UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
Commission File Number 0-25370
RENT-A-CENTER, INC.
Delaware
45-0491516
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
5700 Tennyson Parkway, Third Floor
Plano, Texas 75024
(972) 801-1100
(Address, including zip code, and telephone
number, including area code, of registrant’s
principal executive offices)
NONE
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of
common stock, as of July 28, 2004:
Class
Outstanding
Common stock, $.01 par value per share
79,109,972
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
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| Certificate of Amendment to the Certificate of Incorporation | ||||||||
| Amendment and Restated Bylaws | ||||||||
| Third Supplemental Indenture | ||||||||
| Fourth Supplemental Indenture | ||||||||
| Subsidiaries | ||||||||
| Section 302 Certification by Mark E. Speese | ||||||||
| Section 302 Certification by Robert D. Davis | ||||||||
| Section 906 Certification by Mark E. Speese | ||||||||
| Section 906 Certification by Robert D. Davis | ||||||||
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RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF EARNINGS
See accompanying notes to consolidated financial statements.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Condensed Consolidating Statements of Operations – (in thousands)
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Condensed Consolidating Statements of Operations – (in thousands)
Condensed Consolidating Balance Sheets – (in thousands)
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Condensed Consolidating Statements of Cash Flows – (in thousands)
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The statements, other than statements of historical facts, included in this
report 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 these expectations
will occur. Our actual future performance could differ materially from such
statements. Factors that could cause or contribute to these differences
include, but are not limited to:
Additional important factors that could cause our actual results to differ
materially from our expectations are discussed under Risk Factors in our Annual
Report on Form 10-K/A for our fiscal year ended December 31, 2003. You should
not unduly rely on these forward-looking statements, which speak only as of the
date of this report. Except as required by law, we are not obligated to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances occurring after the date of this report or to reflect
the occurrence of unanticipated events.
Our Business
We are the largest rent-to-own operator in the United States with an
approximate 32% market share based on store count. At June 30, 2004, we
operated 2,846 company-owned stores nationwide and in Canada and Puerto Rico, including 21
stores located in Wisconsin and operated by our subsidiary Get It Now, LLC
under the name “Get It Now” and five stores located in Canada and operated by
our subsidiary Rent-A-Centre Canada, Ltd., under the name “Rent-A-Centre.”
Another of our subsidiaries, ColorTyme, is a national franchisor of rent-to-own
stores. At June 30, 2004, ColorTyme had 319 franchised stores in 40 states, 307
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, 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, 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.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
We plan to accomplish our future growth through selective and opportunistic
acquisitions, and 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.
Recent Developments
Appointment of Richard K. Armey to our Board of Directors.
On May 24, 2004, we
announced that Richard K. “Dick” Armey had been named to our Board of
Directors. Congressman Armey served for 18 years in the U.S. House of
Representatives, culminating in eight years as Majority Leader. In addition to
joining the Board of Directors, Congressman Armey has become a member of the
Board’s Audit Committee and Compensation Committee.
New Senior Credit Facility
On July 14, 2004, we announced the completion of the
refinancing of our senior secured debt. Our new $600.0 million senior credit
facilities consist of a $350.0 million term loan and a $250.0 million revolving
credit facility. On that day, we drew down the $350.0 million
term loan and $50.0
million of revolving facility and utilized the proceeds to repay our existing
senior term debt. We will record a $4.2 million non-cash charge
to write off the remaining unamortized balance of financing costs in
the third quarter.
Increased Stock Repurchase Authorization.
On July 26, 2004, we announced that
our Board of Directors increased the authorization for stock repurchases under
our common stock repurchase program to $200.0 million.
Store Growth.
As of
July 28, 2004, we have acquired two additional stores and
accounts from five additional locations, opened five new stores,
merged one
store into an existing location and sold one store during the third quarter of 2004. It is our
intention to increase the number of stores we operate by an average of
approximately 5 to 10% per year.
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. 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. We believe the following are areas where the
degree of judgment and complexity in determining amounts recorded in our
consolidated financial statements make the accounting policies critical.
Self-Insurance Liabilities.
We have self-insured retentions with respect to
losses under our workers’ compensation, general liability, and auto liability
insurance policies. We establish reserves for our liabilities associated with
these losses by obtaining forecasts for the ultimate expected losses and
estimating amounts needed to pay losses within our self-insured retentions.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
We make assumptions on our liabilities within our self-insured retentions using
loss forecasts, which are prepared using methods and assumptions that are in
accordance with standard actuarial practice and third party claims
administrator loss estimates, which are based on known facts surrounding
individual claims. Each quarter, we reevaluate our estimate of liability
within our self-insured retentions, including our assumptions related to our
loss forecasts, and obtain updated loss forecasts reports using currently
valued loss data. We evaluate the adequacy of our accruals by comparing
amounts accrued on our balance sheet for anticipated losses to our loss
forecasts and to the third party claim administrator loss estimates, and make
adjustments to our accruals as needed based upon such review.
Over the previous 10 years, our loss exposure has increased, primarily as a
result of our growth. We instituted procedures to manage our loss exposure
through a greater focus on the risk management function, a transitional duty
program for injured workers, ongoing safety and accident prevention training,
and various programs designed to minimize losses and improve our loss
experience in our store locations.
As of the quarter ended June 30, 2004, the net amount accrued for losses within
our self-insured retentions was $73.5 million, as compared to $54.2 million at
June 30, 2003. The increase in the net amount accrued for the 2004 period is a
result of store growth, increased number of employees, new claims made during
the period and the net effect of prior period claims which have closed or for
which additional development or changes in estimates have occurred.
Litigation Reserves.
We are the subject of litigation in the ordinary course
of our business. Our litigation involves, among other things, actions relating
to claims that our rental purchase agreements constitute installment sales
contracts, violate state usury laws or violate other state laws 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. In
preparing our financial statements at a given point in time, we account for
these contingencies pursuant to the provisions of FASB No. 5, which requires
that we accrue for losses that are both probable and reasonably estimable.
Each quarter, we make estimates of our probable liabilities, if reasonably
estimable, and record such amounts in our consolidated financial statements.
These amounts 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 reflect current facts and circumstances.
For the quarter ended June 30, 2004 we had accrued $2.5 million for probable
litigation costs with respect to our outstanding litigation as compared to $3.6
million for the quarter ended June 30, 2003. The amounts accrued, relating to
legal fees and expenses, represent our estimate of the probable liabilities
with respect to our litigation. The ultimate outcome of our litigation is
uncertain, and the amount of loss we may incur, if any, cannot in our judgment
be reasonably estimated. Additional developments in our litigation, such as an
adverse or positive development or ruling, could effect our assumptions and
thus, our accrual.
If we make changes to our accruals in any of these areas in accordance with the
policies described above, these changes would impact our earnings. Increases
to our accruals would reduce earnings and similarly, reductions to our accruals
would increase our earnings. A $1.3 million change in our estimates would result in a corresponding $.01 change in our
earnings per share.
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 our Annual Report on Form 10-K/A 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.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Other Significant Accounting Policies
Our significant accounting policies are summarized below and in Note A to our
consolidated financial statements included in our Annual Report on Form 10-K/A.
Revenue
. 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 as payments are received
and merchandise sales revenue is recognized when the customer exercises their
purchase option and pays the cash price due. No revenue is accrued because the
customer can cancel the rental contract at any time and we cannot enforce
collection for non-payment of rents. Because Get It Now makes retail sales on
an installment credit basis, Get It Now’s revenue is recognized at the time of
such retail sale, as is the cost of the merchandise sold, net of a provision
for uncollectable accounts.
Franchise Revenue.
Revenue from the sale of rental merchandise is recognized
upon shipment of the merchandise to the franchisee. Franchise fee revenue is
recognized upon completion of substantially all services and satisfaction of
all material conditions required under the terms of the franchise agreement.
Depreciation of Rental Merchandise
. We depreciate our rental merchandise using
the income forecasting method. The income forecasting method of depreciation we
use does not consider salvage value and does not allow the depreciation of
rental merchandise during periods when it is not generating rental revenue. The
objective of this method of depreciation is to provide for consistent
depreciation expense while the merchandise is on rent. We accelerate 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,
generally not to exceed an aggregate depreciation period of 30 months. The
purpose is to better reflect the depreciable life of a computer in our stores
and to encourage the sale of older computers.
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, delivery, 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.
Results of Operations
Six Months Ended June 30, 2004 compared to Six Months Ended June 30, 2003
Store Revenue
. Total store revenue increased by $38.2 million, or 3.5%, to
$1,133.5 million for the six months ended June 30, 2004 as compared to $1,095.3
million for the six months ended June 30, 2003. The increase in total store
revenue is primarily attributable to approximately $55.5 million in incremental
revenue from new stores and acquisitions during the first six months of 2004 as
compared to 2003, offset by a decrease in same store sales of 2.2%.
Same store revenues represent those revenues earned in stores that were
operated by us for each of the entire six month periods ending June 30, 2004
and 2003, excluding store locations that received accounts through an
acquisition or merger of an existing store location. Same store revenues
decreased by $19.5 million, or 2.2%, to $860.2 million for the six months ended
June 30, 2004 as compared to $879.7 million in 2003. The decrease in same
store revenues was primarily attributable to a decrease in the average number
of customers on a per store basis during the first six months of 2004 versus
the first six months of 2003, offset by an increase in the average revenue per
customer.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Franchise Revenue
. Total franchise revenue increased by $528,000, or 2.2%, to
$24.9 million for the six months ended June 30, 2004 as compared to $24.4
million in 2003. This increase was primarily attributable to an increase in
merchandise sales to franchise locations as a result of more franchised
locations operating in the first six months of 2004 as compared to the first
six months of 2003.
Depreciation of Rental Merchandise
. Depreciation of rental merchandise
increased by $4.4 million, or 2.0%, to $220.4 million for the six months ended
June 30, 2004 as compared to $216.0 million in 2003. This increase is a result
of an increase in rental revenue for the first six months of 2004 compared to
the first six months of 2003. Depreciation of rental merchandise expressed as a
percentage of store rentals and fees revenue decreased slightly to 21.5% in
2004 from 21.6% for the same period in 2003. The slight decrease was primarily
attributable to a more normalized depreciation rate in the first six months of
2004 as compared to 2003, resulting from the continued integration of the
inventory acquired in our acquisition of 295 stores from Rent-Way in February
of 2003, offset slightly by the depreciation associated with the
Rainbow Rentals and
Rent Rite acquisitions in May 2004.
Cost of Merchandise Sold
. Cost of merchandise sold increased by $4.2 million,
or 6.9%, to $65.0 million for the six months ended June 30, 2004 as compared to
$60.8 million in 2003. This increase was primarily a result of an increase in
the number of items sold during the first six months of 2004 as compared to the
first six months 2003. The gross margin percent of merchandise sales increased
to 30.9% in 2004 from 28.6% in 2003. This percentage increase was primarily
attributable to the sale of merchandise acquired from Rent-Way in February
2003, which caused a lower gross margin to occur in 2003 versus 2004.
Salaries and Other Expenses
. Salaries and other expenses increased by $35.9
million, or 6.1%, to $620.1 million for the six months ended June 30, 2004 as
compared to $584.2 million in 2003. The increase was primarily the result of
an increase in salaries and wages and occupancy costs due to an increased
number of stores in the 2004 period. Salaries and other expenses were also
negatively impacted by the increase in gasoline prices, which increases our
delivery expense. Salaries and other expenses expressed as a percentage of
total store revenue increased to 54.7% for the six months ended June 30, 2004
from 53.3% for the six months ended June 30, 2003. This increase was primarily
attributable to the decrease in same store sales coupled with an increase in
salaries and other expenses in the first six months of 2004 compared to the
first six months of 2003 resulting from an increase in our store base. In the
first six months of 2004, there were 24 more new stores and 52 more acquired
stores open as compared to 2003, which are not yet performing at the level of a
mature store. We expect salaries and other expenses to continue to increase as
we implement our new store initiatives.
Franchise Cost of Merchandise Sold
. Franchise cost of merchandise sold
increased by $609,000 or 3.0%, to $21.1 million for the six months ended June
30, 2004 as compared to $20.5 million in 2003. This increase was primarily
attributable to an increase in merchandise sales to franchise locations as a
result of more franchised locations operating in the first six months of 2004
as compared to the first six months of 2003.
General and Administrative Expenses
. General and administrative expenses
expressed as a percentage of total revenue increased to 3.2% for the six months
ending June 30, 2004 as compared to 3.0% for the six months ending June 30,
2003. This increase is primarily attributable to the operation of the Rainbow
Rentals and Rent Rite headquarters during the integration and transition period
pursuant to those acquisitions, as well as the impact of a decrease in our same
stores sales for the first six months of 2004.
Amortization of Intangibles
. Amortization of intangibles decreased by
$523,000, or 8.5%, to $5.6 million for the six months ended June 30, 2004, as
compared to $6.2 million for the six months ended June 30, 2003. This decrease
was primarily attributable to the completed amortization of some intangibles,
offset by the customer relationship and non-compete amortization related to the
Rainbow Rentals and Rent Rite acquisitions in May 2004.
Operating Profit
. Operating profit decreased by $10.6 million, or 5.5%, to
$182.9 million for the six months ended June 30, 2004 as compared to $193.5
million in 2003. Operating profit as a percentage of total revenue decreased
to 15.8% for the six months ended June 30, 2004, from 17.3% in 2003. These
decreases were primarily attributable to the increase in salaries and other
expenses and the decrease in same store sales during the first six months of
2004 versus 2003 as discussed above. In
the first six months of 2004, there were 24 more new stores and 52 more
acquired stores open as compared to 2003, which are not yet performing at the
level of a mature store.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Net Earnings
. Net earnings increased by $17.1 million, or 19.9%, to $103.4
million for the six months ended June 30, 2004 as compared to $86.3 million in
2003. This increase is primarily attributable to growth in total revenues and
a decrease in interest expense offset by increases in salaries and other
expenses and general and administrative expenses, and the finance charges
incurred during the second quarter of 2003 resulting from the recapitalization
initiated during the same period. When excluding the effect of the
recapitalization finance charges incurred in the second quarter of 2003, our
net earnings increased approximately $100,000 in the first six months of 2004
as compared to 2003.
Three Months Ended June 30, 2004 compared to Three Months Ended June 30, 2003
Store Revenue
. Total store revenue increased by $19.6 million, or 3.6%, to
$562.0 million for the three months ended June 30, 2004 as compared to $542.4
million for the three months ended June 30, 2003. The increase in total store
revenue is primarily attributable to approximately $30.0 million in incremental
revenue from new stores and acquisitions during the second quarter of 2004 as
compared to 2003, offset by a decrease in same store sales of 2.3%.
Same store revenues represent those revenues earned in stores that were
operated by us for each of the entire three month periods ending June 30, 2004
and 2003, excluding store locations that received accounts through an
acquisition or merger of an existing store location. Same store revenues
decreased by $10.4 million, or 2.3%, to $444.7 million for the three months
ended June 30, 2004 as compared to $455.1 million in 2003. The decrease in
same store revenues was primarily attributable to a decrease in the average
number of customers on a per store basis during the second quarter of 2004
versus the second quarter of 2003 offset by an increase in the average revenue
per customer.
Franchise Revenue
.
Total franchise revenue increased by $202,000, or 1.9%, to
$11.0 million for the three months ended June 30, 2004 as compared to $10.8
million in 2003. This increase was primarily attributable to an increase in
merchandise sales to franchise locations as a result of more franchised
locations operating in the second quarter of 2004 as compared to the second
quarter of 2003.
