1
EXHIBIT 10.1
August 17, 1998
Xx. Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
000 X. Xxxxxxxxx
Xxxxxxxx, Xxxxx 00000
Re: Waiver and Second Amendment ("Waiver and Amendment") under the
Amended and Restated Revolving Credit Agreement dated as of April 1,
1998 (as amended, the "Credit Agreement") among Home Choice Holdings,
Inc., as successor by merger to Alrenco, Inc. (the "Company"), the
Banks named therein and Comerica Bank as Agent for the Banks (the
"Agent")
Ladies and Gentlemen:
Reference is made to the Credit Agreement. Except as specifically
defined to the contrary herein, capitalized terms used in this Waiver and
Amendment shall have the meanings given them in the Credit Agreement. This
Waiver and Amendment shall not become effective unless and until countersigned
by the Company and returned to the Agent within five (5) days from the date of
this letter.
As you know, for the fiscal quarter ending June 30, 1998, the Company
is required to maintain the following financial covenant levels under the Credit
Agreement: (a) pursuant to Section 8.10, a Positive Net Income of not less than
$1.00; (b) pursuant to Section 8.11, a Fixed Charge Coverage Ratio of not less
than 1.75 to 1.0; and (c) pursuant to Section 8.12A, a Total Debt to EBITDA
Ratio of not more than 4.0 to 1.0. The Company has advised the Agent and the
Banks that for its fiscal quarter ending June 30, 1998, the Company was not in
compliance with these financial covenants and the Company requested that the
Agent and the Banks waive compliance under the Credit Agreement with these
Sections of the Credit Agreement. The Agent and the Banks have given the Company
a verbal waiver and are formalizing such waiver in this Waiver and Amendment.
The Company has also requested that the Agent and the Banks agree to
certain amendments to the Credit Agreement.
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 2
Based on the Agent's receipt of the approval of the requisite Banks and
subject to the conditions set forth in the penultimate paragraph of this letter
agreement, this letter agreement will confirm that the Banks hereby:
(a) waive compliance by the Company under the Credit Agreement with
Section 8.10 (Positive Net Income), Section 8.11 (Fixed Charge Coverage Ratio),
and Section 8.12A (Total Debt to EBITDA Ratio) of the Credit Agreement for its
fiscal quarter ending June 30, 1998, and
(b) amend the following Sections of the Credit Agreement:
(i) The definition of "EBITDAR" is hereby amended and restated
in its entirety as follows:
"`EBITDAR' of any Person shall mean, for any period,
the sum of (a) Net Income for such period (without giving
effect to (i) any one-time cash charges in an aggregate
amount not to exceed $10,000,000 and any one-time non-cash
charges in an aggregate amount not to exceed $1,000,000
arising from the Merger and (ii) any reasonable and
customary investment banking fees, accountant's fees, and
legal fees incurred by the Company in an aggregate amount
not to exceed $500,000 for the four fiscal quarters then
ending arising from any acquisition and/or mergers other
than the Merger, in each case without netting the amount
of any taxes attributable thereto) plus (b) to the extent
deducted in the computation of such Net Income, (i) all
amounts treated as expenses for depreciation of fixed
assets, amortization of intangible assets and interest
paid or payable on the Debt of such Person for such
period, (ii) all accrued taxes on or measured by income
and (iii) the amount of all Rental Expenses, determined in
each case in accordance with GAAP."
(ii) The definition of "Fixed Charge Coverage Ratio" is hereby
amended and restated in its entirety as follows:
"`Fixed Charge Coverage Ratio' shall mean as of any
date of determination, a ratio (i) the numerator of which
shall be equal to the sum of EBITDAR for the Measuring
Period then ending, and (ii) the denominator of which
shall be Fixed Charges for the Measuring Period then
ending. For purposes of this definition, "for the
Measuring Period then ending" shall mean (x) for the
fiscal quarter ending on June 30, 1998, the period
beginning on January
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 3
1, 1998 and ending on June 30, 1998; (y) for the fiscal
quarter ending on September 30, 1998, the period beginning
on January 1, 1998 and ending on September 30, 1998; and
(z) for the fiscal quarter ending on December 31, 1998 and
for each fiscal quarter ending thereafter, the period of
four consecutive fiscal quarters ending on the date of
determination."
