect the exchange offer, or if certain holders
of the 2001 notes notify us that they are not eligible to participate in, or
would not receive freely tradeable exchange notes in exchange for tendered old
notes pursuant to, the exchange offer, we will use our reasonable best efforts
to cause to become effective a shelf registration statement with respect to the
resale of the 2001 notes and to keep the shelf registration statement effective
until December 19, 2003. If the exchange offer registration statement is not
effective on May 17, 2002, we will be obligated to pay liquidated damages to
holders of the 2001 notes. See "2001 Notes Exchange and Registration Rights
Agreement."
We satisfied our obligations relating to the registration of the 1998 notes
under the Securities Act in 1999. Generally, the 1998 notes are freely tradable
securities. We are not bound by any agreement to exchange the 1998 notes for the
exchange notes offered by this prospectus. The objective of the exchange offer
is to create a single series of debt securities having a total outstanding
principal amount which is larger than that of either the 1998 notes or the 2001
notes as separate series, thus resulting in greater liquidity for the exchange
notes. However, see "Risk Factors -- Because the total outstanding principal of
the exchange notes will include the total outstanding principal amount of the
1998 notes and the 2001 notes, you will experience an immediate dilution of your
percentage of ownership of such series."
Each holder of old notes that wishes to exchange old notes for exchange
notes will be required to represent that:
- any exchange notes received will be acquired in the ordinary course of
its business;
- it has no arrangement or understanding with any person to participate in
the distribution of the exchange notes; and
- it is not an "affiliate," as defined in Rule 405 of the Securities Act,
of Rent-A-Center or, if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where such old notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes. See "Plan of Distribution."
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third-parties, we believe that, except as described below,
exchange notes issued in the exchange offer may be offered for resale, resold
and otherwise transferred by any holder, other than a holder which is an
"affiliate" of us within the meaning of Rule 405 under the Securities Act,
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such exchange notes are acquired in the
ordinary course of such holder's business and such holder does not intend to
participate and has no arrangement or understanding with any person to
participate in the distribution of such exchange notes. Any holder who tenders
in the exchange offer with the intention or for the purpose of participating in
a distribution of the exchange notes cannot rely on such interpretation by the
staff of the SEC and must comply with the registration and prospectus delivery
requirements of
19
the Securities Act in connection with a secondary resale transaction. Unless an
exemption from registration is otherwise available, any such resale transaction
should be covered by an effective registration statement containing the selling
security holder's information required by Item 507 of Regulation S-K under the
Securities Act. This prospectus may be used for an offer to resell, resale or
other retransfer of exchange notes only as specifically set forth herein. Only
broker-dealers who acquired the old notes as a result of market-making
activities or other trading activities may participate in the exchange offer.
Each broker-dealer that receives exchange notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such exchange
notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter(s) of transmittal, we will accept for exchange any and all old
notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on , 2002, unless we extend the exchange offer. We will issue
$1,000 principal amount of exchange notes in exchange for each $1,000 principal
amount of outstanding old notes surrendered pursuant to the exchange offer. Old
notes may be tendered only in $1,000 increments.
The form and terms of the exchange notes will be the same as the form and
terms of the old notes except that, with respect to the 2001 notes, the issuance
of the exchange notes will have been registered under the Securities Act, and
the exchange notes will not bear legends restricting their transfer. The
exchange notes will evidence the same debt as the old notes. The exchange notes
will be issued under and entitled to the benefits of the indenture which
authorized the issuance of the 2001 notes, such that the old notes and the
exchange notes will be treated as a single class of debt securities under the
indenture. See "Description of the Notes and Guarantees."
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $175.0 million of the 1998 notes and the
$100.0 million of the 2001 notes are outstanding. This prospectus, together with
the respective letter(s) of transmittal, is being sent to all registered holders
of old notes. There will be no fixed record date for determining registered
holders of old notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the Exchange and Registration Rights Agreement and the applicable
requirements of the Securities Exchange Act of 1934, and the rules and
regulations of the SEC thereunder. Old notes that are not tendered for exchange
in the exchange offer will remain outstanding and continue to accrue interest
and will be entitled to the rights and benefits such holders have under the
respective indentures and, in the case of the 2001 notes, the Exchange and
Registration Rights Agreement.
We will be deemed to have accepted for exchange properly tendered notes
when, as and if we shall have given oral or written notice of acceptance to the
exchange agent and complied with the provisions of Section 1 of the Exchange and
Registration Rights Agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the exchange notes from us. We
expressly reserve the right to amend or terminate the exchange offer, and not to
accept for exchange any old notes not accepted for exchange, upon the occurrence
of any of the conditions specified below under "-- Certain Conditions to the
Exchange Offer."
20
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
respective letter(s) of transmittal, transfer taxes with respect to the exchange
of old notes pursuant to the exchange offer. Rent-A-Center will pay all charges
and expenses, other than certain applicable taxes described below, in connection
with the exchange offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date is 5:00 p.m., New York City time on , 2002,
unless we, in our sole discretion, extend the exchange offer, in which case the
expiration date will mean the latest date and time to which the exchange offer
is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will issue a press release notifying
the registered holders of old notes of such extension, each prior to 9:00 a.m.,
New York City time, on the next business day after the expiration date.
We reserve the right, in our sole discretion:
- to delay accepting any old notes for exchange, to extend the exchange
offer or to terminate the exchange offer if any of the conditions set
forth below under "-- Certain Conditions to the Exchange Offer" have not
been satisfied, by giving oral or written notice of such delay, extension
or termination to the exchange agent; or
- to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of old notes. If the exchange offer is amended in a manner we
determine to constitute a material change, we will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and we will extend the exchange offer, depending upon the
significance of the amendment and the manner of disclosure to the registered
holders, if the exchange offer would otherwise expire during such period.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offer, we have no obligation to publish, advertise or otherwise communicate any
such public announcement, other than by making a timely release to an
appropriate news agency.
If we extend the period of time during which the exchange offer is open, or
if we are delayed in accepting for exchange of, or in issuing and exchanging the
exchange notes for, any old notes, or are unable to accept for exchange of, or
issue exchange notes for, any old notes pursuant to the exchange offer for any
reason, then, without prejudice to our rights under the exchange offer, the
exchange agent may, on our behalf, retain all old notes tendered, and such old
notes may not be withdrawn except as otherwise provided below in "-- Withdrawal
of Tenders." The right to delay acceptance for exchange of, or the issuance and
the exchange of the exchange notes for, any old notes is subject to applicable
law, including Rule 14e-1(c) under the Exchange Act, which requires that we
either deliver the exchange notes or return the old notes deposited by or on
behalf of the holders thereof promptly after termination or withdrawal of the
exchange offer.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest at a rate of 11% per annum, payable
semi-annually, on February 15 and August 15 of each year, commencing on August
15, 2002. Holders of exchange notes will receive interest on August 15, 2002
from the date of initial issuance of the exchange notes, plus an amount equal to
the accrued interest on the old notes through such
21
date. Interest on the old notes accepted for exchange will cease to accrue upon
issuance of the exchange notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange any exchange notes for, any old
notes, and may terminate the exchange offer before the acceptance of any old
notes for exchange, if:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer;
- any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by the staff
of the SEC, which, in our reasonable judgment, might materially impair
our ability to proceed with the exchange offer; or
- any governmental approval has not been obtained, which approval we shall,
in our reasonable discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby.
If we determine in our sole discretion that any of these foregoing
conditions are not satisfied, we may
- refuse to accept any old notes and return all old notes to the tendering
holders;
- extend the exchange offer and retain all old notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw such old notes; or
- waive such unsatisfied conditions with respect to the exchange offer and
accept all properly tendered old notes which have not been withdrawn.
If such waiver constitutes a material change to the exchange offer, we will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the old notes and we will extend the
exchange offer for a period of five to ten business days, depending on the
significance of the waiver and the manner of disclosure to the registered
holders, if the exchange offer would otherwise expire during such five to ten
day business period.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
exchange notes will be issued in exchange for any such old notes, if at such
time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Subject to the terms and conditions hereof and the letter(s) of
transmittal, only a holder of old notes may tender such old notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the appropriate letter(s) of transmittal pertaining to their old notes,
or facsimile thereof, have the signature thereon guaranteed if required by the
letter(s) of transmittal, and mail or otherwise deliver such letter(s) of
transmittal or such facsimile to the exchange agent prior to 5:00 p.m., New York
City time, on the expiration date
22
or, in the alternative, comply with the Depository Trust Corporation's Automated
Tender Offer Program procedures described below. A separate letter of
transmittal will be used for the 1998 notes and 2001 notes. In addition, either:
- old notes must be received by the exchange agent along with the
appropriate letter(s) of transmittal;
- a timely confirmation of book-entry transfer, which we call a book-entry
confirmation, of such old notes, if such procedure is available, into the
exchange agent's account at the Depository Trust Corporation, which we
call the Book-Entry Transfer Facility, pursuant to the procedure for
book-entry transfer described below or properly transmitted agent's
message, as defined below, must be received by the exchange agent prior
to the expiration date; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the letter(s) of transmittal and other required
documents must be received by the exchange agent at the address set forth below
under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth herein and in the letter(s) of
transmittal.
The method of delivery of old notes, the letter(s) of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holder. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the exchange agent before the expiration date. No
letter(s) of transmittal or old notes should be sent to us. Holders may request
their respective brokers, dealers, commercial banks, trust companies or other
nominees to effect the above transactions for such holders.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of old notes to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the letter(s) of transmittal and
delivering such owner's old notes, either make appropriate arrangements to
register ownership of the old notes in such owner's name or obtain a properly
completed bond power from the registered holder of old notes. The transfer of
registered ownership may take considerable time and may not be able to be
completed prior to the expiration date.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where such old notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes. See "Plan of Distribution."
Signatures on the letter(s) of transmittal and a notice of withdrawal
described below must be guaranteed by an eligible institution, as defined below,
unless the old notes are tendered (A) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter(s) of transmittal, or (B) for the account of an
eligible institution. In the event that signatures on the letter(s) of
transmittal or a notice of withdrawal are required to be guaranteed, such
guarantor must be an eligible institution, which means a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the
23
meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the
recognized signature guarantee programs identified in the letter(s) of
transmittal.
If the letter(s) of transmittal is signed by a person other than the
registered holder of any old notes listed therein, such old notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such old notes
with the signature thereon guaranteed by an eligible institution.
If the letter(s) of transmittal or any old notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by us, provide
evidence satisfactory to us of their authority to so act must be submitted with
the letter(s) of transmittal.
The exchange agent and the Depository Trust Corporation have confirmed that
any financial institution that is a participant in the Depository Trust
Corporation's system may utilize the Depository Trust Corporation's Automated
Tender Offer Program to tender. Accordingly, participants in the Depository
Trust Corporation's Automated Tender Offer Program may, in lieu of physically
completing and signing the letter(s) of transmittal and delivering it to the
exchange agent, electronically transmit their acceptance of the exchange offer
by causing the Depository Trust Corporation to transfer the old notes to the
exchange agent in accordance with the Depository Trust Corporation's Automated
Tender Offer Program procedures for transfer. The Depository Trust Corporation
will then send an agent's message to the exchange agent. The term "agent's
message" means a message transmitted by the Depository Trust Corporation
received by the exchange agent and forming part of the book-entry confirmation,
which states
- that the Depository Trust Corporation has received an express
acknowledgment from a participant in the Depository Trust Corporation's
Automated Tender Offer Program that is tendering old notes which are the
subject of such book entry confirmation;
- that such participant has received and agrees to be bound by the terms of
the letter(s) of transmittal, or, in the case of an agent's message
relating to guaranteed delivery, that such participant has received and
agrees to be bound by the applicable notice of guaranteed delivery; and
- that the agreement may be enforced against such participant.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by us in our sole discretion, which determination will be
final and binding. We reserve the absolute right to reject any and all old notes
not properly tendered or any old notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter(s) of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of old notes must be cured within such time as we shall determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
old notes, neither we, the exchange agent nor any other person shall incur any
liability for failure to give such notification. Tenders of old notes will not
be deemed to have been made until such defects or irregularities have been cured
or waived. Any old notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the exchange agent to the tendering holder, unless
otherwise provided in the letter(s) of transmittal, as soon as practicable
following the expiration date.
24
In all cases, issuance of exchange notes for old notes that are accepted
for exchange pursuant to the exchange offer will be made only after timely
receipt by the exchange agent of old notes or a timely book-entry confirmation
of such old notes into the exchange agent's account at the book-entry transfer
facility, a properly completed and duly executed letter(s) of transmittal and
all other required documents. If any tendered old notes are not accepted for
exchange for any reason set forth in the terms and conditions of the exchange
offer or if old notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged old notes will be
returned without expense to the tendering holder thereof, or, in the case of old
notes tendered by book-entry transfer into the exchange agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described below, such non-exchanged notes will be credited to an account
maintained with such book-entry transfer facility, as promptly as practicable
after the expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at the book-entry transfer facility for purposes of the
exchange offer within two business days after the date of this prospectus, and
any financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of old notes by causing the
book-entry transfer facility to transfer such old notes into the exchange
agent's account at the book-entry transfer facility in accordance with such
book-entry transfer facility's procedures for transfer. However, although
delivery of notes may be effected through book-entry transfer at the book-entry
transfer facility, the letter(s) of transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the exchange agent at the address set
forth below under "-- Exchange Agent" on or prior to the expiration date or, if
the guaranteed delivery procedures described below are to be complied with,
within the time period provided under such procedures. Delivery of documents to
the book-entry transfer facility does not constitute delivery to the exchange
agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and (A) whose old notes are not
immediately available, or (B) who cannot deliver their old notes, the letter(s)
of transmittal or any other required documents to the exchange agent prior to
the expiration date, may effect a tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery by facsimile transmission, mail or hand delivery,
setting forth the name and address of the holder, the registered
number(s) of such old notes and the principal amount of old notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
expiration date, the appropriate letter(s) of transmittal, or facsimile
thereof, together with the old notes or a book-entry confirmation, as the
case may be, and any other documents required by the letter(s) of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- such properly completed and executed letter(s) of transmittal, or
facsimile thereof, or properly transmitted agent's message as well as all
tendered old notes in proper form for transfer or a book-entry
confirmation, as the case may be, and all other documents required by the
letter(s) of transmittal, are received by the exchange agent within three
New York Stock Exchange trading days after the expiration date.
25
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date.
For a withdrawal to be effective:
- a written notice of withdrawal must be received by the exchange agent at
one of the addresses set forth below under "-- Exchange Agent;" or
- holders must comply with the appropriate procedures of the Depository
Trust Company's automated tender offer program system.
Any such notice of withdrawal must specify the name of the person having
tendered the old notes to be withdrawn, identify the old notes to be withdrawn,
including the principal amount of such old notes, and, where certificates for
old notes have been transmitted, specify the name in which such old notes were
registered, if different from that of the withdrawing holder. If certificates
for old notes have been delivered or otherwise identified to the exchange agent,
then, prior to the release of such certificates, the withdrawing holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution. If old notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at the
book-entry transfer facility to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility, including time of receipt, of such notices will
be determined by us, which determination shall be final and binding on all
parties. Any old notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the exchange offer. Any old notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder, or, in the case
of old notes tendered by book-entry transfer into the exchange agent's account
at the book-entry transfer facility pursuant to the book-entry transfer
procedures described above, such old notes will be credited to an account
maintained with such book-entry transfer facility for the old notes, as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn old notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering" above at any time on or
prior to the expiration date.
26
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or the letter(s) of transmittal and requests for notice of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
By Registered or Certified Mail, Hand or Overnight Courier:
The Bank of New York
15 Broad Street -- 16th Floor
New York, NY 10007
Attn: Diane Amoroso --
Reorganization Unit
By facsimile: To confirm transmission:
(212) 235-2361 (212) 235-2353
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by us. The principal
solicitation is being made by mail. However, additional solicitation may be made
by telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the exchange offer will
be paid by us and are estimated in the aggregate to be approximately $300,000.
Such expenses include registration fees, fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, and related fees and
expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of the
old notes for exchange notes pursuant to the exchange offer. If, however,
certificates representing old notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of notes tendered, or if
tendered notes are registered in the name of any person other than the person
signing the letter(s) of transmittal, or if a transfer tax is imposed for any
reason other than the exchange of notes pursuant to the exchange offer, then the
amount of any such transfer taxes, whether imposed on the registered holder or
any other persons, will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the letter(s) of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
2001 Notes. Holders of 2001 notes who do not exchange their 2001 notes for
exchange notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of such 2001 notes, as set forth
- in the legend thereon as a consequence of the issuance of the 2001 notes
pursuant to the exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws; and
27
- otherwise set forth in the offering memorandum dated December 12, 2001,
distributed in connection with the offering of the 2001 notes.
In general, the 2001 notes may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. We do not currently anticipate that we will register the resale of the
2001 notes under the Securities Act, except as required by the Exchange and
Registration Rights Agreement related to the 2001 notes.
1998 Notes. Because the 1998 notes were issued pursuant to an effective
registration statement under the Securities Act, the ability of holders of 1998
notes to reoffer, resell or otherwise dispose of their 1998 notes will not be
affected by their failure to participate in the exchange offer. However, to the
extent 1998 notes and 2001 notes are tendered and accepted in the exchange
offer, the principal amount of outstanding 1998 notes and 2001 notes will
decrease with a resulting decrease in the liquidity in the market for those
notes. Accordingly, the liquidity of the market of the 1998 notes and 2001 notes
could be adversely affected. See "Risk Factors -- The market value of your
current notes may be lower if you do not exchange your old notes or fail to
properly tender your old notes for exchange -- Consequences of Failure to
Exchange."
28
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the five years
ended December 31, 2001 have been derived from our consolidated financial
statements as audited by Grant Thornton LLP, independent certified public
accountants. The historical financial data are qualified in their entirety by,
and should be read in conjunction with, the financial statements and the notes
thereto, the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and other financial information included
elsewhere in this prospectus. In May and August 1998, we completed the
acquisitions of Central Rents and Thorn Americas, respectively, both of which
affect the comparability of the 1998 historical financial and operating data to
the other periods presented.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues
Store
Rentals and fees..................... $275,344 $711,443 $1,270,885 $1,459,664 $1,650,851
Merchandise sales.................... 14,125 41,456 88,516 81,166 94,733
Other................................ 679 7,282 2,177 3,018 3,476
Franchise
Merchandise sales.................... 37,385 44,365 49,696 51,769 53,584
Royalty income and fees.............. 4,008 5,170 5,893 5,997 5,884
-------- -------- ---------- ---------- ----------
Total revenue........................... 331,541 809,716 1,417,167 1,601,614 1,808,528
Operating expenses
Direct store expenses
Depreciation of rental merchandise... 57,223 164,651 265,486 299,298 343,197
Cost of merchandise sold............. 11,365 32,056 74,027 65,332 72,539
Salaries and other expenses.......... 162,458 423,750 770,572 866,234 1,019,402
Franchise cost of merchandise sold...... 35,841 42,886 47,914 49,724 51,251
-------- -------- ---------- ---------- ----------
266,887 663,343 1,157,999 1,280,588 1,486,389
General and administrative expenses....... 13,304 28,715 42,029 48,093 55,359
Amortization of intangibles............... 5,412 15,345 27,116 28,303 30,194
Class action litigation settlements....... -- 11,500 -- (22,383)(1) 52,000(2)
-------- -------- ---------- ---------- ----------
Total operating expenses................ 285,603 718,903 1,227,144 1,334,601 1,623,942
Operating profit.......................... 45,938 90,813 190,023 267,013 184,586
Interest (income) expense, net............ 1,890 37,140 74,769 72,618 59,780
Non-recurring financing costs............. -- 5,018 -- -- --
-------- -------- ---------- ---------- ----------
Earnings before income taxes.............. 44,048 48,655 115,254 194,395 124,806
Income tax expense........................ 18,170 23,897 55,899 91,368 58,589
-------- -------- ---------- ---------- ----------
Net earnings.............................. 25,878 24,758 59,355 103,027 66,217
Preferred dividends....................... -- 3,954 10,039 10,420 15,408
-------- -------- ---------- ---------- ----------
Net earnings allocable to common
stockholders............................ $ 25,878 $ 20,804 $ 49,316 $ 92,607 $ 50,809
======== ======== ========== ========== ==========
29
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
OTHER OPERATING AND FINANCIAL DATA:
Number of owned stores (end of period).... 504 2,126 2,075 2,158 2,281
Same store revenue growth(3).............. 8.1% 8.1% 7.7% 12.6% 8.0%
Franchise stores (end of period).......... 262 324 365 364 342
EBITDA(4)................................. $ 56,951 $135,140 $ 248,452 $ 306,077 304,690
EBITDA margin............................. 17.2% 16.7% 17.5% 19.1% 16.8%
Depreciation and amortization(5).......... 11,013 32,827 58,429 61,447 68,104
Capital expenditures...................... 10,446 21,860 36,211 37,937 57,532
Cash interest expense(6).................. 2,194 37,563 72,395 70,978 57,420
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1998 1999 2000 2001
-------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT THE END OF
PERIOD):
Cash and cash equivalents.............. $ 4,744 $ 33,797 $ 21,679 $ 36,495 $ 107,958
Rental merchandise, net................ 112,759 408,806 531,223 587,232 653,701
Total assets........................... 208,868 1,502,989 1,485,000 1,486,910 1,619,920
Total debt............................. 27,172 805,700 847,160 741,051 702,506
Convertible preferred stock............ -- 259,476 270,902 281,232 291,910
Stockholders' equity................... 152,753 154,913 206,690 309,371 405,378
---------------
(1) Includes the effects of a pre-tax legal reversion of $22.4 million for
unlocated class members associated with the coordinated settlement of three
class action lawsuits in the state of New Jersey.
(2) Includes the effects of a pre-tax legal settlement of $52.0 million
associated with the 2001 settlement of class action lawsuits in the states
of Missouri, Illinois, and Tennessee.
(3) Same store revenue for each period presented includes revenues only of
stores open and operated by us throughout the full period and the comparable
prior period.
(4) EBITDA is defined as operating profit plus depreciation (exclusive of
depreciation of rental merchandise), amortization of intangibles and
non-recurring litigation settlements. EBITDA should not be considered as a
substitute for income from operations, net income or cash flow from
operating activities (as determined in accordance with generally accepted
accounting principles) for the purpose of analyzing operating performance,
financial position and cash flows.
(5) Excludes depreciation of rental merchandise and amortization other than
amortization of intangible assets.
(6) Cash interest expense is defined as interest expense less amortization of
financing fees.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OUR BUSINESS
We are the largest rent-to-own operator in the United States with an
approximate 29% market share based on store count. At December 31, 2001, we
operated 2,281 company-owned stores in 50 states, the District of Columbia and
Puerto Rico. Our subsidiary, ColorTyme, is a national franchisor of rent-to-own
stores. At December 31, 2001, ColorTyme had 342 franchised stores in 42 states,
330 of which operated under the ColorTyme name and 12 stores of which operated
under the Rent-A-Center name. Our stores offer high quality durable products
such as home electronics, appliances, computers, and furniture and accessories
under flexible rental purchase agreements that allow the customer to obtain
ownership of the merchandise at the conclusion of an agreed-upon rental period.
These rental purchase agreements are designed to appeal to a wide variety of
customers by allowing them to obtain merchandise that they might otherwise be
unable to obtain due to insufficient cash resources or a lack of access to
credit. These agreements also cater to customers who only have a temporary need,
or who simply desire to rent rather than purchase the merchandise.
We have pursued an aggressive growth strategy since 1989. We have sought to
acquire underperforming stores to which we could apply our operating model as
well as open new stores. As a result, the acquired stores have generally
experienced more significant revenue growth during the initial periods following
their acquisition than in subsequent periods. Because of significant growth
since our formation, particularly due to the Thorn Americas acquisition, our
historical results of operations and period-to-period comparisons of such
results and other financial data, including the rate of earnings growth, may not
be meaningful or indicative of future results.
We plan to accomplish our future growth through selective and opportunistic
acquisitions, with an emphasis on new store development. Typically, a newly
opened store is profitable on a monthly basis in the ninth to twelfth month
after its initial opening. Historically, a typical store has achieved cumulative
break-even profitability in 18 to 24 months after its initial opening. Total
financing requirements of a typical new store approximate $450,000, with roughly
70% 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. As a result, our quarterly earnings are
impacted by how many new stores are opened during a particular quarter and the
quarters preceding it. There can be no assurance that we will open any new
stores in the future, or as to the number, location or profitability thereof.
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 financing will depend on a number of
factors, some of which will relate to our financial condition and performance,
and some of which are 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.
If a change in control occurs, we may be required to offer to repurchase
all of our outstanding senior subordinated notes at 101% of their principal
amount, plus accrued interest to the date of repurchase. Our senior credit
facilities restrict our ability to repurchase our senior subordinated notes,
including in the event of a change in control. In addition, a change in control
would result in an event of default under our senior credit facilities, which
could then be accelerated by our lenders, and would require us to offer to
redeem our Series A
31
preferred stock. In the event a change in control occurs, we cannot be sure that
we would have enough funds to immediately pay our accelerated senior credit
facility obligations, all of our senior subordinated notes and for the
redemption of our Series A preferred stock, or that we would be able to obtain
financing to do so on favorable terms, if at all.
CRITICAL ESTIMATES, UNCERTAINTIES OR ASSESSMENTS IN OUR FINANCIAL STATEMENTS
The preparation of our financial statements in conformity with generally
accepted accounting principles in the United States requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. In applying our accounting principles, we must
often make individual estimates and assumptions regarding expected outcomes or
uncertainties. As you might expect, the actual results or outcomes are generally
different than the estimated or assumed amounts. These differences are usually
minor and are included in our consolidated financial statements as soon as they
are known. Our estimates, judgments and assumptions are continually evaluated
based on available information and experience. Because of the use of estimates
inherent in the financial reporting process, actual results could differ from
those estimates.
Actual results related to the estimates and assumptions made by us in
preparing our consolidated financial statements will emerge over periods of
time, such as estimates and assumptions underlying the determination of our
self-insurance liabilities. These estimates and assumptions are monitored by us
and periodically adjusted as circumstances warrant. For instance, our liability
for self-insurance related to our workers compensation, general liability,
medical and auto liability may be adjusted based on higher or lower actual loss
experience. Although there is greater risk with respect to the accuracy of these
estimates and assumptions because of the period over which actual results may
emerge, such risk is mitigated by our ability to make changes to these estimates
and assumptions over the same period.
In preparing our financial statements at any point in time, we are also
periodically faced with uncertainties, the outcomes of which are not within our
control and will not be known for prolonged periods of time. As discussed in
"Business -- Legal Proceedings" and the notes to our consolidated financial
statements, we are involved in actions relating to claims that our rental
purchase agreements constitute installment sales contracts, violate state usury
laws or violate other state laws enacted to protect consumers, claims asserting
gender discrimination in our employment practices, as well as claims we violated
the federal securities laws. We, together with our counsel, make estimates, if
determinable, of our probable liabilities and record such amounts in our
consolidated financial statements. These estimates represent our best estimate,
or may be the minimum range of probable loss when no single best estimate is
determinable. Disclosure is made, when determinable, of the additional possible
amount of loss on these claims, or if such estimate cannot be made, that fact is
disclosed. We, together with our counsel, monitor developments related to these
legal matters and, when appropriate, adjustments are made to liabilities to
reflect current facts and circumstances.
We periodically review the carrying value of our goodwill and other
intangible assets when events and circumstances warrant such a review. One of
the methods used for this review is performed using estimates of future cash
flows. If the carrying value of our goodwill or other intangible assets is
considered impaired, an impairment charge is recorded for the amount by which
the carrying value of the goodwill or intangible assets exceeds its fair value.
We believe that the estimates of future cash flows and fair value are
reasonable. Changes in estimates of such cash flows and fair value, however,
could affect the evaluation.
Based on an assessment of our accounting policies and the underlying
judgments and uncertainties affecting the application of those policies, we
believe that our consolidated
32
financial statements provide a meaningful and fair perspective of our company.
We do not suggest that other general risk factors, such as those discussed
elsewhere in this report as well as changes in our growth objectives or
performance of new or acquired stores, could not adversely impact our
consolidated financial position, results of operations and cash flows in future
periods.
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are summarized below and in Note A to
our consolidated financial statements included elsewhere herein.
Revenue. We collect non-refundable rental payments and fees in advance,
generally on a weekly or monthly basis. This revenue is recognized over the term
of the agreement. Rental purchase agreements generally include a discounted
early purchase option. Upon exercise of this option, and upon sale of used
merchandise, revenue is recognized as these payments are received.
Franchise Revenue. Revenue from the sale of rental merchandise is
recognized upon shipment of the merchandise to the franchisee. Franchise fee
revenue is recognized upon completion of substantially all services and
satisfaction of all material conditions required under the terms of the
franchise agreement.
Depreciation of Rental Merchandise. We depreciate our rental merchandise
using the income forecasting method. The income forecasting method of
depreciation we use does not consider salvage value and does not allow the
depreciation of rental merchandise during periods when it is not generating
rental revenue. The objective of this method of depreciation is to provide for
consistent depreciation expense while the merchandise is on rent.
Cost of Merchandise Sold. Cost of merchandise sold represents the book
value net of accumulated depreciation of rental merchandise at time of sale.
Salaries and Other Expenses. Salaries and other expenses include all
salaries and wages paid to store level employees, together with market managers'
salaries, travel and occupancy, including any related benefits and taxes, as
well as all store level general and administrative expenses and selling,
advertising, insurance, occupancy, fixed asset depreciation and other operating
expenses.
General and Administrative Expenses. General and administrative expenses
include all corporate overhead expenses related to our headquarters such as
salaries, taxes and benefits, occupancy, administrative and other operating
expenses, as well as regional directors' salaries, travel and office expenses.
Amortization of Intangibles. Amortization of intangibles consists
primarily of the amortization of the excess of purchase price over the fair
market value of acquired assets and liabilities. In July 2001, the Financial
Accounting Standards Board issued SFAS 142, Goodwill and Intangible Assets,
which revises the accounting for purchased goodwill and intangible assets. Under
SFAS 142, goodwill and intangible assets with indefinite lives acquired after
June 30, 2001 will not be amortized. Effective January 1, 2002, all previously
recognized goodwill and intangible assets with indefinite lives will no longer
be subject to amortization. Also, effective January 1, 2002, goodwill and
intangible assets with indefinite lives will be tested for impairment annually,
and in the event of an impairment indicator.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Store Revenue. Total store revenue increased by $205.2 million, or 13.3%,
to $1,749.1 million for 2001 from $1,543.9 million for 2000. The increase in
total store revenue was primarily
33
attributable to growth in same store revenues during 2001 as well as incremental
revenues from the opening of 76 stores and the acquisition of 95 stores in 2001.
Same store revenues represent those revenues earned in stores that were operated
by us for the entire years ending December 31, 2001 and 2000. Same store
revenues increased by $111.6 million, or 8.0%, to $1,501.7 million for 2001 from
$1,390.1 million in 2000. This improvement was primarily attributable to an
increase in the number of customers served (approximately 407 per store as of
December 31, 2001 vs. approximately 391 per store as of December 31, 2000 in
same stores open), the number of agreements on rent (approximately 624 per store
as of December 31, 2001 vs. approximately 597 per store as of December 31, 2000
in same stores open), as well as revenue earned per agreement on rent
(approximately $95 per month per agreement for 2001 vs. approximately $92 per
month per agreement for 2000). This increase in revenue was partially offset by
loss of revenues associated with the divestiture or consolidation of 48 stores
in 2001.
Franchise Revenue. Total franchise revenue increased by $1.7 million, or
2.9%, to $59.5 million for 2001 from $57.8 million in 2000. This increase was
primarily attributable to an increase in merchandise sales to franchise
locations during 2001 as compared to 2000, partially offset by a decrease in the
number of franchised locations in 2001 as compared to 2000.
Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased by $43.9 million, or 14.7%, to $343.2 million for 2001 from $299.3
million for 2000. This increase was primarily attributable to an increase in
rental and fee revenue of $191.2 million, or 13.1%, to $1,650.9 million for 2001
from $1,459.7 for 2000. Depreciation of rental merchandise expressed as a
percentage of store rentals and fees revenue increased to 20.8% in 2001 from
20.5% in 2000. This increase is a result of an increase in the number of stores
acquired in 2001 of 95 from 74 in 2000, and in-store promotions made during the
third quarter of 2001, which included a reduction in the rates and terms on
certain rental agreements. These in-store promotions caused depreciation to be a
greater percentage of store rentals and fees revenue on those promotional items
rented.
Cost of Merchandise Sold. Cost of merchandise sold increased by $7.2
million, or 11.0%, to $72.5 million for 2001 from $65.3 million in 2000. This
increase was a result of an increase in the number of items sold in 2001,
primarily in the third and fourth quarters, as compared to 2000, resulting from
a reduction in the rates and terms on certain rental agreements beginning in the
third quarter of 2001.
Salaries and Other Expenses. Salaries and other expenses expressed as a
percentage of total store revenue increased to 58.3% for 2001 from 56.1% for
2000. This increase was primarily attributable to the infrastructure expenses
and costs associated with the opening of new stores under our store growth
initiatives, such as labor and recruiting costs for training centers as well as
additional middle and senior management personnel, and increases in advertising,
store level labor, insurance, and other operating expenses in 2001 over 2000.
Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold
increased by $1.5 million, or 3.1%, to $51.2 million for 2001 from $49.7 in
2000. This increase is a direct result of an increase in merchandise sales to
franchise locations in 2001 as compared to 2000.
General and Administrative Expenses. General and administrative expenses
expressed as a percent of total revenue increased slightly to 3.1% in 2001 from
3.0% in 2000. This increase is primarily attributable to an increase in home
office labor and other overhead expenses for 2001 as compared to 2000.
Amortization of Intangibles. Amortization of intangibles increased by $1.9
million, or 6.7%, to $30.2 million for 2001 from $28.3 million in 2000. This
increase was primarily attributable to the amortization of additional goodwill
associated with the acquisition of 95 stores acquired in 2001. Under SFAS 142
discussed later, amortization of goodwill ceased
34
effective January 1, 2002. Amortization expense for other intangible assets,
however, is expected to be approximately $2.2 million for 2002, based on
intangible assets other than goodwill as of December 31, 2001.
Operating Profit. Operating profit decreased by $82.4 million, or 30.9%,
to $184.6 million for 2001 from $267.0 million for 2000. Excluding the pre-tax
effect of the class action litigation settlements of $16.0 million recorded in
the third quarter of 2001 and $36.0 million recorded in the fourth quarter of
2001, as well as the class action litigation settlement refund of $22.4 million
received in the second quarter of 2000, operating profit decreased by $8.0
million, or 3.3%, to $236.6 million for the year ended December 31, 2001 from
$244.6 million for the year ended December 31, 2000. Operating profit as a
percentage of total revenue decreased to 13.1% for the year ended December 31,
2001 before the pre-tax class action litigation settlement charges of $52.0
million, from 15.3% for the year ended December 31, 2000 before the pre-tax
class action litigation settlement refund of $22.4 million. The decrease in
operating profit before the effects of the class action litigation as a
percentage of total revenue is primarily attributable to costs incurred with the
opening of 76 new stores in 2001 and losses incurred for those stores in their
initial months of operations, increases in advertising, store level labor,
insurance, utility, and other operating expenses in 2001 as compared to 2000,
and lower gross profit margins in the third and fourth quarter of 2001 resulting
from in store promotions whereby rates and terms were reduced on certain rental
agreements. These costs were partially offset by an increase in overall store
revenue for 2001 and the implementation of expense management efforts in the
fourth quarter of 2001.