Depreciation of Rental Merchandise
. Depreciation of rental merchandise
increased by $2.8 million, or 2.5%, to $112.1 million for the three months
ended June 30, 2004 as compared to $109.3 million in 2003. Depreciation of
rental merchandise expressed as a percentage of store rentals and fees revenue
decreased to 21.5% in 2004 from 21.7% for the same period in 2003. The slight
decrease was primarily attributable to a more normalized depreciation rate in
the three month period ending June 30, 2004 as compared to 2003, pursuant to
the continued integration of the inventory acquired in the acquisition of
Rent-Way in February of 2003, offset slightly by the depreciation associated
with the Rainbow Rentals and Rent Rite acquisitions in May 2004.
Cost of Merchandise Sold
. Cost of merchandise sold increased by $1.1 million,
or 4.6%, to $25.3 million for the three months ended June 30, 2004 as compared
to $24.2 million in 2003. This increase was primarily a result of an increase
in the number of items sold during the second quarter of 2004 as compared to
the second quarter of 2003. The gross margin percent of merchandise sales
increased to 26.7% in 2004 from 25.5% in 2003. This percentage increase was
primarily attributable to the sale of merchandise acquired from Rent-Way in
February 2003, which caused a lower gross margin to occur in 2003 versus 2004.
Salaries and Other Expenses
. Salaries and other expenses increased by $19.3
million, or 6.6%, to $311.1 million for the three months ended June 30, 2004 as
compared to $291.7 million for the three months ended June 30, 2003. The
increase was primarily the result of an increase in salaries and wages and
occupancy costs due to an increased number of stores in the 2004 period.
Salaries and other expenses were also negatively impacted by the increase in
gasoline prices, which increases our delivery expense. Salaries and other
expenses expressed as a percentage of total store revenue increased to 55.4%
for the three months ended June 30, 2004 from 53.8% for the three months ended
June 30, 2003. This increase was primarily attributable to the decrease in same
store sales coupled with an increase in salaries and other expenses in the
second quarter of 2004 compared to the second quarter of 2003 resulting from an
increase in our store base. In the second quarter of 2004,
there were 24 more new stores and 52 more acquired stores open as compared to
2003, which are not yet performing at the level of a mature store. We expect
salaries and other expenses to continue to increase as we implement our new
store initiatives.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Franchise Cost of Merchandise Sold
. Franchise cost of merchandise sold
increased by $268,000 or 3.0%, to $9.2 million for the three months ended June
30, 2004 as compared to $9.0 million in 2003. This increase was primarily
attributable to an increase in merchandise sales to franchise locations as a
result of more franchised locations operating in the second quarter of 2004 as
compared to the second quarter of 2003.
General and Administrative Expenses
. General and administrative expenses
expressed as a percentage of total revenue increased to 3.4% for the three
months ending June 30, 2004 as compared to 3.0% for the three months ending
June 30, 2003. This increase is primarily attributable to the operation of the
Rainbow Rentals and Rent Rite headquarters during the integration and transition period
pursuant to those acquisitions, as well as the impact of a decrease in our same
stores sales for the three month period ending June 30, 2004.
Amortization of Intangibles
. Amortization of intangibles decreased by
$138,000, or 4.2%, to $3.2 million for the three months ended June 30, 2004 as
compared to $3.3 million for the three months ended June 30, 2003. This
decrease was primarily attributable to the completed amortization of some
intangibles, offset by the customer relationship and non-compete amortization
related to the Rainbow Rentals and Rent Rite acquisitions in May 2004.
Operating Profit
. Operating profit decreased by $7.0 million, or 7.2%, to
$90.2 million for the three months ended June 30, 2004 as compared to $97.2
million in 2003. Operating profit as a percentage of total revenue decreased
to 15.7% for the three months ended June 30, 2004, from 17.6% in 2003. These
decreases were primarily attributable to the increase in salaries and other
expenses and the decrease in same store sales during the second quarter of 2004
versus 2003 as discussed above. In the second quarter of 2004, there were 24
more new stores and 52 more acquired stores open as compared to 2003, which are
not yet performing at the level of a mature store.
Net Earnings
. Net earnings increased by $15.9 million, or 45.0%, to $51.2
million for the three months ended June 30, 2004 as compared to $35.3 million
in 2003. This increase is primarily attributable to growth in total revenues
and a decrease in interest expense, offset by increases in salaries and other
expenses and general and administrative expenses, and the finance charges
incurred during the second quarter of 2003 resulting from the recapitalization
initiated during the same period. When excluding the effect of the
recapitalization finance charges incurred in the second quarter of 2003, our
net earnings decreased $1.1 million to $51.2 million for the three months ended
June 30, 2004 as compared to $52.3 million for the three months ended June 30,
2003. This slight decrease is primarily attributable to the temporary impact
of the Rainbow Rentals and Rent Rite acquisitions, our new store initiatives, as well
as the decrease in our same store sales.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
Cash provided by operating activities increased by $16.3 million to $199.7
million for the six months ending June 30, 2004 as compared to $183.4 million
in 2003. This increase resulted primarily from an increase in net earnings and
an increase in accrued liabilities during the first six months of 2004 as
compared to 2003, consisting primarily of income taxes accrued for but not yet
due, offset by a decrease in deferred income taxes.
Cash used in investing activities increased by $58.7 million to $187.5 million
during the six month period ending June 30, 2004 as compared to $128.8 million
in 2003. This increase is primarily attributable to the acquisition of the
stores from Rent Rite and Rainbow Rentals in May 2004 coupled with an increase in
property assets purchased during the period.
Cash used in financing activities increased by $177.9 million to $70.0 million
during the six month period ending June 30, 2004 as compared to $107.9 million
provided by financing activities in 2003. This increase is primarily related
to the 2003 activity relating to our recapitalization. In 2003, we issued
$300.0 million in senior subordinated notes and received the proceeds of a
$400.0 million term loan under our previous senior credit facility, offset by the
repurchase of $201.9 million of our 11% notes, the repayment of $249.5 million
of our then-existing debt and the repurchase of $142.6 million of our common
stock, which related to our 2003 recapitalization. In the six month period
ending June 30, 2004, we repurchased $77.3 million in aggregate purchase price
of our common stock.
Liquidity Requirements.
Our primary liquidity requirements are for debt
service, rental merchandise purchases, capital expenditures and our store
expansion program. Our primary sources of liquidity have been cash provided by
operations, borrowings and sales of debt and equity securities. In the future,
we may incur additional debt, or may issue debt or equity securities to finance
our operating and growth strategies. The availability and attractiveness of any
outside sources of financing will depend on a number of factors, some of which
relate to our financial condition and performance, and some of which are beyond
our control, such as prevailing interest rates and general economic conditions.
There can be no assurance that additional financing will be available, or if
available, that it will be on terms we find acceptable.
We believe that the cash flow generated from operations, together with amounts
available under our senior credit facilities, will be sufficient to fund our
debt service requirements, rental merchandise purchases, capital expenditures
and our store expansion programs into 2005. Our revolving credit facilities
provide us with revolving loans in an aggregate principal amount not exceeding
$250.0 million, of which $113.3 million was available at July 28, 2004. At
July 28, 2004, we had approximately
$111.1 million in cash. To the extent we
have available cash that is not necessary for working capital, store openings
or acquisitions, we intend to repurchase additional shares of our common stock
as well as make payments to service our existing debt. 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 senior credit facilities and the indenture governing our 7½% notes
contain certain change in control provisions. A change in control would result
in an event of default under our senior credit facilities, and, pursuant to the
underlying indenture would also require us to offer to repurchase all of our
7½% notes at 101% of their principal amount, plus accrued interest to the
date of repurchase. Provisions of our senior credit facilities restrict the
repurchase of all of our 7½% 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 7½%
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. For assets placed in service between May 6,
2003 and December 31, 2004, the Jobs and Growth Tax Relief Reconciliation Act
of 2003 increased the percent of the basis of qualifying property deductible in
the year the property is placed in service from 30% to 50%. 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
have increased by approximately $102.4 million through 2004 before the deferred
tax liabilities begin to reverse over a three year period beginning in 2005.
Rental Merchandise Purchases
. We purchased $311.7 million and $305.1 million
of rental merchandise during the six month periods ending June 30, 2004 and
2003, respectively.
27
RENT-A-CENTER, INC. AND SUBSIDIARIES
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 $34.9 million and $22.9 million on capital expenditures
during the six month periods ending June 30, 2004 and 2003, respectively, and
expect to spend approximately $25.0 million for the remainder of 2004.
Acquisitions and New Store Openings.
For the first six months of 2004, we
spent approximately $156.0 million on acquiring stores and accounts. For the
entire year ending December 31, 2004, we intend to add approximately 5-10% to
our store base by opening approximately 80-120 new store locations as well as
pursuing opportunistic acquisitions.
On May 7, 2004, we
completed the acquisition of Rent Rite for an aggregate
purchase price of $59.9 million. Rent Rite operated 90 stores in 11 states, of
which we subsequently merged 26 stores with our existing store locations.
Approximately 40% of the consideration was paid with our common stock, with the
remaining portion consisting of cash, the assumption of Rent Rite’s stock
options and retirement of Rent Rite’s outstanding debt.
On May 14, 2004, we completed the acquisition of Rainbow Rentals for an
aggregate purchase price of $109.0 million. Rainbow Rentals operated 124
stores in 15 states, of which we subsequently merged 29 stores with our
existing store locations. We funded the acquisition entirely with cash on
hand.
We entered into these transactions seeing them as opportunistic acquisitions
that would allow us to expand our store base in conjunction with our strategic
growth plans. The prices of the acquisitions were determined by evaluating the
average monthly rental income of the acquired stores and applying a multiple to
the total.
Furthermore, during the first six months of 2004, we acquired 20 additional
stores, accounts from 28 additional locations, opened 47 new stores, and closed
32 stores. Of the closed stores, 25 were merged with existing store locations,
and seven stores were sold. The additional stores and acquired accounts were
the result of 22 separate transactions for an aggregate price of approximately
$13.6 million in cash. As of July 28, 2004, we have
acquired two additional stores and accounts from five additional
locations, opened five new stores, merged one store into an existing location and sold one store during the third quarter of 2004. It
is our intention to increase the number of stores we operate by an average of
approximately 5 to 10% per year.
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. Additionally, we cannot assure that
the stores we do acquire or open will be profitable at the same levels that our
current stores are, or at all.
Senior Credit Facilities.
On May 28, 2003, we entered into a senior credit
facility provided by a syndicate of banks and other financial institutions led
by Lehman Commercial Paper Inc., as administrative agent. At June 30, 2004,
we had a total of $396.0 million outstanding under these senior credit
facilities related to our term loans and $88.3 million of availability under
the revolving credit line portion of the senior credit facilities.
The table below shows the scheduled maturity dates of our senior debt
outstanding at June 30, 2004.
On July 14, 2004, we announced the completion of the refinancing of our new
senior secured debt. Our new $600.0 million senior credit facilities consist
of a $350.0 million term loan and a $250.0 million revolving credit facility.
On that day, we drew down the $350.0 million term loan and $50.0 million of
revolving facility and utilized the proceeds to repay our existing senior term
debt. In connection with the refinancing, we will record a $4.2 million
non-cash charge to write off the remaining unamortized balance of financing
costs in the third quarter.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
The table below shows the scheduled maturity dates of our new term debt
outstanding as if it was outstanding on June 30, 2004.
The full amount of the new revolving credit facility may be used for the
issuance of letters of credit, of which $86.7 had been utilized as of July 28,
2004. The revolving credit facility expires in July 2009 and the term loan
expires in 2010.
Borrowings under our new senior credit facilities bear interest at varying
rates equal to 1.75% over the Eurodollar rate, which was 1.48% at July 28, 2004.
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 the term loans under our 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. Our new senior credit facilities are also secured by a pledge of
the capital stock of our U.S. subsidiaries, and a portion of the capital stock
of our international subsidiaries.
The new senior credit facilities contain covenants, including without limitation, those that
generally limit our ability to:
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, 2004, we were in compliance with our previous covenants and the
table below shows the required and actual ratios under our new credit
facilities calculated as at June 30, 2004:
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. An event of default under the senior credit facilities would occur
if there is a change of control. This is defined to include the case where a
third party becomes the beneficial owner of 35% or more of our voting stock or
certain changes in our Board of Directors occurs. An event of default would
also occur if one or more judgments were entered against us of $20 million or
more and such judgments were not satisfied or bonded pending appeal within 30
days after entry.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
7½% Senior Subordinated Notes.
On May 6, 2003, we issued $300.0 million in
senior subordinated notes due 2010, bearing interest at 7½%, pursuant to an
indenture dated May 6, 2003, among Rent-A-Center, Inc., its subsidiary
guarantors and The Bank of New York, as trustee. The proceeds of this offering
were used to fund the repurchase and redemption of the 11% senior subordinated
notes.
The 2003 indenture contains covenants that limit Rent-A-Center’s ability to:
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, as well as in the event a judgment is entered against
us in excess of $50.0 million that is not discharged, bonded or insured.
The 7½% 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 7½% 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 senior credit facilities.
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
2011.
ColorTyme Guarantee.
ColorTyme is a party to an agreement with Wells Fargo
Foothill, Inc., who provides $50.0 million in aggregate financing to qualifying
franchisees of ColorTyme generally of up to five times their average monthly
revenues. Under the Wells Fargo agreement, upon an event of default by the
franchisee under agreements governing this financing and upon the occurrence of
certain other events, Wells Fargo can assign the loans and the collateral
securing such loans to ColorTyme, with ColorTyme then succeeding to the rights
of Wells Fargo under the debt agreements, including the right to foreclose on
the collateral. An additional $15.0 million of financing is provided by Texas
Capital Bank, National Association under an agreement similar to the Wells
Fargo financing. Rent-A-Center East guarantees the obligations of ColorTyme
under each of these agreements, not considering the effects of any amounts that
could be recovered under collateralization provisions, up to a maximum amount
of $65.0 million, of which $27.9 million was outstanding as of June 30, 2004.
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.
Litigation.
We are currently a party to litigation pending in California
styled
Benjamin Griego, et al. v. Rent-A-Center, Inc., et al.,
alleging we
violated various provisions of the California Rental Purchase Act. As
discussed later in this report, in the event that a trial court judgment was
entered against us in that matter, we would be required to post a cash bond in
an amount equal to 1.5 times any damage award to enable us to appeal. We may not have cash
immediately available to post a bond in such amount at the required time. To
raise such cash, we may be required to raise debt or equity or take other
similar actions. Although we
believe we would be able to raise sufficient cash to support such a bond, we
cannot assure you that we will be able to do so, and the terms of such
financing could be less favorable to us than the terms we have obtained on our
existing financing.
Any settlements or judgments against us on our existing litigation could affect
our liquidity. Please refer to Part II Item 1 later in this report.
Sales of Equity Securities.
During 1998, we issued 260,000 shares of our
preferred stock at $1,000 per share, resulting in aggregate proceeds of $260.0
million. Dividends on our 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 preferred stock in August 2002, we paid these dividends in
additional shares of preferred stock because of restrictive provisions in our
senior credit facilities. We have the ability to pay the dividends in cash and
may do so under our senior credit facilities so long as we are not in default.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
In connection with the repurchase of 774,547 shares of our common stock (on a
pre-split basis) from Apollo in July 2003, Apollo exchanged their shares of
Series A preferred stock for shares of Series C preferred stock. As a result,
no shares of Series A preferred stock remain outstanding. The terms of the
Series A preferred stock and Series C preferred stock are substantially
similar, except the Series C preferred stock does not have the right to
directly elect any members of our Board of Directors.
