Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of
June 2, 2003, by and among Rent-Way, Inc., a Pennsylvania corporation, with
headquarters located at Xxx Xxxxxxx Xxxxx, Xxxx, Xxxxxxxxxxxx 00000 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("REGULATION D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 ACT").
B. The Company has authorized the following new series of its
preferred stock, no par value: the Company's Series A Convertible Preferred
Stock (the "PREFERRED STOCK"), which shall be convertible into shares of the
Company's common stock, no par value (the "COMMON STOCK") (as converted, the
"CONVERSION SHARES"), in accordance with the terms of the Company's statement
with respect to shares of the Series A Convertible Preferred Stock filed with
the Department of State of the Commonwealth of Pennsylvania, in the form
attached hereto as Exhibit A (the "STATEMENT OF DESIGNATIONS").
C. The Buyers severally wish to purchase, and the Company
wishes to issue and sell, upon the terms and conditions stated in this
Agreement, initially an aggregate of 1,500 shares of Preferred Stock (the
"INITIAL PREFERRED SHARES") in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers.
D. The Buyers severally will have the option, subject to the
terms and conditions stated in this Agreement, to purchase in the aggregate up
to an additional 500 shares of Preferred Stock (the "ADDITIONAL PREFERRED
SHARES") (pro-rata based on the number of Initial Preferred Shares that each
Buyer purchased in relation to the total number of Initial Preferred Shares
issued). The Initial Preferred Shares and the Additional Preferred Shares
collectively are referred to in this Agreement as the "PREFERRED SHARES."
E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit B (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and the Buyers hereby agree as
follows:
1. PURCHASE AND SALE OF PREFERRED SHARES .
a. Purchase of Preferred Shares. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6(a) and 7(a)
below, the Company shall issue and sell to each
Buyer, and each Buyer severally agrees to purchase from the Company, the
respective number of Initial Preferred Shares set forth opposite such Buyer's
name on the Schedule of Buyers (the "INITIAL CLOSING"). Subject to the terms
stated herein, at any time or from time to time on or prior to the twelve (12)
month anniversary of the Initial Closing Date (as defined below), subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6(b) and 7(b)
below, each Buyer in its sole discretion may notify the Company (the "ADDITIONAL
PREFERRED SHARES EXERCISE NOTICE") that it wishes to purchase up to its pro rata
share of the Additional Preferred Shares (the maximum pro rata share amount is
listed opposite each Buyer's name on the Schedule of Buyers) and the Company
shall issue and sell to such Buyer such number of Additional Preferred Shares
(each, an "ADDITIONAL CLOSING"). The Initial Closing and each Additional Closing
are each sometimes referred to herein as a "CLOSING." The purchase price (the
"PURCHASE PRICE") of Preferred Share at the applicable Closing shall be $10,000
per Preferred Share.
b. The Closings. The date and time of the Initial
Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m., New York City time, on
the date hereof, and the date and time of each Additional Closing shall be on
the third Business Day following receipt by the Company of the applicable
Additional Preferred Shares Exercise Notice (or such later date as is mutually
agreed to by the Company and the applicable Buyer or Buyers) (each, an
"ADDITIONAL CLOSING DATE"), in each case subject to the satisfaction (or waiver)
of the conditions set forth in Sections 6(a) and 7(a), or 6(b) and 7(b), as
applicable. The Initial Closing Date and each Additional Closing Date each shall
be referred to as a "CLOSING DATE." Each Closing shall occur on the applicable
Closing Date at the offices of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000. "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
c. Form of Payment. On each Closing Date, (A) each
Buyer shall pay the Purchase Price to the Company for the Preferred Shares by
wire transfer of immediately available funds in accordance with the Company's
written wire instructions, less any amount withheld at the Initial Closing for
expenses pursuant to Section 4(k), and (B) the Company shall deliver to each
Buyer stock certificates (in the denominations as such Buyer shall request) (the
"PREFERRED STOCK CERTIFICATES") representing such number of the Preferred Shares
which such Buyer is then purchasing hereunder duly executed on behalf of the
Company and registered in the name of such Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring
the Preferred Shares, (ii) upon conversion of the Preferred Shares owned by it,
will acquire the Conversion Shares then issuable and (iii) upon payment of any
Dividend Shares (as defined in the Statement of Designations), will acquire such
Dividend Shares (the Preferred Shares, the Conversion Shares and the Dividend
Shares collectively are referred to herein as the "SECURITIES") for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the
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1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time,
provided further, however, that such disposition shall be in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D
under the 1933 Act.
c. Reliance on Exemptions. Such Buyer understands
that the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the Securities.
d. Information. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Buyer. Such Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of the Company.
Neither such inquiries nor any other due diligence investigations conducted by
such Buyer or its advisors, if any, or its representatives shall modify, amend
or affect such Buyer's right to rely on the Company's representations and
warranties contained in this Agreement.
e. No Governmental Review. Such Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Securities or the fairness or suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Securities.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form y, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto) ("RULE 144"); (ii) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 0000 Xxx) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other Person is under any obligation to register the Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. The Securities may be pledged in
connection with a bona fide margin
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account or other loan secured by the Securities. As used herein, "PERSON" means
an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Preferred Shares and, until
such time as the sale of the Conversion Shares have been registered under the
1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares, except as set forth below,
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS OR (B) AN
OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR (II) UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY
THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, (i) such Securities are registered for resale under the 1933 Act,
(ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that such sale, assignment or transfer of the Securities may be
made without registration under the 1933 Act, (iii) following any sale of such
Securities pursuant to Rule 144, or (iv) if such Securities are eligible for
resale under Rule 144(k).
h. Authorization; Enforcement; Validity. This
Agreement and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of such Buyer and constitute the
legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
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i. Residency. Such Buyer is a resident of that state
and/or country specified in its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and
its "SUBSIDIARIES" (which, for purposes of this Agreement, means any entity in
which the Company, directly or indirectly, owns capital stock or holds an equity
or similar interest) are corporations or limited liability companies duly
organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated or formed, and have the requisite
corporate or other power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation or limited liability
company to do business and is in good standing in every jurisdiction in which
its ownership of property or the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations,
prospects or financial condition of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below) or the Statement of Designations. The
Company has no Subsidiaries except as set forth on Schedule 3(a).
b. Authorization; Enforcement; Validity. The Company
has the requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5(b)) and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "TRANSACTION DOCUMENTS") and
the Statement of Designations and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Company and the execution and filing of the Statement of
Designations by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Preferred Shares, the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion thereof, the reservation for issuance
and the issuance of the Dividend Shares issuable thereon, have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
shareholders. This Agreement and the other Transaction Documents of even date
herewith have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. As of
each Closing, the Transaction Documents dated after the date hereof shall have
been duly executed and delivered by the Company, and shall constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such
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enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies. The Statement of Designations has been filed on or prior to the
Initial Closing Date with the Department of State of the Commonwealth of
Pennsylvania and will be in full force and effect, enforceable against the
Company in accordance with its terms and shall not have been amended unless in
compliance with its terms.
c. Issuance of Securities. The Preferred Shares are
duly authorized and, upon issuance in accordance with the terms hereof, shall be
(i) validly issued, fully paid and non-assessable, (ii) free from all taxes,
liens and charges with respect to the issuance thereof and (iii) entitled to the
rights and preferences set forth in the Statement of Designations. As of the
applicable Closing, a number of shares of Common Stock shall have been duly
authorized and reserved for issuance which equals the sum of 125% of the number
of shares of Common Stock issuable upon conversion of, or as payment for
interest on, the Preferred Shares to be issued at such Closing (subject to
adjustment pursuant to the Company's covenant in Section 4(f) below). Upon
conversion in accordance with the Statement of Designations and upon issuance of
the Dividend Shares as dividends on the Preferred Shares, the Conversion Shares
and the Dividend Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Subject to the accuracy as to factual matters of the
Buyers' representations in Section 2, the issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
d. No Conflicts. The execution, delivery and
performance of the Transaction Documents and the Statement of Designations by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the reservation for issuance
and issuance of the Conversion Shares and the Dividend Shares) will not (i)
result in a violation of the Articles of Incorporation or the Bylaws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the Principal Market (as defined below))
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected.
e. Consents. Except as contemplated by the
Transaction Documents, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof other than filings that will have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The
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Company and its Subsidiaries are unaware of any facts or circumstances which
might prevent the Company from obtaining or effecting any of the foregoing.
f. Acknowledgment Regarding Buyer's Purchase of
Securities. The Company acknowledges and agrees that each Buyer is acting solely
in the capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and that no
Buyer is (i) an officer or director of the Company, (ii) to the knowledge of the
Company, an "affiliate" of the Company (as defined in Rule 144) or (iii) to the
knowledge of the Company, a "beneficial owner" of more than 10% of the Common
Stock (as defined for purposes of Rule 13d-3 of the 1934 Act (as defined
below)). The Company further acknowledges that no Buyer is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
the Transaction Documents or the Statement of Designations and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents, the
Statement of Designations and the transactions contemplated hereby and thereby
is merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
g. No General Solicitation; Placement Agent. Neither
the Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D in connection with the offer or sale of the
Securities. The Company acknowledges that it has engaged Citigroup Global
Markets as placement agent (the "AGENT") in connection with the sale of the
Preferred Shares, which Agent may have formally or informally engaged other
agents on its behalf. Other than the Agent, the Company has not engaged any
placement agent, broker, dealer, finder or other agent in connection with the
sale of the Preferred Shares.
h. No Integrated Offering. None of the Company, its
Subsidiaries, any of their affiliates, and any Person acting on their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated. None of the Company, its Subsidiaries, their affiliates
and any Person acting on their behalf will take any action or steps referred to
in the preceding sentence that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.
i. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares issuable upon conversion of
the Preferred Shares will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares in accordance with this Agreement and the Statement of
Designations is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other shareholders of
the Company.
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j. Application of Takeover Protections. The Company
and its Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of the
Commonwealth of Pennsylvania which is or could become applicable to any Buyer as
a result of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and any Buyer's ownership
of the Securities. The Company has not adopted a stockholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of Company
Common Stock or a change in control of the Company.
k. SEC Documents; Financial Statements. Since
September 30, 2001, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 ACT") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). All such SEC Documents were filed or furnished, and are
available on, the SEC's Xxxxx System. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
l. Absence of Certain Changes. Except as disclosed
with reasonable specificity in the SEC Documents filed at least ten days prior
to the date of this Agreement or as disclosed in Schedule 3(l), since September
30, 2002 there has been no material adverse change and no material adverse
development in the business, properties, operations, financial condition,
results of operations or prospects of the Company or its Subsidiaries. Since
March 31, 2003, the Company has not (i) declared or paid any dividends, (ii)
sold any assets, individually or in the aggregate, in excess of $1,000,000
outside of the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $3,000,000. The Company has not
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taken any steps to seek protection pursuant to any bankruptcy law nor does the
Company or any of its Subsidiaries have any knowledge or reason to believe that
its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
The Company is not as of the date hereof, and after giving effect to the
transaction contemplated hereby including, without limitation, the issuance by
the Company of the Senior Secured Notes (as defined in the Statement of
Designations) and entering into the Senior Credit Facility (as defined in the
Statement of Designations), will not be Insolvent (as defined below). For
purposes of this Section 3(l), "INSOLVENT" means (i) the present fair saleable
value of the Company's assets is less than the amount required to pay the
Company's total indebtedness, contingent or otherwise, (ii) the Company is
unable to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured, (iii) the Company
intends to incur or believes that it will incur debts that would be beyond its
ability to pay as such debts mature or (iv) the Company has unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.
m. No Undisclosed Events, Liabilities, Developments
or Circumstances. Except for the transactions contemplated hereby, no event,
liability, development or circumstance has occurred or exists, or is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement on Form S-1 filed with the SEC relating to an issuance
and sale by the Company of Common Stock and which has not been disclosed or
otherwise publicly announced.
n. Conduct of Business; Regulatory Permits. Neither
the Company nor its Subsidiaries is in violation of any term of or in default
under its Articles of Incorporation or Bylaws or their organizational charter or
bylaws, respectively. Neither the Company nor any of its Subsidiaries is in
violation of any judgment, decree or order or any statute, ordinance, rule or
regulation applicable to the Company or its Subsidiaries, and neither the
Company nor any of its Subsidiaries conducts its business in violation of any of
the foregoing, except for possible violations which would not, individually or
in the aggregate, have a Material Adverse Effect. Without limiting the
generality of the foregoing, the Company is not in violation of any of the
rules, regulations or requirements of The New York Stock Exchange, Inc. (the
"PRINCIPAL MARKET") and has no knowledge of any facts or circumstances which
would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market. Since September 30, 2001, (i) the Common Stock has been
designated for quotation or listed on the Principal Market, (ii) trading in the
Common Stock has not been suspended by the SEC or the Principal Market and (iii)
the Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
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o. Foreign Corrupt Practices. Neither the Company,
nor any of its Subsidiaries, nor any director, officer, agent, employee or other
Person acting on behalf of the Company or any of its Subsidiaries has, in the
course of its actions for, or on behalf of, the Company (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
x. Xxxxxxxx-Xxxxx Act. The Company is in compliance
with any and all applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that
are effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the date
hereof, except where such noncompliance would not have, individually or in the
aggregate, a Material Adverse Effect.
