AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 2003
REGISTRATION NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
RENT-A-CENTER, INC.
COLORTYME, INC.
GET IT NOW, LLC
RENT-A-CENTER EAST, INC.
RENT-A-CENTER TEXAS, L.L.C.
RENT-A-CENTER TEXAS, L.P.
RENT-A-CENTER WEST, INC.
(Exact name of co-registrants as specified in its charter)
<Table>
DELAWARE 7359 45-0491516
TEXAS 6794 75-2651408
DELAWARE 7359 16-1628325
DELAWARE 7359 48-1024367
NEVADA 7359 45-0491520
TEXAS 6794 45-0491512
DELAWARE 7359 48-1156618
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</Table>
<Table>
RENT-A-CENTER, INC. COLORTYME, INC. GET IT NOW, LLC
5700 TENNYSON PKWY., THIRD FLOOR 5700 TENNYSON PKWY., FIRST FLOOR 5700 TENNYSON PKWY., THIRD FLOOR
PLANO, TEXAS 75024 PLANO, TEXAS 75024 PLANO, TEXAS 75024
(972) 801-1100 (972) 608-5376 (972) 801-1100
RENT-A-CENTER, INC. RENT-A-CENTER EAST, INC.
5700 TENNYSON PKWY., THIRD FLOOR 5700 TENNYSON PKWY., THIRD FLOOR
PLANO, TEXAS 75024 PLANO, TEXAS 75204
(972) 801-1100 (972) 608-5376
</Table>
<Table>
RENT-A-CENTER TEXAS, L.L.C. RENT-A-CENTER TEXAS, L.P. RENT-A-CENTER WEST, INC.
429 MAX COURT, SUITE C 5700 TENNYSON PKWY., THIRD FLOOR 5700 TENNYSON PKWY., THIRD FLOOR
HENDERSON, NEVADA 89015 PLANO, TEXAS 75204 PLANO, TEXAS 75204
(702) 558-0016 (972) 801-1100 (972) 801-1100
</Table>
(Address, including zip code, and telephone number, including area code of each
Registrant's principal executive offices)
<Table>
MARK E. SPEESE WITH COPIES TO:
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER THOMAS W. HUGHES, ESQ.
RENT-A-CENTER, INC. WARREN M.S. ERNST, ESQ.
5700 TENNYSON PKWY., THIRD FLOOR D. FORREST BRUMBAUGH, ESQ.
PLANO, TEXAS 75024 WINSTEAD SECHREST & MINICK P.C.
(972) 801-1100 5400 RENAISSANCE TOWER
(Name, address, including zip code, and 1201 ELM STREET
telephone number, including area code, of Agent for DALLAS, TEXAS 75270
service) (214) 745-5400
</Table>
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. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH NOTE OF AMOUNT TO BE PROPOSED OFFERING PROPOSED AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER NOTE(1) OFFERING PRICE(1) REGISTRATION FEE(1)
- --------------------------------------------------------------------------------------------------------------------------------
7 1/2% Senior Subordinated Notes due 2010,
Series B...................................... $300,000,000 100% $300,000,000 $24,270
- --------------------------------------------------------------------------------------------------------------------------------
Guarantees of Senior Subordinated Notes(2)...... -- -- -- (3)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) Rent-A-Center East, Inc., a direct, wholly-owned subsidiary of
Rent-A-Center, Inc., and ColorTyme, Inc., Get It Now, LLC, Rent-A-Center,
L.L.C., Rent-A-Center Texas, L.P. and Rent-A-Center West, Inc., each an
indirect, wholly-owned subsidiary of Rent-A-Center, Inc., have each
guaranteed the notes being registered pursuant hereto.
(3) Pursuant to Rule 457(n), no separate fee is payable with respect to the
guarantees of the notes being registered.
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 JULY 11, 2003
PROSPECTUS
(RENT-A-CENTER, INC. LOGO)
EXCHANGE OFFER FOR
$300,000,000
7 1/2% SENIOR SUBORDINATED NOTES
DUE 2010, SERIES B
GUARANTEED BY
COLORTYME, INC.
GET IT NOW, LLC
RENT-A-CENTER EAST, INC.
RENT-A-CENTER TEXAS, L.L.C.
RENT-A-CENTER TEXAS, L.P.
RENT-A-CENTER WEST, INC.
- --------------------------------------------------------------------------------
Terms of Exchange Offer
- Expires 5:00 p.m., New York City time, , 2003, unless
extended
- The notes to be issued shall be exchanged for up to all of our
outstanding 7 1/2% Senior Subordinated Notes due 2010, Series A, issued
under an indenture we entered into in May 2003
- 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 this 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 this exchange offer
- The terms of the exchange notes to be issued are substantially identical
to the outstanding old 7 1/2% notes, except for certain transfer
restrictions, registration rights and liquidated damages provisions
relating to the outstanding old 7 1/2% notes
- Subject to the condition that this exchange offer not violate applicable
law or any applicable interpretation of the staff of the Securities and
Exchange Commission and certain other conditions
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN RISKS THAT
YOU SHOULD CONSIDER BEFORE DECIDING WHETHER TO PARTICIPATE IN THIS EXCHANGE
OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THIS 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.
---------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Forward-Looking Statements............ ii
Prospectus Summary.................... 1
Risk Factors.......................... 11
Use of Proceeds....................... 16
Capitalization........................ 17
The Exchange Offer.................... 18
Selected Historical Consolidated
Financial Data...................... 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 47
Management............................ 52
</Table>
<Table>
<Caption>
PAGE
----
Description of Certain Debt........... 60
Description of Notes.................. 62
Registration Rights Agreement......... 104
Material U.S. Federal Tax
Consequences........................ 107
Plan of Distribution.................. 112
Independent Certified Public
Accountants......................... 114
Legal Matters......................... 114
Where Can You Find More Information... 114
Incorporation of Certain Documents by
Reference........................... 115
Index to Financial Statements......... F-1
</Table>
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 CORPORATE SECRETARY 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 THIS EXCHANGE OFFER, OR , 2003.
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;
- our ability to enhance the performance of these acquired stores;
- our ability to control store level costs;
- 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;
- changes in our stock price and the number of shares of common stock that
we may or may not repurchase under our common stock repurchase program;
- the aggregate amount of old 7 1/2% notes tendered for exchange notes in
this exchange offer;
- the liquidity of our exchange notes; and
- the other risks detailed from time to time in our SEC 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 this exchange offer or all of the information that may be important
to you. For a more complete understanding of this 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 the context otherwise requires, all
information in this prospectus which refers to "Rent-A-Center," "we," "us" or
"our" means Rent-A-Center, Inc. and its wholly-owned subsidiaries. The term "old
7 1/2% notes" refers to our outstanding 7 1/2% Senior Subordinated Notes due
2010, Series A, which we issued under an indenture we entered into in May 2003.
The term "exchange notes" refers to the 7 1/2% Senior Subordinated Notes due
2010, Series B, which are offered for exchange in this prospectus. The old
7 1/2% notes are to be exchanged for exchange notes in this exchange offer.
THE EXCHANGE OFFER
Exchange Notes................ The form and terms of the exchange notes are
identical in all material respects to the form
and terms of the old 7 1/2% notes, except for
certain transfer restrictions, registration
rights and liquidated damages provisions
relating to the old 7 1/2% notes. These are
described elsewhere in this prospectus under
"Description of Notes" and "Registration Rights
Agreement."
Old 7 1/2% Notes.............. On May 6, 2003, we sold in a private
transaction the old 7 1/2% notes. The old
7 1/2% notes were issued under an indenture and
contain certain transfer restrictions and
registration rights. The old 7 1/2% notes are
the notes to be tendered in exchange for the
exchange notes offered by this prospectus.
The Exchange Offer............ We are offering to exchange up to $300,000,000
of exchange notes for up to $300,000,000 of old
7 1/2% notes. Old 7 1/2% notes may be exchanged
only in $1,000 increments.
Expiration Date; Withdrawal
of Tender..................... Unless we extend this exchange offer, it will
expire at 5:00 p.m., New York City time, on
, 2003. We will not extend this time
period to a date later than , 2003.
You may withdraw any old 7 1/2% notes you
tender pursuant to this exchange offer at any
time prior to , 2003. We will return,
as promptly as practicable after the expiration
or termination of this exchange offer, any old
7 1/2% notes not accepted for exchange for any
reason without expense to you.
Certain Conditions to the
Exchange Offer................ This exchange offer is subject to the following
conditions, which we may waive. These
conditions permit us to refuse acceptance of
the old 7 1/2% notes or to terminate this
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 this
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
this exchange offer; or
- any governmental approval is not received
which we think is necessary to consummate
this exchange offer.
1
Procedures for Tendering Old
Notes......................... If you wish to accept this exchange offer, you
must complete, sign and date the letter of
transmittal in accordance with the
instructions, and deliver the letter of
transmittal, along with the old 7 1/2% notes
and any other required documentation, to the
exchange agent.
By executing the letter of transmittal relating
to the old 7 1/2% 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 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 the exchange notes; and
- you are not an affiliate of Rent-A-Center.
If you hold your old 7 1/2% notes through the
Depository Trust Corporation and wish to
participate in this exchange offer, you may do
so through the Depository Trust Corporation's
Automated Tender Offer Program. By
participating in this exchange offer, you will
agree to be bound by the appropriate letter of
transmittal as though you had executed such
letter of transmittal.
Interest on the Exchange
Notes......................... Interest on the exchange notes accrues from May
6, 2003 at the rate of 7 1/2% per annum.
Payment of Interest on the
Exchange Notes................ Interest is payable semi-annually in arrears on
each May 1 and November 1, commencing on
November 1, 2003. Interest on the old 7 1/2%
notes is also payable semi-annually in arrears
on each May 1 and November 1, commencing on
November 1, 2003.
Special Procedures for
Beneficial Owners............. If you are a beneficial owner whose old 7 1/2%
notes are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and wish to tender such old 7 1/2%
notes in this 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 7 1/2% 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 May 6, 2003, we sold the old 7 1/2% 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 old
7 1/2% notes certain registration rights. This
exchange offer satisfies those rights, which
terminate upon consummation of this exchange
offer. You will not be entitled to any exchange
or registration rights with respect to the
exchange notes. Old 7 1/2% notes that are not
tendered in this exchange offer may experience
a significantly more limited trading market,
which might adversely affect the
2
liquidity of any remaining old 7 1/2% notes.
See "Risk Factors -- The market value of your
old 7 1/2% notes may be lower if you do not
exchange your old 7 1/2% notes or fail to
properly tender your old 7 1/2% notes for
exchange -- Consequences of Failure to
Exchange."
Certain Federal Tax
Considerations................ With respect to the exchange of the old 7 1/2%
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 7 1/2% notes; and
- you should be able to tack the holding period
of the exchange notes to the holding period
of the old 7 1/2% notes.
The ownership and disposition of the exchange
notes will have certain U.S. federal tax
consequences. See "Material U.S. Federal Tax
Consequences."
Use of Proceeds............... We will not receive any proceeds from the
exchange of notes pursuant to this exchange
offer.
Exchange Agent................ We have appointed The Bank of New York as the
exchange agent for this exchange offer. The
address and telephone number of the Exchange
Agent are The Bank of New York, 101 Barclay
Street, Reorganization Unit -- 7 East, New
York, New York 10286, Attn: Enrique
Lopez -- 7E, facsimile (212) 298-1915,
telephone (212) 815-2742.
3
TERMS OF THE EXCHANGE NOTES AND GUARANTEES
Pursuant to this exchange offer, we are offering to exchange up to $300.0
million aggregate principal amount of the exchange notes for up to an equal
aggregate principal amount of the old 7 1/2% notes. The form and terms of the
exchange notes are the same as the form and terms of the old 7 1/2% notes,
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 the old
7 1/2% notes under the registration rights agreement, which rights will
terminate upon the consummation of this exchange offer.
The exchange notes will evidence the same debt as the old 7 1/2% notes and
will be issued under, and be entitled to the benefits of, the indenture, dated
May 6, 2003, between us, our Subsidiary Guarantors and The Bank of New York.
Issuer........................ Rent-A-Center, Inc.
Guarantors.................... ColorTyme, Inc., Get It Now LLC, Rent-A-Center
East, Inc., Rent-A-Center Texas, L.L.C.,
Rent-A-Center Texas, L.P. and Rent-A-Center
West, Inc.
Securities Offered............ $300,000,000 aggregate principal amount of
7 1/2% Senior Subordinated Notes due 2010,
Series B.
Maturity...................... May 1, 2010.
Interest Payment Dates........ May 1 and November 1 of each year, commencing
November 1, 2003. Interest on the old 7 1/2%
notes will also be paid on May 1 and November 1
of each year, commencing November 1, 2003.
Sinking Fund.................. None.
Optional Redemption........... Except as described below and under "Change of
Control," as well as in certain other limited
circumstances, we may not redeem the exchange
notes prior to May 1, 2006. After May 1, 2006,
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 May 1 of the
years indicated below:
<Table>
<Caption>
REDEMPTION
YEAR PRICE
---- ----------
2006.......................................... 103.750%
2007.......................................... 102.500%
2008.......................................... 101.250%
2009 and thereafter........................... 100.000%
</Table>
Change of Control............. Upon the occurrence of a change of control, we
may be required 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
Notes -- Change of Control."
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.
4
Guarantees.................... The exchange notes will be guaranteed by all of
our current and future subsidiaries, unless we
designate the subsidiary as an "unrestricted
subsidiary."
Restrictive Covenants......... The indenture under which the exchange notes
will be issued, and under which the old 7 1/2%
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
Notes -- 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 are engaged in, or intend to engage in,
or have an arrangement or understanding with
any person to participate in a 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 development or
liquidity of any market for the exchange notes
may not occur. At the time of the private
offering, the initial purchasers of the old
7 1/2% notes advised us that they intended 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.
5
COMPANY OVERVIEW
We are the largest operator in the United States rent-to-own industry with
an approximate 31% market share based on store count. At June 30, 2003, we
operated 2,567 company-owned stores nationwide and in Puerto Rico, including 23
stores in Wisconsin operated by our subsidiary Get It Now, LLC under the name
"Get It Now." Another of our subsidiaries, ColorTyme, Inc., is a national
franchisor of rent-to-own stores. At June 30, 2003, ColorTyme had 321 franchised
stores in 40 states, 309 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 generally offer high quality, durable products such as home
electronics, appliances, computers and furniture and accessories under flexible
rental purchase agreements that generally 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. Get It Now offers our
merchandise on an installment sales basis in Wisconsin. We offer well known
brands such as Philips, Sony, JVC, Toshiba and Mitsubishi home electronics,
Whirlpool appliances, Dell, IBM, Compaq and Hewlett-Packard computers and
Ashley, England, Berkline and Standard furniture.
Our customers often lack access to conventional forms of credit. We offer
products such as big screen televisions, computers and sofas, and well known
brands that might otherwise be unavailable without credit. We also offer high
levels of customer service at no additional charge, including repair, pick-up
and delivery. Our customers benefit from the ability to return merchandise at
any time without further obligation and make payments that build toward
ownership. We estimate that approximately 62% of our business is from repeat
customers.
The principal offices of Rent-A-Center, Inc. are located at 5700 Tennyson
Parkway, Third Floor, Plano, Texas 75024. Our telephone number is (972)
801-1100.
INDUSTRY OVERVIEW
According to industry sources and our estimates, the rent-to-own industry
consists of approximately 8,300 stores, and provides approximately 7.0 million
products to over 2.8 million households each year. We estimate the six largest
rent-to-own industry participants account for approximately 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.
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 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 home electronics, Whirlpool appliances,
Dell, IBM, Compaq and Hewlett-Packard computers and Ashley, England,
Berkline and Standard furniture, to increase the number of product
rentals;
6
- 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 intend to open 80 to 100 new stores in
2003. On February 8, 2003, we acquired substantially all of the assets of 295
stores located throughout the United States from Rent-Way, Inc. and certain of
its subsidiaries. Of the 295 stores, 176 were merged with existing locations.
Furthermore, during the first six months of 2003, we acquired 11 additional
stores, accounts from 14 additional locations, opened 38 new stores, and closed
eight stores. All of the closed stores were merged with existing store
locations. In addition, we selectively acquire customer accounts and merge them
into our existing store locations.
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 our franchise locations, which we have the right of first
refusal to purchase.
Building Our National Brand. We have implemented a strategy to increase
our name recognition and enhance our national brand. As part of that strategy,
we utilize television and radio commercials, print, direct response and in-store
signage, all of which are designed to increase our name recognition among our
customers and potential customers. 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 customer about the rent-to-own alternative to
merchandise purchases as well as solidify our reputation as a leading provider
of high quality branded merchandise.
RECENT EVENTS
Recapitalization. Commencing in April 2003, we recapitalized a portion of
our financial structure in a series of transactions. On May 6, 2003, we issued
$300.0 million principal amount of 7 1/2% senior subordinated notes due 2010.
Using a portion of those proceeds, on the same date, we repurchased
approximately $183 million principal amount of 11% senior subordinated notes due
2008 pursuant to our tender offer for all of the $272.25 million principal
amount of 11% notes. We will also use a portion of those proceeds to optionally
redeem the remaining outstanding 11% notes on August 15, 2003. On May 28, 2003,
we refinanced our senior debt by entering into a new $600.0 million senior
credit facility, consisting of a $400.0 million term loan, a $120.0 million
revolving credit facility and an $80.0 million additional term loan. On June 25,
2003, we repurchased approximately 1.77 million shares of our common stock at
$73 per share pursuant to a modified "Dutch Auction" tender offer. On July 11,
2003, we purchased approximately 775,000 shares of our common stock at $73 per
share pursuant to an agreement with Apollo Investment Fund IV, L.P. and Apollo
Overseas Partners IV, L.P. The purchases of our common stock were financed by a
portion of the proceeds of our new senior credit facilities.
7
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial data for the three years ended December
31, 2002 have been derived from our audited consolidated financial statements
included in this prospectus. The summary consolidated financial data as of and
for the three months ended March 31, 2002 and 2003 have been derived from our
unaudited consolidated financial statements which were prepared on the same
basis as our audited consolidated financial statements and include, in our
opinion, all adjustments necessary to present fairly the information presented
for the interim periods. Interim period results are not necessarily indicative
of results that will be obtained for the full year. The summary historical
consolidated 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 in this
prospectus. "Adjusted for The Offering" information presented below gives effect
to the completion of the offering of the old 7 1/2% notes and the application of
the net proceeds received from the offering and the "Adjusted for
Recapitalization" information presented below gives effect to completion of the
recapitalization. Because the exchange notes represent the same debt as the old
7 1/2% notes, completion of this exchange offer will not affect the information
presented below.
<Table>
<Caption>
THREE MONTHS ENDED TWELVE
YEARS ENDED DECEMBER 31, MARCH 31, MONTHS ENDED
---------------------------------------- ------------------- MARCH 31,
2000 2001 2002 2002 2003 2003
---------- ---------- ---------- -------- -------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues
Store
Rentals and fees........................ $1,459,664 $1,650,851 $1,828,534 $443,705 $493,419 $1,878,248
Installment sales....................... -- -- 6,137 -- 6,045 12,182
Merchandise sales....................... 81,166 94,733 115,478 39,605 52,664 128,537
Other................................... 3,018 3,476 2,589 614 715 2,690
Franchise
Merchandise sales....................... 51,769 53,584 51,514 13,253 12,072 50,333
Royalty income and fees................. 5,997 5,884 5,792 1,433 1,491 5,850
---------- ---------- ---------- -------- -------- ----------
Total revenue............................. 1,601,614 1,808,528 2,010,044 498,610 566,406 2,077,840
Operating expenses
Direct store expenses
Depreciation of rental merchandise...... 299,298 343,197 383,400 92,223 106,660 397,837
Cost of installment sales............... -- -- 3,776 -- 3,231 7,007
Cost of merchandise sold................ 65,332 72,539 84,628 26,982 36,548 94,194
Salaries and other expenses............. 866,234 1,019,402 1,070,265 262,619 292,496 1,100,142
Franchise cost of merchandise sold........ 49,724 51,251 49,185 12,653 11,551 48,083
---------- ---------- ---------- -------- -------- ----------
1,280,588 1,486,389 1,591,254 394,477 450,486 1,647,263
General and administrative expenses......... 48,093 55,359 63,296 15,117 16,756 64,935
Amortization of intangibles................. 28,303 30,194 5,045 720 2,873 7,198
Non-recurring litigation settlements........ (22,383)(1) 52,000(2) -- -- -- --
---------- ---------- ---------- -------- -------- ----------
Total operating expenses.................. 1,334,601 1,623,942 1,659,595 410,314 470,115 1,719,396
Operating profit............................ 267,013 184,586 350,449 88,296 96,291 358,444
Interest expense, net....................... 72,618 59,780 62,006 15,075 12,752 59,683
---------- ---------- ---------- -------- -------- ----------
Earnings before income taxes................ 194,395 124,806 288,443 73,221 83,539 298,761
Income tax expense.......................... 91,368 58,589 116,270 29,658 32,580 119,192
---------- ---------- ---------- -------- -------- ----------
Net earnings................................ 103,027 66,217 172,173 43,563 50,959 179,569
Preferred dividends......................... 10,420 15,408 10,212 4,992 -- 5,220
---------- ---------- ---------- -------- -------- ----------
Net earnings allocable to common
stockholders.............................. $ 92,607 $ 50,809 $ 161,961 $ 38,571 $ 50,959 $ 174,349
========== ========== ========== ======== ======== ==========
</Table>
8
<Table>
<Caption>
THREE MONTHS ENDED TWELVE
YEARS ENDED DECEMBER 31, MARCH 31, MONTHS ENDED
---------------------------------------- ------------------- MARCH 31,
2000 2001 2002 2002 2003 2003
---------- ---------- ---------- -------- -------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
OTHER OPERATING AND FINANCIAL DATA
Number of owned stores (end of period)...... 2,158 2,281 2,407 2,284 2,542 2,542
Same store revenue growth(3)................ 12.6% 8.0% 6.0% 7.7% 6.2% N/A
Franchise stores (end of period)............ 364 342 318 338 317 317
Adjusted EBITDA(4).......................... $ 306,077 $ 304,690 $ 395,854 $ 98,482 $109,284 $ 404,655
Adjusted EBITDA margin...................... 19.1% 16.8% 19.7% 19.8% 19.3% 19.5%
Depreciation and amortization(5)............ 61,447 68,104 43,404 10,186 12,993 46,211
Capital expenditures........................ 37,937 57,532 37,596 8,100 9,245 38,741
Cash interest expense(6).................... 70,978 57,420 57,383 14,772 12,924 55,535
Ratio of adjusted EBITDA to cash interest
expense(6)................................ 4.3x 5.3x 6.9x N/A N/A 7.3x
Ratio of total net debt to adjusted
EBITDA.................................... 2.3x 2.0x 1.1x N/A N/A 1.6x
Ratio of earnings to fixed charges(7)....... 2.9x 2.3x 3.9x N/A N/A 4.1x
</Table>
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31, 2003
YEARS ENDED DECEMBER 31, ---------------------------------------------------------
------------------------------------ AS ADJUSTED AS ADJUSTED FOR
2000 2001 2002 ACTUAL FOR THE OFFERING(8) RECAPITALIZATION(9)
---------- ---------- ---------- ------------ ------------------- -------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA
(AT THE END OF
PERIOD):
Cash and cash
equivalents........ $ 36,495 $ 107,958 $ 85,723 $ 103,151 $ 103,151 $ 60,996
Rental merchandise,
net................ 587,232 653,701 631,724 693,324 693,324 693,324
Total assets......... 1,486,910 1,619,920 1,616,052 1,729,618 1,729,618 1,687,463
Total debt........... 741,051 702,506 521,330 521,349 546,831 700,000
Convertible preferred
stock.............. 281,232 291,910 2 2 2 2
Stockholders'
equity............. 309,371 405,378 842,400 887,929 871,770 678,142
</Table>
- ---------------
(1) 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.
(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 earnings before income taxes plus interest expense net
of interest income, depreciation of property assets (exclusive of
depreciation of rental merchandise) and amortization of intangibles.
Adjusted EBITDA is defined as EBITDA plus litigation settlements. EBITDA and
Adjusted EBITDA are not measures of operating income, operating performance
or liquidity under generally accepted accounting principles. Although EBITDA
and Adjusted EBITDA are frequently used as measures of operations and the
ability to satisfy debt service requirements, these terms are not
necessarily comparable to other similarly titled captions of other companies
due to the potential inconsistencies in the method of calculation.
9
Reconciliation to reported items:
<Table>
<Caption>
THREE MONTHS ENDED TWELVE
YEARS ENDED DECEMBER 31, MARCH 31, MONTHS ENDED
------------------------------ ------------------ MARCH 31,
2000 2001 2002 2002 2003 2003
-------- -------- -------- ------- -------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Reported Earnings before income taxes..... $194,395 $124,806 $288,443 $73,221 $ 83,539 $298,761
Add back: Interest expense net of interest
income.................................. 72,618 59,780 62,007 15,075 12,752 59,683
Depreciation of property assets......... 33,144 37,910 38,359 9,466 10,120 39,013
Amortization of intangibles............. 28,303 30,194 5,045 720 2,873 7,198
-------- -------- -------- ------- -------- --------
EBITDA.................................... 328,460 252,690 393,854 98,482 109,284 404,655
Add back: Class action litigation
settlements............................. (22,383) 52,000 2,000 -- -- --
-------- -------- -------- ------- -------- --------
Adjusted EBITDA......................... $306,077 $304,690 $395,854 $98,482 $109,284 $404,655
======== ======== ======== ======= ======== ========
</Table>
This prospectus contains information regarding EBITDA, which is a non-GAAP
financial measure as defined in Item 10(e) of Regulation S-K. This prospectus
also contains a reconciliation of EBITDA to our reported earnings before
income taxes. We believe that the presentation of EBITDA is useful to
investors, as, among other things, this information impacts certain financial
covenants under our senior credit facilities and the indentures governing our
outstanding subordinated notes. While we believe this non-GAAP financial
measure is useful in evaluating us, this information should be considered as
supplemental in nature and not as a substitute for or superior to the related
financial information prepared in accordance with GAAP. Further, the non-GAAP
financial measure may differ from similar measures presented by other
companies.
(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.
(8) Gives effect to the offering of old 7 1/2% notes and the application of the
net proceeds.
(9) Gives effect to the offering of old 7 1/2% notes and the new senior secured
credit facilities and the application of the net proceeds to effect the
recapitalization.
10
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 this 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 OLD 7 1/2% NOTES MAY BE LOWER IF YOU DO NOT EXCHANGE
YOUR OLD 7 1/2% NOTES OR FAIL TO PROPERLY TENDER YOUR OLD 7 1/2% NOTES FOR
EXCHANGE.
Consequences of Failure to Exchange. To the extent that the old 7 1/2%
notes are tendered and accepted for exchange pursuant to this exchange offer,
the trading market for old 7 1/2% notes that remain outstanding may be
significantly more limited, which may adversely affect the liquidity of the old
7 1/2% notes not tendered for exchange. The extent of the market and the
availability of price quotations for the old 7 1/2% notes would depend upon a
number of factors, including the number of holders of old 7 1/2% notes remaining
at such time and the interest in maintaining a market in such old 7 1/2% 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 the old 7 1/2% notes that are not exchanged in
this exchange offer may be affected adversely to the extent that the amount that
old 7 1/2% notes exchanged pursuant to this exchange offer reduces the float.
The reduced float also may tend to make the trading price of the old 7 1/2%
notes that are not exchanged more volatile.
Consequences of Failure to Properly Tender. Issuance of the exchange notes
in exchange for the old 7 1/2% notes pursuant to this exchange offer will be
made following the prior satisfaction, or waiver, of the conditions set forth in
"The Exchange Offer -- Conditions to the Exchange Offer" and only after timely
receipt by the exchange agent of such old 7 1/2% notes, a properly completed and
duly executed letter of transmittal and all other required documents. Therefore,
holders of old 7 1/2% notes desiring to tender such old 7 1/2% 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 7 1/2% notes for exchange. The old 7 1/2% notes that may be
tendered in this exchange offer but which are not validly tendered will,
following consummation of this exchange offer, remain outstanding. Any old
7 1/2% notes that remain outstanding following consummation of this exchange
offer will continue to be subject to the same transfer restrictions currently
applicable to the old 7 1/2% notes.
IF YOU FAIL TO TENDER YOUR OLD 7 1/2% NOTES FOR EXCHANGE, YOUR ABILITY TO
TRANSFER SUCH OLD 7 1/2% NOTES WILL BE LIMITED.
We issued the old 7 1/2% notes in a private offering. As a result, the old
7 1/2% notes have not been registered under the Securities Act, and may not be
resold by purchasers thereof unless the old 7 1/2% notes are subsequently
registered or an exemption from the registration requirements of the Securities
Act is available. The old 7 1/2% notes that are not tendered in this exchange
offer will continue to be subject to the existing restrictions upon their
transfer. Following the completion of this exchange offer, we will have no
obligation to provide for the registration under the Securities Act of
unexchanged old 7 1/2% 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 exchange notes, and we will have no
obligation to create such a market. At the time of the private placement of the
old 7 1/2% notes, the initial purchasers of the old 7 1/2% notes advised us that
they intended to make a market in the old
11
7 1/2% 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.
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
our outstanding subordinated notes restrict our ability to pay dividends, 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, may be 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
accelerate 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.
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 require
that we redeem the 11% notes on or before August 15, 2003, and contain
provisions limiting our ability to modify or refinance our outstanding
subordinated 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 a
third party became the beneficial owner, either directly or indirectly, of 35%
or more of our voting stock or upon certain changes in the constitution of
Rent-A-Center's Board of Directors. As of June 30, 2003, we were required to
make principal payments under our senior credit facilities of $2.0 million in
2003, $4.0 million in 2004, $4.0 million in 2005, $4.0 million in 2006, $4.0
million in 2007, $192.0 million in 2008 and $190.0 million after 2008. These
payments reduce our cash flow. If the lenders under our debt instruments
accelerate these obligations, we may not have sufficient liquid assets to repay
amounts outstanding under these agreements.
Under the indentures governing our outstanding subordinated notes, in the
event that a change of control occurs, we may be required to offer to purchase
all of our outstanding subordinated notes at 101% of their original aggregate
principal amount, plus accrued interest to the date of repurchase. A change of
12
control also would result in an event of default under our senior credit
facilities, which could then be accelerated by our lenders.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS.
Under the federal bankruptcy laws and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided if, among other things,
the guarantor, at the time it incurred the indebtedness evidenced by its
guarantee, received less than reasonably equivalent value or fair consideration
for the incurrence of such guarantee, and either:
- was insolvent or rendered insolvent by reason of such incurrence;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we do not believe that any guarantor, after giving effect to
its guarantee of these notes, will be found to: (i) be insolvent, (ii) have
unreasonably small capital for the business in which it is engaged, or (iii)
have incurred debts beyond its ability to pay such debts as they mature. We
cannot assure you, however, as to what standard a court would apply in making
these determinations or that a court would agree with our conclusions in this
regard.
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.
As part of our growth strategy, we intend to increase our total number of
stores in both existing markets and new markets through a combination of new
store openings and store acquisitions. We increased our store base by 83 stores
in 2000, 123 stores in 2001 and 126 stores in 2002. During the first quarter of
2003, we completed the acquisition of 295 stores from Rent-Way and certain of
its subsidiaries. Furthermore, during the first six months of 2003, we acquired
11 additional stores, accounts from 14 additional locations, opened 38 new
stores, and closed eight stores. 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
our 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.
13
Our continued growth also depends on our ability to increase sales in our
existing stores. Our same store sales increased by 12.6%, 8.0% and 6.0% for
2000, 2001 and 2002, respectively. As a result of new store openings in existing
markets and because mature stores will represent an increasing proportion of our
store base over time, our same store sale increases in future periods may be
lower than historical levels.
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 a class
action lawsuit alleging we violated the securities laws and lawsuits alleging we
violated state wage and hour laws. 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 our outstanding subordinated
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 advertising disclosures. They also provide varying levels of
substantive consumer protection, such as requiring a grace period for late
payments 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 of
the Board and Chief Executive Officer, and Mitchell E. Fadel, our President and
Chief Operating Officer. We do not have employment contracts with
14
or maintain key-person 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
OVER THE OUTCOME OF CERTAIN CORPORATE TRANSACTIONS AFFECTING US, INCLUDING
POTENTIAL MERGERS OR ACQUISITIONS, THE CONSTITUTION OF OUR BOARD OF DIRECTORS
AND SALES OR CHANGES IN CONTROL.
Affiliates of Apollo Management IV, L.P. hold all of our outstanding Series
C preferred stock. Pursuant to the terms of the stockholders agreement among us,
Apollo, Mark E. Speese and certain other parties, which was put in place
following the repurchase of shares of our common stock from Apollo on July 11,
2003, Apollo has the right to designate up to three individuals to be nominated
to our Board of Directors. The terms of our Series C preferred stock as well as
the stockholders agreement also contain provisions requiring Apollo's approval
to effect certain transactions involving us, including repurchasing shares of
our common stock, declaring or paying any dividend on our common stock,
increasing the size of our Board of Directors, selling all or substantially all
of our assets and entering into any merger or consolidation or other business
combination.