Net Earnings. Net earnings were $66.2 million for the year ended December
31, 2001, and $103.0 million for the year ended December 31, 2000. Before the
after-tax effect of the $52.0 million class action litigation settlement charges
recorded in 2001 and the $22.4 million class action litigation settlement refund
received in the second quarter of 2000, net earnings increased by $6.2 million,
or 6.8%, to $97.5 million for the year ended December 31, 2001, from $91.3
million for the year ended December 31, 2000. This increase, excluding the after
tax effect of the class action litigation settlement adjustments, is primarily
attributable to growth in total revenues and reduced interest expenses resulting
from a reduction in outstanding debt from our May 2001 equity offering and
December 2001 debt offering, partially offset by the increased expenses incurred
in connection with the opening of 76 new stores in 2001, increases in operating
expenses and lower gross profit margins in the third and fourth quarters of
2001.
Preferred Dividends. Dividends on our Series A preferred stock are payable
quarterly at an annual rate of 3.75%. We account for shares of preferred stock
distributed as dividends in-kind at the greater of the stated value or the value
of the common stock obtainable upon conversion on the payment date. Preferred
dividends increased by $5.0 million, or 47.9%, to $15.4 million for the year
ended December 31, 2001 as compared to $10.4 million for the year ended December
31, 2000. This increase is a result of more shares of Series A Preferred stock
outstanding in 2001 as compared to 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Store Revenue. Total store revenue increased by $182.3 million, or 13.4%,
to $1,543.9 million for 2000 from $1,361.6 million for 1999. The increase in
total store revenue is directly attributable to the success of our efforts on
improving store operations through:
- increasing the average price per unit on rent by upgrading our rental
merchandise, primarily at newly-acquired stores;
- increasing the number of units on rent;
- increasing the customer base; and
- incremental revenues through acquisitions.
35
Same store revenues increased by $161.2 million, or 12.6%, to $1,444.1
million for 2000 from $1,282.9 million in 1999. Same store revenues represent
those revenues earned in stores that were operated by us for the entire years
ending December 31, 2000 and 1999. This improvement was primarily attributable
to an increase in the number of customers served, the number of items on rent,
as well as revenue earned per item on rent.
Franchise Revenue. Total franchise revenue increased by $2.2 million, or
3.9%, to $57.8 million for 2000 from $55.6 million in 1999. This increase was
primarily attributable to an increase in the sale of rental merchandise to
franchisees resulting from growth in the franchise store operations.
Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased by $33.8 million, or 12.7%, to $299.3 million for 2000 from $265.5
million for 1999. Depreciation of rental merchandise expressed as a percentage
of store rentals and fees revenue decreased from 20.9% in 1999 to 20.5% in 2000.
This decrease is primarily attributable to the successful implementation of our
pricing strategies and inventory management practices in newly acquired stores.
Cost of Merchandise Sold. Cost of merchandise sold decreased by $8.7
million, or 11.7%, to $65.3 million for 2000 from $74.0 million in 1999. This
decrease was a direct result of fewer cash sales of product in 2000 as compared
to 1999. During 1999, we focused our efforts on increasing the amount of
merchandise sales to reduce certain items acquired in the Thorn Americas and
Central Rents acquisitions that were not components of our normal merchandise
strategy.
Salaries and Other Expenses. Salaries and other expenses expressed as a
percentage of total store revenue decreased to 56.1% for 2000 from 56.6% for
1999. This decrease is a result of the leveraging of our fixed and semi-fixed
costs such as labor, advertising and occupancy over a larger revenue base.
Expenses included in the salaries and other category are items such as labor,
delivery, service, utility, advertising, and occupancy costs.
Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold
increased by $1.8 million, or 3.8%, to $49.7 million for 2000 from $47.9 million
in 1999. This increase is a direct result of an increase in merchandise sold to
franchisees in 2000 as compared to 1999.
General and Administrative Expenses. General and administrative expenses
expressed as a percent of total revenue remained level at 3.0% in 2000 from 3.0%
in 1999. In the future, we expect general and administrative expenses to remain
relatively stable at 3.0% of total revenue.
Amortization of Intangibles. Amortization of intangibles increased by $1.2
million, or 4.4%, to $28.3 million for 2000 from $27.1 million in 1999. This
increase was primarily attributable to the additional goodwill amortization
associated with the acquisition of 74 stores acquired in 2000.
Operating Profit. Operating profit increased by $77.0 million, or 40.5%,
to $267.0 million for 2000 from $190.0 million for 1999. In the second quarter
of 2000, we received a pre-tax non-recurring class action litigation settlement
refund of $22.4 million associated with the settlement of three class action
lawsuits in the state of New Jersey. Operating profit stated before the effects
of this non-recurring settlement refund increased by $54.6 million, or 28.7%.
Operating profit as a percentage of total revenue increased to 15.3% in 2000
from 13.4% in 1999, calculated before the effects of the non-recurring
settlement refund. This increase is attributable to our efforts in improving the
efficiency and profitability of our stores.
Net Earnings. Net earnings increased by $43.7 million, or 73.6%, to $103.0
million in 2000 from $59.3 million in 1999. Excluding the effects of the
non-recurring settlement refund discussed above, net earnings increased by $31.8
million, or 53.6%.
36
Preferred Dividends. Dividends on our Series A preferred stock are payable
quarterly at an annual rate of 3.75%. Preferred dividends increased by $381,000,
or 3.8%, to $10.4 million for 2000 as compared to $10.0 million in 1999. This
increase is a result of more shares of Series A preferred stock outstanding in
2000 as compared to 1999.
LIQUIDITY AND CAPITAL RESOURCES
Comparison of Cash Flows. Cash provided by operating activities decreased
by $15.8 million to $175.7 million in 2001 from $191.5 million in 2000. This
decrease resulted from a decrease in net earnings, an increase in taxes paid or
payable as a result of the utilization of net operating loss carryforwards and
an increase in the amount of rental merchandise purchased during 2001 as a
result of strong consumer demand, offset by increased depreciation of rental
merchandise and increases in accrued liabilities primarily related to
self-insurance liabilities and litigation.
Cash used in investing activities increased by $27.6 million to $106.7
million in 2001 from $79.1 million in 2000. This increase is primarily
attributable to an increase in the amount of maintenance capital expenditures
made in 2001 versus 2000, the acquisition of more new store locations in 2001
and increases in purchases of property assets related to our store expansion
program.
Cash provided by financing activities increased by $100.1 million to $2.4
million in 2001, compared to net cash used of $97.7 million in 2000. This
increase is primarily related to the net proceeds of approximately $45.6 million
from the issuance of our common stock in May 2001, the net proceeds of
approximately $99.5 million from the issuance of our senior subordinated notes
in December 2001, as well as an increase in the amount of stock options
exercised during 2001 as compared to 2000. This increase was partially offset by
the repurchase of $25.0 million of our common stock from Mr. Talley and debt
repayments under our senior credit facilities of approximately $138.0 million
from the proceeds from the May 2001 offering, the December 2001 offering, and
from available cash flow from operations.
Liquidity Requirements. Our primary liquidity requirements are for debt
service, rental merchandise purchases, capital expenditures, litigation and our
store expansion program. Our primary sources of liquidity have been cash
provided by operations, borrowings and sales of debt and equity securities. In
the future, we may incur additional debt, or may issue debt or equity securities
to finance our operating and growth strategies. The availability and
attractiveness of any outside sources of financing will depend on a number of
factors, some of which relate to our financial condition and performance, and
some of which are beyond our control, such as prevailing interest rates and
general economic conditions. There can be no assurance that additional financing
will be available, or if available, that it will be on terms we find acceptable.
We believe that the cash flow generated from operations, together with
amounts available under our senior credit facilities, will be sufficient to fund
our debt service requirements, rental merchandise purchases, capital
expenditures, litigation and our store expansion intentions during 2002. Our
revolving credit facilities provide us with revolving loans in an aggregate
principal amount not exceeding $130.0 million, of which $66.4 million was
available at March 22, 2002. At March 22, 2002, we had $142.0 million in cash.
While our operating cash flow has been strong and we expect this strength to
continue, our liquidity could be negatively impacted if we do not remain as
profitable as we expect.
Rental Merchandise Purchases. We purchased $532.5 million, $462.1 million
and $513.9 million of rental merchandise during 2001, 2000 and 1999,
respectively. During 1999, we made a one time net investment in rental inventory
in order to remerchandise the stores acquired in the Thorn Americas and Central
Rents acquisitions.
37
Capital Expenditures. We make capital expenditures in order to maintain
our existing operations as well as for new capital assets in new and acquired
stores. We spent $57.5 million, $37.9 million and $36.2 million on capital
expenditures in 2001, 2000 and 1999, respectively, and expect to spend
approximately $45 million in 2002.
Acquisitions and New Store Openings. During 2001, we continued our
strategy of increasing our store base through opening new stores, as well as
through opportunistic acquisitions. We spent approximately $49.8 million on
acquiring stores and accounts from competitors for the year ended December 31,
2001. It is our intention to increase the number of stores we operate by an
average of approximately 5-10% per year over the next several years.
The profitability of our stores tends to grow at a slower rate
approximately five years from the time we open or acquire them. As a result, in
order for us to show improvements in our profitability, it is important for us
to continue to open stores in new locations or acquire underperforming stores on
favorable terms. There can be no assurance we will be able to acquire or open
new stores at the rates we expect, or at all. We cannot assure you the stores we
do acquire or open will be profitable at the same levels that our current stores
are, or at all.
Borrowings. The table below shows the scheduled maturity dates of our
senior debt outstanding at December 31, 2001.
YEAR ENDING
DECEMBER 31,
------------ (IN THOUSANDS)
2002........................................................ $ 1,849
2003........................................................ 1,849
2004........................................................ 26,379
2005........................................................ 100,000
2006........................................................ 177,078
Thereafter.................................................. 120,845
--------
$428,000
========
Under our senior credit facilities, we are required to use 25% of the net
proceeds from any equity offering to repay our term loans. In addition, we
intend to continue to make prepayments of debt under our senior credit
facilities, repurchase some of our outstanding subordinated notes or repurchase
our common stock under our common stock repurchase program to the extent we have
available cash that is not necessary for store openings or acquisitions. We
cannot, however, assure you that we will have excess cash available for these
purposes.
Senior Credit Facilities. The senior credit facilities are provided by a
syndicate of banks and other financial institutions led by JP Morgan Chase Bank,
as administrative agent. At December 31, 2001, we had a total of $428.0 million
outstanding under these facilities, all of which was under our term loans. At
December 31, 2001, we had $56.4 million of availability under this revolving
credit facility.
Borrowings under the senior credit facilities bear interest at varying
rates equal to 1.50% to 3.00% over LIBOR, which was 1.88% at December 31, 2001.
We also have a prime rate option under the facilities, but have not exercised it
to date. At December 31, 2001, the average rate on outstanding senior debt
borrowings was 8.76%.
During 1998, we entered into interest rate protection agreements with two
banks, one of which expired in 2001. Under the terms of the current interest
rate protection agreements, the LIBOR rate used to calculate the interest rate
charged on $250.0 million of the outstanding
38
senior term debt has been fixed at an average rate of 5.60%. The protection on
the $250 million expires in 2003.
The senior credit facilities are secured by a security interest in
substantially all of our tangible and intangible assets, including intellectual
property and real property. The senior credit facilities are also secured by a
pledge of the capital stock of our subsidiaries.
The senior credit facilities contain covenants that limit our ability to:
- incur additional debt (including subordinated debt) in excess of $25
million, excluding the subordinated notes we issued in 2001;
- repurchase our capital stock and senior subordinated notes;
- incur liens or other encumbrances;
- merge, consolidate or sell substantially all our property or business;
- sell assets, other than inventory;
- make investments or acquisitions unless we meet financial tests and other
requirements;
- make capital expenditures; or
- enter into a new line of business.
The senior credit facilities require us to comply with several financial
covenants, including a maximum leverage ratio, a minimum interest coverage ratio
and a minimum fixed charge coverage ratio. At December 31, 2001, the maximum
leverage ratio was 4.25:1, the minimum interest coverage ratio was 2.50:1, and
the minimum fixed charge coverage ratio was 1.30:1. On that date, our actual
ratios were 2.26:1, 5.10:1 and 2.12:1, respectively.
Events of default under the senior credit facilities include customary
events, such as a cross-acceleration provision in the event that we default on
other debt. In addition, an event of default under the senior credit facilities
would occur if we undergo a change of control. This is defined to include the
case where Apollo ceases to own at least 50% of the amount of our voting stock
that they owned on August 5, 1998, or a third party becomes the beneficial owner
of 33.33% or more of our voting stock at a time when certain permitted investors
own less than the third party or Apollo entities own less than 35% of the voting
stock owned by the permitted investors. We do not have the ability to prevent
Apollo from selling its stock, and therefore would be subject to an event of
default if Apollo did so and its sales were not agreed to by the lenders under
the senior credit facilities. This could result in the acceleration of the
maturity of our debt under the senior credit facilities, as well as under our
subordinated notes through their cross-acceleration provision.
1998 Senior Subordinated Notes. In August 1998, we issued $175.0 million
of senior subordinated notes, maturing on August 15, 2008, under an indenture
dated as of August 18, 1998 among us, our subsidiary guarantors and the trustee,
which is now The Bank of New York, as successor to IBJ Schroder Bank & Trust
Company. These notes were subsequently exchanged for the registered 1998 notes,
which are governed by the same indenture.
The indenture governing the 1998 notes contains covenants that limit our
ability to:
- incur additional debt;
- sell assets or our subsidiaries;
- grant liens to third parties;
- pay dividends or repurchase stock; and
- engage in a merger or sell substantially all of our assets.
39
Events of default under the indenture include customary events, such as a
cross-acceleration provision in the event that we default in the payment of
other debt due at maturity or upon acceleration for default in an amount
exceeding $25 million.
We may redeem the 1998 notes after August 15, 2003, at our option, in whole
or in part.
The 1998 notes also require that upon the occurrence of a change of control
(as defined in the indenture), the holders of the notes have the right to
require us to repurchase the notes at a price equal to 101% of the original
aggregate principal amount, together with accrued and unpaid interest, if any,
to the date of repurchase. If we did not comply with this repurchase obligation,
this would trigger an event of default under our senior credit facilities. We
are seeking to exchange the 1998 notes for the exchange notes in the exchange
offer.
2001 Senior Subordinated Notes. In December 2001, we issued an additional
$100.0 million of 11% senior subordinated notes, maturing on August 15, 2008,
under a separate indenture dated as of December 19, 2001 among us, our
subsidiary guarantors and The Bank of New York, as trustee. Although issued
pursuant to a separate indenture, the 2001 notes have substantially identical
terms as the 1998 notes, except for certain transfer restrictions and
registration rights relating to the 2001 notes. The indenture governing the 2001
notes, and which will govern the exchange notes, is substantially similar to the
indenture which governs the 1998 notes, including the restrictive covenants,
events of default and change of control and redemption provisions described
above. The primary difference between the indenture governing the 2001 notes and
the indenture governing the 1998 notes is that the indenture governing the 2001
notes and the exchange notes is open-ended, thereby permitted future issuances
of senior subordinated notes pursuant to the same indenture. We are seeking to
exchange the 2001 notes for the exchange notes in the exchange offer.
Store Leases. We lease space for all of our stores as well as our
corporate and regional offices under operating leases expiring at various times
through 2010.
ColorTyme Guarantee. ColorTyme is a party to an agreement with Textron
Financial Corporation, who provides financing to qualifying franchisees of
ColorTyme. Under this agreement, in the event of default by the franchisee under
agreements governing this financing and upon the occurrence of certain events,
Textron may assign the loans and the collateral securing such loans to
ColorTyme, with ColorTyme then succeeding to the rights of Textron under the
debt agreements, including the rights to foreclose on the collateral. We
guarantee the obligations of ColorTyme under this agreement.
Litigation. In 1998, we recorded an accrual of approximately $125.0
million for estimated probable losses on litigation assumed in connection with
the Thorn Americas acquisition. As of December 31, 2001, we have paid
approximately $118.0 million of this accrual in settlement of most of these
matters and legal fees. These settlements were funded primarily from amounts
available under our senior credit facilities, including the revolving credit
facility and the multidraw facility, as well as from cash flow from operations.
On November 1, 2001, we announced that we reached an agreement in principle
for the settlement of the Margaret Bunch, et al. v. Rent-A-Center, Inc. matter
pending in federal court in Kansas City, Missouri, which is subject to court
approval. Under the terms of the proposed settlement, while not admitting
liability, we would pay an aggregate of $12.25 million to the agreed upon class,
plus plaintiff's attorneys' fees as determined by the court and costs to
administer the settlement process. Accordingly, to account for the
aforementioned costs, as well as our own attorneys' fees, we recorded a
non-recurring charge of $16.0 million in the third quarter of 2001.
In early March 2002, we reached an agreement in principle with the
plaintiffs attorneys in the Wilfong matter pending in St. Louis, Missouri and
the EEOC to resolve the Wilfong suit and an EEOC action in Tennessee. Under the
terms of the proposed settlement, while not admitting
40
any liability, we would pay an aggregate of $47.0 million to female employees
and certain female applicants who were employed by or applied for employment
with us for a period commencing no later than April 19, 1998 through the future
date of the notice to the applicable class, plus up to $375,000 in settlement
administrative costs. The class members in Wilfong include all of the Bunch
class members. The $47.0 million payment includes the $12.25 million payment
discussed in connection with the Bunch settlement and attorney fees for class
counsel in Wilfong. Members of the class who do not wish to participate in the
settlement would be given the opportunity to opt out of the settlement.
The proposed settlement contemplates the settlement would be subject to a
four-year consent decree, which could be extended by the court for an additional
one year upon a showing of good cause. Also, under the proposed settlement, we
agreed to augment our human resources department and our internal employee
complaint procedures; enhance our gender anti-discrimination training for all
employees; hire a consultant mutually acceptable to the parties for two years to
advise us on employment matters; provide certain reports to the EEOC during the
period of the consent decree; seek qualified female representation on our board
of directors; publicize our desire to recruit, hire and promote qualified women;
offer to fill job vacancies within our regional markets with qualified class
members who reside in those markets and express an interest in employment by us
to the extent of 10% of our job vacancies in such markets over a fifteen month
period; and to take certain other steps to improve opportunities for women. We
initiated many of the above programs prior to entering into the proposed
settlement. Under the proposed agreement, we have the right to terminate the
settlement under certain circumstances, including in the event that more than 60
class members elect to opt out of the settlement.
The proposed settlement contemplates that the Bunch case will be dismissed
with prejudice once such settlement becomes final. At the parties' request, the
court in the Bunch case stayed the proceedings in that case, including
postponing the fairness hearing previously scheduled for March 6, 2002. We
anticipate the Memphis federal court will stay the Tennessee EEOC action as
well. The terms of the proposed settlement are subject to the parties entering
into a definitive settlement agreement and court approval. While we believe the
proposed settlement is fair, we cannot assure you that the settlement will be
approved by the court in its present form.
To account for the aforementioned costs, as well as our own attorney's
fees, we recorded an additional non-recurring charge of $36.0 million in the
fourth quarter of 2001 in connection with the Wilfong matter for a total
non-recurring charge of $52.0 million.
Additional settlements or judgments against us on our existing litigation
could affect our liquidity. Please refer to Note J of our consolidated financial
statements included elsewhere in this prospectus.
Sales of Equity Securities. On May 31, 2001, we completed an offering of
3,680,000 shares of our common stock at an offering price of $42.50 per share.
In this offering, 1,150,000 shares were offered by us and 2,530,000 shares were
offered by some of our stockholders. Net proceeds to us were approximately $45.6
million.
During 1998, we issued 260,000 shares of our Series A preferred stock at
$1,000 per share, resulting in aggregate proceeds of $260.0 million. Dividends
on our Series A preferred stock accrue on a quarterly basis, at the rate of
$37.50 per annum, per share, and are currently paid in additional shares of
Series A preferred stock because of restrictive provisions in our senior credit
facilities. Beginning in 2003, we will be required to pay the dividends in cash
and may do so under our senior credit facilities so long as we are not in
default.
The Series A preferred stock is not redeemable until August 2002, after
which time we may, at our option, redeem the shares at 105% of the $1,000 per
share liquidation preference plus accrued and unpaid dividends.
41
Contractual Cash Commitments. The table below summarizes debt, lease and
other minimum cash obligations outstanding as of December 31, 2001:
PAYMENTS DUE BY YEAR
CONTRACTUAL CASH ------------------------------------------------------------
OBLIGATIONS(1) TOTAL 2002 2003 2004 2005 AND THEREAFTER
---------------- -------- -------- ------ ------- -------------------
(IN THOUSANDS)
Senior Credit Facilities
(including current
portion)............... $428,000 $ 1,849 $1,849 $26,379 $397,923
11% Senior Subordinated
Notes(2)............... 482,961 26,461 30,250 30,250 396,000
Operating Leases......... 360,268 107,142 95,208 77,999 79,919
---------------
(1) Excludes obligations under the ColorTyme guarantee, our Series A preferred
stock, the change in control and acceleration provisions under the senior
credit facilities, and the optional redemption, change in control and
acceleration provisions under the indentures governing our subordinated
notes.
(2) Includes interest payments of $15.13 million on each of February 15 and
August 15 of each year, except with respect to the interest payment for
February 2002, which was for $11.34 million.
Talley Repurchase. In connection with Mr. Talley's retirement, we entered
into an agreement to repurchase $25.0 million worth of shares of our common
stock held by Mr. Talley at a purchase price equal to the average closing price
of our common stock over the 10 trading days beginning October 9, 2001, subject
to a maximum of $27.00 per share and a minimum of $20.00 per share. Under this
formula, the purchase price for the repurchase was calculated at $20.258 per
share. Accordingly, on October 23, 2001 we repurchased 493,632 shares of our
common stock from Mr. Talley at $20.258 per share for a total purchase price of
$10.0 million, and on November 30, 2001, we repurchased an additional 740,448
shares of our common stock from Mr. Talley at $20.258 per share, for a total
purchase price of an additional $15.0 million. On January 25, 2002, we exercised
the option to repurchase all of the remaining 1,714,086 shares of common stock
held by Mr. Talley at $20.258 per share, for $34.7 million. We repurchased those
remaining shares on January 30, 2002.
Our senior credit facilities contain covenants that generally limit our
ability to repurchase our capital stock and senior subordinated notes. In
addition, the indentures governing our subordinated notes contain covenants
limiting our ability to repurchase our capital stock. Under these agreements, we
had the ability to effect the repurchases of our common stock from Mr. Talley.
However, as a result of those repurchases, our ability to make further
repurchases of our common stock, including pursuant to our common stock
repurchase program, and to repurchase any outstanding notes is limited.
Common Stock Repurchase Program. In April 2000, we announced that our
board of directors had authorized a program to repurchase in the open market up
to an aggregate of $25 million of our common stock. To date, no shares of common
stock have been purchased by us under this share repurchase program. However, we
may begin repurchasing shares of our common stock at any time, subject to the
limitations in our senior credit facilities and the indentures governing our
senior subordinated notes.
Economic Conditions. Although our performance has not suffered in previous
economic downturns, we cannot assure you that demand for our products,
particularly in higher price ranges, will not significantly decrease in the
event of a prolonged recession.
Seasonality. Our revenue mix is moderately seasonal, with the first
quarter of each fiscal year generally providing higher merchandise sales than
any other quarter during a fiscal year, primarily related to federal income tax
refunds. Generally, our customers will more frequently
42
exercise their early purchase option on their existing rental purchase
agreements or purchase pre-leased merchandise off the showroom floor during the
first quarter of each fiscal year. We expect this trend to continue in future
periods.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
SFAS 133. Effective January 1, 2001, we adopted SFAS 133, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and hedging
activities. All derivatives, whether designated in hedging relationships or not,
are required to be recorded on the balance sheet at fair value. If the
derivative is designated as a fair value hedge, the changes in the fair value of
the derivative and of the hedged item attributable to the hedged risk are
recognized in earnings. If the derivative is designated as a cash flow hedge,
the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income and are recognized in the income
statement when the hedged item affects earnings. Ineffective portions of changes
in the fair value of cash flow hedges are recognized in earnings.
The adoption of SFAS 133 on January 1, 2001 resulted in a cumulative
pre-tax increase to other comprehensive income of $2.6 million, or $1.4 million
after taxes. As a result of a decline in interest rates for the year ended
December 31, 2001, accumulated comprehensive loss at the end of the period was
$6.3 million after taxes.
SFAS 141 and SFAS 142. On July 20, 2001, the Financial Accounting
Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142,
Goodwill and Intangible Assets. SFAS No. 141 is effective for all business
combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. Certain provisions of this statement,
however, applied to goodwill and other intangible assets acquired between July
1, 2001 and the effective date of SFAS No. 142.
Major provisions of these statements and their effective dates for us are
as follows:
- all business combinations initiated after June 30, 2001 must use the
purchase method of accounting;
- intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability;
- goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized;
- effective January 1, 2002, all previously recognized goodwill and
intangible assets with indefinite lives will no longer be subject to
amortization;
- effective January 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator; and
- all acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting.
We amortized goodwill and intangible assets recognized prior to July 1,
2001 under our current method through December 31, 2001. Beginning January 1,
2002, annual goodwill amortization of approximately $28.4 million will no longer
be recognized. We intend to complete a transitional impairment test of all
intangible assets by March 31, 2002 and a transitional fair value based
impairment test of goodwill as of January 1, 2002 by June 30, 2002. Impairment
losses, if any, resulting from the transitional testing will be recognized in
the quarter ended March 31, 2002, as a cumulative effect of a change in
accounting principle.
43
SFAS 143. In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is effective
for fiscal years beginning after June 15, 2002. The Company does not believe
that the implementation of this standard will have a material effect on its
financial position, results of operations, or cash flows.
SFAS 144. On October 3, 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. We do not believe that the
implementation of this standard will have a material effect on our financial
position, results of operations, or cash flows.
44
BUSINESS
OVERVIEW
We are the largest operator in the United States rent-to-own industry with
an approximate 29% market share based on store count. At December 31, 2001, we
operated 2,281 company-owned stores in 50 states, the District of Columbia and
Puerto Rico. Our subsidiary, ColorTyme, is a national franchisor of rent-to-own
stores. At December 31, 2001, ColorTyme had 342 franchised stores in 42 states,
330 of which operated under the ColorTyme name and 12 stores of which operated
under the Rent-A-Center name. These franchise stores represent a further 4%
market share based on store count.
Our stores offer high quality, durable products such as home electronics,
appliances, computers, and furniture and accessories under flexible rental
purchase agreements that typically allow the customer to obtain ownership of the
merchandise at the conclusion of an agreed upon rental period. These rental
purchase agreements are designed to appeal to a wide variety of customers by
allowing them to obtain merchandise that they might otherwise be unable to
obtain due to insufficient cash resources or a lack of access to credit. These
agreements also cater to customers who only have a temporary need, or who simply
desire to rent rather than purchase the merchandise. We estimate that
approximately 62% of our business is from repeat customers. We offer well known
brands such as Philips, Sony, JVC, Toshiba and Mitsubishi home electronics,
Whirlpool appliances, Dell, Compaq and Hewlett Packard computers and Ashley,
England and Benchcraft furniture. For the year ended December 31, 2001, home
electronics merchandise generated 41% of our store rental revenue, 32% was
derived from furniture and home furnishing accessories, 17% from appliances and
10% from computers.
Rent-A-Center was incorporated as a Delaware corporation on September 16,
1986. Advantage Companies was incorporated as a Delaware corporation on October
11, 1994. ColorTyme was incorporated as a Texas corporation on May 7, 1996.
Rent-A-Center's and Advantage Companies' principal executive offices are located
at 5700 Tennyson Parkway, Third Floor, Plano, Texas 75024, telephone (972)
801-1100. ColorTyme's principal executive office is located at 5700 Tennyson
Parkway, First Floor, Plano, Texas 75024, telephone (972) 608-5376.
INDUSTRY BACKGROUND
According to industry sources and our estimates, the rent-to-own industry
consists of approximately 8,000 stores, and provides approximately 7.0 million
products to over 3.0 million households each year. We estimate the six largest
rent-to-own industry participants account for 4,700 of the total number of
stores, and the majority of the remainder of the industry consists of operations
with fewer than 20 stores. The rent-to-own industry is highly fragmented and,
due primarily to the decreased availability of traditional financing sources,
has experienced, and we believe will continue to experience, increasing
consolidation. We believe this consolidation trend in the industry presents
opportunities for us to continue to acquire additional stores on favorable
terms.
The rent-to-own industry serves a highly diverse customer base. According
to the Association of Progressive Rental Organizations, 92% of rent-to-own
customers have incomes between $15,000 and $50,000 per year. Many of the
customers served by the industry do not have access to conventional forms of
credit and are typically cash constrained. For these customers, the rent-to-own
industry provides access to brand name products that they would not normally be
able to obtain. The Association of Progressive Rental Organizations also
estimates that 93% of customers have high school diplomas. According to a
Federal Trade Commission study, 75% of rent-to-own customers were satisfied with
their experience with rent-to-own transactions. The study noted that customers
gave a wide variety of reasons for
45
their satisfaction, "including the ability to obtain merchandise they otherwise
could not, the low payments, the lack of a credit check, the convenience and
flexibility of the transaction, the quality of the merchandise, the quality of
the maintenance, delivery, and other services, the friendliness and flexibility
of the store employees, and the lack of any problems or hassles."
STRATEGY
We are currently focusing our strategic efforts on:
- enhancing the operations and profitability in our store locations;
- opening new stores and acquiring existing rent-to-own stores; and
- building our national brand.
ENHANCING STORE OPERATIONS
We continually seek to improve store performance through strategies
intended to produce gains in operating efficiency and profitability. For
example, we recently implemented programs to refocus our operational personnel
to prioritize store profit growth, including the effective pricing of rental
merchandise and the management of store level operating expenses. Similarly, we
have instituted a transitional duty program to maintain store level productivity
as well as to minimize costs related to the workers compensation component of
our insurance programs.
We believe we will achieve further gains in revenues and operating margins
in both existing and newly acquired stores by continuing to:
- use focused advertising to increase store traffic;
- expand the offering of upscale, higher margin products, such as Philips,
Sony, JVC, Toshiba and Mitsubishi electronics, Ashley, England and
Benchcraft furniture, Dell, Compaq and Hewlett Packard computers and
Whirlpool appliances, to increase the number of product rentals;
- employ strict store-level cost control;
- closely monitor each store's performance through the use of our
management information system to ensure each store's adherence to
established operating guidelines; and
- use a revenue and profit based incentive pay plan.
OPENING NEW STORES AND ACQUIRING EXISTING RENT-TO-OWN STORES
We intend to expand our business both by opening new stores in targeted
markets and by acquiring existing rent-to-own stores. We will focus new market
penetration in adjacent areas or regions that we believe are underserved by the
rent-to-own industry, which we believe represents a significant opportunity for
us. In addition, we intend to pursue our acquisition strategy of targeting
under-performing and under-capitalized chains of rent-to-own stores. We have
gained significant experience in the acquisition and integration of other
rent-to-own operators and believe the fragmented nature of the rent-to-own
industry will result in ongoing consolidation opportunities. Acquired stores
benefit from our administrative network, improved product mix, sophisticated
management information system and purchasing power. In addition, we have access
to an expanding number of our franchise locations, which we have the right of
first refusal to purchase.
Since March 1993, our company-owned store base has grown from 27 to 2,281
at December 31, 2001, primarily through acquisitions. During this period, we
acquired over 2,000 company-owned stores and over 350 franchised stores in more
than 70 separate
46
transactions, including six transactions where we acquired in excess of 70
stores. In May 1998, we acquired substantially all of the assets of Central
Rents, which operated 176 stores, for approximately $100 million in cash. In
August 1998, we acquired Thorn Americas 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 franchising 65 stores in 49 states and the District of
Columbia.
In the second half of 2000, having successfully integrated the Thorn
Americas and Central Rents acquisitions, we resumed our strategy of increasing
our store base. For the year ended December 31, 2000, we opened 36 new stores,
acquired 74 stores and closed 27 existing stores. Of the 27 stores closed, 22
were merged with existing stores, four were sold and one was closed with no
surviving store. For the year ended December 31, 2001, we opened 76 new stores,
acquired 95 stores, purchased accounts from 90 competitors' locations and closed
48 existing stores. Of the 48 stores closed, 42 were merged with existing stores
and six were sold. The 95 acquired stores and acquired accounts were the result
of 52 separate transactions for an aggregate purchase price of approximately
$49.8 million in cash.
We continue to believe there are attractive opportunities to expand our
presence in the rent-to-own industry. We intend to increase the number of stores
in which we operate by an average of approximately 5% to 10% per year over the
next several years. We plan to accomplish our future growth through both
selective and opportunistic acquisitions and new store development.
BUILDING OUR NATIONAL BRAND
We have implemented a strategy to increase our name recognition and enhance
our national brand. As a part of a branding strategy, in April 2000 we launched
a national advertising campaign featuring John Madden as our advertising
spokesperson. Mr. Madden appears in our advertising media used in the campaign,
including television and radio commercials, print, direct response and in-store
signage. We believe Mr. Madden possesses a unique balance of multi-cultural
appeal, a strong image identification among both men and women, and a
personality that people of all ages enjoy. We believe that as the Rent-A-Center
name gains in familiarity and national recognition through our advertising
efforts, we will continue to educate the consumer about the rent-to-own
alternative to merchandise purchases as well as solidify our reputation as a
leading provider of high quality branded merchandise.
47
OUR STORES
At December 31, 2001, we operated 2,281 stores in 50 states, Puerto Rico
and the District of Columbia. In addition, our subsidiary ColorTyme franchised
342 stores in 42 states. This information is illustrated by the following table:
NUMBER OF STORES
--------------------
COMPANY
LOCATION OWNED FRANCHISED
-------- ------- ----------
Alabama.................. 44 1
Alaska................... 3 --
Arizona.................. 52 7
Arkansas................. 21 3
California............... 142 8
Colorado................. 29 3
Connecticut.............. 19 6
Delaware................. 15 1
District of Columbia..... 4 --
Florida.................. 132 10
Georgia.................. 92 13
Hawaii................... 11 2
Idaho.................... 6 4
Illinois................. 115 6
Indiana.................. 91 17
Iowa..................... 19 --
Kansas................... 27 18
Kentucky................. 39 6
Louisiana................ 34 7
Maine.................... 18 9
Maryland................. 50 6
Massachusetts............ 48 7
Michigan................. 94 16
Minnesota................ 4 --
Mississippi.............. 17 4
Missouri................. 53 7
Montana.................. 1 4
NUMBER OF STORES
--------------------
COMPANY
LOCATION OWNED FRANCHISED
-------- ------- ----------
Nebraska................. 4 --
Nevada................... 16 5
New Hampshire............ 14 2
New Jersey............... 40 8
New Mexico............... 11 9
New York................. 125 15
North Carolina........... 86 16
North Dakota............. 1 --
Ohio..................... 156 5
Oklahoma................. 36 13
Oregon................... 19 8
Pennsylvania............. 84 6
Puerto Rico.............. 21 --
Rhode Island............. 12 1
South Carolina........... 31 5
South Dakota............. 2 --
Tennessee................ 78 5
Texas.................... 226 57
Utah..................... 14 2
Vermont.................. 7 --
Virginia................. 41 7
Washington............... 37 9
West Virginia............ 12 2
Wisconsin................ 26 2
Wyoming.................. 2 --
----- ---
Total............... 2,281 342
===== ===
Our stores average approximately 4,300 square feet and are located
primarily in strip malls. Because we receive merchandise shipments directly from
vendors, we are able to dedicate approximately 80% of the store space to
showroom floor, and also eliminate warehousing costs.