q. Investment Company Status. The Company is not, and
upon consummation of the sale of the Securities will not be, an "investment
company," a company controlled by an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended.
r. Transactions With Affiliates. Except as set forth
on Schedule 3(r) or in the SEC Documents filed at least ten days prior to the
date of this Agreement and other than the grant of stock options disclosed on
Schedule 3(s), none of the officers or directors of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as officers or directors of the Company), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer or director or employee or, to
the knowledge of the Company, any corporation, partnership, trust or other
entity in which any such officer, director, or employee has a material interest
or is an officer or director, trustee or partner.
s. Equity Capitalization. As of May 28, 2003, the
authorized capital stock of the Company consists of (x) 50,000,000 shares of
Common Stock, of which as of the date hereof, 25,687,038 shares are issued and
outstanding, 4,122,722 shares are reserved for issuance pursuant to the
Company's stock option and purchase plans and 433,000 shares are reserved for
issuance pursuant to securities (other than the Preferred Shares) exercisable or
exchangeable for, or convertible into, shares of Common Stock, and (y) 1,000,000
shares of preferred stock, of which as of the date hereof, no shares are issued
and outstanding, or reserved for issuance. All of such outstanding shares have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(s): (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (iv) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
- 10 -
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (v) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; and (vi) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to the Buyer true, correct and complete copies of the
Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as amended
and as in effect on the date hereof (the "BYLAWS"), and the terms of all
securities convertible into or exercisable or exchangeable for Common Stock and
the material rights of the holders thereof in respect thereto.
t. Indebtedness. Except as disclosed in Schedule
3(t), after giving effect to the closing of the sale of the Senior Secured Notes
and the Senior Credit Facility, neither the Company nor any of its Subsidiaries
has any outstanding Indebtedness (as defined below). For purposes of this
Agreement: (x) "INDEBTEDNESS" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, change, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; and (y) "CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be
- 11 -
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto.
u. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by the Principal Market, any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company, the Common Stock or any of the Company's Subsidiaries or any of the
Company's or the Company's Subsidiaries' officers or directors in their
capacities as such which, if determined adversely to the Company, would have,
either individually or in the aggregate, a Material Adverse Effect, except as
set forth in Schedule 3(u).
v. Insurance. The Company and each of its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged. Neither the Company nor any of its Subsidiaries
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect, taken as a whole.
w. Employee Relations. Neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement or employs any
member of a union. No material labor dispute with the employees of the Company
or its Subsidiaries exists or, to the knowledge of the Company is imminent. No
executive officer (as defined in Rule 501(f) of the 0000 Xxx) of the Company has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company. No executive officer of
the Company, to the knowledge of the Company, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any of
its Subsidiaries to any liability with respect to any of the foregoing matters.
The Company and its Subsidiaries are in compliance with all federal, state,
local and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
have a Material Adverse Effect. There are no pending investigations involving
the Company or any of its Subsidiaries by the U.S. Department of Labor or any
other governmental agency responsible for the enforcement of such federal,
state, local or foreign laws and regulations that would have, either
individually or in the aggregate, a Material Adverse Effect. There is no unfair
labor practice charge or complaint against the Company or any of its
Subsidiaries pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or any of its Subsidiaries. No representation question
exists respecting the employees of the Company or any of its subsidiaries, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any of its Subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or any of its Subsidiaries. No material
labor dispute with the employees of the Company or any of its Subsidiaries
exists or, to the knowledge of the
- 12 -
Company, is imminent. Except for such failures that would not, either
individually or in the aggregate, result in a Material Adverse Effect, each of
the employee benefit plan (whether or not subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) maintained or contributed to
by the Company or any of member of its controlled group (determined in
accordance with Section 4001(a)(14) of ERISA) (collectively the "PLANS") have
been maintained and administered in accordance with their terms, ERISA, the
Internal Revenue Code of 1986, as amended (the "CODE"), and other applicable
laws. None of the Plans is subject to Title IV of ERISA and no Plan is a
multiemployer plan (within the meaning of Section 3(37) of ERISA). Each Plan
intended to qualify under Section 401(a) or 501(c)(9) of the Code has received a
favorable determination or approval letter from the Internal Revenue Service
regarding its qualification under such section and no event has occurred which
cause any such Plan to lose its qualification.
x. Title. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as of the Closing Date secure Indebtedness
evidenced by the Senior Secured Notes and the Senior Credit Facility or such as
do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
y. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
("INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their respective
businesses as now conducted. Except as set forth in Schedule 3(y), none of the
Company's Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the
Company or its Subsidiaries of Intellectual Property Rights of others. Except as
set forth in Schedule 3(y), there is no claim, action or proceeding being made
or brought, or to the knowledge of the Company, being threatened, against the
Company or its Subsidiaries regarding its Intellectual Property Rights. The
Company is unaware of any facts or circumstances which might give rise to any of
the foregoing infringements or claims, actions or proceedings. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
z. Environmental Laws. The Company and its
Subsidiaries (i) are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of
- 13 -
any such permit, license or approval where, in each of the foregoing clauses
(i), (ii) and (iii), the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
aa. Tax Status. The Company and each of its
Subsidiaries has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject, and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those for which valid extensions have been
filed and those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
bb. Internal Accounting Controls. The Company and
each of its Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference.
4. COVENANTS.
a. Best Efforts. Each party shall use its best
efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The Company
shall, on or before each of the Closing Dates, take such action as the Company
shall reasonably determine is necessary in order to obtain an exemption for, or
to qualify the Securities for, sale to the Buyers at each of the Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of any such action so
taken to the Buyers on or prior to each of the Closing Dates. The Company shall
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of the
United States following each of the Closing Dates.
c. Reporting Status. Until the later of (i) the date
which is one year after the date as of which the Investors (as that term is
defined in the Registration Rights Agreement) may sell all of the Conversion
Shares and Dividend Shares without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) and (ii) the date on which
(A) the Investors shall have sold all the Conversion Shares and Dividend Shares
and (B) none of the Preferred Shares is outstanding (the "REPORTING PERIOD"),
the Company shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not
- 14 -
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would otherwise
permit such termination.
d. Use of Proceeds. The Company will use the net
proceeds from the sale of the Preferred Shares for the same purposes as
described in Schedule 4(d).
e. Financial Information. The Company agrees to send
the following to each Investor during the Reporting Period: (i) unless the
following are filed with the SEC through XXXXX and are available to the public
through the XXXXX system, within one(1) day after the filing thereof with the
SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form
10-Q, any Current Reports on Form 8-K and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act, provided that if
any such report is not filed with the SEC through XXXXX then the Company shall
deliver a copy of such report to each Investor by facsimile on the same day it
is filed with the SEC; (ii) on the same day as the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) copies of any notices and other information made available or given to
the shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders.
f. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than the 125% of the number of shares of Common Stock
needed to provide for the issuance of the shares of Common Stock upon conversion
of all outstanding Preferred Shares (without regard to any limitations on
conversions).
g. Listing. The Company shall promptly secure the
listing of all of the Registrable Securities (as defined in the Registration
Rights Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents and the
Statement of Designations. The Company shall maintain the Common Stock's
authorization for listing on the Principal Market or quotation on the NASDAQ
National Market. Neither the Company nor any of its Subsidiaries shall take any
action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(g).
h. Disclosure of Transactions and Other Material
Information. On or before 8:30 a.m., New York City time, on the Business Day
following the Initial Closing Date, the Company shall file a Current Report on
Form 8-K with the SEC describing the terms of the transactions contemplated by
the Transaction Documents and including as exhibits to such Current Report on
Form 8-K this Agreement, the Statement of Designations, and the Registration
Rights Agreement, and the schedules hereto and thereto in the form required by
the 1934 Act. (including all attachments, the "8-K FILING"). On or before 8:30
a.m., New York City time, on the Business Day following each Additional Closing
Date, if any, the Company shall file a Current Report on Form 8-K with the SEC
describing the transaction consummated on such Additional Closing Date. From and
after the filing of the 8-K Filing with the SEC, no Buyer
- 15 -
shall be in possession of any material, nonpublic information received from the
Company, any of its Subsidiaries or any of its respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. The Company shall
not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the filing of the 8-K Filing with the SEC without
the express written consent of such Buyer. In the event of a breach of the
foregoing covenant by the Company, any of its Subsidiaries, or any of its or
their respective officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, a Buyer shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Buyer shall have any
liability to the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees, shareholders or agents for any such disclosure.
Subject to the foregoing, neither the Company nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations, including the applicable rules and
regulations of the Principal Market (provided that in the case of clause (i)
each Buyer shall be consulted by the Company (although the consent of such Buyer
shall not be required) in connection with any such press release or other public
disclosure prior to its release).
i. Corporate Existence. So long as a Buyer
beneficially owns any Preferred Shares, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, (i) where the surviving or successor entity in such
transaction assumes the Company's obligations hereunder and under the agreements
and instruments entered into in connection herewith and such surviving or
successor entity or its parent into whose stock the Preferred Shares will be
convertible or exercisable is a publicly traded corporation whose common stock
is listed for trading on or quoted on the NYSE or NASDAQ or (ii) in connection
with a Change of Control (as defined in the Statement of Designations) where the
Company exercises it redemption right under Section 4(c) of the Statement of
Designations and complies with its obligations in connection therewith as set
forth in the Statement of Designations.
j. Pledge of Securities. The Company acknowledges and
agrees that the Securities may be pledged in compliance with applicable
securities laws by an Investor (as defined in the Registration Rights Agreement)
in connection with a bona fide margin agreement or other loan or financing
arrangement secured by the Securities. The pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Investor effecting a pledge of Securities shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement, any other Transaction Document or the Statement of
Designations, including, without limitation, Section 2(f) of this Agreement;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities
- 16 -
to such pledgee. The Company hereby agrees to execute and deliver such
reasonable documentation as a pledgee of the Securities may reasonably request
in connection with a pledge of the Securities to such pledgee by an Investor.
k. Expenses. Subject to Section 9(l) below, at the
Initial Closing, the Company shall pay an expense allowance of $75,000 to
Smithfield Fiduciary LLC (a Buyer), which amount, less any amount paid prior to
the Initial Closing, shall be withheld by such Buyer from its Purchase Price to
be paid at the Initial Closing. The Company shall be responsible for the payment
of any placement agent's fees or broker's commissions relating to or arising out
of the transactions contemplated hereby, including, without limitation, any fees
or commissions payable to the Agent. Except as otherwise set forth in this
Agreement or in the Registration Rights Agreement, each party to this Agreement
shall bear its own expenses in connection with the sale of the Securities to the
Buyers.
l. Additional Preferred Stock. For so long as any
Buyer beneficially owns any Preferred Shares the Company will not create, issue
or issue (x) any Preferred Stock other than to the Buyers as contemplated hereby
or (y) any other securities of the Company other than in compliance with Section
11 of the Statement of Designations.
m. Transactions With Affiliates. So long as Preferred
Shares are outstanding, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, Person who were officers or directors at any time during
the previous two years, shareholders who beneficially own 5% or more of the
Common Stock, or their affiliates, or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest (each, a "RELATED
PARTY"), except for (a) customary employment arrangements and benefit programs
on reasonable terms, (b) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company or
(c) any agreement, transaction, commitment or arrangement on an arm's-length
basis on terms no less favorable than terms which would have been obtainable
from a Person other than such Related Party. For purposes hereof, any director
who is also an officer of the Company or any Subsidiary of the Company shall not
be a disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any Person, another Person that, directly or indirectly, (i) has a 5% or more
equity interest in that Person, (ii) has 5% or more common ownership with that
Person, (iii) controls that Person or entity, or (iv) shares common control with
that Person. "Control" or "controls" for purposes hereof means that a Person has
the power, direct or indirect, to conduct or govern the policies of another
Person.
n. Indebtedness. So long as any Preferred Shares
remain outstanding, other than with the approval of holders of not less than a
majority of the Preferred Shares then outstanding, the Company covenants and
agrees that it shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, incur, guarantee, assume, suffer to
exist, repay, prepay, redeem, defease or otherwise make any payment on any
Indebtedness, other than Permitted Indebtedness. For purposes of this Agreement
(x) "PERMITTED INDEBTEDNESS" means
- 17 -
(i) Indebtedness incurred pursuant to the Senior Credit Facility and the Senior
Secured Notes (but only as these terms are defined in the Statement of
Designations), (ii) any other Indebtedness permitted pursuant to the Senior
Credit Facility and the Senior Secured Notes, (iii) Purchase Money Indebtedness
and (iv) Permitted Refinancing Indebtedness; (y) "PURCHASE MONEY INDEBTEDNESS"
means Indebtedness of the Company or any Subsidiary incurred in the ordinary
course of business solely for the purpose of financing all or any part of the
purchase price of equipment, furniture or fixtures or the cost of construction
or improvement of any property; provided, however, that the aggregate principal
amount of any such Indebtedness does not exceed the lesser of the fair market
value of such property, as determined in the good faith judgment of the
Company's Board of Directors, or such purchase price or cost, including any
refinancing of such Indebtedness that does not increase the aggregate principal
amount (or accreted amount, if less) thereof as of the date of refinancing; and
(z) "PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness incurred to
refinance or replace the Senior Secured Notes or the Senior Credit Facility.
o. Variable Securities. So long as any Preferred
Shares remain outstanding, the Company shall not, in any manner, issue or sell
any rights, warrants or options to subscribe for or purchase Common Stock or
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed price unless
the conversion, exchange or exercise price of any such security cannot be less
than the then applicable Conversion Price (as defined in the Statement of
Designations) with respect to the Common Stock under any into which any
Preferred Share is convertible.
p. Additional Issuances of Securities.