Repurchases of Outstanding Securities.
On April 25, 2003, we announced that we
entered into an agreement with Apollo 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 at
the price per share paid in the tender offer. On April 28, 2003, we commenced
a tender offer to purchase up to 2.2 million shares of our common stock (on a
pre-split basis) pursuant to a modified “Dutch Auction.” On June 25, 2003, we
closed the tender offer and purchased 1,769,960 shares of our common stock (on
a pre-split basis) at $73 per share (on a pre-split basis) for approximately
$129.2 million. On July 11, 2003, we closed the Apollo transaction and
purchased 774,547 shares of our common stock (on a pre-split basis) at $73 per
share (on a pre-split basis) for approximately $56.5 million. As contemplated
by the Apollo agreement, Apollo also exchanged their shares of Series A
preferred stock for shares of Series C preferred stock.
In April 2000, we announced that our Board of Directors had authorized a
program to repurchase, from time to time, in the open market and in privately
negotiated transactions, up to an aggregate of $25.0 million of our common
stock. Our Board of Directors increased the amount of repurchases authorized
under our common stock repurchase program over a period of time to $100.0
million. We repurchased a total of approximately 1.6 million shares (on a
pre-split basis) of our common stock for an aggregate of $91.5 million under
this common stock repurchase program through October 24, 2003.
On October 24, 2003 we announced our Board of Directors had rescinded our old
common stock repurchase program and authorized a new common stock repurchase
program, permitting us to purchase, from time to time, in the open market and
privately negotiated transactions, up to an aggregate of $100.0 million of our
common stock. On May 19, 2004, the Board of Directors increased the amount of
repurchases authorized under the new stock repurchase program from $100.0
million to $115.0 million. As of June 30, 2004, we had purchased a total of
3,457,000 shares of our common stock for an aggregate of $104.2 million under
our new common stock repurchase program. On July 26, 2004, we announced that
our Board of Directors increased the authorization for stock repurchases under
our new common stock repurchase program to $200.0 million. Please see “Changes
in Securities, Use of Proceeds and Issuer Purchases of Equity Securities” later
in this report.
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. Recent nationwide increases in fuel and energy
costs may reduce the disposable income of our customers and could adversely
impact our results of operations.
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 demand for our products in the third quarter of each fiscal year when 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 or slightly below 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.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
As of June 30, 2004, we had $300.0 million in subordinated notes outstanding at
a fixed interest rate of 7½% and $396.0 million in term loans outstanding
at interest rates indexed to the Eurodollar rate. The fair value of the
subordinated notes is estimated based on discounted cash flow analysis using
interest rates currently offered for loans with similar terms to borrowers of
similar credit quality. The fair value of the 7½% subordinated notes at
June 30, 2004 was $304.5 million which is $4.5 million above their carrying
value. Unlike the subordinated notes, the $396.0 million in term loans have
variable interest rates indexed to current Eurodollar rates. As of June 30,
2004, we have not entered into any interest rate swap agreements with respect
to term loans under our 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 our 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 the
Eurodollar rate that exposes us to the risk of increased interest costs if
interest rates rise.
Item 4. Controls and Procedures
An evaluation was performed under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this quarterly
report. Based on that evaluation, our management, including our Chief
Executive Officer and our Chief Financial Officer, concluded that our
disclosure controls and procedures were effective. There have been no
significant changes in our internal controls or in other factors that have
materially affected, or are reasonably likely to materially affect, our
internal controls.
PART II – Other Information
Item 1. Legal Proceedings
From time to time, we, along with our subsidiaries, are party to various legal
proceedings arising in the ordinary course of business. Except as described
below, we are not currently a party to any material litigation. The ultimate
outcome of our litigation is uncertain and the amount of any loss we may incur,
if any, cannot in our judgment be reasonably estimated. Accordingly, other
than with respect to anticipated legal fees and expenses, no provision has been
made in our consolidated financial statements for any such loss.
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
disclose effective interest under New York consumer protection laws, and seeks
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.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
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.
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 alleged that the defendants violated Sections 10(b)
and/or Section 20(a) of the Securities 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 purported to be brought on behalf of
all purchasers of our common stock from April 25, 2001 through October 8, 2001
and sought 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, to which we
replied on May 21, 2003. A hearing was held by the court on June 26, 2003 to
hear each of these motions.
On September 30, 2003, the court granted our motion to dismiss without
prejudice, dismissed without prejudice the outside directors’ and underwriters’
separate motions to dismiss and denied our motion to transfer venue. In its
order on the motions to dismiss, the court granted the lead plaintiffs leave to
replead the case within certain parameters. On October 9, 2003, the lead
plaintiffs filed a motion for reconsideration with the court with respect to
the Securities Act claims. We filed our response to this motion on October 24,
2003. On June 4, 2004, the court denied the plaintiffs’ motion for
reconsideration with respect to the Securities Act claims and required the
plaintiffs to replead the case no later than July 7, 2004, should they choose
to do so.
On July 7, 2004, the plaintiffs again repled their claims by filing a third
amended consolidated complaint, raising allegations of similar violations
against the same parties generally based upon alleged facts not previously
asserted. Our response to the third amended consolidated complaint is due on
August 23, 2004.
We continue to 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.
Benjamin Griego, et al. v. Rent-A-Center, Inc., et al.
This matter is a
state-wide class action originally filed in San Diego, California on January
21, 2002 by Benjamin Griego. A similar matter, entitled
Arthur Carrillo, et
al. v. Rent-A-Center, Inc., et al
, filed on April 12, 2002 in Los Angeles,
California, was coordinated with
Griego
in the Superior Court for the County of
San Diego on September 10, 2002.
On February 28, 2003, the plaintiffs filed a consolidated amended complaint
alleging various claims, including that our cash sales prices exceed the
pricing permitted under the California Rental Purchase Act, that the guaranteed
merchandise replacement benefit in the third-party membership program offered
by us to our customers in California violates the prohibitions in the Rental
Purchase Act relating to the sale of loss damage waiver and property insurance,
that the
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RENT-A-CENTER, INC. AND SUBSIDIARIES
membership program prematurely offers service contracts to our customers, and
that the fee for the membership program is excessive. In addition, the
plaintiffs allege that portions of our form of rental purchase agreement in
California do not strictly comply with the type-size requirements under the
Rental Purchase Act. The plaintiffs further allege that our rental purchase
documentation improperly references certain merchandise as “previously rented”
rather than “used,” does not contain all of the required disclosures and terms
of the transaction, and includes language that the plaintiffs interpret as
affording us rights not permitted under the applicable California statutes.
In accordance with a previously issued opinion from the California Legislative
Counsel, we believe that the pricing formula utilized by us in California
complies with the Rental Purchase Act. In addition, we believe that under
California case law, courts have found that arrangements similar to the
guaranteed merchandise replacement benefit offered to our customers do not
constitute insurance.
Upon notification of the alleged violations, we promptly modified our rental
purchase documentation in California, including increasing the type-size in the
relevant portion of our rental purchase agreements from 9-point type to
10-point type and modifying the language in our rental purchase documentation
to, among other things, refer to “previously rented” merchandise as “used.” In
addition, we dispute plaintiffs’ interpretation of the language in our rental
purchase agreement and note that the rights the plaintiffs contend were granted
to us were never asserted by us. In connection with the revisions described
above, we also modified our rental purchase documentation to clarify our
disclosures and the disputed language. As part of that process, we promptly
communicated to our California customers that their statutory rights remained
intact. Accordingly, we believe that no harm to our customers could have
occurred as a result of these claims.
The plaintiffs have not alleged specific damages in the amended complaint, but
contend that no proof of actual harm or damage on the part of the individual
consumer is necessary to establish recovery for these claims, which we
vigorously dispute. Under the Rental Purchase Act, a consumer damaged by a
violation of the Rental Purchase Act is entitled to recover actual damages,
statutory damages equal to twenty-five percent of an amount equal to the total
amount of payments to obtain ownership if all payments were made under the
rental purchase agreement (but not less than $100 nor more than $1,000),
reasonable attorney’s fees and court costs, exemplary damages for intentional
or willful violations, and equitable relief. The Rental Purchase Act also
provides that with respect to certain violations, a rental purchase agreement
is voidable by the consumer. Furthermore, the statute provides that if a
lessor willfully discloses a cash price that exceeds the price permitted under
the statute, the contract is void and the consumer is entitled to keep the
merchandise and recover a full refund of all payments. A consumer who suffers
any damage from a violation of the Consumer Legal Remedies Act is entitled to
recover actual damages, injunctive relief, restitution, punitive damages,
certain civil penalties and attorneys’ fees and costs.
On October 17, 2003, the plaintiffs filed their motion for class certification.
On October 24, 2003, we filed a motion to dismiss certain of the plaintiffs’
claims and on October 31, 2003, filed our opposition to the plaintiffs’ motion
for class certification. The hearing on our motion to dismiss and plaintiffs’
motion for class certification was held on November 14, 2003. On December 4,
2003, the court denied our motion to dismiss and granted the plaintiffs’ motion
for class certification. The class definition includes our customers in
California from February 1, 1999 through January 31, 2002, and encompasses
customers who entered into approximately 407,000 rental purchase agreements.
Such customers also purchased approximately 167,000 memberships. With respect
to such rental purchase agreements, we believe that twenty-five percent of the
total amount of payments to obtain ownership (the maximum percentage applicable
to statutory damages) was approximately $600 per agreement on average. On
February 20, 2004, the court ruled that it would enter an order certifying the
class described above and, with respect to the cash price claims, a sub-class
of our customers during the same time period who rented electronic appliances
and entertainment equipment. We believe this sub-class encompasses customers
who entered into approximately 249,000 of the 407,000 rental purchase
agreements, with an average revenue of approximately $700 per agreement. On
March 16, 2004, the court entered the certification order.
On February 13, 2004, we filed motions seeking rulings by the court on a series
of legal questions applicable to plaintiffs’ claims. The plaintiffs
subsequently filed a cross-motion with respect to one of the legal questions.
On April 2, 2004, the court ruled with respect to these motions. These rulings
include that there is no requirement that class members prove actual damages
resulting from violations of the Rental Purchase Act, and that the pricing
formula referenced in the Rental Purchase Act is merely evidence of permissible
“cash prices” under the Rental Purchase Act as opposed to a statutory
determination of permissible “cash prices.” The court also ruled, without
prejudice, that our service contracts made available under our membership
program are offered and sold in violation of the Rental Purchase Act but agreed
to allow us to present evidence to the contrary later in the proceeding. The
court also concurred with our position that the contract terms for the
membership program need not be contained in the rental purchase agreement.
A mediation with the plaintiffs’ counsel was held on April 23, 2004, and
discovery in the case is continuing. On May 28, 2004, we petitioned the
California Court of Appeal to review certain of the April 2004 trial court
rulings. On June 24, 2004, the California Court of Appeal denied our petition
to hear our appeal at this time, but did not rule on the merits. On July 6,
2004, we petitioned the California Supreme Court to review the Court of
Appeal’s denial.
34
RENT-A-CENTER, INC. AND SUBSIDIARIES
We intend to file a motion in the trial court to decertify or modify the class
on the grounds that the trial court’s rulings, such as that regarding
permissible “cash prices,” indicate a predominance of individualized claims.
We are continuing through the mediation process to attempt to negotiate a
reasonable settlement of the case. In addition, we anticipate seeking a ruling
from the trial court at the appropriate time that any allowable statutory
damages are limited to rental purchase agreements entered into within the
one-year period prior to the plaintiffs’ January 31, 2002 filing date, rather
than the three-year period contended by plaintiffs due to California law
provisions limiting the imposition of mandatory civil penalties.
We continue to believe the claims in the plaintiffs’ complaint are unfounded,
that we have meritorious defenses to the allegations made and that a class
should not have been certified by the court. In the event the California
appellate courts refuse to hear our interlocutory appeals at this time, we
would be unable to present our arguments to them until a trial court judgment
is rendered. In the event that a trial court judgment were entered against us,
we would be required to post a cash bond in an amount equal to 1.5 times any
damage award to enable us to appeal. We will continue to vigorously defend
ourselves in this case, while seeking reasonable opportunities to resolve this
matter. Nevertheless, we cannot assure you that we will be found to have no
liability in this matter.
We recently received an inquiry from the California Attorney General regarding
our business practices in California with respect to our cash prices and our
membership program. We are cooperating with the Attorney General’s office in
this inquiry.
Carey Duron, et. al. v. Rent-A-Center, Inc.
This matter is a putative class
action filed on August 29, 2003 in the District Court of Jefferson County,
Texas by Carey Duron, who alleges we violated certain provisions of the Texas
Business and Commerce Code relating to late fees charged by us under our rental
purchase agreements in Texas. In the complaint, Duron alleges that her
contract provided for a percentage late fee greater than that permitted by
Texas law, that she was charged and paid a late fee in excess of the amount
permitted by Texas law and that we had a policy and practice of assessing and
collecting late fees in excess of that allowed by Texas law. Duron has not
alleged specific damages in the complaint, but seeks to recover actual damages,
statutory damages, interest, reasonable attorney’s fees and costs of court.
When this matter was filed, we promptly investigated Duron’s allegations,
including the formula we use to calculate late fees in Texas. While we do not
believe the formula utilized by us during this time period violated Texas law,
in late 2003, we sent written notice to approximately 29,500 of our Texas
customers for whom we had records and who were potentially adversely impacted
by our calculation. We also refunded approximately $37,000 in the aggregate to
the customers we could locate. In taking these measures, we believe we
complied with the curative measures provided for under the Texas statute. We
also reprogrammed our computer system in Texas to modify the formula by which
late fees are calculated.
On November 26, 2003, we filed a motion for summary judgment in this matter.
On December 4, 2003, Duron filed her motion for class certification. On March
11, 2004, we were notified that the court denied our summary judgment motion
and granted Duron’s motion for class certification. The certified class
includes our customers in Texas from August 29, 1999 through March 5, 2004 who
were charged and paid a late fee in excess of the amount permitted by Texas
law.
Under the Texas statute, a consumer damaged by a violation is entitled to
recover actual damages, statutory damages equal to twenty-five percent of an
amount equal to the total amount of payments required to obtain ownership of
the merchandise involved (but not less than $250 nor more than $1,000),
reasonable attorney’s fees and court costs. With respect to the approximately
29,500 Texas customers for whom we have records (representing approximately two
years of the recently certified class), we believe that twenty-five percent of
the total amount of payments to obtain ownership (the maximum percentage
applicable to statutory damages) under those rental purchase agreements was
approximately $600 per agreement on average.
We believe the claims in Duron’s complaint are unfounded and that we have
meritorious defenses to the allegations made. We further believe that a class
should not have been certified by the court, and have appealed the court’s
certification order, which we are entitled to do as a matter of right under
applicable Texas law. This matter has been stayed pending the decision on
appeal. Although we intend to vigorously defend ourselves in this case, we
cannot assure you that we will be found to have no liability in this matter.
State Wage and Hour Class Actions
. We are subject to various actions filed
against us in the states of Oregon, California and Washington alleging we
violated the wage and hour laws of such states. As of June 30, 2004, we
operated 24 stores in Oregon, 161 stores in California and 41 stores in
Washington.
35
RENT-A-CENTER, INC. AND SUBSIDIARIES
Rob Pucci, et. al. v. Rent-A-Center, Inc.