These documents also provide that one member of each of our audit
committee, compensation committee and finance committee must be a director who
was designated for nomination by Apollo. In addition, the terms of our Series C
preferred stock and the stockholders agreement restrict our ability to issue
debt or equity securities with a value in excess of $10 million without the
majority affirmative vote of our finance committee, and in most cases, require
the unanimous vote of our finance committee for the issuance of our equity
securities with a value in excess of $10 million.
15
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the
Registration Rights Agreement dated as of May 6, 2003, by and between
Rent-A-Center, Inc., Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center
West, Inc., Get It Now, LLC, Rent-A-Center Texas, L.P. and Rent-A-Center Texas,
L.L.C., and Lehman Commercial Paper Inc., J.P. Morgan Securities Inc., Morgan
Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., UBS Warburg LLC and
Wachovia Securities, Inc., as initial purchasers. We will not receive any cash
proceeds from the issuance of the exchange notes. We will only receive the old
7 1/2% notes with a total principal amount equal to the total principal amount
of the exchange notes issued in this exchange offer. The old 7 1/2% 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.
16
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of March 31, 2003 (i) on an actual basis, (ii) as adjusted to
give effect to the offering of the old 7 1/2% notes and application of the net
proceeds of the old 7 1/2% notes and (iii) as adjusted to give effect to the
offering of the old 7 1/2% notes and the new senior credit facilities, and the
application of the net proceeds of the offering of the old 7 1/2% notes and of
the new senior secured credit facilities to repay our then existing senior
credit facilities and repurchase approximately $188 million of our common stock.
This table should be read in conjunction with our financial statements and
related notes and the other financial information contained in our financial
statements included in this prospectus. Because the exchange notes represent the
same debt as the old 7 1/2% notes, completion of this exchange offer will not
affect the information presented below.
<Table>
<Caption>
AS OF MARCH 31, 2003
----------------------------------------------
AS ADJUSTED AS ADJUSTED FOR
ACTUAL FOR THE OFFERING RECAPITALIZATION
-------- ---------------- ----------------
(UNAUDITED)
(IN MILLIONS)
Cash and cash equivalents...................... $ 103.2 $ 103.2 $ 61.0
======== ======== ========
Debt:
Then existing revolving credit
facilities(1)............................. $ -- $ -- $ --
Then existing term loans..................... 249.5 246.8 --
New revolving credit facility(2)............. -- -- --
New term loan(3)............................. -- -- 400.0
11% notes due 2008(4)........................ 271.8 -- --
Old 7 1/2% notes due 2010.................... -- 300.0 300.0
-------- -------- --------
521.3 546.8 700.0
Convertible preferred stock(5)................. -- -- --
Total stockholders' equity(6).................. 887.9 871.8 678.1
-------- -------- --------
Total capitalization...................... $1,409.2 $1,418.6 $1,378.1
======== ======== ========
</Table>
- ---------------
(1) We had commitments to borrow up to $120 million under our then existing
revolving credit facilities. Availability under the revolving credit
facilities is reduced by commitments on letters of credit. As of March 31,
2003, we had approximately $5.7 million letters of credit outstanding.
(2) We have $120 million of commitments under our new revolving credit
facilities.
(3) We have, under our new senior secured credit facilities, an additional term
loan of up to $80 million. As of June 30, 2003, no portion of the additional
term loan was outstanding but we have the ability to draw down the remaining
$80 million prior to August 5, 2003.
(4) On March 31, 2003, the aggregate principal amount outstanding of our 11%
notes was $272.3 million. On May 6, 2003, we repurchased approximately $183
million principal amount of 11% notes. On June 17, 2003, we announced that
we were going to optionally redeem on August 15, 2003, in accordance with
the terms of the underlying indenture, all of the 11% notes then outstanding
at the applicable redemption price.
(5) We have outstanding convertible preferred stock with stated equity of
$2,000.
(6) In connection with the offering of the old 7 1/2% notes, we expect to record
expenses of $16.2 million, net of tax, consisting of costs related to
retirement of our 11% notes. In connection with the recapitalization, we
expect to record additional expenses of $5.6 million, net of tax, consisting
of costs related to retirement of our then existing senior credit facilities
and associated interest rate swap agreements.
17
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
At the time we issued the old 7 1/2% notes, we agreed to file a
registration statement to register the exchange of the old 7 1/2% notes for the
exchange notes on or prior to August 4, 2003, and to cause the registration
statement to become effective under the Securities Act on or prior to November
2, 2003. In the event that this exchange offer is not permitted by applicable
law, or if certain holders of the old 7 1/2% notes notify us in writing within
20 business days following the consummation of this exchange offer that they
were prohibited by law or SEC policy from participating in this exchange offer
or that they may not resell the exchange notes acquired in this exchange offer
to the public without delivering a prospectus and this prospectus is not
appropriate or available for such resales, we will cause to be filed, on or
prior to 30 days after the earlier of the date we determine that we are not
permitted to effect this exchange offer and the date we receive the notice
described in the previous sentence, a shelf registration statement with respect
to the resale of the old 7 1/2% notes, and we will use all commercially
reasonable efforts to cause the shelf registration statement to become effective
within 90 days and to keep the shelf registration statement effective until May
6, 2005 or such earlier time as all of the old 7 1/2% notes have been sold or
become eligible for resale without volume restrictions pursuant to Rule 144(k)
of the Securities Act. If this exchange offer registration statement is not
effective on November 2, 2003, we will be obligated to pay liquidated damages to
holders of the old 7 1/2% notes. See "Registration Rights Agreement."
Each holder of old 7 1/2% notes that wishes to exchange old 7 1/2% 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 is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in a
distribution of the exchange notes; and
- it is not an "affiliate," as defined in Rule 405 of the Securities Act,
of Rent-A-Center.
Each broker-dealer that receives exchange notes for its own account in
exchange for old 7 1/2% notes, where such old 7 1/2% 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 this 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 is not engaged in, and
does not intend to engage in, and has no arrangement or understanding with any
person to participate in a distribution of such exchange notes. Any holder who
tenders in this 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 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
7 1/2% notes as a result of market-making activities or other trading activities
may participate in this exchange offer. Each broker-dealer that receives
exchange notes for its own account in exchange for old 7 1/2% notes, where such
old 7 1/2% notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities,
18
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 of transmittal, we will accept for exchange any and all old
7 1/2% notes properly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on , 2003, unless we extend this exchange offer. We will
issue $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of outstanding old 7 1/2% notes surrendered pursuant to this
exchange offer. Old 7 1/2% 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 7 1/2% notes except that, with respect to the old 7 1/2% 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 7 1/2%
notes. The exchange notes will be issued under and entitled to the benefits of
the indenture which authorized the issuance of the old 7 1/2% notes, such that
the old 7 1/2% notes and the exchange notes will be treated as a single class of
debt securities under the indenture. See "Description of Notes."
This exchange offer is not conditioned upon any minimum aggregate principal
amount of old 7 1/2% notes being tendered for exchange.
As of the date of this prospectus, $300.0 million of the old 7 1/2% notes
are outstanding. This prospectus, together with the letter of transmittal, is
being sent to all registered holders of old 7 1/2% notes. There will be no fixed
record date for determining registered holders of old 7 1/2% notes entitled to
participate in this exchange offer.
We intend to conduct this exchange offer in accordance with the provisions
of the registration rights agreement and the applicable requirements of the
Securities Exchange Act of 1934, and the rules and regulations of the SEC
thereunder. Old 7 1/2% notes that are not tendered for exchange in this exchange
offer will remain outstanding and continue to accrue interest and will be
entitled to the rights and benefits such holders have under the indenture and
the 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 3 of the 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 this exchange offer, and not to accept for
exchange any old 7 1/2% notes not accepted for exchange, upon the occurrence of
any of the conditions specified below under "-- Certain Conditions to the
Exchange Offer."
Holders who tender old 7 1/2% notes in this exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the respective letters of transmittal, transfer taxes with respect to the
exchange of old 7 1/2% notes pursuant to this exchange offer. Other than certain
applicable taxes described below, Rent-A-Center will pay all charges and
expenses in connection with this exchange offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date is 5:00 p.m., New York City time on , 2003,
unless we, in our sole discretion, extend this exchange offer, in which case the
expiration date will mean the latest date and time to which this exchange offer
is extended.
In order to extend this 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 7 1/2% notes of such extension, each
prior to 9:00 a.m., New York City time, on the next business day after the
expiration date.
19
We reserve the right, in our sole discretion:
- to delay accepting any old 7 1/2% notes for exchange, to extend this
exchange offer or to terminate this 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 this 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 7 1/2% notes. If this 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 this exchange offer, depending upon
the significance of the amendment and the manner of disclosure to the registered
holders, if this 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 this 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 this 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 7 1/2% notes, or are unable to accept for
exchange of, or issue exchange notes for, any old 7 1/2% notes pursuant to this
exchange offer for any reason, then, without prejudice to our rights under this
exchange offer, the exchange agent may, on our behalf, retain all old 7 1/2%
notes tendered, and such old 7 1/2% 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 7 1/2% 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 7 1/2% notes deposited by or on behalf of the
holders thereof promptly after termination or withdrawal of this exchange offer.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest at a rate of 7 1/2% per annum,
payable semi-annually, on May 1 and November 1 of each year, commencing on
November 1, 2003. Holders of old 7 1/2% notes will receive an interest payment
on the old 7 1/2% notes on November 1, 2003. Holders of exchange notes will
receive interest on November 1, 2003 from the date of initial issuance of the
exchange notes, plus an amount equal to the accrued interest on the old 7 1/2%
notes through such date. Interest on the old 7 1/2% 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 this exchange offer, we will not be
required to accept for exchange, or exchange any exchange notes for, any old
7 1/2% notes, and may terminate this exchange offer before the acceptance of any
old 7 1/2% 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 this exchange offer
which, in our reasonable judgment, might materially impair our ability to
proceed with this 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 this exchange offer; or
- any governmental approval has not been obtained, which approval we shall,
in our reasonable discretion, deem necessary for the consummation of this
exchange offer as contemplated hereby.
20
If we determine in our sole discretion that any of these foregoing
conditions are not satisfied, we may:
- refuse to accept any old 7 1/2% notes and return all old 7 1/2% notes to
the tendering holders;
- extend this exchange offer and retain all old 7 1/2% notes tendered prior
to the expiration of this exchange offer, subject, however, to the rights
of holders to withdraw such old 7 1/2% notes; or
- waive such unsatisfied conditions with respect to this exchange offer and
accept all properly tendered old 7 1/2% notes which have not been
withdrawn.
If such waiver constitutes a material change to this 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 7 1/2% notes and we will
extend this 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 this 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 7 1/2% notes tendered,
and no exchange notes will be issued in exchange for any such old 7 1/2% 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 of transmittal,
only a holder of old 7 1/2% notes may tender such old 7 1/2% notes in this
exchange offer. To tender in this exchange offer, a holder must complete, sign
and date the letter of transmittal pertaining to their old 7 1/2% notes, or
facsimile thereof, have the signature thereon guaranteed if required by the
letter of transmittal, and mail or otherwise deliver such letter of transmittal
or such facsimile to the exchange agent prior to 5:00 p.m., New York City time,
on the expiration date or, in the alternative, comply with the Depository Trust
Corporation's Automated Tender Offer Program procedures described below. In
addition, either:
- old 7 1/2% notes must be received by the exchange agent along with the
letter of transmittal; or
- a timely confirmation of book-entry transfer, which we call a book-entry
confirmation, of such old 7 1/2% 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 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 of
transmittal.
The method of delivery of old 7 1/2% notes, the letter 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 of transmittal or old
21
7 1/2% 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 7 1/2% 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 7 1/2% 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 of transmittal and
delivering such owner's old 7 1/2% notes, either make appropriate arrangements
to register ownership of the old 7 1/2% notes in such owner's name or obtain a
properly completed bond power from the registered holder of old 7 1/2% 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 7 1/2% notes, where such old 7 1/2% 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 of transmittal and a notice of withdrawal
described below must be guaranteed by an eligible institution, as defined below,
unless the old 7 1/2% 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 of transmittal, or (B) for the account of an
eligible institution. In the event that signatures on the letter 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 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 of transmittal.
If the letter of transmittal is signed by a person other than the
registered holder of any old 7 1/2% notes listed therein, such old 7 1/2% 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
7 1/2% notes with the signature thereon guaranteed by an eligible institution.
If the letter of transmittal or any old 7 1/2% 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 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 of transmittal and delivering it to the
exchange agent, electronically transmit their acceptance of this exchange offer
by causing the Depository Trust Corporation to transfer the old 7 1/2% 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 7 1/2% notes which
are the subject of such book entry confirmation;
22
- that such participant has received and agrees to be bound by the terms of
the letter 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 7 1/2% notes and withdrawal of tendered old
7 1/2% 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 7 1/2% notes not properly tendered or any old 7 1/2% 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 7 1/2% notes. Our interpretation of the terms and
conditions of this exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old 7 1/2% 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 7 1/2%
notes, neither we, the exchange agent nor any other person shall incur any
liability for failure to give such notification. Tenders of old 7 1/2% notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any old 7 1/2% 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 of transmittal, as soon as
practicable following the expiration date.
In all cases, issuance of exchange notes for old 7 1/2% notes that are
accepted for exchange pursuant to this exchange offer will be made only after
timely receipt by the exchange agent of old 7 1/2% notes or a timely book-entry
confirmation of such old 7 1/2% notes into the exchange agent's account at the
book-entry transfer facility, a properly completed and duly executed letter of
transmittal and all other required documents. If any tendered old 7 1/2% notes
are not accepted for exchange for any reason set forth in the terms and
conditions of this exchange offer or if old 7 1/2% notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged old 7 1/2% notes will be returned without expense to the tendering
holder thereof, or, in the case of old 7 1/2% 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 this exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old 7 1/2% notes at the book-entry transfer facility for purposes of this
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 7 1/2% notes by causing
the book-entry transfer facility to transfer such old 7 1/2% 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 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.
23
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old 7 1/2% notes and (A) whose old 7 1/2%
notes are not immediately available, or (B) who cannot deliver their old 7 1/2%
notes, the letter 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 7 1/2% notes and the principal amount of old 7 1/2%
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 of transmittal, or
facsimile thereof, together with the old 7 1/2% notes or a book-entry
confirmation, as the case may be, and any other documents required by the
letter of transmittal will be deposited by the eligible institution with
the exchange agent; and
- such properly completed and executed letter of transmittal, or facsimile
thereof, or properly transmitted agent's message as well as all tendered
old 7 1/2% notes in proper form for transfer or a book-entry
confirmation, as the case may be, and all other documents required by the
letter of transmittal, are received by the exchange agent within three
New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old 7 1/2% notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old 7 1/2% 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 7 1/2% notes to be withdrawn, identify the old 7 1/2% notes to
be withdrawn, including the principal amount of such old 7 1/2% notes, and,
where certificates for old 7 1/2% notes have been transmitted, specify the name
in which such old 7 1/2% notes were registered, if different from that of the
withdrawing holder. If certificates for old 7 1/2% 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 7 1/2% 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 7 1/2% 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, whose determination shall be final and binding on all parties. Any old
7 1/2% notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of this exchange offer. Any old 7 1/2% 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 7 1/2% 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 7 1/2% notes will be credited to an account
maintained with
24
such book-entry transfer facility for the old 7 1/2% notes, as soon as
practicable after withdrawal, rejection of tender or termination of this
exchange offer. Properly withdrawn old 7 1/2% 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.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for this exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or the letter of transmittal and requests for notice of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
<Table>
By Registered or Certified By Hand or by Overnight
Mail: Courier:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Reorganization Unit -- 7 East Reorganization Unit -- 7 East
New York, NY 10286 New York, NY 10286
Attn: Enrique Lopez -- Attn: Enrique Lopez --
Reorganization Unit Reorganization Unit
By facsimile: Telephone:
(212) 298-1915 (212) 815-2742
</Table>
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 this exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of this 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 this exchange offer
will be paid by us and are estimated in the aggregate to be approximately
$600,000. 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 7 1/2% notes for exchange notes pursuant to this exchange offer. If,
however, certificates representing old 7 1/2% 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 of transmittal, or if a transfer tax is imposed for any
reason other than the exchange of notes pursuant to this 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 of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
25
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old 7 1/2% notes who do not exchange their old 7 1/2% notes for
exchange notes pursuant to this exchange offer will continue to be subject to
the restrictions on transfer of such old 7 1/2% notes, as set forth:
- in the legend thereon as a consequence of the issuance of the old 7 1/2%
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
- otherwise set forth in the offering memorandum dated May 1, 2003,
distributed in connection with the offering of the old 7 1/2% notes.
In general, the old 7 1/2% 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 old
7 1/2% notes under the Securities Act, except as required by the registration
rights agreement related to the old 7 1/2% notes.
26
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the five years
ended December 31, 2002 have been derived from our consolidated financial
statements as audited by Grant Thornton LLP, independent certified public
accountants. The selected consolidated financial data as of and for the three
months ended March 31, 2002 and 2003 have been derived from our unaudited
consolidated financial statements which were prepared on the same basis as our
audited consolidated financial statements and include, in our opinion, all
adjustments necessary to present fairly the information presented for the
interim periods. Interim period results are not necessarily indicative of
results that will be obtained for the full year. 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 in this prospectus. In May and August 1998,
we completed the acquisitions of Central Rents, Inc. and Thorn Americas, Inc.,
respectively, both of which affect the comparability of the 1998 historical
financial and operating data to the other periods presented.
<Table>
<Caption>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------ -----------------------
1998 1999 2000 2001 2002 2002 2003
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues
Store
Rentals and fees............ $ 711,443 $1,270,885 $1,459,664 $1,650,851 $1,828,534 $ 443,705 $ 493,419
Installment sales........... -- -- -- -- 6,137 -- 6,045
Merchandise sales........... 41,456 88,516 81,166 94,733 115,478 39,605 52,664
Other....................... 7,282 2,177 3,018 3,476 2,589 614 715
Franchise
Merchandise sales........... 44,365 49,696 51,769 53,584 51,514 13,253 12,072
Royalty income and fees..... 5,170 5,893 5,997 5,884 5,792 1,433 1,491
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue................. 809,716 1,417,167 1,601,614 1,808,528 2,010,044 498,610 566,406
Operating expenses
Direct store expenses
Depreciation of rental
merchandise............... 164,651 265,486 299,298 343,197 383,400 92,223 106,660
Cost of Installment sales... -- -- -- -- 3,776 -- 3,231
Cost of merchandise sold.... 32,056 74,027 65,332 72,539 84,628 26,982 36,548
Salaries and other
expenses.................. 423,750 770,572 866,234 1,019,402 1,070,265 262,619 292,496
Franchise cost of merchandise
sold........................ 42,886 47,914 49,724 51,251 49,185 12,653 11,551
---------- ---------- ---------- ---------- ---------- ---------- ----------
663,343 1,157,999 1,280,588 1,486,389 1,591,254 394,477 450,486
General and administrative
expenses...................... 28,715 42,029 48,093 55,359 63,296 15,117 16,756
Amortization of intangibles..... 15,345 27,116 28,303 30,194 5,045 720 2,873
Non-recurring litigation
settlements................... 11,500 -- (22,383)(1) 52,000(2) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses...... 718,903 1,227,144 1,334,601 1,623,942 1,659,595 410,314 470,115
Operating profit................ 90,813 190,023 267,013 184,586 350,449 88,296 96,291
Interest (income) expense,
net........................... 37,140 74,769 72,618 59,780 62,006 15,075 12,752
Non-recurring financing costs... 5,018 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income taxes.... 48,655 115,254 194,395 124,806 288,443 73,221 83,539
Income tax expense.............. 23,897 55,899 91,368 58,589 116,270 29,658 32,580
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings.................... 24,758 59,355 103,027 66,217 172,173 43,563 50,959
Preferred dividends............. 3,954 10,039 10,420 15,408 10,212 4,992 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings allocable to common
Stockholders.................. $ 20,804 $ 49,316 $ 92,607 $ 50,809 $ 161,961 $ 38,571 $ 50,959
========== ========== ========== ========== ========== ========== ==========
</Table>
27
<Table>
<Caption>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------ -----------------------
1998 1999 2000 2001 2002 2002 2003
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
OTHER OPERATING AND FINANCIAL
DATA:
Number of owned stores (end of
period)....................... 2,126 2,075 2,158 2,281 2,407 2,284 2,542
Same store revenue growth(3).... 8.1% 7.7% 12.6% 8.0% 6.0% 7.7% 6.2%
Franchise stores (end of
period)....................... 324 365 364 342 318 338 317
Adjusted EBITDA(4).............. $ 135,140 $ 248,452 $ 306,077 $ 304,690 $ 395,854 $ 98,482 $ 109,284
Adjusted EBITDA margin.......... 16.7% 17.5% 19.1% 16.8% 19.7% 19.8% 19.3%
Depreciation and
amortization(5)............... 32,827 58,429 61,447 68,104 43,404 10,186 12,993
Capital expenditures............ 21,860 36,211 37,937 57,532 37,596 8,100 9,245
Cash interest expense(6)........ 37,563 72,395 70,978 57,420 57,383 14,772 12,924
Ratio of Adjusted EBITDA to cash
interest expense(6)........... 3.6x 3.4x 4.3x 5.3x 6.9x N/A N/A
Ratio of total net debt to
Adjusted EBITDA............... 5.7x 3.3x 2.3x 2.0x 1.1x N/A N/A
Ratio of earnings to fixed
charges(7).................... 1.9x 2.2x 2.9x 2.3x 3.9x N/A N/A
BALANCE SHEET DATA (AT THE END
OF PERIOD):
Cash and cash equivalents....... $ 33,797 $ 21,679 $ 36,495 $ 107,958 $ 85,723 $ 167,264 $ 103,151
Rental merchandise, net......... 408,806 531,223 587,232 653,701 631,724 656,544 693,324
Total assets.................... 1,502,989 1,485,000 1,486,910 1,619,920 1,616,052 1,677,036 1,729,618
Total debt...................... 805,700 847,160 741,051 702,506 521,330 702,525 521,349
Convertible preferred stock..... 259,476 270,902 281,232 291,910 2 294,674 2
Stockholders' equity............ 154,913 206,690 309,371 405,378 842,400 424,732 887,929
</Table>
- ---------------
(1) 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.
(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 earnings before income taxes plus interest expense net
of interest income, depreciation of property assets (exclusive of
depreciation of rental merchandise) and amortization of intangibles.
Adjusted EBITDA is defined as EBITDA plus litigation settlements. In
addition, for 1998 Adjusted EBITDA also included non-recurring finance
charges. EBITDA and Adjusted EBITDA are not measures of operating income,
operating performance or liquidity under generally accepted accounting
principles. Although EBITDA and Adjusted EBITDA are frequently used as
measures of operations and the ability to satisfy debt service requirements,
these terms are not necessarily comparable to other similarly titled
captions of other companies due to the potential inconsistencies in the
method of calculation.
Reconciliation to reported items:
<Table>
<Caption>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- ------------------
1998 1999 2000 2001 2002 2002 2003
-------- -------- -------- -------- -------- ------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Reported Earnings before income taxes..... $ 48,655 $115,254 $194,395 $124,806 $288,443 $73,221 $ 83,539
Add back: Interest expense net of interest
income.................................. 37,140 74,769 72,618 59,780 62,007 15,075 12,752
Depreciation of property assets......... 17,482 31,313 33,144 37,910 38,359 9,466 10,120
Amortization of intangibles............. 15,345 27,116 28,303 30,194 5,045 720 2,873
-------- -------- -------- -------- -------- ------- --------
EBITDA.................................... 118,622 248,452 328,460 252,690 393,854 98,482 109,284
Add back: Class action litigation
settlements............................. 11,500 -- (22,383) 52,000 2,000 -- --
Non-recurring finance charge............ 5,018 -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- --------
Adjusted EBITDA......................... $135,140 $248,452 $306,077 $304,690 $395,854 $98,482 $109,284
======== ======== ======== ======== ======== ======= ========
</Table>
28
This prospectus contains information regarding EBITDA, which is a non-GAAP
financial measure as defined in Item 10(e) of Regulation S-K. This prospectus
also contains a reconciliation of EBITDA to our reported earnings before
income taxes. We believe that the presentation of EBITDA is useful to
investors, as, among other things, this information impacts certain financial
covenants under our senior credit facilities and the indentures governing our
outstanding subordinated notes. While we believe this non-GAAP financial
measure is useful in evaluating us, this information should be considered as
supplemental in nature and not as a substitute for or superior to the related
financial information prepared in accordance with GAAP. Further, the non-GAAP
financial measure may differ from similar measures presented by other
companies.
(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.
29
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 31% market share based on store count. At June 30, 2003, we operated
2,567 company-owned stores nationwide and in Puerto Rico, including 23 stores
located in Wisconsin and operated by our subsidiary Get It Now, LLC under the
name "Get It Now." Another of our subsidiaries, ColorTyme, Inc., is a national
franchisor of rent-to-own stores. At June 30, 2003, ColorTyme had 321 franchised
stores in 40 states, 309 of which operated under the ColorTyme name and 12
stores of which operated under the Rent-A-Center name. Our stores generally
offer high quality durable products such as home electronics, appliances,
computers, and furniture and accessories under flexible rental purchase
agreements that generally 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 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 we 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.
CRITICAL ACCOUNTING POLICIES INVOLVING CRITICAL ESTIMATES, UNCERTAINTIES OR
ASSESSMENTS IN OUR FINANCIAL STATEMENTS
The preparation of our financial statements in conformity with accounting
principles generally accepted 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 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
30
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 closely
monitored by us and periodically adjusted as circumstances warrant. For
instance, our liability for our self-insured retentions 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
"Legal Proceedings" and the notes to our consolidated financial statements
included in this prospectus, 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 violations of wage and hour laws 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. 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 financial statements provide a meaningful and fair
perspective of our company. However, we do not suggest that other general risk
factors, such as those discussed in the section entitled "Risk Factors," the
notes to our consolidated financial statements included in this prospectus 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 in this prospectus.
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.
31
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. On July 1,
2002, we began accelerating the depreciation on computers that are 21 months old
or older and which have become idle using the straight-line method for a period
of at least six months. The purpose for this change is to better reflect the
depreciable life of a computer in our stores and to encourage the sale of older
computers. Though this method will accelerate the depreciation expense on the
affected computers, we do not expect it to have a material effect on our
financial position, results of operations or cash flows in future periods.
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 customer relationships and non-compete
agreements resulting from acquisitions. Effective January 1, 2002, under SFAS
142 all goodwill and intangible assets with indefinite lives are no longer
subject to amortization.
RECENT DEVELOPMENTS
Store Growth. We are actively seeking to increase our store base and
annual revenues and profits through opportunistic acquisitions and new store
openings. On February 8, 2003, we acquired substantially all of the assets of
295 stores located throughout the United States from Rent-Way, Inc. and certain
of its subsidiaries for approximately $100.4 million in cash. Of the 295 stores,
176 were merged with existing locations. Furthermore, during the first six
months of 2003, we acquired 11 additional stores, accounts from 14 additional
locations, opened 38 new stores, and closed eight stores. It is our intention to
increase the number of stores we operate by an average of approximately 5 to 10%
per year over the next several years.
Recapitalization. Commencing in April 2003, we recapitalized a portion of
our financial structure in a series of transactions. The recapitalization
consisted of the tender offer for all of our $272.25 million principal amount of
11% notes, the notice of optional redemption of the remaining 11% notes, the
issuance of $300.0 million principal amount of old 7 1/2% notes, the refinancing
of our senior debt and the repurchase of shares of our common stock.
On April 23, 2003, we announced a tender offer for all of our $272.25
million principal amount of 11% notes. On May 6, 2003, we repurchased
approximately $183 million principal amount of 11% notes pursuant to the tender
offer. This tender offer expired at 12:00 midnight, New York City time, on
Tuesday, May 20, 2003. On June 17, 2003, we announced that we were going to
optionally redeem on August 15, 2003, in accordance with the terms of the
underlying indenture, all of the 11% notes then outstanding at the applicable
redemption price. On June 17, 2003, the trustee provided formal notice to the
holders of the 11% notes that the 11% notes would be redeemed at 105.5% of the
principal amount, plus accrued and unpaid interest on August 15, 2003. Under the
terms of our new senior credit facilities, we are required to redeem our 11%
notes no later than August 15, 2003.
32
On May 6, 2003, we issued $300.0 million in senior subordinated notes due
2010, bearing interest at 7 1/2%, the proceeds of which were used, in part, to
fund the repurchase and redemption of the 11% notes. We are offering to exchange
the old 7 1/2% notes for the exchange notes in this exchange offer.
On May 28, 2003, we refinanced our then existing senior debt by entering
into a new $600.0 million senior credit facility, consisting of a $400.0 million
term loan, a $120.0 million revolving credit facility and an $80.0 million
additional term loan.
On April 25, 2003, we announced that we entered into an agreement with
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. which
provided for the repurchase of a number of shares of our common stock sufficient
to reduce Apollo's aggregate record ownership to 19.00% after consummation of
our planned tender offer and repurchase. On April 28, 2003, we announced the
commencement of a tender offer to purchase up to 2.20 million shares of our
common stock pursuant to a modified "Dutch Auction." Under the agreement with
Apollo, we agreed to repurchase the shares of our common stock at the same price
per share as the price paid in the tender offer. On June 25, 2003, we closed the
tender offer and purchased approximately 1.77 million shares of our common stock
at $73 per share. On July 11, 2003 we closed the Apollo transaction and
purchased approximately 775,000 shares of our common stock.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31,
2002
Store Revenue. Total store revenue increased by $68.9 million, or 14.2%,
to $552.8 million for the three months ended March 31, 2003 from $483.9 million
for the three months ended March 31, 2002. The increase in total store revenue
is primarily attributable to growth in same store revenues, an increase in cash
sales and early purchase options as well as incremental revenues related to the
acquisition of 295 Rent-Way stores on February 8, 2003.
Same store revenues represent those revenues earned in stores that were
operated by us for each of the entire three month periods ending March 31, 2003
and 2002. Same store revenues increased by $25.6 million, or 6.2%, to $439.1
million for the three months ended March 31, 2003 from $413.5 million in 2002.
The increase in same store revenues was primarily attributable to an increase in
the number of customers served (approximately 404 per day per store for 2003 vs.
approximately 403 per day per store for 2002 in same stores open), as well as
total revenue earned per customer including all rentals, fees and cash sales
(approximately $562 per customer for the quarter ending March 31, 2003 versus
approximately $532 per customer for the quarter ending March 31, 2002).
Merchandise sales increased $13.1 million, or 33%, to $52.7 million for 2003
from $39.6 million in 2002. The increase in merchandise sales was primarily
attributable to an increase in the number of items sold in the first quarter of
2003 (approximately 317,975) from the number of items sold in 2002
(approximately 258,063). This increase in the number of items sold in 2003
versus the same period in 2002 was primarily the result of an increase in the
amount of customers exercising early purchase options.
Franchise Revenue. Total franchise revenue decreased by $1.1 million, or
7.7%, to $13.6 million for the three months ended March 31, 2003 from $14.7
million in 2002. This decrease was primarily attributable to a decrease in
merchandise sales to franchise locations as a result of a decrease in the number
of franchised locations in the first quarter of 2003 as compared to the first
quarter of 2002.
Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased by $14.4 million, or 15.7%, to $106.7 million for the three months
ended March 31, 2003 from $92.2 million in 2002. Depreciation of rental
merchandise expressed as a percent of store rentals and fees revenue increased
to 21.6% in 2003 from 20.8% for the same period in 2002. These increases were
primarily attributable to an increase in rental and fee revenue, pricing and
term changes put into place in late 2001 and higher depreciation associated with
the recently acquired Rent-Way inventory.
Cost of Merchandise Sold. Cost of merchandise sold increased by $9.6
million, or 35.5%, to $36.5 million for the three months ended March 31, 2003
from $27.0 million in 2002. This increase was
33
primarily a result of an increase in the number of items sold during the first
three months of 2003 as compared to the first three months of 2002, as well as
the additional sales of inventory gained through the acquisition of 295 Rent-Way
stores.
Salaries and Other Expenses. Salaries and other expenses expressed as a
percentage of total store revenue decreased to 52.9% for the three months ended
March 31, 2003 from 54.3% for the three months ended March 31, 2002. This
decrease was primarily attributable to an increase in store revenues in the
first quarter of 2003 as compared to 2002 coupled with the continued
improvements seen in the realization of our margin enhancement initiatives and
reductions in store level costs.
Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold
decreased by $1.1 million, or 8.7%, to $11.6 million for the three months ended
March 31, 2003 from $12.7 million in 2002. This decrease was primarily
attributable to a decrease in the number of franchised locations in the first
quarter of 2003 as compared to the first quarter of 2002.
General and Administrative Expenses. General and administrative expenses
expressed as a percent of total revenue remained relatively constant at 3.0% for
the three months ending March 31, 2003 and 2002, respectively.
Amortization of Intangibles. Amortization of intangibles increased by $2.2
million, or 299.0%, to $2.9 million for the three months ended March 31, 2003
from $720,000 for the three months ended March 31, 2002. This increase was
attributable to the Rent-Way acquisition and the number of acquisitions made
during the later part of 2002 versus 2001. The result of those prior year
acquisitions is a higher amortization of intangibles in the first quarter of
2003 versus 2002.