(i) Right of First Refusal. If at any
time during which any Buyer (or its assignee as permitted pursuant to
Section 9(g) hereto) beneficially owns any Preferred Shares (a
"QUALIFIED BUYER"), the Company shall desire to issue for cash in a
public offering or pursuant to Rule 144A under the 1933 Act any
security convertible into or exchangeable or exercisable for Common
Stock, then the Company shall first comply with the terms of this
Section 4(p) (collectively, "FUTURE OFFERINGS").
(ii) Notice Requirements. The Company
shall notify, or cause to be notified, the Qualified Buyers, by
certified mail return receipt requested, not less than ten (10)
Business Days prior to the time the Company intends to consummate such
Future Offering (the "FUTURE OFFERING NOTICE"). The Future Offering
Notice shall describe the proposed Future Offering, including the
purchaser and the detailed terms and conditions thereof and description
of the securities to be issued and providing each Qualified Buyer an
option to purchase up to a number of the securities to be issued in
such Future Offering equal to such Qualified Buyer's Future Offering
Amount. For purposes of this Section 4(p), "FUTURE OFFERING AMOUNT " at
any time with respect to any Qualified Buyer shall mean one-third of
the number obtained by multiplying (A) the total number of securities
to be issued in such Future Offering multiplied by (B) the quotient the
numerator of which shall be (x) the number of Initial Preferred Shares
initially sold to such Qualified Buyer (or in the case of an assignee,
Initial Preferred Shares sold, assigned or otherwise transferred to
such assignee), after giving effect to any
- 18 -
assignment of Initial Preferred Shares, if at all, and the denominator
of which shall be (y) the aggregate number of Initial Preferred Shares
initially issued to all the Buyers.
(iii) Exercise of Right of First Refusal.
A Qualified Buyer can exercise its option to participate in a Future
Offering by delivering written notice to the Company of such Qualified
Buyer's interest in participating within ten Business Days after
receipt of a Future Offering Notice, which notice shall state the
quantity of up to its Future Offering Amount, and that number of
securities it is willing to purchase in excess of its Future Offering
Amount. In the event that one or more Qualified Buyers fail to elect to
purchase up to each such Qualified Buyer's Future Offering Amount, then
each Qualified Buyer which has indicated that it is willing to purchase
a number of securities in such Future Offering in excess of its Future
Offering Amount shall be entitled to purchase its pro rata portion
(determined in the same manner as described in the definition of Future
Offering Amount) of the securities in the Future Offering which one or
more of the Qualified Buyers have not elected to purchase.
(iv) Right to Issue Securities. In the
event the Qualified Buyers fail to elect to fully participate in the
Future Offering within the periods described in this Section 4(p), the
Company shall have 45 days thereafter to sell the securities of the
Future Offering not purchased by the Qualified Buyers upon terms and
conditions no more favorable to the purchasers thereof than specified
in the Future Offering Notice. In the event the Company has not sold
such securities of the Future Offering during such 15-day period, the
Company shall not thereafter issue or sell such securities without
first offering such securities to the Qualified Buyers in the manner
provided in this Section 4(p).
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
a. Register. The Company shall maintain at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to each holder of Preferred Shares), a register for the
Preferred Shares, in which the Company shall record the name and address of the
Person in whose name the Preferred Shares have been issued (including the name
and address of each transferee) and the number of Preferred Shares held by such
Person The Company shall keep the register open and available at all times
during business hours for inspection of any Buyer or its legal representatives.
b. The Company shall issue irrevocable instructions
to its transfer agents, and any subsequent transfer agent, to issue certificates
or credit shares to the applicable balance accounts at The Depository Trust
Company ("DTC"), registered in the name of each Buyer or its respective
nominee(s), for the Conversion Shares in such amounts as specified from time to
time by each Buyer to the Company upon conversion of the Preferred Shares, (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"), a form of which is attached as
Exhibit C hereto. Prior to registration of the Conversion Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section
5(b) and stop transfer instructions to give effect to Section 2(f) hereof (in
the case of the Conversion Shares, prior to registration of the Conversion
Shares under the 0000 Xxx) will be given by the
- 19 -
Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(f), the Company shall permit the transfer, and, in the case of the
Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates, or credit shares to one or more balance accounts at DTC, in such
name and in such denominations as specified by such Buyer and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b), that
the Buyers shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. The Initial Closing. The obligation of the Company
to issue and sell the Initial Preferred Shares to each Buyer at the Initial
Closing is subject to the satisfaction, at or before the Initial Closing Date,
of each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each
of the Transaction Documents to which it is a party and delivered the
same to the Company.
(ii) The Statement of Designations shall
have been filed with the Department of State of the Commonwealth of
Pennsylvania.
(iii) All Buyers shall have delivered to
the Company the Purchase Price (less in the case of Smithfield
Fiduciary LLC the amounts withheld pursuant to Section 4(k)) for the
Initial Preferred Shares being purchased by such Buyers at the Initial
Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
(iv) The representations and warranties
of such Buyer shall be true and correct as of the date when made and as
of the Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the Initial Closing Date.
(v) Such Buyer shall have delivered to
the Company such other documents relating to the transactions
contemplated by this Agreement as the Company or its counsel may
reasonably request.
- 20 -
b. The Additional Closings. The obligation of the
Company hereunder to issue and sell the Additional Preferred Shares to each
Buyer at an Additional Closing for such Buyer is subject to the satisfaction, at
or before the applicable Additional Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
such Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to
the Company the Purchase Price for the Additional Preferred Shares
being purchased by such Buyer at such Additional Closing by wire
transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(ii) The representations and warranties
of such Buyer shall be true and correct as of the date when made and as
of such Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to such Additional Closing Date.
(iii) Such Buyer shall have delivered to
the Company such other documents relating to the transactions
contemplated by this Agreement as the Company or its counsel may
reasonably request.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. The Initial Closing. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares from the Company at the
Initial Closing is subject to the satisfaction, at or before the Initial Closing
Date, of each of the following conditions, provided that these conditions are
for each Buyer's sole benefit and may be waived by such Buyer at any time in its
sole discretion by providing the Company with prior written notice thereof:
(i) The Company shall have executed
each of the Transaction Documents and delivered the same to such Buyer.
(ii) The Statement of Designations shall
have been filed with the Department of State of the Commonwealth of
Pennsylvania, and a copy thereof certified by the Department of State
of the Commonwealth of Pennsylvania shall have been delivered to such
Buyer.
(iii) The Common Stock (x) shall be
designated for quotation or listed on the Principal Market and (y)
shall not have been suspended by the SEC or the Principal Market from
trading on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened either (A) in writing by the SEC
or the Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market; and the Conversion
Shares issuable upon conversion of the Initial Preferred Shares
(without regard to any limitations on conversions) shall be listed
(subject to official notice of issuance) upon the Principal Market.
- 21 -
(iv) The representations and warranties
of the Company shall be true and correct as of the date when made and
as of the Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at
or prior to the Initial Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company,
dated as of the Initial Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer,
including, without limitation, an update as of the Initial Closing Date
regarding the representation contained in Section 3(c) above.
(v) Such Buyer shall have received the
opinion of Xxxxxxx Xxxx LLP, dated as of the Initial Closing Date, in
the form attached hereto as Exhibit D.
(vi) The Company shall have executed and
delivered to such Buyer the Preferred Stock Certificates (in such
denominations as such Buyer shall request) for the Initial Preferred
Shares being purchased by such Buyer at the Initial Closing.
(vii) The Board of Directors of the
Company shall have adopted resolutions consistent with Section 3(b)
above and in a form reasonably acceptable to such Buyer (the
"RESOLUTIONS").
(viii) As of the Initial Closing Date, the
Company shall have reserved out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the
Initial Preferred Shares, at least 3,125,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent
Instructions, in the form of Exhibit C attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer
agent.
(x) The Company shall have delivered to
such Buyer a copy of a certificate evidencing the incorporation and
good standing of the Company and each Subsidiary in such entity's state
of incorporation or organization issued by the Secretary of State of
such state or commonwealth of incorporation or organization.
(xi) The Company shall have delivered a
copy of a good standing certificate to such Buyer, certifying the
Company's qualification to do business and the good standing of the
Company in the Commonwealth of Pennsylvania as certified by the
Department of State of the Commonwealth of Pennsylvania.
(xii) The Company shall have delivered to
such Buyer a assistant secretary's certificate, dated as of the Initial
Closing Date, certifying as to (A) the Resolutions, (B) the Articles of
Incorporation and (C) the By-laws, each as in effect at the Initial
Closing.
- 22 -
(xiii) The Company shall have made all
filings under all applicable federal and state securities laws
necessary to consummate the issuance of the Securities pursuant to this
Agreement in compliance with such laws.
(xiv) The Company shall have delivered to
such Buyer a letter from the Company's transfer agent certifying the
number of shares of Common Stock outstanding as of a date within five
days of the Initial Closing Date.
(xv) The Senior Secured Notes shall have
been issued and the Senior Credit Facility shall be effective.
(xvi) The Company shall have delivered to
the Buyers such other documents relating to the transactions
contemplated by the Transaction Documents as the Buyers or their
counsel may reasonably request.
b. The Additional Closings. The obligation of each
Buyer hereunder to purchase the Additional Preferred Shares from the Company at
any Additional Closing is subject to the satisfaction, at or before such
Additional Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion (and, provided that the Company has
acted in good faith and has used its best efforts to satisfy the below
conditions by not taking any action or omitting to take any action necessary to
satisfy the below conditions, the failure of the representations and warranties
to be true or the failure of the Company to fulfill these conditions on the
applicable Additional Closing Date shall only permit a Buyer to elect not to
close, the failure to meet such conditions in itself shall not constitute a
breach):
(i) The Statement of Designations shall
be in full force and effect and shall not have been amended since the
Initial Closing Date, and a copy thereof certified by the Department of
State of the Commonwealth of Pennsylvania shall have been delivered to
such Buyer.
(ii) The Common Stock (x) shall be
designated for quotation or listed on the Principal Market and (y)
shall not have been suspended by the SEC or the Principal Market from
trading on or delisted from the Principal Market nor shall delisting or
suspension by such Principal Market have been threatened either (A) in
writing by the SEC or the Principal Market or (B) by falling below the
minimum listing maintenance requirements of the Principal Market; and
all of the Conversion Shares issuable upon conversion of the applicable
Additional Preferred Shares (without regard to any limitations on
conversions) shall be listed (subject to official notice of issuance)
upon the Principal Market.
(iii) The representations and warranties
of the Company shall be true and correct as of the date when made and
as of such Additional Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date)
and the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents or the Statement of Designations to be performed, satisfied
or complied with by the Company at
- 23 -
or prior to such Additional Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of such Additional Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
such Buyer including, without limitation, an update as of such
Additional Closing Date regarding the representation contained in
Section 3(c) above.
(iv) Such Buyer shall have received the
opinion of Xxxxxxx Xxxx LLP, dated as of such Additional Closing Date,
in the form attached hereto as Exhibit D, with such changes to such
opinion as are reasonably acceptable to such Buyer.
(v) The Company shall have executed and
delivered to such Buyer the Preferred Stock Certificates (in such
denominations as such Buyer shall request) for the Additional Preferred
Shares being purchased by such Buyer at such Additional Closing.
(vi) The Board of Directors of the
Company shall have adopted, and shall not have amended, the
Resolutions.
(vii) As of such Additional Closing Date,
the Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Preferred Shares, a number of shares of Common Stock equal to at least
the sum (A) 125% of the number of shares of Common Stock which would be
issuable upon conversion in full of the then outstanding Initial
Preferred Shares (without regard to any limitations on conversions) and
(B) 125% of the number of shares of Common Stock which would be
issuable upon conversion in full of the Additional Preferred Shares to
be outstanding after such Additional Closing Date (without regard to
any limitations on conversions).
(viii) The Irrevocable Transfer Agent
Instructions shall remain in effect as of such Additional Closing Date
and the Company shall cause its Transfer Agent to deliver a letter to
the Buyers to that effect.
(ix) The Company shall have delivered to
such Buyer a certificate evidencing the incorporation and good standing
of the Company and each Subsidiary in the state of such entity's state
of incorporation or organization issued by the Secretary of State of
such state or commonwealth of incorporation or organization as of a
date within ten days of such Additional Closing Date.
(x) The Company shall have delivered a
good standing certificate to such Buyer, certifying the Company's
qualification to do business and the good standing of the Company in
the Commonwealth of Pennsylvania as certified by the Department of
State of the Commonwealth of Pennsylvania as of a date within thirty
days of the Additional Closing Date.
(xi) The Company shall have delivered to
such Buyer a assistant secretary's certificate, dated as of such
Additional Closing Date, certifying as to (A) the Resolutions, (B) the
Articles of Incorporation and (C) the By-laws, each as in effect at
such Additional Closing.
- 24 -
(xii) The Company shall have delivered to
such Buyer a letter from the Company's transfer agent certifying the
number of shares of Common Stock outstanding as of a date within five
days of such Additional Closing Date.
(xiii) The Company shall have made all
filings required to be made on or prior to the applicable Additional
Closing Date under all applicable federal and state securities laws
necessary to consummate the issuance of the Securities pursuant to this
Agreement in compliance with such laws.