RENT-A-CENTER STORE OPERATIONS
PRODUCT SELECTION
Our stores offer merchandise from four basic product categories: home
electronics, appliances, computers, and furniture and accessories. Our stores
typically have available at any one time approximately 100 of the 150 different
items we offer. Although we seek to ensure our stores maintain sufficient
inventory to offer customers a wide variety of models, styles and brands, we
generally limit inventory to prescribed levels to ensure strict inventory
controls. We
48
seek to provide a wide variety of high quality merchandise to our customers, and
we emphasize high-end products from brand-name manufacturers. For the year ended
December 31, 2001, home electronic products accounted for approximately 41% of
our store rental revenue, furniture and accessories for 32%, appliances for 17%
and computers for 10%. Customers may request either new merchandise or
previously rented merchandise. Previously rented merchandise is offered at the
same weekly or monthly rental rate as is offered for new merchandise, but with
an opportunity to obtain ownership of the merchandise after fewer rental
payments.
Home electronic products offered by our stores include televisions, DVD
players, home entertainment centers, video cassette recorders and stereos from
top brand manufacturers such as Philips, Sony, JVC, Toshiba and Mitsubishi. We
rent major appliances manufactured by Whirlpool, including refrigerators,
washing machines, dryers, microwave ovens, freezers and ranges. We offer
personal computers from Dell, Compaq and Hewlett Packard. We rent a variety of
furniture products, including dining room, living room and bedroom furniture
featuring a number of styles, materials and colors. We offer furniture made by
Ashley, England and Benchcraft and other top brand manufacturers. Accessories
include pictures, plants, lamps and tables and are typically rented as part of a
package of items, such as a complete room of furniture. Showroom displays enable
customers to visualize how the product will look in their homes and provide a
showcase for accessories.
RENTAL PURCHASE AGREEMENTS
Our customers generally enter into weekly or monthly rental purchase
agreements, which renew automatically upon receipt of each payment. We retain
title to the merchandise during the term of the rental purchase agreement.
Ownership of the merchandise generally transfers to the customer if the customer
has continuously renewed the rental purchase agreement for a period of 12 to 36
months, depending upon the product type, or exercises a specified early purchase
option. Although we do not conduct a formal credit investigation of each
customer, a potential customer must provide store management with sufficient
personal information to allow us to verify their residence and sources of
income. References listed by the customer are contacted to verify the
information contained in the customer's rental purchase order form. Rental
payments are generally made in cash, by money order or debit card. Approximately
85% of our customers pay in the store on a weekly basis. Depending on state
regulatory requirements, we charge for the reinstatement of terminated accounts
or collect a delinquent account fee, and collect loss/damage waiver fees from
customers desiring product protection in case of theft or certain natural
disasters. These fees are standard in the industry and may be subject to
government-specified limits. Please read the section entitled "-- Government
Regulation."
PRODUCT TURNOVER
A minimum rental term of 18 months is generally required to obtain
ownership of new merchandise. We believe that only approximately 25% of our
initial rental purchase agreements are taken to the full term of the agreement,
although the average total life for each product is approximately 22 months,
which includes the initial rental period, all re-rental periods and idle time in
our system. Turnover varies significantly based on the type of merchandise
rented, with certain consumer electronics products, such as camcorders and video
cassette recorders, generally rented for shorter periods, while appliances and
furniture are generally rented for longer periods. To cover the relatively high
operating expenses generated by greater product turnover, rental purchase
agreements require higher aggregate payments than are generally charged under
other types of purchase plans, such as installment purchase or credit plans.
49
CUSTOMER SERVICE
We offer same day or 24-hour delivery and installation of our merchandise
at no additional cost to the customer. We provide any required service or repair
without additional charge, except for damage in excess of normal wear and tear.
Repair services are provided through our national network of 22 service centers,
the cost of which may be reimbursed by the vendor if the item is still under
factory warranty. If the product cannot be repaired at the customer's residence,
we provide a temporary replacement while the product is being repaired. The
customer is fully liable for damage, loss or destruction of the merchandise,
unless the customer purchases an optional loss/damage waiver. Most of the
products we offer are covered by a manufacturer's warranty for varying periods,
which, subject to the terms of the warranty, is transferred to the customer in
the event that the customer obtains ownership.
COLLECTIONS
Store managers use our computerized management information system to track
collections on a daily basis. If a customer fails to make a rental payment when
due, store personnel will attempt to contact the customer to obtain payment and
reinstate the agreement, or will terminate the account and arrange to regain
possession of the merchandise. We attempt to recover the rental items as soon as
possible following termination or default of a rental purchase agreement,
generally by the seventh to tenth day. Collection efforts are enhanced by the
numerous personal and job-related references required of first-time customers,
the personal nature of the relationships between the stores' employees and
customers and the fact that, following a period in which a customer is
temporarily unable to make payments on a piece of rental merchandise, that
customer generally may re-rent a piece of merchandise of similar type and age on
the terms the customer enjoyed prior to that period. Charge-offs due to lost or
stolen merchandise, expressed as a percentage of store revenues, were
approximately 2.5% in 2001, 2.5% in 2000, 2.3% in 1999 and 2.5% in 1998.
MANAGEMENT
We organize our network of stores geographically with multiple levels of
management. At the individual store level, each store manager is responsible for
customer and credit relations, delivery and collection of merchandise, inventory
management, staffing, training store personnel and certain marketing efforts.
Three times each week, the store manager is required to audit the idle inventory
on hand and compare the audit to our computer report, with the market manager
performing a similar audit at least once a month. In addition, our individual
store managers track their daily store performance for revenue collected as
compared to the projected performance of their store. Each store manager reports
to a market manager within close proximity who typically oversees six to eight
stores. Typically, a market manager focuses on developing the personnel in his
or her market and on ensuring that all stores meet our quality, cleanliness and
service standards. In addition, a market manager routinely audits numerous areas
of the stores operations, including gross profit per rental agreement, petty
cash, and customer order forms. A significant portion of a market manager's and
store manager's compensation is dependent upon store revenues and profits, which
are monitored by our management reporting system and our tight control over
inventory afforded by our direct shipment practice.
At December 31, 2001, we had 326 market managers who, in turn, reported to
55 regional directors. Regional directors monitor the results of their entire
region, with an emphasis on developing and supervising the market managers in
their region. Similar to the market managers, regional directors are responsible
for ensuring that store managers are following the operational guidelines,
particularly those involving store presentation, collections, inventory levels,
and order verification. The regional directors report to nine senior vice
presidents at our
50
headquarters. The regional directors receive a significant amount of their
compensation based on the profits the stores under their management generate.
Our executive management team at the home office directs and coordinates
purchasing, financial planning and controls, employee training, personnel
matters and new store site selection. Our executive management team also
evaluates the performance of each region, market and store, including the use of
on-site reviews. All members of our executive management team receive a
significant amount of their total compensation based on the profits generated by
the entire company. As a result, our business strategy emphasizes strict cost
containment.
MANAGEMENT INFORMATION SYSTEMS
Through a licensing agreement with High Touch, Inc., we utilize an
integrated computerized management information and control system. Each store is
equipped with a computer system utilizing point of sale software developed by
High Touch. This system tracks individual components of revenue, each item in
idle and rented inventory, total items on rent, delinquent accounts and other
account information. We electronically gather each day's activity report, which
provides our executive management with access to all operating and financial
information about any of our stores, markets or regions and generates management
reports on a daily, weekly, month-to-date and year-to-date basis for each store
and for every rental purchase transaction. The system enables us to track each
of our approximately 2.3 million units of merchandise and each of our
approximately 1.4 million rental purchase agreements, which often include more
than one item of merchandise. In addition, the system performs a daily sweep of
available funds from our stores' depository accounts into our central operating
account based on the balances reported by each store. Our system also includes
extensive management software and report-generating capabilities. The reports
for all stores are reviewed on a daily basis by executive management and unusual
items are typically addressed the following business day. Utilizing the
management information system, our executive management, regional directors,
market managers and store managers closely monitor the productivity of stores
under their supervision according to our prescribed guidelines.
The integration of the management information system developed by High
Touch with our accounting system, developed by Lawson Software, Inc.,
facilitates the production of our financial statements. These financial
statements are distributed monthly to all stores, markets, regions and our
executive management team for their review.
PURCHASING AND DISTRIBUTION
Our executive management determines the general product mix in our stores
based on analyses of customer rental patterns and the introduction of new
products on a test basis. Individual store managers are responsible for
determining the particular product selection for their store from the list of
products approved by executive management. Store and market managers make
specific purchasing decisions for the stores, subject to review by executive
management. All merchandise is shipped by vendors directly to each store, where
it is held for rental. We do not maintain any warehouse space. These practices
allow us to retain tight control over our inventory and, along with our
selection of products for which consistent historical demand has been shown,
reduces the number of obsolete items in our stores.
We purchase the majority of our merchandise from manufacturers, who ship
directly to each store. Our largest suppliers include Ashley, Whirlpool and
Philips, who accounted for approximately 15.2%, 13.4%, and 11.5%, respectively,
of merchandise purchased in 2001.No other supplier accounted for more than 10.0%
of merchandise purchased during this period. We do not generally enter into
written contracts with our suppliers. Although we expect to continue
relationships with our existing suppliers, we believe that there are numerous
sources
51
of products available, and we do not believe that the success of our operations
is dependent on any one or more of our present suppliers.
MARKETING
We promote the products and services in our stores through direct mail
advertising, radio, television and secondary print media advertisements. Our
advertisements emphasize such features as product and brand-name selection,
prompt delivery and the absence of initial deposits, credit investigations or
long-term obligations. Advertising expense as a percentage of store revenue for
the years ended December 31, 2001 and 2000 was approximately 4.0%. As we obtain
new stores in our existing market areas, the advertising expenses of each store
in the market can be reduced by listing all stores in the same market-wide
advertisement.
Mr. John Madden serves as our national advertising spokesman for the
advertising campaign we launched in April 2000. Mr. Madden appears in our
advertising media used in the campaign, including television and radio
commercials, print, direct response and in-store signage. We believe his
involvement in this campaign assists us in capturing new customers and
establishes a stronger national identity for Rent-A-Center. Mr. Madden's
agreement with us expires on March 31, 2003.
COMPETITION
The rent-to-own industry is highly competitive. According to industry
sources and our estimates, the six largest industry participants account for
approximately 4,700 of the 8,000 rent-to-own stores in the United States. We are
the largest operator in the rent-to-own industry with 2,281 stores and 342
franchised locations as of December 31, 2001. Our stores compete with other
national and regional rent-to-own businesses, as well as with rental stores that
do not offer their customers a purchase option. With respect to customers
desiring to purchase merchandise for cash or on credit, we also compete with
department stores, credit card companies and discount stores. Competition is
based primarily on store location, product selection and availability, customer
service and rental rates and terms.
COLORTYME OPERATIONS
ColorTyme is our nationwide franchisor of rent-to-own stores. At December
31, 2001, ColorTyme franchised 342 rent-to-own stores in 42 states. These
rent-to-own stores offer high quality durable products such as home electronics,
appliances, computers, and furniture and accessories. During 2001, 31 new
locations were added, 48 were sold, including 45 that we purchased, and five
were closed. During that same period, the number of new franchisees operating
stores under the ColorTyme name increased by six.
All but 12 of the ColorTyme franchised stores use ColorTyme's tradenames,
service marks, trademarks, logos, emblems and indicia of origin. These 12 stores
are franchises acquired in the Thorn Americas acquisition and continue to use
the Rent-A-Center name. All stores operate under distinctive operating
procedures and standards. ColorTyme's primary source of revenue is the sale of
rental merchandise to its franchisees who, in turn, offer the merchandise to the
general public for rent or purchase under a rent-to-own program. As franchisor,
ColorTyme receives royalties of 2.1% to 4.0% of the franchisees' monthly gross
revenue and, generally, an initial fee of between $7,500 per location for
existing franchisees and up to $25,000 per location for new franchisees.
The ColorTyme franchise agreement generally requires the franchised stores
to utilize specific computer hardware and software for the purpose of recording
rentals, sales and other record keeping and central functions. ColorTyme retains
the right to upload and download data, troubleshoot, and retrieve data and
information from the franchised stores' computer systems.
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The franchise agreement also requires the franchised stores to exclusively
offer for rent or sale only those brands, types, and models of products that
ColorTyme has approved. The franchised stores are required to maintain an
adequate mix of inventory that consists of approved products for rent as
dictated by ColorTyme policy manuals, and must maintain on display such products
as specified by ColorTyme. ColorTyme negotiates purchase arrangements with
various suppliers it has approved. ColorTyme's largest supplier is Whirlpool,
which accounted for approximately 12.8% of merchandise purchased by ColorTyme in
2001.
ColorTyme is a party to an agreement with Textron Financial Corporation,
who provides financing to qualifying franchisees of ColorTyme. Under this
agreement, in the event of default by the franchisee under agreements governing
this financing and upon the occurrence of certain events, Textron may assign the
loans and collateral securing such loans to ColorTyme, with ColorTyme then
succeeding to the rights of Textron under the debt agreements, including the
rights to foreclose on the collateral. We guarantee the obligations of ColorTyme
under this agreement.
ColorTyme has established a national advertising fund for the franchised
stores, whereby ColorTyme has the right to collect up to 3% of the monthly gross
revenue from each franchisee as contributions to the fund. Currently, ColorTyme
has set the monthly franchisee contribution at $250 per store per month.
ColorTyme directs the advertising programs of the fund, generally consisting of
advertising in print, television and radio. The franchisees also are required to
expend 3% of their monthly gross revenue on local advertising.
ColorTyme licenses the use of its trademarks to the franchisees under the
franchise agreement. ColorTyme owns the registered trademarks ColorTyme(R),
ColorTyme-What's Right for You(R), and FlexTyme(R), along with certain design
and service marks.
Some of ColorTyme's franchisees may be in locations where they directly
compete with our company-owned stores, which could negatively impact the
business, financial condition and operating results of our company-owned store.
The ColorTyme franchise agreement provides us a right of first refusal to
purchase the franchise location of a ColorTyme franchisee wishing to exit the
business.
TRADEMARKS
We own various registered trademarks, including Rent-A-Center(R), Renters
Choice(R) and Remco(R). The products held for rent also bear trademarks and
service marks held by their respective manufacturers.
EMPLOYEES
As of December 31, 2001, we had approximately 12,900 employees, of whom
approximately 250 were assigned to our headquarters and the remainder of whom
were directly involved in the management and operation of our stores. As of the
same date, we had approximately 20 employees dedicated to ColorTyme, all of whom
were employed full-time. The employees of the ColorTyme franchisees are not
employed by us. None of our employees, including ColorTyme employees, are
covered by a collective bargaining agreement. However, in June 2001 the
employees of six of our stores in New York, New York elected to be represented
by the Teamsters union. We are contesting the validity of this election. We
believe relationships with our employees and ColorTyme's relationships with its
employees are generally good.
PROPERTIES
We lease space for all of our stores, as well as our corporate and regional
offices, under operating leases expiring at various times through 2010. Most of
these leases contain renewal options for additional periods ranging from three
to five years at rental rates adjusted according to agreed-upon formulas. Both
our headquarters and ColorTyme's headquarters are
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located at 5700 Tennyson Parkway, Plano, Texas, and consist of approximately
77,158 and 5,116 square feet devoted to our operations and ColorTyme's
operations, respectively. Store sizes range from approximately 1,400 to 17,000
square feet, and average approximately 4,300 square feet. Approximately 80% of
each store's space is generally used for showroom space and 20% for offices and
storage space.
We believe that suitable store space generally is available for lease, and
we would be able to relocate any of our stores without significant difficulty
should we be unable to renew a particular lease. We also expect additional space
is readily available at competitive rates to open new stores. Under various
federal and state laws, lessees may be liable for environmental problems at
leased sites even if they did not create, contribute to, or know of the problem.
We are not aware of and have not been notified of any violations of federal,
state or local environmental protection or health and safety laws, but cannot
guarantee that we will not incur material costs or liabilities under these laws
in the future.
GOVERNMENT REGULATION
STATE REGULATION
Currently 47 states and Puerto Rico have legislation regulating rental
purchase transactions. We believe this existing legislation is generally
favorable to us, as it defines and clarifies the various disclosures, procedures
and transaction structures related to the rent-to-own business with which we
must comply. With some variations in individual states, most related state
legislation requires the lessor to make prescribed disclosures to customers
about the rental purchase agreement and transaction, and provides time periods
during which customers may reinstate agreements despite having failed to make a
timely payment. Some state rental purchase laws prescribe grace periods for
non-payment, prohibit or limit certain types of collection or other practices,
and limit certain fees that may be charged. Nine states limit the total rental
payments that can be charged. These limitations, however, do not become
applicable in general unless the total rental payments required under agreements
exceed 2.0 times to 2.4 times of the disclosed cash price or the retail value.
Minnesota, which has a rental purchase statute, and Wisconsin and New
Jersey, which do not have rental purchase statutes, have had court decisions
which treat rental purchase transactions as credit sales subject to consumer
lending restrictions. In response, we have developed and utilize separate rental
agreements which do not provide customers with an option to purchase rented
merchandise in both Minnesota and Wisconsin. In Wisconsin, customers are
provided an opportunity to purchase the rented merchandise in a separate
transaction. In New Jersey, we have provided increased disclosures and longer
grace periods. We operate four stores in Minnesota, 26 stores in Wisconsin and
40 stores in New Jersey. See the section entitled "-- Legal Proceedings."
North Carolina has no rental purchase legislation. However, the retail
installment sales statute in North Carolina recognizes that rental purchase
transactions which provide for more than a nominal purchase price at the end of
the agreed rental period are not credit sales under the statute. We operate 86
stores in North Carolina.
The District of Columbia has recently passed rental purchase legislation,
which becomes effective in April 2002. We operate four stores in the District of
Columbia.
There can be no assurance that new or revised rental purchase laws will not
be enacted or, if enacted, that the laws would not have a material and adverse
effect on us.
FEDERAL LEGISLATION
No comprehensive federal legislation has been enacted regulating or
otherwise impacting the rental purchase transaction. We do, however, comply with
the Federal Trade Commission recommendations for disclosure in rental purchase
transactions. From time to time, legislation
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has been introduced in Congress that would regulate the rental purchase
transaction, including legislation that would subject the rental purchase
transaction to interest rate, finance charge and fee limitations, as well as the
Federal Truth in Lending Act. Any adverse federal legislation, if enacted, could
have a material and adverse effect on us.
LEGAL PROCEEDINGS
From time to time, we, along with our subsidiaries, are party to various
legal proceedings arising in the ordinary course of business. Except as
described below, we are not currently a party to any material litigation.
Colon v. Thorn Americas, Inc. The plaintiffs filed this class action in
November 1997 in New York state court. This matter was assumed by us in
connection with the Thorn Americas acquisition, and appropriate purchase
accounting adjustments were made for such contingent liabilities. 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. This suit also alleges
violations relating to excessive and unconscionable pricing, late fees,
harassment, undisclosed charges, and the ease of use and accuracy of its payment
records. In their prayers for relief, the plaintiffs have requested the
following:
- class certification;
- 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;
- unspecified compensatory and punitive damages;
- rescission of the class members contracts;
- an order placing in trust all moneys received by Thorn Americas in
connection with the rental of merchandise during the class period;
- treble damages, attorney's fees, filing fees and costs of suit;
- pre- and post-judgment interest; and
- any further relief granted by the court.
The plaintiffs have not alleged a specific monetary amount with respect to
their request for damages.
The proposed class originally included all New York residents who were
party to Thorn Americas' rent-to-own contracts from November 26, 1991 through
November 26, 1997. In her class certification briefing, Plaintiff acknowledged
her claims under the General Business Law in New York are subject to a three
year statute of limitations, and is now requesting a class of all persons in New
York who paid for rental merchandise from us since November 26, 1994. We are
vigorously defending this action. In November 2000, following interlocutory
appeal by both parties from the denial of cross-motions for summary judgement,
we obtained a favorable ruling from the Appellate Division of the State of New
York, dismissing Plaintiff's claims based on the alleged failure to disclose an
effective interest rate. Plaintiff's other claims were not dismissed. Plaintiff
moved to certify a state-wide class in December 2000. Plaintiff's class
certification motion was heard by the court on November 7, 2001, at which time
the court took the motion under advisement. We are vigorously opposing class
certification. Although there can be no assurance that our position will
prevail, or that we will be found not to have any liability, we believe the
decision by the Appellate Division regarding interest rate disclosure to be a
significant and favorable development in this matter.
55
Wisconsin Attorney General Proceeding. On August 4, 1999, the Wisconsin
Attorney General filed suit against us and our subsidiary ColorTyme in the
Circuit Court of Milwaukee County, Wisconsin, alleging that our rent-to-rent
transaction violates the Wisconsin Consumer Act and the Wisconsin Deceptive
Advertising Statute. The Attorney General claims that our rent-to-rent
transaction, coupled with the opportunity afforded our customers to purchase
rental merchandise under what we believe is a separate transaction, is a
disguised credit sale subject to the Wisconsin Consumer Act. Accordingly, the
Attorney General alleges that we have failed to disclose credit terms,
misrepresented the terms of the transaction and engaged in unconscionable
practices. We currently operate 26 stores in Wisconsin.
The Attorney General seeks injunctive relief, restoration of any losses
suffered by any Wisconsin consumer harmed and civil forfeitures and penalties in
amounts ranging from $50 to $10,000 per violation. The Attorney General's claim
for monetary penalties applies to at least 9,060 transactions through September
30, 2001. On October 31, 2001, the Attorney General filed a motion for summary
judgment on several counts in the complaint, including the principal claim that
our rent-to-rent transaction is governed by the Wisconsin Consumer Act. Our
response was filed on December 17, 2001. A pre-trial conference and hearing on
the motion for summary judgment took place on January 22, 2002, at which time
the court ruled in favor of the Attorney General's motion for summary judgment
on the liability issues and set the case for trial on damages for February 2003.
Since the filing of this suit, we have attempted to negotiate a mutually
satisfactory resolution of these claims with the Wisconsin Attorney General's
office, including the consideration of possible changes in our business
practices in Wisconsin. To date, we have not been successful, but our efforts
are ongoing. If we are unable to negotiate a settlement with the Attorney
General, we intend to litigate the suit. We cannot assure you, however, that the
outcome of this matter will not have a material adverse impact on our financial
position, results of operations or cash flows.
Gender Discrimination Actions. We are subject to three class action
lawsuits claiming gender discrimination. As described below, we have settled in
principle all of the claims covered by these three actions.
In September 1999, an action was filed against us in federal court in the
Western District of Tennessee by the U.S. Equal Employment Opportunity
Commission, alleging that we engaged in gender discrimination with respect to
four named females and other unnamed female employees and applicants within our
Tennessee and Arkansas region. The allegations underlying this EEOC action
involve charges of wrongful termination and denial of promotion, disparate
impact and failure to hire. The group of individuals on whose behalf EEOC seeks
relief is approximately seventy individuals.
In August 2000, a putative nationwide class action was filed against us in
federal court in East St. Louis, Illinois by Claudine Wilfong and eighteen other
plaintiffs, alleging that we engaged in class-wide gender discrimination
following our acquisition of Thorn Americas. The allegations underlying Wilfong
involve charges of wrongful termination, constructive discharge, disparate
treatment and disparate impact. In addition, the EEOC filed a motion to
intervene on behalf of the plaintiffs, which the court granted on May 14, 2001.
On December 27, 2001, the court granted the plaintiff's motion for class
certification.
In December 2000, similar suits filed by Margaret Bunch and Tracy Levings
in federal court in the Western District of Missouri were amended to allege
class action claims similar to those in Wilfong. In November 2001, we announced
that we had reached an agreement in principle for the settlement of the Bunch
matter, which is subject to court approval. Under the terms of the proposed
settlement, we agreed to pay an aggregate of $12.25 million to the agreed upon
class, plus plaintiffs' attorneys fees as determined by the court and costs to
administer the settlement subject to an aggregate cap of $3.15 million. On
November 29, 2001, the court in
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Bunch granted preliminary approval of the settlement and set a fairness hearing
on such settlement for March 6, 2002.
In early March 2002, we reached an agreement in principle with the
plaintiffs attorneys in Wilfong and the EEOC to resolve the Wilfong suit and the
Tennessee EEOC action. Under the terms of the proposed settlement, while not
admitting any liability, we would pay an aggregate of $47.0 million to
approximately 5,300 female employees and a yet to be determined number of female
applicants who were employed by or applied for employment with us for a period
commencing no later than April 19, 1998 through the future date of the notice to
the applicable class, plus up to $375,000 in settlement administrative costs.
The $47.0 million payment includes the $12.25 million payment discussed in
connection with the Bunch settlement. Attorney fees for class counsel in Wilfong
would be paid out of the $47.0 million settlement fund in an amount to be
determined by the court. Members of the class who do not wish to participate in
the settlement would be given the opportunity to opt out of the settlement.
The proposed agreement contemplates the settlement would be subject to a
four-year consent decree, which could be extended by the court for an additional
one year upon a showing of good cause. Also, under the proposed settlement, we
agreed to augment our human resources department and our internal employee
complaint procedures; enhance our gender anti-discrimination training for all
employees; hire a consultant mutually acceptable to the parties for two years to
advise us on employment matters; provide certain reports to the EEOC during the
period of the consent decree; seek qualified female representation on our board
of directors; publicize our desire to recruit, hire and promote qualified women;
offer to fill job vacancies within our regional markets with qualified class
members who reside in those markets and express an interest in employment by us
to the extent of 10% of our job vacancies in such markets over a fifteen month
period; and to take certain other steps to improve opportunities for women. We
initiated many of the above programs prior to entering into the proposed
settlement.
Under the proposed agreement, we have the right to terminate the settlement
under certain circumstances, including in the event that more than 60 class
members elect to opt out of the settlement.
The proposed settlement contemplates that the Bunch case will be dismissed
with prejudice once such settlement becomes final. At the parties' request, the
court in the Bunch case stayed the proceedings in that case, including
postponing the fairness hearing previously scheduled for March 6, 2002. We
anticipate the Memphis federal court will stay the Tennessee EEOC action as
well.
The terms of the proposed settlement are subject to the parties entering
into a definitive settlement agreement and court approval. While we believe the
proposed settlement is fair, we cannot assure you that the settlement will be
approved by the court in its present form.
Terry Walker, et. al. v. Rent-A-Center, Inc., et. al.; Chaim Klein, et. al.
v. Rent-A-Center, Inc., et. al.; John Farrar, et. al. v. Rent-A-Center, Inc.,
et. al. On January 4, 2002, a putative class action was filed against us and
certain of our current and former officers and directors by Terry Walker in
federal court in Texarkana, Texas. The complaint alleges that the defendants
violated Sections 10(b) and/or Section 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by issuing false and misleading
statements and omitting material facts regarding our financial performance and
prospects for the third and fourth quarters of 2001. The complaint purports to
be brought on behalf of all purchasers of our common stock from April 25, 2001
through October 8, 2001 and seeks damages in unspecified amounts. Complaints
have also been filed by Chaim Klein and John Farrar in Texarkana, Texas alleging
similar claims. We believe that these claims are without merit and intend to
vigorously defend ourselves. However, we cannot assure you that we will be found
to have no liability in this matter.
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DESCRIPTION OF CERTAIN DEBT
As of December 31, 2001, we had outstanding the following other
indebtedness (excluding capital lease obligations):
DECEMBER 31,
2001
--------------
(IN THOUSANDS)
Senior Credit Facilities.................................... $428,000
11% Senior Subordinated Notes due 2008...................... 274,500
--------
Total debt................................................ $702,500
========
As of December 31, 2001, our debt obligations had the following maturities:
YEAR ENDING AMOUNT
----------- --------------
(IN THOUSANDS)
2002........................................................ $ 1,849
2003........................................................ 1,849
2004........................................................ 26,379
2005........................................................ 100,000
2006........................................................ 177,078
Thereafter.................................................. 395,345
--------
Total....................................................... $702,500
========
SENIOR CREDIT FACILITIES
The senior credit facilities are provided by a syndicate of banks and other
financial institutions led by JPMorgan Chase Bank, as administrative agent. At
December 31, 2001, we had a total of $428.0 million outstanding under these
facilities, all of which was under our term loans. At December 31, 2001, we had
$56.4 million of availability under the revolving credit facility.
Borrowings under the senior credit facilities bear interest at varying
rates equal to 1.5% to 3.00% over LIBOR, which was 1.88% at December 31, 2001.
We also have a prime rate option under the facilities, but do not have any
exercised as of December 31, 2001. At December 31, 2001, the average rate on
outstanding senior debt borrowings was 8.76%.
During 1998, we entered into two interest rate protection agreements with
two banks, one of which expired in 2001. Under the terms of the current interest
rate protection agreements, the LIBOR rate used to calculate the interest rate
charged on $250.0 million of the outstanding senior term debt is fixed at an
average rate of 5.60%. The protection on the $250.0 million expires in 2003.
The senior credit facilities are secured by a security interest in
substantially all of our tangible and intangible assets, including intellectual
property and real property. The senior credit facilities are also secured by a
pledge of the capital stock of our subsidiaries.
The senior credit facilities contain covenants that limit our ability to:
- incur additional debt (including subordinated debt) in excess of $25
million, excluding the 2001 notes;
- repurchase our capital stock and senior subordinated notes generally;
- incur liens or other encumbrances;
- merge, consolidate or sell substantially all our property or business;
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- sell assets, other than inventory;
- make investments or acquisitions unless we meet financial tests and other
requirements;
- make capital expenditures; or
- enter into a new line of business.
The senior credit facilities require us to comply with several financial
covenants, including a maximum leverage ratio, a minimum interest coverage ratio
and a minimum fixed charge coverage ratio. At December 31, 2001, the maximum
leverage ratio was 4.25:1, the minimum interest coverage ratio was 2.50:1, and
the minimum fixed charge coverage ratio was 1.3:1. On that date, our actual
ratios were 2.26:1, 5.10:1 and 2.12:1, respectively.
Events of default under the senior credit facilities include customary
events, such as a cross-acceleration provision in the event that we default on
other debt. In addition, an event of default under the senior credit facilities
would occur if we undergo a change of control. This is defined to include the
case where Apollo ceases to own at least 50% of the amount of our voting stock
that they owned on August 5, 1998, or a third party becomes the beneficial owner
of 33.33% or more or our voting stock at a time when certain permitted investors
own less than the third party or Apollo entities own less than 35% of the voting
stock owned by the permitted investors. We do not have the ability to prevent
Apollo from selling its stock, and therefore would be subject to an event of
default if Apollo did so and its sales were not agreed to by the lenders under
the senior credit facilities. This could result in the acceleration of the
maturity of our debt under the senior credit facilities, as well as under the
subordinated notes through their cross-acceleration provision.
The senior credit facilities are secured by a perfected first priority
security interest in substantially all of our tangible and intangible assets
including intellectual property, real property, and the capital stock of our
direct and indirect subsidiaries. The senior credit facilities are
unconditionally guaranteed by each of our direct and indirect domestic
subsidiaries.
11% SENIOR SUBORDINATED NOTES DUE 2008
1998 Notes. In August 1998, we issued $175.0 million of senior
subordinated notes, maturing on August 15, 2008, under an indenture dated as of
August 18, 1998 among us, our subsidiary guarantors and the trustee, which is
now The Bank of New York, as successor to IBJ Schroder Bank & Trust Company.
These notes were subsequently exchanged for the registered 1998 notes, which are
governed by the same indenture.
The indenture governing the 1998 notes contains covenants that limit our
ability to:
- incur additional debt;
- sell assets or our subsidiaries;
- grant liens to third parties;
- pay dividends or repurchase stock; and
- engage in a merger or sell substantially all of our assets.
Events of default under the indenture include customary events, such as a
cross-acceleration provision in the event that we default in the payment of
other debt due at maturity or upon acceleration for default in an amount
exceeding $25 million.
We may redeem the 1998 notes after August 15, 2003, at our option, in whole
or in part.
The 1998 notes also require that upon the occurrence of a change of control
(as defined in the indenture), the holders of the 1998 notes have the right to
require us to repurchase the 1998 notes at a price equal to 101% of the original
aggregate principal amount, together with
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accrued and unpaid interest, if any, to the date of repurchase. If we did not
comply with this repurchase obligation, this would trigger an event of default
under our senior credit facilities.
We are seeking to exchange the 1998 notes for the exchange notes in the
exchange offer.
2001 Notes. In December 2001, we issued an additional $100.0 million of
11% senior subordinated notes, maturing on August 15, 2008, under a separate
indenture dated as of December 19, 2001 among us, our subsidiary guarantors and
The Bank of New York, as trustee. Although issued pursuant to a separate
indenture, the 2001 notes have substantially identical terms as the 1998 notes,
except for certain transfer restrictions and registration rights relating to the
2001 notes. The indenture governing the 2001 notes, and which will govern the
exchange notes, is substantially similar to the indenture which governs the 1998
notes, including the restrictive covenants, events of default and change of
control and redemption provisions described above. The primary difference
between the indenture governing the 2001 notes and the indenture governing the
1998 notes is that the indenture governing the 2001 notes and the exchange notes
is open-ended, thereby permitted future issuances of senior subordinated notes
pursuant to the same indenture.
We are seeking to exchange the 2001 notes for the exchange notes in the
exchange offer.
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DESCRIPTION OF THE NOTES AND GUARANTEES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Rent-A-Center" refers only to Rent-A-Center and not to any of its subsidiaries,
the word "notes" refers only to the exchange notes, and the word "indenture"
refers to the 2001 indenture.
DIFFERENCES BETWEEN 1998 INDENTURE AND 2001 INDENTURE
The indenture that governs the 2001 notes and the exchange notes is
substantially similar to the indenture that governs the 1998 notes. The primary
difference is that the 2001 indenture places no limitations on the principal
amount of indebtedness the Company may issue under the indenture. The 1998
indenture generally limits the amount of indebtedness issued under that
indenture to the $175,000,000 aggregate principal amount issued in connection
with the offering of the 1998 notes. However, the 1998 indenture does not
prohibit us from issuing additional senior subordinated debt outside of the 1998
indenture. With respect to the material terms of the notes, events of default,
change of control and redemption provisions and restrictive covenants, the 2001
indenture and the 1998 indenture are substantially identical.