Operating Profit. Operating profit increased by $8.0 million, or 9.1%, to
$96.3 million for the three months ended March 31, 2003 from $88.3 million in
2002. Operating profit as a percentage of total revenue decreased to 17.0% for
the three months ended March 31, 2003, from 17.7% in 2002. This decrease was
primarily attributable to the increases in depreciation of rental merchandise
and amortization of intangibles during the first quarter of 2003 versus 2002, as
well as the effect of the Rent-Way acquisition.
Net Earnings. Net earnings increased by $7.4 million, or 17.0%, to $51.0
million for the three months ended March 31, 2003 from $43.6 million in 2002.
This increase is primarily attributable to growth in total revenues, reduced
interest expenses resulting from a reduction in outstanding debt and the
improvements seen in salaries and other expenses under our cost control
programs.
Preferred Dividends. Dividends on our Series A preferred stock are payable
quarterly at an annual rate of 3.75%. Preferred dividends decreased by $5.0
million, or nearly 100%, for the three months ended March 31, 2003, primarily
due to the conversion of all but two shares of outstanding Series A preferred
stock in August 2002.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Store Revenue. Total store revenue increased by $203.6 million, or 11.6%,
to $1,952.7 million for 2002 from $1,749.1 million for 2001. The increase in
total store revenue was primarily attributable to growth in same store revenues
during 2002 as well as incremental revenues from the opening of 70 stores and
the acquisition of 83 stores and accounts from another 126 stores in 2002.
Same store revenues represent those revenues earned in 1,834 stores that
were operated by us for each of the entire years ending December 31, 2002 and
2001. Same store revenues increased by $88.9 million, or 6.0%, to $1,570.7
million for 2002 from $1,481.8 million in 2001. This improvement was primarily
attributable to an increase in the number of customers served (approximately 401
per day per store as of December 31, 2002 versus approximately 395 per day per
store as of December 31, 2001 in same stores open), as well as revenue earned
per customer (approximately $2,136 per customer for the year ending December 31,
2002 versus approximately $2,045 per customer for 2001). Merchandise sales
increased $20.8 million, or 21.9%, to $115.5 million for 2002 from $94.7 million
in 2001. The increase in
34
merchandise sales was primarily attributable to an increase in the number of
items sold in 2002 (approximately 875,000) as compared to the number of items
sold in 2001 (approximately 761,000), which was primarily the result of an
increase in the number of customers exercising early purchase options.
Franchise Revenue. Total franchise revenue decreased by $2.2 million, or
3.6%, to $57.3 million for 2002 from $59.5 million in 2001. This decrease was
primarily attributable to a decrease in merchandise sales to franchise locations
during 2002 as compared to 2001 resulting from a decrease in the number of
franchised locations from 342 at December 31, 2001 to 318 at December 31, 2002.
Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased by $40.2 million, or 11.7%, to $383.4 million for 2002 from $343.2
million for 2001. This increase was primarily attributable to an increase in
rental and fee revenue of $177.6 million, or 10.7%, to $1,828.5 million for 2002
from $1,650.9 for 2001, as well as $2.4 million of the additional depreciation
recognized on computers in 2002 relating to our revised depreciation policy on
computers. Depreciation of rental merchandise expressed as a percentage of store
rentals and fees revenue increased to 21.0% in 2002 from 20.8% in 2001. This
slight increase in 2002 is primarily a result of in-store promotions and pricing
changes made during the third quarter of 2001, which included a reduction in the
rates and terms on certain rental agreements, causing depreciation to be a
greater percentage of store rentals and fees revenue on those promotional items
rented through 2002.
Cost of Merchandise Sold. Cost of merchandise sold increased by $12.1
million, or 16.7%, to $84.6 million for 2002 from $72.5 million in 2001. This
increase was a result of an increase in the number of items sold in 2002, as
compared to 2001, resulting from an increase in early purchase options exercised
in 2002 as compared to 2001.
Salaries and Other Expenses. Salaries and other expenses expressed as a
percentage of total store revenue decreased to 54.8% for 2002 from 58.3% for
2001. This decrease was primarily attributable to an increase in store revenues
during the year ended December 31, 2002 as compared to 2001, coupled with the
realization of our margin enhancement initiatives and reductions in store level
costs in 2002, including our regional pay plan we implemented in 2002.
Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold
decreased by $2.1 million, or 4.0%, to $49.2 million for 2002 from $51.3 in
2001. This decrease is a direct result of a decrease in merchandise sales to
franchise locations in 2002 as compared to 2001, offset by a slight increase in
gross profit on these sales, to 4.7% in 2002 as compared to 4.6% in 2001.
General and Administrative Expenses. General and administrative expenses
expressed as a percent of total revenue increased slightly to 3.2% in 2002 from
3.1% in 2001. This increase is primarily attributable to an increase in home
office labor and other overhead expenses for 2002 as compared to 2001.
Amortization of Intangibles. Amortization of intangibles decreased by
$25.2 million, or 83.3%, to $5.0 million for 2002 from $30.2 million in 2001.
This decrease was directly attributable to the implementation of SFAS 142, which
requires that goodwill and other intangibles with indefinite lives no longer be
amortized.
Operating Profit. Operating profit increased by $165.8 million, or 89.9%,
to $350.4 million for 2002 from $184.6 million for 2001. 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, operating profit increased by $113.9 million, or 48.1%, for the year ended
December 31, 2002 from $236.6 million for the year ended December 31, 2001.
Operating profit as a percentage of total revenue increased to 17.4% for the
year ended December 31, 2002 from 13.1% for the year ended December 31, 2001
before the pre-tax class action litigation settlement charges of $52.0 million.
This increase was primarily attributable to an increase in store revenues during
the year ended December 31, 2002 as compared to 2001, coupled with the
realization of our margin enhancement initiatives, reduction of store level
costs and the reduction of intangible amortization expense as discussed above.
After adjusting reported results for the year ended December 31, 2001 to exclude
the effects of goodwill amortization and
35
the non-recurring legal charges, operating profit increased by $85.9 million, or
32.5% on a comparable basis.
Net Earnings. Net earnings were $172.2 million for the year ended December
31, 2002 and $66.2 million for the year ended December 31, 2001. Before the
after-tax effect of the $52.0 million class action litigation settlement charges
recorded in 2001, net earnings increased by $74.7 million, or 76.6%, for the
year ended December 31, 2002, from $97.5 million for the year ended December 31,
2001. This increase is primarily attributable to growth in operating profit as
discussed above. After adjusting reported results for the year ended December
31, 2001 to exclude the effects of goodwill amortization and the non-recurring
legal charges, net earnings increased by $52.7 million, or 43.1% on a comparable
basis.
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 decreased by $5.2 million, or 33.7%, to $10.2 million for the year
ended December 31, 2002 as compared to $15.4 million in 2001. This decrease is a
direct result of the conversion of 97,197 shares of preferred stock into
3,500,000 shares of our common stock in May 2002 and the conversion in August
2002 of all but two shares of our outstanding Series A preferred stock into
approximately 7,281,548 shares of our common stock, resulting in less preferred
shares outstanding in 2002, following the conversions, as compared to 2001.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001 AND 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 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 1,854 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.
36
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 effective January 1, 2002.
Amortization expense for other intangible assets, however, is expected to be
approximately $2.2 million for 2002, based on acquisitions made through the date
of this prospectus.
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.
37
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased by $28.5 million to $124.8
million for the three months ending March 31, 2003 from $96.3 million in 2002.
This increase resulted primarily from an increase in net earnings, accounts
payable and accrued liabilities during the first three months of 2003 compared
to 2002, offset by increased purchases of inventory.
Cash used in investing activities increased by $88.8 million to $100.1
million during the three month period ending March 31, 2003 from $11.3 million
in 2002. This increase is primarily attributable to the acquisition of 295
stores from Rent-Way.
Cash used in financing activities decreased by $18.5 million to $7.3
million during the three month period ending March 31, 2003 from $25.8 million
in 2002. This decrease is a result of the difference between our purchase of
$34.7 million in treasury stock in the first quarter of 2002 as compared to
$13.4 million during the first quarter of 2003, offset by fewer proceeds from
options exercised in 2003 as compared to 2002.
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 equity and debt 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 new senior credit facilities, will be sufficient to
fund our debt service requirements, rental merchandise purchases, capital
expenditures, litigation and our store expansion programs during 2003. Our
existing revolving credit facilities provide us with revolving loans in an
aggregate principal amount not exceeding $120.0 million, of which $114.1 million
was available at June 30, 2003. At June 30, 2003, we had in excess of $235.0
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.
Our new senior credit facilities and the indentures governing our senior
subordinated notes contain certain change in control provisions. A change in
control would result in an event of default under our new senior credit
facilities, and, pursuant to the underlying indentures, would also require us to
offer to repurchase all of our senior subordinated notes at 101% of their
principal amount, plus accrued interest to the date of repurchase. Provisions of
our new senior credit facilities restrict the repurchase of all of our senior
subordinated notes. 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 and all of the senior subordinated notes, or that we would
be able to obtain financing to do so on favorable terms, if at all.
Deferred Taxes. On March 9, 2002, President Bush signed into law the Job
Creation and Worker Assistance Act of 2002, which provides for accelerated tax
depreciation deductions for qualifying assets placed in service between
September 11, 2001 and September 10, 2004. Under these provisions, 30 percent of
the basis of qualifying property is deductible in the year the property is
placed in service, with the remaining 70 percent of the basis depreciated under
the normal tax depreciation rules. Accordingly, our cash flow will benefit from
having a lower current cash tax obligation, which in turn will provide
additional cash flows from operations until the deferred tax liabilities begin
to reverse. We estimate that our operating cash flow will increase by
approximately $60.0 million through 2004 before the deferred tax liabilities
begin to reverse over a three year period beginning in 2005.
Rental Merchandise Purchases. We purchased $172.5 million and $137.9
million of rental merchandise during the three month periods ending March 31,
2003 and 2002, respectively.
38
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 $9.2 million and $8.1 million on capital expenditures during
the three month periods ending March 31, 2003 and 2002, respectively, and expect
to spend approximately $31.0 million for the remainder of 2003.
Acquisitions and New Store Openings. For the first three months of 2003,
we spent approximately $101.1 million on acquiring stores and accounts of which
$100.4 million was for the Rent-Way acquisition. For the entire year ending
December 31, 2003, we intend to add approximately 5% to 10% to our store base by
opening approximately 80 new store locations as well as continuing to pursue
opportunistic acquisitions.
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 under-performing stores
on favorable terms. There can be no assurance that we will be able to acquire or
open new stores at the rates we expect, or at all. We cannot assure you that 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 then
existing senior debt outstanding at March 31, 2003.
<Table>
<Caption>
PERIOD (YEAR) ENDING DECEMBER 31,
- --------------------------------- (IN THOUSANDS)
2003........................................................ $ 1,063
2004........................................................ 13,040
2005........................................................ 49,093
2006........................................................ 114,111
2007........................................................ 72,193
Thereafter.................................................. --
--------
Total....................................................... $249,500
========
</Table>
We recently refinanced our senior debt by entering into a new $600.0
million senior credit facility, consisting of a $400.0 million term loan, a
$120.0 million revolving credit facility and an $80.0 million additional term
loan. The table below shows the scheduled maturity dates of our new senior debt
outstanding at June 30, 2003.
<Table>
<Caption>
PERIOD (YEAR) ENDING DECEMBER 31,
- --------------------------------- (IN THOUSANDS)
2003........................................................ $ 2,000
2004........................................................ 4,000
2005........................................................ 4,000
2006........................................................ 4,000
2007........................................................ 4,000
2008........................................................ 192,000
Thereafter.................................................. 190,000
--------
Total....................................................... $400,000
========
</Table>
Senior Credit Facilities. Our new senior credit facilities are provided by
a syndicate of banks and other financial institutions led by Lehman Commercial
Paper Inc. as administrative agent. At June 30, 2003, we had a total of $400.0
million outstanding under our new senior credit facility related to our term
loans and $114.1 million of availability under the revolving credit line portion
of our new senior credit facility.
Under our $80.0 million additional term loan facility, in the event that a
letter of credit is drawn upon, we have the right to either repay the additional
term loan facility lenders the amount withdrawn or
39
request a loan in that amount. Interest on any requested additional term loan
facility loan accrues at an adjusted prime rate plus 1.25% or, at our option, at
the Eurodollar rate plus 2.25%, with the entire amount of the additional term
loan facility due on May 28, 2008.
Borrowings under our new senior credit facilities bear interest at varying
rates equal to 2.25% over the Eurodollar rate, which was 1.12% at June 30, 2003.
We also have a prime rate option under the facilities, but have not exercised it
to date. We have not entered into any interest rate protection agreements with
respect to term loans under our new senior credit facilities.
Our new senior credit facilities are secured by a security interest in
substantially all of our tangible and intangible assets, including intellectual
property and real property. Our new senior credit facilities are also secured by
a pledge of the capital stock of our subsidiaries.
Our new senior credit facilities contain covenants, including without
limitation, covenants that generally limit our ability to:
- incur additional debt (including subordinated debt) in excess of $35
million at any one time outstanding;
- 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 in the ordinary course of business;
- make investments or acquisitions unless we meet financial tests and other
requirements;
- make capital expenditures; or
- enter into a new line of business.
Our new senior credit facilities require us to comply with several
financial covenants, including a maximum consolidated leverage ratio, a minimum
consolidated interest coverage ratio and a minimum fixed charge coverage ratio.
At June 30, 2003, the maximum consolidated leverage ratio was 2.75 to 1.00, the
minimum consolidated interest coverage ratio was 3.50 to 1.00, and the minimum
fixed charge coverage ratio was 1.50 to 1.00. In addition, we are required,
subject to certain conditions, to use 25% of the net proceeds from any equity
offering to repay our term loans.
Events of default under our new 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, which is defined as when a third
party becomes the beneficial owner, either directly or indirectly, of 35% or
more of our voting stock or certain changes in Rent-A-Center's Board of
Directors occur.
11% Notes. As of June 30, 2003, we had outstanding $84.5 million in 11%
notes pursuant to an indenture dated as of December 19, 2001 among Rent-A-Center
East, its subsidiary guarantors and The Bank of New York, as trustee.
The 2001 indenture 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.
40
Events of default under the 2001 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 $25.0 million.
The 11% notes may be redeemed on or after August 15, 2003, at our option,
in whole or in part, at a premium declining from 105.5%. The 11% notes also
require that upon the occurrence of a change of control (as defined in the 2001
indenture), the holders of the 11% notes have the right to require us to
repurchase the 11% 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.
On April 23, 2003, we announced a tender offer for all of our $272.25
million principal amount of 11% notes. On May 6, 2003, we repurchased
approximately $183 million principal amount of 11% notes pursuant to the tender
offer. This tender offer expired at 12:00 midnight, New York City time, on
Tuesday, May 20, 2003. On June 17, 2003, we announced that we were going to
optionally redeem on August 15, 2003, in accordance with the terms of the
underlying indenture, all of the 11% notes then outstanding at the applicable
redemption price. On June 17, 2003, the trustee provided formal notice to the
holders of the 11% notes that the 11% notes would be redeemed at 105.5% of the
principal amount, plus accrued and unpaid interest on August 15, 2003. Under the
terms of our new senior credit facilities, we are required to redeem our 11%
notes no later than August 15, 2003.
Old 7 1/2% Notes. On May 6, 2003, we issued an additional $300.0 million
in senior subordinated notes due 2010, bearing interest at 7 1/2%, pursuant to
an indenture dated May 6, 2003, among Rent-A-Center, Inc., our subsidiary
guarantors and The Bank of New York, as trustee. The proceeds of this offering
were used, in part, to fund the repurchase and redemption of the 11% notes.
The 2003 indenture contains covenants that limit Rent-A-Center's 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 2003 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 $50.0 million. It is also an event of default under the 2003 indenture
if we fail to purchase or redeem all of the 11% notes by August 30, 2003.
The old 7 1/2% notes may be redeemed on or after May 1, 2006, at our
option, in whole or in part, at a premium declining from 103.75%. The old 7 1/2%
notes also require that upon the occurrence of a change of control (as defined
in the 2003 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 do not comply with this repurchase obligation, this would
trigger an event of default under our new senior credit facilities.
We are seeking to exchange the old 7 1/2% notes for the exchange notes in
this 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 generally provides $40.0 million in aggregate
financing to qualifying franchisees of ColorTyme of up to five times their
average monthly revenues. Under this agreement, upon an event of default by the
franchisee under agreements governing this financing and upon the occurrence of
certain other events, Textron may assign the loans and the collateral securing
such loans to ColorTyme, with ColorTyme, then
41
succeeding to the rights of Textron under the debt agreements, including the
rights to foreclose on the collateral. An additional $12.0 million of financing
is provided by Texas Capital Bank, National Association under an arrangement
similar to the Textron financing. We guarantee the obligations of ColorTyme
under these agreements up to a maximum amount of $52.0 million, of which $30.7
million was outstanding as of June 30, 2003. Mark E. Speese, our Chairman of the
Board and Chief Executive Officer, is a passive investor in Texas Capital Bank,
owning less than 1% of its outstanding equity.
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 June 30, 2003, we have paid approximately
$124.5 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, as well as from cash flow from operations.
On November 12, 2002, we signed a settlement agreement settling the
Wisconsin Attorney General matter, which was approved by the court on the same
day. Under the terms of the settlement, we created a restitution fund in the
amount of $7.0 million for our eligible Wisconsin customers who had completed or
active transactions with us as of September 30, 2002. In addition, we paid $1.4
million to the State of Wisconsin for fines, penalties, costs and fees. The
settlement of this matter was fully reserved for in our financial statements. A
portion of the restitution fund is allocated for customers with completed
transactions as of September 30, 2002, and the balance is allocated for
restitution on active transactions as of September 30, 2002, which will be
allowed to terminate according to their terms when customers either acquire or
return the merchandise. Restitution will be offered on the active transactions
when all such active transactions have terminated, which we anticipate will
occur by the fall of 2004. Any unclaimed restitution funds at the conclusion of
the restitution period will be returned to us. To the extent the amount in the
restitution fund is insufficient to pay the required amount of restitution, we
are obligated to provide additional funds to do so. However, we believe the
amount in the restitution fund allocated for the active transactions, together
with the amount of funds we anticipate will remain unclaimed by customers with
completed transactions, will be sufficient to pay the required amount of
restitution on all eligible active transactions.
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 in this prospectus.
Sales of Equity Securities. 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 3.75%, or $37.50 per annum. Prior to the conversion of all
but two shares of our Series A preferred stock in August 2002, we paid these
dividends in additional shares of Series A preferred stock because of
restrictive provisions in our senior credit facilities. We currently have the
ability to pay the dividends in cash and may do so under our new senior credit
facilities so long as we are not in default.
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 that 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.
In connection with the issuance of our Series A preferred stock in August
1998, we entered into a registration rights agreement with Apollo which, among
other things, granted them two rights to request that their shares be
registered, and a registration rights agreement with an affiliate of Bear
Stearns, which granted them the right to participate in any company-initiated
registration of shares, subject to certain exceptions. In May 2002, Apollo
exercised one of their two rights to request that their shares be registered and
an affiliate of Bear Stearns elected to participate in such registration. In
connection therewith, Apollo and an affiliate of Bear Stearns converted 97,197
shares of our Series A preferred stock held by them into 3,500,000 shares of our
common stock, which they sold in the May 2002 public offering that was the
subject of Apollo's request. We did not receive any of the proceeds from this
offering.
42
On August 5, 2002, the first date on which we had the right to optionally
redeem the shares of Series A preferred stock, the holders of our Series A
preferred stock converted all but two shares of our Series A preferred stock
held by them into 7,281,548 shares of our common stock. As a result, the
dividend on our Series A preferred stock was substantially eliminated for future
periods. In connection with Apollo's conversion of all but two of the shares of
Series A preferred stock held by them on August 5, 2002, we granted Apollo an
additional right to effect a demand registration under the existing registration
rights agreement we entered into with them in 1998, such that Apollo now has two
demand rights.
On July 11, 2003, Apollo exchanged their shares of Series A preferred stock
for shares of Series C preferred stock. The terms of the Series A and Series C
preferred stock are substantially similar, except the Series C preferred stock
does not have the right to elect any members of our Board of Directors.
Contractual Cash Commitments. The table below summarizes debt, lease and
other minimum cash obligations outstanding as of March 31, 2003:
<Table>
<Caption>
PAYMENTS DUE BY YEAR END
------------------------------------------------------------------------------
2008 AND
CONTRACTUAL CASH OBLIGATIONS(1) TOTAL 2003 2004 2005 2006 2007 THEREAFTER
- ------------------------------- ---------- -------- -------- -------- -------- -------- ----------
(IN THOUSANDS)
Then Existing Senior Credit
Facilities (including current
portion)................... $ 249,500 $ 1,063 $ 13,040 $ 49,093 $114,111 $ 72,193 $ --
11% Senior Subordinated
Notes(2)................... 436,961 14,974 29,948 29,948 29,948 29,948 302,195
Operating Leases............. 395,076 127,258 110,057 83,764 47,877 21,158 4,962
---------- -------- -------- -------- -------- -------- --------
Total........................ $1,081,537 $143,295 $153,045 $162,805 $191,936 $123,299 $307,157
</Table>
- ---------------
(1) Excludes transactions which have occurred since March 31, 2003, including
the repurchase of approximately $183 million of 11% notes pursuant to the
tender offer and the issuance of approximately $300.0 million of old 7 1/2%
notes. Also excludes the obligations under the ColorTyme guarantee, the
entering into of the new senior credit facilities, the change of control and
acceleration provisions under the new senior credit facilities, and the
optional redemption, change of control and acceleration provisions under the
indentures governing our subordinated notes. The table below summarizes
debt, lease and other minimum cash obligations outstanding as of June 30,
2003, excluding the obligations under the ColorTyme guarantee, the change of
control and acceleration provisions under the new senior credit facilities,
and the optional redemption, change of control and acceleration provisions
under the indentures governing our subordinated notes:
(2) Includes interest payments of $4.65 million, bond premium of $4.65 million
and principal payments of $84.45 million, representing amounts to redeem the
11% notes on August 15, 2003.
<Table>
<Caption>
PAYMENTS DUE BY YEAR END
------------------------------------------------------------------------------
2008 AND
CONTRACTUAL CASH OBLIGATIONS TOTAL 2003 2004 2005 2006 2007 THEREAFTER
- ---------------------------- ---------- -------- -------- -------- -------- -------- ----------
(IN THOUSANDS)
New Senior Credit Facilities
(including current
portion).................. $ 400,000 $ 2,000 $ 4,000 $ 4,000 $ 4,000 $ 4,000 $382,000
11% Senior Subordinated
Notes(1).................. 93,745 93,745 -- -- -- -- --
7 1/2% Senior Subordinated
Notes(2).................. 457,500 11,250 22,500 22,500 22,500 22,500 356,250
Operating Leases............ 417,312 130,556 114,679 88,176 51,802 25,371 6,728
---------- -------- -------- -------- -------- -------- --------
Total....................... $1,368,557 $237,551 $141,179 $114,676 $ 78,302 $ 51,871 $744,978
</Table>
- ---------------
(1) Includes interest payments of $4.65 million, bond premium of $4.65 million
and principal payments of $84.45 million, representing amounts to redeem the
11% notes on August 15, 2003.
(2) Includes interest payments of $11.25 million on each of May 1 and November 1
of each year.
Repurchases of Outstanding Securities. In connection with the retirement
of J. Ernest Talley, our former Chairman of the Board and Chief Executive
Officer, we entered into an agreement to repurchase $25.0 million worth of
shares of our common stock beneficially held by Mr. Talley at a purchase price
43
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 beneficially held by 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 beneficially held by 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
beneficially held by Mr. Talley at $20.258 per share. We repurchased those
remaining shares on January 30, 2002.
On April 25, 2003, we announced that we entered into an agreement with
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. which
provided for the repurchase of a number of shares of our common stock sufficient
to reduce Apollo's aggregate record ownership to 19.00% after consummation of
our planned tender offer and repurchase. On April 28, 2003, we announced the
commencement of a tender offer to purchase up to 2.20 million shares of our
common stock pursuant to a modified "Dutch Auction." Under the agreement with
Apollo, we agreed to repurchase the shares of our common stock at the same price
per share as the price paid in the tender offer. On June 25, 2003, we closed the
tender offer and purchased approximately 1.77 million shares of our common stock
at $73 per share. On July 11, 2003, we closed the Apollo transaction and
purchased approximately 775,000 shares of our common stock.
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 $25.0 million of
our common stock. In October 2002, our Board of Directors increased the amount
of repurchases authorized under our common stock repurchase program from $25.0
million to $50.0 million. In March 2003, our Board of Directors again increased
such amount from $50.0 million to $100.0 million. Through March 31, 2003, we
have repurchased approximately 937,000 shares of our common stock under this
program for approximately $44.3 million, 276,000 shares of which were purchased
in the quarter ended March 31, 2003 for approximately $13.5 million. We have
suspended our common stock repurchase program pending the termination of our
equity tender offer. See "Recent Developments" discussed previously in this
prospectus. However, we may begin repurchasing shares of our common stock at any
time after July 10, 2003.
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 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. Furthermore, we
tend to experience slower growth in the number of rental purchase agreements on
rent in the third quarter of each fiscal year when to compared to other quarters
throughout the year. As a result, we would expect revenues for the third quarter
of each fiscal year to remain relatively flat with the prior quarter. We expect
this trend to continue in future periods unless we add significantly to our
store base during the third quarter of future fiscal years as a result of new
store openings or opportunistic acquisitions.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Costs Associated with Exit or Disposal Activities. In June
2002, the FASB issued Statement 146, Accounting for Costs Associated with Exit
or Disposal Activities. This statement requires entities to recognize costs
associated with exit or disposal activities when liabilities are incurred rather
than when the entity commits to an exit or disposal plan, as currently required.
Examples of costs covered by this guidance include one-time employee termination
benefits, costs to terminate contracts other than capital leases, costs to
consolidate facilities or relocate employees, and certain other exit or disposal
44
activities. This statement is effective for fiscal years beginning after
December 31, 2002 and will impact any exit or disposal activities we initiate
after that date.
Stock-Based Employee Compensation. In December 2002, the FASB issued
Statement 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure: an amendment of FASB Statement 123, to provide alternative
transition methods for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in
annual financial statements about the method of accounting for stock-based
employee compensation and the pro forma effect on reported results of applying
the fair value based method for entities that use the intrinsic value method of
accounting. The pro forma effect disclosures are also required to be prominently
disclosed in interim period financial statements. This statement is effective
for financial statements for fiscal years ending after December 15, 2002 and is
effective for financial reports containing condensed financial statements for
interim periods beginning after December 15, 2002, with earlier application
permitted. We do not plan to change to the fair value based method of accounting
for stock-based employee compensation at this time and have included the
disclosure requirements of SFAS 148 in the accompanying financial statements.
Accounting for Guarantees. In November 2002, the FASB issued FASB
Interpretation 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45
requires a guarantor entity, at the inception of a guarantee covered by the
measurement provisions of the interpretation, to record a liability for the fair
value of the obligation undertaken in issuing the guarantee. We previously did
not record a liability when guaranteeing obligations unless it became probable
that we would have to perform under the guarantee. FIN 45 applies prospectively
to guarantees we issue or modify subsequent to December 31, 2002, but has
certain disclosure requirements effective for interim and annual periods ending
after December 15, 2002. We have historically issued guarantees related to our
ColorTyme franchisees and other limited purposes and do not anticipate FIN 45
will have a material effect on our 2003 financial statements. Disclosures
required by FIN 45 are included in the accompanying financial statements.
In January 2003, the FASB issued FASB Interpretation 46, Consolidation of
Variable Interest Entities. FIN 46 clarifies the application of Accounting
Research Bulletin 51, Consolidated Financial Statements, for certain entities
that do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties
or in which equity investors do not have the characteristics of a controlling
financial interest ("variable interest entities"). Variable interest entities
within the scope of FIN 46 will be required to be consolidated by their primary
beneficiary. The primary beneficiary of a variable interest entity is determined
to be the party that absorbs a majority of the entity's expected losses,
receives a majority of its expected returns, or both. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. We are in the process of
determining what impact, if any, the adoption of the provisions of FIN 46 will
have upon our financial condition or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Sensitivity. As of March 31, 2003, we had $272.25 million in
11% notes outstanding at a fixed interest rate of 11.0% and $249.5 million in
term loans outstanding at interest rates indexed to the LIBOR rate. The 11%
notes mature on August 15, 2008. The fair value of the 11% notes is estimated
based on discounted cash flow analysis using interest rates currently offered
for loans with similar terms to borrowers of similar credit quality. The fair
value of the 11% notes at March 31, 2003 was $292.7 million, which is $20.9
million above their carrying value. We have repurchased approximately 183
million principal amount of the 11% notes pursuant to our tender offer and
announced that we were going to optionally redeem on August 15, 2003, in
accordance with the terms of the underlying indenture, all of the 11% notes then
outstanding. See "Management's Discussion and Analysis of Financial Condition
and
45
Results of Operations -- Recent Developments." Unlike the 11% notes, the $249.5
million in term loans have variable interest rates indexed to current LIBOR
rates. Because the variable rate structure exposes us to the risk of increased
interest cost if interest rates rise, in 1998 we entered into $500.0 million in
interest rate swap agreements that lock in a LIBOR rate of 5.59%, thus hedging
this risk. Of the $500.0 million in agreements, $250.0 million expired in
September 2001 and the remaining $250.0 million will expire in 2003, of which
$140.0 million will expire on August 5, 2003 and the remaining $110.0 million
will expire on September 5, 2003. The swap agreements had an aggregate negative
fair value of $4.2 million and $7.3 million at March 31, 2003 and 2002,
respectively. A hypothetical 1.0% change in the LIBOR rate would have affected
the fair value of the swaps by approximately $300,000. As of May 28, 2003, we
entered into our new senior credit facilities and terminated our then existing
senior credit facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- Senior
Credit Facilities."
Market Risk. Market risk is the potential change in an instrument's value
caused by fluctuations in interest rates. Our primary market risk exposure is
fluctuations in interest rates. Monitoring and managing this risk is a continual
process carried out by the Board of Directors and senior management. We manage
our market risk based on an ongoing assessment of trends in interest rates and
economic developments, giving consideration to possible effects on both total
return and reported earnings.
Interest Rate Risk. We hold long-term debt with variable interest rates
indexed to prime or LIBOR that exposes us to the risk of increased costs if
interest rates rise. To reduce the risk related to unfavorable interest rate
movements, as of March 31, 2002, we entered into certain interest rate swap
contracts on $250.0 million of debt to pay a fixed rate of 5.60%. On May 28,
2003, in connection with the entering into of our new senior credit facilities,
we terminated the interest rate swap agreements at a price of approximately
$3.17 million. As of June 30, 2003, we have not entered into any interest rate
swap agreements with respect to term loans under our new senior credit
facilities.
46
BUSINESS
OVERVIEW
We are the largest operator in the United States rent-to-own industry with
an approximate 31% market share based on store count. At June 30, 2003, we
operated 2,567 company-owned stores nationwide and in Puerto Rico, including 23
stores in Wisconsin operated by our subsidiary Get It Now, LLC under the name
"Get It Now." Another of our subsidiaries, ColorTyme, Inc., is a national
franchisor of rent-to-own stores. At June 30, 2003, ColorTyme had 321 franchised
stores in 40 states, 309 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 generally offer high quality, durable products such as home
electronics, appliances, computers and furniture and accessories under flexible
rental purchase agreements that generally 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. Get It Now offers our
merchandise on an installment sales basis in Wisconsin. We offer well known
brands such as Philips, Sony, JVC, Toshiba and Mitsubishi home electronics,
Whirlpool appliances, Dell, IBM, Compaq and Hewlett-Packard computers and
Ashley, England, Berkline and Standard furniture.
Our customers often lack access to conventional forms of credit. We offer
products such as big screen televisions, computers and sofas, and well known
brands that might otherwise be unavailable without credit. We also offer high
levels of customer service at no additional charge, including repair, pick-up
and delivery. Our customers benefit from the ability to return merchandise at
any time without further obligation and make payments that build toward
ownership. We estimate that approximately 62% of our business is from repeat
customers.
Rent-A-Center, Inc. was incorporated as a Delaware corporation on November
26, 2002. Rent-A-Center Texas, L.P. was formed as a Texas limited partnership on
November 25, 2002. Rent-A-Center Texas, L.L.C. was organized as a Nevada limited
liability company on November 25, 2002. Get It Now, LLC was organized as a
Delaware limited liability company on September 18, 2002. ColorTyme, Inc. was
incorporated as a Texas corporation on May 7, 1996. Rent-A-Center West, Inc. was
incorporated as a Delaware corporation on October 11, 1994. Rent-A-Center East,
Inc. was incorporated as a Delaware corporation on September 16, 1986.
Rent-A-Center, Inc.'s, Rent-A-Center Texas, L.P.'s, Get It Now, LLC's,
Rent-A-Center West, Inc.'s and Rent-A-Center East, Inc.'s, principal executive
offices are located at 5700 Tennyson Parkway, Third Floor, Plano, Texas 75024,
telephone (972) 801-1100. ColorTyme, Inc.'s principal executive offices are
located at 5700 Tennyson Parkway, First Floor, Plano, Texas 75024, telephone
(972) 608-5376. Rent-A-Center Texas, L.L.C.'s principal executive offices are
located at 429 Max Court, Suite C, Henderson, Nevada 89015, telephone (702)
558-0016.