(xiv) The Company shall have delivered to
such Buyer such other documents relating to the transactions
contemplated by this Agreement as such Buyer or its counsel may
reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents and the Statement of Designations, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder of
the Securities and all of their shareholders, officers, directors, employees and
direct or indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents, the Statement of Designations or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents, the Statement of Designations or any other certificate,
instrument or document contemplated hereby or thereby, (c) any cause of action,
suit or claim brought or made against such Indemnitee (other than a cause of
action, suit or claim which is (x) brought or made by the Company and (y) is not
a shareholder derivative suit) and arising out of or resulting from (i) the
execution, delivery, performance or enforcement of the Transaction Documents,
the Statement of Designations or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, (iii) any disclosure made by such Buyer pursuant to Section
4(h), or (iv) the status of such Buyer or holder of the Securities as an
investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 8 shall be the same as those set forth in Section
6 of the Registration Rights Agreement.
- 25 -
9. MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between each Buyer, the
Company, their affiliates and Persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended or waived other than by an instrument in writing
signed by the Company and the holders of at least a majority of the Preferred
Shares then outstanding. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration
- 26 -
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents or the
Statement of Designations unless the same consideration also is offered to all
of the parties to the Transaction Documents or holders of Preferred Shares, as
the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Rent-Way, Inc.
Xxx XxxxXxx Xxxxx
Xxxx, Xxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
With a copy to:
Xxxxxxx Xxxx XXX
Xxx X&X Xxxxx, Xxxxx 0000
Xxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxx, Esq.
If to the Transfer Agent:
American Stock Transfer and Trust Company
0000 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Buyer, to it at the address and facsimile
number set forth on the Schedule of Buyers, with copies to such Buyer's
representatives as set forth on the Schedule of Buyers, or at such other address
and/or facsimile number and/or to the attention of such other Person as the
recipient party has specified by written notice given to each other party five
days prior to the effectiveness of such change. Written confirmation of receipt
(A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or
- 27 -
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the holders of at least a majority of the
Preferred Shares then outstanding, including by merger or consolidation, except
pursuant to a Change of Control (as defined in Section 4(b) of the Statement of
Designations) with respect to which the Company is in compliance with Section 4
of the Statement of Designations and Section 4(j) of this Agreement. A Buyer may
assign some or all of its rights hereunder without the consent of the Company;
provided, however, that the transferee has agreed in writing to be bound by the
applicable provisions of this Agreement. The Buyers shall be entitled to pledge
the Securities in connection with a bona fide margin account or other loan
secured by the Securities.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.
i. Survival. Unless this Agreement is terminated
under Section 9(l), the representations and warranties of the Company and the
Buyers contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive each Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have
the right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions as is required by applicable law and regulations (although each
Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. Termination. In the event that the Initial Closing
shall not have occurred with respect to a Buyer on or before five (5) Business
Days from the date hereof due to the Company's or such Buyer's failure to
satisfy the conditions set forth in Sections 6(a) and 7(a) above (and the
nonbreaching party's failure to waive such unsatisfied condition(s)), the
nonbreaching party shall have the option to terminate this Agreement with
respect to such
- 28 -
breaching party at the close of business on such date without liability of any
party to any other party; provided, however, that if this Agreement is
terminated pursuant to this Section 9(l), the Company shall remain obligated to
reimburse any nonbreaching Buyer for the expenses described in Section 4(k)
above.
m. Placement Agent. The Company acknowledges that it
has not engaged a placement agent in connection with the sale of the Preferred
Shares, however the Company has engaged Xxxxxxx Xxxxx Xxxxxx as financial
advisors in connection with the sale of the Preferred Shares. The Company shall
be responsible for the payment of any placement agent's fees, financial advisory
fees, or brokers' commissions (other than for Persons engaged by any Buyer or
its investment advisor) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
o. Remedies. Each Buyer and each holder of the
Securities shall have all rights and remedies set forth in the Transaction
Documents and the Statement of Designations and all rights and remedies which
such holders have been granted at any time under any other agreement or contract
and all of the rights which such holders have under any law. Any Person having
any rights under any provision of this Agreement shall be entitled to enforce
such rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under this Agreement, any remedy at law may prove to be
inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.
p. Payment Set Aside. To the extent that the Company
makes a payment or payments to any Buyer hereunder or pursuant to the
Registration Rights Agreement, the Statement of Designations or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
q. Independent Nature of Buyers' Obligations and
Rights. The obligations of each Buyer under any Transaction Document are several
and not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the
- 29 -
performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Buyer confirms that
it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitations, the rights arising out of this Agreement or out of any
other Transaction Documents, and it shall not be necessary for any other Buyer
to be joined as an additional party in any proceeding for such purpose.
[signature page follows]
- 30 -
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
RENT-WAY, INC. SMITHFIELD FIDUCIARY LLC
By: /s/
-----------------------------
By: /s/ Name: Xxxx X. Chill
------------------------- Title: Authorized Signatory
Name: Xxxxxxx X. XxXxxxxxx
Title: Vice President
MAINFIELD ENTERPRISES, INC.
By: /s/
-----------------------------
Name: Xxx Xxxxxx
Title: Authorized Signatory
- 31 -
[Page 2 of Signature Pages to Securities Purchase Agreement]
AIG ANNUITY INSURANCE COMPANY
By: AIG Global Investment Corp.,
investment adviser
By: /s/
-----------------------------
Name: Xxxxxxx Xxxxxxx
Title: Managing Director
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
By: AIG Global Investment Corp.,
investment adviser
By: /s/
-----------------------------
Name: Xxxxxxx Xxxxxxx
Title: Managing Director
VALIC COMPANY II HIGH YIELD BOND FUND
By: AIG Global Investment Corp.,
investment sub-adviser
By: /s/
-----------------------------
Name: Xxxxxxx Xxxxxxx
Title: Managing Director
VALIC COMPANY II STRATEGIC BOND FUND
By: AIG Global Investment Corp.,
investment sub-adviser
By: /s/
-----------------------------
Name: Xxxxxxx Xxxxxxx
Title: Managing Director
- 32 -
[Page 3 of Signature Pages to Securities Purchase Agreement]
SUNAMERICA INCOME FUNDS - SUNAMERICA
HIGH YIELD BOND FUND
By: AIG Global Investment Corp.,
investment sub-adviser
By: /s/
-----------------------------
Name: Xxxxxxx Xxxxxxx
Title: Managing Director
SUNAMERICA INCOME FUNDS - SUNAMERICA
STRATEGIC INCOME FUND
By: AIG Global Investment Corp.,
investment sub-adviser
By: /s/
-----------------------------
Name: Xxxxxxx Xxxxxxx
Title: Managing Director
SUNAMERICA SERIES TRUST - HIGH YIELD
BOND PORTFOLIO (POLARIS)
By: AIG Global Investment Corp.,
investment sub-adviser
By: /s/
-----------------------------
Name: Xxxxxxx Xxxxxxx
Title: Managing Director
- 33 -
SCHEDULE OF BUYERS
Number Maximum
of Number of
Initial Additional
Buyer Address Preferred Preferred Buyer's Representatives' Address
Buyer Name and Facsimile Number Shares Shares and Facsimile Number
-------------------- ---------------------------------- --------- ---------- --------------------------------
Smithfield Fiduciary c/o Highbridge Capital Management, 800 267 Xxxxxxx Xxxx & Xxxxx LLP
LLC LLC 000 Xxxxx Xxxxxx
0 Xxxx 00xxx Xxxxxx, 00xx Xxxxx Xxx Xxxx, XX 00000
Xxx Xxxx, XX 00000 Attention: Xxxxxxx Xxxxx, Esq.
Attention: Xxx X. Xxxxxx Telephone: (000) 000-0000
Xxxx X. Chill Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Residence: Cayman Islands
Mainfield c/o Sage Capital Growth, Inc. 400 133 Xxxxxxx Xxxx & Xxxxx LLP
Enterprises, Inc. 000 Xxxxxxx Xxxxxx, 00xx Floor 000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attention: Eldad Gal Attention: Xxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Cayman Islands
AIG Annuity x/x XXX Xxxxxx Xxxxxxxxxx Xxxx. 000 00 Xxxxxxx Xxxx & Xxxxx LLP
Insurance Company 0000 Xxxxx Xxxxxxx, X00-00 000 Xxxxx Xxxxxx
Xxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx Attention: Xxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Texas
The Variable c/o AIG Global Investment Corp. 132.5 44 Xxxxxxx Xxxx & Xxxxx LLP
Annuity Life 0000 Xxxxx Xxxxxxx, X00-00 919 Third Avenue
Insurance Company Xxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx Attention: Xxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Texas
VALIC Company II c/o AIG Global Investment Corp. 2.5 1 Xxxxxxx Xxxx & Xxxxx LLP
High Yield Bond 0000 Xxxxx Xxxxxxx, X00-00 000 Xxxxx Xxxxxx
Xxxx Xxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx Attention: Xxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Delaware
VALIC Company II c/o AIG Global Investment Corp. 2.5 1 Xxxxxxx Xxxx & Xxxxx LLP
Strategic Bond Fund 0000 Xxxxx Xxxxxxx, X00-00 000 Xxxxx Xxxxxx
Xxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx Attention: Xxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Delaware
SunAmerica Income c/o AIG Global Investment Corp. 10 3 Xxxxxxx Xxxx & Xxxxx LLP
Funds - 0000 Xxxxx Xxxxxxx, X00-00 000 Xxxxx Xxxxxx
XxxXxxxxxx Xxxx Xxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Bond Fund Yield Attention: Xxxxxxx Xxxxxxx Attention: Xxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Massachusetts
- i -
SunAmerica Income c/o AIG Global Investment Corp. 2.5 1 Xxxxxxx Xxxx & Xxxxx LLP
Funds - 0000 Xxxxx Xxxxxxx, X00-00 000 Xxxxx Xxxxxx
XxxXxxxxxx Xxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Strategic Income Attention: Xxxxxxx Xxxxxxx Attention: Xxxxxxx Xxxxx, Esq.
Fund Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Massachusetts
SunAmerica Series c/o AIG Global Investment Corp. 15 5 Xxxxxxx Xxxx & Xxxxx LLP
Trust - High Yield 0000 Xxxxx Xxxxxxx, X00-00 000 Xxxxx Xxxxxx
Xxxx Xxxxxxxxx Xxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Polaris) Attention: Xxxxxxx Xxxxxxx Attention: Xxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Massachusetts
- ii -
TABLE OF CONTENTS
Page
----
1. PURCHASE AND SALE OF PREFERRED SHARES................................ 1
2. BUYER'S REPRESENTATIONS AND WARRANTIES............................... 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................ 5
4. COVENANTS............................................................ 14
5. REGISTER; TRANSFER AGENT INSTRUCTIONS................................ 19
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL....................... 20
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.................... 21
8. INDEMNIFICATION...................................................... 25
9. MISCELLANEOUS........................................................ 25
SCHEDULES
Schedule 3(a) - Subsidiaries
Schedule 3(l) - Absence of Certain Changes
Schedule 3(r) - Transactions With Affiliates
Schedule 3(s) - Equity Capitalization
Schedule 3(t) - Indebtedness
Schedule 3(u) - Litigation
Schedule 3(y) - Intellectual Property
Schedule 4(d) - Use of Proceeds
EXHIBITS
Exhibit A - Form of Statement of Designations
Exhibit B - Form of Registration Rights Agreement
Exhibit C - Form of Irrevocable Transfer Agent Instructions
Exhibit D - Form of Legal Opinion of Xxxxxxx Xxxx LLP
- ii -
SCHEDULE 3(A)
SUBSIDIARIES
1. Rent-Way of Tomorrow, Inc.
2. Action Rent-To-Own Holdings of South Carolina, Inc.
3. Rent-Way of Michigan, Inc.
4. Rent-Way Developments, Inc.
5. Rent-Way of TTIG, L.P.
6. dPi Teleconnect, L.L.C. (70% owned subsidiary)
SCHEDULE 3(L)
ABSENCE OF CERTAIN CHANGES
None.
SCHEDULE 3(R)
TRANSACTIONS WITH AFFILIATES
See the attached "Certain Relationships and Related Party Transactions."
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In May 1999, we made a loan to Xx. Xxxxxx in the amount of $139,500, the
proceeds of which were used to pay the exercise price of a stock option. The
loan was evidenced by a full recourse promissory note bearing interest at 10%
and has been repaid in full.
In August 1999, we made a loan to Xx. Xxxxxxxxxxx in the amount of
$214,179, the proceeds of which were used to pay the exercise price of a stock
option, which was evidenced by a full recourse promissory note bearing interest
at 10%. This loan has been repaid in full.
In February 2000, we made loans to each of Messrs. Xxxxxxxxxxx, Xxxx and
Fagenson in the amounts of $274,071, $488,250 and $139,500, respectively, the
proceeds of which were used to pay the exercise price of stock options. The
loans were evidenced by full recourse promissory notes bearing interest at 10%.
The loans to Messrs. Xxxxxxxxxxx, Xxxx and Xxxxxxxx have been paid in full.
In November 2000, we made a loan to Xx. Xxxxxxxxxxx in the amount of
$158,603, the proceeds of which were used to repay a margin loan. The loan was
evidenced by a full recourse promissory note bearing interest at 10% and has
been repaid in full.