(iii) The definition of "Fixed Charges" is hereby amended and
restated in its entirety as follows:
"`Fixed Charges' of any Person shall mean, for any
period of determination, the sum, without duplication, of
(i) all interest expense paid or payable during such
period on the Total Debt of such Person plus (ii) the
amount of all Rental Expenses of such Person during such
period, all determined in accordance with GAAP plus (iii)
all cash dividends paid by Company pursuant to Section 9.6
hereof."
(iv) The definition of "Permitted Acquisition" is amended as
follows:
(A) Paragraph (c) thereof is amended and
restated in its entirety as follows:
"(c) in the event that the value of such
proposed new acquisition, computed on the basis of
total acquisition consideration paid or incurred, or
to be paid or incurred, by the Company or its
Subsidiaries with respect thereto, including all
indebtedness which is assumed or to which such
assets, businesses or business or ownership interests
or shares, or any Person so acquired, is subject, and
including in the calculation of the value of such
acquisition the value of any common shares
transferred as a part of such acquisition,
(i) shall be greater than or equal to
Ten Million Dollars ($10,000,000), determined
as of the date of such acquisition, or
(ii) when combined with the value of all
other acquisitions conducted as Permitted
Acquisitions in the same fiscal year shall be
greater
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 4
than or equal to (x) for fiscal year 1998,
Sixteen Million Five Hundred Thousand Dollars
($16,500,000), determined as of the date of
such acquisition, (y) for fiscal year 1999,
Thirty Five Million Dollars ($35,000,000),
determined as of the date of such
acquisition, and (z) for fiscal year 2000 and
thereafter, Fifty Million Dollars
($50,000,000), determined as of the date of
such acquisition,
then not less than thirty (30) nor more than
ninety (90) days prior to the date each such
proposed acquisition is scheduled to be
consummated, the Company provides written notice
thereof to Agent, accompanied by (A) draft of the
letter of intent and, when available, all material
documents pertaining to such proposed acquisition,
(B) detail setting forth the acquisition price
with supporting documentation and historical
financial information (including income statement,
balance sheet and cash flows) covering at least
three complete fiscal years of the acquisition
target prior to the effective date of the
acquisition or the entire credit history of the
acquisition target, whichever period is shorter
(provided, however, that, if the financial
information referred to in this subparagraph (B)
is not available, Company shall furnish Agent with
financial information otherwise reasonably
satisfactory to the Majority Banks, and (C) Pro
Forma Projected Financial Information, whereupon
Agent shall promptly notify each of the Banks of
its receipt thereof and upon the written request
of any Bank distribute copies of all notices and
other materials received from Company under this
clause (c) to each Bank;"
(B) Paragraph (d) thereof is amended and restated as
follows:
"(d) in the event that the value of such
proposed new acquisition, computed on the basis of
total acquisition consideration paid or incurred,
or to be paid or incurred, by the Company or its
Subsidiaries with respect thereto, including all
indebtedness which is assumed or to which such
assets, businesses or business or ownership
interests or shares, or any Person so acquired, is
subject, and including
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 5
the value of any common shares transferred as a
part of such acquisition is less than Ten Million
Dollars ($10,000,000) determined as of the date of
such acquisition, then not less than ten (10)
Business Days after date each such proposed
acquisition has been consummated, the Company
provides written notice thereof to Agent (with
certified copies of all material documents
pertaining to such acquisition), whereupon Agent
shall promptly notify each of the Banks of its
receipt thereof and upon the written request of
any Bank distribute copies of all notices and
other materials received from Company under this
clause (d) to each Bank;"
(v) The definition of "Total Debt to EBITDA Ratio" is
hereby amended and restated in its entirety as follows:
"`Total Debt to EBITDA Ratio' shall mean as of the
end of each fiscal quarter, a ratio (i) the numerator
of which shall be equal to Total Debt as of the last
day of such fiscal quarter and (ii) the denominator of
which shall be EBITDA for the Measuring Period then
ending. For the purposes of this definition, " EBITDA
for the Measuring Period then ending" shall mean (x)
for the fiscal quarter ending on June 30, 1998, EBITDA
for the period beginning on January 1, 1998 and ending
on June 30, 1998 multiplied by 2.00; (y) for the fiscal
quarter ending on September 30, 1998, EBITDA for the
period beginning on January 1, 1998 and ending on
September 30, 1998 multiplied by 1.33; and (z) for the
fiscal quarter ending on December 31, 1998 and for each
fiscal quarter ending thereafter, EBITDA for the period
of four consecutive fiscal quarters ending on the date
of determination."