Our company website is www.rentacenter.com. We do not intend for
information contained on our website to be part of this prospectus. We make
available free of charge on or through our website our annual report on Form
10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material or furnish it to the SEC. Additionally, we
voluntarily will provide electronic or paper copies of our filings free of
charge upon request.
INDUSTRY OVERVIEW
According to industry sources and our estimates, the rent-to-own industry
consists of approximately 8,300 stores, and provides approximately 7.0 million
products to over 2.8 million households each year. We estimate the six largest
rent-to-own industry participants account for approximately 4,700 of the total
47
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 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, in the later part of 2001, we 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 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 home electronics, Whirlpool appliances,
Dell, IBM, Compaq and Hewlett-Packard computers and Ashley, England,
Berkline and Standard furniture 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
48
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 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 2,567
at June 30, 2003, primarily through acquisitions. During this period, we
acquired over 2,400 company-owned stores and over 350 franchised stores in more
than 125 separate transactions, including seven transactions where we acquired
in excess of 70 stores. In May 1998, we acquired substantially all of the assets
of Central Rents, Inc., which operated 176 stores, for approximately $100
million in cash. In August 1998, we acquired Thorn Americas, Inc. for
approximately $900 million in cash, including the repayment of certain debt of
Thorn Americas. Prior to this acquisition, Thorn Americas was our largest
competitor, operating 1,409 company-owned stores and franchising 65 stores in 49
states and the District of Columbia.
Having successfully integrated the Thorn Americas and Central Rents
acquisitions, we resumed our strategy of increasing our store base. The table
below summarizes the store growth activity over the last three fiscal years.
<Table>
<Caption>
2002 2001 2000
------------- ------------- -------------
New store openings......................... 70 76 36
Acquired stores............................ 83 95 74
Stores from which we acquired accounts..... 126 90 73
Closed stores
Merged with existing stores.............. 23 42 22
Sold..................................... 4 6 4
Closed without merger.................... -- -- 1
Total approximate purchase price of
acquisitions............................. $59.5 million $49.8 million $42.5 million
</Table>
In February 2003, we acquired substantially all of the assets of 295 stores
located throughout the United States from Rent-Way, Inc. and certain of its
subsidiaries for approximately $100.4 million in cash. Of the 295 stores, 176
were merged with existing locations. Additionally, during the first six months
of 2003, we acquired 11 additional stores, purchased accounts from 14 additional
locations, opened 38 new stores, and closed eight existing stores, merging them
with existing stores. As a result, we operated a total of 2,567 stores at June
30, 2003.
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 strategies to increase our name recognition and enhance
our national brand. As part of that strategy, we utilize television and radio
commercials, print, direct response and in-store signage, all of which are
designed to increase our name recognition among our customers and potential
customers. 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 customer about the rent-to-own alternative to merchandise purchases
as well as solidify our reputation as a leading provider of high quality branded
merchandise.
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OUR STORES
At June 30, 2003, we operated 2,567 stores nationwide and in Puerto Rico.
In addition, our subsidiary ColorTyme franchised 321 stores in 40 states. This
information is illustrated by the following table:
<Table>
<Caption>
NUMBER OF STORES
--------------------
COMPANY
LOCATION OWNED FRANCHISED
- -------- ------- ----------
Alabama.............. 52 --
Alaska............... 5 --
Arizona.............. 55 7
Arkansas............. 31 3
California........... 151 8
Colorado............. 34 4
Connecticut.......... 30 5
Delaware............. 16 1
District of
Columbia........... 4 --
Florida.............. 150 12
Georgia.............. 96 12
Hawaii............... 11 3
Idaho................ 6 4
Illinois............. 124 5
Indiana.............. 107 5
Iowa................. 21 --
Kansas............... 29 19
Kentucky............. 41 5
Louisiana............ 42 5
Maine................ 23 9
Maryland............. 56 6
Massachusetts........ 48 8
Michigan............. 100 13
Minnesota............ 4 --
Mississippi.......... 26 5
Missouri............. 59 9
Montana.............. 4 4
</Table>
<Table>
<Caption>
NUMBER OF STORES
--------------------
COMPANY
LOCATION OWNED FRANCHISED
- -------- ------- ----------
Nebraska............. 9 --
Nevada............... 19 5
New Hampshire........ 14 2
New Jersey........... 40 8
New Mexico........... 12 9
New York............. 129 14
North Carolina....... 106 13
North Dakota......... 1 --
Ohio................. 159 3
Oklahoma............. 39 14
Oregon............... 23 7
Pennsylvania......... 100 4
Puerto Rico.......... 23 --
Rhode Island......... 13 2
South Carolina....... 37 5
South Dakota......... 4 --
Tennessee............ 86 5
Texas................ 272 57
Utah................. 16 2
Vermont.............. 7 --
Virginia............. 50 8
Washington........... 41 9
West Virginia........ 14 2
Wisconsin............ 23* --
Wyoming.............. 5 --
TOTAL................ 2,567 321
</Table>
- ---------------
* Represents stores operated by Get It Now, one of our subsidiaries.
Our stores average approximately 4,400 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. 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 seek to provide a wide
variety of high quality
50
merchandise to our customers, and we emphasize high-end products from brand-name
manufacturers. For the quarter ended March 31, 2003, home electronic products
accounted for approximately 42% of our store rental revenue, furniture and
accessories for 32%, appliances for 15% and computers for 11%. 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 high definition and
wide-screen 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 and laptop computers from Dell, IBM, 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, Berkline and Standard and
other top brand manufacturers. Accessories include pictures, 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 6 to 30
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 the store in cash, by money order or debit card.
Approximately 85% of our customers pay 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
On average, 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.
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 23 service centers,
the cost of which may be reimbursed by the vendor if the item is still under
factory warranty. If the
51
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 covering the particular loss. 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 management information system to track collections
on a daily basis. Our goal is to have no more than 6.50% of our rental
agreements past due one day or more each Saturday evening. For fiscal years
2002, 2001 and 2000, the average week ending past due percentages were 5.95%,
5.74% and 5.83%, respectively. 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 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 and must return the 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 each of 2002, 2001 and 2000.
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, store management is required to count the store's
inventory on hand and compare the count to the accounting records, with the
market manager performing a similar audit at least bi-monthly. 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 ensuring 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 June 30, 2003, we had 339 market managers who, in turn, reported to 56
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 store managers are following the operational guidelines,
particularly those involving store presentation, collections, inventory levels
and order verification. The regional directors report to eight senior vice
presidents at our headquarters. The regional directors receive a significant
amount of their compensation based on the profitability of the stores under
their management.
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.
52
MANAGEMENT INFORMATION SYSTEMS
Through a licensing agreement with High Touch, Inc., we utilize an
integrated 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, items in service 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 concerning 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 1.5 million rental purchase agreements, which
often include more than one unit of merchandise. In addition, our bank
reconciliation 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 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 our 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. Additionally, we have predetermined levels of inventory allowed in
each store which restrict levels of merchandise that may be purchased. All
merchandise is shipped by vendors directly to each store, where it is held for
rental. We do not utilize any distribution centers. 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 16.3%, 14.0%, and 10.0%, respectively,
of merchandise purchased in 2002. No other supplier accounted for more than 10%
of merchandise purchased during this period. We do not generally enter into
written contracts with our suppliers that obligate us to meet certain minimum
purchasing levels. Although we expect to continue relationships with our
existing suppliers, we believe that there are numerous sources 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, 2002, 2001 and 2000 was approximately 3.2%, 4.0%
and 4.0%, respectively. 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.
53
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 8,300 rent-to-own stores in the United States. We are
the largest operator in the rent-to-own industry with 2,567 stores and 321
franchised locations as of June 30, 2003. 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 June 30,
2003, ColorTyme franchised 321 rent-to-own stores in 40 states. These
rent-to-own stores offer high quality durable products such as home electronics,
appliances, computers and furniture and accessories.
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 2.0% 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 retrieve data and information from the franchised stores' computer
systems. The franchise agreements also limit the ability of the franchisees to
compete against other franchisees.
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. ColorTyme negotiates purchase arrangements
with various suppliers it has approved. ColorTyme's largest supplier is
Whirlpool, which accounted for approximately 14.9% of merchandise purchased by
ColorTyme in 2002.
ColorTyme is a party to an agreement with Textron Financial Corporation,
which generally provides financing to qualifying franchisees of ColorTyme of up
to five times their average monthly revenues, aggregating up to $40.0 million.
Under this agreement, upon an event of default by the franchisee under
agreements governing this financing and upon the occurrence of certain other
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. An
additional $12.0 million of financing is provided by Texas Capital Bank,
National Association under an arrangement similar to the Textron financing. We
guarantee the obligations of ColorTyme under these agreements up to a maximum
amount of $52.0 million, of which $30.7 million was outstanding as of June 30,
2003. Mark E. Speese, our Chairman of the Board and Chief Executive Officer, is
a passive investor in Texas Capital Bank, owning less than 1% of its outstanding
equity.
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,
54
television and radio. ColorTyme also has the right to require franchisees 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,
Inc.(R), ColorTyme, Inc.-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 stores.
The ColorTyme franchise agreement provides us a right of first refusal to
purchase the franchise location of a ColorTyme franchisee that wishes to exit
the business or that goes into default under their financing agreement.
GET IT NOW OPERATIONS
On September 30, 2002, we transferred all of our Wisconsin store operations
to a newly formed wholly-owned subsidiary, Get It Now. On October 1, 2002, Get
It Now began operations in the state of Wisconsin under a retail operation which
generates installment credit sales through a retail transaction. As of June 30,
2003, we operated 23 company-owned stores within Wisconsin, all of which operate
under the name "Get It Now."
TRADEMARKS
We own various registered trademarks, including Rent-A-Center(R), Renters
Choice(R), Remco(R) and Get It Now(R). The products held for rent also bear
trademarks and service marks held by their respective manufacturers.
EMPLOYEES
As of June 30, 2003, we had approximately 15,400 employees, of whom 278 are
assigned to our headquarters and the remainder are directly involved in the
management and operation of our stores and service centers. 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. In June 2001, the employees of six of our
stores in New York, New York elected to be represented by the Teamsters union.
However, we have not entered into a collective bargaining agreement covering
these employees. We believe relationships with our employees and ColorTyme's
relationships with its employees are generally good.
In connection with the settlement of the Wilfong matter finalized in
December 2002, we entered into a four-year consent decree, which can be extended
by the Wilfong court for an additional one year upon a showing of good cause. We
also 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 settlement of
the Wilfong matter.
55
GOVERNMENT REGULATION
STATE REGULATION
Currently 47 states, the District of Columbia 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, generally do not become applicable unless the total rental
payments required under an agreement exceed 2.0 times to 2.4 times the disclosed
cash price or the retail value of the rental product.
Minnesota, which has a rental purchase statute, and New Jersey and
Wisconsin, 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 utilized a separate
rental agreement in Minnesota which does not provide customers with an option to
purchase rented merchandise. In New Jersey, we have provided increased
disclosures and longer grace periods. In Wisconsin, our Get It Now customers are
provided an opportunity to purchase our merchandise through an installment sale
transaction. We operate four stores in Minnesota and 40 stores in New Jersey.
Our subsidiary Get It Now operates 23 stores in Wisconsin. Please read 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 such statute. We operate 97
stores in North Carolina.
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
To date, no comprehensive federal consumer 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, we have supported legislation introduced in Congress
that would regulate the rental purchase transaction by establishing a federal
definition of rental purchase agreement and requiring various disclosures with
which we would have to comply. While both beneficial and adverse legislation may
be introduced in Congress in the future, 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 plaintiff 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 plaintiff
acknowledges that rent-to-own transactions in New York are subject to the
provisions of New York's Rental Purchase Statute but contends the Rental
Purchase Statute does not provide Thorn Americas immunity from suit for other
statutory violations. The plaintiff alleges Thorn Americas has a duty to
56
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 the prayer for relief, the plaintiff requested class
certification, injunctive relief requiring Thorn Americas to cease certain
marketing practices and price their rental purchase contracts in certain ways,
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 plaintiff has not
alleged a specific monetary amount with respect to the request for damages.
The proposed class includes all New York residents who were party to our
rent-to-own contracts from November 26, 1994. In November 2000, following
interlocutory appeal by both parties from the denial of cross-motions for
summary judgment, we obtained a favorable ruling from the Appellate Division of
the State of New York, dismissing the plaintiff's claims based on the alleged
failure to disclose an effective interest rate. The plaintiff's other claims
were not dismissed. The plaintiff moved to certify a state-wide class in
December 2000. The plaintiff's class certification motion was heard by the court
on November 7, 2001 and, on September 12, 2002, the court issued an opinion
denying in part and granting in part the plaintiff's requested certification.
The opinion grants certification as to all of the plaintiff's claims except the
plaintiff's pricing claims pursuant to the Rental Purchase Statute, as to which
certification was denied. The parties have differing views as to the effect of
the court's opinion, and accordingly, the court granted the parties permission
to submit competing orders as to the effect of the opinion on the plaintiff's
specific claims. Both proposed orders were submitted to the court on March 27,
2003, and on May 30, 2003, the court held a hearing regarding such orders. No
order has yet been entered by the court. Regardless of the determination of the
final certification order by the court, we intend to pursue an interlocutory
appeal of the court's certification order.
We believe these claims are without merit and will continue to vigorously
defend ourselves in this case. However, we cannot assure you that we will be
found to have no liability in this matter.
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, coupled with the opportunity afforded our rental customers to
purchase the rented merchandise under what we believed was a separate
transaction, was a disguised credit sale subject to the Wisconsin Consumer Act.
Accordingly, the Attorney General alleged that we failed to disclose credit
terms, misrepresented the terms of the transaction and engaged in unconscionable
practices. The Attorney General sought 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.
On October 1, 2002, in anticipation of the settlement of this matter, we
changed our business practices in Wisconsin to a retail sale model. Accordingly,
our 23 Wisconsin stores now offer credit sale transactions and operate under our
subsidiary Get It Now, which is subject to regulation under the Wisconsin
Consumer Act.
On November 12, 2002, we signed a settlement agreement for this suit with
the Attorney General, which was approved by the court on the same day. Under the
terms of the settlement, we created a restitution fund in the amount of $7.0
million for our eligible Wisconsin customers who had completed or active
transactions with us as of September 30, 2002. In addition, we paid $1.4 million
to the State of Wisconsin for fines, penalties, costs and fees. A portion of the
restitution fund is allocated for customers with completed transactions as of
September 30, 2002, and the balance is allocated for restitution on active
transactions as of September 30, 2002, which will be allowed to terminate
according to their terms when customers either acquire or return the
merchandise. Restitution will be offered on the active transactions when all
such active transactions have terminated, which we anticipate will occur by the
fall of 2004. Any unclaimed restitution funds at the conclusion of the
restitution period will be returned to us. To the extent the amount in the
restitution fund is insufficient to pay the required amount of restitution, we
are obligated
57
to provide additional funds to do so. However, we believe the amount in the
restitution fund allocated for the active transactions, together with the amount
of funds we anticipate will remain unclaimed by customers with completed
transactions, will be sufficient to pay the required amount of restitution on
all eligible active transactions. Any customer accepting a restitution check
will be required to release us and our subsidiary ColorTyme from all claims
related to their transaction or transactions with us. We, together with
ColorTyme, also agreed to enter into an injunction requiring each of us to
comply with the Wisconsin Consumer Act in any transaction in Wisconsin in which
the customer can become the owner of merchandise other than through a single
lump sum payment.
Terry Walker, 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 Exchange Act 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. Similar complaints were consolidated by the court with the
Walker matter in October 2002.
On November 25, 2002, the lead plaintiffs in the Walker matter filed an
amended consolidated complaint which added certain of our outside directors as
defendants to the Exchange Act claims. The amended complaint also added
additional claims that we, and certain of our current and former officers and
directors, violated various provisions of the Securities Act as a result of
alleged misrepresentations and omissions in connection with an offering in May
2001 and also added the managing underwriters in that offering as defendants.
On February 7, 2003, we, along with certain officer and director
defendants, filed a motion to dismiss the matter as well as a motion to transfer
venue. In addition, our outside directors named in the matter separately filed a
motion to dismiss the Securities Act claims on statute of limitations grounds.
On February 19, 2003, the underwriter defendants also filed a motion to dismiss
the matter. The plaintiffs filed response briefs to these motions, and our
response to these response briefs was filed on May 21, 2003. A hearing was held
by the court on June 26, 2003 to hear each of these motions. No decision has yet
been entered by the court.
We believe the plaintiff's claims in this matter 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.
Gregory Griffin, et. al. v. Rent-A-Center, Inc. On June 25, 2002, a suit
originally filed by Gregory Griffin in state court in Philadelphia, Pennsylvania
was amended to seek relief both individually and on behalf of a class of
customers in Pennsylvania, alleging that we violated the Pennsylvania Goods and
Services Installment Sales Act and the Pennsylvania Unfair Trade Practices and
Consumer Protection Law. The amended complaint asserts that our rental purchase
transactions are, in fact, retail installment sales transactions, and as such,
are not governed by the Pennsylvania Rental-Purchase Agreement Act, which was
enacted after the adoption of the Pennsylvania Goods and Services Installment
Sales Act and the Pennsylvania Unfair Trade Practices Act. Griffin's suit seeks
class-wide remedies, including injunctive relief, unspecified statutory, actual
and treble damages, as well as attorney's fees and costs.
In July 2002, we filed preliminary objections to the complaint in Griffin.
On December 13, 2002, the court granted our preliminary objections and dismissed
the plaintiffs' claims. On January 6, 2003, the plaintiffs filed a notice of
appeal. The plaintiffs' appeal brief was filed on May 9, 2003 and we
subsequently filed our response brief. Oral argument on the appeal has been
scheduled for July 30, 2003 in the Superior Court of Pennsylvania. We believe
the plaintiffs' claims in this matter 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.
State Wage and Hour Class Actions. On August 20, 2001, a putative class
action was filed against us in state court in Multnomah County, Oregon entitled
Rob Pucci, et. al. v. Rent-A-Center, Inc. alleging
58
violations of Oregon state law regarding overtime, lunch and work breaks and
failure to timely pay all wages due our Oregon employees, as well as contract
claims that we promised but failed to pay overtime. Pucci seeks to represent a
class of all present and former executive assistants, inside/outside managers
and account managers employed by us within the six year period prior to the
filing of the complaint as to the contract claims, and three years as to the
statutory claims, and seeks class certification, payments for all unpaid wages
under Oregon law, statutory and civil penalties, costs and disbursements, pre-
and post-judgment interest in the amount of 9% per annum and attorneys fees. As
of June 30, 2003, we operated 20 stores in Oregon. On July 25, 2002, the
plaintiffs filed a motion for class certification and on July 31, 2002, we filed
our motion for summary judgment. On January 15, 2003, the court orally granted
our motion for summary judgment in part, ruling that the plaintiffs were
prevented from recovering overtime payments at the rate of "time and a half,"
but stated that the plaintiffs may recover "straight-time" to the extent
plaintiffs could prove purported class members worked in excess of forty hours
in a work week but were not paid for such time worked. The court denied our
motion for summary judgment on the remaining claims and granted plaintiff's
motion for class certification with respect to the remaining claims. We strongly
disagree with the court's rulings against our positions and have requested that
the court grant us an interlocutory appeal on those matters. Our request for an
interlocutory appeal is currently pending before the court. The plaintiffs filed
a motion for summary judgment seeking to resolve certain factual issues related
to the purported class, which was denied on July 1, 2003. Although we believe
the claims remaining in this case are without merit, we cannot assure you we
will be found to have no liability in this matter.
We are subject to a similar suit pending in Clark County, Washington
entitled Kevin Rose, et al. v. Rent-A-Center, Inc., et al. and two similar suits
pending in Los Angeles, California entitled Jeremy Burdusis, et al. v.
Rent-A-Center, Inc., et al. and Israel French, et al. v. Rent-A-Center, Inc.,
each of which allege similar violations of the wage and hour laws of those
respective states. As of June 30, 2003, we operated 41 stores in Washington and
151 stores in California. The same law firm seeking to represent the purported
class in Pucci is seeking to represent the purported class in two of the three
similar suits. On March 24, 2003, the Burdusis court denied the plaintiffs'
motion for class certification in that case, which we view as a favorable
development in that proceeding. On April 25, 2003, the plaintiffs in Burdusis
filed a notice of appeal of that ruling, and on May 8, 2003, the Burdusis court,
at our request, stayed further proceedings in Burdusis and French pending the
resolution on appeal of the court's denial of class certification in Burdusis.
The Burdusis and French proceedings are pending before the same judge in
California. On May 14, 2003, the Rose court denied the plaintiffs' motion for
class certification in that case, which we view as a favorable development in
that proceeding. On June 3, 2003, the plaintiffs in Rose filed a notice of
appeal. Although the wage and hour laws and class certification procedures of
Oregon, Washington and California contain certain differences that could cause
differences in the outcome of the pending litigation in these states, we believe
the claims of the purported classes involved in each are without merit. We
cannot assure you, however, that we will be found to have no liability in these
matters.
59
DESCRIPTION OF CERTAIN DEBT
As of June 30, 2003, we had outstanding the following indebtedness:
<Table>
<Caption>
AMOUNT
--------------
(IN THOUSANDS)
New Senior Credit Facilities................................ $400,000
7 1/2% Senior Subordinated Notes due 2010................... 300,000
11% Senior Subordinated Notes due 2008...................... 84,455
--------
Total debt.................................................. $784,455
========
</Table>
As of June 30, 2003, our debt obligations had the following maturities:
<Table>
<Caption>
PERIOD (YEAR) ENDING DECEMBER 31, AMOUNT
- --------------------------------- --------------
(IN THOUSANDS)
2003........................................................ $ 2,000
2004........................................................ 4,000
2005........................................................ 4,000
2006........................................................ 4,000
2007........................................................ 4,000
2008........................................................ 276,455
Thereafter.................................................. 490,000
--------
Total....................................................... $784,455
========
</Table>
SENIOR CREDIT FACILITIES
The senior credit facilities are provided by a syndicate of banks and other
financial institutions led by Lehman Commercial Paper Inc., as administrative
agent. At June 30, 2003, we had a total of $400.0 million outstanding under
these facilities, all of which was under our term loans. At June 30, 2003, we
had $114.1 million of availability under the revolving credit facility.
Borrowings under the senior credit facilities bear interest at varying
rates equal to 2.25% over the Eurodollar rate, which was 1.12% at June 30, 2003.
We also have a prime rate option under the facilities, but do not have any
exercised as of June 30, 2003. At June 30, 2003, the average rate on outstanding
senior debt borrowings was 3.62%.
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 $35
million, excluding the old 7 1/2% 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;
- 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.
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The senior credit facilities require us to comply with several financial
covenants, including a maximum consolidated leverage ratio, a minimum
consolidated interest coverage ratio and a minimum fixed charge coverage ratio.
At June 30, 2003, the maximum consolidated leverage ratio was 2.75 to 1.00, the
minimum consolidated interest coverage ratio was 3.50 to 1.00, and the minimum
fixed charge coverage ratio was 1.50 to 1.00.
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 a third party becomes the beneficial owner, either directly or
indirectly, of 35% or more or our voting stock.
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.
7 1/2% SENIOR SUBORDINATED NOTES DUE 2010
On May 6, 2003, we issued $300.0 million of 7 1/2% senior subordinated
notes, maturing on May 1, 2010, under an indenture dated as of May 6, 2003 among
Rent-A-Center, Inc., our subsidiary guarantors and The Bank of New York, as
trustee. The indenture governing the old 7 1/2% notes will also govern the
exchange notes. We are seeking to exchange the old 7 1/2% notes for the exchange
notes in this exchange offer.
61
DESCRIPTION OF NOTES
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, Inc. and not to any of its
subsidiaries.
Rent-A-Center will issue the exchange notes under an indenture among
itself, the Guarantors and The Bank of New York, as trustee. The terms of the
exchange 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, define your rights as holders of these exchange notes. Copies of
the indenture are available as set forth below under "-- Additional
Information." Certain defined terms used in this description but not defined
below under "-- Certain Definitions" have the meanings assigned to them in the
indenture.
The registered holder of an exchange note will be treated as the owner of
it for all purposes. Only registered holders will have rights under the
indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE NOTE GUARANTEES
THE NOTES
The notes:
- are general unsecured obligations of Rent-A-Center;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of Rent-A-Center;
- are pari passu in right of payment with any future senior subordinated
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 Guarantors.
THE NOTE GUARANTEES
The notes are guaranteed by the following domestic subsidiaries of
Rent-A-Center:
Rent-A-Center East, Inc.
ColorTyme, Inc.
Rent-A-Center West, Inc. (formerly known as Advantage Companies, Inc.)
Get It Now, LLC
Rent-A-Center Texas, L.P.
Rent-A-Center Texas, L.L.C.
and any Domestic Subsidiary created or acquired by Rent-A-Center after the date
of the indenture.
The Guarantees of the notes:
- are general unsecured obligations of each Guarantor;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of each Guarantor;
- are pari passu in right of payment with any future senior subordinated
Indebtedness of each Guarantor; and
- are senior in right of payment to any future subordinated Indebtedness
of each Guarantor.
62
Assuming we had completed the offering of old 7 1/2% notes and applied the
net proceeds as intended, as of December 31, 2002, Rent-A-Center and the
Guarantors would have had total Senior Indebtedness of approximately $248.5
million. In addition, as of December 31, 2002, Rent-A-Center had the ability to
borrow up to $114.3 million (after reductions for outstanding letters of credit
of $5.7 million) and obtain an additional term loan of up to $80 million under
our new senior credit facilities, which would be senior debt. Assuming
completion of the recapitalization and the application of the net proceeds as
intended, as of December 31, 2002, Rent-A-Center and the Guarantors would have
had total Senior Indebtedness of approximately $400 million. In addition, as of
December 31, 2002, Rent-A-Center would have had the ability to borrow up to $120
million and obtain an additional term loan of up to $80 million under our new
senior credit facilities, which would be senior debt. As indicated above and as
discussed in detail below under the subheading "-- Ranking," payments on the
notes and under the Note Guarantees will be subordinated to the payment of
Senior Indebtedness. The indenture will permit us and the Guarantors to incur
additional Senior Indebtedness.
Not all of our Subsidiaries will Guarantee the notes. In the event of a
bankruptcy, liquidation or reorganization of any of these Non-Guarantor
Subsidiaries, the Non-Guarantor Subsidiaries will pay the holders of their debt
and their trade creditors before they will be able to distribute any of their
assets to us. Our Non-Guarantor Subsidiaries have no revenues from operations
and, in the aggregate, as of December 31, 2002, held assets of $9.9 million.
As of the date of the indenture, all of our operating Subsidiaries will be
"Restricted Subsidiaries." However, under the circumstances described under the
subheading "-- Certain Covenants -- Designation of Unrestricted Subsidiaries,"
we will be permitted to designate certain of our Subsidiaries as "Unrestricted
Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the indenture. Our Unrestricted Subsidiaries will not
guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
Rent-A-Center will issue up to $300 million in aggregate principal amount
of notes in this exchange offer. The indenture provides that Rent-A-Center may
issue additional notes from time to time after this exchange offer in an
unlimited principal amount without the consent of the holders of the notes. Any
offering of additional notes is subject to compliance with the provisions of the
indenture described below under "-- Certain Covenants -- Limitation on
Indebtedness." The notes and any additional notes subsequently issued under the
indenture will be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. Rent-A-Center will issue notes in denominations of $1,000
and integral multiples of $1,000. The notes will mature on May 1, 2010.
Interest on the notes will accrue at the rate of 7 1/2% per annum and will
be payable semi-annually in arrears on May 1 and November 1, beginning on
November 1, 2003. Rent-A-Center will make each interest payment to the holders
of record of these notes on the immediately preceding April 15 and October 15.
Interest on the notes will accrue from the date of original issuance 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.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to Rent-A-Center,
Rent-A-Center will pay all principal, interest and premium on that holder's
notes in accordance with those instructions. All other payments on notes will be
made at the office or agency of the paying agent and registrar within the City
and State of New York unless Rent-A-Center elects to make interest payments by
check mailed to the holders at their address set forth in the register of
holders.
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PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as paying agent and registrar. Rent-A-Center
may change the paying agent or registrar without prior notice to the holders of
the notes, and Rent-A-Center or any of its Subsidiaries may act as paying agent
or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents in connection with a
transfer of notes. Holders will be required to pay all taxes due on transfer.
Rent-A-Center is not required to transfer or exchange any note selected for
redemption. Also, Rent-A-Center is not required to transfer or exchange any note
for a period of 15 days before a selection of notes to be redeemed.
OPTIONAL REDEMPTION
At any time prior to May 1, 2006, Rent-A-Center may on any one or more
occasions redeem up to 35% of the aggregate principal amount of the notes at a
redemption price of 107.500% of the principal amount, plus accrued and unpaid
interest to the redemption date, with the net cash proceeds of one or more
Public Equity Offerings; provided, that:
(1) at least 65% of the aggregate principal amount of notes issued
under the indenture remains outstanding immediately after the occurrence of
such redemption (excluding notes held by Rent-A-Center and its
Subsidiaries); and
(2) the redemption occurs within 45 days of the date of the closing of
such Public Equity Offering.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at Rent-A-Center's option prior to May 1, 2006.
Upon not less than 30 nor more than 90 days' notice, 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 May 1, 2006 and prior to maturity. The notes may be
redeemed at the following redemption prices, expressed as a percentage of
principal amount, plus accrued and unpaid interest 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 May 1 of the years set forth below:
<Table>
<Caption>
REDEMPTION
PERIOD PRICE
- ------ ----------
2006........................................................ 103.750%
2007........................................................ 102.500%
2008........................................................ 101.250%
2009 and thereafter......................................... 100.000%
</Table>
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 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 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
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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.
MANDATORY REDEMPTION
Rent-A-Center is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
RANKING
The indebtedness evidenced by the notes:
(1) is unsecured Senior Subordinated Indebtedness of Rent-A-Center;
(2) 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;
(3) ranks pari passu in right of payment with all existing and future
Senior Subordinated Indebtedness of Rent-A-Center; and
(4) 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 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
(1) any Senior Indebtedness is not paid when due in cash or Cash
Equivalents; or
(2) any other default on Senior Indebtedness occurs and the maturity
of such Senior Indebtedness is accelerated in accordance with its terms
unless (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 other default occurs under any Designated Senior Indebtedness,
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 earliest of:
(1) written notice to the Trustee to terminate the period by the
person who gave the Blockage Notice;
(2) the discharge or repayment in full in cash of the Designated
Senior Indebtedness;
(3) the date on which the default giving rise to the Blockage Notice
is no longer continuing; or
(4) the date on which 179 days have passed following the delivery of
the Blockage Notice.
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
65
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
in cash before the noteholders are entitled to receive any payment upon:
(1) 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
(2) a bankruptcy, insolvency, receivership or similar proceeding
relating to Rent-A-Center.
Until the Senior Indebtedness is paid in full in cash, 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
not have 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.
NOTE GUARANTEES
Each Guarantor will unconditionally guarantee, jointly and severally, on an
unsecured, senior subordinated basis, the full and prompt payment of principal
of, premium and interest on the notes, and of all other obligations under the
indenture.
Ranking. The indebtedness evidenced by each Note Guarantee, including the
payment of principal of, premium and interest on the notes and other obligations
with respect to the notes, will be subordinated to all Guarantor Senior
Indebtedness of such Guarantor on the same basis as the notes are subordinated
to Senior Indebtedness of Rent-A-Center. Each Note Guarantee will in all
respects rank pari passu with all other Senior Subordinated Indebtedness of such
Guarantor.
A Guarantor may not incur any Indebtedness if such Indebtedness is
subordinate or junior in right of payment to any Guarantor Senior Indebtedness
of such Guarantor unless such Indebtedness is Guarantor Senior Subordinated
Indebtedness of such Guarantor or is expressly subordinated in right of payment
to Guarantor Senior Subordinated Indebtedness of such Guarantor. As of December
31, 2002, there was no Guarantor Senior Indebtedness of Guarantors other than
the Guarantees of the Senior Credit Facility.
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 Note Guarantee. The obligation of each Guarantor under its
Note 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:
(1) all other contingent and fixed liabilities of the Guarantor,
including any Guarantees under the Senior Credit Facility; and
66
(2) any collections from or payments made by or on behalf of any other
Guarantor with respect to other Guarantor's obligations under its Note
Guarantee pursuant to its contribution obligations under the indenture.
Consolidation and Merger. Each Guarantor is permitted to consolidate or
merge into or sell its assets to Rent-A-Center or another Wholly Owned
Subsidiary of Rent-A-Center that is a Guarantor without limitation. Each
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 of Rent-A-Center that is a
Guarantor if:
(1) the provisions under the indenture, including the covenant
described under "-- Certain Covenants -- Limitations on Sales of Assets,"
are complied with; and
(2) such Guarantor is released from all of its obligations under the
indenture and its Note Guarantee. However, termination of the Note
Guarantee will only occur to the extent that the 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 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:
(1) any event occurs the result of which is that 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, 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;
(2) 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;
(3) 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
(4) 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
67
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:
(1) 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 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;
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the date of purchase, which will be no earlier than 30 days nor
later than 90 days from the date such notice is mailed;
(4) the instructions determined by Rent-A-Center, consistent with this
covenant, that a holder must follow in order to have its notes purchased;
and
(5) 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. 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.