2001 INDENTURE
Rent-A-Center will issue the notes under an indenture among itself, the
subsidiary guarantors and The Bank of New York, as trustee. The terms of the
notes include those stated in the indenture and those made part of the indenture
by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. Although we
believe that we have disclosed in this prospectus all the material provisions of
the indenture, we urge you to read the indenture because it, and not this
description, defines your rights as holders of these notes. We have filed copies
of the indenture as an exhibit to the registration statement which includes this
prospectus.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The notes:
- are general obligations of Rent-A-Center;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of Rent-A-Center;
- are senior in right of payment to any future Subordinated Obligations of
Rent-A-Center; and
- are unconditionally guaranteed by the Subsidiary Guarantors.
As of December 31, 2001, Rent-A-Center and the Subsidiary Guarantors had
total Senior Indebtedness of approximately $428.0 million. As indicated above
and as discussed in detail below under the subheading "Ranking," payments on the
notes and under the Guarantees will be subordinated to the payment of Senior
Indebtedness. The indenture will permit us and the Subsidiary Guarantors to
incur additional Senior Indebtedness.
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THE GUARANTEES
The notes are guaranteed by the following subsidiaries of Rent-A-Center:
ColorTyme, Inc.
Advantage Companies, Inc.
The Guarantees of the notes:
- are general obligations of each Subsidiary Guarantor;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of each Subsidiary Guarantor; and
- are senior in right of payment to any future subordinated Indebtedness of
each Subsidiary Guarantor.
PRINCIPAL, MATURITY AND INTEREST
Rent-A-Center may issue an unlimited principal amount subject to compliance
with the provisions of the indenture described below under "Limitation on
Indebtedness." Rent-A-Center initially issued the 2001 notes with a maximum
aggregate principal amount of $100.0 million. The exchange notes will be issued
in an aggregate principal amount of up to $275.0 million to effect the exchange
of the 1998 notes and 2001 notes. Rent-A-Center will issue notes in
denominations of $1,000 and integral multiples of $1,000. The notes will mature
on August 15, 2008.
Interest on the notes will accrue at the rate of 11% per annum and will be
payable semi-annually in arrears on February 15 and August 15, beginning on
August 15, 2002. Rent-A-Center will make each interest payment to the holders of
record of these notes on the immediately preceding February 1 and August 1.
Interest on the notes will accrue from the closing date or, if interest has
already been paid, from the date it was most recently paid. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
The notes are redeemable, at Rent-A-Center's option, in whole or in part,
at any time and from time to time on and after August 15, 2003 and prior to
maturity. The notes may be redeemed at the following redemption prices,
expressed as a percentage of principal amount, plus accrued interest, if any, to
the redemption date, subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date, if
redeemed during the 12-month period commencing on August 15 of the years set
forth below:
REDEMPTION
PERIOD PRICE
------ ----------
2003........................................................ 105.500%
2004........................................................ 103.667%
2005........................................................ 101.833%
2006 and thereafter......................................... 100.000%
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the notes are redeemed pursuant to an
optional redemption, selection of the notes for redemption will be made by the
Trustee on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate. No notes of $1,000 or less may be redeemed in part.
Notices of redemption must be mailed by first-class
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mail at least 30, but not more than 90, days before the redemption date to each
holder of notes to be redeemed at the holder's registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to such note must state the portion of the principal amount or principal
amount at maturity, as the case may be, to be redeemed. A new note in a
principal amount equal to the unredeemed portion will be issued in the name of
the holder upon cancellation of the original note. On and after the redemption
date, interest will cease to accrue on notes or portions thereof called for
redemption as long as Rent-A-Center has deposited with the paying agent for the
notes funds in satisfaction of the applicable redemption price pursuant to the
indenture.
RANKING
The indebtedness evidenced by the notes:
- is unsecured Senior Subordinated Indebtedness of Rent-A-Center;
- is subordinated in right of payment, as set forth in the indenture, to
the payment when due of all existing and future Senior Indebtedness of
Rent-A-Center, including Rent-A-Center's Obligations under the Senior
Credit Facility;
- ranks without preference in right of payment with all existing and future
Senior Subordinated Indebtedness of Rent-A-Center; and
- is senior in right of payment to all existing and future Subordinated
Obligations of Rent-A-Center.
The notes are also effectively subordinated to any Secured Indebtedness of
Rent-A-Center and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness.
Although the indenture contains limitations on the amount of additional
Indebtedness which Rent-A-Center may incur, under certain circumstances the
amount of such indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness. See "-- Certain Covenants -- Limitation
on Indebtedness" below.
Rent-A-Center may not pay principal of, premium, if any, or interest on,
the notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not otherwise purchase, redeem or otherwise retire
any notes (collectively, "pay the notes") if
- any Senior Indebtedness is not paid when due in cash or Cash Equivalents;
or
- any other default on Senior Indebtedness occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms unless,
in either case, (A) the default has been cured or waived and any such
acceleration has been rescinded in writing, or (B) such Senior
Indebtedness has been paid in full in cash or Cash Equivalents.
If any Designated Senior Indebtedness is in default and such default would
allow the acceleration of the Designated Senior Indebtedness without notice,
Rent-A-Center will not be permitted to pay the notes for a period (the "Payment
Blockage Period") beginning upon the receipt by the Trustee of written notice (a
"Blockage Notice") of such default from the Designated Senior Indebtedness
Representative specifying an election to effect a Payment Blockage Period. This
Payment Blockage Period will end on the earlier of
- written notice to the Trustee to terminate the period by the person who
gave the Blockage Notice;
- the discharge or repayment in full of the Designated Senior Indebtedness;
- the default giving rise to the Blockage Notice is no longer continuing;
or
- 179 days have passed following the delivery of the Blockage Notice.
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Unless the maturity of the Designated Senior Indebtedness has been
accelerated, Rent-A-Center will be permitted to resume payments on the notes
after the end of the Payment Blockage Period. Only one Blockage Notice may be
given in a 360-day period, regardless of the number of defaults on the
Designated Senior Indebtedness during that period. However, if a Blockage Notice
is given by a holder of Designated Senior Indebtedness other than Bank
Indebtedness during the 360-day period, a representative of Bank Indebtedness
may give another Blockage Notice during the 360-day period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods is in effect exceed 179 days during any 360 consecutive day period.
The holders of Senior Indebtedness are entitled to receive payment in full
before the noteholders are entitled to receive any payment upon:
- any payment or distribution of the assets of Rent-A-Center upon a total
or partial liquidation, dissolution, reorganization or similar proceeding
relating to Rent-A-Center; or
- in a bankruptcy, insolvency, receivership or similar proceeding relating
to Rent-A-Center.
Until the Senior Indebtedness is paid in full, any payment or distribution
to which the noteholders would be entitled, but for the subordination provisions
of the indenture, will be made to the holders of the Senior Indebtedness. If a
distribution is made to the noteholders that should have not been made to them
as a result of these subordination provisions, the noteholders are required to
hold such a distribution in trust for the holders of the Senior Indebtedness and
pay it over to them.
If payment of the notes is accelerated because of an Event of Default,
Rent-A-Center or the Trustee is required to promptly notify the holders of the
Designated Senior Indebtedness. Rent-A-Center is not permitted to pay the notes
until five Business Days after such holders or the Representative of the
Designated Senior Indebtedness receive notice of such acceleration. At that
time, Rent-A-Center may pay the notes only if the subordination provisions of
the indenture otherwise permit payment at that time.
As a result of the subordination provisions in the indenture, creditors of
Rent-A-Center who are holders of Senior Indebtedness may recover more, ratably,
than the noteholders in the event of insolvency.
GUARANTEES
Each Subsidiary Guarantor will unconditionally guarantee, jointly and
severally, on an unsecured, senior subordinated basis, the full and prompt
payment of principal of, premium, if any, and interest on the notes, and of all
other obligations under the indenture.
Ranking. The indebtedness evidenced by each Subsidiary Guarantee,
including the payment of principal of, premium, if any, and interest on the
notes and other obligations with respect to the notes, will be subordinated to
all Guarantor Senior Indebtedness of such Subsidiary Guarantor on the same basis
as the notes are subordinated to Senior Indebtedness of Rent-A-Center. Each
Subsidiary Guarantee will in all respects rank without preference with all other
Senior Subordinated Indebtedness of such Subsidiary Guarantor.
A Subsidiary Guarantor may not incur any Indebtedness if such Indebtedness
is subordinate or junior in ranking in any respect to any Guarantor Senior
Indebtedness of such Subsidiary Guarantor unless such Indebtedness is Guarantor
Senior Subordinated Indebtedness of such Subsidiary Guarantor or is expressly
subordinated in right of payment to Guarantor Senior Subordinated Indebtedness
of such Subsidiary Guarantor. As of September 30, 2001, there was no Guarantor
Senior Indebtedness of Subsidiary Guarantors other than the Guarantees of the
Senior Credit Facility. See "Description of Certain Debt."
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Although the indenture contains limitations on the amount of additional
Indebtedness that Rent-A-Center's Restricted Subsidiaries may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Guarantor Senior Indebtedness. See
"-- Certain Covenants -- Limitation on Indebtedness" and "-- Ranking."
Limitation on Subsidiary Guarantee. The obligation of each Subsidiary
Guarantor under its Subsidiary Guarantee is limited to the maximum amount as
will not constitute a fraudulent conveyance or fraudulent transfer under federal
or state law, after giving effect to:
- all other contingent and fixed liabilities of the Subsidiary Guarantor,
including any Guarantees under the Senior Credit Facility; and
- any collections from or payments made by or on behalf of any other
Subsidiary Guarantor with respect to other Subsidiary Guarantor's
obligations under its Subsidiary Guarantee pursuant to its contribution
obligations under the indenture.
Consolidation and Merger. Each Subsidiary Guarantor is permitted to
consolidate or merge into or sell its assets to Rent-A-Center or another Wholly
Owned Subsidiary Guarantor without limitation. Each Subsidiary Guarantor is
permitted to consolidate with or merge into or sell all or substantially all of
its assets to a corporation, partnership, trust, limited partnership, limited
liability company or other similar entity other than Rent-A-Center or another
Wholly Owned Subsidiary Guarantor if:
- the provisions under the indenture, including the covenant described
under "-- Certain Covenants -- Limitations on Sales of Assets," are
complied with; and
- such Subsidiary Guarantor is released from all of its obligations under
the indenture and its Subsidiary Guarantee. However, termination of the
Subsidiary Guarantee will only occur to the extent that the Subsidiary
Guarantor's obligations under the Senior Credit Facility and all of its
Guarantees of any other Indebtedness of Rent-A-Center also terminate.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), each Holder
will have the right to require Rent-A-Center to repurchase all or any part of
such Holder's notes at a purchase price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase. Rent-A-Center will not be obligated to purchase the notes, however,
if it has exercised its right to redeem all of the notes as described under
"-- Optional Redemption." A "Change of Control" means
- any "Person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, other than one or more Permitted Holders, is or becomes the
beneficial owner, as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership"
of all shares that any such Person has the right to acquire within one
year, directly or indirectly, of more than 50% of the Voting Stock of
Rent-A-Center or a Successor Company, as defined below, including,
without limitation, through a merger or consolidation or purchase of
Voting Stock of Rent-A-Center; provided that the Permitted Holders do not
have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Board of Directors, provided
further that the transfer of 100% of the voting stock of Rent-A-Center to
a Person that has an ownership structure identical to that of
Rent-A-Center prior to such transfer, such that Rent-A-Center becomes a
Wholly Owned Subsidiary of such Person, shall not be treated as a Change
of Control for purposes of the indenture;
65
- during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors, together
with any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of Rent-A-Center was approved
by a vote of a majority of the directors of Rent-A-Center then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved, cease for
any reason to constitute a majority of the Board of Directors then in
office;
- the sale, lease, transfer, conveyance or other disposition, in one or a
series of related transactions other than a merger or consolidation, of
all or substantially all of the assets of Rent-A-Center and its
Restricted Subsidiaries taken as a whole to any Person or group of
related Persons other than a Permitted Holder; or
- the adoption of a plan relating to the liquidation or dissolution of
Rent-A-Center.
Unless Rent-A-Center has exercised its right to redeem all the notes as
described under "-- Optional Redemption," Rent-A-Center is required, within 30
days following any Change of Control, or at Rent-A-Center's option, prior to
such Change of Control but after the public announcement thereof, to mail a
notice to each Holder with a copy to the Trustee stating:
- that a Change of Control has occurred or will occur and that such Holder
has, or upon such occurrence will have, the right to require
Rent-A-Center to purchase such Holder's notes at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, subject to the right of
noteholders of record on a record date to receive interest on the
relevant interest payment date;
- the circumstances and relevant facts and financial information regarding
such Change of Control;
- the date of purchase, which will be no earlier than 30 days nor later
than 90 days from the date such notice is mailed;
- the instructions determined by Rent-A-Center, consistent with this
covenant, that a Holder must follow in order to have its notes purchased;
and
- that, if such offer is made prior to such Change of Control, payment is
conditioned on the occurrence of such Change of Control.
Rent-A-Center will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of notes pursuant to this
covenant.
The Change of Control purchase feature is a result of negotiations between
Rent-A-Center and the initial purchasers. Rent-A-Center has no present plans to
engage in a transaction involving a Change of Control, although it is possible
that Rent-A-Center would decide to do so in the future. Subject to the
limitations discussed below, Rent-A-Center could, in the future, enter into
certain transactions, including acquisitions, refinancings or recapitalizations,
that would not constitute a Change of Control under the indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect Rent-A-Center's capital structure or credit ratings.
The occurrence of a Change of Control would constitute a default under the
Senior Credit Agreement. Future Senior Indebtedness of Rent-A-Center may contain
prohibitions of certain events which would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require Rent-A-Center to
repurchase the notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
66
repurchase on Rent-A-Center. Finally, Rent-A-Center's ability to pay cash to the
Holders upon a repurchase may be limited by Rent-A-Center's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving Rent-A-Center by increasing
the capital required to effectuate such transactions. The definition of "Change
of Control" includes a disposition of all or substantially all of the property
and assets of Rent-A-Center and its Subsidiaries. With respect to the
disposition of property or assets, the phrase "all or substantially all" as used
in the indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law and is
subject to judicial interpretation. Accordingly, in certain circumstances there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the property or
assets of a Person, and therefore it may be unclear as to whether a Change of
Control has occurred and whether Rent-A-Center is required to make an offer to
repurchase the notes as described above.
CERTAIN COVENANTS
The indenture contains covenants, including, among others, the following:
LIMITATION ON INDEBTEDNESS
(A) Rent-A-Center shall not, and shall not permit any Restricted Subsidiary
to, Incur any Indebtedness; provided, however, that Rent-A-Center and any
Restricted Subsidiary which is a Subsidiary Guarantor may Incur Indebtedness if,
on the date of the Incurrence of such Indebtedness, the Consolidated Coverage
Ratio would be greater than 2.50 to 1.00.
(B) Notwithstanding paragraph (A) above, Rent-A-Center and its Restricted
Subsidiaries may Incur the following types of Indebtedness:
- Indebtedness Incurred pursuant to the Senior Credit Facility, or any
refinancing thereof, in a principal amount not to exceed $962.25 million;
- the Subsidiary Guarantees and Guarantees of Indebtedness incurred
pursuant to paragraph (A) above, or, incurred pursuant to the Senior
Credit Facility, or any refinancing thereof, in a principal amount not to
exceed $962.25 million;
- Indebtedness of Rent-A-Center to any Restricted Subsidiary;
- Indebtedness of any Wholly Owned Subsidiary to Rent-A-Center or any
Restricted Subsidiary. However, any subsequent issuance or transfer of
any Capital Stock, or any other event resulting in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any other
subsequent transfer of such Indebtedness, except to Rent-A-Center or a
Wholly Owned Subsidiary, will be deemed an incurrence of Indebtedness by
Rent-A-Center or such Restricted Subsidiary, in the amount remaining
outstanding after such issuance or transfer of such securities;
- Indebtedness represented by the notes offered hereby and the existing
notes issued under the Existing Indenture;
- Any Indebtedness and related Refinancing Indebtedness, other than the
Indebtedness described in any of the situations above, outstanding on the
date of the indenture, and any Incurred in connection with any of the
Indebtedness described;
- Indebtedness of Rent-A-Center or any Restricted Subsidiary in the form of
Capitalized Lease Obligations, Purchase Money Obligations or Attributable
Debt, and any related
67
Refinancing Indebtedness, in an aggregate amount not to exceed 2.5% of
Consolidated Tangible Assets outstanding at any one time;
- Indebtedness under Hedging Obligations, as long as such Hedging
Obligations are entered into for bona fide hedging purposes of
Rent-A-Center or any Restricted Subsidiary and are either in the ordinary
course of business or are required by the Senior Credit Facility;
- Indebtedness evidenced by letters of credit issued in the ordinary course
of business of Rent-A-Center to secure workers' compensation and other
insurance coverage;
- Guarantees of Rent-A-Center for Indebtedness of franchisees not to exceed
$50 million outstanding at any one time; and
- Indebtedness, which may include Bank Indebtedness, in an aggregate
principal amount not to exceed $25 million outstanding at any one time.
(C) Neither Rent-A-Center nor any Restricted Subsidiary may Incur any
Indebtedness pursuant to paragraph (B) above that permits Refinancing
Indebtedness related to Indebtedness that constitutes Subordinated Obligations,
if the proceeds of such Refinancing Indebtedness are used to Refinance such
Subordinated Obligations. However, such Indebtedness is permitted if the
Refinancing Indebtedness will be subordinated to the notes at least to the same
extent as such Subordinated Obligations.
In addition, no Subsidiary Guarantor may incur any Indebtedness pursuant to
paragraph (B) above that permits Refinancing Indebtedness with respect to
Indebtedness constituting Guarantor Subordinated Obligations, if the proceeds of
such Refinancing Indebtedness are used to Refinance such Guarantor Subordinated
Obligations of such Subsidiary Guarantor. However, such Indebtedness is
permitted if the Refinancing Indebtedness will be subordinated to the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee to at
least the same extent as such Guarantor Subordinated Obligations.
(D) If Indebtedness meets the criteria of more than one of the types of
Indebtedness described in paragraph (B) above, then for purposes of determining
compliance with this covenant, including the outstanding principal amount of any
particular Indebtedness relating to this covenant:
- Rent-A-Center will have sole discretion to classify such item of
Indebtedness. Rent-A-Center is required only to include the amount and
type of such Indebtedness in one of such clauses; and
- the amount of Indebtedness issued at a price that is less than the
principal amount of such Indebtedness shall be equal to the amount of the
liability attributable to such Indebtedness determined in accordance with
GAAP.
(E) Rent-A-Center will not permit any Unrestricted Subsidiary to incur any
Indebtedness other than Non-Recourse Debt. However, if any such Indebtedness
ceases to be Non-Recourse Debt, then such event shall constitute an Incurrence
of Indebtedness by Rent-A-Center or a Restricted Subsidiary.
LIMITATION ON LAYERING
Rent-A-Center will not incur any Indebtedness that is expressly subordinate
in right of payment to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is subordinated in right of payment to
Senior Subordinated Indebtedness by contract.
In addition, no Subsidiary Guarantor will incur any Indebtedness that is
expressly subordinate in right of payment to any Guarantor Senior Indebtedness,
unless such Indebted-
68
ness is Guarantor Senior Subordinated Indebtedness of such Subsidiary Guarantor,
or is subordinated in right of payment to Guarantor Senior Subordinated
Indebtedness by contract.
Unsecured indebtedness is not considered subordinate to Secured
Indebtedness merely because it is unsecured, and Indebtedness that is not
guaranteed by a particular person is not deemed to be subordinate to
Indebtedness that is so guaranteed, merely because it is not guaranteed.
LIMITATION ON RESTRICTED PAYMENTS
(A) Rent-A-Center and its Restricted Subsidiaries are not permitted to take
the following actions:
- declare or pay any dividend or make any distribution on or with
respect to its Capital Stock, including payments in connection with
any merger or consolidation involving Rent-A-Center. However,
dividends or distributions are permitted if they are either payable
solely in Capital Stock, other than Disqualified Stock, or payable to
Rent-A-Center or any Restricted Subsidiary. If such Restricted
Subsidiary is not a Wholly Owned Subsidiary, then the distributions or
dividends may be payable to its other shareholders only if on a pro
rata basis, measured by value;
- purchase, redeem, retire or otherwise acquire for value any Capital
Stock of Rent-A-Center or any Restricted Subsidiary held by Persons
other than Rent-A-Center or another Restricted Subsidiary;
- purchase, repurchase, redeem, defease or otherwise acquire or retire
for value any Subordinated Obligation before scheduled maturity,
scheduled repayment or scheduled sinking fund payment, provided that
this restriction does not apply to a purchase, repurchase, redemption
or other acquisition made in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition; or
- make certain Restricted Payments, which are defined as any dividend,
distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment, other than a Permitted
Investment
if at the time Rent-A-Center or its Restricted Subsidiary makes a
Restricted Payment:
- a Default occurs and continues to occur or would result therefrom;
- Rent-A-Center could not incur at least $1.00 of additional
Indebtedness under paragraph (A) of the covenant described in
"Limitation of Indebtedness;" or
- the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made after the date of the Existing
Indenture would exceed the sum of:
- 50% of the Consolidated Net Income accrued during the period,
treated as one accounting period, from the end of the most
recent fiscal quarter ending before the date of the Existing
Indenture to the end of the most recent fiscal quarter ending
before the date of such Restricted Payment for which
consolidated financial statements of Rent-A-Center are
available, or, if such Consolidated Net Income is a deficit,
then minus 100% of such deficit;
- the aggregate Net Cash Proceeds received by Rent-A-Center from
issuing or selling its Capital Stock, other than Disqualified
Stock, after the date of the Existing Indenture. This does not
apply to an issuance or sale to a Restricted Subsidiary, as
long as such issuance or sale is to an employee stock ownership
plan or other trust established by Rent-A-Center or any of its
69
Subsidiaries for the benefit of their employees, to the extent
that the purchase by such plan or trust is financed by
Indebtedness of such plan or trust and for which Rent-A-Center
is liable as a guarantor or otherwise, such aggregate amount of
Net Cash Proceeds shall be limited to the aggregate amount of
principal payments made by such plan or trust with respect to
such Indebtedness; and
- in the case of the disposition or repayment of any Investment
constituting a Restricted Payment, without duplication of any
amount deducted in calculating the amount of Investments at any
time outstanding included in the amount of Restricted Payments,
an amount equal to the lesser of the return of capital of
similar repayment with respect to such Investment, or the
initial amount of such Investment, in either case, less the
cost of the disposition of such Investment.
(B) The provisions of paragraph (A) above will not prohibit the following
actions:
- any purchase, redemption, repurchase, defeasance, retirement or other
acquisition of Capital Stock of Rent-A-Center or Subordinated
Obligations made by exchange, including any such exchange pursuant to
the exercise of a conversion right or privilege in connection with
which cash is paid in lieu of the issuance of fractional shares, for,
or out of the proceeds of the substantially concurrent sale of,
Capital Stock of Rent-A-Center, other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary or an employee
stock ownership plan or other trust established by Rent-A-Center or
any of its Subsidiaries, provided that:
- such purchase, redemption, repurchase, defeasance, retirement
or other acquisition will be excluded in subsequent
calculations of the amount of Restricted Payments; and
- the Net Cash Proceeds or reduction of Indebtedness from such
sale will be excluded in calculations under paragraph (A)
above;
- any purchase, redemption, repurchase, defeasance, retirement or other
acquisition of Subordinated Obligations made by exchange for, or out
of the proceeds of the substantially concurrent sale of, Subordinated
Obligations of Rent-A-Center that is permitted to be Incurred by the
covenant described under "Limitation on Indebtedness." However, such
purchase, redemption, repurchase, defeasance, retirement or other
acquisition shall be excluded in subsequent calculations of the amount
of Restricted Payments;
- any purchase, redemption, repurchase, defeasance, retirement or other
acquisition of Subordinated Obligations from Net Available Cash to the
extent permitted by the covenant described under "Limitation on Sales
of Assets." However, such purchase, redemption, repurchase,
defeasance, retirement or other acquisition shall be excluded in
subsequent calculations of the amount of Restricted Payments;
- payment of dividends within 60 days after the date of declaration of
such dividends, if at the date of declaration such dividend would have
complied with paragraph (A) above. However, such dividend shall be
included in subsequent calculations of the amount of Restricted
Payments;
- any purchase or redemption of any share of Capital Stock of
Rent-A-Center from employees of Rent-A-Center and its Subsidiaries
pursuant to the repurchase provisions under employee stock option or
stock purchase agreements or other agreements to compensate management
in an aggregate amount after the date of the Existing Indenture not in
excess of $2.5 million in any fiscal year, plus any
70
unused amounts under this clause from prior fiscal years. However,
such purchases or redemptions will be excluded in subsequent
calculations of the amount of Restricted Payments; or
- any repurchase of Rent-A-Center common stock in an aggregate amount
not to exceed the amount by which the proceeds from the issuance of
the Convertible Preferred Stock exceeds $235 million. However, the
aggregate amount of repurchases made pursuant to this clause shall not
exceed $25 million from the date of the Existing Indenture.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES
The Board of Directors of Rent-A-Center may designate any Restricted
Subsidiary as an Unrestricted Subsidiary if such designation would not cause a
default. For purposes of making such determination, all outstanding Investments
by Rent-A-Center and its Restricted Subsidiaries, except to the extent repaid in
cash, in the Subsidiary so designated will be deemed Restricted Payments at the
time of such designation, and will reduce the amount available for Restricted
Payments under clause three of paragraph (A) of the covenant described in
"Limitation on Restricted Payments."
All such outstanding Investments will be deemed to constitute Investments
in an amount equal to the greater of the fair market value or the book value of
such Subsidiary at the time of such designation. Such Designation will be
permitted only if such Restricted Payment would be permitted at such time, and
if such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
Neither Rent-A-Center nor any Restricted Subsidiary will create or
otherwise cause or permit to exist any consensual restriction on the ability of
any Restricted Subsidiary to take the following actions:
- pay dividends or make any other distributions on its Capital Stock or pay
any Indebtedness or other obligations owed to Rent-A-Center;
- make any loans or advances to Rent-A-Center; or
- transfer any of its property or assets to Rent-A-Center.
However, this prohibition does not apply to:
- any restriction pursuant to an agreement in effect or entered into on the
date of the Existing Indenture, including, without limitation, the Senior
Credit Facility;
- any restriction with respect to a Restricted Subsidiary that is either:
- pursuant to an agreement relating to any Indebtedness Incurred by a
Restricted Subsidiary before the date on which such Restricted
Subsidiary was acquired by Rent-A-Center, or of another Person that is
assumed by Rent-A-Center or a Restricted Subsidiary in connection with
the acquisition of assets from, or merger or consolidation with, such
Person and is outstanding on the date of such acquisition, merger or
consolidation. However, this does not include Indebtedness Incurred
either as consideration in, or for the provision of any portion of the
funds or credit support used to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by Rent-A-Center, or such
acquisition of assets, merger or consolidation; or
- pursuant to any agreement, not relating to any Indebtedness, existing
when a Person becomes a Subsidiary of Rent-A-Center or when such
agreement is acquired by
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Rent-A-Center or any Subsidiary thereof, that is not created in
contemplation of such Person becoming such a Subsidiary or such
acquisition. For purposes of this clause, if another Person is the
Successor Company, any Subsidiary or agreement thereof shall be deemed
acquired or assumed by Rent-A-Center when such Person becomes the
Successor Company.
- any restriction with respect to a Restricted Subsidiary pursuant to an
agreement (a "Refinancing Agreement") effecting a refinancing of
Indebtedness Incurred pursuant to, or that otherwise extends, renews,
refinances or replaces, an agreement referred to in this covenant (an
"Initial Agreement") or contained in any amendment to an Initial
Agreement. However, the restrictions contained in any such Refinancing
Agreement or amendment cannot be less favorable to the Holders of the
notes taken as a whole than restrictions contained in the Initial
Agreement or Agreements to which such Refinancing Agreement or amendment
relates;
- any restriction that is a customary restriction on subletting, assignment
or transfer of any property or asset that is subject to a lease, license
or similar contract, or the assignment or transfer of any lease, license
or other contract;
- any restriction by virtue of a transfer, agreement to transfer, option,
right, or Lien with respect to any property or assets of Rent-A-Center or
any Restricted Subsidiary not otherwise prohibited by the indenture;
- any restriction contained in mortgages, pledges or other agreements
securing Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restrictions restrict the transfer of the property subject
to such mortgages, pledges or other security agreements;
- any restriction pursuant to customary restrictions on dispositions of
real property interests set forth in any reciprocal easement agreements
of Rent-A-Center or any Restricted Subsidiary;
- any restriction with respect to a Restricted Subsidiary, or any of its
property or assets, imposed pursuant to an agreement for the sale or
disposition of all or substantially all of the Capital Stock or assets of
such Restricted Subsidiary, or the property or assets that are subject to
such restriction, pending the closing of such sale or disposition; or
- any restriction on the transfer of property or assets required by any
regulatory authority having jurisdiction over Rent-A-Center or any
Restricted Subsidiary or any of their businesses.
LIMITATION ON SALES OF ASSETS
Neither Rent-A-Center nor any Restricted Subsidiary will make any Asset
Disposition unless:
- Rent-A-Center or such Restricted Subsidiary receives consideration,
including relief from, or the assumption of another Person for, any
liabilities, contingent or otherwise, at the time of such Asset
Disposition at least equal to the fair market value of the shares and
assets subject to such Asset Disposition. The Board of Directors shall
determine the fair market value, and their determination shall be
conclusive, including as to the value of all non-cash consideration;
- at least 75% of the consideration for any Asset Disposition received by
Rent-A-Center or such Restricted Subsidiary is in the form of cash.
However, in the case of an Asset Disposition of assets, consideration is
excluded if it is by way of relief from, or by any other person assuming
responsibility for, any liabilities, contingent or otherwise, which are
not Indebtedness;
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- Rent-A-Center or such Restricted Subsidiary applies an amount equal to
100% of the Net Available Cash from such Asset Disposition in the
following manner:
- first, to the extent Rent-A-Center elects, or is required by the terms
of any Senior Indebtedness or Indebtedness, other than Preferred Stock,
of a Restricted Subsidiary, to prepay, repay or purchase senior
indebtedness or such Indebtedness of a Restricted Subsidiary, in each
case other than the Indebtedness owed to Rent-A-Center or a Restricted
Subsidiary, within 365 days after the date of such Asset Disposition;
- second, to the extent of the balance of Net Available Cash, to the
extent Rent-A-Center or such Restricted Subsidiary elects, to reinvest
in Additional Assets, including by means of an Investment in Additional
Assets by a Restricted Subsidiary with Net Available Cash received by
Rent-A-Center or another Restricted Subsidiary, within 365 days from the
date of such Asset Disposition or, if such reinvestment in Additional
Assets is a project authorized by the Board of Directors that will take
longer than 365 days to complete, the period of time necessary to
complete such project;
- third, to the extent of the balance of such Net Available Cash remaining
(the "Excess Proceeds"), to make an offer to purchase notes at a price
in cash equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the purchase date, and, to the extent
required by the terms thereof, any other Senior Subordinated
Indebtedness subject to the agreements governing such other Indebtedness
at a purchase price of 100% of the principal amount thereof plus accrued
and unpaid interest to the purchase date; and
- fourth, to the extent of the balance of such Excess Proceeds, to fund
any general corporate purpose, including the repayment of Subordinated
Obligations. However, in connection with any prepayments, repayment or
purchase of Indebtedness pursuant to the first and third clauses above,
Rent-A-Center or such Restricted Subsidiary will retire such
Indebtedness and will cause the related loan commitment, if any, to be
permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased.
The provisions of this covenant do not require Rent-A-Center and the
Restricted Subsidiaries to apply any Net Available Cash in accordance with this
covenant, except to the extent that the aggregate Net Available Cash from all
Asset Dispositions that is not applied in accordance with this covenant exceeds
$10.0 million.
To the extent that the aggregate principal amount of the notes and other
Senior Subordinated Indebtedness tendered pursuant to an offer to purchase made
in accordance with the third clause above exceeds the amount of Excess Proceeds,
the Trustee will select the notes and Senior Subordinated Indebtedness to be
purchased on a pro rata basis, based on the aggregate principal amount thereof
surrendered in such offer to purchase. When such offer to purchase is complete,
the amount of Excess Proceeds shall be reset to zero.
For the purposes of this covenant, the following are deemed to be cash:
- Cash Equivalents;
- the assumption of Indebtedness of Rent-A-Center, other than Disqualified
Stock of Rent-A-Center, or any Restricted Subsidiary and the release of
Rent-A-Center or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition;
- Indebtedness of any Restricted Subsidiary that is no longer a Restricted
Subsidiary as a result of such Asset Disposition, to the extent that
Rent-A-Center and each other Restricted Subsidiary is released from any
Guarantee, or is the beneficiary of any
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indemnity with respect to such Indebtedness which is secured by any
letter of credit or cash equivalents, of such Indebtedness in connection
with such Asset Disposition;
- securities received by Rent-A-Center or any Restricted Subsidiary from
the transferee that are promptly converted by Rent-A-Center or such
Restricted Subsidiary into cash; and
- consideration consisting of Indebtedness of Rent-A-Center or any
Restricted Subsidiary.
Rent-A-Center will comply with any applicable requirements of Section 14(e)
of the Exchange Act and any other securities laws or regulations in connection
with the repurchase of notes pursuant to this covenant. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this covenant, Rent-A-Center will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
covenant as a result of such compliance.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
Neither Rent-A-Center nor any of its Restricted Subsidiaries will engage in
any transaction or series of transactions, including the purchase, sale, lease
or exchange of any property or the rendering of any service with any Affiliate
of Rent-A-Center (an "Affiliate Transaction") on terms that:
- taken as a whole are less favorable to Rent-A-Center or such Restricted
Subsidiary than the terms that could be obtained at the time of such
transaction in arm's-length dealings with a non-affiliate; and,
- in the event such Affiliate Transaction involves an aggregate amount in
excess of $10.0 million, is not in writing and has not been approved by a
majority of the members of the Board of Directors having no material
personal financial interest in such Affiliate Transaction. If there are
no such Board members, then Rent-A-Center must obtain a Fairness Opinion.
A Fairness Opinion means an opinion from an independent investment
banking firm or appraiser of national prominence which indicates that the
terms of such transaction are fair to Rent-A-Center or such Restricted
Subsidiary from a financial point of view.
In addition, any transaction involving aggregate payments or other
transfers by Rent-A-Center and its Restricted Subsidiaries in excess of $20.0
million will also require a Fairness Opinion.