(vi) Section 2.10 (Optional Increase in Commitment) is
amended by amending the first line thereof by replacing the
first word "Provided" with "provided" and by inserting at the
beginning of the sentence the phrase "With the prior written
approval of the Majority Banks and".
(vii) Section 8.1 is amended by adding new clause (c)
immediately following clause (b) thereof, as follows:
"(c) during each month in fiscal year 1998 and, if
requested by the Agent, during any subsequent fiscal
year, as soon
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 6
as available, but in any event not later than twenty
(20) days after the end of each month, the unaudited
consolidated and consolidating financial statements of
the Company as at the end of such month and the related
unaudited statements of income, accumulated earnings,
cash flows and balance sheets of the Company for the
portion of the fiscal year through the end of such
quarter, certified by a Responsible Officer as being
fairly stated in all material respects.".
(viii) Section 8.10 (Positive Net Income) is hereby amended
and restated in its entirety as follows:
"8.10 Positive Net Income. Maintain (a) during
fiscal year 1998, as of the end of each month beginning
with the month ending July 31, 1998, and (b) during
fiscal year 1999 and thereafter as of the end of each
fiscal quarter, Net Income (exclusive of any tax
benefit resulting from a loss carry forward or
otherwise, plus to the extent deducted in the
computation of such Net Income, all accrued taxes on or
measured by income, and without giving effect, but
without duplication, to one-time cash charges in an
aggregate amount not to exceed $10,000,000 and any
one-time non-cash charges in an aggregate amount not to
exceed $1,000,000 arising from the Merger for the first
two fiscal quarters ending after the Merger, as such
charges were given effect prior to giving effect to any
taxes on or measured by income) greater than zero."
(ix) Section 8.11 (Fixed Charged Coverage Ratio) is hereby
amended and restated in its entirety as follows:
"8.11 Fixed Charge Coverage Ratio. Maintain a
Fixed Charge Coverage Ratio of not less than the ratio
set forth below during the applicable period set forth
below:
--------------------------------------------------------------------------------
Quarter(s) Ending Ratio
--------------------------------------------------------------------------------
September 30, 1998 1.35 to 1.0
--------------------------------------------------------------------------------
December 31, 1998 1.60 to 1.0
--------------------------------------------------------------------------------
March 31, 1999 1.80 to 1.0
--------------------------------------------------------------------------------
June 30, 1999 2.15 to 1.0
--------------------------------------------------------------------------------
September 30, 1999 through March 31, 2000 2.25 to 1.0
--------------------------------------------------------------------------------
June 30, 2000 and thereafter 2.35 to 1.0
--------------------------------------------------------------------------------
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 7
(x) Section 8.12A (Total Debt to EBITDA Ratio) is amended in
its entirety as follows:
"8.12A Total Debt to EBITDA Ratio. Maintain, as of
the last day of each fiscal quarter, a Total Debt to EBITDA
Ratio of not more than the ratio set forth below as of the
last day of the applicable fiscal quarter set forth below:
--------------------------------------------------------------------------------
Quarter(s) Ending Ratio
--------------------------------------------------------------------------------
September 30, 1998 5.25 to 1.0
--------------------------------------------------------------------------------
December 31, 1998 3.75 to 1.0
--------------------------------------------------------------------------------
March 31, 1999 and thereafter 3.50 to 1.0
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(xi) Section 9 is hereby amended by adding new Section 9.13
immediately following Section 9.12, as follows:
"9.13. Limitation on Opening of New Stores. Except
(x) with the prior written consent of the Majority
Banks, or (y) in connection with stores acquired
pursuant to a Permitted Acquisition, during fiscal year
1998 (beginning on August 1, 1998) open any new stores,
and during fiscal year 1999 open more than twenty-five
(25) new stores."
(xii) New Schedule 1.1 (Applicable Fee Percentages and
Eurocurrency Margins), attached hereto as Attachment I, shall
replace existing Schedule 1.1 in its entirety.