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.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control,
Rent-A-Center will either repay all outstanding Senior Indebtedness or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Indebtedness to permit the repurchase of notes required by this covenant.
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
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. See "Risk
Factors -- 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."
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
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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
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 of Rent-A-Center that is a Guarantor may incur Indebtedness if, on
the date of the incurrence of such Indebtedness, the Consolidated Coverage Ratio
would be greater than 2.0 to 1.0.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Rent-A-Center and any Guarantor of Indebtedness
and letters of credit under one or more Senior Credit Facilities in an
aggregate principal amount at any one time outstanding under this clause
(1) (with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of Rent-A-Center and its Subsidiaries
thereunder) not to exceed $700 million;
(2) the guarantee by Rent-A-Center or any Guarantor of Indebtedness of
Rent-A-Center or a Restricted Subsidiary of Rent-A-Center that was
permitted to be incurred by another provision of this covenant;
(3) the incurrence by Rent-A-Center or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among Rent-A-Center
and any of its Restricted Subsidiaries; provided, however, that:
(a) if Rent-A-Center or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of Rent-A-Center, or the Note Guarantee, in the case
of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Capital Stock that
results in any such Indebtedness being held by a Person other than
Rent-A-Center or a Restricted Subsidiary of Rent-A-Center and (ii) any
sale or other transfer of any such Indebtedness to a Person that is not
either Rent-A-Center or a Restricted Subsidiary of Rent-A-Center, will
be deemed, in each case, to constitute an incurrence of such
Indebtedness by Rent-A-Center or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause;
(4) the incurrence by Rent-A-Center and the Guarantors of Indebtedness
represented by the notes and the related Note Guarantees to be issued on
the date of the indenture and the Exchange Notes and the related Note
Guarantees to be issued pursuant to the registration rights agreement;
(5) the incurrence by Rent-A-Center and its Restricted Subsidiaries of
Indebtedness existing on the date of the indenture;
(6) the incurrence by Rent-A-Center or any of its Restricted
Subsidiaries of Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the indenture
to be incurred under the first paragraph of this covenant or clauses (2),
(4), (5), (6), (7), (11) or (12) of this paragraph;
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(7) the incurrence by Rent-A-Center or any Restricted Subsidiary of
Indebtedness represented by Capitalized Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of Rent-A-Center or such Restricted Subsidiary, in an aggregate
principal amount, including all Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (7), not to exceed 2.5% of Consolidated Tangible Assets at any time
outstanding;
(8) the incurrence by Rent-A-Center or any Restricted Subsidiary of
Hedging Obligations that are incurred in the ordinary course of business
and not for speculative purposes;
(9) the incurrence by Rent-A-Center or any Restricted Subsidiary of
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;
(10) the incurrence by the Foreign Subsidiaries of Indebtedness for
working capital purposes if, at the time of incurrence of such
Indebtedness, and after giving effect thereto, the aggregate principal
amount of all Indebtedness of the Foreign Subsidiaries incurred pursuant to
this clause (10) and then outstanding does not exceed the amount equal to
the sum of (x) 50% of the consolidated book value of the rental inventories
of the Foreign Subsidiaries and (y) 75% of the consolidated book value of
the accounts receivable of the Foreign Subsidiaries;
(11) the incurrence by Rent-A-Center or any Restricted Subsidiary of
Guarantees for Indebtedness of franchisees not to exceed $100 million
outstanding at any one time; and
(12) the incurrence by Rent-A-Center or any Restricted Subsidiary of
Indebtedness, which may include Bank Indebtedness, in an aggregate
principal amount not to exceed $50 million outstanding at any one time.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of proposed Indebtedness meets
the criteria of more than one of the categories of Permitted Debt described in
clauses (1) through (12) above, or is entitled to be incurred pursuant to the
first paragraph of this covenant, Rent-A-Center will be permitted to classify
such item of Indebtedness on the date of its incurrence, or later reclassify,
all or a portion of such item of Indebtedness, in any manner that complies with
this covenant. Indebtedness under Senior Credit Facilities outstanding on the
date on which notes are first issued and authenticated under the indenture will
initially be deemed to have been incurred on such date in reliance on the
exception provided by clause (1) of the definition of Permitted Debt. In
addition, for purposes of determining compliance with this "Limitation on
Indebtedness" covenant, the accrual of interest, the accretion or amortization
of original issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant; provided, that the
amount thereof is included in Consolidated Interest Expense of Rent-A-Center as
accrued.
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 Guarantor will incur any Indebtedness that is expressly
subordinate in right of payment to any Guarantor Senior Indebtedness, unless
such Indebtedness is Guarantor Senior Subordinated Indebtedness of such
Guarantor, or is subordinated in right of payment to Guarantor Senior
Subordinated Indebtedness by contract.
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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:
(1) declare or pay any dividend or make any other payment or
distribution on account of Rent-A-Center's or any of its Restricted
Subsidiaries' Capital Stock (including, without limitation, any payment in
connection with any merger or consolidation involving Rent-A-Center or any
of its Restricted Subsidiaries) or to the direct or indirect holders of
Rent-A-Center's or any of its Restricted Subsidiaries' Capital Stock in
their capacity as such (other than dividends or distributions payable in
Capital Stock (other than Disqualified Stock) of Rent-A-Center or to
Rent-A-Center or a Restricted Subsidiary of Rent-A-Center);
(2) 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;
(3) 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
(4) make any Restricted Investment (all such payments and other
actions set forth in these clauses (1) through (4) above being collectively
referred to as "Restricted Payments"),
if at the time Rent-A-Center or its Restricted Subsidiary makes a Restricted
Payment:
(1) a Default occurs and continues to occur or would result therefrom;
(2) Rent-A-Center could not incur at least $1.00 of additional
Indebtedness under the first paragraph of the covenant described in
"-- Limitation of Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made after the date of the indenture would
exceed the sum of:
(a) 50% of the Consolidated Net Income accrued during the period,
treated as one accounting period, from the beginning of the most recent
fiscal quarter ended before the date of the 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;
(b) 100% of the aggregate net cash proceeds received by
Rent-A-Center since the date of the indenture as a contribution to its
common equity capital or from the issue or sale of Capital Stock of
Rent-A-Center (other than Disqualified Stock) or from the issue or sale
of convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of Rent-A-Center that have been converted
into or exchanged for such Capital Stock (other than Capital Stock (or
Disqualified Stock or debt securities) sold to a Restricted Subsidiary
of Rent-A-Center); and
(c) in the case of the disposition or repayment of any Investment
constituting a Restricted Investment, 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.
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(B) The provisions of paragraph (A) above will not prohibit the following
actions:
(1) 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:
(a) such purchase, redemption, repurchase, defeasance, retirement
or other acquisition will be excluded in subsequent calculations of the
amount of Restricted Payments; and
(b) the Net Cash Proceeds or reduction of Indebtedness from such
sale will be excluded in subsequent calculations of the amount of
Restricted Payments;
(2) 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;
(3) 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;
(4) 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;
(5) any purchase or redemption of any shares of Capital Stock of
Rent-A-Center from employees of Rent-A-Center and its Restricted
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 indenture not in
excess of $5 million in any fiscal year, plus any 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;
(6) Restricted Payments in an aggregate amount not to exceed $50
million per annum (with any unutilized amounts carried forward to the next
fiscal year, but no further); provided, that, after giving pro forma effect
thereto, Rent-A-Center would have had a Leverage Ratio of less than 2.0 to
1.0. However, such Restricted Payments will be excluded in subsequent
calculations of the amount of Restricted Payments;
(7) any purchase or redemption of any shares of Capital Stock of
Rent-A-Center or any payment of dividends on any Capital Stock of
Rent-A-Center in an aggregate amount not in excess of $210 million since
the date of the indenture. However, such purchases or redemptions will be
excluded in subsequent calculations of the amount of Restricted Payments;
and
(8) Restricted Payments not to exceed $50 million in the aggregate
since the date of the indenture. However, such Restricted Payments will be
excluded in subsequent calculations of the amount of Restricted Payments.
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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:
(1) pay dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligations owed to Rent-A-Center;
(2) make any loans or advances to Rent-A-Center; or
(3) transfer any of its property or assets to Rent-A-Center.
However, this prohibition does not apply to:
(1) any restriction pursuant to an agreement in effect or entered into
on the date of the indenture, including, without limitation, the Senior
Credit Facility;
(2) any restriction with respect to a Restricted Subsidiary that is
either:
(a) 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
(b) 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 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.
(3) 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;
73
(4) 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;
(5) 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;
(6) 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;
(7) 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;
(8) 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
(9) 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:
(1) 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;
(2) 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. For the purposes of this covenant, the following are deemed to be
cash:
(a) Cash Equivalents;
(b) 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;
(c) 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 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;
(d) 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
(e) consideration consisting of Indebtedness of Rent-A-Center or
any Restricted Subsidiary;
(3) 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:
(a) first, to the extent Rent-A-Center elects, or is required by
the terms of any Senior Indebtedness or Indebtedness, other than
Preferred Stock, to prepay, repay or purchase Senior
74
Indebtedness or such Indebtedness, 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;
(b) 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;
(c) 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 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
(d) 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.
Pending the final application of any Net Available Cash, Rent-A-Center may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Available Cash in any manner that is not prohibited by the indenture.
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
$25 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.
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.
The agreements governing Rent-A-Center and its Restricted Subsidiaries'
outstanding Senior Indebtedness currently restrict Rent-A-Center from purchasing
any notes, and also provides that certain Change of Control or Asset Disposition
events with respect to Rent-A-Center would constitute a default under these
agreements. Any future credit agreements or other agreements relating to Senior
Indebtedness to which Rent-A-Center becomes a party may contain similar
restrictions and provisions. In the event a Change of Control or Asset
Disposition occurs at a time when Rent-A-Center is prohibited from purchasing
notes, Rent-A-Center could seek the consent of its senior lenders to the
purchase of notes or could attempt to refinance the borrowings that contain such
prohibition. If Rent-A-Center does not obtain
75
such a consent or repay such borrowings, Rent-A-Center will remain prohibited
from purchasing notes. In such case, Rent-A-Center's failure to purchase
tendered notes would constitute an Event of Default under the indenture which
would, in turn, constitute a default under such Senior Indebtedness. In such
circumstances, the subordination provisions in the indenture would likely
restrict payments to the holders of notes.
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:
(1) 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,
(2) in the event such Affiliate Transaction involves an aggregate
amount in excess of $15 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 $30
million will also require a Fairness Opinion.
The provisions of the paragraph above shall not prohibit the following
actions:
(1) any Restricted Payment permitted by the covenant described under
"-- Limitation on Restricted Payments" or any Permitted Investment;
(2) 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;
(3) payment of compensation, performance of indemnification or
contribution obligations;
(4) any issuance, grant or award of stock, options or other
securities, to employees, officers or directors in the ordinary course of
business;
(5) any transaction between Rent-A-Center and a Restricted Subsidiary
or between Restricted Subsidiaries;
(6) any other transaction arising out of agreements existing on the
date of the indenture; and
(7) 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.
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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 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 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:
(1) the release and discharge of the Initial Lien to which it relates;
or
(2) 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
Whether or not required by the SEC's rules and regulations, so long as any
notes are outstanding, Rent-A-Center will furnish to the holders of notes,
within the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual reports that would be required to be
filed with the SEC on Forms 10-Q and 10-K if Rent-A-Center were required to
file such reports; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if Rent-A-Center were required to file such reports.
All such reports will be prepared in all material respects in accordance
with all of the rules and regulations applicable to such reports. Each annual
report on Form 10-K will include a report on Rent-A-Center's consolidated
financial statements by Rent-A-Center's certified independent accountants. In
addition, Rent-A-Center will file a copy of each of the reports referred to in
clauses (1) and (2) above with the SEC for public availability within the time
periods specified in the rules and regulations applicable to such reports
(unless the SEC will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
If, at any time, Rent-A-Center is no longer subject to the periodic
reporting requirements of the Exchange Act for any reason, Rent-A-Center will
nevertheless continue filing the reports specified in the preceding paragraphs
with the SEC within the time periods specified above unless the SEC will not
accept such a filing. Rent-A-Center agrees that it will not take any action for
the purpose of causing the SEC not to accept any such filings. If,
notwithstanding the foregoing, the SEC will not accept Rent-A-Center's filings
for any reason, Rent-A-Center will post the reports referred to in the preceding
paragraph on its website within the time periods that would apply if
Rent-A-Center were required to file those reports with the SEC.
In addition, Rent-A-Center and the Guarantors agree that, for so long as
any notes remain outstanding, at any time they are not required to file the
reports required by the preceding paragraph with the SEC, they will furnish to
the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
FUTURE GUARANTORS
If Rent-A-Center or any of its Restricted Subsidiaries acquires or creates
another Domestic Subsidiary after the date of the indenture, then that newly
acquired or created Domestic Subsidiary will become a Guarantor and execute a
supplemental indenture and deliver an opinion of counsel satisfactory to the
Trustee within 10 Business Days of the date on which it was acquired or created.
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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:
(1) 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;"
(2) 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
(3) 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 or transfer 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 a supplemental 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 the first
paragraph 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 last paragraph of this covenant.
In addition, Rent-A-Center may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
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 or transfer of less than all its assets,
Rent-A-Center will not be released from the obligation to pay the principal of
and interest on the notes.
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,
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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, or premium, if any, 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 $50 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 $50 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");
(9) the failure of any Guarantee of the notes by a 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 Guarantor of its
obligations under the indenture or any such Guarantee if such Default
continues for 10 days; or
(10) the failure of Rent-A-Center East, Inc. to purchase, redeem,
defease, retire or acquire all outstanding 11% notes by August 30, 2003.
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 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
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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 or interest when due, no holder may pursue any remedy with
respect to the indenture or the notes unless:
(1) such holder has previously given the Trustee notice that an Event
of Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding
notes have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) 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
(5) 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:
(1) conflicts with law or the indenture;
(2) the Trustee determines is unduly prejudicial to the rights of any
other holder; or
(3) 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 or interest on any note, the Trustee may withhold
notice if and so long as a committee of its Trust 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.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of
Rent-A-Center or any Guarantor, as such, will have any liability for any
obligations of Rent-A-Center or any Guarantor under the notes, the indenture,
the Note Guarantees, or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each holder of notes by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
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:
(1) reduce the principal amount of notes whose holders must consent to
an amendment;
(2) reduce the rate of or extend the time for payment of interest on
any note;
(3) reduce the principal amount of or extend the Stated Maturity of
any note;
(4) 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;
(5) make any note payable in money other than that stated in the note;
(6) make any change to the subordination provisions of the indenture
that adversely affects the rights of any holder;
(7) 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
(8) 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 Guarantors and the
Trustee may amend the indenture in the following manner:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of the
obligations of Rent-A-Center under the indenture;
(3) 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;
(4) 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;
(5) to make any change that does not adversely affect the rights of
any holder;
(6) to comply with any requirement of the SEC in connection with the
qualification of the indenture under the TIA; or
(7) to conform the text of the indenture, the Note Guarantees or the
notes to any provision of this Description of Notes to the extent that such
provision in this Description of Notes was intended to be a verbatim
recitation of a provision of the indenture, the Note Guarantees or the
notes.
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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 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.
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.
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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 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,
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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, 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, 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.
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
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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 Exchange Act
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.
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.
"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;
85
(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;
(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 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.
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"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.
"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 million 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.
"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;
provided, however, that:
(a) if Rent-A-Center or any Restricted Subsidiary
(i) has incurred any Indebtedness since the beginning of such
period that remains outstanding on such date of determination or if
the transaction 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
87
(A) the average daily balance of such Indebtedness during such four
fiscal quarters or such shorter period for which such facility was
outstanding or
(B) 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
(ii) 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 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
88
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
(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.
89
"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) 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) 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 extraordinary gain or loss; and
(5) the cumulative effect of a change in accounting principles.
"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.
"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.
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"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 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
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.
"Domestic Subsidiary" means any Restricted Subsidiary of Rent-A-Center that
was formed under the laws of the United States or any state of the United States
or the District of Columbia or that guarantees or otherwise provides direct
credit support for any Indebtedness of Rent-A-Center.
"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,
(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.
"Foreign Subsidiary" means a Restricted Subsidiary of Rent-A-Center that is
organized under the laws of any country other than the United States and
substantially all the assets of which are located outside the United States.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the date of the 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.
91
"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" means
(1) Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center West,
Inc. (formerly known as Advantage Companies, Inc.), Get It Now, LLC,
Rent-A-Center Texas, L.P., and Rent-A-Center Texas, L.L.C.; and
(2) any Domestic Subsidiary created or acquired by Rent-A-Center after
the date of the indenture.
"Guarantor Senior Indebtedness" means, with respect to a 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 Guarantor and
all other Guarantees by such Guarantor of Senior Indebtedness of
Rent-A-Center or Guarantor Indebtedness for any other Guarantor; and
(2) all obligations consisting of the principal of, premium and
accrued and unpaid interest, including interest accruing on or after the
filling of any petition in bankruptcy or for reorganization relating to the
Guarantor regardless of whether post filing interest is allowed in such
proceeding, on, and fees and other amounts owing in respect of, all other
Indebtedness of the 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 Guarantor under
the Guarantee; provided, however, that Guarantor Senior Indebtedness will
not include
(a) any obligations of such Guarantor to another Guarantor or any
other Affiliate of the Guarantor or any such Affiliate's Subsidiaries,
(b) any liability for Federal, state, local, foreign or other taxes
owed or owing by such 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 Guarantor
that is expressly subordinate or junior to any other Indebtedness,
Guarantee or obligation of such Guarantor, including any Guarantor
Senior Subordinated Indebtedness and Guarantor Subordinated Obligations
of such Guarantor,
(e) Indebtedness which is represented by redeemable Capital Stock,
or
92
(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
Guarantor, the obligations of such Guarantor under the Guarantee and any other
Indebtedness of such Guarantor, whether outstanding on the date of the indenture
or thereafter incurred, that specifically provides that such Indebtedness is to
rank pari passu in right of payment with the obligations of such Guarantor under
the Guarantee and is not expressly subordinated by its terms in right of payment
to any Indebtedness of such Guarantor which is not Guarantor Senior Indebtedness
of such Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a Guarantor, any
Indebtedness of such Guarantor, whether outstanding on the date of the indenture
or thereafter incurred, which is expressly subordinate in right of payment to
the obligations of such Guarantor under its 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.
"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
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,
93
(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.
"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.
"Leverage Ratio" means, with respect to any Person on any date of
determination, the ratio of (1) total Indebtedness as of such date to (2) EBITDA
for the period of four consecutive quarters most recently ended on such date.
"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
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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.
"Non-Guarantor Subsidiary" means Legacy Drive Trust so long as Investments
in Legacy Drive Trust are limited to amounts not in excess of amounts required
and actually applied to finance the activities of Legacy Drive Trust in
accordance with its trust instrument as the same is in effect as of the date of
the indenture (as may be amended or modified from time to time to the extent
that such amendment or modification, taken as a whole, is not disadvantageous to
the holders of notes).
In the event Legacy Drive Trust ceases to be a Non-Guarantor Subsidiary,
Legacy Drive Trust will become a Guarantor and execute a supplemental indenture
and deliver an opinion of counsel satisfactory to the Trustee within 10 Business
Days of the date on which it ceased to be a Non-Guarantor Subsidiary.
"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.
"Note Guarantee" means, individually, any Guarantee of payment of the notes
by a Guarantor pursuant to the terms of the indenture, and, collectively, all
such Guarantees. Each such Guarantee will be in the form prescribed in the
indenture.
"Officer" means the Chief Executive Officer, President, Chief Financial
Officer, any Vice President, Controller, Secretary or Treasurer of
Rent-A-Center.
"Officer's Certificate" means a certificate signed by at least one Officer.
"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 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.
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"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 indenture;
(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 $25
million in the aggregate; and
(11) other Investments in an aggregate amount not to exceed the sum of
$25 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 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 $50 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;
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(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 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 existing on the date of the
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 (1), (4) or (5)
of the second paragraph of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness," or clause (3) thereof, other
than Refinancing Indebtedness incurred in respect of Indebtedness
described in the first paragraph 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;
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(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.
"Public Equity Offering" means a public sale of Capital Stock (other than
Disqualified Stock) of Rent-A-Center other than (i) public offerings with
respect to Rent-A-Center's Capital Stock registered on Form S-4 or Form S-8 and
(ii) other issuances upon exercise of options by employees of Rent-A-Center or
any of its Restricted Subsidiaries.
"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 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,
(3) if the Indebtedness being refunded, refinanced, replaced, renewed,
repaid, extended, defeased or discharged is Subordinated Obligations, such
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the notes on
terms at least as favorable to the holders of notes as those contained in
the documentation governing the Indebtedness being refunded, refinanced,
replaced, renewed, repaid, extended, defeased or discharged, and
(4) 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
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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 indenture or that are reasonably related or incidental thereto.
"Representative" means the Trustee, agent or representative, if any, for an
issue of Senior Indebtedness.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of Rent-A-Center other than an
Unrestricted Subsidiary.
"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 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 amended and restated credit agreement
dated as of December 31, 2002, among Rent-A-Center, Rent-A-Center East, Inc.,
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 Chase Bank, as administrative agent, as such agreement may
be assumed by any successor in interest, and as such agreement may be further
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
Rent-A-Center, Rent-A-Center East, Inc., or any subsidiary of Rent-A-Center as
borrower, 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).
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"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.
"Senior Indebtedness" means the following obligations, whether outstanding
on the date of the 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
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(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 $50 million or as at the
end of such fiscal year had assets or liabilities greater than $50 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 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.
"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
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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,
(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.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
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.
"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 $100,000 or less or
(b) if such Subsidiary has consolidated assets greater than
$100,000, then such designation would be permitted under "-- Certain
Covenants -- Limitation on Restricted 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
(i) 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
(ii) 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
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with the Trustee a copy of the resolution of Rent-A-Center's Board of
Directors giving effect to such designation and an Officer's
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.
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REGISTRATION RIGHTS AGREEMENT
In connection with the issuance of the old 7 1/2% notes on May 6, 2003, we
and the initial purchasers of the old 7 1/2% notes entered into a registration
rights agreement. Pursuant to this agreement, we agreed to:
- file with the SEC on or prior to August 4, 2003 a registration statement,
relating to this exchange offer for the old 7 1/2% notes under the
Securities Act; and
- use our reasonable efforts to cause this exchange offer registration
statement to be declared effective under the Securities Act on or prior
to November 2, 2003.
As soon as practicable after the effectiveness of this 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 this 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 old 7 1/2% notes, except that the
exchange notes will not contain terms with respect to transfer restrictions and
would be registered under the Securities Act. We will keep this exchange offer
open for not less than 20 business days or longer, if required by applicable law
after the date on which notice of this exchange offer is mailed to the holders
of old 7 1/2% notes.
If:
- this exchange offer is not permitted by applicable law (after we have
complied with the procedures set forth in the registration rights
agreement), or
- any holder of old 7 1/2% notes notifies us in writing within 20 business
days following the consummation of this exchange offer that (i) such
holder was prohibited by law or policy of the SEC from participating in
this exchange offer or (ii) such holder may not resell the exchange notes
to the public without delivering a prospectus and this prospectus is not
appropriate or available for such resales by such holder,
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
old 7 1/2% note until the earliest of:
- the date on which such old 7 1/2% note has been exchanged in this
exchange offer for an exchange note which is entitled to be resold to the
public without complying with the prospectus delivery requirements of the
Securities Act, or
- the date on which such old 7 1/2% note has been disposed of in accordance
with a shelf registration statement, or
- the date on which such old 7 1/2% note is distributed to the public
pursuant to Rule 144 under the Securities Act,
as well as each exchange note and the related subsidiary guarantees acquired by
a broker-dealer in exchange for an old 7 1/2% note acquired for its own account
as a result of market making activities or other trading activities until the
date on which such exchange note is disposed of by a broker-dealer pursuant to
the section entitled "Plan of Distribution" (including the delivery of this
prospectus).
We will use our commercially reasonable efforts to have this 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 this exchange offer would not be permitted by a policy of the
SEC, we will commence this exchange offer and use our commercially reasonable
efforts to consummate this exchange offer as promptly as practicable, but in any
event prior to 180 days after the issue date. If necessary, we
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will use our commercially reasonable efforts to keep the shelf registration
statement effective for a period of two years after the issue date.
If:
- this exchange offer registration statement is not filed with the SEC on
or prior to August 4, 2003, or
- a shelf registration statement is not filed with the SEC on or prior to
30 days after our obligation to do so arises, or
- this exchange offer registration statement is not declared effective on
or prior to November 2, 2003, or
- a shelf registration statement is not declared effective on or prior to
90 days after the filing deadline for such shelf registration statement,
or
- this exchange offer is not consummated on or prior to December 15, 2003,
or
- this exchange offer registration statement or the shelf registration
statement is filed and declared effective but shall thereafter cease to
be effective, at any time that we are obligated to maintain the
effectiveness thereof, without being succeeded within two business days
by an amendment that is filed and subsequently declared effective within
five business days,
we will be obligated to pay liquidated damages to each holder of old 7 1/2%
notes, during the period of one or more such above events, in an amount equal to
..25% per annum for the first 90-day period, which increases by .25% per annum
for each subsequent 90-day period, up to a maximum of 1.00% per annum on the
principal amount of the old 7 1/2% notes constituting transfer restricted
securities held by such holder until the applicable registration statement is
filed or declared effective, this exchange offer is consummated or any such
registration statement, declared effective but thereafter ceasing to be
effective or usable for its intended purpose, which was not succeeded within two
business days by a post-effective amendment curing such failure and declared
effective within five business days, 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 old 7 1/2% notes on semi-annual payment dates which
correspond to interest payment dates for the old 7 1/2% notes. The accrual of
liquidated damages will cease on the day on which the registration default is
cured.
The registration rights agreement also provides that we shall:
- make available, promptly upon request and on a daily basis, for a period
of 180 days after the consummation of this exchange offer, or such time
as all exchange notes have been sold, 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 this 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.
Each holder of old 7 1/2% notes who wishes to exchange such old 7 1/2%
notes for exchange notes in this 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 is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in a
distribution of the exchange notes; and
- it is not an "affiliate," as defined in Rule 405 under the Securities
Act, of us. See "Description of Notes -- Certain Definitions."
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, a distribution of the
exchange notes. If the holder is a broker-dealer that will
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receive exchange notes for its own account in exchange for notes that 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 old 7 1/2% notes will be required to make certain
representations to Rent-A-Center in order to participate in this 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.
For so long as the old 7 1/2% notes are outstanding, we will continue to
make all required filings in a timely manner in order to permit resales of the
old 7 1/2% notes pursuant to Rule 144A under the Securities Act.
The foregoing description of the 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 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 registration rights agreement.
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MATERIAL U.S. FEDERAL TAX CONSEQUENCES
The following is a summary of certain United States federal income and
estate tax considerations relating to the exchange of the old 7 1/2% notes for
the exchange notes and the ownership and disposition of the exchange notes, but
does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based upon the Internal Revenue
Code of 1986, as amended, and regulations, rulings and decisions thereunder now
in effect (or, in the case of certain United States Treasury Regulations, now in
proposed form), all of which are subject to change, possibly on a retroactive
basis. This summary deals only with holders that hold the old 7 1/2% notes as
"capital assets" (generally, property held for investment) and the holders that
will hold the exchange notes as capital assets and does not address tax
considerations applicable to investors that may be subject to special tax rules,
including financial institutions, tax-exempt organizations, insurance companies,
dealers in securities or currencies, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings, persons that
will hold the notes as a position in a hedging transaction, "straddle" or
"conversion transaction" for tax purposes, regulated investment companies, real
estate investment trusts, partnerships, "S" corporations, or United States
Holders (as defined below) that have a "functional currency" other than the U.S.
dollar. If a partnership holds the old 7 1/2% notes or exchange notes, as
applicable, the tax treatment of a partner will generally depend upon the status
of the partner and the activities of the partnership. If you are a partner of a
partnership holding our notes, you should consult your tax advisor.
This summary does not discuss alternative minimum tax consequences, if any,
or any state, local or foreign tax consequences to holders of old 7 1/2% notes
and the exchange notes, as applicable. We have not sought any ruling from the
Internal Revenue Service with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the
Internal Revenue Service will agree with these statements and conclusions.
INVESTORS CONSIDERING THE PURCHASE OF THE EXCHANGE NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES
FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY
TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
UNITED STATES HOLDERS
As used in this tax discussion, a "United States Holder" means the
beneficial owner of a note that for United States federal income tax purposes
is:
(1) a citizen or resident of the United States,
(2) a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or any political
subdivision of the United States,
(3) an estate the income of which is subject to United States federal
income taxation regardless of its source, or
(4) a trust (A) if it is subject to the primary supervision of a court
within the United States and one or more United States persons have the
authority to control all substantial decisions of the trust or (B) that has
a valid election in effect under applicable United States Treasury
Regulations to be treated as a United States person.
EXCHANGE OFFER
The exchange of the old 7 1/2% notes for the exchange notes will not
constitute a taxable exchange. As a result, (1) you will not recognize taxable
gain or loss as a result of exchanging such notes; (2) the holding period of the
exchange notes will include the holding period of the old 7 1/2% notes exchanged
therefor; and (3) the adjusted tax basis of the exchange notes received will be
the same as the adjusted tax basis of the old 7 1/2% notes exchanged therefor
immediately before such exchange.
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INTEREST
Interest on an old 7 1/2% note and an exchange note, as applicable,
generally will be includable in your income as ordinary income at the time the
interest is received or accrued, in accordance with your method of accounting
for United States federal income tax purposes.
MARKET DISCOUNT
If you purchase an exchange note after original issuance for an amount that
is less than its stated redemption price at maturity, the difference will be
treated as "market discount" (unless such difference is less than a de minimis
amount as defined by the Internal Revenue Code), and the market discount
provisions of the Internal Revenue Code will apply to the exchange note. The
market discount rules generally provide that if you purchase a note at a market
discount and thereafter receive any full or partial payment, including a payment
on maturity, or recognize any gain on a sale or other disposition of the note,
including a gift, such payment, gain or appreciation, in the case of a gift,
will be treated as ordinary income, to the extent that such gain does not exceed
the market discount that accrued while the note was held by you. The amount of
the market discount treated as having accrued will be determined either (i) on a
straight-line basis by multiplying the market discount times a fraction, the
numerator of which is the number of days the exchange note was held by you and
the denominator of which is the total number of days after the date you acquired
the exchange note up to (and including) the exchange note's maturity date, or
(ii) if you so elect, on a constant interest rate method.
If you acquire an exchange note at a market discount, you may elect to
include the market discount in income as the discount thereon accrues, either on
a straight-line basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired by you on or after the first day of the first taxable year
to which the election applies and may not be revoked without the consent of the
Internal Revenue Service. If you elect to include market discount in income in
accordance with this paragraph, the foregoing rules with respect to the
recognition of ordinary income on a sale or other disposition of such note would
not apply.
If you acquire a debt instrument at a market discount and do not elect to
include such market discount in income on a current basis, as described above,
you may be required to defer a portion of any interest expense that may
otherwise be deductible on any indebtedness incurred or maintained to purchase
or carry such note until you dispose of the exchange note in a taxable
transaction.
AMORTIZABLE BOND PREMIUM
If you purchase an exchange note for an amount that is in excess of the
exchange note's stated redemption price at maturity, such excess may constitute
"amortizable bond premium." You may generally elect to amortize and deduct the
amortizable bond premium over the period from the acquisition date to the
exchange note's maturity date. If you elect to amortize bond premium, you must
reduce your adjusted tax basis in the exchange note by the amount of the
aggregate deductions allowable for amortizable bond premium. If you do not elect
to make such an election, the premium will decrease the gain or increase the
loss otherwise recognizable on the sale or other disposition of the exchange
note. Any election to amortize bond premium will generally apply to all debt
instruments held or subsequently acquired by you on or after the first day of
the first taxable year to which the election applies and may not be revoked
without the consent of the Internal Revenue Service.
The amortizable bond premium deduction is treated as an offset to interest
income on the note for federal income tax purposes. You are urged to consult
with your tax advisor as to the consequences of the treatment of such premium as
an offset to interest income for federal income tax purposes.
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SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange or redemption of an exchange note, you generally
will recognize capital gain or loss equal to the difference between:
(1) the amount of cash proceeds and the fair market value of any
property received on the sale, exchange or redemption (except to the extent
this amount is attributable to accrued but unpaid interest not previously
included in income, which will be taxable as ordinary income), and
(2) your adjusted tax basis in the exchange note.
Your adjusted tax basis in an exchange note generally will equal the amount
you paid for the exchange note, less any principal payments received by you and
the amount of aggregate deductions, if any, allowable for amortizable bond
premium. The gain or loss will be long-term capital gain or loss if you held the
exchange note for more than one year. Long-term capital gains of individuals,
estates and trusts are generally taxed at a maximum rate of 15%. The
deductibility of capital losses is subject to certain limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to certain
non-corporate United States Holders with respect to payments of principal and
interest on an old 7 1/2% note and an exchange note, as applicable, and to the
proceeds of the sale of such notes, and a backup withholding tax also may apply
to these payments. If you are such a United States Holder, you generally will be
subject to backup withholding at the applicable rate of 28% unless you provide
to us or our paying agent a correct taxpayer identification number and certain
other information, certified under penalties of perjury, or you otherwise
establish an exemption.