We lease one store location from Xx. Xxxxxxxx or a company controlled by
him. We paid approximately $49,000 in rent and related amounts under such lease
for the fiscal year ended September 30, 2002. We believe the lease rate and
terms, which include our obligation to pay real estate taxes, are similar to
those obtainable on an arm's-length basis.
We have an agreement with our 70% owned subsidiary, dPi, whereby we provide
payroll processing services, legal services and general management services. The
agreement has a term of one year commencing on October 1, 2002, and provides for
payments to us of $10,000 per month. The agreement is renewable for successive
one-year terms subject to the mutual agreement of the parties as to the services
to be provided and the payments required during each such renewal term.
SCHEDULE 3(S)
EQUITY CAPITALIZATION
3(s)(i): None.
3(s)(ii): See attached footnotes 16 and 17 from the Company's Notes to Condensed
Consolidated Financial Statements as of September 30, 2002. Since that time, the
Company has made additional option grants in the ordinary course under the plans
described in footnote 16 and issued 333,000 warrants under the agreement
described in footnote 17. Additional information regarding the grants of options
to officers and directors is attached under the captions "Stock options" and
"Security Ownership of Certain Beneficial Owners and Management."
3(s)(iii):
(a). The Company entered into a registration rights agreement with Calm
Waters Partnership, Xxxxxx X. Xxxxxx and Xxxxxxx X. Xxxxxxxxx (collectively,
"Calm Waters") dated April 18, 2002. This registration rights agreement covers
the 1,000,000 shares of Common Stock and 433,000 shares underlying warrants to
acquire Common Stock currently held by Calm Waters.
(b). See the information attached under the caption "Exchange Offer;
Registration Rights."
3(s)(iv): Rights of redemption are contained in the indenture for the Senior
Secured Notes.
3(s)(v): Warrants to acquire 433,000 shares of Common Stock held by Calm Waters
contain full ratchet anti-dilution protection. The issuance of the Preferred
Stock will trigger this anti-dilution protection in warrants for 100,000 shares
which have an exercise price of $9.35 per share. As a result of the issuance of
the Preferred Stock, the exercise price of these warrants will drop to $6.00 per
share. The remaining 333,000 warrants have an exercise price of $1.50 per share
and no anti-dilution rights will be triggered thereunder by the issuance of the
Preferred Stock.
3(s)(vi): None.
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. INCOME TAXES, CONTINUED:
As of September 30, 2002, the Company has net operating loss carryforwards
of approximately $166,695 for income tax purposes, expiring in years through
fiscal 2022. Additionally, as of September 30, 2002, the Company has alternative
minimum tax credits of approximately $1,027.
At September 30, 2001, the valuation allowance was $34,198. At September
30, 2002, it was increased by $29,746, of which $320 is the tax benefit of the
transitional swap amount recorded to equity. A portion of this increase was a
result of a modification to the operating loss carryforwards based on actual
filed tax returns. This amount represents the full net deferred tax asset.
Approximately $3,497 of the operating loss carryforwards will result in a credit
to shareholders' equity when it is determined they can be utilized.
15. RELATED PARTY TRANSACTIONS:
During fiscal years ended September 30, 2002, 2001, and 2000, the Company
leased one location from a company controlled by a principal shareholder. Rent
paid during these years related to this lease was $49.
During fiscal 2002, 2001 and 2000 the Company executed notes receivable
aggregating $0, $159 and $902, respectively from directors of the Company
resulting from the exercise of stock options. The notes are full recourse
promissory notes bearing interest at 10% per annum. On November 1, 2000, the
Company received a note receivable with a balance of $159 from a director of the
Company related to a personal loan. The note is a full recourse promissory note
and bears interest at 10% per annum. During fiscal 2000, $140 of the notes was
repaid in cash and $488 was paid by the return of common stock of the Company
related to option exercises. At September 30, 2002, 2001 and 2000, the Company
held notes receivable which were due within one year and unpaid interest thereon
of $282, $924 and $690, respectively and interest income was $41, $77 and $75,
respectively for the years then ended. The notes are reflected as a reduction to
shareholders' equity in the Company's Consolidated Balance Sheet.
In fiscal 2000, the Company paid cash of $94 to a director of the Company
for the repurchase of common stock shortly after the issuance of common stock
through exercise of a stock option. Therefore, the Company recorded compensation
expense of $49 related to this transaction.
The Company has entered into a consulting agreement with a director of the
Company that provides for the payment of $100 per year for 10 years commencing
October 1, 1999.
16. STOCK OPTIONS:
In March 1999, the Board of Directors of the Company adopted, and the
shareholders approved, the Rent-Way, Inc. 1999 Stock Option Plan (the "1999
Plan") which authorizes the issuance of up to 2,500,000 shares of common stock
pursuant to stock options granted to officers, directors, key employees,
consultants, and advisors of the Company. The option exercise price will be at
least equal to the fair market value of the Company's common stock on the grant
date. The 1999 Plan will expire in March 2009 unless terminated earlier by the
Board of Directors. The authorized number of shares, the exercise price of
outstanding options, and the number of shares under option are subject to
appropriate adjustment for stock dividends, stock splits, reverse stock splits,
recapitalizations, and similar transactions. The 1999 Plan is administered by
the Stock Option Committee of the Board of Directors who select the optionees
and determine the terms and provisions of each option grant within the
parameters set forth in the 1999 Plan. As of September 30, 2001, 2,266,825
options at an exercise price ranging from $4.063 to $31.625 were granted under
the 1999 Plan.
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
16. STOCK OPTIONS, CONTINUED:
In June 1992, the Board of Directors of the Company adopted, and the
shareholders have approved, the Rent-Way, Inc. Stock Option Plan of 1992 (the
"1992 Plan") which authorizes the issuance of up to 600,000 shares of common
stock pursuant to stock options granted to officers, directors, key employees,
consultants, and advisors of the Company. The option exercise price will be at
least equal to the fair market value of the Company's common stock on the grant
date. The 1992 Plan will expire in June 2002 unless terminated earlier by the
Board of Directors. The authorized number of shares, the exercise price of
outstanding options and the number of shares under option are subject to
appropriate adjustment for stock dividends, stock splits, reverse stock splits,
recapitalizations and similar transactions. The 1992 Plan is administered by the
Compensation Committee of the Board of Directors who select the optionees and
determine the terms and provisions of each option grant within the parameters
set forth in the 1992 Plan.
The Board of Directors of the Company also adopted, and the shareholders
have approved the Rent-Way, Inc. 1995 Stock Option Plan (the "1995 Plan"), which
authorizes the issuance of up to 2,000,000 shares of common stock pursuant to
stock options granted to officers, directors, and key employees of the Company.
The 1995 Plan is administered by the Compensation Committee of the Board of
Directors and contains terms and provisions substantially identical to those
contained in the 1992 Plan.
On November 8, 1995, Alrenco approved a stock incentive plan (the "Alrenco
Plan") under which 450,000 common shares were reserved. Under the Alrenco Plan,
Alrenco was entitled to grant its employees incentive stock options or
nonqualified stock options to purchase a specified number of shares of common
stock at a price not less than fair market value on the date of grant and for a
term not to exceed 10 years. In addition to the stock options, Alrenco was
entitled to grant stock appreciation rights ("SAR"), restricted stock awards and
options to directors. SARs and options to directors were required to be granted
at a minimum of fair market value at the date of grant and restricted stock
awards at a price to be determined by the Alrenco Board of Directors'
compensation committee. Directors who were not involved in day-to-day management
of Alrenco were initially entitled to a grant of 5,000 shares and, on each of
their next five anniversaries, an automatic 1,000 share grant. On January 23,
1996, Alrenco granted 105,000 shares of restricted stock to two key employees,
which vested at the earlier of a change in control or at the end of seven years.
As a result of the merger with RTO, Inc. ("RTO"), these shares automatically
vested on February 26, 1998. Compensation expense of $988 was recorded related
to Alrenco Plan for the year ended September 30, 1999.
RTO adopted the 1996 Employee Stock Option Plan (the "RTO Plan") to attract
and retain employees. Under the RTO Plan, RTO was entitled to grant options to
purchase a total of not more than 1,027,973 shares of common stock, subject to
anti-dilution and other adjustment provisions provided, however, that the
maximum number of shares subject to all options granted to an individual under
the Plan would not exceed 50% of the shares of common stock authorized for
issuance. No options could be granted under the RTO Plan after the tenth
anniversary of the RTO Plan. The options vest over a four-year period and expire
on the tenth anniversary following the date of grant. RTO also adopted the 1996
Stock Option Plan for Non-Employee Directors (the "Director's Plan") that
provided for the granting to non-employee directors of stock options to purchase
up to 448,975 shares of RTO's common stock.
Pursuant to the terms of the merger agreement between Rent-Way and Home
Choice, each Home Choice stock option which was outstanding and unexercised at
the date of the merger was converted into an option to purchase Rent-Way's
common stock. The number of shares subject to the Home Choice options was equal
to the product of the number of shares of Home Choice common stock subject to
Home Choice options and 0.588, the exchange ratio. On June 13, 2002, option
holders of the Company (other than officers and directors) were issued new
options in replacement of options previously cancelled pursuant to the Company's
exchange offer. The new options were issuable on the date six months and one
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
16. STOCK OPTIONS, CONTINUED:
day after the date of cancellation. The exercise price of the new options is
$11.67 per share, which was the closing price of the Company's common stock on
the New York Stock Exchange on June 13. As of December 11, 2001 (the expiration
date of the Company's offer), 1,109,580 options to acquire common stock were
cancelled pursuant to the offer on June 13, 2002. 1,008,272 options were issued
in replacement thereof.
The following is a summary of activity of the Company's stock options
during the years ended September 30, 2002, 2001 and 2000, and has been restated
to include the activity of Home Choice's stock options based on an exchange
ratio of 0.588:
WEIGHTED AVERAGE
STOCK OPTIONS SHARES PRICE PER SHARE
------------- ---------- ----------------
September 30, 1999.......................................... 3,155,209 $21.21
----------
Granted................................................... 1,588,700 $18.45
Exercised................................................. (594,550) $14.23
Cancelled................................................. (133,720) $21.66
----------
September 30, 2000.......................................... 4,015,639 $21.07
----------
Granted................................................... 617,565 $ 6.63
Exercised................................................. (6,214) $20.24
Cancelled................................................. (459,382) $20.06
----------
September 30, 2001.......................................... 4,167,608 $19.07
----------
Granted................................................... 1,741,035 $10.13
Exercised................................................. (61,800) $ 9.40
Cancelled................................................. (2,189,612) $20.92
----------
September 30, 2002.......................................... 3,657,231 $13.98
==========
At September 30, 2002, stock options representing 2,311,022 shares are
exercisable at prices ranging from $4.06 to $32.00 per share and grant dates
ranging from July 15, 1995, to June 13, 2002.
For various price ranges, outstanding stock options at September 30, 2002
were as follows:
RANGE OF SHARES OF SHARES OF EXERCISABLE
EXERCISE PRICE OUTSTANDING OPTIONS OPTIONS
-------------- ------------------- ---------------------
$4.06-$10.00.. 1,337,700 767,430
10.01-15.00.. 1,096,835 548,696
15.01-20.00.. 325,610 200,514
20.01-25.00.. 375,728 349,566
25.01-30.00.. 513,858 438,820
30.01-32.00.. 7,500 5,996
The Company accounts for stock based compensation issued to its employees
and directors in accordance with XXX Xx. 00 and has elected to adopt the
"disclosure only" provisions of SFAS No. 123.
For SFAS No. 123 purposes, the fair value of each option granted under the
1992 Plan, the 1995 Plan, and the 1999 Plan is estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for options granted in fiscal 2002, 2001 and 2000:
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
16. STOCK OPTIONS, CONTINUED:
expected volatility ranging from 47.41% to 95.23%, risk-free interest rates
between 3.40% and 6.81%, and an expected life of five years.
If the Company had elected to recognize the compensation cost of its stock
option plans based on the fair value of the awards under those plans in
accordance with SFAS No. 123, net loss and loss per common share would have been
increased to the pro-forma amounts below:
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------
2002 2001 2000
--------- --------- ---------
Net loss before cumulative effect of change in accounting
principle and discontinued operations:
As reported............................................... $(34,833) $(69,307) $(43,921)
Pro-forma................................................. (46,659) (78,729) (51,691)
Net loss:
As reported............................................... $(76,472) $(63,625) $(28,041)
Pro-forma................................................. (88,298) (73,047) (35,811)
Diluted loss per common share:
Net loss before cumulative effect of change in accounting
principle and discontinued operations
As reported............................................... $ (1.39) $ (2.83) $ (1.88)
======== ======== ========
Pro-forma................................................. $ (1.86) $ (3.21) $ (2.22)
======== ======== ========
Net loss
As reported............................................... $ (3.06) $ (2.60) $ (1.20)
======== ======== ========
Pro-forma................................................. $ (3.52) $ (2.98) $ (1.54)
======== ======== ========
17. SHAREHOLDERS' EQUITY:
On April 18, 2002, the Company sold 1 million restricted common shares and
warrants (valued according to the Black Scholes valuation method) to acquire
100,000 common shares to Calm Waters Partnership and two other investors (the
"Investors") for $6,000. The warrants have an exercise price of $9.35 per share,
subject to adjustment. In addition, the agreement calls for the Investors to
purchase an additional 2,640,000 common shares for $16,500 and to receive a
warrant to purchase 250,000 shares of common stock at an exercise price equal to
the greater of 105% of the last reported sale price of common stock on the day
preceding the second closing date or $1.50. The Investors' obligation to
purchase the additional shares is subject to certain conditions including that a
replacement of the Company's existing credit facility occur on or prior to
December 31, 2002, conditions related to the Company's existing class action
litigation and ongoing investigations, quarterly aggregate EBITDA, among others.