This Waiver and Amendment shall be come effective (according to the
terms and as of the date hereof) upon satisfaction by the Company of the
following conditions:
1. The Company shall have delivered to the Agent the
following documents which were to have been executed and delivered to
the Agent in connection with the reincorporation of the Company by way
of merger on June
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 8
23, 1998 and with the First Amendment to the Credit Agreement dated as
of June 22, 1998:
(a) Assumption Agreement to be executed by Home Choice
Holdings, Inc.;
(b) Reaffirmation of Certain Loan Documents to be executed
by Home Choice Holdings, Inc;
(c) Incumbency Certificate for the list of persons
authorized to sign on behalf of Home Choice Holdings,
Inc. (that is Xxxxx X. Xxxxxxxx, Xxxx X. Xxxxxxx and
Xxxxx Xxxxxxxx);
(d) Legal Opinion of King & Spalding; and
(e) Financing Statements (both UCC-1's and 3's) to be
executed in connection with the reincorporation and the
acquisition of certain new stores; and
2. the Company shall have paid (a) to the Agent, for
distribution to the Banks, as applicable, all fees (including any
Revolving Credit Commitment Fees) and other amounts, if any, accrued to
the effective date of this Waiver and Amendment and a waiver fee as
agreed to between the Company and the Agent and (b) to the Agent for
the account of its counsel all accrued and unpaid legal fees.
This Waiver and Amendment is limited to the specific matters described
above and shall not be deemed to be a waiver or consent to any other failure to
comply with any provision of the Credit Agreement or any other Loan Document, or
to amend or alter in any respect the term and conditions of the Credit Agreement
(including without limitation all conditions and requirements for Advances and
any financial covenants), the Notes or any of the other Loan Documents, or to
constitute a waiver or release by of the Banks or the Agent of any right,
remedy, Default or Event of Default under the Credit Agreement or any other Loan
Documents, except as specifically set forth above. Furthermore, this Waiver and
Amendment shall not affect in any manner whatsoever any rights or remedies of
the Banks with respect to any other non-compliance by the Company with the
Credit Agreement or the other Loan Documents whether in the nature of a Default
or an Event of Default, and whether now in existence or subsequently arising.
* * *
SIGNATURES FOLLOW ON SUCCEEDING PAGES
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 9
By signing and returning a counterpart of this letter to the Agent, the
Company acknowledges its acceptance of the terms of this letter.
Very truly yours,
COMERICA BANK, as Agent
By:
Its:
---------------------------------
Acknowledged and Accepted
as of , 1998:
-----------
HOME CHOICE HOLDINGS, INC.
By:
------------------------------
Its:
-----------------------------
RTO OPERATING, INC.
By:
------------------------------
Its:
-----------------------------
RTO HOLDING CO., INC.
By:
------------------------------
Its:
-----------------------------
ATRO, INC.
By:
------------------------------
Its:
-----------------------------
ACTION RENT-TO-OWN HOLDINGS OF SOUTH
CAROLINA, INC.
By:
------------------------------
Its:
-----------------------------
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 10
AUTHORIZATION OF WAIVER AND AMENDMENT
The undersigned Bank hereby consents to the waiver of Sections 8.10, 8.11, and
8.12A of the Credit Agreement, and to the amendments of the Credit Agreement set
forth herein, all on the terms and conditions set forth above, and authorizes
the Agent to issue the foregoing Waiver and Amendment to the Company.
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Xxxxx X. Xxxxxxxx
President and CEO
Home Choice Holdings, Inc.
August 17, 1998
Page 11
ATTACHMENT I
SCHEDULE 1.1
APPLICABLE FEE PERCENTAGE
AND EUROCURRENCY MARGINS
===============================================================================
BASIS FOR PRICING LEVEL I LEVEL II
===============================================================================
Fixed Charge greater than or equal
to 2.8 : 1
Coverage Ratio greater than or equal but
to 4.0 : 1.0
less than 4.0 : 1
-------------------------------------------------------------------------------
Commitment Fee 0.30% 0.375%
-------------------------------------------------------------------------------
Eurocurrency Margin 1.10% 1.25%
-------------------------------------------------------------------------------
Letter of Credit Fee 1.10% 1.25%
===============================================================================
=====================================================================================
BASIS FOR PRICING LEVEL III LEVEL IV
=====================================================================================
Fixed Charge greater than greater than
Coverage Ratio or equal to 2.25 : 1 or equal to 1.75:1
but but
less than 2.8 : 1 less than 2.25
-------------------------------------------------------------------------------------
Commitment Fee 0.425% 0.50%
-------------------------------------------------------------------------------------
Eurocurrency Margin 1.40% 1.65%
-------------------------------------------------------------------------------------
Letter of Credit Fee 1.40% 1.65%
=====================================================================================