Any amounts withheld from a payment under the backup withholding rules may
be allowed as a credit against your United States federal income tax liability
and may entitle you to a refund, provided that the required information is
furnished to the Internal Revenue Service.
NON-UNITED STATES HOLDERS
As used in this tax discussion, a non-United States Holder means any
beneficial owner of a note that is not a United States Holder. The rules
governing the United States federal income and estate taxation of a non-United
States Holder are complex, and no attempt will be made herein to provide more
than a summary of those rules. Special rules may apply to a non-United States
Holder that is a controlled foreign corporation, passive foreign investment
company or foreign personal holding company and therefore subject to special
treatment under the Internal Revenue Code. NON-UNITED STATES HOLDERS SHOULD
CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS WITH REGARD TO AN INVESTMENT IN THE EXCHANGE NOTES,
INCLUDING ANY REPORTING REQUIREMENTS.
INTEREST
Generally, payments of interest on an old 7 1/2% note and an exchange note,
as applicable, will qualify for the "portfolio interest" exemption and,
therefore, will not be subject to United States federal income tax or
withholding tax, provided that this interest income is not effectively connected
with a United States trade or business conducted by you and provided that you:
(1) do not actually or constructively own 10% or more of the combined
voting power of all classes of our stock entitled to vote,
(2) are not, for United States federal income tax purposes, a
controlled foreign corporation related to us through stock ownership,
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(3) are not a bank receiving interest on a loan entered into in the
ordinary course of your business within the meaning of Section 881(c)(3)(A)
of the Internal Revenue Code, and
(4) you appropriately certify as to your foreign status.
You can generally meet the certification requirement by providing a
properly executed Form W-8BEN or appropriate substitute form to us, or our
paying agent. If you hold the old 7 1/2% notes and exchange notes, as
applicable, through a financial institution or other agent acting on your
behalf, you may be required to provide appropriate certifications to the agent.
Your agent will then generally be required to provide appropriate certifications
to us or our paying agent, either directly or through other intermediaries.
Special rules apply to foreign partnerships, estates and trusts, and in certain
circumstances certifications as to the foreign status of partners, trust owners
or beneficiaries may have to be provided to us or our paying agent. In addition,
special rules apply to qualified intermediaries that enter into withholding
agreements with the Internal Revenue Service, and such intermediaries generally
are not required to forward any certification forms received from non-United
States Holders.
Except to the extent that an applicable treaty otherwise provides, a
non-United States Holder generally will be taxed in the same manner as a United
States Holder with respect to interest if the interest income is effectively
connected with a United States trade or business of the non-United States
Holder. Effectively connected interest received by a corporate non-United States
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate (or, if applicable, a lower treaty rate).
Even though this effectively connected interest is subject to income tax, and
may be subject to the branch profits tax, it is not subject to withholding tax
(unless derived through a partnership) if the non-United States Holder delivers
Internal Revenue Service Form W-8ECI (or successor form) annually to us or our
agent.
Interest income of a non-United States Holder that is not effectively
connected with a United States trade or business and that does not qualify for
the portfolio interest exemption described above will generally be subject to a
withholding tax at a 30% rate (or, if applicable, a lower treaty rate).
SALE, EXCHANGE OR REDEMPTION OF THE EXCHANGE NOTES
You will generally not be subject to United States federal income tax or
withholding tax on any gain realized on the sale, exchange, redemption or other
disposition of an exchange note unless:
(1) the gain is effectively connected with your conduct of a United
States trade or business,
(2) you are an individual who has been present in the United States
for a period or periods aggregating 183 days or more during the taxable
year of the disposition, and certain other requirements are met, or
(3) you are subject to tax pursuant to the provisions of the Internal
Revenue Code applicable to certain United States expatriates.
CERTAIN U.S. FEDERAL ESTATE TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
An exchange note beneficially owned by an individual who is not a citizen
or resident of the United States at the time of death will generally not be
includable in the decedent's gross estate for United States federal estate tax
purposes, provided that the beneficial owner did not at the time of death
actually or constructively own 10% or more of the combined voting power of all
classes of our stock entitled to vote, and provided that, at the time of the
holder's death, payments with respect to that note would not have been
effectively connected with the holder's conduct of a trade or business within
the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States information reporting requirements and backup withholding tax
generally will not apply to payments of interest and principal on an old 7 1/2%
note and an exchange note, as applicable, to a non-United States Holder if the
statement described in "Non-United States Holders -- Payment of Interest" is
110
duly provided by the holder or the holder otherwise establishes an exemption,
provided that we do not have actual knowledge or reason to know that the holder
is a United States person or that the exemption conditions are not satisfied.
Information reporting requirements and backup withholding tax generally
will not apply to any payment of the proceeds of the sale of an exchange note
effected outside the United States by a foreign office of a "broker" (as defined
in applicable United States Treasury Regulations). However, if the broker:
(1) is a United States person,
(2) derives 50% or more of its gross income from all sources for
certain periods from the conduct of a United States trade or business,
(3) is a controlled foreign corporation as to the United States, or
(4) is a foreign partnership in which one or more United States
persons, in the aggregate, own more than 50% of the income or capital
interests in the partnership or is a foreign partnership that is engaged in
a trade or business in the United States,
payment of the proceeds will be subject to information reporting requirements
unless the broker has documentary evidence in its records that the beneficial
owner is a non-United States Holder and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption.
Payment of the proceeds of any sale of an exchange note to or through the
United States office of a foreign or U.S. broker is subject to information
reporting and backup withholding requirements, unless the beneficial owner of
the exchange note provides the statement described in "Non-United States
Holders -- Payment of Interest" or otherwise establishes an exemption and the
broker does not have actual knowledge or reason to know that the payee is a
United States person or that the exemption conditions are not satisfied.
Any amounts withheld from a payment to a non-United States Holder under the
backup withholding rules generally will be allowed as a credit against the
non-United States Holder's United States federal income tax liability and may
entitle the non-United States Holder to a refund, provided that the required
information is provided to the Internal Revenue Service.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE EXCHANGE OF THE OLD 7 1/2% NOTES FOR THE EXCHANGE
NOTES AND THE OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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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 this
exchange offer in exchange for the old 7 1/2% 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 this 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 this
exchange offer, other than a resale of an unsold allotment from the sale of the
old 7 1/2% notes to the initial purchasers, with the prospectus contained in
this exchange offer registration statement. Pursuant to the 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 consummation of this exchange offer, or such time
as all exchange notes have been sold, 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 of transmittal.
Each holder of old 7 1/2% notes who wishes to exchange old 7 1/2% notes for
exchange notes in this 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 this 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 7 1/2% notes where such old 7 1/2% notes were acquired as a
result of market-making activities or other trading activities. Until
, 2003, 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 this 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 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 this 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 letter 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 180 days after the consummation of this exchange offer, or
such time as all exchange notes have been sold, 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 of
112
transmittal. We have agreed to pay all expenses incident to this exchange offer,
including the expenses of one counsel for the holders of the notes, other than
commissions or concessions of any broker-dealers and will indemnify the holders
of the notes, including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act.
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INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The financial statements as of December 31, 2001 and 2002, and for each of
the three years in the period ended December 31, 2002, 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, after consultation with the SEC, Grant Thornton LLP is
permitted 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 7 1/2% 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.
114
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,
2002;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003;
- Our Current Report on Form 8-K dated April 23, 2003;
- Our Current Report on Form 8-K dated May 1, 2003; and
- The portions of our proxy statement for our 2003 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
115
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
RENT-A-CENTER, INC. AND SUBSIDIARIES
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
</Table>
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, 2002 and 2001, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2002. 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, 2002 and 2001, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note D to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142") on January 1, 2002.
GRANT THORNTON LLP
Dallas, Texas
February 10, 2003
F-2
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31, MARCH 31,
----------------------- -----------
2001 2002 2003
---------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
Cash and cash equivalents................................ $ 107,958 $ 85,723 $ 103,151
Accounts receivable...................................... 1,664 5,922 9,447
Prepaid expenses and other assets........................ 29,846 42,882 25,717
Rental merchandise, net
On rent................................................ 531,627 510,184 556,415
Held for rent.......................................... 122,074 121,540 136,909
Property assets, net..................................... 106,883 105,949 109,015
Deferred income taxes.................................... 8,772 -- --
Intangible assets, net................................... 711,096 743,852 788,964
---------- ---------- ----------
$1,619,920 $1,616,052 $1,729,618
========== ========== ==========
LIABILITIES
Accounts payable -- trade................................ $ 49,930 $ 43,461 $ 79,392
Accrued liabilities...................................... 170,196 122,717 165,234
Deferred income taxes.................................... -- 86,142 75,712
Senior debt.............................................. 428,000 249,500 249,500
Subordinated notes payable, net of discount.............. 274,506 271,830 271,849
---------- ---------- ----------
922,632 773,650 841,687
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 2 shares issued and
outstanding in 2001 and 2002, respectively, and 2
shares at March 31, 2003............................ 291,910 2 2
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 125,000,000 shares
authorized; 27,726,092 and 39,538,042 shares issued
in 2001 and 2002, respectively, and 39,747,712
shares at March 31, 2003............................ 277 395 397
Additional paid-in capital............................. 191,438 532,675 539,339
Accumulated comprehensive loss......................... (6,319) (3,726) (2,351)
Retained earnings...................................... 269,982 428,621 479,547
Treasury stock, 2,224,179 and 4,599,269 shares at cost
in 2001 and 2002, respectively, and 4,875,269 shares
at March 31, 2003................................... (50,000) (115,565) (129,003)
---------- ---------- ----------
405,378 842,400 887,929
---------- ---------- ----------
$1,619,920 $1,616,052 $1,729,618
========== ========== ==========
</Table>
See accompanying notes to consolidated financial statements.
F-3
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
2000 2001 2002 2002 2003
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Store
Rentals and fees............ $1,459,664 $1,650,851 $1,828,534 $ 443,705 $ 493,419
Installment sales........... -- -- 6,137 -- 6,045
Merchandise sales........... 81,166 94,733 115,478 39,605 52,664
Other....................... 3,018 3,476 2,589 614 715
Franchise
Merchandise sales........... 51,769 53,584 51,514 13,253 12,072
Royalty income and fees..... 5,997 5,884 5,792 1,433 1,491
---------- ---------- ---------- ---------- ----------
1,601,614 1,808,528 2,010,044 498,610 566,406
Operating expenses
Direct store expenses
Depreciation of rental
merchandise............... 299,298 343,197 383,400 92,223 106,660
Cost of installment sales... -- -- 3,776 -- 3,231
Cost of merchandise sold.... 65,332 72,539 84,628 26,982 36,548
Salaries and other
expenses.................. 866,234 1,019,402 1,070,265 262,619 292,496
Franchise cost of merchandise
sold........................ 49,724 51,251 49,185 12,653 11,551
---------- ---------- ---------- ---------- ----------
1,280,588 1,486,389 1,591,254 394,477 450,486
General and administrative
expenses.................... 48,093 55,359 63,296 15,117 16,756
Amortization of intangibles.... 28,303 30,194 5,045 720 2,873
Class action litigation
settlements................. (22,383) 52,000 -- -- --
---------- ---------- ---------- ---------- ----------
Total operating
expenses............. 1,334,601 1,623,942 1,659,595 410,314 470,115
---------- ---------- ---------- ---------- ----------
Operating profit....... 267,013 184,586 350,449 88,296 96,291
Interest expense................. 74,324 60,874 64,682 15,798 13,523
Interest income.................. (1,706) (1,094) (2,676) (723) (771)
---------- ---------- ---------- ---------- ----------
Earnings before income
taxes................ 194,395 124,806 288,443 73,221 83,539
Income tax expense............... 91,368 58,589 116,270 29,658 32,580
---------- ---------- ---------- ---------- ----------
NET EARNINGS........... 103,027 66,217 172,173 43,563 50,959
Preferred dividends.............. 10,420 15,408 10,212 4,992 --
---------- ---------- ---------- ---------- ----------
Net earnings allocable to common
stockholders................... $ 92,607 $ 50,809 $ 161,961 $ 38,571 $ 50,959
========== ========== ========== ========== ==========
Basic earnings per common
share.......................... $ 3.79 $ 1.97 $ 5.51 $ 1.57 $ 1.46
========== ========== ========== ========== ==========
Diluted earnings per common
share.......................... $ 2.96 $ 1.79 $ 4.74 $ 1.20 $ 1.42
========== ========== ========== ========== ==========
</Table>
See accompanying notes to consolidated financial statements.
F-4
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
COMMON STOCK ADDITIONAL ACCUMULATED
--------------- PAID-IN RETAINED TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCK INCOME (LOSS) TOTAL
------ ------ ---------- -------- --------- ------------- --------
(IN THOUSANDS)
Balance at January 1, 2000....................... 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
Net earnings................................... -- -- -- 172,173 -- -- 172,173
Other comprehensive income:
Losses on interest rate swaps, net of tax.... -- -- -- -- -- (6,836) (6,836)
Reclassification adjustment for losses
included in net earnings, net of tax....... -- -- -- -- -- 9,429 9,429
-------- --------
Other comprehensive income................. -- -- -- -- -- 2,593 2,593
-------- --------
Comprehensive income......................... 174,766
Purchase of treasury stock (2,375 shares)...... -- -- -- -- (65,565) -- (65,565)
Preferred dividends............................ -- -- 5,383 (13,534) -- -- (8,151)
Conversion of preferred stock to common (10,782
shares)...................................... 10,782 108 299,951 -- -- -- 300,059
Issuance of stock options for services......... -- -- 112 -- -- -- 112
Exercise of stock options...................... 1,030 10 26,782 -- -- -- 26,792
Tax benefits related to exercise of stock
options...................................... -- -- 9,009 -- -- -- 9,009
------ ---- -------- -------- --------- -------- --------
Balance at December 31, 2002..................... 39,538 395 532,675 428,621 (115,565) (3,726) 842,400
Net Earnings................................... -- -- -- 50,959 -- -- 50,959
Other Comprehensive income:
Gains on interest rate swaps, net of tax..... -- -- -- -- -- 3,986 3,986
Reclassification adjustment for gains
included in net earnings, net of tax....... -- -- -- -- -- (2,611) (2,611)
-------- --------
Other comprehensive income................. -- -- -- -- -- 1,375 1,375
-------- --------
Comprehensive income......................... -- -- -- -- -- -- 52,334
Purchase of treasury stock (276,000 shares).... -- -- -- -- (13,438) -- (13,438)
Issuance of stock options for services......... -- -- 28 -- -- -- 28
Exercise of stock options...................... 210 2 6,161 -- -- -- 6,163
Tax benefits related to exercise of stock
options...................................... -- -- 475 -- -- -- 475
Other.......................................... -- -- -- (33) -- -- (33)
------ ---- -------- -------- --------- -------- --------
Balance at March 31, 2003 (unaudited)............ 39,748 $397 $539,339 $479,547 $(129,003) $ (2,351) $887,929
====== ==== ======== ======== ========= ======== ========
</Table>
See accompanying notes to consolidated financial statements.
F-5
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
2000 2001 2002 2002 2003
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
Cash flows from operating activities
Net earnings............................... $ 103,027 $ 66,217 $ 172,173 $ 43,563 $ 50,959
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation of rental merchandise....... 299,298 343,197 383,400 92,223 106,660
Depreciation of property assets.......... 33,144 37,910 38,359 9,466 10,120
Amortization of intangibles.............. 28,303 30,194 5,045 720 2,873
Amortization of financing fees........... 2,705 2,760 5,944 690 262
Deferred income taxes.................... 77,738 23,856 94,914 12,076 (10,430)
Changes in operating assets and
liabilities, net of effects of
acquisitions
Rental merchandise....................... (342,233) (391,932) (342,954) (93,826) (117,896)
Accounts receivable -- trade............. 629 1,590 (4,258) (1,144) (3,525)
Prepaid expenses and other assets........ (6,624) (1,709) (15,973) (3,435) 15,422
Accounts payable -- trade................ 12,197 (15,766) (6,469) 15,468 35,931
Accrued liabilities and other............ (16,621) 79,413 (35,691) 20,530 34,414
--------- --------- --------- --------- ---------
Net cash provided by operating
activities........................ 191,563 175,730 294,490 96,331 124,790
Cash flows from investing activities
Purchase of property assets................ (37,937) (57,532) (37,596) (8,100) (9,245)
Proceeds from sale of property assets...... 1,403 706 398 374 223
Acquisitions of businesses, net of cash
acquired................................. (42,538) (49,835) (59,504) (3,549) (91,065)
--------- --------- --------- --------- ---------
Net cash used in investing
activities........................ (79,072) (106,661) (96,702) (11,275) (100,087)
--------- --------- --------- --------- ---------
Cash flows from financing activities
Purchase of treasury stock................. -- (25,000) (65,565) (34,724) (13,438)
Proceeds from issuance of common stock, net
of issuance costs........................ -- 45,622 -- -- --
Exercise of stock options.................. 8,434 20,317 26,792 8,974 6,163
Proceeds from debt......................... 242,975 99,506 -- -- --
Repurchase of senior subordinated notes,
net of loss.............................. -- -- (2,750) -- --
Repayments of debt......................... (349,084) (138,051) (178,500) -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities.............. (97,675) 2,394 (220,023) (25,750) (7,275)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. 14,816 71,463 (22,235) 59,306 17,428
Cash and cash equivalents at beginning of
period..................................... 21,679 36,495 107,958 107,958 85,723
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period... $ 36,495 $ 107,958 $ 85,723 $ 167,264 $ 103,151
========= ========= ========= ========= =========
Supplemental cash flow information
Cash paid during the year for:
Interest................................. $ 75,956 $ 56,306 $ 53,307 $ 18,585 $ 20,839
Income taxes............................. $ 9,520 $ 21,526 $ 31,868 2,018 2,569
</Table>
During the years ended December 31, 2000, 2001 and 2002 and the three
months ended March 31, 2002, the Company paid Series A preferred dividends of
approximately $10.3 million, $10.7 million, $8.2 million and $2.8 million by
issuing 10,330, 10,678, 8,151 and 2,764 shares of Series A preferred stock,
respectively. During the three months ended March 31, 2003, the Company paid
Series A preferred dividends of approximately $20.00 in cash.
See accompanying notes to consolidated financial statements.
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
Effective as of December 31, 2002, the Company completed a tax-free
internal reorganization of its corporate structure. The reorganization was
effected through an inversion merger whereby Rent-A-Center, Inc. became a
wholly-owned subsidiary of Rent-A-Center Holdings, Inc., a newly formed Delaware
holding company. Upon the merger, Rent-A-Center, Inc. changed its name to
Rent-A-Center East, Inc. ("Rent-A-Center East") and Rent-A-Center Holdings, Inc.
adopted the name Rent-A-Center, Inc.
At December 31, 2002, the Company operated 2,407 company-owned stores
nationwide and in Puerto Rico, including 23 stores in Wisconsin operated by a
subsidiary, Get It Now, LLC, under the name "Get It Now." These financial
statements include the accounts of Rent-A-Center, Inc. ("Rent-A-Center") and its
direct and indirect wholly-owned subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated.
Rent-A-Center's primary operating segment consists of leasing household durable
goods to customers on a rent-to-own basis. Get It Now offers merchandise on an
installment sales basis in Wisconsin.
ColorTyme, Inc. ("ColorTyme"), an indirect wholly-owned subsidiary of
Rent-A-Center, is a nationwide franchisor of 318 franchised rent-to-own stores
operating in 40 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 for all merchandise 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 6 to 30 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. On July 1, 2002, the Company began
accelerating the depreciation on computers that are 21 months old or older and
which have become idle using the straight-line method for a period of at least
six months. As of December 31, 2002, the Company has recognized an additional
$2.4 million in depreciation expense due to this accelerated method on
computers. The purpose for this change is to better reflect the depreciable life
of a computer and to encourage the sale of older computers. Though this method
will accelerate the depreciation expense on the affected computers, the Company
does not expect it to have a material effect on its financial position, results
of operations or cash flows in future periods.
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.
F-7
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
ColorTyme's revenue from the sale of rental merchandise is recognized upon
shipment of the merchandise to the franchisee.
Get It Now's revenue from the sale of merchandise through an installment
credit sale is recognized at the time of the sale, as is the cost of the
merchandise sold, net of a provision for uncollectable accounts.
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
The Company adopted SFAS 142, "Goodwill and Other Intangible Assets,"
effective January 1, 2002 and has identified one reporting unit. In accordance
with SFAS 142, the Company discontinued recording goodwill amortization
effective January 1, 2002. Non-compete agreements, franchise network and
customer relationships are amortized over two to five years, ten years and 18 to
24 months, respectively.
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.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company's objective in managing its exposure to fluctuations in
interest rates is to decrease the volatility of earnings and cash flows
associated with changes in the applicable rates. To achieve this objective, the
Company has entered into interest-rate swap agreements. The interest-rate swaps
are derivative instruments related to forecasted transactions and are considered
to hedge future cash flows. The effective portion of any gains or losses are
included in accumulated other comprehensive income (loss) until earnings are
affected by the variability of cash flows. Any ineffective portion is recognized
currently into earnings. The cash flows of the interest-rate swaps are expected
to be effective in achieving offsetting cash flows attributable to fluctuations
in the cash flows of the floating-rate senior credit facility. If it becomes
probable a forecasted transaction will no longer occur, the interest-rate swap
will continue to be carried on the balance sheet at fair value, and gains or
losses that were deferred in accumulated other comprehensive income (loss) will
be recognized immediately into earnings. If the interest-rate swaps are
F-8
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
terminated prior to their expiration dates, any cumulative gains and losses will
be deferred and recognized into earnings over the remaining life of the
underlying exposure. If the hedged liabilities are to be sold or extinguished,
the Company will recognize the gain or loss on the designated financial
instruments currently into earnings.
Changes in the fair value of the effective cash flow hedges are recorded in
accumulated other comprehensive income (loss). The effective portion that has
been deferred in accumulated other comprehensive income (loss) will be
reclassified to earnings when the hedged items impact earnings.
The Company's 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.
The interest-rate swaps were and are based on the same index as their
respective underlying debt. The interest-rate swaps have been effective in
achieving offsetting cash flows attributable to the fluctuations in the cash
flows of the hedged risk, and no amount has been required to be reclassified
from accumulated other comprehensive income (loss) into earnings for hedge
ineffectiveness during the years ended December 31, 2001 and 2002. The
interest-rate swap resulted in an increase of interest expense of $3.9 million
and $9.4 million for the years ended December 31, 2001 and 2002, respectively.
The fair value of the interest-rate swaps decreased by $6.3 million, net of tax,
during the year ended December 31, 2001, and increased by $2.6 million, net of
tax, during the year ended December 31, 2002, which have been recorded in
accumulated other comprehensive income. The estimated net amount of existing
loss expected to be reclassified into earnings during 2003 is approximately $3.7
million. During the year ended December 31, 2002, the amount of cash flow loss
reclassified to earnings because it became probable that the original forecasted
transaction would not occur was not material.
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 $61.2 million, $69.1 million, and $62.7
million in 2000, 2001 and 2002, respectively.
STOCK-BASED COMPENSATION
The Company has in place a long-term incentive plan for the benefit of
certain key employees, consultants and directors, which is described more fully
in Note K. The Company accounts for this plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net earnings, as all options granted under those plans had
an exercise price equal to the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on net earnings
F-9
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation.
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------
2000 2001 2002 2002 2003
------- ------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net earnings allocable to common
stockholders
As reported.......................... $92,607 $50,809 $161,961 $38,571 $50,959
Deduct: Total stock-based employee
compensation under fair value
based method for all awards, net
of related tax expense.......... 10,272 7,380 11,290 2,823 3,704
------- ------- -------- ------- -------
Pro forma............................ $82,335 $43,429 $150,671 $35,748 $47,255
======= ======= ======== ======= =======
Basic earnings per common share
As reported........................ $ 3.79 $ 1.97 $ 5.51 $ 1.57 $ 1.46
Pro forma.......................... $ 3.37 $ 1.68 $ 5.13 $ 1.46 $ 1.35
Diluted earnings per common share
As reported........................ $ 2.96 $ 1.79 $ 4.74 $ 1.20 $ 1.42
Pro forma.......................... $ 2.67 $ 1.59 $ 4.43 $ 1.12 $ 1.32
</Table>
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 55.2% to 57.3%; risk-free interest rates of
6.5%, 4.2% to 5.3% and 3.5% to 5.5% for the years ended December 31, 2000, 2001,
and 2002, respectively and 5.1% and 3.7% in March 31, 2002 and 2003,
respectively; no dividend yield; and expected lives of seven years.
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
swap agreements, net of tax.
NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Costs Associated with Exit or Disposal Activities. In June
2002, the FASB issued Statement 146, Accounting for Costs Associated with Exit
or Disposal Activities. This statement requires entities to recognize costs
associated with exit or disposal activities when liabilities are incurred rather
than when the entity commits to an exit or disposal plan, as currently required.
Examples of costs covered by
F-10
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this guidance include one-time employee termination benefits, costs to terminate
contracts other than capital leases, costs to consolidate facilities or relocate
employees, and certain other exit or disposal activities. This statement is
effective for fiscal years beginning after December 31, 2002, and will impact
any exit or disposal activities the Company initiates after that date.
Stock-Based Employee Compensation. In December 2002, the FASB issued
Statement 148 (SFAS 148), Accounting for Stock-Based Compensation -- Transition
and Disclosure: an amendment of FASB Statement 123 (SFAS 123), to provide
alternative transition methods for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in annual financial statements about the method of accounting for
stock-based employee compensation and the pro forma effect on reported results
of applying the fair value based method for entities that use the intrinsic
value method of accounting. The pro forma effect disclosures are also required
to be prominently disclosed in interim period financial statements. This
statement is effective for financial statements for fiscal years ending after
December 15, 2002 and is effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002, with
earlier application permitted. The Company does not plan to change to the fair
value based method of accounting for stock-based employee compensation at this
time and have included the disclosure requirements of SFAS 148 in these
financial statements.
Accounting for Guarantees. In November 2002, the FASB issued FASB
Interpretation 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).
FIN 45 requires a guarantor entity, at the inception of a guarantee covered by
the measurement provisions of the interpretation, to record a liability for the
fair value of the obligation undertaken in issuing the guarantee. The Company
previously did not record a liability when guaranteeing obligations unless it
became probable that the Company would have to perform under the guarantee. FIN
45 applies prospectively to guarantees the Company issues or modifies subsequent
to December 31, 2002, but has certain disclosure requirements effective for
interim and annual periods ending after December 15, 2002. The Company has
historically issued guarantees related to ColorTyme franchisees and other
limited purposes and does not anticipate FIN 45 will have a material effect on
its 2003 financial statements. Disclosures required by FIN 45 are included in
these financial statements.
Consolidation of Variable Interest Entities. In January 2003, the FASB
issued FASB Interpretation 46 (FIN 46), Consolidation of Variable Interest
Entities. FIN 46 clarifies the application of Accounting Research Bulletin 51,
Consolidated Financial Statements, for certain entities that do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties or in which equity
investors do not have the characteristics of a controlling financial interest
("variable interest entities"). Variable interest entities within the scope of
FIN 46 will be required to be consolidated by their primary beneficiary. The
primary beneficiary of a variable interest entity is determined to be the party
that absorbs a majority of the entity's expected losses, receives a majority of
its expected returns, or both. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The Company is in the process of determining
what impact, if any, the adoption of the provisions of FIN 46 will have upon its
financial condition or results of operations.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim consolidated financial
statements as of March 31, 2003 and for the three months ended March 31, 2002
and 2003, include all adjustments,
F-11
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's consolidated financial position as of March 31, 2003 and
the results of their consolidated operations and cash flows for the three month
periods ended March 31, 2002 and 2003. The results of operations for the three
months ended March 31, 2003 and not necessarily indicative of the results to be
expected for the full year.
NOTE B -- RENTAL MERCHANDISE
<Table>
<Caption>
2001 2002
-------- --------
(IN THOUSANDS)
On rent
Cost...................................................... $885,015 $906,305
Less accumulated depreciation............................. 353,388 396,121
-------- --------
$531,627 $510,184
======== ========
Held for rent
Cost...................................................... $156,013 $161,316
Less accumulated depreciation............................. 33,939 39,776
-------- --------
$122,074 $121,540
======== ========
</Table>
RECONCILIATION OF RENTAL MERCHANDISE
<Table>
<Caption>
2000 2001 2002
--------- --------- ---------
Beginning merchandise value....................... $ 531,223 $ 587,232 $ 653,701
Inventory additions through acquisitions.......... 13,074 17,734 18,469
Purchases......................................... 462,126 526,909 494,903
Depreciation of rental merchandise................ (299,298) (343,197) (383,400)
Cost of goods sold................................ (65,332) (72,539) (88,404)
Skip stolens...................................... (38,219) (44,293) (48,110)
Other inventory deletions(1)...................... (16,342) (18,145) (15,435)
--------- --------- ---------
Ending merchandise value.......................... $ 587,232 $ 653,701 $ 631,724
========= ========= =========
</Table>
- ---------------
(1) Other inventory deletions includes LDW claims and unrepairable and missing
merchandise, as well as acquisition write-offs.
NOTE C -- PROPERTY ASSETS
<Table>
<Caption>
DECEMBER 31,
-------------------
2001 2002
-------- --------
(IN THOUSANDS)
Furniture and equipment..................................... $ 94,689 $113,579
Transportation equipment.................................... 27,384 24,972
Building and leasehold improvements......................... 85,699 99,025
Construction in progress.................................... 6,083 1,013
-------- --------
213,855 238,589
Less accumulated depreciation............................... 106,972 132,640
-------- --------
$106,883 $105,949
======== ========
</Table>
F-12
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- INTANGIBLE ASSETS AND ACQUISITIONS
Intangibles consist of the following (in thousands):
<Table>
<Caption>
DECEMBER 31, 2001 DECEMBER 31, 2002 MARCH 31, 2003
----------------------- ----------------------- -----------------------
AVG. GROSS GROSS GROSS
LIFE CARRYING ACCUMULATED CARRYING ACCUMULATED CARRYING ACCUMULATED
(YEARS) AMOUNT AMORTIZATION AMOUNT AMORTIZATION AMOUNT AMORTIZATION
------- -------- ------------ -------- ------------ -------- ------------
(UNAUDITED)
Amortizable intangible
assets
Franchise network... 10 $ 3,000 $ 1,650 $ 3,000 $ 1,950 $ 3,000 $ 2,025
Non-compete
agreements........ 5 1,677 1,405 1,510 1,444 6,010 1,670
Customer
relationships..... 1.5 3,994 1,882 12,706 6,365 20,694 8,938
Intangible assets not
subject to
amortization
Goodwill............ 806,524 99,162 835,557 99,162 871,055 99,162
-------- -------- -------- -------- -------- --------
Total intangibles..... $815,195 $104,099 $852,773 $108,921 $900,759 $111,795
======== ======== ======== ======== ======== ========
</Table>
<Table>
Aggregate Amortization Expense
Year ended December 31, 2001.............................. $30,194
Year ended December 31, 2002.............................. $ 5,045
Three months ended March 31, 2003......................... $ 2,873
</Table>
SUPPLEMENTAL INFORMATION REGARDING INTANGIBLE ASSETS AND AMORTIZATION.
Estimated amortization expense, assuming current intangible balances and no
new acquisitions, for each of the years ending December 31 is as follows:
<Table>
<Caption>
ESTIMATED
AMORTIZATION EXPENSE
--------------------
(IN THOUSANDS)
2003........................................................ $ 9,201
2004........................................................ 5,074
2005........................................................ 1,427
2006........................................................ 1,275
2007........................................................ 94
-------
Total....................................................... $17,071
=======
</Table>
Changes in the carrying amount of goodwill for the year ended December 31,
2002, and for the three months ended March 31, 2003 are as follows (in
thousands):
<Table>
Balance as of January 1, 2002............................... $707,362
Additions from acquisitions............................... 31,278
Tax benefit not recorded from previous acquisition........ (6,125)
Post purchase price allocation adjustments................ 3,880
--------
Balance as of January 1, 2003............................... 736,395
Additions from acquisitions............................... 35,498
--------
Balance as of March 31, 2003 (unaudited).................... $771,893
========
</Table>
There were no impairment losses to goodwill for the year ended December 31,
2002.
F-13
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In contrast to accounting standards in effect during 2000 and 2001, SFAS
142, Goodwill and Other Intangible Assets, which became effective beginning in
2002, provides that goodwill should not be amortized. Accordingly, with the
adoption of SFAS 142 in 2002, the Company discontinued the amortization of
goodwill. The information presented below reflects adjustments to information
reported in 2000 and 2001 as if SFAS 142 had been applied in those years.