The provisions of the paragraph above shall not prohibit the following
actions:
- any Restricted Payment permitted by the covenant described under
"Limitation on Restricted Payments" or any Permitted Investment;
- the performance of the obligations of Rent-A-Center or a Restricted
Subsidiary under any employment contract, collective bargaining
agreement, service agreement, employee benefit plan, related trust
agreement or any other similar arrangement entered into in the ordinary
course of business;
- payment of compensation, performance of indemnification or contribution
obligations;
- any issuance, grant or award of stock, options or other securities, to
employees, officers or directors in the ordinary course of business;
- any transaction between Rent-A-Center and a Restricted Subsidiary or
between Restricted Subsidiaries;
- the Transactions and the incurrence and payment of all fees and expenses
payable in connection therewith as described in or contemplated by the
offering memorandum relating to the 1998 notes;
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- any other transaction arising out of agreements existing on the date of
the Existing Indenture; and
- transactions with suppliers or other purchasers or sellers of goods or
services, in each case in the ordinary course of business and on terms no
less favorable to Rent-A-Center or the Restricted Subsidiary than those
that could be obtained at such time in arm's-length dealings with a
non-affiliate.
LIMITATION ON THE SALE OR ISSUANCE OF PREFERRED STOCK OF RESTRICTED
SUBSIDIARIES
Rent-A-Center will not sell any shares of Preferred Stock of a Restricted
Subsidiary, and will not permit any Restricted Subsidiary to issue or sell any
shares of its Preferred Stock to any Person, other than to Rent-A-Center or a
Restricted Subsidiary.
LIMITATION ON LIENS
Neither Rent-A-Center nor any Restricted Subsidiary will create or permit
to exist any Lien, other than Permitted Liens, on any of its property or assets,
including Capital Stock, whether owned on the date of the Existing Indenture or
thereafter acquired, securing any Indebtedness that is not Senior Indebtedness
(the "Initial Lien"), unless at the same time effective provision is made to
secure the obligations due under the indenture and the notes or, with respect to
Liens on any Restricted Subsidiary's property or assets, equally and ratably
with such obligation for so long as such obligation is secured by such Initial
Lien.
Any such Lien created in favor of the notes will be automatically and
unconditionally released and discharged upon:
- the release and discharge of the Initial Lien to which it relates; or
- any sale, exchange or transfer to a non-affiliate of Rent-A-Center of the
property or assets secured by such Initial Lien, or of all of the Capital
Stock held by Rent-A-Center or any Restricted Subsidiary, or all or
substantially all of the assets of any Restricted Subsidiary creating
such Lien.
REPORTING REQUIREMENTS
As long as any of the notes are outstanding, Rent-A-Center will file with
the SEC, unless the SEC will not accept such a filing, the annual reports,
quarterly reports and other documents required to be filed with the SEC pursuant
to Sections 13 and 15 of the Exchange Act, whether or not Rent-A-Center is then
obligated to file reports pursuant to such sections. Rent-A-Center will be
required to file with the Trustee and provide to each holder of notes copies of
such reports and documents within 15 days after filing with the SEC, or if any
such filing is not permitted under the Exchange Act, 15 days after Rent-A-Center
would have been required to make such filing.
FUTURE SUBSIDIARY GUARANTORS
After the date of the Existing Indenture, Rent-A-Center will cause each
Restricted Subsidiary created or acquired by Rent-A-Center to execute and
deliver to the Trustee a Subsidiary Guarantee. Pursuant to such Subsidiary
Guarantee, such Restricted Subsidiary will unconditionally Guarantee, on a joint
and several basis, the full and prompt payment of the principal, premium, if
any, and interest on the notes on a senior unsecured basis.
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LIMITATION ON SALE/LEASEBACK TRANSACTIONS
Neither Rent-A-Center nor any Restricted Subsidiary will enter into any
Sale/Leaseback Transaction for any property unless:
- Rent-A-Center or such Restricted Subsidiary would be entitled to Incur
Indebtedness in an amount equal to the Attributable Debt with respect to
such Sale/Leaseback Transaction pursuant to the covenant described under
"Limitation on Indebtedness;"
- the net proceeds received by Rent-A-Center or any Restricted Subsidiary
in connection with such Sale/Leaseback Transaction are at least equal to
the fair value, as determined by the Board of Directors, of such
property; and
- the transfer of such property is permitted by the covenant described
under "Limitation on Sales of Assets," and Rent-A-Center or such
Restricted Subsidiary applies the proceeds of such transaction in
compliance with the covenant described under "Limitation on Sales of
Assets."
MERGER AND CONSOLIDATION
Rent-A-Center will not, in a single transaction or a series of related
transactions, consolidate with or merge with or into, or convey, transfer or
lease all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") will be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia;
(2) the Successor Company, if not Rent-A-Center, will expressly
assume, by an indenture supplemental to the indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of Rent-A-Center under the notes and the indenture;
(3) immediately after giving effect to such transaction or series of
transactions no Default or Event of Default exists;
(4) Rent-A-Center or the Successor Company, if Rent-A-Center is not
the continuing obligor under the indenture, will, at the time of such
transaction or series of transactions and after giving pro forma effect
thereto as if such transaction or series of transactions had occurred at
the beginning of the applicable four-quarter period, be permitted to Incur
at least an additional $1.00 of Indebtedness pursuant to paragraph (A) of
"-- Limitation on Indebtedness;" and
(5) Rent-A-Center will have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each to the effect that such
consolidation, merger or transfer and such supplemental indenture, if any,
comply with the indenture, provided that:
(a) in giving such opinion such counsel may rely on such Officer's
Certificate as to any matters of fact, including without limitation as
to compliance with the foregoing clauses; and
(b) no Opinion of Counsel will be required for a consolidation,
merger or transfer described in the previous paragraph of this covenant.
The Successor Company will be substituted for, and may exercise every right
and power of, Rent-A-Center under the indenture. Thereafter Rent-A-Center will
be relieved of all obligations and covenants under the indenture, except that,
in the case of a conveyance, transfer or lease of all or substantially all its
assets, Rent-A-Center will not be released from the obligation to pay the
principal of and interest on the notes.
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The provisions of this covenant do not prohibit any Restricted Subsidiary
from consolidating with, merging into or transferring all or part of its
properties and assets to Rent-A-Center. Additionally, Rent-A-Center may merge
with an Affiliate incorporated or organized for the purpose of reincorporating
or reorganizing Rent-A-Center in another jurisdiction to realize tax or other
benefits.
DEFAULTS
An Event of Default under the indenture is defined as:
(1) a default in any payment of interest on any note when due, whether
or not such payment is prohibited by the provisions described under
"-- Ranking" above, continued for 30 days;
(2) a default in the payment of principal of any note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by the
provisions described under "-- Ranking" above;
(3) the failure by Rent-A-Center to comply with its obligations under
the covenant described under "-- Merger and Consolidation" above;
(4) the failure by Rent-A-Center to comply for 30 days after written
notice with any of its obligations under the covenants described under
"-- Change of Control" or "-- Certain Covenants" above, in each case, other
than a failure to purchase notes;
(5) the failure by Rent-A-Center to comply for 60 days after notice
with its other agreements contained in the notes or the indenture;
(6) the failure by Rent-A-Center or any Significant Subsidiary to pay
any Indebtedness within any applicable grace period after final maturity or
the acceleration of any such Indebtedness by the holders thereof because of
a default if the total amount of such Indebtedness unpaid or accelerated
exceeds $25 million (the "Cross Acceleration Provision");
(7) events of bankruptcy, insolvency or reorganization of
Rent-A-Center or a Significant Subsidiary (the "Bankruptcy Provisions");
(8) the rendering of any judgment or decree for the payment of money
in an amount, net of any insurance or indemnity payments actually received
in respect thereof prior to or within 90 days from the entry thereof, or to
be received in respect thereof in the event any appeal thereof shall be
unsuccessful, in excess of $25 million against Rent-A-Center or a
Significant Subsidiary that is not discharged, bonded or insured by a third
Person if either an enforcement proceeding thereon is commenced, or such
judgment or decree remains outstanding for a period of 90 days and is not
discharged, waived or stayed (the "Judgment Default Provision"); or
(9) the failure of any Guarantee of the notes by a Subsidiary
Guarantor to be in full force, except as contemplated by the terms thereof
or of the indenture, or the denial in writing by any such Subsidiary
Guarantor of its obligations under the indenture or any such Guarantee if
such Default continues for 10 days.
The events listed above will constitute Events of Default regardless of
their reasons, whether voluntary or involuntary or whether effected by operation
of law or pursuant to any judgment, decree order, rule or regulation of any
administrative or governmental body.
However, a Default by Rent-A-Center under the covenants described under
"Change of Control" or "Certain Covenants," or a failure by Rent-A-Center to
comply with agreements in the notes or the indenture will not constitute an
Event of Default until the applicable Trustee
77
or the Holders of at least 25% of the aggregate principal amount of the
outstanding applicable notes notify Rent-A-Center of the Default and
Rent-A-Center does not cure such Default within the time specified after receipt
of such notice.
If an Event of Default, other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of Rent-A-Center, occurs and is
continuing, either the Trustee, by notice to Rent-A-Center, or the Holders of at
least a majority in principal amount of the outstanding notes, by notice to
Rent-A-Center and the Trustee, may declare the principal of and accrued but
unpaid interest on all of such notes to be due and payable.
Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to events of bankruptcy,
insolvency or reorganization of Rent-A-Center occurs and is continuing, the
principal of and interest on all the notes will become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. Under certain circumstances, the Holders of a majority in principal
amount of the outstanding notes may rescind any such acceleration with respect
to the notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the Holders, unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due, no Holder may pursue any
remedy with respect to the indenture or the notes unless:
- such Holder has previously given the Trustee notice that an Event of
Default is continuing;
- Holders of at least 25% in principal amount of the outstanding notes have
requested the Trustee to pursue the remedy;
- such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
- the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity; and
- the Holders of a majority in principal amount of the applicable notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the notes outstanding are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that:
- conflicts with law or the indenture;
- the Trustee determines is unduly prejudicial to the rights of any other
Holder; or
- would involve the Trustee in personal liability.
Before taking any action under the indenture, the Trustee will be entitled
to indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
The indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium, if any, or interest on any note, the Trustee may
withhold notice if and so long as a committee of its Trust
78
Officers in good faith determines that withholding notice is in the interests of
the Noteholders. In addition, Rent-A-Center is required to deliver to the
Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. Rent-A-Center also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action Rent-A-Center is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with the
consent of the Holders of a majority in principal amount of the notes then
outstanding. Additionally, any past default on any provisions may be waived with
the consent of the Holders of a majority in principal amount of the notes then
outstanding. However, without the consent of each Holder, no amendment may,
among other things:
- reduce the principal amount of notes whose Holders must consent to an
amendment;
- reduce the rate of or extend the time for payment of interest on any
note;
- reduce the principal amount of or extend the Stated Maturity of any note;
- reduce the premium payable upon the redemption or repurchase of any note
or change the time at which any note may be redeemed as described under
"-- Optional Redemption" above;
- make any note payable in money other than that stated in the note;
- make any change to the subordination provisions of the indenture that
adversely affects the rights of any Holder;
- impair the right of any Holder to receive payment of principal of and
interest on such Holder's notes on or after the due dates therefor or to
sue for the enforcement of any payment on or with respect to such
Holder's notes; or
- make any change in the amendment provisions which require each Holder's
consent or in the waiver provisions.
Without the consent of any Holder, Rent-A-Center, the Subsidiary Guarantors
and the Trustee may amend the indenture in the following manner:
- to cure any ambiguity, omission, defect or inconsistency;
- to provide for the assumption by a successor corporation of the
obligations of Rent-A-Center under the indenture;
- to provide for uncertificated notes in addition to or in place of
certificated notes, provided, however, that the uncertificated notes are
issued in registered form for purposes of Section 163(f) of the Code, or
in a manner such that the uncertificated notes are described in Section
163(f)(2)(B) of the Code;
- to add Guarantees with respect to the notes, to secure the notes, to add
to the covenants of Rent-A-Center for the benefit of the noteholders or
to surrender any right or power conferred upon Rent-A-Center; and
- to make any change that does not adversely affect the rights of any
Holder; or
- to comply with any requirement of the SEC in connection with the
qualification of the indenture under the TIA.
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However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding unless the holders of such Senior Indebtedness, or any group or
representative thereof authorized to give a consent, consent to such change.
The consent of the noteholders is not necessary under the indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. After an amendment
under the indenture becomes effective, Rent-A-Center is required to mail to the
applicable noteholders a notice briefly describing such amendment. However, the
failure to give such notice to all such noteholders, or any defect in such
notice, will not impair or affect the validity of the amendment.
DEFEASANCE
Rent-A-Center at any time may terminate all its obligations under the notes
and the indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the notes, to replace mutilated, destroyed, lost or
stolen notes and to maintain a registrar and paying agent in respect of the
notes. Rent-A-Center at any time may terminate its obligations under the
covenants described under "-- Certain Covenants," the operation of the Cross
Acceleration Provision, the Bankruptcy Provisions with respect to Subsidiaries
and the Judgment Default Provision described under "-- Defaults" above and the
limitations contained in the third and fourth clauses under "-- Merger and
Consolidation" above ("covenant defeasance").
Rent-A-Center may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If Rent-A-Center exercises its
legal defeasance option, payment of the notes may not be accelerated because of
an Event of Default. If Rent-A-Center exercises its covenant defeasance option,
payment of the notes may not be accelerated because of an Event of Default
specified in clauses four, six, seven, but only with respect to certain
bankruptcy events of a Significant Subsidiary, eight or nine under "-- Defaults"
above or because of the failure of Rent-A-Center to comply with clause three or
four under "-- Merger and Consolidation" above.
Either defeasance option may be exercised before any redemption date or the
maturity date for the notes. In order to exercise either defeasance option,
Rent-A-Center must irrevocably deposit in trust (the "defeasance trust") with
the Trustee money or U.S. Government Obligations, or a combination thereof, for
the payment of principal of, and premium, if any, and interest on, the
applicable notes to redemption or maturity, as the case may be. Additionally,
Rent-A-Center must comply with other conditions, including delivery to the
Trustee of an Opinion of Counsel to the effect that Holders of the notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and defeasance and will be subject to federal income tax in the
same amount and in the same manner and times as would have been the case if such
deposit and defeasance had not occurred. In the case of legal defeasance only,
such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law since the date of
the indenture.
CONCERNING THE TRUSTEE
The Bank of New York will serve as the Trustee for the notes. The Trustee
has been appointed by Rent-A-Center as Registrar and Paying Agent with regard to
the notes.
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GOVERNING LAW
Both the indenture and the notes will be governed by, and construed in
accordance with, the laws of the State of New York. Principles of conflicts of
law will not apply to the extent that such principles would require the
application of the law of another jurisdiction.
CERTAIN DEFINITIONS
"Additional Assets" means
(1) any property or assets (other than Indebtedness and Capital Stock)
to be used by Rent-A-Center or a Restricted Subsidiary in a Related
Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by Rent-A-Center or
another Restricted Subsidiary;
(3) Capital Stock of any Person that at such time is a Restricted
Subsidiary, acquired from a third party; provided, however, that, in the
case of clauses (2) and (3), such Restricted Subsidiary is primarily
engaged in a Related Business; or
(4) Capital Stock or Indebtedness of any Person which is primarily
engaged in a Related Business; provided, however, for purposes of the
covenant described under "-- Certain Covenants -- Limitation on Sales of
Assets," the aggregate amount of Net Available Cash permitted to be
invested pursuant to this clause (4) shall not exceed at any one time
outstanding 5% of Consolidated Tangible Assets.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
JPMorgan Chase Bank and its Affiliates shall not be deemed an Affiliate of
Rent-A-Center.
"Apollo" means Apollo Management IV, L.P. and its Affiliates or any entity
controlled thereby or any of the partners thereof.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary, other than directors'
qualifying shares, property or other assets, each referred to for the purposes
of this definition as a "disposition," by Rent-A-Center or any of its Restricted
Subsidiaries, including any disposition by means of a merger, consolidation or
similar transaction, other than:
(1) a disposition by a Restricted Subsidiary to Rent-A-Center or by
Rent-A-Center or a Restricted Subsidiary to a Restricted Subsidiary;
(2) a disposition of inventory, equipment, obsolete assets or surplus
personal property in the ordinary course of business;
(3) the sale of Temporary Cash Investments or Cash Equivalents in the
ordinary course of business;
(4) a transaction or a series of related transactions in which either
(a) the fair market value of the assets disposed of, in the
aggregate, does not exceed 2.5% of the Consolidated Tangible Assets of
Rent-A-Center; or
(b) the EBITDA related to such assets does not, in the aggregate,
exceed 2.5% of Rent-A-Center's EBITDA;
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(5) the sale or discount, with or without recourse, and on
commercially reasonable terms, of accounts receivable or notes receivable
arising in the ordinary course of business, or the conversion or exchange
of accounts receivable for notes receivable;
(6) the licensing of intellectual property in the ordinary course of
business;
(7) an RTO Facility Swap;
(8) for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets" only, a disposition subject to
the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments;" or
(9) a disposition of property or assets that is governed by the
provisions described under "-- Merger and Consolidation."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value, discounted at the interest rate
assumed in making calculations in accordance with FAS 13, of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction, including any period for
which such lease has been extended.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or redemption or similar payment with respect to such
Indebtedness or Preferred Stock multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on the
date of the Existing Indenture or thereafter Incurred, payable under or in
respect of the Senior Credit Facility, including, without limitation, principal,
premium, if any, interest, including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to Rent-A-Center or
any Restricted Subsidiary whether or not a claim for postfiling interest is
allowed in such proceedings, fees, charges, expenses, reimbursement obligations,
guarantees, other monetary obligations of any nature and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of Rent-A-Center or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions are authorized or required by law to close
in New York City.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in, however designated, equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
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"Cash Equivalents" means any of the following:
(1) securities issued or fully guaranteed or insured by the United
States Government or any agency or instrumentality thereof,
(2) time deposits, certificates of deposit or bankers' acceptances of
(a) any lender under the Senior Credit Agreement or
(b) any commercial bank having capital and surplus in excess of
$500,000,000 and the commercial paper of the holding company of which is
rated at least "A-2" or the equivalent thereof by S&P or at least "P-2"
or the equivalent thereof by Moody's, or if at such time neither is
issuing ratings, then a comparable rating of another nationally
recognized rating agency,
(3) commercial paper rated at least "A1" or the equivalent thereof by
S&P or at least "P-1" or the equivalent thereof by Moody's, or if at such
time neither is issuing ratings, then a comparable rating of another
nationally recognized rating agency,
(4) investments in money market funds complying with the risk limiting
conditions of Rule 2a-7 or any successor rule of the SEC under the
Investment Company Act,
(5) repurchase obligations of any commercial bank satisfying the
requirements of clause (2) of this definition, having a term of not more
than 30 days, with respect to securities issued or fully guaranteed or
insured by the United States government,
(6) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory,
political subdivision, taxing authority or foreign government, as the case
may be, are rated at least "A" by S&P or "A" by Moody's, and
(7) securities with maturities of six months or less from the date of
acquisition backed by standby letters of credit issued by any commercial
bank satisfying the requirements of clause (2) of this definition.
"Central Acquisition" means Rent-A-Center's acquisition of substantially
all of the assets of Central Rents, Inc.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of
(1) the aggregate amount of EBITDA of Rent-A-Center and its Restricted
Subsidiaries for the period of the most recent four consecutive fiscal
quarters ending prior to the date of such determination for which
consolidated financial statements of Rent-A-Center are available to
(2) Consolidated Interest Expense for such four fiscal quarters, in
each of clauses (1) and (2), determined, for each fiscal quarter, or
portion thereof, of the four fiscal quarters ending prior to the date of
the Existing Indenture, on a pro forma basis to give effect to the Central
Acquisition and the Transactions, including the anticipated disposition of
any non-rent-to-own businesses under contract for sale or held for sale
following the date of the Existing Indenture, as if they had occurred at
the beginning of such four-quarter period; provided, however, that:
(a) if Rent-A-Center or any Restricted Subsidiary
- has Incurred any Indebtedness since the beginning of such
period that remains outstanding on such date of determination
or if the transaction
83
giving rise to the need to calculate the Consolidated Coverage
Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated
Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such
period, except that in making such computation, the amount of
Indebtedness under any revolving credit facility outstanding on
the date of such calculation shall be computed based on
- the average daily balance of such Indebtedness during such
four fiscal quarters or such shorter period for which such
facility was outstanding or
- if such facility was created after the end of such four
fiscal quarters, the average daily balance of such
Indebtedness during the period from the date of creation of
such facility to the date of such calculation, and the
discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the
first day of such period, or
- has repaid, repurchased, defeased or otherwise discharged any
Indebtedness since the beginning of the period that is no
longer outstanding on such date of determination, or if the
transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a discharge of
Indebtedness, in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness
has been permanently repaid, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect
on a pro forma basis to such discharge of such Indebtedness,
including with the proceeds of such new Indebtedness, as if
such discharge had occurred on the first day of such period;
(b) if since the beginning of such period Rent-A-Center or any
Restricted Subsidiary shall have made any Asset Disposition of any
company or any business or any group of assets, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA, if positive,
directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to the
EBITDA, if negative, directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable
to any Indebtedness of Rent-A-Center or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to
Rent-A-Center and its continuing Restricted Subsidiaries in connection
with such Asset Disposition for such period, and, if the Capital Stock
of any Restricted Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent Rent-A-Center and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
such sale;
(c) if since the beginning of such period Rent-A-Center or any
Restricted Subsidiary, by merger or otherwise, shall have made an
Investment in any Person that thereby becomes a Restricted Subsidiary,
or otherwise acquired any company or any business or any group of
assets, including any such acquisition of assets occurring in connection
with a transaction causing a calculation to be made hereunder, EBITDA
and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto, including the Incurrence of any
Indebtedness and including the pro forma expenses and cost reductions
calculated on a basis consistent with
84
Regulation S-X of the Securities Act, as if such Investment or
acquisition occurred on the first day of such period; and
(d) if since the beginning of such period any Person, that
subsequently became a Restricted Subsidiary or was merged with or into
Rent-A-Center or any Restricted Subsidiary since the beginning of such
period, shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (b) or (c) above if made by Rent-A-Center or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition of
assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an Asset Disposition, Investment or acquisition of assets, or any transaction
governed by the provisions described under "-- Merger and Consolidation," or the
amount of income or earnings relating thereto and the amount of Consolidated
Interest Expense associated with any Indebtedness Incurred or repaid,
repurchased, defeased or otherwise discharged in connection therewith, the pro
forma calculations in respect thereof shall be as determined in good faith by a
responsible financial or accounting officer of Rent-A-Center, based on
reasonable assumptions. If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest expense on such Indebtedness
shall be calculated at a fixed rate as if the rate in effect on the date of
determination had been the applicable rate for the entire period, taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term as at the date of determination in
excess of 12 months. If any Indebtedness bears, at the option of Rent-A-Center
or a Restricted Subsidiary, a fixed or floating rate of interest and is being
given pro forma effect, the interest expense on such Indebtedness shall be
computed by applying, at the option of Rent-A-Center or such Restricted
Subsidiary, either a fixed or floating rate. If any Indebtedness which is being
given pro forma effect was Incurred under a revolving credit facility, the
interest expense on such Indebtedness shall be computed based upon the average
daily balance of such Indebtedness during the applicable period.
"Consolidated Interest Expense" means, as to any Person, for any period,
the total consolidated interest expense of such Person and its Subsidiaries
determined in accordance with GAAP, minus, to the extent included in such
interest expense, amortization or write-off of financing costs plus, to the
extent incurred by such Person and its Subsidiaries in such period but not
included in such interest expense, without duplication,
(1) interest expense attributable to Capitalized Lease Obligations and
the interest component of rent expense associated with Attributable Debt in
respect of the relevant lease giving rise thereto, determined as if such
lease were a capitalized lease, in accordance with GAAP,
(2) amortization of debt discount,
(3) interest in respect of Indebtedness of any other Person that has
been Guaranteed by such Person or any Subsidiary, but only to the extent
that such interest is actually paid by such Person or any Restricted
Subsidiary,
(4) non-cash interest expense,
(5) net costs associated with Hedging Obligations,
(6) the product of
(a) mandatory Preferred Stock cash dividends in respect of all
Preferred Stock of Subsidiaries of such Person and Disqualified Stock of
such Person held by Persons other than such Person or a Subsidiary
multiplied by
85
(b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case,
determined on a consolidated basis in accordance with GAAP, and
(7) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest to any Person, other than the referent Person or any
Subsidiary thereof, in connection with Indebtedness Incurred by such plan
or trust; provided, however, that as to Rent-A-Center, there shall be
excluded therefrom any such interest expense of any Unrestricted Subsidiary
to the extent the related Indebtedness is not Guaranteed or paid by
Rent-A-Center or any Restricted Subsidiary.
For purposes of the foregoing, gross interest expense shall be determined
after giving effect to any net payments made or received by such Person and its
Subsidiaries with respect to Interest Rate Agreements.
"Consolidated Net Income" means, as to any Person, for any period, the
consolidated net income (loss) of such Person and its Subsidiaries before
preferred stock dividends, determined in accordance with GAAP; provided,
however, that there shall not be included in such Consolidated Net Income:
(1) any net income (loss) of any Person if such Person is not (as to
Rent-A-Center) a Restricted Subsidiary and, as to any other Person, an
unconsolidated Person, except that
(a) subject to the limitations contained in clause (4) below, the
referent Person's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such
period to the referent Person or a Subsidiary as a dividend or other
distribution, subject, in the case of a dividend or other distribution
to a Subsidiary, to the limitations contained in clause (3) below, and
(b) the net loss of such Person shall be included to the extent of
the aggregate Investment of the referent Person or any of its
Subsidiaries in such Person;
(2) any net income (loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition;
(3) any net income (loss) of any Restricted Subsidiary, as to
Rent-A-Center, or of any Subsidiary, as to any other Person, if such
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Subsidiary,
directly or indirectly, to Rent-A-Center, except that
(a) subject to the limitations contained in (4) below, such
Person's equity in the net income of any such Subsidiary for such period
shall be included in Consolidated Net Income up to the aggregate amount
of cash that could have been distributed by such Subsidiary during such
period to such Person or another Subsidiary as a dividend, subject, in
the case of a dividend that could have been made to another Restricted
Subsidiary, to the limitation contained in this clause, and
(b) the net loss of such Subsidiary shall be included in
determining Consolidated Net Income;
(4) any charges for costs and expenses associated with the
Transactions;
(5) any extraordinary gain or loss; and
(6) the cumulative effect of a change in accounting principles.
86
"Consolidated Tangible Assets" means, as of any date of determination, the
total assets, less goodwill and other intangibles, other than patents,
trademarks, copyrights, licenses and other intellectual property, shown on the
balance sheet of Rent-A-Center and its Restricted Subsidiaries as of the most
recent date for which such a balance sheet is available, determined on a
consolidated basis in accordance with GAAP less all write-ups, other than
write-ups in connection with acquisitions, subsequent to the date of the
indenture in the book value of any asset, except any such intangible assets,
owned by Rent-A-Center or any of its Restricted Subsidiaries.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of Rent-A-Center in accordance with GAAP;
provided, however, that "Consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary, but the interest of Rent-A-Center in
any Unrestricted Subsidiary will be accounted for as an investment. The term
"Consolidated" has a correlative meaning.
"Convertible Preferred Stock" means
(1) the convertible preferred stock of Rent-A-Center issued to Apollo,
resulting in gross proceeds to Rent-A-Center of $250 million, and
(2) the convertible preferred stock of Rent-A-Center issued to an
Affiliate of Bear, Stearns & Co. on August 18, 1998.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement,
including derivative agreements or arrangements, as to which such Person is a
party or a beneficiary.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means
(1) the Bank Indebtedness and
(2) any other Senior Indebtedness which, at the date of determination,
has an aggregate principal amount of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least
$25.0 million and is specifically designated by Rent-A-Center in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock,
excluding the Convertible Preferred Stock, that by its terms, or by the terms of
any security into which it is convertible or for which it is exchangeable or
exercisable, or upon the happening of any event
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock or
(3) is redeemable at the option of the holder thereof, in whole or in
part, in the case of clauses (1), (2) and (3), on or prior to the 91st day
after the Stated Maturity of the notes.
"EBITDA" means, as to any Person, for any period, the Consolidated Net
Income for such period, plus the following to the extent included in calculating
such Consolidated Net Income:
(1) income tax expense,
(2) Consolidated Interest Expense,
87
(3) depreciation expense, other than depreciation expense relating to
rental merchandise,
(4) amortization expense, and
(5) other non-cash charges or non-cash losses, and minus any gain, but
not loss, realized upon the sale or other disposition of any asset of
Rent-A-Center or its Restricted Subsidiaries, including pursuant to any
Sale/Leaseback Transaction, that is not sold or otherwise disposed of in
the ordinary course of business.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indenture" means that certain indenture, dated as of August 18,
1998, as amended to the date of the indenture, among Renters Choice, Inc., Color
Tyme, Inc., Rent-A-Center, Inc. and IBJ Schroder Bank & Trust Company, as
Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the date of the Existing Indenture, for purposes of
the definitions of the terms "Consolidated Coverage Ratio," "Consolidated
Interest Expense," "Consolidated Net Income" and "EBITDA," all defined terms in
the indenture to the extent used in or relating to any of the foregoing
definitions, and all ratios and computations based on any of the foregoing
definitions, and as in effect from time to time, for all other purposes of the
indenture, including those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
based on GAAP contained in the indenture shall be computed in conformity with
GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other nonfinancial
obligation of any other Person, including any such obligation, direct or
indirect, contingent or otherwise, of such Person
(1) to purchase or pay, or advance or supply funds for the purchase or
payment of, such Indebtedness or such other obligation of such other
Person, whether arising by virtue of partnership arrangements, or by
agreement to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise,
or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof, in whole or in
part; provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposits made in the ordinary course of
business.
The term "Guarantee" used as a verb has a correlative meaning.
"Guarantor Senior Indebtedness" means, with respect to a Subsidiary
Guarantor, the following obligations, whether outstanding on the date of the
indenture or thereafter Incurred, without duplication:
(1) any Guarantee of the Senior Credit Facility by such Subsidiary
Guarantor and all other Guarantees by such Subsidiary Guarantor of Senior
Indebtedness of Rent-A-Center or Guarantor Indebtedness for any other
Subsidiary Guarantor; and
(2) all obligations consisting of the principal of and premium, if
any, and accrued and unpaid interest, including interest accruing on or
after the filling of any petition in bankruptcy or for reorganization
relating to the Subsidiary Guarantor regardless of whether post filing
interest is allowed in such proceeding, on, and fees and other amounts
88
owing in respect of, all other Indebtedness of the Subsidiary Guarantor,
unless, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is expressly provided that the
obligations in respect of such Indebtedness are not senior in right of
payment to the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee; provided, however, that Guarantor Senior Indebtedness
will not include
(a) any obligations of such Subsidiary Guarantor to another
Subsidiary Guarantor or any other Affiliate of the Subsidiary Guarantor
or any such Affiliate's Subsidiaries,
(b) any liability for Federal, state, local, foreign or other taxes
owed or owing by such Subsidiary Guarantor,
(c) any accounts payable or other liability to trade creditors
arising in the ordinary course of business, including Guarantees thereof
or instruments evidencing such liabilities, or other current
liabilities, other than current liabilities which constitute Bank
Indebtedness or the current portion of any long-term Indebtedness which
would constitute Senior Indebtedness but for the operation of this
clause (c),
(d) any Indebtedness, Guarantee or obligation of such Subsidiary
Guarantor that is expressly subordinate or junior to any other
Indebtedness, Guarantee or obligation of such Subsidiary Guarantor,
including any Guarantor Senior Subordinated Indebtedness and Guarantor
Subordinated Obligations of such Subsidiary Guarantor,
(e) Indebtedness which is represented by redeemable Capital Stock,
or
(f) that portion of any Indebtedness that is incurred in violation
of the indenture. If any Designated Senior Indebtedness is disallowed,
avoided or subordinated pursuant to the provisions of Section 548 of
Title 11 of the United States Code or any applicable state fraudulent
conveyance law, such Designated Senior Indebtedness nevertheless will
constitute Senior Indebtedness.
"Guarantor Senior Subordinated Indebtedness" means with respect to a
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee and any other Indebtedness of such Subsidiary Guarantor,
whether outstanding on the date of the Existing Indenture or thereafter
Incurred, that specifically provides that such Indebtedness is to rank pari
passu in right of payment with the obligations of such Subsidiary Guarantor
under the Subsidiary Guarantee and is not expressly subordinated by its terms in
right of payment to any Indebtedness of such Subsidiary Guarantor which is not
Guarantor Senior Indebtedness of such Subsidiary Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a Subsidiary
Guarantor, any Indebtedness of such Subsidiary Guarantor, whether outstanding on
the date of the Existing Indenture or thereafter Incurred, which is expressly
subordinate in right of payment to the obligations of such Subsidiary Guarantor
under its Subsidiary Guarantee pursuant to a written agreement.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a note is
registered in the Register.
"Incur" means issue, assume, enter into any Guarantee of, incur or
otherwise become liable for; provided, however, that any Indebtedness or Capital
Stock of a Person existing at the time such Person becomes a Subsidiary, whether
by merger, consolidation, acquisition or otherwise, shall be deemed to be
Incurred by such Subsidiary at the time it becomes a Subsidiary. Any
Indebtedness issued at a discount, including Indebtedness on which interest is
89
payable through the issuance of additional Indebtedness, shall be deemed
incurred at the time of original issuance of the Indebtedness at the initial
accreted amount thereof.
"Indebtedness" means, with respect to any Person on any date of
determination, without duplication:
(1) the principal of Indebtedness of such Person for borrowed money,
(2) the principal of obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments,
(3) all reimbursement obligations of such Person, including
reimbursement obligations in respect of letters of credit or other similar
instruments, the amount of such obligations being equal at any time to the
aggregate then undrawn and unexpired amount of such letters of credit or
other instruments plus the aggregate amount of drawings thereunder that
have not then been reimbursed,
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, except Trade Payables, which
purchase price is due more than one year after the date of placing such
property in final service or taking final delivery and title thereto or the
completion of such services,
(5) all Capitalized Lease Obligations and Attributable Debt of such
Person,
(6) the redemption, repayment or other repurchase amount of such
Person with respect to any Disqualified Stock or, if such Person is a
Subsidiary of Rent-A-Center, any Preferred Stock of such Subsidiary, but
excluding, in each case, any accrued dividends, the amount of such
obligation to be equal at any time to the maximum fixed involuntary
redemption, repayment or repurchase price for such Capital Stock, or if
such Capital Stock has no fixed price, to the involuntary redemption,
repayment or repurchase price therefor calculated in accordance with the
terms thereof as if then redeemed, repaid or repurchased, and if such price
is based upon or measured by the fair market value of such Capital Stock,
such fair market value shall be as determined in good faith by the Board of
Directors or the board of directors of the issuer of such Capital Stock,
(7) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of
(a) the fair market value of such asset at such date of
determination and
(b) the amount of such Indebtedness of such other Persons,
(8) all Indebtedness of other Persons to the extent Guaranteed by such
Person, and
(9) to the extent not otherwise included in this definition, net
Hedging Obligations of such Person, such obligations to be equal at any
time to the termination value of such agreement or arrangement giving rise
to such Hedging Obligation that would be payable by such Person at such
time.