On August 20, 2001, this putative
class action was filed against us in state court in Multnomah County, Oregon
alleging we violated various provisions of Oregon state law regarding overtime,
lunch and work breaks, that we failed to pay all wages due to our Oregon
employees, and various 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. 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. We strongly disagree with
the court’s rulings against our positions and requested that the court grant us
interlocutory appeal on those matters. 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. On October 10, 2003, the
court issued an opinion letter stating that it would certify a class and not
permit an interlocutory appeal, and issued its written order to that effect on
December 9, 2003. We subsequently filed a petition for a writ of mandamus with
the Oregon Supreme Court, which was denied on January 24, 2004. On June 15,
2004, notice to the class was distributed advising them of their right to opt
out of the class. We intend to continue to challenge the appropriateness of
the court’s class certification. Although we believe the court’s certification
ruling is inappropriate and that the claims remaining in this case are without
merit, we cannot assure you we will be found to have no liability in this
matter.
Jeremy Burdusis, et al. v. Rent-A-Center, Inc., et al./Israel French, et al. v.
Rent-A-Center, Inc.
These matters pending in Los Angeles, California were
filed on October 23, 2001, and October 30, 2001, respectively, and allege
similar violations of the wage and hour laws of California as those in
Pucci
.
The same law firm seeking to represent the purported class in
Pucci
is seeking
to represent the purported class in
Burdusis
. The
Burdusis
and
French
proceedings are pending before the same judge in California. 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
. In June 2004, the
Burdusis
plaintiffs filed their appellate brief. Our response brief is due in September
2004.
On October 30, 2003, the plaintiffs’ counsel in
Burdusis
and
French
filed a new
non-class lawsuit in Orange County, California entitled
Kris Corso, et al. v.
Rent-A-Center, Inc.
The plaintiffs’ counsel later amended this complaint to
add additional plaintiffs, totaling approximately 339 individuals. The claims
made are substantially the same as those in
Burdusis
. On January 16, 2004, we
filed a demurrer to the complaint, arguing, among other things, that the
plaintiffs in
Corso
were misjoined. On February 19, 2004, the court granted
our demurrer on the misjoinder argument, with leave for the plaintiffs to
replead. On March 8, 2004, the plaintiffs filed an amended complaint in
Corso
,
increasing the number of plaintiffs to approximately 400. The claims in the
amended complaint are substantially the same as those in
Burdusis
. We filed a
demurrer with respect to the amended complaint on April 12, 2004, which the
court granted on May 6, 2004. However, the court allowed the plaintiffs to
again replead the action on a representative basis, which they did on May 26,
2004. We subsequently filed a demurrer. No decision has been entered by the
court with respect to our demurrer.
Kevin Rose, et al. v. Rent-A-Center, Inc. et al.
This matter pending in Clark
County, Washington was filed on June 26, 2001, and alleges similar violations
of the wage and hour laws of Washington as those in
Pucci
. The same law firm
seeking to represent the purported class in
Pucci
is seeking to represent the
purported class in this matter. 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. On September 8, 2003, the Commissioner
appointed by the Court of Appeals denied review of the
Rose
court decision. On
October 10, 2003, the
Rose
plaintiffs filed a motion seeking to modify the
Commissioner’s ruling, to which we responded on October 30, 2003. The Court of
Appeals denied the plaintiffs’ motion on November 26, 2003. Following the
denial by the Court of Appeals, the plaintiffs’ counsel filed 14 county-wide
putative class actions in Washington with substantially the same claims as in
Rose
. The purported classes in these county-wide class actions range from
approximately 20 individuals to approximately 100 individuals. In December
2003, we filed motions to dismiss and/or stay the class allegations in each of the
county-wide actions, arguing that the plaintiffs were collaterally estopped by
virtue of the previous ruling in
Rose
denying state-wide class certification.
Four of these motions were subsequently granted. Accordingly, ten of the
county-wide claims are proceeding as putative class actions and four are
proceeding on an individual plaintiff basis. The plaintiffs have not filed
motions to certify a class in any of the putative county-wide class actions.
In the event they do so, we intend to vigorously oppose class certification.
36
RENT-A-CENTER, INC. AND SUBSIDIARIES
Although the wage and hour laws and class certification procedures of Oregon,
California and Washington 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.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
In October 2003, we eliminated our then current stock repurchase program and
adopted a new stock repurchase program which as of June 30, 2004, authorized us
to repurchase up to $115.0 million in aggregate purchase price of our common
stock. As of June 30, 2004, we had repurchased $104.2 million in aggregate
purchase price of our common stock under our new stock repurchase program. In
the second quarter of 2004, we effected the following repurchases of our common
stock:
(1) As of June 30, 2004. On July 26, 2004, we announced that the program was increased by $85
million to $200 million.
On May 7, 2004, we completed the acquisition of Rent Rite, pursuant to which,
and as partial consideration for, shares of Rent Rite stock held by certain
Rent Rite shareholders were converted into the right to receive, in the
aggregate, 815,592 shares of our common stock. Under the merger agreement, the
market value of these shares was determined to be, in the aggregate,
approximately $23.9 million. In addition, in connection with this acquisition,
we assumed options of Rent Rite that are convertible into 554,102 shares of our
common stock at a weighted average exercise price of $11.05 per share. These
securities were not registered under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act and Rule 506
promulgated thereunder. Each Rent Rite shareholder who received shares of our
common stock and each Rent Rite optionholder represented to the Company in
writing that he or she is an “accredited investor” as defined in Rule 501
promulgated under the Securities Act.
37
RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 4. Submission of Matters to a Vote of Security Holders.
Our Annual Meeting of Stockholders was held on May 19, 2004. At the meeting,
our stockholders voted on two matters:
(1) election of three Class I Directors, and (2) a proposal to amend our
Certificate of Incorporation to increase the number of shares of our common
stock we are authorized to issue.
The individuals named below were re-elected to a three-year term as Class I
Directors:
The following directors’ terms of office as a director continued after the
Annual Meeting of Stockholders:
Mark E. Speese
The proposal to amend our Certificate of Incorporation to increase the number
of shares of our common stock authorized to be issued from 125,000,000 to
250,000,000 was approved and adopted with voting on the proposal as follows:
Item 6. Exhibits and Reports on Form 8-K.
Current Reports on Form 8-K
None.
Exhibits
The exhibits required to be furnished pursuant to Item 6 are listed in the
Exhibit Index filed herewith, which Exhibit Index is incorporated herein by
reference.
38
RENT-A-CENTER, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Report to be signed on its behalf
by the undersigned duly authorized officer.
Date: July 30, 2004
39
RENT-A-CENTER, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
40
RENT-A-CENTER, INC. AND SUBSIDIARIES
41
RENT-A-CENTER, INC. AND SUBSIDIARIES
42
RENT-A-CENTER, INC. AND SUBSIDIARIES
43
RENT-A-CENTER, INC. AND SUBSIDIARIES
44
Three months ended June 30,
2004
2003
(In thousands, except per share data)
Unaudited
$
520,593
$
504,352
34,599
32,528
5,801
4,745
967
812
9,668
9,261
1,357
1,562
572,985
553,260
112,113
109,341
25,350
24,235
2,477
2,090
311,058
291,726
9,214
8,946
460,212
436,338
19,392
16,388
3,158
3,296
482,762
456,022
90,223
97,238
—
27,748
10,252
13,070
(1,488
)
(1,208
)
81,459
57,628
30,265
22,328
51,194
35,300
—
—
$
51,194
$
35,300
$
0.64
$
0.40
$
0.62
$
0.39
Table of Contents
Six months ended June 30,
2004
2003
(In thousands, except per share data)
Unaudited
$
1,024,883
$
997,771
94,022
85,192
12,499
10,790
2,047
1,527
22,132
21,333
2,782
3,053
1,158,365
1,119,666
220,428
216,001
64,961
60,783
5,622
5,321
620,142
584,222
21,106
20,497
932,259
886,824
37,578
33,144
5,646
6,169
975,483
926,137
182,882
193,529
—
27,748
20,611
26,593
(2,991
)
(1,979
)
165,262
141,167
61,859
54,908
103,403
86,259
—
—
$
103,403
$
86,259
$
1.29
$
0.99
$
1.25
$
0.96
Table of Contents
June 30,
December 31,
2004
2003
(In thousands, except per share data)
Unaudited
$
86,164
$
143,941
14,940
14,949
57,155
70,702
565,977
542,909
169,044
137,792
1,172
1,666
134,413
121,909
888,426
788,059
12,912
9,375
$
1,930,203
$
1,831,302
$
69,834
$
72,708
186,649
132,844
117,500
132,918
396,000
398,000
300,000
300,000
2
2
1,069,985
1,036,472
1,018
1,012
603,632
572,628
713,337
609,930
(457,769
)
(388,740
)
860,218
794,830
$
1,930,203
$
1,831,302
Table of Contents
Six months ended June 30,
2004
2003
(In thousands)
Unaudited
$
103,403
$
86,259
220,428
216,001
23,083
20,953
5,646
6,169
424
419
(15,418
)
291
—
17,931
(209,329
)
(208,349
)
9
(3,942
)
20,508
17,865
(2,875
)
14,761
53,810
15,045
199,689
183,403
(34,853
)
(22,923
)
3,336
410
(155,953
)
(106,240
)
(187,470
)
(128,753
)
(77,266
)
(142,645
)
9,270
17,841
—
300,000
—
(15,963
)
—
400,000
—
(201,856
)
(2,000
)
(249,500
)
(69,996
)
107,877
(57,777
)
162,527
143,941
85,723
$
86,164
$
248,250
Table of Contents
Six months ended June 30,
2004
2003
Supplemental cash flow information
(in thousands)
$
19,408
$
32,773
$
57,050
$
41,141
$
185,790
$
106,240
$
155,953
$
106,240
The difference between the fair value of assets acquired and cash
paid is due to non-cash consideration, including approximately $23.9
million in common stock issued and the approximately $6.1 million in
fair value assigned to the stock options assumed in connection with
the acquisition of Rent Rite, Inc.
Table of Contents
1.
The interim financial statements of Rent-A-Center, Inc. included herein
have been prepared by us pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to the
Commission’s rules and regulations, although we believe that the
disclosures are adequate to make the information presented not misleading.
We suggest that these financial statements be read in conjunction with the
financial statements and notes included in our Annual Report on Form
10-K/A for the year ended December 31, 2003, and our Quarterly Report on
Form 10-Q for the three months ended March 31, 2004. In our opinion, the
accompanying unaudited interim financial statements contain all
adjustments, consisting only of those of a normal recurring nature,
necessary to present fairly our results of operations and cash flows for
the periods presented. The results of operations for the periods presented
are not necessarily indicative of the results to be expected for the full
year.
2.
Stock Split.
On July 28, 2003, we announced that our Board of Directors
had approved a 5 for 2 stock split on our common stock to be paid in the
form of a stock dividend. Each common stockholder of record on August 15,
2003 received 1.5 additional shares of common stock for each share of
common stock held on that date. No fractional shares were issued in
connection with the stock dividend. Each stockholder who would otherwise
have received a fractional share received an additional share of common
stock. The distribution date for the stock dividend was August 29, 2003.
The effect of the stock split has been recognized retroactively in the
stockholder’s equity accounts and in all share data in the consolidated
statements of earnings, notes to the consolidated financial statements and
management’s discussion and analysis, unless otherwise noted.
3.
Principles of Consolidation and Nature of Operations.
These financial
statements include the accounts of Rent-A-Center, Inc. and its direct and
indirect wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. Unless the context indicates
otherwise, references to “Rent-A-Center” refer only to Rent-A-Center,
Inc., the parent, and references to “we,” “us” and “our” refer to the
consolidated business operations of Rent-A-Center and all of its direct
and indirect subsidiaries.
At June 30, 2004, we operated 2,846 company-owned stores nationwide and in
Canada and Puerto Rico, including 21 stores in Wisconsin operated by a
subsidiary, Get It Now, LLC, under the name “Get It Now,” and five stores in
Canada operated by a subsidiary, Rent-A-Centre Canada, Ltd., under the name
“Rent-A-Centre.” 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., an indirect wholly-owned subsidiary of Rent-A-Center, is a
nationwide franchisor of rent-to-own stores. At June 30, 2004, ColorTyme had
319 franchised stores operating in 40 states. 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 is generated
primarily from royalties based on franchisees’ monthly gross revenues.
Table of Contents
4.
Reconciliation of Rental Merchandise
.
Six Months Ended
Six Months Ended
June 30, 2004
June 30, 2003
(in thousands)
$
682,367
$
631,724
64,925
52,258
311,662
305,130
(220,428
)
(216,001
)
(70,583
)
(66,104
)
(25,182
)
(22,303
)
(6,568
)
(8,374
)
$
736,193
$
676,330
(1)
Other inventory deletions include loss/damage waiver claims and
unrepairable and missing merchandise, as well as acquisition write-offs.
5.
Intangibles.
Amortization of intangibles consists primarily of the amortization of
customer relationships and non-compete agreements.
Intangibles consist of the following (in thousands):
Table of Contents
5.
Intangibles
– (continued)
The estimated remaining amortization expense, assuming current intangible
balances and no new acquisitions, for each of the fiscal years ending
December 31, is as follows:
Estimated
Amortization Expense
(in thousands)
$
4,911
6,627
1,273
101
—
$
12,912
Changes in the net carrying amount of goodwill are as follows:
6.
Stock Based Compensation
.
Rent-A-Center’s Amended and Restated Long-Term Incentive Plan (the “Plan”)
for the benefit of certain employees, consultants and directors provides the
Board of Directors broad discretion in creating equity incentives. Under the
Plan, 14,562,865 shares of Rent-A-Center’s common stock were reserved for
issuance under stock options, stock appreciation rights or restricted stock
grants. Options granted to our employees under the Plan generally become
exercisable over a period of one to four years from the date of grant and may
be exercised up to a maximum of 10 years from the date of grant. Options
granted to directors are immediately exercisable. There have been no grants
of stock appreciation rights and all options have been granted with fixed
prices. At June 30, 2004, there were 10,050,453 shares available for
issuance under the Plan, of which 5,768,950 shares were allocated to options
currently outstanding. However, pursuant to the terms of the Plan, when an
optionee leaves our 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 generally terminate and become available for re-issuance under the
Plan.
Rent-A-Center accounts for the 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. If Rent-A-Center had applied the fair value recognition
provisions of Financial Accounting Standards Board (“FASB”) Statement No.
123,
Accounting for Stock-Based Compensation,
to stock-based employee
compensation, net earnings and earnings per share would have decreased as
illustrated by the following table:
Table of Contents
6.
Stock Based Compensation
– (continued)
Six months ended June 30,
2004
2003
(In thousands, except per share data)
$
103,403
$
86,259
6,399
7,618
$
97,004
$
78,641
$
1.29
$
0.99
$
1.21
$
0.90
$
1.25
$
0.96
$
1.18
$
0.87
Three months ended June 30,
2004
2003
(In thousands, except per share data)
$
51,194
$
35,300
3,223
3,914
$
47,971
$
31,386
$
0.64
$
0.40
$
0.60
$
0.36
$
0.62
$
0.39
$
0.59
$
0.34
For all periods prior to April 1, 2004, 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 55.0%,
risk-free interest rates of 2.9% and 3.7% and expected lives of four years
and seven years in 2004 and 2003, respectively, and no dividend yield. For
options granted on or after April 1, 2004, the fair value of the options was
estimated at the date of grant using the binomial method pricing model with
the following weighted average assumptions: expected volatility of 52.4% to
55.1%, a risk-free interest rate of 2.5% to 2.9%, no dividend yield and an
expected life of four years. Had we changed from using the Black-Scholes
option pricing model to a binomial method pricing model effective January 1,
2004 rather than April 1, 2004, the impact would not have been significant.
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7.
Earnings Per Share.