The Company has also agreed to issue a warrant to purchase 333,000 shares of
common stock to the Investors if the Company fails to achieve aggregate EBITDA
of $80 million or more for the 12-month period commencing on April 1, 2002. The
warrant exercise price per share is based upon the Company's EBITDA for such
period.
On April 28, 2000, the Company entered into a three-year agreement with
Gateway Companies, Inc. ("Gateway") to be an authorized supplier of Gateway
personal computers and related peripherals in the rental purchase industry.
Gateway agreed not to enter into any similar arrangements with any of the
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
17. SHAREHOLDERS' EQUITY, CONTINUED:
Company's largest industry competitors, but had the option to cancel the
exclusivity provisions of the agreement if the Company did not meet specified
purchase volume requirements. Although the Company did not meet the purchase
volume requirements under the agreement, Gateway has continued to abide by the
exclusivity provisions of the agreement. As part of this transaction, Gateway
invested $7,000 for 348,910 shares of the Company's common stock with a fair
value of $9,038.
In July 1995, in connection with the Company's acquisition of XxXxxxxx
Leasing Corporation and the issuance of its 10% Convertible Subordinated Notes
due 2002, Rent-Way issued warrants to purchase 105,000 shares of common stock at
$9.94 per share to Massachusetts Mutual Life Insurance Company and its
affiliates. The warrants are exercisable at any time for a period of seven years
from their issue dates and are subject to anti-dilution provisions providing for
appropriate adjustment in the event of any reclassification, stock dividend,
stock split, or similar transactions, and stock issuances below the warrant
exercise price. On July 15, 2002, 114,000 shares were exercised.
In accordance with ETIF 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling
Goods or Services," the Company has recorded an intangible asset in the amount
of $2,038 for the value of the exclusivity agreement. The Company is amortizing
this amount over a 36-month period.
18. EMPLOYEE BENEFIT PLANS:
Effective January 1, 1994, Rent-Way established the Rent-Way, Inc. 401(k)
Retirement Savings Plan (the "RentWay Plan"). Participation in the Plan is
available to all Company employees who meet the necessary service criteria as
defined in the Plan agreement. Company contributions to the Plan are based on a
percentage of the employees' contributions, as determined by the Board of
Directors, and amounted to $0, $344, and $1,025, in the form of the Company's
common stock for the years ended September 30, 2002, 2001 and 2000,
respectively. The Company contributed cash of $1,105, which includes $36 of
forfeitures, and $823 for the years ended September 30, 2002 and 2001,
respectively.
As a result of the significant price drop in Rent-Way stock following
disclosure of the accounting investigation, the Company made additional cash
contributions of $255 and $366 to the Rent-Way Plan in order to restore a
portion of the loss in value of Rent-Way stock held in participant accounts
under the plan for the years ended September 30, 2002, and 2001, respectively.
The Company also committed to make additional contributions in future years to
the extent the Rent-Way stock price does not reach certain levels. The Company
has also amended the plan to limit the amount of a participant's contribution
that can be invested in Rent-Way common stock.
At September 30, 2000, the Company had two other active 401(k) retirement
savings plans: the America's Sales & Leasing 401(k) Plan (the "America's Plan"),
and the RentaVision, Inc. 401(k) Plan (the "RentaVision Plan"). Each plan was
available to all Company employees who met the necessary service criteria as
defined in the plan agreements. Company contributions to the plans are based on
a percentage of the employees' contributions. The Home Choice Plan was merged on
January 1, 2000, and the America's Plan and RentaVision Plan were merged
effective January 1, 2001, into the Rent-Way Inc., Plan.
19. LOSS PER SHARE:
Basic loss per common share is computed using losses available to common
shareholders divided by the weighted average number of common shares
outstanding. Diluted loss per common share is computed using losses available to
common shareholders and the weighted average number of shares outstanding
similar executive position, assume our obligations under his employment
agreement or assume any indemnification agreement or provisions in effect at the
time of the change of control, he will be entitled to receive (i) his salary and
fringe benefits through the termination date, (ii) two times his annual base
salary, (iii) his full fringe benefits, including medical and health insurance,
for a period of 24 months following the month of his termination or the balance
of the initial term, whichever is greater and (iv) a prorated payment for
accrued but unused vacation. The cash payments described above may be paid by us
over a period of up to two years.
We have an employment agreement with Xx. Xxxxxxxx under which he is
employed full-time as our Vice President, Corporate Controller and Chief
Accounting Officer for a term that commenced in April 2001 and continues until
April 2004 or until earlier terminated as provided in the agreement. The term is
automatically extended for one-year periods, unless either party provides a
termination notice at least 60 days prior to the expiration of any one-year
period. Under the agreement, Xx. Xxxxxxxx receives an annual base salary of
$165,000 and is eligible for an annual bonus in an amount determined by our
Chief Executive Officer on the basis of corporate performance. Xx. Xxxxxxxx is
also entitled to participate in our employee benefit plans in accordance with
the terms of those plans.
STOCK OPTIONS
The following table sets forth information concerning stock option grants
made to the Named Executive Officers in fiscal year 2002:
OPTION GRANTS IN FISCAL YEAR 2002
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM($)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ ------------ -------- ---------- ---------- ----------
Xxxxxxx X.
Xxxxxxxxxxx.......... 250,000(1) 13.8% $ 6.45 11/20/06 $2,058,004 $2,596,947
Xxxxxxx X. XxXxxxxxx... 50,000(2) 2.8% $ 8.73 4/23/07 $ 557,097 $ 702,988
Xxxxxx X. XxXxxx....... 3,000(3) 0.2% $11.67 6/13/07 $ 44,683 $ 56,384
Xxxxxxx X. Short....... 48,500(3) 2.7% $11.67 6/13/07 $ 722,369 $ 911,541
75,000(4) 4.1% $11.90 7/1/07 $1,139,081 $1,437,380
Xxxx X. Xxxxxxxx....... -- -- -- -- -- --
---------------
(1) 33 1/3% of such options become exercisable on each of November 20, 2001,
October 1, 2002 and October 1, 2003.
(2) 33 1/3% of such options become exercisable on each of April 23, 2002, April
23, 2003 and April 23, 2004.
(3) 50% of such options become exercisable on each of June 13, 2002 and June 13,
2003.
(4) 33 1/3% of such options become exercisable on each of July 1, 2002, July 1,
2003 and July 1, 2004.
The following table sets forth information concerning stock option
exercises by the Named Executive Officers during fiscal year 2002 and the number
of shares and the value of options outstanding as of September 30, 2002 for each
such officer:
AGGREGATE OPTION EXERCISES AND
OPTION VALUES AS OF SEPTEMBER 30, 2002
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 9/30/02(#) AT 9/30/02($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Xxxxxxx X.
Xxxxxxxxxxx.......... -- -- 630,833 184,167 $-0- $-0-
Xxxxxxx X. XxXxxxxxx... -- -- 36,666 43,334 -0- -0-
Xxxxxx X. XxXxxx....... -- -- 37,957 40,043 -0- -0-
Xxxxxxx X. Short....... -- -- 62,583 100,917 -0- -0-
Xxxx X. Xxxxxxxx....... -- -- 10,000 20,000 -0- -0-
---------------
(1) Based on the closing sales price of our common stock on the New York Stock
Exchange of $3.00 per share on September 30, 2002, less the exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 2002, Xxxxxx X. Xxxxxxxx, Xxxxxxx Xxxxxx and Xxxxxxxxxx
X. Xxxxx served as the members of the compensation committee of our board of
directors. Other than Xx. Xxxxxx, who is our Secretary, no person who served as
a member of the compensation committee during fiscal year 2002 was (i) an
officer or employee of ours during such fiscal year or (ii) formerly an officer
of ours. None of our executive officers served as a member of the board of
directors or the compensation or similar committee of the board of directors of
any other entity, an executive officer of which served on our compensation
committee or our board.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the shares of our
common stock beneficially owned by (i) each beneficial owner of more than 5% of
the outstanding shares of our common stock, (ii) each of our directors, (iii)
the Named Executive Officers and (iv) our directors and executive officers as a
group. This information is presented as of March 31, 2003. As of March 31, 2003,
there were 25,685,538 shares of our common stock outstanding. Except as
otherwise noted, we believe that the persons listed below have sole investment
and voting power with respect to the shares of our common stock beneficially
owned by them.
NUMBER OF
SHARES OF COMMON STOCK PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OF CLASS
--------------------------------------- ---------------------- ----------
Xxxxxxx X. Xxxxxxxxxxx (3).................................. 1,117,993 4.2%
Xxxxxx X. Xxxx (4).......................................... 395,835 1.5%
Xxxxxxx Xxxxxx.............................................. 79,700 *
Xxxxxx X. Xxxxxxxx (5)...................................... 365,000 1.4%
Xxxx X. Xxxxxx.............................................. 750 *
Xxxx X. Xxxxxxxx............................................ 130,692 *
Xxxxxxxxxx X. Xxxxx......................................... 3,250 *
Xxxxxxx X. XxXxxxxxx (6).................................... 59,154 *
Xxxxxx X. XxXxxx (7)........................................ 70,631 *
Xxxxxxx X. Short (8)........................................ 78,969 *
Xxxx X. Xxxxxxxx (9)........................................ 21,776 *
Directors/executive officers as a group (11 persons)........ 2,323,750 8.6%
SAFECO Asset Management Company and affiliates (10)......... 4,072,400 15.9%
000 Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Dimensional Fund Advisors Inc. (11)......................... 1,611,208 6.3%
0000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Xxxxx X. Xxxxxx & Company, Inc. (12)........................ 1,520,847 5.9%
Xxx Xxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000-0000
Calm Waters Partnership (13)................................ 1,450,550 5.6%
000 Xxxxxxxx Xxxxxxx
Xxxxxxxxx Xxxxx, Xxxxxxxxx 00000
---------------
* Percentage less than 1% of class.
(1) Unless otherwise indicated, the address for all persons listed above is c/o
Rent-Way, Inc., Xxx XxxxXxx Xxxxx, Xxxx, Xxxxxxxxxxxx 00000.
(2) Includes the following shares issuable upon exercise of stock options which
are currently exercisable or which will become exercisable within 60 days
after March 31, 2003: Xxxxxxxxxxx -- 731,666; Xxxx -- 121,500;
Xxxxxx -- 76,500; Fagenson -- 76,500; Joseffer -- 74,750; Xxxxx -- 3,250;
Xxxxxx -- 750; XxXxxxxxx -- 55,000; XxXxxx -- 59,832; Short -- 75,916;
Xxxxxxxx -- 20,000; and Directors and Officers as a group -- 1,295,664.
(3) Includes 25,000 shares owned by Xx. Xxxxxxxxxxx'x spouse as to which Xx.
Xxxxxxxxxxx disclaims beneficial ownership and 722 shares held in our 401(k)
plan.
EXCHANGE OFFER; REGISTRATION RIGHTS
We and the subsidiary guarantors have agreed pursuant to a registration
rights agreement with the initial purchaser, for the benefit of the holders of
the notes, that we will, at our cost, not later than 180 days after the date of
original issuance of the notes, file an exchange offer registration statement
with the SEC with respect to a registered offer to exchange the notes for new
notes having terms substantially identical in all material respects to the notes
(except that the exchange notes will not contain terms with respect to transfer
restrictions). We will use our best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act not
later than 240 days after the date of original issuance of the notes. Upon the
effectiveness of the exchange offer registration statement, we will offer the
exchange notes in exchange for surrender of the notes. We will keep the
registered exchange offer open for not less than 20 business days and not more
than 30 business days (or, in each case, longer if required by applicable law)
after the date notice of the registered exchange offer is mailed to the holders
of the notes. For each note surrendered to us pursuant to the registered
exchange offer, the holder of such note will receive an exchange note having a
principal amount equal to that of the surrendered note. Interest on each
exchange note will accrue from the last interest payment date on which interest
was paid on the note surrendered in exchange therefor or, if no interest has
been paid on such note, from the date of its original issue.
Under existing SEC interpretations, the exchange notes would be freely
transferable by holders of the notes other than our affiliates after the
registered exchange offer without further registration under the Securities Act
if the holder of the exchange notes represents that it is acquiring the exchange
notes in the ordinary course of its business, that it has no arrangement or
understanding with any person to participate in the distribution of the exchange
notes and that it is not an affiliate of the Company, as such terms are
interpreted by the SEC, provided that broker-dealers receiving exchange notes in
the registered exchange offer will have a prospectus delivery requirement with
respect to resales of such exchange notes. The SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to exchange notes (other than a resale of an unsold allotment from
the original sale of the notes) with the prospectus contained in the exchange
offer registration statement. Under the registration rights agreement, we will
be required to allow participating broker-dealers and other persons, if any,
with similar prospectus delivery requirements to use the prospectus contained in
the exchange offer registration statement in connection with the resale of such
exchange notes.