The amount of Indebtedness of any Person at any date shall be determined as
set forth above or otherwise provided in the indenture, or otherwise in
accordance with GAAP.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement, including derivative agreements or arrangements, as to which
such Person is party or a beneficiary; provided, however, any such agreements
entered into in connection with the Notes shall not be included.
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"Investment" in any Person by any other Person means any direct or indirect
advance, loan or other extension of credit, other than to customers, directors,
officers or employees of any Person in the ordinary course of business, or
capital contribution to, by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of others,
or any purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by, such Person. If Rent-A-Center or any Restricted
Subsidiary of Rent-A-Center sells or otherwise disposes of any Capital Stock of
any direct or indirect Restricted Subsidiary of Rent-A-Center such that, after
giving effect to any such sale or disposition, such entity is no longer a
Subsidiary of Rent-A-Center, Rent-A-Center shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Capital Stock of such Subsidiary not sold or disposed of.
"JPMorgan" means JPMorgan Chase Bank.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any conditional sale or other title retention
agreement or lease in the nature thereof.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Available Cash" from an Asset Disposition means cash payments
received, including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form, therefrom, in each case net of
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, including, without limitation, fees and
expenses of legal counsel, accountants and financial advisors, and all
Federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset
Disposition,
(2) all payments made on any Indebtedness that is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon such assets, or that must by its terms, or in order to obtain
a necessary consent to such Asset Disposition, or by applicable law be
repaid out of the proceeds from such Asset Disposition,
(3) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition or to any other Person, other than Rent-A-Center or
any Restricted Subsidiary, owning a beneficial interest in the assets
disposed of in such Asset Disposition, and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by Rent-A-Center or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds" means, with respect to any issuance or sale of any
securities of Rent-A-Center or any Subsidiary by Rent-A-Center or any
Subsidiary, or any capital contribution, the cash proceeds of such issuance,
sale or contribution net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees and expenses actually incurred in connection with such issuance, sale
or contribution and net of taxes paid or payable as a result thereof.
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"Non-Recourse Debt" means Indebtedness
(1) as to which neither Rent-A-Center nor any Restricted Subsidiary
(a) provides any Guarantee or credit support of any kind, including
any undertaking, Guarantee, indemnity, agreement or instrument that
would constitute Indebtedness, or
(b) is directly or indirectly liable, as a guarantor or otherwise,
and
(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit, upon notice, lapse of time or both, any holder of
any other Indebtedness of Rent-A-Center or any Restricted Subsidiary to
declare a default under such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"Officer" means the Chief Executive Officer, President, Chief Financial
Officer, any Vice President, Controller, Secretary or Treasurer of
Rent-A-Center.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel. The
counsel may be an employee of or counsel to Rent-A-Center or the Trustee.
"Permitted Holders" means Apollo, J. Ernest Talley and Mark E. Speese,
their respective Affiliates and successors or assigns and any Person acting in
the capacity of an underwriter in connection with a public or private offering
of Rent-A-Center's Capital Stock.
"Permitted Investment" means an Investment by Rent-A-Center or any
Restricted Subsidiary in any of the following:
(1) a Restricted Subsidiary, Rent-A-Center or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Rent-A-Center or a Restricted Subsidiary;
(3) Temporary Cash Investments or Cash Equivalents;
(4) receivables owing to Rent-A-Center or any Restricted Subsidiary,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as
Rent-A-Center or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) securities or other Investments received as consideration in
connection with RTO Facility Swaps or in sales or other dispositions of
property or assets made in compliance with the covenant described under
"Certain Covenants -- Limitation on Sales of Assets;"
(6) securities or other Investments received in settlement of debts
created in the ordinary course of business and owing to Rent-A-Center or
any Restricted Subsidiary, or as a result of foreclosure, perfection or
enforcement of any Lien, or in satisfaction of judgments, including in
connection with any bankruptcy proceeding or other reorganization of
another Person;
(7) Investments in existence or made pursuant to legally binding
written commitments in existence on the date of the Existing Indenture;
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(8) Currency Agreements, Interest Rate Agreements and related Hedging
Obligations, which obligations are Incurred in compliance with the covenant
described under "-- Certain Covenants -- Limitations on Indebtedness;"
(9) pledges or deposits
(a) with respect to leases or utilities provided to third parties
in the ordinary course of business or
(b) otherwise described in the definition of "Permitted Liens;"
(10) Investments in a Related Business in an amount not to exceed $10
million in the aggregate; and
(11) other Investments in an aggregate amount not to exceed the sum of
$10 million and the aggregate non-cash net proceeds received by
Rent-A-Center from the issue or sale of its Capital Stock, other than
Disqualified Stock, subsequent to the date of the Existing Indenture, other
than non-cash proceeds from an issuance or sale of such Capital Stock to a
Subsidiary of Rent-A-Center or an employee stock ownership plan or similar
trust; provided, however, that the value of such non-cash net proceeds
shall be as conclusively determined by the Board of Directors in good
faith, except that in the event the value of any non-cash net proceeds
shall be $25 million or more, the value shall be as determined in writing
by an independent investment banking firm of nationally recognized
standing.
"Permitted Liens" means:
(1) Liens for taxes, assessments or other governmental charges not yet
delinquent or the nonpayment of which in the aggregate would not be
reasonably expected to have a material adverse effect on Rent-A-Center and
its Restricted Subsidiaries, or that are being contested in good faith and
by appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of Rent-A-Center or such Subsidiary, as the case
may be, in accordance with GAAP;
(2) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
in respect of obligations that are not overdue for a period of more than 60
days or that are bonded or that are being contested in good faith and by
appropriate proceedings;
(3) pledges, deposits or Liens in connection with workers'
compensation, unemployment insurance and other social security legislation
and/or similar legislation or other insurance-related obligations,
including, without limitation, pledges or deposits securing liability to
insurance carriers under insurance or self-insurance arrangements;
(4) pledges, deposits or Liens to secure the performance of bids,
tenders, trade, government or other contracts, other than for borrowed
money, obligations for or under or in respect of utilities, leases,
licenses, statutory obligations, surety, judgment and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(5) easements, including reciprocal easement agreements,
rights-of-way, building, zoning and similar restrictions, utility
agreements, covenants, reservations, restrictions, encroachments, changes,
and other similar encumbrances or title defects incurred, or leases or
subleases granted to others, in the ordinary course of business, which do
not in the aggregate materially interfere with the ordinary conduct of the
business of Rent-A-Center and its Subsidiaries, taken as a whole;
(6) Liens existing on, or provided for under written arrangements
existing on, the date of the Existing Indenture, or, in the case of any
such Liens securing Indebtedness of Rent-A-Center or any of its
Subsidiaries existing or arising under written arrangements
93
existing on the date of the Existing Indenture, securing any Refinancing
Indebtedness in respect of such Indebtedness so long as the Lien securing
such Refinancing Indebtedness is limited to all or part of the same
property or assets, plus improvements, accessions, proceeds or dividends or
distributions in respect thereof, that secured, or under such written
arrangements could secure, the original Indebtedness;
(7) Liens securing Hedging Obligations incurred in compliance with the
covenant described under "-- Certain Covenants -- Limitation on
Indebtedness;"
(8) Liens arising out of judgments, decrees, orders or awards in
respect of which Rent-A-Center shall in good faith be prosecuting an appeal
or proceedings for review which appeal or proceedings shall not have been
finally terminated, or the period within which such appeal or proceedings
may be initiated shall not have expired;
(9) Liens securing
(a) Indebtedness Incurred in compliance with clause (b)(1), (b)(2)
or (b)(5) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness," or clause (b)(4) thereof,
other than Refinancing Indebtedness Incurred in respect of Indebtedness
described in paragraph (a) thereof, or
(b) Bank Indebtedness;
(10) Liens on properties or assets of Rent-A-Center securing Senior
Indebtedness;
(11) Liens existing on property or assets of a Person at the time such
Person becomes a Subsidiary of Rent-A-Center, or at the time Rent-A-Center
or a Restricted Subsidiary acquires such property or assets; provided,
however, that such Liens are not created in connection with, or in
contemplation of, such other Person becoming such a Subsidiary, or such
acquisition of such property or assets, and that such Liens are limited to
all or part of the same property or assets, plus improvements, accessions,
proceeds or dividends or distributions in respect thereof, that secured,
or, under the written arrangements under which such Liens arose, could
secure, the obligations to which such Liens relate;
(12) Liens on Capital Stock of an Unrestricted Subsidiary that secure
Indebtedness or other obligations of such Unrestricted Subsidiary;
(13) Liens securing the Notes; and
(14) Liens securing Refinancing Indebtedness Incurred in respect of
any Indebtedness secured by, or securing any refinancing, refunding,
extension, renewal or replacement, in whole or in part, of any other
obligation secured by, any other Permitted Liens, provided that any such
new Lien is limited to all or part of the same property or assets, plus
improvements, accessions, proceeds or dividends or distributions in respect
thereof, that secured, or, under the written arrangements under which the
original Lien arose, could secure, the obligations to which such Liens
relate.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation means
Capital Stock of any class or classes, however designated, that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Purchase Money Obligations" means any Indebtedness of Rent-A-Center or any
Restricted Subsidiary incurred to finance the acquisition, construction or
capital improvement of any property or business, including Indebtedness Incurred
within 90 days following such acquisition
94
or construction, including Indebtedness of a Person existing at the time such
Person becomes a Restricted Subsidiary or assumed by Rent-A-Center or a
Restricted Subsidiary in connection with the acquisition of assets from such
Person; provided, however, that any Lien on such Indebtedness shall not extend
to any property other than the property so acquired or constructed.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend, including pursuant to any defeasance
or discharge mechanism, (collectively, "refinances," and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the date of the indenture or
Incurred in compliance with the indenture, including Indebtedness of
Rent-A-Center that refinances Indebtedness of any Restricted Subsidiary, to the
extent permitted in the indenture, and Indebtedness of any Restricted Subsidiary
that refinances Indebtedness of another Restricted Subsidiary, including
Indebtedness that refinances Refinancing Indebtedness; provided, however, that
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being refinanced,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and
(3) such Refinancing Indebtedness is Incurred in an aggregate
principal amount, or if issued with original issue discount, an aggregate
issue price, that is equal to or less than the aggregate principal amount,
or if issued with original issue discount, the aggregate accreted value,
then outstanding of the Indebtedness being refinanced, plus fees,
underwriting discounts, premiums and other costs and expenses incurred in
connection with such Refinancing Indebtedness; provided further, however,
that Refinancing Indebtedness shall not include
(a) Indebtedness of a Restricted Subsidiary that refinances
Indebtedness of Rent-A-Center or
(b) Indebtedness of Rent-A-Center or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means those businesses, other than the car rental
business, in which Rent-A-Center or any of its Subsidiaries is engaged on the
date of the Existing Indenture or that are reasonably related or incidental
thereto.
"Rent-A-Center" means Rent-A-Center, Inc., a Delaware corporation.
"Representative" means the trustee, agent or representative, if any, for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of Rent-A-Center other than an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit facility under the
Senior Credit Facility, which may include any swing line or letter of credit
facility or subfacility thereunder.
"RTO Facility" means any facility through which Rent-A-Center or any of its
Restricted Subsidiaries conducts the business of renting merchandise to its
customers and any facility through which a franchise of Rent-A-Center or any of
its Subsidiaries conducts the business of renting merchandise to customers.
"RTO Facility Swap" means an exchange of assets, including Capital Stock of
a Subsidiary or Rent-A-Center, of substantially equivalent fair market value, as
conclusively determined in good faith by the Board of Directors, by
Rent-A-Center or a Restricted Subsidiary for one or
95
more RTO Facilities or for cash, Capital Stock, Indebtedness or other securities
of any Person owning or operating one or more RTO Facilities and primarily
engaged in a Related Business; provided, however, that any Net Cash Proceeds
received by Rent-A-Center or any Restricted Subsidiary in connection with any
such transaction must be applied in accordance with the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets."
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by Rent-A-Center or a Restricted Subsidiary whereby
Rent-A-Center or such Restricted Subsidiary transfers such property to a Person
and Rent-A-Center or such Restricted Subsidiary leases it from such Person,
other than leases
(1) between Rent-A-Center and a Restricted Subsidiary or
(2) required to be classified and accounted for as capitalized leases
for financial reporting purposes in accordance with GAAP.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of Rent-A-Center secured by a
Lien.
"Senior Credit Agreement" means the credit agreement dated as of August 5,
1998, among Rent-A-Center, the banks and other financial institutions party
thereto from time to time, Comerica, N.A. as the documentation agent,
NationsBank, N.A. as syndication agent and JPMorgan, as administrative agent, as
such agreement may be assumed by any successor in interest, and as such
agreement may be amended, supplemented, waived or otherwise modified from time
to time, or refunded, refinanced, restructured, replaced, renewed, repaid,
increased or extended from time to time (whether in whole or in part, whether
with the original agent and lenders or other agents and lenders or otherwise,
and whether provided under the original Senior Credit Agreement or otherwise).
"Senior Credit Facility" means the collective reference to the Senior
Credit Agreement, any Loan Documents, as defined therein, any notes and letters
of credit issued pursuant thereto and any guarantee and collateral agreement,
patent and trademark security agreement, mortgages, letter of credit
applications and other security agreements and collateral documents, and other
instruments and documents, executed and delivered pursuant to or in connection
with any of the foregoing, in each case as the same may be amended,
supplemented, waived or otherwise modified from time to time, or refunded,
refinanced, restructured, replaced, renewed, repaid, increased or extended from
time to time, whether in whole or in part, whether with the original agent and
lenders or other agents and lenders or otherwise, and whether provided under the
original Senior Credit Agreement or otherwise. Without limiting the generality
of the foregoing, the term "Senior Credit Facility" shall include any agreement
(1) changing the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
(2) adding Subsidiaries of Rent-A-Center as additional borrowers or
guarantors thereunder,
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder or
(4) otherwise altering the terms and conditions thereof.
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"Senior Indebtedness" means the following obligations, whether outstanding
on the date of the Existing Indenture or thereafter issued, without duplication:
(1) all obligations consisting of Bank Indebtedness; and
(2) all obligations consisting of the principal of and premium, if
any, and accrued and unpaid interest, including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating to Rent-A-Center regardless of whether postfiling interest is
allowed in such proceeding, on, and fees and other amounts owing in respect
of, all other Indebtedness of Rent-A-Center, unless, in the instrument
creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that the obligations in respect of such
Indebtedness are not superior in right of payment to the notes; provided,
however, that Senior Indebtedness shall not include
(a) any obligation of Rent-A-Center to any Subsidiary or any other
Affiliate of Rent-A-Center, or any such Affiliate's Subsidiaries,
(b) any liability for Federal, state, foreign, local or other taxes
owed or owing by Rent-A-Center,
(c) any accounts payable or other liability to trade creditors
arising in the ordinary course of business, including Guarantees thereof
or instruments evidencing such liabilities, or other current
liabilities, other than current liabilities which constitute Bank
Indebtedness or the current portion of any long-term Indebtedness which
would constitute Senior Indebtedness but for the operation of this
clause (c),
(d) any Indebtedness, Guarantee or obligations of Rent-A-Center
that is expressly subordinate or junior to any other Indebtedness,
Guarantee or obligation of Rent-A-Center,
(e) Indebtedness which is represented by redeemable Capital Stock
or
(f) that portion of any Indebtedness that is Incurred in violation
of the indentures. If any Designated Senior Indebtedness is disallowed,
avoided or subordinated pursuant to the provisions of Section 548 of
Title 11 of the United States Code or any applicable state fraudulent
conveyance law, such Designated Senior Indebtedness nevertheless will
constitute Senior Indebtedness.
"Senior Subordinated Indebtedness" means the notes and any other
Indebtedness of Rent-A-Center that
(1) specifically provides that such Indebtedness is to rank pari passu
with the notes or is otherwise entitled Senior Subordinated Indebtedness,
and
(2) is not subordinated by its terms to any Indebtedness or other
obligation of Rent-A-Center that is not Senior Indebtedness.
"Significant Subsidiary" means
(1) each Subsidiary that for the most recent fiscal year of such
Subsidiary had consolidated revenues greater than $10.0 million or as at
the end of such fiscal year had assets or liabilities greater than $10.0
million, and
(2) any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary.
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including
97
pursuant to any mandatory redemption provision, but excluding any provision
providing for the repurchase of such security at the option of the holder
thereof upon the happening of any contingency beyond the control of the issuer
unless such contingency has occurred.
"Subordinated Obligation" means any Indebtedness of Rent-A-Center, whether
outstanding on the date of the indenture or thereafter Incurred, which is
subordinate or junior in right of payment to the notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests, including partnership interests,
entitled, without regard to the occurrence of any contingency, to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by
(1) such Person or
(2) one or more Subsidiaries of such Person.
"Subsidiary Guarantee" means, individually, any Guarantee of payment of the
notes by a Subsidiary Guarantor pursuant to the terms of the indenture, and,
collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the
form prescribed in the indenture.
"Subsidiary Guarantor" means
(1) ColorTyme, Inc. and Advantage Companies, Inc. and
(2) any Restricted Subsidiary created or acquired by Rent-A-Center
after the date of this indenture.
"Successor Company" shall have the meaning assigned thereto in clause (1)
under "-- Merger and Consolidation."
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations
(a) of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency
thereof or
(b) of any foreign country recognized by the United States of
America rated at least "A" by S&P or "A1" by Moody's,
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company that is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital and surplus
aggregating in excess of $250 million, or the foreign currency equivalent
thereof, and whose long-term debt is rated "A" by S&P or "A-1" by Moody's,
(3) repurchase obligations with a term of not more than 180 days for
underlying securities of the types described in clause (1) or (2) above
entered into with a bank meeting the qualifications described in clause (2)
above,
(4) Investments in commercial paper, maturing not more than 180 days
after the date of acquisition, issued by a corporation, other than an
Affiliate of Rent-A-Center, organized and in existence under the laws of
the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any
Investment therein is made of "P-1," or higher, according to Moody's or
"A-1," or higher, according to S&P,
98
(5) Investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A" by Moody's,
(6) any money market deposit accounts issued or offered by a domestic
commercial bank or a commercial bank organized and located in a country
recognized by the United States of America, in each case, having capital
and surplus in excess of $250 million, or the foreign currency equivalent
thereof, or investments in money market funds complying with the risk
limiting conditions of Rule 2a-7, or any short-term successor rule, of the
SEC, under the Investment Company Act of 1940, as amended, and
(7) similar short-term investments approved by the Board of Directors
in the ordinary course of business.
"Thorn Americas Acquisition" means the acquisition of Thorn Americas by
Rent-A-Center.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
sec.sec. 77aaa-77bbbb) as in effect on the date of the indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions," means collectively the Thorn Americas Acquisition, the
offering of the notes under the Existing Indenture, the initial borrowings under
the Senior Credit Facility, and all other transactions relating to the Thorn
Americas Acquisition or the financing thereof, including the issuance of
Convertible Preferred Stock.
"Trustee" means the party named as such in the indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means, when used with respect to the Trustee, any officer
within the corporate trust department of the Trustee, including any vice
president, assistant vice president, assistant secretary, assistant treasurer,
trust officer or any other officer of the Trustee who customarily performs
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of such person's knowledge of and familiarity with the particular
subject and who shall have direct responsibility for the administration of the
indenture.
"Unrestricted Subsidiary" means
(1) any Subsidiary of Rent-A-Center that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Subsidiary of Rent-A-Center, including any
newly acquired or newly formed Subsidiary of Rent-A-Center, to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any
property of, Rent-A-Center or any other Subsidiary of Rent-A-Center that is
not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either
(a) the Subsidiary to be so designated has total consolidated
assets of $10,000 or less or
(b) if such Subsidiary has consolidated assets greater than
$10,000, then such designation would be permitted under "-- Certain
Covenants -- Limitation on Re-
99
stricted Payments." The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation
- Rent-A-Center could incur at least $1.00 of additional
Indebtedness under paragraph (a) in the covenant described
under "-- Certain Covenants -- Limitation on Indebtedness" and
- no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of Rent-A-Center's Board of
Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" of an entity means all classes of Capital Stock of such
entity then outstanding and normally entitled to vote in the election of
directors or all interests in such entity with the ability to control the
management or actions of such entity.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of Rent-A-Center
all the Capital Stock of which, other than directors' qualifying shares, is
owned by Rent-A-Center or another Wholly Owned Subsidiary.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
Except as set forth below, the exchange notes will be represented by one
permanent global registered note in global form, without interest coupons (the
"global note"). The global note will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee of DTC, or will remain in the custody of the Trustee pursuant to the
FAST Balance Certificate Agreement between DTC and the Trustee.
The descriptions of the operations and procedures of DTC, Euroclear Bank
S.A/N.V and Clearstream Bank, societe anonyme set forth below are provided
solely as a matter of convenience. These operations and procedures are solely
within the control of the respective settlement systems and are subject to
change by them from time to time. We take no responsibility for these operations
or procedures, and investors are urged to contact the relevant system or its
participants directly to discuss these matters.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between DTC participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical transfer and delivery of certificates.
DTC participants include securities brokers and dealers, banks and trust
companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies, called indirect participants, that clear
through or maintain a custodial relationship with a DTC
100
participant, either directly or indirectly. Investors who are not DTC
participants may beneficially own securities held by or on behalf of DTC only
through participants or indirect participants.
We expect that under procedures established by DTC:
- upon deposit of the global note, DTC will credit the accounts of DTC
participants designated by the trustee with an interest in the global
note; and
- ownership of the notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC, with
respect to the interests of DTC participants, and the records of DTC
participants and the indirect participants, with respect to the interests
of persons other than DTC participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by a
global note to such persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through DTC participants, the ability of a person having an
interest in notes represented by a global note to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the lack
of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by the global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note will not be entitled to have notes represented by such global note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated notes, and will not be considered the owners or holders
thereof under the indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a global note must rely
on the procedures of DTC and, if such holder is not a DTC participant or an
indirect participant, on the procedures of the DTC participant through which
such holder owns its interest, to exercise any rights of a holder of notes under
the indenture or such global note. We understand that under existing industry
practice, in the event that we request any action of holders of notes, or a
holder that is an owner of a beneficial interest in a global note desires to
take any action that DTC, as the holder of such global note, is entitled to
take, DTC would authorize the DTC participants to take such action and the DTC
participants would authorize holders owning through such DTC participants to
take such action or would otherwise act upon the instruction of such holders.
Neither we nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any notes represented by a global note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the global note representing such notes
under the indenture. Under the terms of the indenture, we and the Trustee may
treat the persons in whose names the notes, including the global notes, are
registered as the owners thereof for the purpose of receiving payment thereon
and for any and all other purposes whatsoever. Accordingly, neither we nor the
Trustee has or will have any responsibility or liability for the payment of such
amounts to owners of beneficial interests in a global note (including principal,
premium, if any, liquidated damages, if any, and interest). Payments by the DTC
participants and the indirect participants to the owners of beneficial interests
in a global note will be governed by standing instructions and customary
industry practice and will be the responsibility of the DTC participants or the
indirect participants and DTC.
101
Transfers between DTC participants will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Clearstream will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the DTC participants, on the one hand, and
Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary. However, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counter party in such system in
accordance with the rules and procedures and within the established deadlines,
Brussels time, of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant global notes in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day, which must be a business day for Euroclear and Clearstream,
immediately following the settlement date of DTC. Cash received in Euroclear or
Clearstream as a result of sales of interest in a global security by or through
a Euroclear or Clearstream participant to a DTC participant will be received
with value on the settlement date of DTC but will be available in the relevant
Euroclear or Clearstream cash account only as of the business day for Euroclear
or Clearstream following DTC's settlement date.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the global notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Clearstream or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
Notes in physical, certificated form will be issued and delivered to each
person that DTC identifies as a beneficial owner of the related notes only if:
- DTC notifies Rent-A-Center at any time that it is unwilling or unable to
continue as depository for the global notes and a successor depository is
not appointed within 90 days;
- DTC ceases to be registered as a clearing agency under the Securities
Exchange Act of 1934 and a successor depository is not appointed within
90 days;
- Rent-A-Center, at its option, notifies the Trustee that it elects to
cause the issuance of certificated notes; or
- certain other events provided in the indenture should occur.
102
2001 NOTES EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
In connection with the issuance of the 2001 notes, we and the initial
purchasers of the 2001 notes entered into the Exchange and Registration Rights
Agreement on December 19, 2001. Pursuant to this agreement, we agreed to
- file with the SEC on or prior to February 17, 2002 a registration
statement, relating to the exchange offer for the 2001 notes under the
Securities Act; and
- use our reasonable efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act on or prior
to May 18, 2002.
As soon as practicable after the effectiveness of the exchange offer
registration statement, we will offer to the holders of transfer restricted
securities, as defined below, who are not prohibited by any law or policy of the
SEC from participating in the exchange offer, the opportunity to exchange their
transfer restricted securities for an issue of the exchange notes which are
identical in all material respects to the 2001 notes, except that the exchange
notes will not contain terms with respect to transfer restrictions and that
would be registered under the Securities Act. We will keep the exchange offer
open for not less than 30 days or longer, if required by applicable law after
the date on which notice of the exchange offer is mailed to the holders of the
notes.
If:
- because of any change in law or applicable interpretations thereof by the
staff of the SEC, we are not permitted to effect the exchange offer as
contemplated hereby;
- any 2001 notes validly tendered pursuant to the exchange offer are not
exchanged for exchange notes within 180 days after the issue date;
- any initial purchaser of the 2001 notes so requests with respect to 2001
notes not eligible to be exchanged for exchange notes in the exchange
offer;
- any applicable law or interpretations do not permit any holder of 2001
notes to participate in the exchange offer;
- any holder of 2001 notes that participates in the exchange offer does not
receive freely transferable exchange notes in exchange for tendered old
notes; or
- we so elect,
then we will file with the SEC a shelf registration statement to cover resales
of transfer restricted securities by such holders who satisfy certain conditions
relating to the provision of information in connection with the shelf
registration statement.
For purposes of the foregoing, "transfer restricted securities" means each
2001 note until
- the date on which such 2001 note has been exchanged for a freely
transferable exchange note in the exchange offer;
- the date on which such 2001 note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement; or
- the date on which such 2001 note is distributed to the public pursuant to
Rule 144 under the Securities Act or is salable pursuant to Rule 144(k)
under the Securities Act.
We will use our reasonable efforts to have the exchange offer registration
statement or, if applicable, the shelf registration statement declared effective
by the SEC as promptly as practicable after the filing thereof. Unless the
exchange offer would not be permitted by a policy of the SEC, we will commence
the exchange offer and use our reasonable efforts to consummate the exchange
offer as promptly as practicable, but in any event prior to 180 days
103
after the issue date. If necessary, we will use our commercially reasonable
efforts to keep the shelf registration statement effective for a period of two
years after the issue date.
If:
- the applicable exchange offer registration statement or, if applicable,
the shelf registration statement, is not filed with the SEC on or prior
to February 17, 2002;
- the applicable exchange offer registration statement or, if applicable,
the shelf registration statement, is not declared effective on or prior
to May 18, 2002;
- the exchange offer is not consummated on or prior to June 17, 2002; or
- the shelf registration statement is filed and declared effective on or
prior to May 18, 2002 but shall thereafter cease to be effective, at any
time that we are obligated to maintain the effectiveness thereof, without
being succeeded within 45 days by an additional registration statement
filed and declared effective,
we will be obligated to pay liquidated damages to each holder of transfer
restricted securities, during the period of one or more such above events, in an
amount equal to $0.192 per week per $1,000 principal amount of the 2001 notes
constituting transfer restricted securities held by such holder until the
applicable registration statement is filed, the exchange offer registration
statement is declared effective and the exchange offer is consummated or the
shelf registration statement is declared effective or again becomes effective,
as the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the 2001 notes on semi-annual payment
dates which correspond to interest payment dates for the 2001 notes. The accrual
of liquidated damages will cease on the day on which all registration defaults
are cured.
The exchange and registration rights agreement also provides that we shall:
- make available for a period of 180 days after the consummation of the
exchange offer a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any
such exchange notes; and
- pay all expenses incident to the exchange offer, including the expense of
one counsel to the holders of the notes and will indemnify certain
holders of the notes, including any broker-dealer, against certain
liabilities, including liabilities under the Securities Act.
A broker-dealer that delivers such a prospectus to purchasers in connection
with such resales will be subject to certain of the civil liability provisions
under the Securities Act and will be bound by the provisions of the exchange and
registration rights agreement, including certain indemnification rights and
obligations.
Each holder of old notes who wishes to exchange such old notes for exchange
notes in the exchange offer will be required to make certain representations,
including representations that:
- any exchange notes it receives will be acquired in the ordinary course of
its business;
- it has no arrangement or understanding with any person to participate in
the distribution of the exchange notes; and
- it is not an "affiliate," as defined in Rule 405 under the Securities
Act, of us, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
exchange notes. If the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for notes that
104
were acquired as a result of market-making activities or other trading
activities, it will be required to acknowledge that it will deliver a prospectus
in connection with any resale of such exchange notes.
Holders of the 2001 notes will be required to make certain representations
to Rent-A-Center in order to participate in the exchange offer and will be
required to deliver information to be used in connection with the shelf
registration statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells 2001 notes
pursuant to the shelf registration statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the exchange and registration rights agreement which
are applicable to such a holder, including certain indemnification obligations.
For so long as the old notes are outstanding, we will continue to provide
to holders of the old notes and to prospective purchasers of the old notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the exchange and registration rights agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the exchange and registration rights
agreement which is filed as an exhibit to the registration statement of which
this prospectus is a part. However, we believe that this prospectus disclosure
presents all the material terms of the exchange and registration rights
agreement.
The original issuance of the 1998 notes was registered under the Securities
Act, and thus the 1998 notes are, generally, freely tradable securities. The
objective of the exchange offer is to create a single series of debt securities
having a total outstanding principal amount which is larger than that of either
the 1998 notes or the 2001 notes as separate series, thus resulting in greater
liquidity for the exchange notes. However, see "Risk Factors -- Because the
total outstanding principal of the exchange notes will include the total
outstanding principal amount of the 1998 notes and the 2001 notes, you will
experience an immediate dilution of your percentage of ownership of such
series."
105
CERTAIN U.S. FEDERAL
INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain U.S. federal income tax consequences
associated with the exchange of old notes for exchange notes pursuant to the
exchange offer, and does not purport to be a complete analysis of all potential
tax consequences. This summary is based upon the Internal Revenue Code of 1986,
as amended, existing and proposed regulations thereunder, published rulings and
court decisions, all as in effect and existing on the date hereof and all of
which are subject to change at any time, which change may be retroactive. This
summary is not binding on the Internal Revenue Service or on the courts, and no
ruling will be requested from the Internal Revenue Service on any issues
described below. There can be no assurance that the Internal Revenue Service
will not take a different position concerning the matters discussed below.
This summary applies only to those persons who are the initial holders of
old notes, who acquired old notes for cash and who hold old notes as capital
assets, and assumes that the old notes were not issued with "original issue
discount," as defined in the Internal Revenue Code. It does not address the tax
consequences to taxpayers who are subject to special rules, such as financial
institutions, tax-exempt organizations, insurance companies and persons who are
not "U.S. Holders", or the effect of any applicable U.S. federal estate and gift
tax laws or state, local or foreign tax laws. For purposes of this summary, a
"U.S. Holder" means a beneficial owner of a note who purchased the notes
pursuant to the offering that is for U.S. federal income tax purposes
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if (A) a court within the United States is able to exercise
primary supervision over the administration of the trust, and (B) one or
more U.S. fiduciaries have the authority to control all substantial
decisions of the trust.
EXCHANGE OFFER
The exchange of old notes for exchange notes pursuant to the exchange offer
should not constitute a taxable exchange for U.S. federal income tax purposes.
Accordingly, a U.S. Holder should not recognize gain or loss upon the receipt of
exchange notes pursuant to the exchange offer, and a U.S. holder should be
required to include interest on the exchange notes in gross income in the manner
and to the extent interest income was includible under the old notes. A U.S.
holder's holding period for the exchange notes should include the holding period
of the old notes exchanged therefor, and such holder's adjusted basis in the
exchange notes should be the same as the adjusted basis of the old notes
exchanged therefor immediately before the exchange.
The foregoing discussion is included herein for general information only.
Accordingly, each holder should consult with its own tax advisors concerning the
tax consequences of the exchange offer with respect to its particular situation,
including the application and effect of state, local and foreign income and
other tax laws.
106
PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued
to third parties, we believe that exchange notes issued pursuant to the exchange
offer in exchange for the old notes may be offered for resale, resold and
otherwise transferred by holders thereof, other than any holder which is:
- an "affiliate" of us within the meaning of Rule 405 under the Securities
Act;
- a broker-dealer who acquired notes directly from us; or
- broker-dealers who acquired notes as a result of market-making or other
trading activities,
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such exchange notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged in,
and do not intend to engage in, and have no arrangement or understanding with
any person to participate in, a distribution of such exchange notes. However,
broker-dealers receiving exchange notes in the exchange offer will be subject to
a prospectus delivery requirement with respect to resales of such exchange
notes. To date, the SEC has taken the position that these broker-dealers may
fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as the exchange pursuant to the
exchange offer, other than a resale of an unsold allotment from the sale of the
old notes to the initial purchasers, with the prospectus contained in the
exchange offer registration statement. Pursuant to the exchange and registration
rights agreement, we have agreed to permit these broker-dealers to use this
prospectus in connection with the resale of such exchange notes. We have agreed
that, for a period of 180 days after the expiration date, we will make this
prospectus, and any amendment or supplement to this prospectus, available to any
broker-dealer that requests such documents in the letter(s) of transmittal.
The objective of the exchange offer is to create a single series of debt
securities having a total outstanding principal amount which is larger than that
of either the 1998 notes or the 2001 notes as separate series, thus resulting in
greater liquidity for the exchange notes. However, see "Risk Factors -- Because
the total outstanding principal of the exchange notes will include the total
outstanding principal amount of the 1998 notes and the 2001 notes, you will
experience an immediate dilution of your percentage of ownership of such
series."
Each holder of the old notes who wishes to exchange its old notes for
exchange notes in the exchange offer will be required to make certain
representations to us as set forth in "The Exchange Offer -- Purpose and Effect
of the Exchange Offer."
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for old notes where such old notes were acquired as a result of market-
making activities or other trading activities. Until , 2002, all
dealers effecting transactions in the exchange notes may be required to deliver
a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation
107
in the form of commissions or concessions from any such broker-dealer or the
purchasers of any such exchange notes. Any broker-dealer that resells exchange
notes that were received by it for its own account pursuant to the exchange
offer and any broker or dealer that participates in a distribution of such
exchange notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of exchange notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letters of transmittal
state that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the consummation of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter(s) of transmittal. We have agreed to pay all expenses incident to
the exchange offer, including the expenses of one counsel for the holders of the
2001 notes, other than commissions or concessions of any broker-dealers and will
indemnify the holders of the 2001 notes, including any broker-dealers, against
certain liabilities, including liabilities under the Securities Act.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The financial statements as of December 31, 2000 and 2001, and for each of
the three years in the period ended December 31, 2001, included in this
prospectus have been so included in reliance on the report of Grant Thornton
LLP, independent certified public accountants, given on the authority of such
firm as experts in accounting and auditing.