Basic and diluted earnings per common share are computed based on the
following information:
Six months ended June 30, 2004
(In thousands, except per share data)
Net earnings
Shares
Per share
$
103,403
79,874
$
1.29
—
2,559
$
103,403
82,433
$
1.25
For the six months ended June 30, 2004 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 our common stock, and therefore anti-dilutive, was 583,834
and 5,000, respectively
For the three months ended June 30, 2004 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 our common stock, and therefore anti-dilutive, was
583,834 and 0, respectively.
8.
Subsidiary Guarantors.
11% Senior Subordinated Notes.
In December 2001, Rent-A-Center East, Inc.,
one of our subsidiaries, issued $100.0 million of 11% senior subordinated
notes (the “11% Notes”), maturing on August 15, 2008, under an indenture
dated as of December 19, 2001 among Rent-A-Center East, its subsidiary
guarantors and The Bank of New York, as trustee. On May 2, 2002,
Rent-A-Center East closed an exchange offer for, among other things,
approximately $175.0 million of senior subordinated notes issued by it under
a previous indenture, such that, on that date, all senior subordinated notes
were governed by the terms of the 2001 indenture. On May 6, 2003,
Rent-A-Center East repurchased approximately $183.0 million of its then
outstanding 11% Notes. On August 15, 2003, Rent-A-Center East redeemed the
remaining outstanding 11% Notes.
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8.
Subsidiary Guarantors
– (continued)
7½% Senior Subordinated Notes
. On May 6, 2003, Rent-A-Center issued
$300.0 million in senior subordinated notes due 2010, bearing interest at
7½% (the “7½% Notes”), pursuant to an indenture dated May 6, 2003,
among Rent-A-Center, Inc., its subsidiary guarantors and The Bank of New York, as trustee. The proceeds of this
offering were used to fund the repurchase and redemption of the then
outstanding 11% Notes.
The 2003 indenture contains covenants that limit Rent-A-Center’s ability
to:
•
incur additional debt;
•
sell assets or its subsidiaries;
•
grant liens to third parties;
•
pay dividends or repurchase stock; and
•
engage in a merger or sell substantially all of its assets.
Events of default under the 2003 indenture include customary events, such as
a cross-acceleration provision in the event that Rent-A-Center defaults in
the payment of other debt due at maturity or upon acceleration for default in
an amount exceeding $50.0 million, as well as in the event a judgment is
entered against us in excess of $50.0 million that is not discharged, bonded,
or insured.
The 7½% 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
7½% 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 Rent-A-Center 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. This would trigger an event of
default under our senior credit facility.
The subsidiary guarantors have fully, jointly and severally, and
unconditionally guaranteed the obligations of Rent-A-Center with respect to
the 7½% Notes. Each subsidiary guarantor is a wholly owned direct or
indirect subsidiary of Rent-A-Center. The only direct or indirect
subsidiaries of Rent-A-Center that are not guarantors are minor subsidiaries.
Rent-A-Center has no independent assets or operations. There are no
restrictions on the ability of any of the subsidiary guarantors to transfer
funds to Rent-A-Center in the form of loans, advances or dividends, except as
provided by applicable law.
Set forth below is certain condensed consolidating financial information as
of June 30, 2004 and December 31, 2003 and for the six months ended June 30,
2004 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.
Parent
Subsidiary
Company
Guarantors
Total
$
—
$
1,158,365
$
1,158,365
—
911,513
911,513
—
143,449
143,449
$
—
$
103,403
$
103,403
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8.
Subsidiary Guarantors
– (continued)
Parent
Subsidiary
Company
Guarantors
Total
$
—
$
572,985
$
572,985
—
450,998
450,998
—
70,793
70,793
$
—
$
51,194
$
51,194
Parent
Subsidiary
Consolidating
Company
Guarantors
Adjustments
Totals
$
—
$
736,193
$
—
$
736,193
—
901,338
—
901,338
870,935
162,308
(740,571
)
292,672
$
870,935
$
1,799,839
$
(740,571
)
$
1,930,203
$
396,000
$
—
$
—
$
396,000
300,002
772,812
(398,829
)
673,985
174,933
1,027,027
(341,742
)
860,218
$
870,935
$
1,799,839
$
(740,571
)
$
1,930,203
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8.
Subsidiary Guarantors
– (continued)
Parent
Subsidiary
Company
Guarantors
Total
$
—
$
199,689
$
199,689
—
(34,853
)
(34,853
)
—
(155,953
)
(155,953
)
—
3,336
3,336
—
(187,470
)
(187,470
)
(77,266
)
—
(77,266
)
9,270
—
9,270
(2,000
)
—
(2,000
)
70,978
(70,978
)
—
982
(70,978
)
(69,996
)
982
(58,759
)
(57,777
)
61,006
82,935
143,941
$
61,988
$
24,176
$
86,164
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9.
Comprehensive Income.
Comprehensive income includes net earnings and items of other comprehensive
income or loss. The following table provides information regarding
comprehensive income, net of tax:
Six months ended June,
2004
2003
(in thousands)
$
103,403
$
86,259
—
4,480
—
(4,480
)
—
—
$
103,403
$
86,259
10.
Common and Preferred Stock Transactions.
In April 2000, we announced that our Board of Directors had authorized a
program to repurchase, from time to time, in the open market and in privately
negotiated transactions, up to an aggregate of $25.0 million of our common
stock. Our Board of Directors increased the amount of repurchases authorized
under our common stock repurchase program over a period of time to $100.0
million. We repurchased a total of approximately 1.6 million shares (on a
pre-split basis) of our common stock for an aggregate of $91.5 million under
this common stock repurchase program through October 24, 2003.
On October 24, 2003 we announced our Board of Directors had rescinded our old
common stock repurchase program and authorized a new common stock repurchase
program, permitting us to purchase, from time to time, in the open market and
privately negotiated transactions, up to an aggregate of $100.0 million of
our common stock. On May 19, 2004, the Board of Directors increased the
amount of repurchases authorized under the new stock repurchase program from
$100.0 million to $115.0 million. As of June 30, 2004, we had purchased a
total of 3,457,000 shares of our common stock for an aggregate of $104.2
million under our new common stock repurchase program. On July 26, 2004, we
announced that our Board of Directors increased the authorization for stock
repurchases under our new common stock repurchase program to $200.0 million.
Please see “Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities” later in this report.
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11.
Acquisitions.
Rent Rite, Inc.
On May 7, 2004, we completed the acquisition of Rent Rite, Inc. d/b/a Rent
Rite Rental Purchase for an aggregate purchase price of $59.9 million.
Rent Rite operated 90 stores in 11 states, of which 26 stores were
subsequently merged with our existing store locations. Results of operations have been included since the acquisition date. Approximately 40% of
the consideration was paid with 815,592 shares our common stock, with the remaining portion
consisting of cash, the assumption of Rent Rite’s stock options and
retirement of Rent Rite’s outstanding debt. The common stock
paid as well as the assumption of stock options were recorded at the
fair value determined at the effective date of the purchase. The table below summarizes the
preliminary allocation of the purchase price based on the fair values of the
significant assets acquired:
Fair Values
(in thousands)
$
18,644
1,262
3,180
242
36,568
$
59,896
Rainbow Rentals, Inc.
On May 14, 2004, we completed the acquisition of Rainbow Rentals, Inc. for an
aggregate purchase price of $109.0 million. Rainbow Rentals operated 124
stores in 15 states, of which 29 stores were subsequently merged with our
existing store locations. Results of operations have been included since the acquisition date. We funded the acquisition entirely with cash on
hand. The table below summarizes the preliminary allocation of the purchase
price based on the fair values of the significant assets acquired:
Fair Values
(in thousands)
$
41,337
2,864
4,553
100
60,192
$
109,046
We entered into these transactions seeing them as opportunistic acquisitions
that would allow us to expand our store base in conjunction with our
strategic growth plans. The prices of the acquisitions were determined by
evaluating the average monthly rental income of the acquired stores and
applying a multiple to the total. Customer relationships are amortized
utilizing the straight-line method over an 18 month period. The non-compete
agreements are amortized using the straight-line method over a three year
period and, in accordance with SFAS 142, the goodwill associated with the
acquisitions will not be amortized.
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12.
Guarantees.
ColorTyme Guarantee.
ColorTyme is a party to an agreement with Wells Fargo
Foothill, Inc., who provides $50.0 million in aggregate financing to
qualifying franchisees of ColorTyme generally of up to five times their
average monthly revenues. Under the Wells Fargo agreement, upon an event of
default by the franchisee under agreements governing this financing and upon
the occurrence of certain other events, Wells Fargo can assign the loans and
the collateral securing such loans to ColorTyme, with ColorTyme then
succeeding to the rights of Wells Fargo under the debt agreements, including
the right to foreclose on the collateral. An additional $15.0 million of
financing is provided by Texas Capital Bank, National Association under an
agreement similar to the Wells Fargo financing. Rent-A-Center East
guarantees the obligations of ColorTyme under each of these agreements,
excluding the effects of any amounts that could be recovered under
collateralization provisions, up to a maximum amount of $65.0 million, of
which $27.9 million was outstanding as of June 30, 2004.
We also provide assurance to our insurance providers that if they are not
able to draw funds from us for claims paid, they have the ability to draw
against our letters of credit. Generally our letters of credit are renewed
automatically every year unless we notify the institution not to renew.
At June 30, 2004, we had
$86.7 million in outstanding letters of credit under our previous senior
credit facility. Of the $86.7 million, $55.0 million was supported by our
additional term loan facility. The remaining $31.7 million reduced the
amount available under the previous $120.0 million revolving facility. On
July 14, 2004, we refinanced our senior credit facilities. Under the new
senior credit facility, the $86.7 million is supported by our $250.0 million
revolving facility. See Note 14, “Subsequent Events” and “Recent
Developments” later in this report.
13.
Recapitalization.
In April 2003, we announced and commenced a program to recapitalize a portion
of our financial structure in a series of transactions. The recapitalization
consisted of the tender offer for all of Rent-A-Center East’s $272.25 million
11% Notes, the redemption of the 11% Notes, the issuance of $300.0 million
7½% Notes, the refinancing of our senior debt and the repurchase of
shares of our common stock.
On May 6, 2003, we repurchased approximately $183.0 million principal
amount of 11% Notes pursuant to a debt tender offer announced on April
23, 2003. On August 15, 2003, we redeemed all of the remaining
outstanding 11% Notes in accordance with the terms of the indenture
governing the 11% Notes, at the applicable redemption price of 105.5% of
the principal amount, plus accrued and unpaid interest to that date.
The total aggregate redemption price for the 11% Notes was approximately
$93.75 million, including $4.65 million in accrued interest and $4.65
million in redemption premium. Proceeds from the offering of $300.0
million in 7½% Notes were used to pay for the redemption.
On April 25, 2003, we announced that we had entered into an agreement
with Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV,
L.P. (“Apollo”) which provided for the repurchase of a number of shares of
Rent-A-Center’s common stock sufficient to reduce Apollo’s aggregate
record ownership to 19.00% after consummation of Rent-A-Center’s planned
tender offer at the price per share paid in the tender offer. On April
28, 2003, we commenced a tender offer to purchase up to 2.2 million shares of Rent-A-Center’s common stock (on a pre-split basis) pursuant
to a modified “Dutch Auction.” On June 25, 2003, we closed the tender
offer and purchased 1,769,960 shares of Rent-A-Center’s common stock (on
a pre-split basis) at $73 per share (on a pre-split basis) for
approximately $129.2 million. On July 11, 2003, we closed the Apollo
transaction and purchased 774,547 shares of Rent-A-Center’s common stock
(on a pre-split basis) at $73 per share (on a pre-split basis) for
approximately $56.5 million. As contemplated by the Apollo agreement,
Apollo also exchanged their shares of Series A preferred stock for shares of Series C preferred stock. As a result, no shares of Series A
preferred stock remain outstanding. The terms of the Series A preferred
stock and Series C preferred stock are substantially similar, except the
Series C preferred stock does not have the right to directly elect any
members of Rent-A-Center’s Board of Directors.
On May 6, 2003, Rent-A-Center issued $300.0 million in 7½% Notes,
the proceeds of which were used, in part, to fund the repurchase and
redemption of the 11% Notes.
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.
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14.
Subsequent Events.
New Senior Credit Facilities.
On July 14, 2004, we announced the completion
of the refinancing of our senior secured debt. Our new $600.0 million senior
credit facilities consist of a $350.0 million term loan and a $250.0 million
revolving credit facility. On that day, we drew down the $350.0 million term
loan and $50.0 million of revolving facility and utilized the proceeds to
repay our existing senior term debt. In connection with the refinancing, we
will record a $4.2 million non-cash charge to write off the remaining
unamortized balance of financing costs in the third quarter.
Increased Stock Repurchase Authorization.
On July 26, 2004, we announced that
our Board of Directors increased the authorization for stock repurchases under
our common stock repurchase program to $200.0 million.
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•
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;
•
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; and
•
the other risks detailed from time to time in our SEC reports.
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YEAR ENDING
DECEMBER 31,
(IN THOUSANDS)
$
2,000
4,000
4,000
4,000
192,000
190,000
$
396,000
Table of Contents
YEAR ENDING
DECEMBER 31,
(IN THOUSANDS)
$
1,750
3,500
3,500
3,500
3,500
334,250
$
350,000
•
incur additional debt (including subordinated debt) in excess
of $50.0 million at any one time outstanding;
•
repurchase our capital stock and 7½% 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.
Required ratio
Actual ratio
No greater than
2.75:1
1.49:1
No less than
4.0:1
9.43:1
No less than
1.50:1
2.62:1
Table of Contents
•
incur additional debt;
•
sell assets or our subsidiaries;
•
grant liens to third parties;
•
pay dividends or repurchase stock; or
•
engage in a merger or sell substantially all of its assets.
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Total Number of
Shares Purchased as
Maximum Dollar Value
Part of Publicly
that May Yet Be
Total Number of
Average Price
Announced Plans or
Purchased Under the
Period
Shares Purchased
Paid per Share
Programs
Plans or Programs (1)
97,700
$
29.2551
97,700
$
76,920,680
2,257,400
$
29.2556
2,257,400
$
10,879,089
0
$
0.0000
0
$
10,879,089
2,355,100
$
29.5556
2,355,100
$
10,879,089
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Nominee
Votes For
Votes Withheld
71,362,492
2,744,648
69,469,193
4,637,947
71,916,746
2,190,394
Laurence M. Berg
J.V. Lentell
Andrew S. Jhawar
Vote For
Votes Against
Abstentions
Broker Non-Votes
4,611,255
60,862
3,690,730
Table of Contents
RENT-A-CENTER, INC.
By:
/s/ Robert D. Davis
Robert D. Davis
Senior Vice President-Finance,
Chief Financial Officer and Treasurer
Table of Contents
Exhibit
Number
Exhibit Description
— 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.)
— Letter Agreement, dated December 31, 2002
— Letter Agreement, dated January 7, 2003
— Letter Agreement, dated February 7, 2003
— 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.)
— 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.)
— Agreement and Plan of Merger, dated as of February 4, 2004, by
and between Rent-A-Center, Inc., Eagle Acquisition Sub, Inc. and
Rainbow Rentals, Inc. (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.)
— Agreement and Plan of Merger, dated as of April 27, 2004, by and
between Rent-A-Center, Inc., RAC RR, Inc. and Rent Rite, Inc.
d/b/a Rent Rite Rental Purchase (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.)
— Certificate of Incorporation of Rent-A-Center, Inc., as amended
— Certificate of Amendment to the Certificate of Incorporation of
Rent-A-Center, Inc., dated May 19, 2004
— Amended and Restated Bylaws of Rent-A-Center, Inc.