A holder of notes (other than certain specified holders) who wishes to
exchange such notes for exchange notes in the registered exchange offer will be
required to represent that any exchange notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the registered exchange offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the exchange notes and that it is not an
"affiliate" of ours, as defined in Rule 405 of the Securities Act, or if it is
an affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
We will, at our cost, file a shelf registration statement covering resales
of the notes or the exchange notes, as the case may be, as promptly as
practicable upon the occurrence of any of the following (but in any event on or
before the date that is the later of (A) 30 days after so required or requested
and (B) 180 days after the original issuance of the notes):
- changes in laws or applicable interpretations of the staff of the SEC do
not permit us to effect a registered exchange offer;
- for any other reason the exchange offer registration statement is not
declared effective within 240 days after the date of the original
issuance of the notes or the registered exchange offer is not consummated
within 30 business days after the date the exchange offer registration
statement is declared effective;
- the initial purchaser so requests with respect to notes not eligible to
be exchanged for exchange notes in the registered exchange offer and that
are held by it following consummation of the registered exchange offer;
- any holder of notes (other than the initial purchaser) is not eligible to
participate in the registered exchange offer or does not receive freely
tradable exchange notes in the registered exchange offer other than by
reason of such holder being an affiliate of ours (it being understood
that the requirement that a participating broker-dealer deliver the
prospectus contained in the exchange offer registration statement in
connection with sales of exchange notes shall not result in such exchange
notes being not "freely tradable"); or
- if the initial purchaser participates in the registered exchange offer or
acquires exchange notes under certain circumstances and does not receive
freely tradable exchange notes in exchange for notes constituting any
portion of an unsold allotment (it being understood that (a) the
requirement that the initial purchaser deliver a prospectus containing
the information required by Item 507 or 508 of Regulation S-K under the
Securities Act in connection with sales of exchange notes acquired in
exchange for such notes shall result in such exchange notes being not
"freely tradable"; and (b) the requirement that an exchanging dealer
deliver a prospectus in connection with sales of exchange notes acquired
in the registered exchange offer in exchange for the notes acquired as a
result of market-making activities or other trading activities shall not
result in such exchange notes being not "freely tradable").
We will use our best efforts to cause the shelf registration statement to
be declared effective under the Securities Act and use our best efforts to keep
the shelf registration statement effective until two years after its effective
date. We will, in the event a shelf registration statement is filed, among other
things, provide to each holder for whom such shelf registration statement was
filed copies of the prospectus which is a part of the shelf registration
statement, notify each such holder when the shelf registration statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the notes or the exchange notes, as the case may be. A
holder selling such notes or exchange notes pursuant to the shelf registration
statement generally would be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
registration rights agreement which are applicable to such holder (including
certain indemnification obligations).
We will pay special interest ("Special Interest") on the notes and the
exchange notes upon the occurrence of any of the following events (each, a
"registration default");
- on or prior to the 180th day following the date of original issuance of
the notes, neither the exchange offer registration statement nor the
shelf registration statement has been filed with the Commission;
- on or prior to the 240th day following the date of original issuance of
the notes, neither the exchange offer registration statement nor the
shelf registration statement has been declared effective;
- on or prior to the 30th business day following the date the exchange
offer registration statement is declared effective, neither the
registered exchange offer has been consummated nor the shelf registration
statement has been declared effective; or
- after either the exchange offer registration statement or the shelf
registration statement has been declared effective, such registration
statement thereafter ceases to be effective or usable (subject to certain
exceptions) in connection with resales of notes or exchange notes in
accordance with and during the periods specified in the registration
rights agreement.
Special Interest will accrue on the principal amount of the notes and the
exchange notes (in addition to the stated interest on the notes and the exchange
notes) from and including the date on which any registration default shall occur
to but excluding the date on which all registration defaults have been cured.
Special Interest will accrue at a rate of 0.50% per annum during the 90-day
period immediately following the occurrence of a registration default and shall
increase by 0.50% per annum at the end of each subsequent 90-day period, but in
no event shall such rate exceed 2.0% per annum.
The summary herein of certain provisions of the registration rights
agreement, or the Indenture with respect to the summary of the Special Interest
provisions, does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the registration rights
agreement, a copy of which is available upon request to us.
SCHEDULE 3(T)
INDEBTEDNESS
1. The Company's liability under interest rate swap agreements described at
footnotes 9 and 11 of the Notes to the Company's Condensed Consolidated
Financial Statements attached hereto.
2. The Company's obligations under capital leases described at footnote 13 of
the Notes to the Company's Condensed Consolidated Financial Statements attached
hereto.
3. Notes payable of the Company as described at footnote 10 of the Notes to the
Company's Condensed Consolidated Financial Statements attached hereto.
4. $4,000,000 of promissory notes of the Company to be issued on settlement of
the Company's existing class action litigation.
5. Indebtedness of dPi Teleconnect, L.L.C. owing to the Company.
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. OTHER LIABILITIES:
Other liabilities consist of the following:
2002 2001 2000
------- ------- -------
Capital lease obligation.................................... $16,895 $26,048 $22,598
Swap liability.............................................. 9,712 10,191 --
Accrued interest............................................ 15,993 8,046 948
Accrued property taxes...................................... 4,857 4,833 3,950
Accrued salaries, wages, tax and benefits................... 14,018 18,597 15,156
Vacant facility lease obligations........................... 1,857 5,329 2,486
Accrued taxes............................................... 761 5,881 4,914
DPI -- deferred revenue..................................... 1,997 1,286 2,054
Other....................................................... 13,257 10,703 15,781
------- ------- -------
79,347 90,914 67,887
Less other liabilities held for sale........................ (3,286) (3,470) (1,784)
------- ------- -------
Other liabilities, continuing operations.................... $76,061 $87,444 $66,103
======= ======= =======
10. DEBT:
Debt consists of the following:
SEPTEMBER 30,
------------------------------
2002 2001 2000
-------- -------- --------
Senior credit facility...................................... $277,121 $306,421 $387,708
Notes Payable............................................... 86 588 144
-------- -------- --------
$277,207 $307,009 $387,852
======== ======== ========
The Company's credit facility, co-led by National City Bank of
Pennsylvania, acting as administrative agent, Bank of America, N.A., acting as
documentation agent, and Bank of Montreal and Xxxxxx Trust and Savings Bank,
acting as syndication agents, provided for loans and letters of credit of up to
a maximum of $363,548 (revolving notes and letters of credit up to a maximum of
$75,000 and varying based on the applicable period, Terms Loans A $117,567, and
Term Loans B $170,981). The credit facility is secured by substantially all of
the Company's assets. The amendment amended the Company's credit facility dated
September 23, 1999, as amended November 17, 1999; December 6, 1999; December 7,
1999; June 28, 2000 and October 5, 2001.
In November 2000, absent a waiver, the Company would have failed to meet
certain covenants in its bank credit facility including financial covenants,
monthly and quarterly financial reporting requirements and record keeping
requirements. The Company obtained a waiver of these requirements conditioned on
the non-occurrence of certain events. As a result of the Company's announcement
in December 2000 of an increase in the total adjustments resulting from the
accounting matters under investigation, the waiver expired by its terms, and the
Company and its bank lenders entered into a forbearance agreement dated December
18, 2000. The forbearance agreement limited revolving credit loans and letters
of credit to $91,124. The forbearance agreement was subsequently amended several
times. The Sixth Amendment to the forbearance agreement, which expired on
October 5, 2001, limited the maximum borrowings under the
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. DEBT, CONTINUED:
revolving portion of the credit facility to $61,128. The Company amended its
credit facility October 5, 2001.
On June 24, 2002, the Company amended its credit facility. The amendment
modified the maximum leverage ratio, the minimum interest coverage ratio and the
fixed charge coverage ratio covenants.
On December 13, 2002, the Company again amended its credit facility. This
amendment modified the maximum leverage ratio, the minimum interest coverage
ratio, the minimum consolidated net worth and the fixed charge coverage ratio
covenants for periods after September 30, 2002, through December 31, 2003. In
consideration for the amendment to the credit facility, the Company will pay
17.5 basis points to approving lenders as an amendment fee. The amendment fee
shall be payable the earlier of a.) the receipt of proceeds from material asset
sales, or b.) December 31, 2003. In the event the Company fails to comply with
its covenants in the credit facility, it would be unable to borrow under the
facility. The Company will be able to comply with covenants based upon its
fiscal 2003 projections.
Under the credit facility, the Company may borrow funds under a base rate
option plan or euro-rate option plan. Under the base rate option plan, the
Company may borrow funds based on a spread of prime rate plus 450 to 500 basis
points. In addition, payment-in-kind interest at a rate of 200 to 500 basis
points per annum is due and payable in cash on the maturity date of the term
loans. The payment-in-kind margin is determined based on the ratio of debt to
cash flows from operations during the period.
Under the euro-rate option, the Company may borrow funds based on a spread
of the LIBOR plus 550 to 600 basis points. In addition, payment-in-kind interest
at a rate of 200 to 500 basis points per annum is due and payable in cash on the
maturity date of the term loans. The payment-in-kind margin is determined based
on the ratio of debt to cash flows from operations during the period. Borrowings
under the euro-rate option require the Company to select a fixed interest period
during which the euro-rate is applicable with the borrowed amount not to be
repaid prior to the last day of the selected interest period. In addition,
borrowing tranches under the euro-rate option must be in multiples of $1,000.
Commitment fees associated with the credit facility are in a range from 0.375%
to 0.500% for each bank's unused commitment.
The principal amount of the Term Notes A under the credit facility is
payable in quarterly payments due on the last day of each December, March, June,
and September, beginning with the quarter ended December 31, 2001, as follows:
QUARTERS ENDING ON FOLLOWING DATE AMOUNT OF PRINCIPAL PAYMENT DUE ON PAYMENT DATE
--------------------------------- -----------------------------------------------
12/31/01 through 6/30/02 $5,722
9/30/02 through 6/30/03 $7,153
9/30/03 $8,583
12/31/03 remaining principal balance outstanding
The principal amount of Term Notes B under the amended facility is payable
in eight quarterly payments due on the last day of each December, March, June,
and September beginning with the quarter ended December 31, 2001, and continuing
through the quarter ending September 30, 2003, each payment equal to $444. The
remaining principal balance is due on December 31, 2003.
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. DEBT, CONTINUED:
The aggregate amount of all the revolving credit loans and letters of
credit shall not exceed the lender's revolving credit ratable share of the
following amounts during the following applicable period of time:
MAXIMUM AVAILABLE FOR REVOLVING CREDIT LOANS
APPLICABLE PERIOD AND LETTERS OF CREDIT
-------------------------------- --------------------------------------------
Closing date through 12/24/01 $61,128
12/25/01 through 2/28/02 $75,000
3/01/02 through 6/30/02 $61,128
7/01/02 through 9/30/02 $55,000
10/01/02 through expiration date $50,000
The credit facility requires the Company to meet certain financial
covenants and ratios including maximum leverage, minimum interest coverage,
minimum net worth, fixed charge coverage, and rental merchandise usage ratios.
In addition, the Company must meet requirements regarding monthly, quarterly,
and annual financial reporting. The credit facility also contains non-financial
covenants, which restrict actions of the Company with respect to the payment of
dividends, acquisitions, mergers, disposition of assets or subsidiaries,
issuance of capital stock, and capital expenditures. The Company may at any time
repay outstanding borrowings, in whole or part, without premium or penalty,
except with respect to restrictions identified with the selection of the euro
rate option. As of September 30, 2002, the Company was in compliance with all
covenants contained in the credit facility.
In the event that the leverage ratio as measured at June 30, 2003, for the
four fiscal quarters then ended, is equal to or greater than 2.25 to 1.00, the
Company will issue to the lenders warrants (the "Lender Warrants") for the
purchase of the Company's common stock and will deliver the Registration Rights
Agreement in the form provided for in the Lender Warrants. The shares of common
stock that will be obtained by the lenders upon the exercise of the Lender
Warrants shall equal 15% of the total outstanding voting power of all the
outstanding shares of the Company immediately prior to the exercise of the
Lender Warrants. The Lender Warrants shall be allocated to the lenders based
upon each lender's ratable share. The Company shall at all times maintain a
sufficient number of authorized shares of its common stock to permit the
exercise by the lenders of the conversion of the Lender Warrants into shares of
the Company's common stock.
As a result of the amendment of the credit facility that occurred on
October 5, 2001, the Company wrote off a portion of the bank fees associated
with previous amendments to the credit facility. The amount of deferred finance
costs was $4,089 of which $3,368 related to the term loans and was recorded as
an extraordinary item and $442 relating to the revolving notes and was recorded
in interest expense on the Company's Consolidated Statement of Operations for
the year ended September 30, 2002.