Grant Thornton LLP has advised us that from December 28, 1998 through March
27, 2000, a benefit plan managed by a third-party brokerage firm for the benefit
of Grant Thornton LLP's employees owned up to 120 shares of our common stock.
Accordingly, this has raised an issue as to Grant Thornton LLP's independence.
Grant Thornton LLP has disclosed the situation to the SEC. Grant Thornton LLP
has also advised us that, notwithstanding the benefit plan's investment in our
common stock, Grant Thornton LLP intends to sign audit opinions and consents to
incorporation by reference as necessary in connection with documents filed by us
with the SEC and other third parties.
LEGAL MATTERS
The validity of the exchange notes offered by this prospectus will be
passed upon for us by Winstead Sechrest & Minick P.C., Dallas, Texas.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or SEC. You may read
this information at the SEC's public reference room at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549.
Please call 1-800-SEC-0330 for further information on its regional public
reference rooms. You may also obtain copies of this information by mail from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Our SEC filings are also available
to the public at the SEC's web site at http://www.sec.gov. You may also inspect
reports, proxy statements and other information about us at the offices of The
Nasdaq Stock Market, Inc. National Market System, 1735 K. Street, N.W.,
Washington, D.C. 20006-1500.
We, together with the subsidiary guarantors, have filed a registration
statement on Form S-4 to register with the SEC the exchange notes to be issued
in exchange for the old
108
notes. This prospectus is part of that registration statement. As allowed by the
SEC's rules, this prospectus does not contain all of the information you can
find in the registration statement or the exhibits to the registration
statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference in
this prospectus is considered to be a part of this prospectus, and later
information filed with the SEC or contained in this prospectus updates and
supersedes this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 until our offering is completed:
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
2000;
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
2001;
- Our Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2001;
- Our Current Report on Form 8-K filed May 11, 2001;
- Our Quarterly Report on Form 10/Q for the quarter ended June 30, 2001;
- Our Current Report on Form 8-K filed October 11, 2001;
- Our Quarterly Report on Form 10-Q for the quarter ended September 30,
2001;
- Those portions of our Current Report in Item 5 of, and the exhibits to,
Form 8-K filed December 4, 2001 (but specifically excluding those
portions merely furnished to the SEC under Item 9);
- Our Current Report on Form 8-K filed December 19, 2001; and
- The portions of our proxy statement for our 2001 annual meeting of our
stockholders that have been incorporated by reference into our annual
report.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Rent-A-Center, Inc.
Attention: Corporate Secretary
5700 Tennyson Parkway
Third Floor
Plano, Texas 75024
Telephone: (972) 801-1100
109
RENT-A-CENTER, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants.......... F-2
Consolidated Financial Statements
Balance Sheets............................................ F-3
Statements of Earnings.................................... F-4
Statement of Stockholders' Equity......................... F-5
Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Rent-A-Center, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Rent-A-Center, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rent-A-Center,
Inc. and Subsidiaries as of December 31, 2001 and 2000, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
GRANT THORNTON LLP
Dallas, Texas
February 11, 2002
F-2
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Cash and cash equivalents................................... $ 107,958 $ 36,495
Accounts receivable -- trade................................ 1,664 3,254
Prepaid expenses and other assets........................... 29,846 31,805
Rental merchandise, net
On rent................................................... 531,627 477,095
Held for rent............................................. 122,074 110,137
Property assets, net........................................ 106,883 87,168
Deferred income taxes....................................... 8,772 32,628
Intangible assets, net...................................... 711,096 708,328
---------- ----------
$1,619,920 $1,486,910
========== ==========
LIABILITIES
Accounts payable -- trade................................... $ 49,930 $ 65,696
Accrued liabilities......................................... 170,196 89,560
Senior debt................................................. 428,000 566,051
Subordinated notes payable, net of discount................. 274,506 175,000
---------- ----------
922,632 896,307
COMMITMENTS AND CONTINGENCIES............................... -- --
PREFERRED STOCK
Redeemable convertible voting preferred stock, net of
placement costs, $.01 par value; 5,000,000 shares
authorized; 292,434 and 281,756 shares issued and
outstanding in 2001 and 2000, respectively............. 291,910 281,232
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 125,000,000 and 50,000,000
shares authorized; 27,726,092 and 25,700,058 shares
issued in 2001 and 2000, respectively.................. 277 257
Additional paid-in capital................................ 191,438 115,607
Accumulated comprehensive loss............................ (6,319) --
Retained earnings......................................... 269,982 218,507
---------- ----------
Treasury stock, 2,224,179 and 990,099 shares at cost in
2001 and 2000, respectively............................ (50,000) (25,000)
---------- ----------
405,378 309,371
---------- ----------
$1,619,920 $1,486,910
========== ==========
F-3
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Store
Rentals and fees................................. $1,650,851 $1,459,664 $1,270,885
Merchandise sales................................ 94,733 81,166 88,516
Other............................................ 3,476 3,018 2,177
Franchise
Merchandise sales................................ 53,584 51,769 49,696
Royalty income and fees.......................... 5,884 5,997 5,893
---------- ---------- ----------
1,808,528 1,601,614 1,417,167
Operating expenses
Direct store expenses
Depreciation of rental merchandise............... 343,197 299,298 265,486
Cost of merchandise sold......................... 72,539 65,332 74,027
Salaries and other expenses...................... 1,019,402 866,234 770,572
Franchise cost of merchandise sold.................. 51,251 49,724 47,914
---------- ---------- ----------
1,486,389 1,280,588 1,157,999
General and administrative expenses................. 55,359 48,093 42,029
Amortization of intangibles......................... 30,194 28,303 27,116
Class action litigation settlements................. 52,000 (22,383) --
---------- ---------- ----------
Total operating expenses.................... 1,623,942 1,334,601 1,227,144
---------- ---------- ----------
Operating profit............................ 184,586 267,013 190,023
Interest expense...................................... 60,874 74,324 75,673
Interest income....................................... (1,094) (1,706) (904)
---------- ---------- ----------
Earnings before income taxes................ 124,806 194,395 115,254
Income tax expense.................................... 58,589 91,368 55,899
---------- ---------- ----------
NET EARNINGS................................ 66,217 103,027 59,355
Preferred dividends................................... 15,408 10,420 10,039
---------- ---------- ----------
Net earnings allocable to common stockholders......... $ 50,809 $ 92,607 $ 49,316
========== ========== ==========
Basic earnings per common share....................... $ 1.97 $ 3.79 $ 2.04
========== ========== ==========
Diluted earnings per common share..................... $ 1.79 $ 2.96 $ 1.74
========== ========== ==========
F-4
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
COMMON STOCK ADDITIONAL ACCUMULATED
--------------- PAID-IN RETAINED TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCK INCOME (LOSS) TOTAL
------ ------ ---------- -------- -------- ------------- --------
(IN THOUSANDS)
Balance at January 1, 1999............ 25,074 $251 $101,781 $ 77,881 $(25,000) $ -- $154,913
Net earnings........................ -- -- -- 59,355 -- -- 59,355
Preferred dividends................. -- -- -- (11,426) -- -- (11,426)
Exercise of stock options........... 223 2 3,318 -- -- -- 3,320
Tax benefits related to exercise of
stock options..................... -- -- 528 -- -- -- 528
------ ---- -------- -------- -------- -------- --------
Balance at December 31, 1999.......... 25,297 253 105,627 125,810 (25,000) -- 206,690
Net earnings........................ -- -- -- 103,027 -- -- 103,027
Preferred dividends................. -- -- -- (10,330) -- -- (10,330)
Issuance of stock options for
services.......................... -- -- 65 -- -- -- 65
Exercise of stock options........... 403 4 8,430 -- -- -- 8,434
Tax benefits related to exercise of
stock options..................... -- -- 1,485 -- -- -- 1,485
------ ---- -------- -------- -------- -------- --------
Balance at December 31, 2000.......... 25,700 257 115,607 218,507 (25,000) -- 309,371
Net earnings........................ -- -- -- 66,217 -- -- 66,217
Other comprehensive income (loss):
Cumulative effect of adoption of
SFAS 133........................ -- -- -- -- -- 1,378 1,378
Losses on interest rate swaps, net
of tax.......................... -- -- -- -- -- (11,556) (11,556)
Reclassification adjustment for
losses included in net earnings,
net of tax...................... -- -- -- -- -- 3,859 3,859
-------- --------
Other comprehensive loss........ -- -- -- -- -- (6,319) (6,319)
-------- --------
Comprehensive income.............. -- -- -- -- -- -- 59,898
Purchase of treasury stock (1,234
shares)........................... -- -- -- -- (25,000) -- (25,000)
Issuance of common stock in public
offering, net of issuance costs of
$3,253............................ 1,150 12 45,610 -- -- -- 45,622
Preferred dividends................. -- -- 4,064 (14,742) -- -- (10,678)
Issuance of stock options for
services.......................... -- -- 111 -- -- -- 111
Exercise of stock options........... 876 8 20,309 -- -- -- 20,317
Tax benefits related to exercise of
stock options..................... -- -- 5,737 -- -- -- 5,737
------ ---- -------- -------- -------- -------- --------
Balance at December 31, 2001.......... 27,726 $277 $191,438 $269,982 $(50,000) $ (6,319) $405,378
====== ==== ======== ======== ======== ======== ========
F-5
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS)
Cash flows from operating activities
Net earnings........................................... $ 66,217 $ 103,027 $ 59,355
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation of rental merchandise.................. 343,197 299,298 265,486
Depreciation of property assets..................... 37,910 33,144 31,313
Amortization of intangibles......................... 30,194 28,303 27,116
Amortization of financing fees...................... 2,760 2,705 2,608
Changes in operating assets and liabilities, net of
effects of acquisitions
Rental merchandise.................................. (391,932) (342,233) (387,903)
Accounts receivable -- trade........................ 1,590 629 (587)
Prepaid expenses and other assets................... (1,709) (6,624) 6,522
Deferred income taxes............................... 23,856 77,738 64,231
Accounts payable -- trade........................... (15,766) 12,197 9,584
Accrued liabilities................................. 79,413 (16,621) (106,975)
--------- --------- ---------
Net cash provided by (used in) operating
activities................................... 175,730 191,563 (29,250)
Cash flows from investing activities
Purchase of property assets............................ (57,532) (37,937) (36,211)
Proceeds from sale of property assets.................. 706 1,403 8,563
Acquisitions of businesses, net of cash acquired....... (49,835) (42,538) --
--------- --------- ---------
Net cash used in investing activities.......... (106,661) (79,072) (27,648)
--------- --------- ---------
Cash flows from financing activities
Purchase of treasury stock............................. (25,000) -- --
Proceeds from issuance of common stock, net of issuance
costs............................................... 45,622 -- --
Exercise of stock options.............................. 20,317 8,434 3,320
Proceeds from debt..................................... 99,506 242,975 320,815
Repayments of debt..................................... (138,051) (349,084) (279,355)
--------- --------- ---------
Net cash provided by (used in) financing
activities................................... 2,394 (97,675) 44,780
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 71,463 14,816 (12,118)
Cash and cash equivalents at beginning of year........... 36,495 21,679 33,797
--------- --------- ---------
Cash and cash equivalents at end of year................. $ 107,958 $ 36,495 $ 21,679
========= ========= =========
Supplemental cash flow information
Cash paid during the year for:
Interest............................................ $ 56,306 $ 75,956 $ 76,653
Income taxes........................................ $ 21,526 $ 9,520 $ 4,631
Supplemental schedule of non-cash investing and financing
activities
Fair value of assets acquired............................ $ 49,835 $ 42,538 $ --
Cash paid................................................ 49,835 42,538 --
--------- --------- ---------
Liabilities assumed...................................... $ -- $ -- $ --
========= ========= =========
During 2001 and 2000, the Company paid Series A preferred dividends of
approximately $10.7 million and $10.3 million by issuing 10,678 and 10,330
shares of Series A preferred stock, respectively.
F-6
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF ACCOUNTING POLICIES AND NATURE OF OPERATIONS
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows:
PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
The accompanying financial statements include the accounts of
Rent-A-Center, Inc. ("Rent-A-Center"), and its wholly-owned subsidiaries
(collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated. Rent-A-Center's sole operating segment
consists of leasing household durable goods to customers on a rent-to-own basis.
At December 31, 2001, Rent-A-Center operated 2,281 stores which were located
throughout the 50 United States, the District of Columbia and the Commonwealth
of Puerto Rico.
ColorTyme, Inc. ("ColorTyme"), Rent-A-Center's only subsidiary with
substantive operations, is a nationwide franchisor of 342 franchised rent-to-own
stores operating in 42 states. These rent-to-own stores offer high quality
durable products such as home electronics, appliances, computers, and furniture
and accessories. ColorTyme's primary source of revenues is the sale of rental
merchandise to its franchisees, who, in turn, offer the merchandise to the
general public for rent or purchase under a rent-to-own program. The balance of
ColorTyme's revenues are generated primarily from royalties based on
franchisees' monthly gross revenues.
RENTAL MERCHANDISE
Rental merchandise is carried at cost, net of accumulated depreciation.
Depreciation is provided using the income forecasting method, which is intended
to match as closely as practicable the recognition of depreciation expense with
the consumption of the rental merchandise, and assumes no salvage value. The
consumption of rental merchandise occurs during periods of rental and directly
coincides with the receipt of rental revenue over the rental-purchase agreement
period, generally 12 to 36 months. Under the income forecasting method,
merchandise held for rent is not depreciated, and merchandise on rent is
depreciated in the proportion of rents received to total rents provided in the
rental contract, which is an activity based method similar to the units of
production method.
Rental merchandise which is damaged and inoperable, or not returned by the
customer after becoming delinquent on payments, is written-off when such
impairment occurs.
CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include all highly
liquid investments with an original maturity of three months or less.
RENTAL REVENUE AND FEES
Merchandise is rented to customers pursuant to rental-purchase agreements
which provide for weekly or monthly rental terms with non-refundable rental
payments. Generally, the customer has the right to acquire title either through
a purchase option or through payment of all required rentals. Rental revenue and
fees are recognized over the rental term. No revenue is accrued because the
customer can cancel the rental contract at any time and Rent-A-Center cannot
enforce collection for non-payment of rents.
F-7
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ColorTyme's revenue from the sale of rental merchandise is recognized upon
shipment of the merchandise to the franchisee.
PROPERTY ASSETS AND RELATED DEPRECIATION
Furniture, equipment and vehicles are stated at cost less accumulated
depreciation. Depreciation is provided over the estimated useful lives of the
respective assets (generally five years) by the straight-line method. Leasehold
improvements are amortized over the term of the applicable leases by the
straight-line method.
INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets are stated at cost less accumulated amortization
calculated by the straight-line method.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates all long-lived assets, including all intangible
assets and rental merchandise, for impairment whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable.
Impairment is recognized when the carrying amounts of such assets cannot be
recovered by the undiscounted net cash flows they will generate.
INCOME TAXES
The Company provides deferred taxes for temporary differences between the
tax and financial reporting bases of assets and liabilities at the rate expected
to be in effect when taxes become payable.
EARNINGS PER COMMON SHARE
Basic earnings per common share are based upon the weighted average number
of common shares outstanding during each period presented. Diluted earnings per
common share are based upon the weighted average number of common shares
outstanding during the period, plus, if dilutive, the assumed exercise of stock
options and the assumed conversion of convertible securities at the beginning of
the year, or for the period outstanding during the year for current year
issuances.
ADVERTISING COSTS
Costs incurred for producing and communicating advertising are expensed
when incurred. Advertising expense was $69.1 million, $61.2 million, and $55.8
million in 2001, 2000 and 1999, respectively.
STOCK-BASED COMPENSATION
The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire that stock. Option grants to
non-employees are expensed over the service period.
F-8
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues during the reporting period. Actual
results could differ from those estimates.
OTHER COMPREHENSIVE INCOME
Other comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these amounts are
recorded directly as an adjustment to stockholders' equity. The Company's other
comprehensive income is attributed to changes in the fair value of interest rate
protection agreements, net of tax. See Note E for further discussion of
accounting for interest rate swap agreements.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Intangible Assets. SFAS No.
141 is effective for all business combinations completed after June 30, 2001.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.
Certain provisions of this statement, however, applied to goodwill and other
intangible assets acquired between July 1, 2001 and December 31, 2001.
Major provisions of these statements and their effective dates are as
follows:
- all business combinations initiated after June 30, 2001 must use the
purchase method of accounting;
- intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability;
- goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized;
- effective January 1, 2002, all previously recognized goodwill and
intangible assets with indefinite lives will no longer be subject to
amortization;
- effective January 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator; and
- all acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting.
The Company amortized goodwill and intangible assets acquired prior to July
1, 2001 until December 31, 2001. Beginning January 1, 2002, annual goodwill
amortization of approximately $28.4 million will no longer be recognized. The
Company intends to complete a transitional impairment test of all intangible
assets by March 31, 2002 and a transitional fair value based impairment test of
goodwill as of January 1, 2002 by June 30, 2002. Impairment losses, if any,
resulting from the transitional testing will be recognized in the quarter ended
March 31, 2002, as a cumulative effect of a change in accounting principle.
F-9
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
statement is effective for fiscal years beginning after June 15, 2002. The
Company does not believe that the implementation of this standard will have a
material effect on its financial position, results of operations, or cash flows.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144 Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement is effective for fiscal years beginning after
December 15, 2001. The Company does not believe that the implementation of this
standard will have a material effect on its financial position, results of
operations, or cash flows.
NOTE B -- RENTAL MERCHANDISE
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
On rent
Cost...................................................... $885,015 $768,590
Less accumulated depreciation............................. 353,388 291,495
-------- --------
$531,627 $477,095
======== ========
Held for rent
Cost...................................................... $156,013 $136,850
Less accumulated depreciation............................. 33,939 26,713
-------- --------
$122,074 $110,137
======== ========
NOTE C -- PROPERTY ASSETS
DECEMBER 31,
------------------
2001 2000
-------- -------
(IN THOUSANDS)
Furniture and equipment..................................... $ 94,689 $71,024
Transportation equipment.................................... 27,384 29,500
Building and leasehold improvements......................... 85,699 61,439
Construction in progress.................................... 6,083 3,300
-------- -------
213,855 165,263
Less accumulated depreciation............................... 106,972 78,095
-------- -------
$106,883 $87,168
======== =======
F-10
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- INTANGIBLE ASSETS
DECEMBER 31,
AMORTIZATION -------------------
PERIOD 2001 2000
------------ -------- --------
(IN THOUSANDS)
Noncompete agreements.......................... 2-5 years $ 1,677 $ 5,152
Franchise network.............................. 10 years 3,000 3,000
Goodwill....................................... 20-30 years 806,524 775,797
Other.......................................... Various 3,994 1,899
-------- --------
815,195 785,848
Less accumulated amortization.................. 104,099 77,520
-------- --------
$711,096 $708,328
======== ========
NOTE E -- SENIOR DEBT
The Company has a Senior Credit Facility (the "Facility") with a syndicate
of banks. The Company also has other debt facilities. These facilities consist
of the following:
DECEMBER 31, 2001 DECEMBER 31, 2000
---------------------------------- ----------------------------------
FACILITY MAXIMUM AMOUNT AMOUNT MAXIMUM AMOUNT AMOUNT
MATURITY FACILITY OUTSTANDING AVAILABLE FACILITY OUTSTANDING AVAILABLE
-------- -------- ----------- --------- -------- ----------- ---------
(IN THOUSANDS)
Senior Credit
Facility:
Term Loan "B"...... 2006 $148,850 $148,850 $ -- $203,300 $203,300 $ --
Term Loan "C"...... 2007 192,754 192,754 -- 248,815 248,815 --
Term Loan "D"(2)... 2007 86,396 86,396 -- 113,936 113,936 --
Revolver(1)........ 2004 120,000 -- 56,425 120,000 -- 76,272
-------- -------- ------- -------- -------- -------
548,000 428,000 56,425 686,051 566,051 76,272
Other Indebtedness:
Line of credit..... 10,000 -- 10,000 5,000 -- 5,000
-------- -------- ------- -------- -------- -------
Total Debt
Facilities......... $558,000 $428,000 $66,425 $691,051 $566,051 $81,272
======== ======== ======= ======== ======== =======
---------------
(1) At December 31, 2001 and 2000, the amounts available under the Company's
revolving facility were reduced by approximately $63.6 million and $43.7
million, respectively, for outstanding letters of credit used to support the
Company's insurance obligations.
(2) On June 29, 2000, the Company refinanced a portion the Facility by adding a
new $125 million Term tranche. No significant mandatory principal repayments
are required on the Term D facility until the tranche becomes due in 2007.
Borrowings under the Facility bear interest at varying rates equal to 0.50%
to 2.00% over the designated prime rate (4.75% per annum at December 31, 2001)
or 1.50% to 3.0% over LIBOR (1.88% at December 31, 2001) at the Company's
option, and are subject to quarterly adjustments based on certain leverage
ratios. At December 31, 2001, the average rate on outstanding borrowings was
8.15%, before considering the interest rate swap agreements as described below,
and 8.76% after giving effect to the interest rate swap agreements in effect at
December 31, 2001. A commitment fee equal to 0.25% to 0.50% of the unused
portion of the Facility is payable quarterly.
F-11
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Facility is collateralized by substantially all of the Company's
tangible and intangible assets, and is unconditionally guaranteed by each of the
Company's subsidiaries. In addition, the Facility contains several financial
covenants as defined therein, including a maximum leverage ratio, a minimum
interest coverage ratio, and a minimum fixed charge coverage ratio, as well as
restrictions on capital expenditures, additional indebtedness, and the
disposition of assets not in the ordinary course of business.
The following are scheduled maturities of senior debt at December 31, 2001:
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
------------------------ --------------
2002........................................................ $ 1,849
2003........................................................ 1,849
2004........................................................ 26,379
2005........................................................ 100,000
2006........................................................ 177,078
Thereafter.................................................. 120,845
--------
$428,000
========
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities and SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133. These Standards establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at fair
value. If the derivative is designated as a fair value hedge, the changes in the
fair value of the derivative and of the hedged item attributable to the hedged
risk are recognized in earnings. If the derivative is designated as a cash flow
hedge, the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income and are recognized in the income
statement when the hedged item affects earnings. Ineffective portions of changes
in the fair value of cash flow hedges are recognized in earnings. The Company
has designated its interest rate swap agreements as a cash flow hedge.
The adoption of SFAS No. 133 on January 1, 2001 resulted in the recognition
of approximately $2.6 million, or $1.4 million after taxes, of derivative assets
on the Company's consolidated balance sheet and $1.4 million of hedging gains
included in accumulated other comprehensive income as the cumulative effect of a
change in accounting principle. During the year ended December 31, 2001, the
Company recognized $3.9 million, net of tax, in additional interest expense
attributable to the difference in the variable interest on the debt and fixed
interest under the interest rate protection agreements. No gain or loss from
hedge ineffectiveness was required to be recognized. At December 31, 2001, the
fair value of the interest rate protection agreements was a cumulative loss of
$6.3 million, net of tax.
At December 31, 2001, the Company had two interest rate swap agreements to
limit the effect of increases in interest rates. These agreements both expire in
2003, and have an aggregate notional principal amount of $250.0 million. The
effect of these agreements is to limit the Company's interest rate exposure by
fixing the LIBOR rate at 5.60%. The Company had another $250.0 million interest
rate swap agreement which expired in September 2001. The agreements had no cost
to the Company.
F-12
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- SUBORDINATED NOTES PAYABLE
Rent-A-Center has $275.0 million of subordinated notes outstanding,
maturing on August 15, 2008, including $100.0 million which were issued in
December 2001 at 99.5% of par. The notes require semi-annual interest-only
payments at 11%, and are guaranteed by Rent-A-Center's two principal
subsidiaries. The notes are redeemable at Rent-A-Center's option, at any time on
or after August 15, 2003, at a set redemption price that varies depending upon
the proximity of the redemption date to final maturity. Upon a change of
control, the holders of the subordinated notes have the right to require
Rent-A-Center to redeem the notes.
The notes contain restrictive covenants, as defined therein, including a
consolidated interest coverage ratio and limitations on incurring additional
indebtedness, selling assets of Rent-A-Center's subsidiaries, granting liens to
third parties, making restricted payments and engaging in a merger or selling
substantially all of Rent-A-Center's assets.
Rent-A-Center's direct and wholly-owned subsidiaries, consisting of
ColorTyme and Advantage Companies, Inc. (collectively, the "Guarantors"), have
fully, jointly and severally, and unconditionally guaranteed the obligations of
Rent-A-Center with respect to these notes. The only direct or indirect
subsidiaries of Rent-A-Center that are not Guarantors are inconsequential
subsidiaries. There are no restrictions on the ability of any of the Guarantors
to transfer funds to Rent-A-Center in the form of loans, advances or dividends,
except as provided by applicable law.
Set forth below is certain condensed consolidating financial information as
of December 31, 2001 and 2000, and for each of the three years in the period
ended December 31, 2001. The financial information includes the Guarantors from
the dates they were acquired or formed by Rent-A-Center and is presented using
the push-down basis of accounting.
F-13
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT SUBSIDIARY CONSOLIDATING
COMPANY GUARANTORS ADJUSTMENTS TOTALS
---------- ---------- ------------- ----------
(IN THOUSANDS)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2001
Rental merchandise, net...................... $ 653,701 $ -- $ -- $ 653,701
Intangible assets, net....................... 367,271 343,825 -- 711,096
Other assets................................. 578,077 18,788 (341,742) 255,123
---------- -------- --------- ----------
Total assets....................... $1,599,049 $362,613 $(341,742) $1,619,920
========== ======== ========= ==========
Senior Debt.................................. $ 428,000 $ -- $ -- $ 428,000
Other liabilities............................ 489,174 5,458 -- 494,632
Preferred stock.............................. 291,910 -- -- 291,910
Stockholder's equity......................... 389,965 357,155 (341,742) 405,378
---------- -------- --------- ----------
Total liabilities and equity....... $1,599,049 $362,613 $(341,742) $1,619,920
========== ======== ========= ==========
DECEMBER 31, 2000
Rental merchandise, net...................... $ 587,232 $ -- $ -- $ 587,232
Intangible assets, net....................... 351,498 356,830 -- 708,328
Other assets................................. 531,992 13,754 (354,396) 191,350
---------- -------- --------- ----------
Total assets....................... $1,470,722 $370,584 $(354,396) $1,486,910
========== ======== ========= ==========
Senior Debt.................................. $ 566,051 $ -- $ -- $ 566,051
Other liabilities............................ 325,995 4,261 -- 330,256
Preferred stock.............................. 281,232 -- -- 281,232
Stockholder's equity......................... 297,444 366,323 (354,396) 309,371
---------- -------- --------- ----------
Total liabilities and equity....... $1,470,722 $370,584 $(354,396) $1,486,910
========== ======== ========= ==========
PARENT SUBSIDIARY
COMPANY GUARANTORS TOTAL
---------- ---------- ----------
(IN THOUSANDS)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
Total revenues......................................... $1,749,060 $59,468 $1,808,528
Direct store expenses.................................. 1,435,138 -- 1,435,138
Other.................................................. 243,266 63,907 307,173
---------- ------- ----------
Net earnings (loss).................................... $ 70,656 $(4,439) $ 66,217
========== ======= ==========
YEAR ENDED DECEMBER 31, 2000
Total revenues......................................... $1,543,848 $57,766 $1,601,614
Direct store expenses.................................. 1,230,864 -- 1,230,864
Other.................................................. 205,342 62,381 267,723
---------- ------- ----------
Net earnings (loss).................................... $ 107,642 $(4,615) $ 103,027
========== ======= ==========
YEAR ENDED DECEMBER 31, 1999
Total revenues......................................... $1,361,578 $55,589 $1,417,167
Direct store expenses.................................. 1,110,085 -- 1,110,085
Other.................................................. 187,156 60,571 247,727
---------- ------- ----------
Net earnings (loss).................................... $ 64,337 $(4,982) $ 59,355
========== ======= ==========
F-14
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT SUBSIDIARY
COMPANY GUARANTORS TOTAL
--------- ---------- ---------
(IN THOUSANDS)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
Net cash provided by operating activities................ $ 169,178 $ 6,552 $ 175,730
--------- ------- ---------
Cash flows from investing activities
Purchase of property assets............................ (57,477) (55) (57,532)
Acquisitions of businesses, net of cash acquired....... (49,835) -- (49,835)
Other.................................................. 706 -- 706
--------- ------- ---------
Net cash used in investing activities.................... (106,606) (55) (106,661)
Cash flows from financing activities
Purchase of treasury stock............................. (25,000) -- (25,000)
Exercise of stock options.............................. 20,317 -- 20,317
Repayments of debt..................................... (138,051) -- (138,051)
Proceeds from debt..................................... 99,506 -- 99,506
Proceeds from issuance of common stock................. 45,622 -- 45,622
Intercompany advances.................................. 6,497 (6,497) --
--------- ------- ---------
Net cash provided by (used in) financing activities...... 8,891 (6,497) 2,394
--------- ------- ---------
Net increase in cash and cash equivalents................ 71,463 -- 71,463
Cash and cash equivalents at beginning of year........... 36,495 -- 36,495
--------- ------- ---------
Cash and cash equivalents at end of year................. $ 107,958 $ -- $ 107,958
========= ======= =========
YEAR ENDED DECEMBER 31, 2000
Net cash provided by operating activities................ $ 185,719 $ 5,844 $ 191,563
--------- ------- ---------
Cash flows from investing activities
Purchase of property assets............................ (37,843) (94) (37,937)
Acquisitions of businesses, net of cash acquired....... (42,538) -- (42,538)
Other.................................................. 1,403 -- 1,403
--------- ------- ---------
Net cash used in investing activities.................... (78,978) (94) (79,072)
Cash flows from financing activities
Proceeds from debt..................................... 242,975 -- 242,975
Repayments of debt..................................... (349,084) -- (349,084)
Intercompany advances.................................. 5,750 (5,750) --
Other.................................................. 8,434 -- 8,434
--------- ------- ---------
Net cash used in financing activities.................... (91,925) (5,750) (97,675)
--------- ------- ---------
Net increase in cash and cash equivalents................ 14,816 -- 14,816
Cash and cash equivalents at beginning of year........... 21,679 -- 21,679
--------- ------- ---------
Cash and cash equivalents at end of year................. $ 36,495 $ -- $ 36,495
========= ======= =========
YEAR ENDED DECEMBER 31, 1999
Net cash provided by (used in) operating activities...... $ (34,426) $ 5,176 $ (29,250)
--------- ------- ---------
F-15
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT SUBSIDIARY
COMPANY GUARANTORS TOTAL
--------- ---------- ---------
(IN THOUSANDS)
Cash flows from investing activities
Purchase of property assets............................ (35,979) (232) (36,211)
Proceeds from sale of property assets.................. 8,563 -- 8,563
--------- ------- ---------
Net cash used in investing activities.................... (27,416) (232) (27,648)
Cash flows from financing activities
Proceeds from debt..................................... 320,815 -- 320,815
Repayments of debt..................................... (279,355) -- (279,355)
Intercompany advances.................................. 4,944 (4,944) --
Other.................................................. 3,320 -- 3,320
--------- ------- ---------
Net cash provided by (used in) financing activities...... 49,724 (4,944) 44,780
--------- ------- ---------
Net decrease in cash and cash equivalents................ (12,118) -- (12,118)
Cash and cash equivalents at beginning of year........... 33,797 -- 33,797
--------- ------- ---------
Cash and cash equivalents at end of year................. $ 21,679 $ -- $ 21,679
========= ======= =========
NOTE G -- ACCRUED LIABILITIES
DECEMBER 31,
------------------
2001 2000
-------- -------
(IN THOUSANDS)
Taxes other than income..................................... $ 19,071 $20,306
Income taxes payable........................................ 7,081 2,788
Accrued litigation costs.................................... 59,044 14,753
Accrued insurance costs..................................... 36,634 28,929
Accrued interest payable.................................... 10,618 8,198
Accrued compensation and other.............................. 37,748 14,586
-------- -------
$170,196 $89,560
======== =======
Included in the $59.0 million of accrued litigation costs is approximately
$52.0 million related to the gender discrimination class action litigation
settlements as more fully described in Note J.
NOTE H -- REDEEMABLE CONVERTIBLE VOTING PREFERRED STOCK
Rent-A-Center's Series A preferred stock is convertible, at any time, into
shares of Rent-A-Center's common stock at a conversion price equal to $27.935
per share, and has a liquidation preference of $1,000 per share, plus all
accrued and unpaid dividends. No distributions may be made to holders of common
stock until the holders of the Series A preferred stock have received the
liquidation preference. Dividends accrue on a quarterly basis, at the rate of
$37.50 per annum, per share. A restriction under the Facility requires
Rent-A-Center to pay the dividends with additional shares of Series A preferred
stock until August 2003, after which Rent-A-Center must pay the dividends in
cash. During 2001 and 2000, Rent-A-Center paid approximately $10.7 million and
$10.3 million in Series A preferred dividends by issuing 10,678 and 10,330
shares of Series A preferred stock, respectively. At
F-16
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2001 and 2000, Rent-A-Center had 292,434 and 281,756 shares,
respectively, of its Series A preferred stock outstanding.
The Series A preferred stock is not redeemable until August 2002, after
which time Rent-A-Center may, at its option, redeem the shares at 105% of the
liquidation preference plus accrued and unpaid dividends. Holders of the Series
A preferred stock have the right to require Rent-A-Center to redeem the Series A
preferred stock upon a change of control, if Rent-A-Center ceases to be listed
on a United States national securities exchange or the NASDAQ National Market
System, or upon the eleventh anniversary of the issuance of the Series A
preferred stock, at a price equal to the liquidation preference value.
Holders of the Series A preferred stock are entitled to two seats on
Rent-A-Center's Board of Directors, and are entitled to vote on all matters
presented to the holders of Rent-A-Center's common stock. The number of votes
per Series A preferred share is equal to the number of votes associated with the
underlying voting common stock into which the Series A preferred stock is
convertible.