— Form of Certificate evidencing Common Stock
— Certificate of Elimination of Series A Preferred Stock
— Certificate of Designations, Preferences and relative Rights and
Limitations of Series C Preferred Stock of Rent-A-Center, Inc.
— Form of Certificate evidencing Series C Preferred Stock
— 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
— First Supplemental Indenture, dated as of December 4, 2003,
between Rent-A-Center, Inc., as Issuer, the Guarantors named
therein, as Guarantors, and The Bank of New York, as Trustee
— Second Supplemental Indenture, dated as of April 26, 2004,
between Rent-A-Center, Inc., as Issuer, the Guarantors named
therein, as Guarantors, and The Bank of New York, as Trustee
— Third Supplemental Indenture, dated as of May 7, 2004, between
Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as
Guarantors, and The Bank of New York, as Trustee
— Fourth Supplemental Indenture, dated as of May 14, 2004, between
Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as
Guarantors, and The Bank of New York, as Trustee
— Form of 2003 Exchange Note
— Amended and Restated Rent-A-Center, Inc. Long-Term Incentive Plan
— 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
— 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
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Exhibit
Number
Exhibit Description
Administrative Agent
— 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
— 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
— 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
— First Amendment, dated as of May 28, 2003, to the Credit
Agreement and the Guarantee and Collateral Agreement, both dated
as of May 28, 2003, among Rent-A-Center, Inc., Rent-A-Center East,
Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Remco America,
Inc., Get It Now LLC, Rent-A-Center Texas, L.P., Rent-A-Center
Texas, L.L.C. and Lehman Commercial Paper Inc., as Administrative
Agent
— Amended and Restated Credit Agreement, dated as of May 28, 2003,
as amended and restated as of July 14, 2004, among Rent-A-Center,
Inc., the several lenders from time to time parties thereto,
Calyon New York Branch, SunTrust Bank and Union Bank of
California, N.A., as Documentation Agents, Lehman Commercial Paper
Inc., as Syndication Agent, and JPMorgan Chase Bank, as
Administrative Agent
— Amended and Restated Guarantee and Collateral Agreement, dated
as of May 28, 2003, as amended and restated as of July 14, 2004,
made by Rent-A-Center, Inc. and certain of its Subsidiaries in
favor of JPMorgan Chase Bank, as Administrative Agent
— 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
— 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
— 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
— 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.
— 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.
— 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.
— 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.
— 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
— 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.
— 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.
— Amended and Restated Franchise Financing Agreement, dated
October 1, 2003, by and among Wells Fargo Foothill, Inc.,
ColorTyme, Inc. and Rent-A-Center East, Inc.
— First Amendment to Amended and Restated Franchisee Financing
Agreement, dated December 15,
Table of Contents
Exhibit
Number
Exhibit Description
2003, by and among Wells Fargo
Foothill, Inc., ColorTyme, Inc. and Rent-A-Center East, Inc.
— Second Amendment to Amended and Restated Franchisee Financing
Agreement, dated as of March 1, 2004, by and among Wells Fargo
Foothill, Inc., ColorTyme, Inc. and Rent-A-Center East, Inc.
— 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.
— 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.
— Subsidiaries of Rent-A-Center, Inc.
— Certification pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934 implementing Section 302 of the
Sarbanes-Oxley Act of 2002 by Mark E. Speese
— Certification pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934 implementing Section 302 of the
Sarbanes-Oxley Act of 2002 by Robert D. Davis
— Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Mark
E. Speese
— Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Robert D. Davis
*
Filed herewith.
+
Management contract or compensatory plan or arrangement
(1)
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
(2)
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
(3)
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
(4)
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
(5)
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
(6)
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
(7)
Incorporated herein by reference to Exhibit 2.7 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003
(8)
Incorporated herein by reference to Exhibit 2.8 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004
(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 4.1 to the registrant’s
Registration Statement on Form S-4 filed on January 13, 1999
Table of Contents
(11)
Incorporated herein by reference to Exhibit 4.2 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003
(12)
Incorporated herein by reference to Exhibit 4.4 to the registrant’s
Registration Statement on Form S-4 filed July 11, 2003
(13)
Incorporated herein by reference to Exhibit 4.5 to the registrant’s
Registration Statement on Form S-4 filed July 11, 2003
(14)
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
(15)
Incorporated herein by reference to Exhibit 4.6 to the registrant’s
Annual Report on Form 10-K/A for the year ended December 31, 2003
(16)
Incorporated herein by reference to Exhibit 4.7 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004
(17)
Incorporated herein by reference to Exhibit 4.11 to the registrant’s
Registration Statement on Form S-4 filed July 11, 2003
(18)
Incorporated herein by reference to Exhibit 10.1 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003
(19)
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
(20)
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
(21)
Incorporated herein by reference to Exhibit 10.4 to the registrant’s
Registration Statement on Form S-4 filed July 11, 2003
(22)
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
(23)
Incorporated herein by reference to Exhibit 10.6 to the registrant’s
Registration Statement on Form S-4 filed July 11, 2003
(24)
Incorporated herein by reference to Exhibit 10.7 to the registrant’s
Annual Report on Form 10-K/A for the year ended December 31, 2003
(25)
Incorporated herein by reference to Exhibit 10.1 to the registrant’s
Current Report on Form 8-K dated July 15, 2004
(26)
Incorporated herein by reference to Exhibit 10.2 to the registrant’s
Current Report on Form 8-K dated July 15, 2004
(27)
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
(28)
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
(29)
Incorporated herein by reference to Exhibit 10.15 to the registrant’s
Registration Statement on Form S-4 filed July 11, 2003
(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
Table of Contents
(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 10.9 to the registrant’s
Annual Report on Form 10-K for the year ended December 31, 2002
(33)
Incorporated herein by reference to Exhibit 10.10 to the registrant’s
Registration Statement on Form S-4 filed July 11, 2003
(34)
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
(35)
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
(36)
Incorporated herein by reference to Exhibit 10.23 to the registrant’s
Registration Statement on Form S-4 filed July 11, 2003
(37)
Incorporated herein by reference to Exhibit 10.22 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003
(38)
Incorporated herein by reference to Exhibit 10.23 to the registrant’s
Annual Report on Form 10-K/A for the year ended December 31, 2003
(39)
Incorporated herein by reference to Exhibit 10.24 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004
(40)
Incorporated herein by reference to Exhibit 10.18 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
(41)
Incorporated herein by reference to Exhibit 99(d)(1) to the registrant’s
Schedule TO filed on April 28, 2003
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
RENT-A-CENTER, INC.
(THE "COMPANY")
Pursuant to the provisions of Section 242 of the Delaware General Corporation Law, the undersigned Company files the following Certificate of Amendment to its Certificate of Incorporation, which amends the fourth article thereof so as to increase the number of shares of the Company's common stock, par value $0.01 per share, authorized for issuance from 125,000,000 to 250,000,000 shares.
ARTICLE I
The name of the Company is Rent-A-Center, Inc.
ARTICLE II
At a meeting of the Board of Directors (the "BOARD") of the Company held on March 17, 2004, the Board adopted resolutions setting forth a proposed amendment of the Certificate of Incorporation of the Company, declaring said amendment to be advisable, and directing that such amendment be considered by the stockholders of the Company entitled to vote thereon. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that, subject to the approval of the stockholders of the Company, the Board hereby authorizes and approves the following amendment to the Certificate of Incorporation to increase the number of shares of Common Stock authorized to be issued from 125,000,000 shares to 250,000,000 shares (the "AMENDMENT"):
The first paragraph of Article Fourth of the Company's Certificate of Incorporation is hereby amended and restated to read in its entirety as follows:
"FOURTH: The aggregate number of shares of capital stock which the Corporation shall have authority to issue is 250,000,000 shares of common stock, having a par value of $0.01 per share (the "COMMON STOCK"), and 5,000,000 shares of preferred stock, having a par value of $0.01 per share (the "PREFERRED STOCK")."
The remaining provisions of Article Fourth of the Company's Certificate of Incorporation shall remain the same and in full force and effect.
ARTICLE III
Thereafter, pursuant to resolution of the Board, the annual meeting of stockholders of the Company was duly called and held, upon notice in accordance with Section 222 of the Delaware General Corporation Law, at which meeting the necessary number of shares as required by statute were voted in favor of said amendment. Specifically, at the time of adoption, the holders of 80,266,569 shares of capital stock of the Company were entitled to vote on said amendment, of which 69,435,023 shares voted for said amendment, 4,611,255 voted against said amendment and 60,862 shares abstained from voting.
ARTICLE IV
Said amendment was duly adopted in accordance with the provisions of
Section 242 of the Delaware General Corporation Law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, I have hereunto set my hand this the 19th day of May, 2004.
RENT-A-CENTER, INC.
/s/ MITCHELL E. FADEL ---------------------------------- Mitchell E. Fadel, President and Chief Operating Officer |
EXHIBIT 3.3
RENT-A-CENTER, INC.
AMENDED AND RESTATED BYLAWS
DATED MAY 19, 2004
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meetings of Stockholders. The annual meeting of the stockholders of Rent-A-Center, Inc. (the "CORPORATION") shall be held on such day as may be designated from time to time by the Board of Directors and stated in the notice of the meeting, and on any subsequent day or days to which such meeting may be adjourned, for the purposes of electing directors and of transacting such other business as may properly come before the meeting. The Board of Directors shall designate the place and time for the holding of such meeting, and not less than ten days nor more than sixty days notice shall be given to the stockholders of the time and place so fixed. If the day designated therein is a legal holiday, the annual meeting shall be held on the first succeeding day which is not a legal holiday. If for any reason the annual meeting shall not be held on the day designated therein, the Board of Directors shall cause the annual meeting to be held as soon thereafter as may be convenient.
At the annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before the annual meeting of stockholders, business must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (iii) otherwise
properly brought before the meeting by a stockholder of the Corporation who is a
stockholder of record at the time of giving notice provided for in this Section
1 of Article I, who shall be entitled to vote at such meeting and who complies
with the notice procedures set forth in this Section 1 of Article I. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder, in addition to any other applicable requirements, must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 90 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders of the Corporation. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting: (a) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
voting stock of the Corporation that are beneficially owned by the stockholder;
(d) a representation that the stockholder intends to appear in person or by
proxy at the meeting to bring the proposed business before the annual meeting,
and (e) a description of any material interest of the stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 1 of Article I. The presiding officer of an annual
meeting shall, if the facts warrant, determine and declare to the meeting that
the
business was not properly brought before the meeting in accordance with the provisions of this Section 1 of Article I, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 1 of Article I, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 1 of Article I.
Section 2. Special Meetings of Stockholders. Special meetings of the stockholders may be called at any time by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors or the majority of an entire committee of such Board. Upon written request of the persons who have duly called a special meeting, it shall be the duty of the Secretary of the Corporation to fix the date of the meeting to be held not less than ten nor more than sixty days after the receipt of the request and to give due notice thereof. If the Secretary shall neglect or refuse to fix the date of the meeting and give notice thereof, the persons calling the meeting may do so.
Section 3. Place of Meetings. Every annual or special meeting of the stockholders shall be held at such place within or without the State of Delaware as the Board of Directors may designate, or, in the absence of such designation, at the registered office of the Corporation in the State of Delaware.
Section 4. Notice of Meetings. Written notice of every meeting of the stockholders shall be given by the Secretary of the Corporation to each stockholder of record entitled to vote at the meeting, by placing such notice in the mail not less than ten nor more than sixty days, prior to the day named for the meeting addressed to each stockholder at his address appearing on the books of the Corporation or supplied by him to the Corporation for the purpose of notice.
Section 5. Record Date. The Board of Directors may fix a date, not less than ten or more than sixty days preceding the date of any meeting of stockholders, as a record date for the determination of stockholders entitled to notice of, or to vote at, any such meeting. The Board of Directors shall not close the books of the Corporation against transfers of shares during the whole or any part of such period.
Section 6. Proxies. The notice of every meeting of the stockholders may be accompanied by a form of proxy approved by the Board of Directors in favor of such person or persons as the Board of Directors may select.
Section 7. Quorum and Voting. A majority of the outstanding shares of stock of the Corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of the stockholders, and the stockholders present at any duly convened meeting may continue to do business until adjournment notwithstanding any withdrawal from the meeting of holders of shares counted in determining the existence of a quorum. Directors shall be elected by a plurality of the votes cast in the election. For all matters as to which no other voting requirement is specified by the General Corporation Law of the State of Delaware, as amended (the "GENERAL CORPORATION LAW"), the Certificate of Incorporation of the Corporation, as
amended (the "CERTIFICATE OF INCORPORATION"), or these Bylaws, the affirmative vote required for stockholder action shall be that of a majority of the shares present in person or represented by proxy at the meeting (as counted for purposes of determining the existence of a quorum at the meeting). In the case of a matter submitted for a vote of the stockholders as to which a stockholder approval requirement is applicable under the stockholder approval policy of the Nasdaq National Market or any other exchange or quotation system on which the capital stock of the Corporation is quoted or traded, the requirements of Rule 16b-3 under the Securities Exchange Act of 1934 or any provision of the Internal Revenue Code, in each case for which no higher voting requirement is specified by the General Corporation Law, the Certificate of Incorporation or these Bylaws, the vote required for approval shall be the requisite vote specified in such stockholder approval policy, Rule 16b-3 or Internal Revenue Code provision, as the case may be (or the highest such requirement if more than one is applicable). For the approval of the appointment of independent public accountants (if submitted for a vote of the stockholders), the vote required for approval shall be a majority of the votes cast on the matter.
Section 8. Adjournment. Any meeting of the stockholders may be adjourned from time to time, without notice other than by announcement at the meeting at which such adjournment is taken, and at any such adjourned meeting at which a quorum shall be present any action may be taken that could have been taken at the meeting originally called; provided that if the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting.
Section 9. Nominations for Election as a Director. Only persons who are
nominated in accordance with the procedures set forth in these Bylaws shall be
eligible for election as, and to serve as, directors. Nominations of persons for
election to the Board of Directors of the Corporation may be made at a meeting
of stockholders (a) by or at the direction of the Board of Directors or (b) by
any stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this Section 9 of Article I, who shall be
entitled to vote for the election of directors at the meeting and who complies
with the notice procedures set forth in this Section 9 of Article I. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed and received at the principal executive offices of the Corporation (i)
with respect to an election to be held at the annual meeting of the stockholders
of the Corporation, not less than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Corporation, and
(ii) with respect to an election to be held at a special meeting of stockholders
of the Corporation for the election of directors, not later than the close of
business on the tenth day following the day on which notice of the date of the
special meeting was mailed to stockholders of the Corporation as provided in
Section 4 of Article I or public disclosure of the date of the special meeting
was made, whichever first occurs. Such stockholder's notice to the Secretary
shall set forth (x) as to each person whom the stockholder proposes to nominate
for election or re-election as a director, information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serve as a
director if elected), and (y) as to the stockholder giving the notice (i) the
name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of shares of voting stock of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. Other than directors chosen pursuant to the provisions of Section 2 of Article II, no person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 9 of Article I. The presiding officer of the meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 9 of Article I, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 9 of Article I.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number of Directors. The business, affairs and property of the Corporation shall be managed by a board of directors divided into three classes as provided in the Certificate of Incorporation of the Corporation. Unless otherwise provided by law, the number of directors constituting the Board of Directors shall be determined from time to time by resolutions adopted by a majority of the entire Board of Directors; provided, however, that (i) the number of directors constituting the entire Board of Directors shall be consistent with any stockholders agreement that the Corporation is a party to, and (ii) in no event, shall the Board of Directors cause the number of directors to be greater than seven (7) without the approval of holders of at least a majority of the outstanding shares of the Corporation's Series C Preferred Stock, voting separately as a class. Each director shall hold office for the full term to which he shall have been elected and until his successor is duly elected and shall qualify, or until his earlier death, resignation or removal. A director need not be a resident of the State of Delaware or a stockholder of the Corporation.