Net earnings and earnings per common share, excluding the after tax effect
of amortization expense related to goodwill, for the years ending December 31,
2000, 2001 and 2002 are as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 2001 2002
----------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Reported net earnings................................. $103,027 $66,217 $172,173
Goodwill amortization, net of tax..................... 24,323 24,892 --
-------- ------- --------
Adjusted net earnings................................. $127,350 $91,109 $172,173
======== ======= ========
BASIC EARNINGS PER COMMON SHARE:
Reported earnings per share........................... $ 3.79 $ 1.97 $ 5.51
Add back: Goodwill amortization, net of tax........... 1.00 .97 --
-------- ------- --------
Adjusted earnings per share........................... $ 4.79 $ 2.94 $ 5.51
======== ======= ========
DILUTED EARNINGS PER COMMON SHARE:
Reported earnings per share........................... $ 2.96 $ 1.79 $ 4.74
Add back: Goodwill amortization, net of tax........... .70 .67 --
-------- ------- --------
Adjusted earnings per share........................... $ 3.66 $ 2.46 $ 4.74
======== ======= ========
</Table>
ACQUISITIONS
The following table provides information concerning the acquisitions made
during the years ended December 31, 2000, 2001 and 2002:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------
2000 2001 2002
-------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
Number of stores acquired............................... 74 95 83
Number of locations accounts were acquired from......... 73 90 126
Number of transactions.................................. 35 52 53
Total purchase price.................................... $42,538 $49,835 $59,504
Amounts allocated to:
Goodwill.............................................. $27,507 $29,845 $31,278
Non-compete agreements................................ -- -- 10
Customer relationships................................ 1,745 2,150 8,783
Property assets....................................... 183 46 946
Rental merchandise.................................... 13,074 17,734 18,469
Other assets.......................................... 29 60 18
</Table>
Acquisitions during 2002 were not significant, individually or in the
aggregate, to the Company's consolidated financial position or statement of
operations as of December 31, 2002 and for the year then
F-14
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended. 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.
NOTE E -- SENIOR CREDIT FACILITY
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:
<Table>
<Caption>
DECEMBER 31, 2001 DECEMBER 31, 2002
---------------------------------- ----------------------------------
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 $ -- $ 72,404 $ 72,404 $ --
Term Loan "C"........... 2007 192,754 192,754 -- 128,753 128,753 --
Term Loan "D"........... 2007 86,396 86,396 -- 48,343 48,343 --
Tranche D LC(1)......... 2007 -- -- -- 80,000 -- --
Revolver(2)............. 2004 120,000 -- 56,425 120,000 -- 114,300
-------- -------- ------- -------- -------- --------
548,000 428,000 56,425 449,500 249,500 114,300
======== ======== ======= ======== ======== ========
Other Indebtedness:
Line of credit.......... 10,000 -- 10,000 10,000 -- 10,000
-------- -------- ------- -------- -------- --------
Total Debt Facilities..... $558,000 $428,000 $66,425 $459,500 $249,500 $124,300
======== ======== ======= ======== ======== ========
</Table>
- ---------------
(1) On May 3, 2002, the Company amended the Facility to provide for a new
Tranche D LC Facility in an aggregate amount at closing equal to $80.0
million to support its outstanding letters of credit. Under this new Tranche
D LC Facility, in the event that a letter of credit is drawn upon, the
Company has the right to either repay the Tranche D LC lenders the amount
withdrawn or request a loan in that amount. Interest on any requested
Tranche D LC loan accrues at an adjusted prime rate plus 1.75% or, at the
Company's option, at the Eurodollar Rate plus 2.80%, with the entire amount
of the Tranche D LC Facility due on December 31, 2007.
(2) At December 31, 2001 and 2002, the amounts available under the Company's
revolving facility were reduced by approximately $63.6 million and $5.7
million, respectively, for outstanding letters of credit used to support the
Company's insurance obligations. The Company provides assurance to its
insurance providers that if they are not be able to draw funds from the
Company for claims paid, they have the ability to draw against the Company's
letters of credit. At that time, the Company would then owe the drawn amount
to the financial institution providing the letter of credit. One of the
Company's letters of credit is renewed automatically every year unless the
Company notifies the institution not to renew. The other letter of credit
expires in August 2003, but is automatically renewed each year for a one
year period unless the institution notifies the Company no later than thirty
days prior to the applicable expiration date that such institution does not
elect to renew the letter of credit for such additional one year period.
Borrowings under the Facility bear interest at varying rates equal to 0.50%
to 2.00% over the designated prime rate (4.25% per annum at December 31, 2002)
or 1.50% to 3.0% over LIBOR (1.38% at December 31, 2002) at the Company's
option, and are subject to quarterly adjustments based on certain leverage
ratios. For the year ended December 31, 2002, the average effective rate on
outstanding borrowings under the senior credit facilities was 4.94%, before
considering the interest rate swap agreements as described below, and 7.77%,
after giving effect to the interest rate swap agreements in effect during 2002.
A commitment fee equal to 0.25% to 0.50% of the unused portion of the revolving
credit facility is payable quarterly.
F-15
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 and parent corporation. In addition, the Facility
contains several financial covenants as defined therein, including a maximum
consolidated leverage ratio, a minimum consolidated interest coverage ratio, and
a minimum consolidated 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, 2002:
<Table>
<Caption>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
- ------------------------ --------------
2003........................................................ $ 1,063
2004........................................................ 13,040
2005........................................................ 49,093
2006........................................................ 114,111
2007........................................................ 72,193
--------
$249,500
========
</Table>
To reduce its risk of greater interest expense because of floating-rate
interest obligations under the Facility, the Company entered into three
interest-rate swap agreements. One expired in 2001. The two remaining, with an
aggregate notional amount of $250 million, expire in August ($140.0 million) and
September ($110.0 million) of 2003. Those agreements effectively converted a
portion of the Company's floating-rate interest obligations to fixed-rate
interest obligations. The fixed Eurodollar Rate applicable to the $250 notional
amount was 5.60% at December 31, 2001 and 2002. The interest-rate swaps had
negative a fair value of $3.7 million, net of tax, at December 31, 2002.
NOTE F -- SUBORDINATED NOTES PAYABLE
Rent-A-Center East had $271.8 million, net of discount, 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 (the
"Parent") and certain of Rent-A-Center East's direct and wholly-owned
subsidiaries, consisting of ColorTyme, Rent-A-Center West, Inc., Get It Now,
Rent-A-Center Texas, L.L.C. and Rent-A-Center Texas, L.P. (collectively, the
"Subsidiary Guarantors" and, together with the Parent, the "Guarantors"). The
notes are redeemable at Rent-A-Center East'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
East 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 the Subsidiary Guarantors, granting liens to
third parties, making restricted payments and engaging in a merger or selling
substantially all of Rent-A-Center East's assets.
The Parent and the Subsidiary Guarantors have fully, jointly and severally,
and unconditionally guaranteed the obligations of Rent-A-Center East with
respect to these notes. The only direct or indirect subsidiaries of the Parent
that are not Guarantors are minor subsidiaries. There are no restrictions on the
ability of any of the Guarantors to transfer funds to Rent-A-Center East in the
form of loans, advances or dividends, except as provided by applicable law.
F-16
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Set forth below is certain condensed consolidating financial information as
of December 31, 2001 and 2002 and March 31, 2003, and for each of the three
years in the period ended December 31, 2002 and for the three months ended March
31, 2002 and 2003. The financial information includes the Subsidiary Guarantors
from the dates they were acquired or formed by Rent-A-Center and Rent-A-Center
East and is presented using the push-down basis of accounting.
CONDENSED CONSOLIDATING BALANCE SHEETS
<Table>
<Caption>
PARENT RENT-A-CENTER SUBSIDIARY CONSOLIDATING
COMPANY EAST GUARANTORS ADJUSTMENTS TOTALS
---------- ------------- ----------- ------------- ----------
(IN THOUSANDS)
DECEMBER 31, 2001
Merchandise inventory, 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, 2002
Merchandise inventory, net...... $ -- $ 630,256 $ 1,468 $ -- $ 631,724
Intangible assets, net.......... -- 400,327 343,525 -- 743,852
Other assets.................... 417,507 121,758 42,953 (341,742) 240,476
---------- ---------- -------- --------- ----------
Total assets.......... $ 417,507 $1,152,341 $387,946 $(341,742) $1,616,052
========== ========== ======== ========= ==========
Senior Debt..................... $ -- $ 249,500 $ -- $ -- $ 249,500
Other liabilities............... -- 495,511 28,639 -- 524,150
Preferred stock................. 2 -- -- -- 2
Stockholder's equity............ 417,505 407,330 359,307 (341,742) 842,400
---------- ---------- -------- --------- ----------
Total liabilities and
equity.............. $ 417,507 $1,152,341 $387,946 $(341,742) $1,616,052
========== ========== ======== ========= ==========
MARCH 31, 2003 (UNAUDITED)
Merchandise inventory, net...... $ -- $ 503,387 $189,937 $ -- $ 693,324
Intangible assets, net.......... -- 355,221 433,743 -- 788,964
Other assets.................... 423,825 127,871 37,376 (341,742) 247,330
---------- ---------- -------- --------- ----------
Total assets.......... $ 423,825 $ 986,479 $661,056 $(341,742) $1,729,618
========== ========== ======== ========= ==========
Senior debt..................... $ -- $ 249,500 $ -- $ -- $ 249,500
Other liabilities............... -- 386,920 205,267 -- 592,187
Preferred stock................. 2 -- -- -- 2
Stockholders' equity............ 423,823 350,059 455,789 (341,742) 887,929
---------- ---------- -------- --------- ----------
Total liabilities and
equity.............. $ 423,825 $ 986,479 $661,056 $(341,742) $1,729,618
========== ========== ======== ========= ==========
</Table>
F-17
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
<Table>
<Caption>
PARENT RENT-A-CENTER SUBSIDIARY
COMPANY EAST GUARANTORS TOTAL
---------- ------------- ---------- ----------
(IN THOUSANDS)
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, 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, 2002
Total revenues................................. $ -- $1,946,601 $ 63,443 $2,010,044
Direct store expenses.......................... -- 1,538,293 3,776 1,542,069
Other.......................................... -- 238,288 57,514 295,802
---------- ---------- -------- ----------
Net earnings................................... $ -- $ 170,020 $ 2,153 $ 172,173
========== ========== ======== ==========
THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
Total revenues................................. $ 483,924 $ -- $ 14,686 $ 498,610
Direct store expenses.......................... 381,824 -- -- 381,824
Other expenses................................. 60,570 -- 12,653 73,223
---------- ---------- -------- ----------
Net earnings................................... $ 41,530 $ -- $ 2,033 $ 43,563
========== ========== ======== ==========
THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
Total revenues................................. $ -- $ 400,263 $166,143 $ 566,406
Direct store expenses.......................... -- 297,466 141,469 438,935
Other expenses................................. -- 50,274 26,238 76,512
---------- ---------- -------- ----------
Net earnings (loss)............................ $ -- $ 52,523 $ (1,564) $ 50,959
========== ========== ======== ==========
</Table>
F-18
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<Table>
<Caption>
PARENT RENT-A-CENTER SUBSIDIARY
COMPANY EAST GUARANTORS TOTAL
--------- ------------- ---------- ---------
(IN THOUSANDS)
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.................. (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)
Exercise of stock options................... 8,434 -- -- 8,434
Intercompany advances....................... 5,750 -- (5,750) --
--------- --------- -------- ---------
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, 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.................. (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
========= ========= ======== =========
</Table>
F-19
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
PARENT RENT-A-CENTER SUBSIDIARY
COMPANY EAST GUARANTORS TOTAL
--------- ------------- ---------- ---------
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2002
Net cash provided by operating activities..... $ -- $ 288,843 $ 5,647 $ 294,490
--------- --------- -------- ---------
Cash flows from investing activities
Purchase of property assets................. -- (36,895) (701) (37,596)
Acquisitions of businesses.................. -- (59,504) -- (59,504)
Other....................................... -- 398 -- 398
--------- --------- -------- ---------
Net cash used in investing activities......... -- (96,001) (701) (96,702)
Cash flows from financing activities
Purchase of treasury stock.................. -- (65,565) -- (65,565)
Exercise of stock options................... -- 26,792 -- 26,792
Repayments of debt.......................... -- (178,500) -- (178,500)
Repurchase of senior subordinated notes, net
of loss.................................. -- (2,750) -- (2,750)
Intercompany advances....................... -- 4,946 (4,946) --
--------- --------- -------- ---------
Net cash used in financing activities......... -- (215,077) (4,946) (220,023)
--------- --------- -------- ---------
Net decrease in cash and cash equivalents..... -- (22,235) -- (22,235)
Cash and cash equivalents at beginning of
year........................................ -- 107,958 -- 107,958
--------- --------- -------- ---------
Cash and cash equivalents at end of year...... $ -- $ 85,723 $ -- $ 85,723
========= ========= ======== =========
THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
Net cash provided by operating activities..... $ 96,052 $ -- $ 279 $ 96,331
--------- --------- -------- ---------
Cash flows from investing activities
Purchase of property assets................. (8,811) -- 711 (8,100)
Acquisitions of businesses, net of cash
acquired................................. (3,549) -- -- (3,549)
Other....................................... 374 -- -- 374
--------- --------- -------- ---------
Net cash provided by (used in) investing
activities.................................. (11,986) -- 711 (11,275)
Cash flows from financing activities
Purchase of treasury stock.................. (34,724) -- -- (34,724)
Exercise of stock options................... 8,974 -- -- 8,974
Intercompany advances....................... 990 -- (990) --
--------- --------- -------- ---------
Net cash used in financing activities......... (24,760) -- (990) (25,750)
--------- --------- -------- ---------
Net increase in cash and cash equivalents..... 59,306 -- -- 59,306
--------- --------- -------- ---------
Cash and cash equivalents at beginning of
period...................................... 107,958 -- -- 107,958
--------- --------- -------- ---------
Cash and cash equivalents at end of period.... $ 167,264 $ -- $ -- $ 167,264
========= ========= ======== =========
</Table>
F-20
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
PARENT RENT-A-CENTER SUBSIDIARY
COMPANY EAST GUARANTORS TOTAL
--------- ------------- ---------- ---------
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
Net cash provided by operating activities..... $ -- $ 89,864 $ 34,926 $ 124,790
--------- --------- -------- ---------
Cash flows from investing activities
Purchase of property assets................. -- (6,730) (2,515) (9,245)
Acquisitions of businesses, net of cash
acquired................................. -- (60,504) (30,561) (91,065)
Other....................................... -- 163 60 223
--------- --------- -------- ---------
Net cash used in investing activities......... -- (67,071) (33,016) (100,087)
Cash flows from financing activities
Purchase of treasury stock.................. (13,438) -- -- (13,438)
Exercise of stock options................... 6,163 -- -- 6,163
Intercompany advances....................... 7,275 (5,365) (1,910) --
--------- --------- -------- ---------
Net cash used in financing activities......... -- (5,365) (1,910) (7,275)
--------- --------- -------- ---------
Net increase in cash and cash equivalents..... -- 17,428 -- 17,428
--------- --------- -------- ---------
Cash and cash equivalents at beginning of
period...................................... -- 85,723 -- 85,723
--------- --------- -------- ---------
Cash and cash equivalents at end of period.... $ -- $ 103,151 $ -- $ 103,151
========= ========= ======== =========
</Table>
NOTE G -- ACCRUED LIABILITIES
<Table>
<Caption>
DECEMBER 31,
-------------------
2001 2002
-------- --------
(IN THOUSANDS)
Taxes other than income..................................... $ 19,071 $ 22,719
Income taxes payable........................................ 7,081 --
Accrued litigation costs.................................... 59,044 1,667
Accrued insurance costs..................................... 36,634 49,883
Accrued interest payable.................................... 10,618 13,684
Accrued compensation and other.............................. 37,748 34,764
-------- --------
$170,196 $122,717
======== ========
</Table>
Included in the $59.0 million of accrued litigation cost in 2001 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
In connection with the issuance of Rent-A-Center's Series A preferred stock
in August 1998, Rent-A-Center entered into a registration rights agreement with
affiliates of Apollo Management IV, L.P. ("Apollo") which, among other things,
granted them two rights to request that their shares be registered, and a
registration rights agreement with an affiliate of Bear Stearns, which granted
them the right to participate in any company-initiated registration of shares,
subject to certain exceptions. In May 2002, Apollo exercised one of their two
rights to request that their shares be registered and an affiliate of Bear
Stearns elected to participate in such registration. In connection therewith,
Apollo and the affiliate of Bear Stearns converted 97,197 shares of
Rent-A-Center's Series A preferred stock held by them into
F-21
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3,500,000 shares of Rent-A-Center's common stock, which they sold in the May
2002 public offering that was the subject of Apollo's request. Rent-A-Center did
not receive any of the proceeds from this offering.
On August 5, 2002, the first date on which Rent-A-Center had the right to
optionally redeem the shares of Series A preferred stock, the holders of
Rent-A-Center's Series A preferred stock converted all but two shares of
Rent-A-Center's Series A preferred stock held by them into 7,281,548 shares of
Rent-A-Center's common stock. As a result, the dividend on Rent-A-Center's
Series A preferred stock has been substantially eliminated for future periods.
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. Rent-A-Center accounts 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. During
2001 and 2002, Rent-A-Center paid approximately $10.7 million and $8.2 million
in Series A preferred dividends by issuing 10,678 and 8,151 shares of Series A
preferred stock, respectively. At December 31, 2001 and 2002, Rent-A-Center had
292,434 and two shares, respectively, of its Series A preferred stock
outstanding.
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:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------
2000 2001 2002
------ ------ ------
Tax at statutory rate....................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.................. 5.5% 5.7% 4.6%
Effect of foreign operations, net of foreign tax credits.... 0.2% 0.8% 0.1%
Goodwill amortization....................................... 5.0% 5.8% 0.0%
Other, net.................................................. 1.3% (0.4%) 0.4%
----- ----- -----
Total....................................................... 47.0% 46.9% 40.1%
===== ===== =====
</Table>
F-22
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the income tax provision are as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------
2000 2001 2002
------- ------- --------
(IN THOUSANDS)
Current expense
Federal.............................................. $ 6,099 $24,073 $ 11,211
State................................................ 5,637 8,795 9,625
Foreign.............................................. 1,894 1,865 1,855
------- ------- --------
Total current..................................... 13,630 34,733 22,691
------- ------- --------
Deferred expense
Federal.............................................. 68,406 22,400 84,368
State................................................ 9,332 1,456 9,211
------- ------- --------
Total deferred.................................... 77,738 23,856 93,579
------- ------- --------
Total............................................. $91,368 $58,589 $116,270
======= ======= ========
</Table>
Deferred tax assets and liabilities consist of the following:
<Table>
<Caption>
DECEMBER 31,
--------------------
2001 2002
-------- ---------
(IN THOUSANDS)
Deferred tax assets
State net operating loss carryforwards.................... $ 2,656 $ 1,698
Accrued expenses.......................................... 49,187 --
Intangible assets......................................... 17,561 11,115
Property assets........................................... 23,393 22,791
Other tax credit carryforwards............................ 5,862 --
Unrealized loss on interest rate swap agreements.......... 3,872 2,537
-------- ---------
102,531 38,141
Deferred tax liabilities
Rental merchandise........................................ (93,759) (70,085)
Accrued expenses.......................................... -- (54,198)
-------- ---------
(93,759) (124,283)
-------- ---------
Net deferred taxes..................................... $ 8,772 $ (86,142)
======== =========
</Table>
The Company has no alternative minimum tax credit carryforwards, but does
have various state net operating loss carryforwards.
F-23
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- COMMITMENTS AND CONTINGENCIES
The Company leases its office and store facilities and most delivery
vehicles. Rental expense was $105.6 million, $127.6 million and $138.0 million
for 2000, 2001, and 2002, respectively. Future minimum rental payments under
operating leases with remaining noncancelable lease terms in excess of one year
at December 31, 2002 are as follows:
<Table>
<Caption>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
- ------------ --------------
2003........................................................ $128,535
2004........................................................ 103,501
2005........................................................ 77,545
2006........................................................ 43,518
2007........................................................ 16,502
Thereafter.................................................. 3,459
--------
$373,060
========
</Table>
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 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.
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, as well as Sections 11, 12(a)(2) and 5 of the
Securities Act of 1933 as a result of alleged misrepresentations and omissions
in connection with an offering in May 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.
Gregory Griffin, et. al. v. Rent-A-Center, Inc. On June 25, 2002, a suit
originally filed by Gregory Griffin in state court in Philadelphia, Pennsylvania
was amended to seek relief both individually and on behalf of a class of
customers in Pennsylvania, alleging that the Company violated the Pennsylvania
Goods and Services Installment Sales Act and the Pennsylvania Unfair Trade
Practices and Consumer Protection Law. The amended complaint asserts that the
Company's rental purchase transactions are, in fact, retail installment sales
transactions, and as such, are not governed by the Pennsylvania Rental-Purchase
Agreement Act, which was enacted after the adoption of the Pennsylvania Goods
and Services Installment Sales Act and the Pennsylvania Unfair Trade Practices
Act. Griffin's suit seeks class-wide remedies, including injunctive relief,
unspecified statutory, actual and treble damages, as well as attorney's fees and
costs. The Company intends to vigorously defend itself in this case. However,
the Company cannot assure you that it will be found to have no liability in this
matter.
F-24
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
State Wage and Hour Class Actions. On August 20, 2001, a putative class
action was filed against the Company in state court in Multnomah County, Oregon
entitled Rob Pucci, et. al. v. Rent-A-Center, Inc. alleging violations of Oregon
state law regarding overtime, lunch and work breaks and failure to timely pay
all wages due to Company employees in Oregon. The Company is subject to a
similar suit pending in Clark County, Washington entitled Kevin Rose, et al. v.
Rent-A-Center, Inc., et al. and two similar suits pending in Los Angeles,
California entitled Jeremy Burdusis, et al. v. Rent-A-Center, Inc., et al. and
Israel French, et al. v. Rent-A-Center, Inc., each of which allege similar
violations of the wage and hour laws of those respective states. The Company
intends to vigorously defend itself in these matters. However, given the early
stage of these proceedings, there can be no assurance that the Company 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.
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. On November 12,
2002, Rent-A-Center and ColorTyme signed a settlement agreement for this suit
with the Attorney General, which was approved by the court on the same day.
Under the terms of the settlement, Rent-A-Center created a restitution fund in
the amount of $7.0 million and paid $1.4 million to the state of Wisconsin for
fines, penalties, costs and fees.
Gender Discrimination Actions. In June 2002, the Company agreed to settle
the Wilfong and Tennessee EEOC gender discrimination matters for an aggregate of
$47.0 million, including attorneys fees. The settlement contemplated dismissal
of the Bunch proceeding, a similar suit for gender discrimination pending in a
separate federal district court, and provided for a separate $2.0 million
dispute resolution fund for the Bunch plaintiffs, which was subsequently
approved by the Bunch court. On October 4, 2002, the court in the Wilfong matter
approved the settlement the Company had reached with the Wilfong plaintiffs and
entered a final judgment. The Company funded the settlement as provided for in
the settlement agreement in December 2002. As contemplated by the Wilfong
settlement, the Tennessee EEOC action was dismissed in December 2002, and the
Bunch matter will be dismissed in the near future.
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 Textron Financial Corporation,
who provides $40.0 million in financing to qualifying franchisees of ColorTyme
of up to five times their average monthly revenues. Under this on going
agreement, upon an event of default by the franchisee under agreements governing
this financing and upon the occurrence of certain other 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. An additional $10.0 million
of financing is provided by Texas Capital Bank, National Association under an
agreement similar to the Textron financing. Rent-A-Center guarantees the
obligations of ColorTyme under these agreements, excluding the effects of any
amounts that could be recovered under collateralization provisions, up to a
maximum amount of $50.0 million, of which $33.8 million was outstanding as of
December 31, 2002. Mark E. Speese, Rent-A-Center's Chairman of the Board and
Chief Executive Officer, is a passive investor in Texas Capital Bank, owning
less than 1% of its outstanding equity.
F-25
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 2002, there were 1,565,189 shares
available for issuance under the Plan. However, pursuant to the terms of the
Plan, when an optionee leaves the Company's employ, unvested options granted to
that employee terminate and become available for re-issuance under the Plan.
Vested options not exercised within 90 days from the date the optionee leaves
the Company's employ terminate and become available for re-issuance under the
Plan.
Information with respect to stock option activity is as follows:
<Table>
<Caption>
2000 2001 2002
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
Outstanding at beginning of
year............................ 3,590,038 $23.57 3,790,275 $24.32 3,957,940 $28.43
Granted........................... 1,782,500 24.40 2,219,000 33.83 1,393,375 47.43
Exercised......................... (427,700) 21.34 (852,309) 23.10 (1,029,864) 25.96
Forfeited......................... (1,154,563) 23.60 (1,199,026) 29.20 (870,375) 34.44
---------- ---------- ----------
Outstanding at end of year........ 3,790,275 $24.32 3,957,940 $28.43 3,451,076 $35.32
========== ========== ==========
Options exercisable at end of
year............................ 1,097,961 $23.04 954,812 $24.14 852,763 $27.13
========== ========== ==========
</Table>
The weighted average fair value per share of options granted during 2000,
2001 and 2002 was $14.97, $20.34, and $29.10, respectively, all of which were
granted at market value. Information about stock options outstanding at December
31, 2002 is summarized as follows:
<Table>
<Caption>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------ ----------- ---------------- ----------------
$3.34 to $6.67.............................. 27,850 2.36 years $ 6.67
$6.68 to $18.50............................. 172,205 6.56 years $16.18
$18.51 to $28.50............................ 1,291,138 8.02 years $24.56
$28.51 to $33.88............................ 679,433 8.28 years $33.16
$33.89 to $49.05............................ 405,950 8.42 years $45.50
$49.06 to $61.78............................ 874,500 9.54 years $52.83
---------
3,451,076
=========
</Table>
F-26
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
OPTIONS EXERCISABLE
------------------------------
NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- ----------------
$3.34 to $6.67............................................. 27,850 $ 6.67
$6.68 to $18.50............................................ 78,705 $16.23
$18.51 to $28.50........................................... 512,450 $25.26
$28.51 to $33.88........................................... 152,933 $32.62
$33.89 to $49.05........................................... 80,825 $46.26
-------
852,763
=======
</Table>
During 2000 and 2001, Rent-A-Center issued 25,000 and 12,500 options,
respectively, to a non-employee for services. The options were valued at $65,000
and $168,378. No options were issued to non-employees during 2002. The expense
related to these option agreements is recognized over the service period.
NOTE L -- 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 at
least 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 2000, 2001 and 2002, Rent-A-Center made matching cash contributions of
$2.5 million, $3.3 million, and $3.7 million, 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. Since March 15, 2000, employees
have been permitted to elect to purchase Rent-A-Center common stock as part of
their 401(k) plan. As of December 31, 2001 and 2002, respectively, 10.8% and
14.0% of the total plan assets consisted of the Company's common stock.
NOTE M -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
senior debt, subordinated notes payable and interest rate swap agreements. The
carrying amount of cash and cash equivalents approximates fair value at December
31, 2001 and 2002, 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, 2002, the fair value of the subordinated notes was $292.7 million, which is
$20.9 million above their carrying value of $271.8 million. Information relating
to the fair value of the Company's interest rate swap agreements is set forth in
Note E.
F-27
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- EARNINGS PER COMMON SHARE
Summarized basic and diluted earnings per common share were calculated as
follows:
<Table>
<Caption>
NET EARNINGS SHARES PER SHARE
-------------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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, 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, 2002
Basic earnings per common share....................... $161,961 29,383 $5.51
Effect of dilutive stock options...................... -- 495
Effect of preferred dividend.......................... 10,212 6,468
-------- ------
Diluted earnings per common share..................... $172,173 36,346 $4.74
======== ====== =====
THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
Basic earnings per common share....................... $ 38,571 24,515 $1.57
Effect of dilutive stock options...................... -- 1,239
Effect of preferred dividend.......................... 4,992 10,567
-------- ------
Diluted earnings per common share..................... $ 43,563 36,321 $1.20
======== ====== =====
THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
Basic earnings per common share....................... $ 50,959 34,896 $1.46
Effect of dilutive stock options...................... -- 1,040
Effect of preferred dividend.......................... -- --
-------- ------
Diluted earnings per common share..................... $ 50,959 35,936 $1.42
======== ====== =====
</Table>
For the three years ended December 31, 2000, 2001, and 2002 and for the
three months ended March 31, 2002 and 2003, 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 1,485,118, 628,000,
874,500, 577,000 and 932,000, respectively.
F-28
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- UNAUDITED QUARTERLY DATA
Summarized quarterly financial data for 2001 and 2002 is as follows:
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 2002
Revenues........................................ $498,610 $494,660 $494,561 $522,213
Operating profit................................ 88,296 88,240 84,087 89,826
Net earnings.................................... 43,563 41,943 41,449 45,218
Basic earnings per common share................. 1.57 1.48 1.24 1.29
Diluted earnings per common share............... 1.20 1.14 1.14 1.26
</Table>
- ---------------
(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.
NOTE P -- 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 beneficially
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 beneficially held by 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 beneficially held
by 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 beneficially 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 $10.7 million participant in Rent-A-Center's senior credit facility
as of December 31, 2002. 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, 2002. In addition, Intrust Bank, N.A. serves as trustee of
Rent-A-Center's 401(k) plan.
F-29
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 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.
In connection with the issuance of Rent-A-Center's Series A preferred stock
in August 1998, Rent-A-Center entered into a registration rights agreement with
Apollo which, among other things, granted them two rights to request that their
shares be registered, and a registration rights agreement with an affiliate of
Bear Stearns, which granted them the right to participate in any
company-initiated registration of shares, subject to certain exceptions. In May
2002, Apollo exercised one of their two rights to request that their shares be
registered and an affiliate of Bear Stearns elected to participate in such
registration. In connection therewith, Apollo and the affiliate of Bear Stearns
converted 97,197 shares of Rent-A-Center's Series A preferred stock held by them
into 3,500,000 shares of Rent-A-Center's common stock, which they sold in the
May 2002 public offering that was the subject of Apollo's request. Rent-A-Center
did not receive any of the proceeds from this offering.
On August 5, 2002, the first date on which Rent-A-Center had the right to
optionally redeem the shares of Series A preferred stock, the holders of
Rent-A-Center's Series A preferred stock converted all but two shares of the
Company's Series A preferred stock held by them into 7,281,548 shares of Rent-A-
Center's common stock. In connection with Apollo's conversion of all but two of
the shares of Series A preferred stock held by them, Rent-A-Center granted
Apollo an additional right to effect a demand registration under the existing
registration rights agreement Rent-A-Center entered into with them in 1998, such
that Apollo now has two demand rights.
NOTE Q -- SUBSEQUENT EVENTS (UNAUDITED)
Acquisition. On February 8, 2003, the Company completed the acquisition of
substantially all of the assets of 295 rent-to-own stores from Rent-Way, Inc.
for an aggregate purchase price of $100.4 million in cash. Of the aggregate
purchase price, the Company held back $10.0 million to pay for various
indemnified liabilities and expenses, if any. The Company funded the acquisition
entirely from cash on hand. Of the 295 stores, 176 were subsequently merged with
the Company's existing store locations. The Company entered into this
transaction seeing it as an opportunistic acquisition that would allow it to
expand its store base in conjunction with the Company's strategic growth plans.
The acquisition price was determined by evaluating the average monthly rental
income of the acquired stores and applying a multiple to the total. The Company
utilized a third party to review the valuation of certain intangible assets,
which resulted in a $4.0 million decrease in the values assigned to customer
relationships and a $4.0 million increase in the value placed on the non-compete
agreement as compared to its original estimates as
F-30
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosed in the Company's 2002 annual report on Form 10-K. The table below
summarizes the allocation of the purchase price based on the fair values of the
assets acquired:
<Table>
<Caption>
FAIR VALUES
--------------
(IN THOUSANDS)
Inventory................................................... $ 50,100
Property assets............................................. 4,300
Customer relationships...................................... 7,900
Non-compete agreement....................................... 4,500
Goodwill.................................................... 33,600
--------
Total assets acquired....................................... $100,400
========
</Table>
Customer relationships will be amortized over an 18 month period. The
non-compete agreement is for four years and, in accordance with SFAS 142, the
goodwill associated with the acquisition will not be amortized.
Recapitalization. Commencing in April 2003, the Company recapitalized a
portion of its financial structure in a series of transactions. On May 6, 2003,
the Company issued $300.0 million principal amount of 7 1/2% senior subordinated
notes due 2010. Using a portion of those proceeds, on the same date, Rent-A-
Center East repurchased approximately $183 million principal amount of 11%
senior subordinated notes due 2008 pursuant to its tender offer for all of the
$272.25 million principal amount of 11% notes. The Company will also use a
portion of those proceeds to optionally redeem the remaining outstanding 11%
notes on August 15, 2003. On May 28, 2003, the Company refinanced its senior
debt by entering into a new $600.0 million senior credit facility, consisting of
a $400.0 million term loan, a $120.0 million revolving credit facility and an
$80.0 million additional term loan. On June 25, 2003, the Company repurchased
approximately 1.77 million shares of its common stock at $73 per share pursuant
to a modified "Dutch Auction" tender offer. On July 11, 2003, the Company
repurchased approximately 775,000 shares of its common stock at $73 per share
pursuant to an agreement with Apollo Investment Fund IV, L.P. and Apollo
Overseas Partners IV, L.P. The purchases of the Company's common stock were
financed by a portion of the proceeds of its new senior credit facilities.
F-31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL , 2003, 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 DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THE UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
RENT-A-CENTER, INC.
COLORTYME, INC.
GET IT NOW, LLC
RENT-A-CENTER EAST, INC.
RENT-A-CENTER TEXAS, L.L.C.