As of September 30, 2002, the Company's credit facility debt under both the
euro-rate option and the base-rate options plans were as follows:
BORROWING OPTION PLAN AMOUNT RATE
--------------------- -------- -------
Euro-rate tranche........................................... $ 90,134 7.29813%
Euro-rate tranche........................................... 166,319 7.79813%
Euro-rate tranche........................................... 5,000 7.36000%
Base-rate tranche........................................... 15,668 9.25000%
--------
Total..................................................... $277,121
========
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. DEBT, CONTINUED:
The rates listed in the above table do not include payment-in-kind
interest. As of September 30, 2002, payment-in-kind interest is accruing at 450
basis points on the Term Loans A and revolving notes and 500 basis points on the
Term Loans B. The principal amount of Term Notes A and B are payable in
quarterly payments due on the last day of each December, March, June, and
September beginning with the quarter ended December 31, 2001. At September 30,
2002, aggregate annual maturities of debt are as follows:
SENIOR CREDIT NOTES
FISCAL YEAR FACILITY PAYABLE TOTAL
----------- ------------- ------- --------
2003........................................................ $ 31,817 $16 $ 31,833
2004........................................................ 245,304 19 245,323
2005........................................................ -- 22 22
2006........................................................ -- 27 27
2007........................................................ -- 2 2
Thereafter.................................................. -- -- --
-------- --- --------
$277,121 $86 $277,207
======== === ========
The Company's weighted average interest rate was 15.114%, 11.224%, and
8.912% for the years ended September 30, 2002, 2001 and 2000, respectively.
At September 30, 2002 and 2001, book overdrafts of $306 and $5,454,
respectively, were included in accounts payable in the accompanying Condensed
Consolidated Balance Sheets.
11. DERIVATIVE FINANCIAL INSTRUMENTS:
At September 30, 2002, the Company had interest rate swaps in the notional
amount of $163,100, and a fair market value of $9,712, which is recorded as a
liability. The variable pay interest rate ranges from 5.09% to 6.97%. The
maturity dates run through August 2005.
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SAFS No. 133"). SFAS No. 133 requires the recognition of the fair value of all
derivative instruments on the balance sheet. The Company adopted SFAS No. 133
and the corresponding amendments under SFAS No. 138 effective October 1, 2000.
As a result of the adoption, the Company recognized the fair value of its
interest rate swap portfolio at the adoption date on its balance sheet as an
asset amounting to $2,510. This transitional amount is being amortized
straight-line over the remaining lives of the individual interest rate swap
agreements in place at the adoption date.
The Company's interest rate swaps do not meet the qualifications for hedge
accounting treatment under SFAS No. 133. For the years ended September 30, 2002
and 2001, the Company's change in the fair market value of the interest rate
swap portfolio of $479, a gain, and ($12,642), a loss, respectively, was charged
to "other income/expense" on the Company's Consolidated Statements of
Operations.
12. INSURANCE CHARGE AND RECOVERY:
In fiscal 2002, the Company recorded in income as a reduction of other
operating expense, a reimbursement of defense costs related to the derivative
and class action lawsuits in the amount of $1,900.
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. INSURANCE CHARGE AND RECOVERY, CONTINUED:
The Company also recorded a net charge of $4,600 against income, which
consisted of upward adjustments to various of the Company's retrospective and
other insurance programs based upon a change in estimate.
13. COMMITMENTS AND CONTINGENCIES:
The Company leases substantially all of its retail stores under
non-cancelable agreements generally for initial periods ranging from three to
five years. The store leases generally contain renewal options for one or more
periods of three to five years. Most leases require the payment of taxes,
insurance, and maintenance costs by the Company. The Company leases certain
transportation equipment under capital leases and, to a lesser extent, operating
leases, under arrangements that expire over the next 5 years. At September 30,
2002, future minimum rental payments under non-cancelable capital and operating
leases are as follows:
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
2003........................................................ $ 9,311 $ 32,908
2004........................................................ 7,232 28,032
2005........................................................ 1,085 22,436
2006........................................................ 416 15,415
Thereafter.................................................. 36 26,593
------- --------
Total minimum payments required............................. 18,080 125,384
Amount representing interest obligations under capital
lease..................................................... 1,185 --
------- --------
$16,895 $125,384
======= ========
The capital lease agreements have a minimum lease term of one year and
permit monthly renewal options and contain residual lease guarantees. The
Company has retained the leased vehicles an average of 48 months which
represents the period through which renewal of the leases have historically been
probable as a result of continuously decreasing costs of operation.
The Company's investment in transportation equipment under capital leases
was as follows:
2002 2001
------- -------
Transportation Equipment.................................... $49,842 $52,990
Less accumulated amortization............................... 32,947 26,942
------- -------
Net transportation equipment under capital lease............ $16,895 $26,048
======= =======
Rent expense under operating leases for the years ended September 30, 2002,
2001, and 2000 was $33,970, $39,140, and $36,444, respectively.
The Company, its firm of independent accountants, and certain of its
current and former officers were served with a consolidated class action
complaint filed in the U.S. District Court for the Western District of
Pennsylvania. The complaint alleges that, among other things, as a result of
accounting irregularities, the Company's fiscal 1998, 1999, and 2000 financial
statements were materially false and misleading thus constituting violations of
federal securities laws by the Company, by its firm of independent accountants
and by certain officers. The action alleges that the defendants violated
Sections 10(b) and/or Section 20(a) of the Securities Exchange Act and Rule
10b-5 promulgated thereunder. The action seeks damages in unspecified amounts.
The action purports to be brought on behalf of purchasers of the
RENT-WAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. COMMITMENTS AND CONTINGENCIES, CONTINUED:
Company's common stock during various periods, all of which fall between
December 10, 1998, and October 27, 2000. Rent-Way filed a motion to dismiss the
complaint, which was denied. Discovery regarding class certification issues has
begun and is continuing.
Certain of Rent-Way's officers and directors and Rent-Way, as nominal
defendant, have been sued in a shareholder derivative action brought on behalf
of Rent-Way in the U.S. District Court for the Western District of Pennsylvania.
The derivative complaint purports to assert claims on behalf of Rent-Way against
the defendants for violation of duties asserted to be owed by the defendants to
Rent-Way and which relate to the events which gave rise to the purported class
actions described above. All proceedings in the derivative case have been stayed
pending the resolution of the class action lawsuit.
Pursuant to its bylaws, Rent-Way is obligated under certain circumstances
to indemnify its officers and directors for the costs they incur as a result of
the investigations and lawsuits and against claims within the lawsuits.
While it is not feasible to predict or determine the final outcome of these
or similar proceedings, or to estimate the amounts or potential range of loss
with respect to these matters, management believes that an adverse outcome with
respect to such proceedings could have a material adverse impact on the
Company's financial position, results of operations or cash flows.
The Company is subject to legal proceedings and claims in the ordinary
course of its business that have not been finally adjudicated. Certain of these
cases have resulted in initial claims totaling $17,463. However, all but $817 of
such claims are, in the opinion of management, covered by insurance policies or
indemnification agreements, or create only remote potential of any liability
exposure to the Company, and therefore should not have a material effect on the
financial position or results of operations of the Company. Additionally,
threatened claims exist for which management is not yet able to reasonably
estimate a potential loss. In management's opinion, none of these claims will
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
The Company is self-insured for certain losses related to workers'
compensation, employee medical, vehicle and general liability.
The Company has purchased stop-loss coverage in order to limit its exposure
to any significant levels of claims. Self-insurance reserves are accrued based
upon the Company's estimates of the aggregate liability for uninsured claims
incurred using certain actuarial assumptions followed in the insurance industry
and the Company's historical experience. The Company has obtained letters of
credit of $6,050 to guarantee the payment of future claims.
The Company has approximately $484 recorded as deposits held for customers.
Also, see Note 15 for related party commitments.
SCHEDULE 3(U)
LITIGATION
The Company and several of its current and former officers and directors
are involved in ongoing lawsuits and investigations arising from the Company's
discovery of accounting improprieties in October 2000. After evaluating
information revealed in the investigation of these improprieties, the Company
determined that improper accounting entries were made in fiscal years 2000, 1999
and 1998 that overstated assets and income and understated liabilities and
expense. These entries were made by or at the direction of the Company's former
Controller and Chief Accounting Officer. The entries were numerous, involved
several different accounts, were often in relatively small amounts, and had the
effect of overstating operating income. There were several techniques used to
hide these improprieties including, among others, preparing false monthly
management reports for review by senior management, instructing lower-level
employees to manipulate the Company's management information system in order to
support the improper entries, requesting third-party vendors to issue documents
used to support the improper entries and misleading the Company's independent
auditors regarding the existence and results of internal inventories of assets.
As a result of these improprieties, the Company restated its financial
statements for fiscal years 1998 and 1999 and for the first three quarters of
fiscal 2000. There are currently pending federal governmental investigations by
the SEC and the Department of Justice involving the Company's financial
reporting.
The Company, its firm of independent accountants and certain of its
current and former officers have been served with a consolidated class action
complaint filed in the U.S. District Court for the Western District of
Pennsylvania. The complaint alleges that, among other things, as a result of
accounting improprieties, the Company's fiscal years 1998, 1999 and 2000
financial statements were materially false and misleading thus constituting
violations of federal securities laws by the Company, its firm of independent
accountants and certain of its officers. The action alleges that the defendants
violated Sections 10(b) and/or Section 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5. The action seeks damages in unspecified amounts. The action
purports to be brought on behalf of purchasers of the Company's common stock
during various periods, all of which fall between December 10, 1998 and October
27, 2000. The Company filed a motion to dismiss the complaint, which was denied.
As of April 18, 2003, the Company entered into an agreement to settle the
shareholder class action. The settlement agreement provides for the Company's
release and the release of all other defendants except the Company's former
controller and its independent accountants in return for the payment of $25.0
million to the class. The $25.0 million payment consists of $21.0 million in
cash and $4.0 million in two year, unsecured subordinated notes bearing interest
at 6%. Of the $21.0 million payable in cash, $11.0 million is expected to be
funded by insurance. The settlement is subject to court approval and conditioned
on no more than 1.9 million (approximately 5%) of the shares of the Company's
common stock purchased in the class period opting out of the settlement. The
Company's independent accountants have opposed the motion of the lead plaintiff
in the class action, Xxxxxx Xxxxxxxxx XxXxxxx LLC, seeking class certification
and appointment as class representative. If the lead plaintiff's motion is not
granted, the court could reject the settlement agreement. Obtaining court
approval of the agreement will
require a motion, notice to putative class members and a hearing, which will
likely take several months to resolve. In addition, the settlement is
conditioned on a refinancing or restructuring of the Company's existing senior
credit facility occurring on or before July 31, 2003. The Company has asked the
court, as a condition of the agreement, to bar the remaining defendants in the
lawsuit from pursuing claims against it.
The Company, as nominal defendant, and certain of its officers and
directors have been sued in a shareholder derivative action brought on its
behalf on February 1, 2001 in the U.S. District Court for the Western District
of Pennsylvania. The derivative complaint purports to assert claims on its
behalf against the defendants for violation of duties asserted to be owed by the
defendants to the Company and which relate to the events which gave rise to the
purported class action described above. The court stayed all proceedings in the
derivative case pending the resolution of the class action lawsuit. The court
recently lifted the stay on the proceedings, and the Company filed a motion to
dismiss the derivative action, which motion has been granted without prejudice.
This dismissal does not preclude any shareholder from instituting a similar
derivative action upon proper compliance with applicable law.
SCHEDULE 3(Y)
INTELLECTUAL PROPERTY
Expired/Terminated Intellectual Property Rights. None.
Rights Which May Expire Within Three Years From Date Of Agreement:
OWNER OF REGISTRATION RENEWAL
SERVICE XXXX SERVICE XXXX NUMBER DUE DATE
------------ ------------ ------ --------
RENT-WAY Rent-Way of 1,268,319 02/21/04
Michigan, Inc.
ALRENCO INC. (and design) Rent-Way of 1,336,087 05/14/05
Michigan, Inc.
RENT-WAY (and arrow design) Rent-Way of 2,011,934 10/29/06
Michigan, Inc.
THE RIGHT WAY Rent-Way of 2,094,766 09/09/03
Michigan, Inc.
RENTWAY Rent-Way of 2,094,767 09/09/03
Michigan, Inc.
RENTWAY (and arrow design) Rent-Way of 2,097,244 09/16/03
Michigan, Inc.
HOME CHOICE Rent-Way of 2,104,886 10/14/03
Michigan, Inc.
WE DELIVER THE DIFFERENCE Rent-Way of 2,147,736 03/31/04
Michigan, Inc.
HOME CHOICE (and design) Rent-Way of 2,284,526 10/12/05
Michigan, Inc.
WORKING TO BE YOUR FIRST CHOICE Rent-Way of 2,329,360 03/14/06
Michigan, Inc.
HOMECHOICE LEASE OR OWN Rent-Way of 2,370,829 07/25/06
Michigan, Inc.
HOMECHOICE RENTALS Rent-Way of 2,403,753 11/14/06
Michigan, Inc.
RENTWAY THE RIGHT WAY, RIGHT AWAY. Rent-Way, Inc. 2,321,379 02/22/06
WE'RE CHANGING THE WAY AMERICA RENTS Rent-Way, Inc. 2,347,284 05/02/06
BUDDY THE WONDER DOG *Rentavision, 2,210,875 12/15/04
Inc.
CHAMPION TV & APPLIANCE RENTALS *Rentavision, 2,210,876 12/15/04
(and design) Inc.
* Rentavision Inc. was merged into Rent-Way, Inc. in 09/2000
Known Claims, Actions Or Proceedings Being Made, Brought Or Threatened
Against The Company Or Its Subsidiaries Regarding Its Intellectual
Property Rights: None.
SCHEDULE 4(D)
USE OF PROCEEDS
The Company will use the net proceeds from the sale of the Preferred
Shares and the concurrent offering of Senior Secured Notes, together with
borrowings under the Company's Credit Facility, to repay all amounts owing under
the Company's existing senior credit facility.