Section 2. Vacancies. Except as provided in the Certificate of Incorporation of the Corporation, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
Section 3. Removal by Stockholders. No director of the Corporation shall be removed from his office as a director by vote or other action of stockholders or otherwise except for cause.
Section 4. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places within or without the State of Delaware, at such hour and on such day as may be fixed by resolution of the Board of Directors, without further notice of such meetings. The time or place of holding regular meetings of the Board of Directors may be changed by the Chairman of the Board or the President by giving written notice thereof as provided in Section 6 of this Article II.
Section 5. Special Meeting. Special meetings of the Board of Directors shall be held, whenever called by the Chairman of the Board, the President, by a majority of the directors or by resolution adopted by the Board of Directors, at such place or places within or without the State of Delaware as may be stated in the notice of the meeting.
Section 6. Notice. Written notice of the time and place of, and general nature of the business to be transacted at, all special meetings of the Board of Directors, and written notice of any change in the time or place of holding the regular meetings of the Board of Directors, shall be given to each director personally or by mail or by telegraph, telecopier or similar communication at least one day before the day of the meeting; provided, however, that notice of any meeting need not be given to any director if waived by him in writing, or if he shall be present at such meeting.
Section 7. Quorum. A majority of the directors in office shall constitute a quorum of the Board of Directors for the transaction of business; but a lesser number may adjourn from day to day until a quorum is present.
Section 7A. Voting. Except as otherwise provided herein or in the Certificate of Incorporation of the Corporation, all decisions of the Corporation's Board of Directors shall require the affirmative vote of a majority of the directors of the Corporation then in office, or a majority of the members of the Executive Committee of the Board of Directors, to the extent such decisions may be lawfully delegated to the Executive Committee.
Section 8. Action by Written Consent. Any action which may be taken at a meeting of the directors or of any committee thereof may be taken without a meeting if consent in writing setting forth the action so taken shall be signed by all of the directors or members of such committee as the case may be and shall be filed with the Secretary of the Corporation.
Section 9. Chairman. The Board of Directors may designate one or more of its number to be Chairman of the Board and chairman of any committees of the Board and to hold such other positions on the Board as the Board of Directors may designate.
ARTICLE III
COMMITTEES
Section 1. The Board of Directors may, by resolution adopted by a majority of the full Board of Directors of the Corporation, designate from among its members one or more committees, each of which shall be comprised of one or more of its members, and may designate one or more of its members as alternate members of any committee, who may, subject to any limitations by the Board of Directors of the Corporation, replace absent or disqualified members
at any meeting of the committee. Any such committee, to the extent provided in such resolution or in the Certificate of Incorporation or these Bylaws, shall have and may exercise all of the authority of the Board of Directors of the Corporation to the extent permitted by the Delaware General Corporation Law.
Section 2. The Board of Directors of the Corporation shall have the power at any time to change the membership of any such committee and to fill vacancies in it. A majority of the number of members of any such committee shall constitute a quorum for the transaction of business unless a greater number of members is required by a resolution adopted by the Board of Directors of the Corporation. The act of the majority of the members of a committee present at any meeting at which a quorum is present shall be the act of the Committee, unless the act of a greater number is required by a resolution adopted by the Board of Directors of the Corporation. Each such committee may elect a chairman and appoint such subcommittees and assistants as it may deem necessary. Except as otherwise provided by the Board of Directors of the Corporation, meetings of any committee shall be conducted in accordance with these Bylaws. Any member of any such committee elected or appointed by the Board of Directors of the Corporation may be removed by the Board of Directors of the Corporation whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of a member of a committee shall not itself create contract rights.
Section 3. Any action taken by any committee of the Board of Directors shall be promptly recorded in the minutes and filed with the Secretary of the Corporation.
ARTICLE IV
OFFICERS
Section 1. Designation and Removal. The officers of the Corporation shall consist of a Chairman of the Board, Chief Executive Officer, President, Vice President-Finance, Regional Vice Presidents, Secretary, Treasurer, Chief Operating Officer, Chief Financial Officer, and such other officers as may be named by the Board of Directors. Any number of offices may be held by the same person. All officers shall hold office until their successors are elected or appointed, except that the Board of Directors may remove any officer at any time at its discretion.
Section 2. Powers and Duties. The officers of the Corporation shall have such powers and duties as generally pertain to their offices, except as modified herein or by the Board of Directors, as well as such powers and duties as from time to time may be conferred by the Board of Directors. The Chairman of the Board shall have such duties as may be assigned to him by the Board of Directors and shall preside at meetings of the Board and at meetings of the stockholders. In addition to the other powers and duties conferred upon the Chief Executive Officer by the Board of Directors, the Chief Executive Officer of the Corporation shall have the duty and responsibility for the general supervision over the business, affairs, and property of the Corporation.
ARTICLE V
SEAL
The seal of the Corporation shall be in such form as the Board of Directors shall prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
The shares of stock of the Corporation shall be represented by certificates of stock, signed by the President or such Vice President or other officer designated by the Board of Directors, countersigned by the Treasurer or the Secretary or an Assistant Treasurer or an Assistant Secretary; and such signature of the President, Vice President, or other officer, such countersignature of the Treasurer or Secretary or Assistant Treasurer or Assistant Secretary, and such seal, or any of them, may be executed in facsimile, engraved or printed. In case any officer who has signed or whose facsimile signature has been placed upon any share certificate shall have ceased to be such officer because of death, resignation or otherwise before the certificate is issued, it may be issued by the Corporation with the same effect as if the officer had not ceased to be such at the date of its issue. Said certificates of stock shall be in such form as the Board of Directors may from time to time prescribe.
ARTICLE VII
INDEMNIFICATION
Section 1. General. The Corporation shall indemnify, and advance Expenses
(as this and a other capitalized words not otherwise defined herein are defined
in Section 14 of this Article) to, Indemnitee to the fullest extent permitted by
applicable law in effect on the date of effectiveness of these Bylaws, and to
such greater extent as applicable law may thereafter permit. The rights of
Indemnitee provided under the preceding sentence shall include, but not be
limited to, the right to be indemnified to the fullest extent permitted by
Section 145(b) of the Delaware General Corporation Law in Proceedings by or in
the right of the Corporation and to the fullest extent permitted by Section
145(a) of the Delaware General Corporation Law in all other Proceedings.
Section 2. Expenses Related to Proceedings. If Indemnitee is, by reason of his Corporate Status, a witness in or a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to any Matter in such Proceeding, the Corporation shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf relating to each Matter. The termination of any Matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such Matter.
Section 3. Advancement of Expenses. Indemnitee shall be advanced Expenses within ten days after requesting them to the fullest extent permitted by Section 145(e) of the Delaware General Corporation Law.
Section 4. Request for Indemnification. To obtain indemnification Indemnitee shall submit to the Corporation a written request with such information as is reasonably available to Indemnitee. The Secretary of the Corporation shall promptly advise the Board of Directors of such request.
Section 5. Determination of Entitlement; No Change of Control. If there has been no Change of Control at the time the request for indemnification is sent, Indemnitee's entitlement to indemnification shall be determined in accordance with Section 145(d) of the Delaware General Corporation Law. If entitlement to indemnification is to be determined by Independent Counsel, the Corporation shall furnish notice to Indemnitee within ten days after receipt of the request for indemnification, specifying the identity and address of Independent Counsel. The Indemnitee may, within fourteen days after receipt of such written notice of selection, deliver to the Corporation a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and the objection shall set forth with particularity the factual basis of such assertion. If there is an objection to the selection of Independent Counsel, either the Corporation or Indemnitee may petition the Court of Chancery of the State of Delaware or any other court of competent jurisdiction for a determination that the objection is without a reasonable basis and/or for the appointment of Independent Counsel selected by the Court.
Section 6. Determination of Entitlement; Change of Control. If there has been a Change of Control at the time the request for indemnification is sent, Indemnitee's entitlement to indemnification shall be determined in a written opinion by Independent Counsel selected by Indemnitee. Indemnitee shall give the Corporation written notice advising of the identity and address of the Independent Counsel so selected. The Corporation may, within seven days after receipt of such written notice of selection, deliver to the Indemnitee a written objection to such selection. Indemnitee may, within five days after the receipt of such objection from the Corporation, submit the name of another Independent Counsel and the Corporation may, within seven days after receipt of such written notice of selection, deliver to the Indemnitee a written objection to such selection.
Any objection is subject to the limitations in Section 5 of this Article. Indemnitee may petition the Court of Chancery of the State of Delaware or any other Court of competent jurisdiction for a determination that the Corporation's objection to the first and/or second selection of Independent Counsel is without a reasonable basis and/or for the appointment as Independent Counsel of a person selected by the Court.
Section 7. Procedures of Independent Counsel. If a Change of Control shall have occurred before the request for indemnification is sent by Indemnitee, Indemnitee shall be presumed (except as otherwise expressly provided in this Article) to be entitled to indemnification upon submission of a request for indemnification in accordance with Section 4 of this Article, and thereafter the Corporation shall have the burden of proof to overcome the presumption in reaching a determination contrary to the presumption. The presumption shall be
used by Independent Counsel as a basis for a determination of entitlement to indemnification unless the Corporation provides information sufficient to overcome such presumption by clear and convincing evidence or the investigation, review and analysis of Independent Counsel convinces him by clear and convincing evidence that the presumption should not apply.
Except in the event that the determination of entitlement to indemnification is to be made by Independent Counsel, if the person or persons empowered under Section 5 or 6 of this Article to determine entitlement to indemnification shall not have made and furnished to Indemnitee in writing a determination within sixty days after receipt by the Corporation of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification or such indemnification is prohibited by law. The termination of any proceeding or of any matter therein by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, or with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.
Section 8. Independent Counsel Expenses. The Corporation shall pay any and all reasonable fees and expenses of Independent Counsel incurred acting pursuant to this Article and in any proceeding to which it is a party or witness in respect of its investigation and written report and shall pay all reasonable fees and expenses incident to the procedures in which such Independent Counsel was selected or appointed. No Independent Counsel may serve if a timely objection has been made to his selection until a Court has determined that such objection is without a reasonable basis.
Section 9. Adjudication. In the event that (i) a determination is made
pursuant to Section 5 or 6 that Indemnitee is not entitled to indemnification
under this Article, (ii) advancement of Expenses is not timely made pursuant to
Section 3 of this Article, (iii) Independent Counsel has not made and delivered
a written opinion determining the request for indemnification (a) within 90 days
after being appointed by the Court, or (b) within 90 days after objections to
his selection have been overruled by the Court, or (c) within 90 days after the
time for the Corporation or Indemnitee to object to his selection, or (iv)
payment of indemnification is not made within 5 days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to Section 5, 6 or 7 of this Article, Indemnitee shall be entitled to
an adjudication in an appropriate court of the State of Delaware, or in any
other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. In the event that a determination
shall have been made that Indemnitee is not entitled to indemnification, any
judicial proceeding or arbitration commenced pursuant to this Section shall be
conducted in all respects as a de novo trial on the merits and Indemnitee shall
not be prejudiced by reason of that adverse determination. If a Change of
Control shall have occurred, in any judicial proceeding commenced pursuant to
this Section, the Corporation shall have the burden of proving that Indemnitee
is not entitled to indemnification or advancement of Expenses, as the case may
be. If a determination shall have been made or deemed to have been made that
Indemnitee is entitled to indemnification, the Corporation shall be bound by
such determination in any judicial
proceeding commenced pursuant to this Section 9, or otherwise, unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification, or such indemnification is prohibited by law.
The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 9 that the procedures and presumptions of this Article are not valid, binding and enforceable and shall stipulate in any such court that the Corporation is bound by all provisions of this Article. In the event that Indemnitee, pursuant to this Section 9, seeks a judicial adjudication to enforce his rights under, or to recover damages for breach of, this Article, Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all Expenses actually and reasonably incurred by him in such judicial adjudication, but only if he prevails therein. If it shall be determined in such judicial adjudication that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.
Section 10. Nonexclusivity of Rights. The rights of indemnification and advancement of Expenses as provided by this Article shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Article or any provision thereof shall be effective as to any Indemnitee for acts, events and circumstances that occurred, in whole or in part, before such amendment, alteration or repeal. The provisions of this Article shall continue as to an Indemnitee whose Corporate Status has ceased and shall inure to the benefit of his heirs, executors and administrators.
Section 11. Insurance and Subrogation. To the extent the Corporation maintains an insurance policy or policies providing liability insurance for directors or officers of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Corporation, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of coverage available for any such director or officer under such policy or policies.
In the event of any payment hereunder, the Corporation shall be subrogated to the extent of such payment to all the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights.
The Corporation shall not be liable under this Article to make any payment of amounts otherwise indemnifiable hereunder if, and to the extent that, Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
Section 12. Severability. If any provision or provisions of this Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest extent possible, the provisions of this Article shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
Section 13. Certain Persons Not Entitled to Indemnification.
Notwithstanding any other provision of this Article, no person shall be entitled
to indemnification or advancement of Expenses under this Article with respect to
any Proceeding, or any Matter therein, brought or made by such person against
the Corporation.
Section 14. Definitions. For purposes of this Article:
"Change of Control" means a change in control of the Corporation after the date of adoption of these Bylaws in any one of the following circumstances: (i) there shall have occurred an event required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "ACT"), whether or not the Corporation is then subject to such reporting requirement; (ii) any "person" (as such term is used in Section 13(d) and 14(d) of the Act) shall have become the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing 40% or more of the combined voting power of the Corporation's then outstanding voting securities without prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (iii) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.
"Corporate Status" describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Corporation.
"Disinterested Director" means a director of the Corporation who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
"Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.
"Indemnitee" includes any person who is, or is threatened to be made, a witness in or a party to any Proceeding as described in Section 1 or 2 of this Article by reason of his Corporate Status.
"Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the five years previous to his
selection or appointment has been, retained to represent: (i) the Corporation or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.
"Matter" is a claim, a material issue, or a substantial request for relief.
"Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 9 of this Article to enforce his rights under this Article.
Section 15. Notices. Any communication required or permitted to the Corporation shall be addressed to the Secretary of the Corporation and any such communication to Indemnitee shall be addressed to his home address unless he specifies otherwise and shall be personally delivered or delivered by overnight mail delivery.
Section 16. Contractual Rights. The right to be indemnified or to the
advancement or reimbursement of Expenses (i) is a contract right based upon good
and valuable consideration, pursuant to which Indemnitee may sue as if these
provisions were set forth in a separate written contract between him or her and
the Corporation, (ii) is and is intended to be retroactive and shall be
available as to events occurring prior to the adoption of these provisions, and
(iii) shall continue after any rescission or restrictive modification of such
provisions as to events occurring prior thereto.