RENT-A-CENTER TEXAS, L.P.
RENT-A-CENTER WEST, INC.
OFFER TO EXCHANGE
7 1/2% SENIOR SUBORDINATED NOTES
DUE 2010, SERIES B
FOR ALL OUTSTANDING
7 1/2% SENIOR SUBORDINATED NOTES
DUE 2010, SERIES A
-------------------------
PROSPECTUS
-------------------------
July , 2003
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
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,
II-1
- 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
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
1.1(1) -- Purchase Agreement, dated May 1, 2003, among Rent-A-Center,
Inc., Rent-A-Center East, Inc., ColorTyme, Inc.,
Rent-A-Center West, Inc., Get It Now, LLC, Rent-A-Center
Texas, L.P., Rent-A-Center Texas, L.L.C., Lehman Brothers
Inc., J.P. Morgan Securities, Inc., Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc., UBS Warburg LLC and
Wachovia Securities, Inc. (Pursuant to the rules of the SEC,
the schedules and annexes have been omitted. Upon the
request of the SEC, Rent-A-Center, Inc. will supplementally
supply such schedules and annexes to the SEC.)
2.1(2) -- Agreement and Plan of Merger, dated as of December 30, 2002,
but effective as of December 31, 2002, by and among
Rent-A-Center, Inc., Rent-A-Center Holdings, Inc. and RAC
Merger Sub, Inc.
2.2(3) -- Asset Purchase Agreement, dated as of December 17, 2002, by
and among Rent-A-Center East, Inc. and Rent-Way, Inc.,
Rent-Way of Michigan, Inc. and Rent-Way of TTIG, L.P.
(Pursuant to the rules of the SEC, the schedules and
exhibits have been omitted. Upon the request of the SEC,
Rent-A-Center, Inc. will supplementally supply such
schedules and exhibits to the SEC.)
2.3(4) -- Letter Agreement, dated December 31, 2002
2.4(5) -- Letter Agreement, dated January 7, 2003
2.5(6) -- Letter Agreement, dated February 7, 2003
2.6(7) -- Letter Agreement, dated February 10, 2003 (Pursuant to the
rules of the SEC, the exhibit has been omitted. Upon the
request of the SEC, Rent-A-Center, Inc. will supplementally
supply such exhibit to the SEC.)
2.7(8) -- Letter Agreement, dated March 10, 2003 (Pursuant to the
rules of the SEC, the exhibit has been omitted. Upon the
request of the SEC, Rent-A-Center, Inc. will supplementally
supply such exhibit to the SEC.)
3.1(9) -- Certificate of Incorporation of Rent-A-Center, Inc., as
amended
3.2(10) -- Amended and Restated Bylaws of Rent-A-Center, Inc.
3.3* -- Second Restated Certificate of Incorporation of
Rent-A-Center East, Inc.
3.4* -- Certificate of Merger of RAC Merger Sub, Inc. with and into
Rent-a-Center, Inc.
3.5* -- Third Amended and Restated Bylaws of Rent-A-Center East,
Inc.
3.6(11) -- Articles of Incorporation of ColorTyme, Inc.
3.7(12) -- Articles of Merger of ColorTyme, Inc. into CT Acquisition
3.8(13) -- Bylaws of ColorTyme, Inc.
3.9(14) -- Amendment to the Bylaws of ColorTyme, Inc.
3.10(15) -- Restated Certificate of Incorporation of Rent-A-Center West,
Inc. (formerly known as Advantage Companies, Inc.)
3.11(16) -- Bylaws of Rent-A-Center West, Inc. (formerly known as
Advantage Companies, Inc.)
3.12(17) -- Amendment to Bylaws of Rent-A-Center West, Inc. (formerly
known as Advantage Companies, Inc.)
3.13* -- Certificate of Formation of Get It Now, LLC
3.14* -- Operating Agreement of Get It Now, LLC
3.15* -- Certificate of Limited Partnership of Rent-A-Center Texas,
L.P., as amended
3.16* -- Agreement of Limited Partnership of Rent-A-Center Texas,
L.P.
3.17* -- Articles of Organization of Rent-A-Center Texas, L.L.C.
3.18* -- Operating Agreement of Rent-A-Center Texas, L.L.C.
</Table>
II-3
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
4.1(18) -- Form of Certificate evidencing Common Stock
4.2(19) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series A Preferred Stock of
Rent-A-Center, Inc. (formerly known as Rent-A-Center
Holdings, Inc.)
4.3(20) -- Form of Certificate evidencing Series A Preferred Stock
4.4* -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series C Preferred Stock of
Rent-A-Center, Inc.
4.5* -- Form of Certificate evidencing Series C Preferred Stock
4.6(21) -- 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(22) -- First Supplemental Indenture, dated as of May 1, 2002, by
and among Rent-A-Center, Inc., ColorTyme, Inc., Advantage
Companies, Inc. and The Bank of New York, as Trustee
4.8(23) -- Second Supplemental Indenture, dated as of September 30,
2002, by and among Rent-A-Center, Inc., ColorTyme, Inc.,
Advantage Companies, Inc., Get It Now, LLC and The Bank of
New York, as Trustee
4.9(24) -- Amended and Restated Third Supplemental Indenture, dated as
of December 31, 2002, by and among Rent-A-Center, Inc.,
Rent-A-Center Holdings, Inc., ColorTyme, Inc., Rent-A-Center
West, Inc. (formerly known as Advantage Companies, Inc.),
Get It Now, LLC, Rent-A-Center Texas, LP, Rent-A-Center
Texas, LLC and The Bank of New York, as Trustee
4.10(25) -- Indenture, dated as of May 6, 2003, by and among
Rent-A-Center, Inc., as Issuer, Rent-A-Center East, Inc.,
ColorTyme, Inc., Rent-A-Center West, Inc., Get It Now, LLC,
Rent-A-Center Texas, L.P. and Rent-A-Center Texas, L.L.C.,
as Guarantors, and The Bank of New York, as Trustee
4.11* -- Form of 2003 Exchange Note
5.1* -- Opinion of Winstead, Sechrest & Minick P.C. regarding the
legality of securities offered
10.1(26) -- Amended and Restated Rent-A-Center, Inc. Long-Term Incentive
Plan
10.2(27) -- Amended and Restated Credit Agreement, dated as of August 5,
1998, as amended and restated as of December 31, 2002, among
Rent-A-Center, Inc., Rent-A-Center East, Inc., Comerica
Bank, as Documentation Agent, Bank of America NA, as
Syndication Agent, and JP Morgan Chase Bank (formerly known
as The Chase Manhattan Bank), as Administrative Agent
10.3(28) -- First Amendment, dated as of April 22, 2003, to the Amended
and Restated Credit Agreement, dated as of August 5, 1998,
as amended and restated as of December 31, 2002, among
Rent-A-Center, Inc., Rent-A-Center East, Inc., Comerica
Bank, as Documentation Agent, Bank of America NA, as
Syndication Agent, and JP Morgan Chase Bank (formerly known
as The Chase Manhattan Bank), as Administrative Agent
10.4* -- Credit Agreement, dated as of May 28, 2003, among
Rent-A-Center, Inc., Morgan Stanley Senior Funding Inc., as
Documentation Agent, JPMorgan Chase Bank and Bear, Stearns &
Co. Inc., each as Syndication Agent, and Lehman Commercial
Paper Inc., as Administrative Agent
10.5(29) -- Guarantee and Collateral Agreement, dated as of August 5,
1998, as amended and restated as of December 31, 2002, made
by Rent-A-Center, Inc., Rent-A-Center East, Inc. and certain
of its Subsidiaries in favor of JP Morgan Chase Bank
(formerly known as The Chase Manhattan Bank), as
Administrative Agent
10.6* -- Guarantee and Collateral Agreement, dated as of May 28,
2003, made by Rent-A-Center, Inc., Rent-A-Center East, Inc.
and certain of its Subsidiaries in favor of Lehman
Commercial Paper Inc., as Administrative Agent
</Table>
II-4
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.7(30) -- 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(31) -- Second Amendment to Registration Rights Agreement, dated as
of August 5, 2002, by and among Rent-A-Center, Inc., Apollo
Investment Fund IV, L.P. and Apollo Overseas Partners IV,
L.P.
10.9(32) -- Third Amendment to Registration Rights Agreement, dated as
of December 31, 2002, by and among Rent- A-Center, Inc.,
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners
IV, L.P.
10.10* -- Fourth Amendment to Registration Rights Agreement, dated as
of July 11, 2003, by and between Rent-A-Center, Inc., Apollo
Investment Fund IV, L.P., and Apollo Overseas Partners IV,
L.P., related to the Series C Convertible Preferred Stock
10.11(33) -- Registration Rights Agreement, dated as of May 6, 2003, by
and among Rent-A-Center, Inc., as Issuer, Rent-A-Center
East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Get
It Now, LLC, Rent-A-Center Texas, L.P. and Rent-A-Center
Texas, L.L.C., as Guarantors, and Lehman Commercial Paper
Inc., J.P. Morgan Securities, Inc., Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc., UBS Warburg LLC and
Wachovia Securities, Inc., as Initial Purchasers
10.12(34) -- Amended and Restated Stockholders Agreement, dated 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
10.13(35) -- Second Amended and Restated Stockholders Agreement, dated as
of August 5, 2002, by and among Apollo Investment Fund IV,
L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese,
Rent-A-Center, Inc., and certain other persons
10.14(36) -- Third Amended and Restated Stockholders Agreement, dated as
of December 31, 2002, by and among Apollo Investment Fund
IV, L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese,
Rent-A-Center, Inc., and certain other persons
10.15* -- Fourth Amended and Restated Stockholders Agreement, dated as
of July 11, 2003, by and among Apollo Investment Fund IV,
L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese,
Rent-A-Center, Inc., and certain other persons
10.16(37) -- 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.
10.17(38) -- 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.
10.18(39) -- Amended and Restated Franchisee Financing Agreement, dated
March 27, 2002, by and between Textron Financial
Corporation, ColorTyme, Inc. and Rent-A-Center, Inc.
10.19(40) -- Franchisee Financing Agreement, dated April 30, 2002, but
effective as of June 28, 2002, by and between Texas Capital
Bank, National Association, ColorTyme, Inc. and
Rent-A-Center, Inc.
10.20(41) -- First Amendment to Franchisee Financing Agreement, dated
July 23, 2002, by and between Textron Financial Corporation,
ColorTyme, Inc. and Rent-A-Center, Inc.
10.21(42) -- Second Amendment to Franchisee Financing Agreement, dated
September 30, 2002, by and between Textron Financial
Corporation, ColorTyme, Inc. and Rent-A-Center, Inc.
10.22(43) -- Third Amendment to Franchisee Financing Agreement, dated
March 24, 2003, but effective as of December 31, 2002, by
and between Textron Financial Corporation, ColorTyme, Inc.
and Rent-A-Center, Inc.
10.23* -- Supplemental Letter Agreement to Franchisee Financing
Amendment, dated May 26, 2003, by and between Texas Capital
Bank, National Association, ColorTyme, Inc. and
Rent-A-Center, Inc.
</Table>
II-5
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.24(44) -- Stock Purchase and Exchange Agreement, dated April 25, 2003,
by and among Apollo Investment Fund IV, L.P., Apollo
Overseas Partners IV, L.P. and Rent-A-Center, Inc.
21.1(45) -- 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 old 7 1/2% notes
99.2* -- Form of Notice of Guaranteed Delivery concerning old 7 1/2%
notes
99.3* -- Form of Letter to Clients concerning old 7 1/2% notes
99.4* -- Form of Letter to Brokers concerning old 7 1/2% notes
</Table>
- ---------------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 10.18 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 30, 2003
(2) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K dated as of December 31, 2002
(3) Incorporated herein by reference to Exhibit 2.2 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(4) Incorporated herein by reference to Exhibit 2.3 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(5) Incorporated herein by reference to Exhibit 2.4 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(6) Incorporated herein by reference to Exhibit 2.5 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(7) Incorporated herein by reference to Exhibit 2.6 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(8) Incorporated herein by reference to Exhibit 2.7 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(9) Incorporated herein by reference to Exhibit 3.1 to the registrant's
Current Report on Form 8-K dated as of December 31, 2002
(10) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Current Report on Form 8-K dated as of December 31, 2002
(11) Incorporated herein by reference to Exhibit 3.6 to the registrant's
Registration Statement on Form S-4 filed on June 14, 1999
(12) Incorporated herein by reference to Exhibit 3.7 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(13) Incorporated herein by reference to Exhibit 3.10 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(14) Incorporated herein by reference to Exhibit 3.11 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002
II-6
(15) Incorporated herein by reference to Exhibit 3.5 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(16) Incorporated herein by reference to Exhibit 3.8 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(17) Incorporated herein by reference to Exhibit 3.9 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(18) Incorporated herein by reference to Exhibit 4.1 to the registrant's Form
S-4 filed on January 11, 1999
(19) Incorporated herein by reference to Exhibit 3.1 to the registrant's
Current Report on Form 8-K dated as of December 31, 2002
(20) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 11, 1999
(21) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002
(22) Incorporated herein by reference to Exhibit 4.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(23) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002
(24) Incorporated herein by reference to Exhibit 4.7 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(25) Incorporated herein by reference to Exhibit 4.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
(26) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Post-Effective Amendment No. 1 to Form S-8 dated as of December 31, 2002
(27) Incorporated herein by reference to Exhibit 10.2 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(28) Incorporated herein by reference to Exhibit 10.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
(29) Incorporated herein by reference to Exhibit 10.3 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(30) 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
(31) Incorporated herein by reference to Exhibit 10.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(32) Incorporated herein by reference to Exhibit 10.8 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(33) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
(34) 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
(35) Incorporated herein by reference to Exhibit 10.8 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(36) Incorporated herein by reference to Exhibit 10.6 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(37) 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
II-7
(38) Incorporated herein by reference to Exhibit 10.9 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002
(39) Incorporated herein by reference to Exhibit 10.13 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(40) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(41) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(42) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002
(43) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(44) Incorporated herein by reference to Exhibit 99(d)(1) to the registrant's
Schedule TO filed on April 28, 2003
(45) Incorporated herein by reference to Exhibit 21.1 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
II-8
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 (b)(1)(i) and (b)(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. 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.
II-9
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 respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) 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.
(e) 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.
(f) 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-10
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
July 11, 2003.
RENT-A-CENTER, INC.
By: /s/ MARK E. SPEESE
------------------------------------
Mark E. Speese
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark E. Speese and Robert D. Davis, and each or
either one of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement or any registration
statement for this offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARK E. SPEESE Chairman of the Board July 11, 2003
-------------------------------- and Chief Executive
Mark E. Speese Officer
(Principal Executive
Officer)
/s/ MITCHELL E. FADEL President, Chief July 11, 2003
-------------------------------- Operating
Mitchell E. Fadel Officer and Director
/s/ ROBERT D. DAVIS Senior Vice July 11, 2003
-------------------------------- President -- Finance,
Robert D. Davis Treasurer and Chief
Financial Officer
(Principal Financial
and
Accounting Officer)
/s/ LAURENCE M. BERG Director July 11, 2003
--------------------------------
Laurence M. Berg
/s/ MARY ELIZABETH BURTON Director July 11, 2003
--------------------------------
Mary Elizabeth Burton
</Table>
II-11
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ PETER P. COPSES Director July 11, 2003
--------------------------------
Peter P. Copses
/s/ ANDREW S. JHAWAR Director July 11, 2003
--------------------------------
Andrew S. Jhawar
/s/ J.V. LENTELL Director July 11, 2003
--------------------------------
J.V. Lentell
</Table>
II-12
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
July 11, 2003.
COLORTYME, INC.
By: /s/ STEVEN M. ARENDT
------------------------------------
Steven M. Arendt
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark E. Speese and Robert D. Davis, and each or
either one of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement or any registration
statement for this offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ STEVEN M. ARENDT President and Chief Executive July 11, 2003
------------------------------------------------ Officer (Principal Executive
Steven M. Arendt Officer)
/s/ MITCHELL E. FADEL Vice President and Director July 11, 2003
------------------------------------------------
Mitchell E. Fadel
/s/ MARK E. SPEESE Vice President and Director July 11, 2003
------------------------------------------------
Mark E. Speese
/s/ ROBERT D. DAVIS Treasurer (Principal Financial and July 11, 2003
------------------------------------------------ Accounting Officer)
Robert D. Davis
</Table>
II-13
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
July 11, 2003.
GET IT NOW, LLC
By: /s/ MARK E. SPEESE
------------------------------------
Mark E. Speese
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark E. Speese and Robert D. Davis, and each or
either one of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement or any registration
statement for this offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARK E. SPEESE President (Principal Executive July 11, 2003
- -------------------------------------- Officer) and Director
Mark E. Speese
/s/ MITCHELL E. FADEL Vice President and Director July 11, 2003
- --------------------------------------
Mitchell E. Fadel
/s/ ROBERT D. DAVIS Treasurer (Principal Financial and July 11, 2003
- -------------------------------------- Accounting Officer)
Robert D. Davis
</Table>
II-14
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
July 11, 2003.
RENT-A-CENTER EAST, INC.
By: /s/ MARK E. SPEESE
------------------------------------
Mark E. Speese
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark E. Speese and Robert D. Davis, and each or
either one of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement or any registration
statement for this offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARK E. SPEESE President (Principal July 11, 2003
-------------------------------- Executive Officer)
Mark E. Speese and Director
/s/ MITCHELL E. FADEL Vice President and July 11, 2003
-------------------------------- Director
Mitchell E. Fadel
/s/ ROBERT D. DAVIS Treasurer (Principal July 11, 2003
-------------------------------- Financial and
Robert D. Davis Accounting Officer)
and Director
</Table>
II-15
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 Henderson, State of
Nevada, on July 11, 2003.
RENT-A-CENTER TEXAS, L.L.C.
By: /s/ JAMES ASHWORTH
------------------------------------
James Ashworth
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark E. Speese and Robert D. Davis, and each or
either one of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement or any registration
statement for this offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JAMES ASHWORTH President (Principal Executive, July 11, 2003
------------------------------------------------ Financial and Accounting Officer)
James Ashworth and Manager
/s/ MARK E. SPEESE Manager July 11, 2003
------------------------------------------------
Mark E. Speese
</Table>
II-16
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
July 11, 2003.
RENT-A-CENTER TEXAS, L.P.
By: RENT-A-CENTER EAST, INC., its
General Partner
By: /s/ MARK E. SPEESE
------------------------------------
Mark E. Speese
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark E. Speese and Robert D. Davis, and each or
either one of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement or any registration
statement for this offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARK E. SPEESE Chief Executive Officer (Principal July 11, 2003
- -------------------------------------- Executive Officer) and Director
Mark E. Speese
/s/ MITCHELL E. FADEL President and Director July 11, 2003
- --------------------------------------
Mitchell E. Fadel
/s/ ROBERT D. DAVIS Treasurer (Principal Financial and July 11, 2003
- -------------------------------------- Accounting Officer) and Director
Robert D. Davis
</Table>
II-17
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
July 11, 2003.
RENT-A-CENTER WEST, INC.
By: /s/ MARK E. SPEESE
------------------------------------
Mark E. Speese
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark E. Speese and Robert D. Davis, and each or
either one of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement or any registration
statement for this offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARK E. SPEESE President (Principal Executive July 11, 2003
- -------------------------------------- Officer) and Director
Mark E. Speese
/s/ MITCHELL E. FADEL Vice President and Director July 11, 2003
- --------------------------------------
Mitchell E. Fadel
/s/ ROBERT D. DAVIS Treasurer (Principal Financial and July 11, 2003
- -------------------------------------- Accounting Officer)
Robert D. Davis
</Table>
II-18
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
1.1(1) -- Purchase Agreement, dated May 1, 2003, among Rent-A-Center,
Inc., Rent-A-Center East, Inc., ColorTyme, Inc.,
Rent-A-Center West, Inc., Get It Now, LLC, Rent-A-Center
Texas, L.P., Rent-A-Center Texas, L.L.C., Lehman Brothers
Inc., J.P. Morgan Securities, Inc., Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc., UBS Warburg LLC and
Wachovia Securities, Inc. (Pursuant to the rules of the SEC,
the schedules and annexes have been omitted. Upon the
request of the SEC, Rent-A-Center, Inc. will supplementally
supply such schedules and annexes to the SEC.)
2.1(2) -- Agreement and Plan of Merger, dated as of December 30, 2002,
but effective as of December 31, 2002, by and among
Rent-A-Center, Inc., Rent-A-Center Holdings, Inc. and RAC
Merger Sub, Inc.
2.2(3) -- Asset Purchase Agreement, dated as of December 17, 2002, by
and among Rent-A-Center East, Inc. and Rent-Way, Inc.,
Rent-Way of Michigan, Inc. and Rent-Way of TTIG, L.P.
(Pursuant to the rules of the SEC, the schedules and
exhibits have been omitted. Upon the request of the SEC,
Rent-A-Center, Inc. will supplementally supply such
schedules and exhibits to the SEC.)
2.3(4) -- Letter Agreement, dated December 31, 2002
2.4(5) -- Letter Agreement, dated January 7, 2003
2.5(6) -- Letter Agreement, dated February 7, 2003
2.6(7) -- Letter Agreement, dated February 10, 2003 (Pursuant to the
rules of the SEC, the exhibit has been omitted. Upon the
request of the SEC, Rent-A-Center, Inc. will supplementally
supply such exhibit to the SEC.)
2.7(8) -- Letter Agreement, dated March 10, 2003 (Pursuant to the
rules of the SEC, the exhibit has been omitted. Upon the
request of the SEC, Rent-A-Center, Inc. will supplementally
supply such exhibit to the SEC.)
3.1(9) -- Certificate of Incorporation of Rent-A-Center, Inc., as
amended
3.2(10) -- Amended and Restated Bylaws of Rent-A-Center, Inc.
3.3* -- Second Restated Certificate of Incorporation of
Rent-A-Center East, Inc.
3.4* -- Certificate of Merger of RAC Merger Sub, Inc. with and into
Rent-a-Center, Inc.
3.5* -- Third Amended and Restated Bylaws of Rent-A-Center East,
Inc.
3.6(11) -- Articles of Incorporation of ColorTyme, Inc.
3.7(12) -- Articles of Merger of ColorTyme, Inc. into CT Acquisition
3.8(13) -- Bylaws of ColorTyme, Inc.
3.9(14) -- Amendment to the Bylaws of ColorTyme, Inc.
3.10(15) -- Restated Certificate of Incorporation of Rent-A-Center West,
Inc. (formerly known as Advantage Companies, Inc.)
3.11(16) -- Bylaws of Rent-A-Center West, Inc. (formerly known as
Advantage Companies, Inc.)
3.12(17) -- Amendment to Bylaws of Rent-A-Center West, Inc. (formerly
known as Advantage Companies, Inc.)
3.13* -- Certificate of Formation of Get It Now, LLC
3.14* -- Operating Agreement of Get It Now, LLC
3.15* -- Certificate of Limited Partnership of Rent-A-Center Texas,
L.P., as amended
3.16* -- Agreement of Limited Partnership of Rent-A-Center Texas,
L.P.
3.17* -- Articles of Organization of Rent-A-Center Texas, L.L.C.
3.18* -- Operating Agreement of Rent-A-Center Texas, L.L.C.
4.1(18) -- Form of Certificate evidencing Common Stock
4.2(19) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series A Preferred Stock of
Rent-A-Center, Inc. (formerly known as Rent-A-Center
Holdings, Inc.)
4.3(20) -- Form of Certificate evidencing Series A Preferred Stock
</Table>
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
4.4* -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series C Preferred Stock of
Rent-A-Center, Inc.
4.5* -- Form of Certificate evidencing Series C Preferred Stock
4.6(21) -- 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(22) -- First Supplemental Indenture, dated as of May 1, 2002, by
and among Rent-A-Center, Inc., ColorTyme, Inc., Advantage
Companies, Inc. and The Bank of New York, as Trustee
4.8(23) -- Second Supplemental Indenture, dated as of September 30,
2002, by and among Rent-A-Center, Inc., ColorTyme, Inc.,
Advantage Companies, Inc., Get It Now, LLC and The Bank of
New York, as Trustee
4.9(24) -- Amended and Restated Third Supplemental Indenture, dated as
of December 31, 2002, by and among Rent-A-Center, Inc.,
Rent-A-Center Holdings, Inc., ColorTyme, Inc., Rent-A-Center
West, Inc. (formerly known as Advantage Companies, Inc.),
Get It Now, LLC, Rent-A-Center Texas, LP, Rent-A-Center
Texas, LLC and The Bank of New York, as Trustee
4.10(25) -- Indenture, dated as of May 6, 2003, by and among
Rent-A-Center, Inc., as Issuer, Rent-A-Center East, Inc.,
ColorTyme, Inc., Rent-A-Center West, Inc., Get It Now, LLC,
Rent-A-Center Texas, L.P. and Rent-A-Center Texas, L.L.C.,
as Guarantors, and The Bank of New York, as Trustee
4.11* -- Form of 2003 Exchange Note
5.1* -- Opinion of Winstead, Sechrest & Minick P.C. regarding the
legality of securities offered
10.1(26) -- Amended and Restated Rent-A-Center, Inc. Long-Term Incentive
Plan
10.2(27) -- Amended and Restated Credit Agreement, dated as of August 5,
1998, as amended and restated as of December 31, 2002, among
Rent-A-Center, Inc., Rent-A-Center East, Inc., Comerica
Bank, as Documentation Agent, Bank of America NA, as
Syndication Agent, and JP Morgan Chase Bank (formerly known
as The Chase Manhattan Bank), as Administrative Agent
10.3(28) -- First Amendment, dated as of April 22, 2003, to the Amended
and Restated Credit Agreement, dated as of August 5, 1998,
as amended and restated as of December 31, 2002, among
Rent-A-Center, Inc., Rent-A-Center East, Inc., Comerica
Bank, as Documentation Agent, Bank of America NA, as
Syndication Agent, and JP Morgan Chase Bank (formerly known
as The Chase Manhattan Bank), as Administrative Agent
10.4* -- Credit Agreement, dated as of May 28, 2003, among
Rent-A-Center, Inc., Morgan Stanley Senior Funding Inc., as
Documentation Agent, JPMorgan Chase Bank and Bear, Stearns &
Co. Inc., each as Syndication Agent, and Lehman Commercial
Paper Inc., as Administrative Agent
10.5(29) -- Guarantee and Collateral Agreement, dated as of August 5,
1998, as amended and restated as of December 31, 2002, made
by Rent-A-Center, Inc., Rent-A-Center East, Inc. and certain
of its Subsidiaries in favor of JP Morgan Chase Bank
(formerly known as The Chase Manhattan Bank), as
Administrative Agent
10.6* -- Guarantee and Collateral Agreement, dated as of May 28,
2003, made by Rent-A-Center, Inc., Rent-A-Center East, Inc.
and certain of its Subsidiaries in favor of Lehman
Commercial Paper Inc., as Administrative Agent
10.7(30) -- 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(31) -- Second Amendment to Registration Rights Agreement, dated as
of August 5, 2002, by and among Rent-A-Center, Inc., Apollo
Investment Fund IV, L.P. and Apollo Overseas Partners IV,
L.P.
10.9(32) -- Third Amendment to Registration Rights Agreement, dated as
of December 31, 2002, by and among Rent- A-Center, Inc.,
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners
IV, L.P.
</Table>
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.10* -- Fourth Amendment to Registration Rights Agreement, dated as
of July 11, 2003, by and between Rent-A-Center, Inc., Apollo
Investment Fund IV, L.P., and Apollo Overseas Partners IV,
L.P., related to the Series C Convertible Preferred Stock
10.11(33) -- Registration Rights Agreement, dated as of May 6, 2003, by
and among Rent-A-Center, Inc., as Issuer, Rent-A-Center
East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Get
It Now, LLC, Rent-A-Center Texas, L.P. and Rent-A-Center
Texas, L.L.C., as Guarantors, and Lehman Commercial Paper
Inc., J.P. Morgan Securities, Inc., Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc., UBS Warburg LLC and
Wachovia Securities, Inc., as Initial Purchasers
10.12(34) -- Amended and Restated Stockholders Agreement, dated 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
10.13(35) -- Second Amended and Restated Stockholders Agreement, dated as
of August 5, 2002, by and among Apollo Investment Fund IV,
L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese,
Rent-A-Center, Inc., and certain other persons
10.14(36) -- Third Amended and Restated Stockholders Agreement, dated as
of December 31, 2002, by and among Apollo Investment Fund
IV, L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese,
Rent-A-Center, Inc., and certain other persons
10.15* -- Fourth Amended and Restated Stockholders Agreement, dated as
of July 11, 2003, by and among Apollo Investment Fund IV,
L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese,
Rent-A-Center, Inc., and certain other persons
10.16(37) -- 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.
10.17(38) -- 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.
10.18(39) -- Amended and Restated Franchisee Financing Agreement, dated
March 27, 2002, by and between Textron Financial
Corporation, ColorTyme, Inc. and Rent-A-Center, Inc.
10.19(40) -- Franchisee Financing Agreement, dated April 30, 2002, but
effective as of June 28, 2002, by and between Texas Capital
Bank, National Association, ColorTyme, Inc. and
Rent-A-Center, Inc.
10.20(41) -- First Amendment to Franchisee Financing Agreement, dated
July 23, 2002, by and between Textron Financial Corporation,
ColorTyme, Inc. and Rent-A-Center, Inc.
10.21(42) -- Second Amendment to Franchisee Financing Agreement, dated
September 30, 2002, by and between Textron Financial
Corporation, ColorTyme, Inc. and Rent-A-Center, Inc.
10.22(43) -- Third Amendment to Franchisee Financing Agreement, dated
March 24, 2003, but effective as of December 31, 2002, by
and between Textron Financial Corporation, ColorTyme, Inc.
and Rent-A-Center, Inc.
10.23* -- Supplemental Letter Agreement to Franchisee Financing
Amendment, dated May 26, 2003, by and between Texas Capital
Bank, National Association, ColorTyme, Inc. and
Rent-A-Center, Inc.
10.24(44) -- Stock Purchase and Exchange Agreement, dated April 25, 2003,
by and among Apollo Investment Fund IV, L.P., Apollo
Overseas Partners IV, L.P. and Rent-A-Center, Inc.
21.1(45) -- 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)
</Table>
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
25.1* -- Statement of eligibility of The Bank of New York
99.1* -- Form of Letter of Transmittal concerning old 7 1/2% notes
99.2* -- Form of Notice of Guaranteed Delivery concerning old 7 1/2%
notes
99.3* -- Form of Letter to Clients concerning old 7 1/2% notes
99.4* -- Form of Letter to Brokers concerning old 7 1/2% notes
</Table>
- ---------------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 10.18 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 30, 2003
(2) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K dated as of December 31, 2002
(3) Incorporated herein by reference to Exhibit 2.2 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(4) Incorporated herein by reference to Exhibit 2.3 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(5) Incorporated herein by reference to Exhibit 2.4 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(6) Incorporated herein by reference to Exhibit 2.5 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(7) Incorporated herein by reference to Exhibit 2.6 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(8) Incorporated herein by reference to Exhibit 2.7 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(9) Incorporated herein by reference to Exhibit 3.1 to the registrant's
Current Report on Form 8-K dated as of December 31, 2002
(10) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Current Report on Form 8-K dated as of December 31, 2002
(11) Incorporated herein by reference to Exhibit 3.6 to the registrant's
Registration Statement on Form S-4 filed on June 14, 1999
(12) Incorporated herein by reference to Exhibit 3.7 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(13) Incorporated herein by reference to Exhibit 3.10 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(14) Incorporated herein by reference to Exhibit 3.11 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002
(15) Incorporated herein by reference to Exhibit 3.5 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(16) Incorporated herein by reference to Exhibit 3.8 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(17) Incorporated herein by reference to Exhibit 3.9 to the registrant's
Registration Statement on Form S-4 filed on June 19, 1999
(18) Incorporated herein by reference to Exhibit 4.1 to the registrant's Form
S-4 filed on January 11, 1999
(19) Incorporated herein by reference to Exhibit 3.1 to the registrant's
Current Report on Form 8-K dated as of December 31, 2002
(20) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 11, 1999
(21) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002
(22) Incorporated herein by reference to Exhibit 4.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(23) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002
(24) Incorporated herein by reference to Exhibit 4.7 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(25) Incorporated herein by reference to Exhibit 4.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
(26) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Post-Effective Amendment No. 1 to Form S-8 dated as of December 31, 2002
(27) Incorporated herein by reference to Exhibit 10.2 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(28) Incorporated herein by reference to Exhibit 10.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
(29) Incorporated herein by reference to Exhibit 10.3 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(30) 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
(31) Incorporated herein by reference to Exhibit 10.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(32) Incorporated herein by reference to Exhibit 10.8 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(33) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
(34) 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
(35) Incorporated herein by reference to Exhibit 10.8 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(36) Incorporated herein by reference to Exhibit 10.6 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(37) 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
(38) Incorporated herein by reference to Exhibit 10.9 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002
(39) Incorporated herein by reference to Exhibit 10.13 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(40) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(41) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002
(42) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002
(43) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002
(44) Incorporated herein by reference to Exhibit 99(d)(1) to the registrant's
Schedule TO filed on April 28, 2003
(45) Incorporated herein by reference to Exhibit 21.1 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 2002