NOTE I -- INCOME TAXES
The income tax provision reconciled to the tax computed at the statutory
Federal rate is:
YEAR ENDED
DECEMBER 31,
-------------------
2001 2000 1999
---- ---- ----
Tax at statutory rate....................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.................. 5.7% 5.5% 5.5%
Effect of foreign operations, net of foreign tax credits.... 0.8% 0.2% 0.3%
Goodwill amortization....................................... 5.8% 5.0% 6.4%
Other, net.................................................. (0.4)% 1.3% 1.3%
---- ---- ----
Total....................................................... 46.9% 47.0% 48.5%
==== ==== ====
The components of the income tax provision are as follows:
YEAR ENDED DECEMBER 31,
----------------------------
2001 2000 1999
------- ------- --------
(IN THOUSANDS)
Current expense (benefit)
Federal............................................ $24,073 $ 6,099 $(10,770)
State.............................................. 8,795 5,637 815
Foreign............................................ 1,865 1,894 1,623
------- ------- --------
Total current.............................. 34,733 13,630 (8,332)
------- ------- --------
Deferred expense
Federal............................................ 22,400 68,406 57,342
State.............................................. 1,456 9,332 6,889
------- ------- --------
Total deferred............................. 23,856 77,738 64,231
------- ------- --------
Total...................................... $58,589 $91,368 $ 55,899
======= ======= ========
F-17
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities consist of the following:
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Deferred tax assets
Net operating loss carryforwards.......................... $ 2,656 $ 41,515
Accrued expenses.......................................... 49,187 25,667
Intangible assets......................................... 17,561 22,119
Property assets........................................... 23,393 18,644
Other tax credit carryforwards............................ 5,862 5,436
Unrealized loss on interest rate swap agreements.......... 3,872 --
-------- --------
102,531 113,381
Deferred tax liability
Rental merchandise........................................ (93,759) (80,753)
-------- --------
Net deferred tax asset............................ $ 8,772 $ 32,628
======== ========
The Company has alternative minimum tax credit carryforwards of
approximately $5.8 million and various state net operating loss carryforwards.
During 1999, the Company completed its analysis of the tax bases of assets
and liabilities acquired in the Thorn Americas, Inc. acquisition in 1998,
resulting in a decrease in its deferred tax asset of $3.8 million and a
corresponding increase in goodwill.
NOTE J -- COMMITMENTS AND CONTINGENCIES
Rent-A-Center leases its office and store facilities and most delivery
vehicles. Rental expense was $127.6 million, $105.6 million and $96.8 million
for 2001, 2000, and 1999, respectively. Future minimum rental payments under
operating leases with remaining noncancelable lease terms in excess of one year
at December 31, 2001 are as follows:
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
------------------------ --------------
2002........................................................ $107,142
2003........................................................ 95,208
2004........................................................ 77,999
2005........................................................ 53,164
2006........................................................ 21,317
Thereafter.................................................. 5,438
--------
$360,268
========
From time to time, Rent-A-Center, along with its subsidiaries, is party to
various legal proceedings arising in the ordinary course of business.
Rent-A-Center is currently a party to the following material litigation:
Colon v. Thorn Americas, Inc. In November 1997, the plaintiffs filed this
statutory compliance class action lawsuit in New York alleging various statutory
violations of New York consumer protection laws. The plaintiffs are seeking
damages compensatory, punitive damages, interest, attorney's fees and certain
injunctive relief. Although Rent-A-Center intends to
F-18
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
vigorously defend itself in this action, the ultimate outcome cannot presently
be determined, and there can be no assurance that Rent-A-Center will prevail
without liability.
Wisconsin Attorney General Proceeding. In August 1999, the Wisconsin
Attorney General filed suit against Rent-A-Center and its subsidiary ColorTyme
in Wisconsin, alleging that its rent-to-rent transaction violates the Wisconsin
Consumer Act and the Wisconsin Deceptive Advertising Statute. The Attorney
General seeks injunctive relief, restoration of any losses suffered by any
Wisconsin consumer harmed and civil forfeitures and penalties. In January 2002,
the court granted summary judgment in favor of the Wisconsin Attorney General on
the liability issues and set the case for trial on damages for February 2003.
Rent-A-Center intends to vigorously defend itself in this matter. However, there
can be no assurance that the outcome of this matter will not have a material
adverse effect on Rent-A-Center's financial position, results of operations or
cash flows.
Walker, et. al. v. Rent-A-Center, Inc. In January 2002, a putative class
action was filed against Rent-A-Center and certain of its current and former
officers alleging that the defendants violated Section 10(b) and/or Section
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder by issuing false and misleading statements and omitting material
facts regarding Rent-A-Center's financial performance and prospects for the
third and fourth quarters of 2001. The complaint purports to be brought on
behalf of all purchasers of Rent-A-Center's common stock from April 25, 2001
through October 8, 2001 and seeks damages in unspecified amounts. Rent-A-Center
intends to vigorously defend itself in this matter. However, there can be no
assurance that Rent-A-Center will prevail without liability.
An adverse ruling in one or more of the aforementioned cases could have a
material and adverse effect on the Company's consolidated financial statements.
Wilfong, et. al. v. Rent-A-Center, Inc./Margaret Bunch, et. al. v.
Rent-A-Center, Inc. In August 2000, a putative nationwide class action was
filed against Rent-A-Center in federal court in East St. Louis, Illinois by
Claudine Wilfong and sixteen plaintiffs, alleging that it engaged in class-wide
gender discrimination following its acquisition of Thorn Americas. In December
2000, a similar suit filed by Margaret Bunch in federal court in the Western
District of Missouri was amended to allege similar class action claims. The
allegations underlying these matters involve charges of wrongful termination,
constructive discharge, disparate treatment and disparate impact.
In November 2001, Rent-A-Center announced that it had reached an agreement
in principle to settle the Bunch matter for an aggregate of $12.25 million, plus
attorneys fees and costs to administer the settlement. Accordingly,
Rent-A-Center recorded a charge of $16.0 million related to the proposed
settlement of Bunch in the third quarter of 2001. On March 7, 2002,
Rent-A-Center announced an agreement in principle to settle the Wilfong matter,
the Bunch matter, as well as an EEOC action in Tennessee for approximately $47.0
million. Accordingly, Rent-A-Center recorded an additional charge of $36.0
million in the fourth quarter of 2001 to reflect the total settlement of these
matters. The terms of the proposed settlement are subject to the parties
entering into a definitive settlement agreement and court approval.
During 1999, Rent-A-Center funded the $11.5 million settlement of its two
class action lawsuits in New Jersey, together with the $48.5 million settlement
of Robinson v. Thorn Americas, Inc. The settlement of Rent-A-Center's existing
litigation resulted in a charge to earnings in 1998, classified as class action
legal settlements. In addition, Rent-A-Center settled and funded Anslono v.
Thorn Americas, Inc. during 2000. Both the Robinson and Anslono cases were
acquired in the Thorn Americas acquisition, and Rent-A-Center made appropriate
F-19
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase accounting adjustments for liabilities associated with this litigation.
During 2000, Rent-A-Center received refunds of approximately $22.4 million for
unlocated class members which are presented as class action litigation
settlements.
In addition, Fogie v. Thorn Americas, Inc., was acquired in the Thorn
Americas acquisition; however, Rent-A-Center received full indemnification from
the seller for any incurred losses. In December 1991, the plaintiffs filed this
class action in Minnesota alleging that Thorn's rent-to-own contracts violated
Minnesota's Consumer Credit Sales Act and the Minnesota General Usury Statute.
In April 1998, the court entered a final judgment against Thorn Americas for
approximately $30.0 million. Following an unsuccessful appeal in August 1999,
Thorn plc deposited the judgment amount in an escrow account supervised by
plaintiff's counsel and the court in October 1999.
The Company is also involved in various other legal proceedings, claims and
litigation arising in the ordinary course of business. Although occasional
adverse decisions or settlements may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
ColorTyme is a party to an agreement with a lender, who provides financing
to qualifying franchisees of ColorTyme. Under this agreement, in the event of
default by the franchisee under agreements governing this financing and upon the
occurrence of certain events the lender may assign the loans and the collateral
securing such loans to ColorTyme, with ColorTyme then succeeding to the rights
of the lender under the debt agreements, including the rights to foreclose on
the collateral. Rent-A-Center guarantees the obligations of ColorTyme under this
agreement.
NOTE K -- STOCK BASED COMPENSATION
Rent-A-Center's long-term incentive plan (the "Plan") for the benefit of
certain key employees, consultants and directors provides the Board of Directors
broad discretion in creating equity incentives. Under the plan, 7,900,000 shares
of Rent-A-Center's common stock are reserved for issuance under stock options,
stock appreciation rights or restricted stock grants. Options granted to
employees under the Plan become exercisable over a period of one to five years
from the date of grant and may be exercised up to a maximum of 10 years from
date of grant. Options granted to directors are exercisable immediately. There
have been no grants of stock appreciation rights and all options have been
granted with fixed prices. At December 31, 2001, there were 2,095,814 shares
available for issuance under the Plan.
F-20
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with respect to stock option activity is as follows:
2001 2000 1999
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
Outstanding at beginning of
year........................ 3,790,275 $24.32 3,590,038 $23.57 3,493,763 $23.96
Granted....................... 2,219,000 33.83 1,782,500 24.40 2,042,250 24.42
Exercised..................... (852,309) 23.10 (427,700) 21.34 (173,875) 12.05
Forfeited..................... (1,199,026) 29.20 (1,154,563) 23.60 (1,772,100) 24.81
---------- ---------- ----------
Outstanding at end of year.... 3,957,940 $28.43 3,790,275 $24.32 3,590,038 $23.57
========== ========== ==========
Options exercisable at end of
year........................ 954,812 $24.14 1,097,961 $23.04 819,739 $20.78
The weighted average fair value per share of options granted during 2001,
2000 and 1999 was $20.34, $14.97, and $14.38, respectively, all of which were
granted at market value. Information about stock options outstanding at December
31, 2001 is summarized as follows:
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
------------------------ ----------- ---------------- ----------------
$3.34 to $6.67........................ 57,000 3.35 years $ 6.44
$6.68 to $18.50....................... 362,235 7.35 years $16.38
$18.51 to $28.50...................... 2,169,230 8.34 years $24.62
$28.51 to $33.88...................... 741,475 8.57 years $32.79
$33.89 to $49.05...................... 628,000 9.44 years $45.41
---------
3,957,940
=========
OPTIONS EXERCISABLE
------------------------------
NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES EXERCISABLE EXERCISE PRICE
------------------------ ----------- ----------------
$3.34 to $6.67.......................................... 57,000 $ 6.44
$6.68 to $18.50......................................... 148,421 $16.36
$18.51 to $28.50........................................ 582,479 $25.50
$28.51 to $33.88........................................ 166,912 $32.38
-------
954,812
=======
During 2001 and 2000, Rent-A-Center issued 12,500 and 25,000 options,
respectively, to a non-employee for services. The options are valued at $168,378
and $65,000, respectively. The expense related to these option agreements is
recognized over the service period.
The Company has adopted only the disclosure provisions of SFAS 123 for
employee stock options and continues to apply APB 25 for stock options granted
under the Plan. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of Rent-A-Center's common stock
at the date of grant over the amount an employee must pay to acquire the common
stock. Compensation costs for all other stock-based compensation is accounted
for under SFAS 123. If Rent-A-Center had elected to recognize
F-21
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation expense based upon the fair value at the grant date for options
under the Plan consistent with the methodology prescribed by SFAS 123, the
Company's 2001, 2000 and 1999 net earnings and earnings per common share would
be reduced to the pro forma amounts indicated as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net earnings allocable to common stockholders
As reported........................................ $50,809 $92,607 $49,316
Pro forma.......................................... $43,429 $82,335 $41,011
Basic earnings per common share
As reported........................................ $ 1.97 $ 3.79 $ 2.04
Pro forma.......................................... $ 1.68 $ 3.37 $ 1.69
Diluted earnings per common share
As reported........................................ $ 1.79 $ 2.96 $ 1.74
Pro forma.......................................... $ 1.59 $ 2.67 $ 1.50
The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 53% to 57%; risk-free interest rates of 4.2%
to 5.3%, 6.50% and 5.55% in 2001, 2000, and 1999, respectively; no dividend
yield; and expected lives of seven years.
NOTE L -- ACQUISITIONS
For the year ending December 31, 2001, Rent-A-Center acquired 95 stores.
The acquired stores were the result of 21 separate transactions for an aggregate
of approximately $43.1 million in cash. One of the transactions, which took
place in June 2001, consisted of 54 stores, for approximately $21.0 million in
cash. All acquisitions have been accounted for as purchases, and the operating
results of the acquired businesses have been included in the financial
statements since their date of acquisition.
For the year ending December 31, 2000, Rent-A-Center acquired 74 stores.
The 74 acquired stores were the result of 19 separate transactions for an
aggregate of approximately $42.5 million in cash.
NOTE M -- EMPLOYEE BENEFIT PLAN
Rent-A-Center sponsors a defined contribution pension plan under Section
401(k) of the Internal Revenue Code for all employees who have completed three
months of service. Employees may elect to contribute up to 20% of their eligible
compensation on a pre-tax basis, subject to limitations. Rent-A-Center may make
discretionary matching contributions to the 401(k) plan. During 2001, 2000, and
1999, Rent-A-Center made matching cash contributions of $3,297,940, $2,453,639,
and $2,283,575, respectively, which represents 50% of the employees'
contributions to the 401(k) plan up to an amount not to exceed 4% of each
employee's respective compensation. As of March 15, 2000, employees may elect to
purchase Rent-A-Center common stock as part of their 401(k) plan. As of December
31, 2001 and 2000, respectively, 10.8% and 5.0% of the total plan assets
consisted of Rent-A-Center common stock.
F-22
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
senior debt and subordinated notes payable. The carrying amount of cash and cash
equivalents approximates fair value at December 31, 2001 and 2000, because of
the short maturities of these instruments. The Company's senior debt is variable
rate debt that reprices frequently and entails no significant change in credit
risk, and as a result, fair value approximates carrying value. The fair value of
the subordinated notes payable is estimated based on discounted cash flow
analysis using interest rates currently offered for loans with similar terms to
borrowers of similar credit quality. At December 31, 2001, the fair value of the
subordinated notes was $277.1 million, which is $2.6 million above their
carrying value of $274.5 million. Information relating to the fair value of the
Company's interest rate swap agreements is set forth in Note E.
NOTE O -- EARNINGS PER COMMON SHARE
Summarized basic and diluted earnings per common share were calculated as
follows:
NET EARNINGS SHARES PER SHARE
-------------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 2001
Basic earnings per common share...................... $ 50,809 25,846 $1.97
Effect of dilutive stock options..................... -- 908
Effect of preferred dividend......................... 15,408 10,325
-------- ------
Diluted earnings per common share.................... $ 66,217 37,079 $1.79
======== ======
YEAR ENDED DECEMBER 31, 2000
Basic earnings per common share...................... $ 92,607 24,432 $3.79
Effect of dilutive stock options..................... -- 433
Effect of preferred dividend......................... 10,420 9,947
-------- ------
Diluted earnings per common share.................... $103,027 34,812 $2.96
======== ======
YEAR ENDED DECEMBER 31, 1999
Basic earnings per common share...................... $ 49,316 24,229 $2.04
Effect of dilutive stock options..................... -- 319
Effect of preferred dividend......................... 10,039 9,583
-------- ------
Diluted earnings per common share.................... $ 59,355 34,131 $1.74
======== ======
For 2001, 2000, and 1999, the number of stock options that were outstanding
but not included in the computation of diluted earnings per common share because
their exercise price was greater than the average market price of the common
stock and, therefore anti-dilutive, was 628,000, 1,485,118, and 1,707,947,
respectively.
NOTE P -- UNAUDITED QUARTERLY DATA
Summarized quarterly financial data for 2001 and 2000 is as follows:
F-23
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 2001(1)
Revenues..................................... $439,702 $442,759 $447,074 $478,993
Operating profit............................. 62,485 66,640 32,372 23,089
Net earnings................................. 24,998 27,545 9,974 3,700
Basic earnings per common share.............. 0.83 0.88 0.27 0.01
Diluted earnings per common share............ 0.69 0.74 0.26 0.10
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 2000(2)
Revenues..................................... $392,526 $392,245 $404,968 $411,875
Operating profit............................. 58,552 84,184 63,720 60,557
Net earnings................................. 20,889 34,621 23,901 23,616
Basic earnings per common share.............. 0.75 1.32 0.87 0.85
Diluted earnings per common share............ 0.61 1.00 0.68 0.67
---------------
(1) Includes the effects of a pre-tax legal settlement of $52.0 million
associated with a 2001 settlement of a class action lawsuit in the state of
Missouri, Illinois and Tennessee.
(2) Includes the effects of a pre-tax legal reversion of $22.4 million
associated with the 1999 settlement of three class action lawsuits in the
state of New Jersey.
NOTE Q -- RELATED PARTY TRANSACTIONS
On October 8, 2001, Rent-A-Center announced the retirement of J. Ernest
Talley as its Chairman and Chief Executive Officer, and the appointment of Mark
E. Speese as its new Chairman and Chief Executive Officer. In connection with
Mr. Talley's retirement, Rent-A-Center's Board of Directors approved the
repurchase of $25.0 million worth of shares of its common stock held by Mr.
Talley at a purchase price equal to the average closing price of its common
stock over the 10 trading days beginning October 9, 2001, subject to a maximum
of $27.00 per share and a minimum of $20.00 per share. Under this formula, the
purchase price for the repurchase was calculated at $20.258 per share.
Accordingly, on October 23, 2001 Rent-A-Center repurchased 493,632 shares of its
common stock from Mr. Talley at $20.258 per share for a total purchase price of
$10.0 million and on November 30, 2001, repurchased an additional 740,448 shares
of its common stock from Mr. Talley at $20.258 per share, for a total purchase
price of an additional $15.0 million. Rent-A-Center also had the option to
repurchase all of the remaining 1,714,086 shares of its common stock held by Mr.
Talley at $20.258 per share for $34.7 million by February 5, 2002. Rent-A-Center
exercised this option on January 25, 2002 and repurchased the remaining shares
on January 30, 2002.
One of Rent-A-Center's directors serves as Vice Chairman of the Board of
Directors of Intrust Bank, N.A., one of Rent-A-Center's lenders. Intrust Bank,
N.A. was a $10.4 million participant in Rent-A-Center's senior credit facility
as of December 31, 2001. Rent-A-Center also maintains a $10.0 million revolving
line of credit with Intrust Bank, N.A. Although from time to time Rent-A-Center
may draw funds from the revolving line of credit, no funds were advanced as of
December 31, 2001. In addition, Intrust Bank, N.A. serves as trustee of
Rent-A-Center's 401(k) plan.
F-24
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 2000, Rent-A-Center purchased stores from Portland II RAC, Inc. and
Wilson Enterprises of Maine, Inc., each of which were ColorTyme franchisees, for
$19.4 million in cash based upon a purchase formula established at the time of
the Thorn Americas acquisition. Rent-A-Center's current president held
approximately 15% of the stock of each of the franchisees and received
$1,833,046 in cash as a result of the purchase. In July 2000, partners of
Rent-A-Center's President purchased his 33 1/3% interest in CTME, LLC, another
of the ColorTyme's franchisees, for $37,500. Rent-A-Center's President no longer
owns an interest in any ColorTyme franchisees.
On August 5, 1998, affiliates of Apollo Management IV, L.P. ("Apollo")
purchased $250.0 million of Rent-A-Center's Series A preferred stock. Under the
terms of the Series A preferred stock, the holders of the Series A preferred
stock have the right to elect two members of Rent-A-Center's Board of Directors.
Apollo has voting control over 100% of the issued and outstanding Series A
preferred stock. In addition, pursuant to the terms of a stockholders agreement
entered into between Apollo, Rent-A-Center and Mark E. Speese, Apollo has the
right to nominate a third person to Rent-A-Center's Board of Directors.
F-25
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNTIL , 2002, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THE UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
RENT-A-CENTER, INC.
COLORTYME, INC.
ADVANTAGE COMPANIES, INC.
OFFER TO EXCHANGE
11% SENIOR
SUBORDINATED NOTES
DUE 2008, SERIES D
FOR ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES
DUE 2008
AND
11% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES C
----------------------
PROSPECTUS
----------------------
, 2002
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW ("DGCL")
Subsection (a) of Section 145 of the Delaware General Corporation Law, or
DGCL, empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of 145 of the DGCL empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful on the merits or otherwise in
defense of any such action, suit or proceeding referred to in subsections (a)
and (b) of Section 145 or in the defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith; that the indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
which the indemnified party may be entitled; that indemnification provided by
Section 145 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators; and empowers the corporation to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145 of the DGCL.
II-1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Our certificate of incorporation provides that our directors shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders,
- for acts or occasions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- in respect of certain unlawful dividend payments or stock purchases or
redemptions, or
- for any transaction from which the director derived an improper personal
benefit.
If the DGCL is amended to authorize the further elimination or limitation
of the liability of directors, then the liability of our directors, in addition
to the limitation on personal liability provided in our certificate of
incorporation, will be limited to the fullest extent permitted by the DGCL.
Further, any repeal or modification of such provision of our certificate of
incorporation by our stockholders will be prospective only, and will not
adversely affect any limitation on the personal liability of our directors
arising from an act or omission occurring prior to the time of such repeal or
modification.
AMENDED AND RESTATED BYLAWS
Our bylaws provide that we shall indemnify and hold harmless our directors
threatened to be or made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was our
director, whether the basis of such a proceeding is alleged action in such
person's official capacity or in another capacity while holding such office, to
the fullest extent authorized by the DGCL or any other applicable law, against
all expense, liability and loss actually and reasonably incurred or suffered by
such person in connection with such proceeding, so long as a majority of a
quorum of disinterested directors, the stockholders or legal counsel through a
written opinion determines that such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to our best interests, and in the
case of a criminal proceeding, such person had no reasonable cause to believe
his conduct was unlawful. Such indemnification shall continue as to a person who
has ceased to serve in the capacity which initially entitled such person to
indemnity thereunder and shall inure to the benefit of his or her heirs,
executors and administrators. Our bylaws also contain certain provisions
designed to facilitate receipt of such benefits by any such persons, including
the prepayment of any such benefit.
INSURANCE
We have obtained a directors' and officers' liability insurance policy
insuring our directors and officers against losses resulting from wrongful acts
committed by them as our directors and officers, including liabilities arising
under the Securities Act.
II-2
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
1.1* -- Purchase Agreement, dated as of December 12, 2001, among
Rent-A-Center, Inc., Advantage Companies, Inc. ColorTyme,
Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc. and Lehman Brothers
Inc.
3.1(1) -- Amended and Restated Certificate of Incorporation of Renters
Choice, Inc.
3.2(2) -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of Renters Choice, Inc.
3.3(3) -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of Rent-A-Center, Inc.
3.4* -- Amended and Restated Bylaws of Rent-A-Center, Inc.
3.5(4) -- Restated Certificate of Incorporation of Advantage
Companies, Inc.
3.6(5) -- Bylaws of Advantage Companies, Inc.
3.7(6) -- Amendment to the Bylaws of Advantage Companies, Inc.
3.8(7) -- Articles of Incorporation of ColorTyme, Inc.
3.9(8) -- Articles of Merger of ColorTyme, Inc. into CT Acquisition
Corporation
3.10(9) -- Bylaws of ColorTyme, Inc.
3.11* -- Amendment to Bylaws of ColorTyme, Inc.
4.1(10) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series A Preferred Stock of Renters
Choice, Inc.
4.2(11) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series B Preferred Stock of Renters
Choice, Inc.
4.3(12) -- 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
4.4(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 Exchange Note
4.5(14) -- Form of 1998 Note
4.6* -- Indenture, dated as of December 19, 2001, by and among
Rent-A-Center, Inc., as Issuer, ColorTyme, Inc. and
Advantage Companies, Inc., as Subsidiary Guarantors, and The
Bank of New York, as Trustee
4.7* -- Form of Exchange Note
5.1* -- Form of Opinion of Winstead Sechrest & Minick P.C. regarding
legality of the securities offered
10.1* -- Amended and Restated Rent-A-Center, Inc. Long-Term Incentive
Plan
10.2(15) -- Amended and Restated Credit Agreement, dated as of August 5,
1998 as amended and restated as of June 29, 2000, among
Rent-A-Center, Inc., Comerica Bank, as Documentation Agent,
Bank of America, NA, as Syndication Agent, and The Chase
Manhattan Bank, as Administration Agent
10.3(16) -- First Amendment, dated as of May 8, 2001, to the Credit
Agreement, dated as of August 5, 1998, as amended and
restated as of June 29, 2000, among Rent-A-Center, Inc., the
Lenders party to the Credit Agreement, the Documentation
Agent and Syndication Agent named therein and The Chase
Manhattan Bank, as Administrative Agent
II-3
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.4* -- Second Amendment, dated as of November 26, 2001, to the
Credit Agreement, dated as of August 5, 1998, as amended and
restated as of June 29, 2000, among Rent-A-Center, Inc., the
Lenders party to the Credit Agreement, the Documentation
Agent and Syndication Agent named therein and JP Morgan
Chase Bank (formerly known as The Chase Manhattan Bank), as
Administrative Agent
10.5(17) -- 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
10.6(18) -- Amended and Restated Stockholders Agreement, effective as of
October 8, 2001, 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
10.7(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
10.8(20) -- Common Stock Purchase Agreement, dated as of October 8,
2001, by and among J. Ernest Talley, Mary Ann Talley, the
Talley 1999 Trust, and Rent-A-Center, Inc.
10.9* -- Exchange and Registration Rights Agreement, dated December
19, 2001, by and among Rent-A-Center, Inc., ColorTyme, Inc.,
Advantage Companies, Inc., J.P. Morgan Securities Inc.,
Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc.
and Lehman Brothers Inc.
21.1(21) -- Subsidiaries of Rent-A-Center, Inc.
23.1** -- Consent of Grant Thornton LLP
23.2* -- Consent of Winstead Sechrest & Minick P.C. (included as part
of its opinion filed as Exhibit 5.1)
24.1* -- Power of Attorney (included on signature page of this S-4)
25.1* -- Statement of eligibility of The Bank of New York
99.1* -- Form of Letter of Transmittal concerning 1998 notes
99.2* -- Form of Letter of Transmittal concerning 2001 notes
99.3* -- Form of Notice of Guaranteed Delivery concerning 1998 notes
99.4* -- Form of Notice of Guaranteed Delivery concerning 2001 notes
99.5* -- Form of Letter to Clients concerning 1998 notes
99.6* -- Form of Letter to Clients concerning 2001 notes
99.7* -- Form of Letter to Brokers concerning 1998 notes
99.8* -- Form of Letter to Brokers concerning 2001 notes
---------------
* Filed previously
** Filed herewith
II-4
(1) 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
(2) 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
(3) Incorporated herein by reference to Exhibit 3.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001
(4) Incorporated herein by reference to Exhibit 3.5 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(5) Incorporated herein by reference to Exhibit 3.8 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(6) Incorporated herein by reference to Exhibit 3.9 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(7) Incorporated herein by reference to Exhibit 3.6 to the registrant's
Registration Statement on Form S-4 filed on January 14, 1999
(8) Incorporated herein by reference to Exhibit 3.7 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(9) Incorporated herein by reference to Exhibit 3.10 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(10) 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
(11) 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
(12) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(13) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(14) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(15) Incorporated herein by reference to Exhibit 10.4 to the registrant's
Quarterly Report on form 10-Q for the Quarter ended June 30, 2000
(16) Incorporated herein by reference to Exhibit 10.5 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001
(17) 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
(18) Incorporated herein by reference to Exhibit 10.7 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001
(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 10.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001
(21) Incorporated herein by reference to Exhibit 21.1 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
II-5
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Item 8.A. of Form 20-F at the start of any
delayed offering or throughout a continuous offering.
II-6
Financial statements and information otherwise required by Section 10(a)(3)
of the Act need not be furnished, provided, that the registrant includes in
the prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph (b)(4) and other information
necessary to ensure that all other information in the prospectus is at
least as current as the date of those financial statements. Notwithstanding
the foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or Rule 3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Securities and Exchange
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference on the
Form F-3.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Securities and Exchange Commission under
Section 305(b)(2) of the Act.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plano, State of Texas, on
March 28, 2002.
RENT-A-CENTER, INC.
By: /s/ MARK E. SPEESE
------------------------------------
Mark E. Speese
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARK E. SPEESE Chairman of the Board and Chief March 28, 2002
------------------------------------------------ Executive Officer (Principal
Mark E. Speese Executive Officer)
/s/ MITCHELL E. FADEL President and Director March 28, 2002
------------------------------------------------
Mitchell E. Fadel
/s/ ROBERT D. DAVIS Senior Vice President -- Finance, March 28, 2002
------------------------------------------------ Treasurer and Chief Financial
Robert D. Davis Officer (Principal Financial and
Accounting Officer)
* Director March 28, 2002
------------------------------------------------
L. Dowell Arnette
* Director March 28, 2002
------------------------------------------------
Laurence M. Berg
* Director March 28, 2002
------------------------------------------------
Peter P. Copses
* Director March 28, 2002
------------------------------------------------
Andrew S. Jhawar
* Director March 28, 2002
------------------------------------------------
J.V. Lentell
*By /s/ MARK E. SPEESE
-----------------------------------------
Mark E. Speese,
Attorney-in-Fact
II-8
SUBSIDIARY GUARANTORS:
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plano, State of Texas, on
March 28, 2002.
ADVANTAGE COMPANIES, INC.
By: /s/ MARK E. SPEESE
------------------------------------
Mark E. Speese
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARK E. SPEESE President (Principal Executive March 28, 2002
------------------------------------------------ Officer) and Director
Mark E. Speese
/s/ MITCHELL E. FADEL Vice President and Director March 28, 2002
------------------------------------------------
Mitchell E. Fadel
/s/ ROBERT D. DAVIS Treasurer (Principal Financial March 28, 2002
------------------------------------------------ and Accounting Officer)
Robert D. Davis
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plano, State of Texas, on
March 28, 2002.
COLORTYME, INC.
By: /s/ MARK E. SPEESE
------------------------------------
Mark E. Speese
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President and Chief Executive March 28, 2002
------------------------------------------------ Officer (Principal Executive
Steven M. Arendt Officer)
/s/ MITCHELL E. FADEL Vice President and Director March 28, 2002
------------------------------------------------
Mitchell E. Fadel
/s/ MARK E. SPEESE Vice President and Director March 28, 2002
------------------------------------------------
Mark E. Speese
/s/ ROBERT D. DAVIS Treasurer (Principal Financial March 28, 2002
------------------------------------------------ and Accounting Officer)
Robert D. Davis
*By /s/ MARK E. SPEESE
-----------------------------------------
Mark E. Speese,
Attorney-in-Fact
II-10
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
1.1* -- Purchase Agreement, dated as of December 12, 2001, among
Rent-A-Center, Inc., Advantage Companies, Inc. ColorTyme,
Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc. and Lehman Brothers
Inc.
3.1(1) -- Amended and Restated Certificate of Incorporation of Renters
Choice, Inc.
3.2(2) -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of Renters Choice, Inc.
3.3(3) -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of Rent-A-Center, Inc.
3.4* -- Amended and Restated Bylaws of Rent-A-Center, Inc.
3.5(4) -- Restated Certificate of Incorporation of Advantage
Companies, Inc.
3.6(5) -- Bylaws of Advantage Companies, Inc.
3.7(6) -- Amendment to the Bylaws of Advantage Companies, Inc.
3.8(7) -- Articles of Incorporation of ColorTyme, Inc.
3.9(8) -- Articles of Merger of ColorTyme, Inc. into CT Acquisition
Corporation
3.10(9) -- Bylaws of ColorTyme, Inc.
3.11* -- Amendment to Bylaws of ColorTyme, Inc.
4.1(10) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series A Preferred Stock of Renters
Choice, Inc.
4.2(11) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series B Preferred Stock of Renters
Choice, Inc.
4.3(12) -- 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
4.4(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 Exchange Note
4.5(14) -- Form of 1998 Note
4.6* -- Indenture, dated as of December 19, 2001, by and among
Rent-A-Center, Inc., as Issuer, ColorTyme, Inc. and
Advantage Companies, Inc., as Subsidiary Guarantors, and The
Bank of New York, as Trustee
4.7* -- Form of Exchange Note
5.1* -- Form of Opinion of Winstead Sechrest & Minick P.C. regarding
legality of the securities offered
10.1* -- Amended and Restated Rent-A-Center, Inc. Long-Term Incentive
Plan
10.2(15) -- Amended and Restated Credit Agreement, dated as of August 5,
1998 as amended and restated as of June 29, 2000, among
Rent-A-Center, Inc., Comerica Bank, as Documentation Agent,
Bank of America, NA, as Syndication Agent, and The Chase
Manhattan Bank, as Administration Agent
10.3(16) -- First Amendment, dated as of May 8, 2001, to the Credit
Agreement, dated as of August 5, 1998, as amended and
restated as of June 29, 2000, among Rent-A-Center, Inc., the
Lenders party to the Credit Agreement, the Documentation
Agent and Syndication Agent named therein and The Chase
Manhattan Bank, as Administrative Agent
10.4* -- Second Amendment, dated as of November 26, 2001, to the
Credit Agreement, dated as of August 5, 1998, as amended and
restated as of June 29, 2000, among Rent-A-Center, Inc., the
Lenders party to the Credit Agreement, the Documentation
Agent and Syndication Agent named therein and JP Morgan
Chase Bank (formerly known as The Chase Manhattan Bank), as
Administrative Agent
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.5(17) -- 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
10.6(18) -- Amended and Restated Stockholders Agreement, effective as of
October 8, 2001, 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
10.7(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
10.8(20) -- Common Stock Purchase Agreement, dated as of October 8,
2001, by and among J. Ernest Talley, Mary Ann Talley, the
Talley 1999 Trust, and Rent-A-Center, Inc.
10.9* -- Exchange and Registration Rights Agreement, dated December
19, 2001, by and among Rent-A-Center, Inc., ColorTyme, Inc.,
Advantage Companies, Inc., J.P. Morgan Securities Inc.,
Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc.
and Lehman Brothers Inc.
21.1(21) -- Subsidiaries of Rent-A-Center, Inc.
23.1** -- Consent of Grant Thornton LLP
23.2* -- Consent of Winstead Sechrest & Minick P.C. (included as part
of its opinion filed as Exhibit 5.1)
24.1* -- Power of Attorney (included on signature page of this S-4)
25.1* -- Statement of eligibility of The Bank of New York
99.1* -- Form of Letter of Transmittal concerning 1998 notes
99.2* -- Form of Letter of Transmittal concerning 2001 notes
99.3* -- Form of Notice of Guaranteed Delivery concerning 1998 notes
99.4* -- Form of Notice of Guaranteed Delivery concerning 2001 notes
99.5* -- Form of Letter to Clients concerning 1998 notes
99.6* -- Form of Letter to Clients concerning 2001 notes
99.7* -- Form of Letter to Brokers concerning 1998 notes
99.8* -- Form of Letter to Brokers concerning 2001 notes
---------------
* Filed previously
** Filed herewith
(1) 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
(2) 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
(3) Incorporated herein by reference to Exhibit 3.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001
(4) Incorporated herein by reference to Exhibit 3.5 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(5) Incorporated herein by reference to Exhibit 3.8 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(6) Incorporated herein by reference to Exhibit 3.9 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(7) Incorporated herein by reference to Exhibit 3.6 to the registrant's
Registration Statement on Form S-4 filed on January 14, 1999
(8) Incorporated herein by reference to Exhibit 3.7 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(9) Incorporated herein by reference to Exhibit 3.10 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(10) 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
(11) 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
(12) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(13) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(14) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999
(15) Incorporated herein by reference to Exhibit 10.4 to the registrant's
Quarterly Report on form 10-Q for the Quarter ended June 30, 2000
(16) Incorporated herein by reference to Exhibit 10.5 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001
(17) 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
(18) Incorporated herein by reference to Exhibit 10.7 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001
(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 10.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001
(21) Incorporated herein by reference to Exhibit 21.1 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999