EXHIBIT 4.8
RENT-A-CENTER, INC.,
as Issuer,
the GUARANTORS named herein,
as Guarantors,
and
THE BANK OF NEW YORK,
as Trustee
THIRD SUPPLEMENTAL INDENTURE
Dated as of May 7, 2004
to
INDENTURE
Dated as of May 6, 2003
between
RENT-A-CENTER, INC., as Issuer,
the GUARANTORS named therein, as Guarantors,
and
THE BANK OF NEW YORK, as Trustee
$300,000,000
SERIES B
7 1/2% SENIOR SUBORDINATED NOTES DUE 2010
This THIRD SUPPLEMENTAL INDENTURE, dated as of May 7, 2004, is entered into by and among Rent-A-Center, Inc., a Delaware corporation (the "COMPANY"), Rent-A-Center East, Inc., a Delaware corporation ("RAC EAST"), ColorTyme, Inc., a Texas corporation ("COLORTYME"), Rent-A-Center West, Inc., a Delaware corporation ("RAC WEST"), Get It Now, LLC, a Delaware limited liability company ("GET IT NOW"), Rent-A-Center Texas, L.P., a Texas limited partnership ("RAC TEXAS, LP"), Rent-A-Center Texas, L.L.C., a Nevada limited liability company ("RAC TEXAS, LLC"), Rent-A-Center International, Inc., a Delaware corporation ("RAC INTERNATIONAL"), Rent-A-Center Addison, L.L.C., a Delaware limited liability company ("RAC ADDISON"), RAC National Product Service, LLC, a Delaware limited liability company ("RAC NATIONAL"), RAC RR, Inc., a Delaware corporation ("RAC RR"), and The Bank of New York, a New York banking corporation, as Trustee (the "TRUSTEE").
WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture, dated as of May 6, 2003, as supplemented by the First Supplemental Indenture, dated December 4, 2003, and the Second Supplemental Indenture, dated April 26, 2004, by and among the Company, RAC East, ColorTyme, RAC West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison, RAC National and the Trustee (the "INDENTURE"), providing for the issuance of its 7-1/2% Series B Senior Subordinated Notes due 2010 (the "NOTES"); and
WHEREAS, RAC East, ColorTyme, RAC West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison and RAC National are currently Guarantors under the Indenture; and
WHEREAS, RAC East has formed RAC RR as a wholly-owned subsidiary; and
WHEREAS, the Company is a party to that certain Agreement and Plan of Merger and Reorganization (the "MERGER AGREEMENT"), dated as of April 27, 2004, by and among the Company, RAC RR, and Rent Rite, Inc. d/b/a Rent Rite Rental Purchase, a Tennessee corporation ("RENT RITE"), pursuant to which Rent Rite will merge with and into RAC RR (the "MERGER"), with RAC RR continuing as the surviving entity; and
WHEREAS, the Company has designated RAC RR as a Restricted Subsidiary under the Indenture to be effective immediately prior to consummation of the Merger; and
WHEREAS, pursuant to Section 1012 and 1009 of the Indenture, the Merger is permitted under the Indenture; and
WHEREAS, pursuant to Section 1020 of the Indenture, the addition of RAC RR as a Guarantor is required under the Indenture; and
WHEREAS, RAC RR has agreed to become a Guarantor by guaranteeing the obligations of the Company under the Indenture in accordance with the terms thereof; and
WHEREAS, RAC RR has been duly authorized to enter into, execute and deliver this Third Supplemental Indenture.
NOW, THEREFORE, for and in consideration of the premises and covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, RAC East, ColorTyme, RAC
West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison, RAC National, RAC RR and the Trustee agree as follows:
SECTION 1. Capitalized terms used herein but not defined herein shall have the meaning provided in the Indenture.
SECTION 2. The Trustee hereby consents to the Merger and the addition of RAC RR as an additional Guarantor under the Indenture. As of the date hereof (the "EFFECTIVE TIME"), RAC RR shall become, and each of RAC East, ColorTyme, RAC West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison and RAC National shall continue to be, a "Guarantor" under and as defined in the Indenture, and at the Effective Time, RAC RR shall assume all the obligations of a Guarantor under the Notes and the Indenture as described in the Indenture. RAC RR hereby unconditionally guarantees the full and prompt payment of the principal of, premium, if any, and interest on the Notes and all other obligations of the Issuer and the Guarantors under the Indenture in accordance with the terms of the Notes and the Indenture.
SECTION 3. Except as expressly supplemented by this Third Supplemental Indenture, the Indenture and the Notes issued thereunder are in all respects ratified and confirmed and all of the rights, remedies, terms, conditions, covenants and agreements of the Indenture and Notes issued thereunder shall remain in full force and effect.
SECTION 4. This Third Supplemental Indenture is executed and shall constitute an indenture supplemental to the Indenture and shall be construed in connection with and as part of the Indenture. This Third Supplemental Indenture shall be governed by and construed in accordance with the laws of the jurisdiction that governs the Indenture and its construction.
SECTION 5. This Third Supplemental Indenture may be executed in any number of counterparts, each of which shall be deemed to be an original for all purposes, but such counterparts shall together be deemed to constitute but one and the same instrument.
SECTION 6. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Third Supplemental Indenture may refer to the Indenture without making specific reference to this Third Supplemental Indenture, but nevertheless all such references shall include this Third Supplemental Indenture unless the context otherwise requires.
SECTION 7. This Third Supplemental Indenture shall be deemed to have become effective upon the date first above written.
SECTION 8. In the event of a conflict between the terms of this Third Supplemental Indenture and the Indenture, this Third Supplemental Indenture shall control.
SECTION 9. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Third Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Company, RAC East, ColorTyme, RAC West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison, RAC National and RAC RR.
IN WITNESS WHEREOF, the parties have caused this Third Supplemental Indenture to be duly executed as of the day and year first above written.
THE BANK OF NEW YORK,
as Trustee
By: /s/ VAN K. BROWN
----------------------------
Name: Van K. Brown
--------------------------
Title: Vice President
--------------------------
|
RENT-A-CENTER, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
President and Chief Operating Officer
|
RENT-A-CENTER EAST, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
COLORTYME, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
RENT-A-CENTER WEST, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
GET IT NOW, LLC
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
RENT-A-CENTER TEXAS, L.P.
By: Rent-A-Center East, Inc.,
its general partner
By: /s/ MITCHELL E. FADEL
---------------------------------
Mitchell E. Fadel
Vice President
|
RENT-A-CENTER TEXAS, L.L.C.
By: /s/ JAMES ASHWORTH
-------------------------------------
James Ashworth
President and Secretary
|
RENT-A-CENTER INTERNATIONAL, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
RENT-A-CENTER ADDISON, L.L.C.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
RAC NATIONAL PRODUCT SERVICE, LLC
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
RAC RR, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
EXHIBIT 4.9
RENT-A-CENTER, INC.,
as Issuer,
the GUARANTORS named herein,
as Guarantors,
and
THE BANK OF NEW YORK,
as Trustee
FOURTH SUPPLEMENTAL INDENTURE
Dated as of May 14, 2004
to
INDENTURE
Dated as of May 6, 2003
between
RENT-A-CENTER, INC., as Issuer,
the GUARANTORS named therein, as Guarantors,
and
THE BANK OF NEW YORK, as Trustee
$300,000,000
SERIES B
7 1/2% SENIOR SUBORDINATED NOTES DUE 2010
This FOURTH SUPPLEMENTAL INDENTURE, dated as of May 14, 2004, is entered into by and among Rent-A-Center, Inc., a Delaware corporation (the "COMPANY"), Rent-A-Center East, Inc., a Delaware corporation ("RAC EAST"), ColorTyme, Inc., a Texas corporation ("COLORTYME"), Rent-A-Center West, Inc., a Delaware corporation ("RAC WEST"), Get It Now, LLC, a Delaware limited liability company ("GET IT NOW"), Rent-A-Center Texas, L.P., a Texas limited partnership ("RAC TEXAS, LP"), Rent-A-Center Texas, L.L.C., a Nevada limited liability company ("RAC TEXAS, LLC"), Rent-A-Center International, Inc., a Delaware corporation ("RAC INTERNATIONAL"), Rent-A-Center Addison, L.L.C., a Delaware limited liability company ("RAC ADDISON"), RAC National Product Service, LLC, a Delaware limited liability company ("RAC NATIONAL"), RAC RR, Inc., a Delaware corporation ("RAC RR"), Eagle Acquisition Sub, Inc., an Ohio corporation ("EAGLE"), and The Bank of New York, a New York banking corporation, as Trustee (the "TRUSTEE").
WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture, dated as of May 6, 2003, as supplemented by the First Supplemental Indenture, dated December 4, 2003, the Second Supplemental Indenture, dated April 26, 2004, and the Third Supplemental Indenture, dated May 7, 2004, by and among the Company, RAC East, ColorTyme, RAC West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison, RAC National, RAC RR and the Trustee (the "INDENTURE"), providing for the issuance of its 7-1/2% Series B Senior Subordinated Notes due 2010 (the "NOTES"); and
WHEREAS, RAC East, ColorTyme, RAC West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison, RAC National and RAC RR are currently Guarantors under the Indenture; and
WHEREAS, RAC East has formed Eagle as a wholly-owned subsidiary of RAC East; and
WHEREAS, the Company is a party to that certain Agreement and Plan of Merger (the "MERGER AGREEMENT"), dated as of February 4, 2004, by and among the Company, Eagle and Rainbow Rentals, Inc., an Ohio corporation ("RAINBOW"), pursuant to which Eagle will merge with and into Rainbow (the "MERGER"), with Rainbow continuing as the surviving entity; and
WHEREAS, the Company has designated Eagle as a Restricted Subsidiary under the Indenture to be effective immediately upon consummation of the Merger; and
WHEREAS, pursuant to Section 1009 of the Indenture, the Merger is permitted under the Indenture; and
WHEREAS, pursuant to Section 1020 of the Indenture, the addition of Eagle as a Guarantor is required under the Indenture; and
WHEREAS, Eagle has agreed to become a Guarantor by guaranteeing the obligations of the Company under the Indenture in accordance with the terms thereof; and
WHEREAS, Eagle has been duly authorized to enter into, execute and deliver this Fourth Supplemental Indenture.
NOW, THEREFORE, for and in consideration of the premises and covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, RAC East, ColorTyme, RAC West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison, RAC National, RAC RR, Eagle and the Trustee agree as follows:
SECTION 1. Capitalized terms used herein but not defined herein shall have the meaning provided in the Indenture.
SECTION 2. The Trustee hereby consents to the addition of Eagle as an additional Guarantor under the Indenture. As of the date hereof (the "EFFECTIVE TIME"), Eagle shall become, and each of RAC East, ColorTyme, RAC West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison, RAC National and RAC RR shall continue to be, a "Guarantor" under and as defined in the Indenture, and at the Effective Time, Eagle shall assume all the obligations of a Guarantor under the Notes and the Indenture as described in the Indenture. Eagle hereby unconditionally guarantees the full and prompt payment of the principal of, premium, if any, and interest on the Notes and all other obligations of the Issuer and the Guarantors under the Indenture in accordance with the terms of the Notes and the Indenture.
SECTION 3. Except as expressly supplemented by this Fourth Supplemental Indenture, the Indenture and the Notes issued thereunder are in all respects ratified and confirmed and all of the rights, remedies, terms, conditions, covenants and agreements of the Indenture and Notes issued thereunder shall remain in full force and effect.
SECTION 4. This Fourth Supplemental Indenture is executed and shall constitute an indenture supplemental to the Indenture and shall be construed in connection with and as part of the Indenture. This Fourth Supplemental Indenture shall be governed by and construed in accordance with the laws of the jurisdiction that governs the Indenture and its construction.
SECTION 5. This Fourth Supplemental Indenture may be executed in any number of counterparts, each of which shall be deemed to be an original for all purposes, but such counterparts shall together be deemed to constitute but one and the same instrument.
SECTION 6. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Fourth Supplemental Indenture may refer to the Indenture without making specific reference to this Fourth Supplemental Indenture, but nevertheless all such references shall include this Fourth Supplemental Indenture unless the context otherwise requires.
SECTION 7. This Fourth Supplemental Indenture shall be deemed to have become effective upon the date first above written.
SECTION 8. In the event of a conflict between the terms of this Fourth Supplemental Indenture and the Indenture, this Fourth Supplemental Indenture shall control.
SECTION 9. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Fourth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Company, RAC East,
ColorTyme, RAC West, Get It Now, RAC Texas, LP, RAC Texas, LLC, RAC International, RAC Addison, RAC National, RAC RR and Eagle.
SIGNATURES APPEAR ON NEXT PAGE
IN WITNESS WHEREOF, the parties have caused this Fourth Supplemental Indenture to be duly executed as of the day and year first above written.
THE BANK OF NEW YORK,
as Trustee
By: /s/ VAN K. BROWN
--------------------------
Name: Van K. Brown
-------------------------
Title: Vice President
------------------------
|
RENT-A-CENTER, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
President and Chief Operating Officer
|
RENT-A-CENTER EAST, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
COLORTYME, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
RENT-A-CENTER WEST, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
GET IT NOW, LLC
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
RENT-A-CENTER TEXAS, L.P.
By: Rent-A-Center East, Inc.,
its general partner
By: /s/ MITCHELL E. FADEL
---------------------------------
Mitchell E. Fadel
Vice President
|
RENT-A-CENTER TEXAS, L.L.C.
By: /s/ JAMES ASHWORTH
-------------------------------------
James Ashworth
President and Secretary
|
RENT-A-CENTER INTERNATIONAL, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
RENT-A-CENTER ADDISON, L.L.C.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
|
RAC NATIONAL PRODUCT SERVICE, LLC
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
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RAC RR, INC.
By: /s/ MITCHELL E. FADEL
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Mitchell E. Fadel
Vice President
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EAGLE ACQUISITION SUB, INC.
By: /s/ MITCHELL E. FADEL
-------------------------------------
Mitchell E. Fadel
Vice President
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EXHIBIT 21.1
SUBSIDIARIES
ColorTyme, Inc., a Texas corporation
Get It Now, LLC, a Delaware limited liability company
RAC Canada Finance LP, a Canadian limited partnership
RAC Canada Holdings, a Canadian partnership
RAC National Product Service, LLC, a Delaware limited liability company
RAC RR, Inc., a Delaware corporation
Remco America, Inc., a Delaware corporation
Rent-A-Center Addison, L.L.C., a Delaware limited liability company
Rent-A-Center East, Inc., a Delaware corporation
Rent-A-Center International, Inc., a Delaware corporation
Rent-A-Center Texas, L.P., a Texas limited partnership
Rent-A-Center Texas, L.L.C., a Nevada limited liability company
Rent-A-Center West, Inc., a Delaware corporation
Rent-A-Centre Canada, Ltd., a Canadian corporation
Rainbow Rentals, Inc., an Ohio corporation
Exhibit 31.1 I, Mark E. Speese, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Rent-A-Center, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 30, 2004
/s/ Mark E. Speese
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Mark E. Speese
Chairman of the Board
and Chief Executive Officer
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Exhibit 31.2
I, Robert D. Davis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Rent-A-Center, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 30, 2004
/s/ Robert D. Davis
-----------------------------------------
Robert D. Davis
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Rent-A-Center, Inc. (the "COMPANY") on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "REPORT"), I, Mark E. Speese, Chairman of the Board and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Mark E. Speese
----------------------------------
Mark E. Speese
Chairman of the Board and
Chief Executive Officer
Dated: July 30, 2004
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A signed original of this written statement required by Section 906 has been
provided to Rent-A-Center, Inc. and will be retained by Rent-A-Center, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Rent-A-Center, Inc. (the "COMPANY") on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "REPORT"), I, Robert D. Davis, Senior Vice President - Finance, Treasurer and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Robert D. Davis
--------------------------------------
Robert D. Davis
Senior Vice President - Finance,
Treasurer and Chief Financial Officer
Dated: July 30, 2004
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A signed original of this written statement required by Section 906 has been
provided to Rent-A-Center, Inc. and will be retained by Rent-A-Center, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.