1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 Commission File Number 0-25370 RENTERS CHOICE, INC. (Exact name of registrant as specified in its charter) DELAWARE 48-1024367 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13800 Montfort Drive, Suite 300 Dallas, Texas 75240 (972) 701-0489 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 11, 1998: <TABLE> <CAPTION> Class Outstanding - --------------------------------------- ----------- <S> <C> Common stock, $.01 par value per shares 25,035,058 </TABLE>
2 RENTERS CHOICE, INC. AND SUBSIDIARIES TABLE OF CONTENTS <TABLE> PART I. FINANCIAL INFORMATION PAGE NO. -------- <S> <C> <C> Item 1. Financial Statements Balance Sheets as of June 30, 1998 and December 31, 1997 3 Statements of Earnings for the six months ended June 30, 1998 and 1997 4 Statements of Earnings for the three months ended June 30, 1998 and 1997 5 Statements of Cash Flows for the six months ended June 30, 1998 and 1997 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities and Use of Proceeds 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 19 </TABLE> 2
3 RENTERS CHOICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> June 30, December 31, 1998 1997 -------- ------------ (In Thousands Of Dollars) Unaudited <S> <C> <C> ASSETS Cash and cash equivalents $ 23,347 $ 4,744 Rental merchandise, net On rent 116,659 89,007 Held for rent 31,773 23,752 Accounts receivable, trade 1,799 2,839 Prepaid expenses and other assets 2,440 3,164 Property assets, net 21,479 17,700 Deferred income taxes 6,479 6,479 Intangible assets, net 131,862 61,183 -------- -------- $335,838 $208,868 ======== ======== LIABILITIES Revolving credit agreement $127,500 $ 26,280 Accounts payable - trade 14,193 11,935 Accrued liabilities 23,067 17,008 Other debt 735 892 -------- -------- 165,495 56,115 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 25,020,508 and 24,850,571 shares issued and outstanding in 1998 and 1997, respectively 250 249 Additional paid-in capital 100,585 99,381 Retained earnings 69,508 53,123 -------- -------- 170,343 152,753 -------- -------- $335,838 $208,868 ======== ======== </TABLE> The accompanying notes are an integral part of these statements. 3
4 RENTERS CHOICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS <TABLE> <CAPTION> Six months ended June 30, ------------------------- 1998 1997 --------- --------- (In Thousands Of Dollars, except for per share data) Unaudited <S> <C> <C> STORE REVENUE Rentals and fees $ 163,443 $ 130,150 Merchandise sales 10,513 7,457 Other 281 339 --------- --------- 174,237 137,946 FRANCHISE REVENUE Franchise merchandise sales 17,061 15,461 Royalty income and fees 2,248 1,982 --------- --------- TOTAL REVENUE 193,546 155,389 OPERATING EXPENSES Direct store expenses Depreciation of rental merchandise 33,839 27,510 Cost of merchandise sold 8,301 5,607 Salaries and other expenses 95,287 77,144 Franchise operation expenses Cost of franchise merchandise sales 16,386 14,726 --------- --------- 153,813 124,987 General and administrative expenses 7,194 6,773 Amortization of intangibles 3,271 2,649 --------- --------- TOTAL OPERATING EXPENSES 164,278 134,409 --------- --------- OPERATING PROFIT 29,268 20,980 INTEREST INCOME (238) (432) INTEREST EXPENSE 1,555 1,021 --------- --------- EARNINGS BEFORE INCOME TAXES 27,951 20,391 INCOME TAX EXPENSE 11,566 8,622 --------- --------- NET EARNINGS $ 16,385 $ 11,769 ========= ========= BASIC EARNINGS PER SHARE $ 0.66 $ 0.47 ========= ========= DILUTED EARNINGS PER SHARE $ 0.65 $ 0.47 ========= ========= </TABLE> The accompanying notes are an integral part of these statements. 4
5 RENTERS CHOICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS <TABLE> <CAPTION> Three months ended June 30, --------------------------- 1998 1997 ---------- ----------- (In Thousands Of Dollars, except for per share data) Unaudited <S> <C> <C> STORE REVENUE Rentals and fees $ 88,017 $ 68,348 Merchandise sales 4,551 3,198 Other 163 168 --------- --------- 92,731 71,714 FRANCHISE REVENUE Franchise merchandise sales 9,440 8,072 Royalty income and fees 1,142 1,017 --------- --------- TOTAL REVENUE 103,313 80,803 OPERATING EXPENSES Direct store expenses Depreciation of rental merchandise 18,333 14,401 Cost of merchandise sold 3,748 2,531 Salaries and other expenses 50,790 40,021 Franchise operation expenses Cost of franchise merchandise sales 9,043 7,646 --------- --------- 81,914 64,599 General and administrative expenses 3,969 3,644 Amortization of intangibles 1,883 1,218 --------- --------- TOTAL OPERATING EXPENSES 87,766 69,461 --------- --------- OPERATING PROFIT 15,547 11,342 INTEREST INCOME (124) (252) INTEREST EXPENSE 1,105 548 --------- --------- EARNINGS BEFORE INCOME TAXES 14,566 11,046 INCOME TAX EXPENSE 6,037 4,689 --------- --------- NET EARNINGS $ 8,529 $ 6,357 ========= ========= BASIC EARNINGS PER SHARE $ 0.34 $ 0.25 ========= ========= DILUTED EARNINGS PER SHARE $ 0.34 $ 0.25 ========= ========= </TABLE> The accompanying notes are an integral part of these statements. 5
6 RENTERS CHOICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> (In Thousands Of Dollars) Six months ended June 30, ------------------------- 1998 1997 --------- --------- Unaudited <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 16,385 $ 11,769 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation of rental merchandise 33,839 27,510 Depreciation of property assets 3,276 2,509 Amortization of intangibles 3,271 2,649 Other -- (5) Changes in operating assets and liabilities, net of effects of acquisitions Rental merchandise (43,549) (35,682) Accounts receivable 1,040 1,325 Prepaid expenses and other assets 728 242 Accounts payable - trade 2,258 (5,056) Accrued liabilities 6,059 5,737 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 23,307 10,998 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property assets (5,758) (4,755) Proceeds from sale of property assets 408 129 Acquisitions of businesses (101,616) (26,349) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (106,966) (30,975) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of options 1,205 410 Proceeds from debt 162,222 48,132 Repayments of debt (61,165) (28,039) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 102,262 20,503 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 18,603 526 Cash and cash equivalents at beginning of period 4,744 5,920 --------- --------- Cash and cash equivalents at end of period $ 23,347 6,446 ========= ========= </TABLE> The accompanying notes are an integral part of these statements. 6
7 RENTERS CHOICE, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. The interim financial statements of Renters Choice, Inc. (the "Company") included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and its Quarterly Report on Form 10-Q for the three months ended March 31, 1998. In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly the Company's results of operations and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. 2. On May 28, 1998, the Company completed its acquisition of 176 rent-to-own stores from Central Rents, Inc. and certain of its affiliates for approximately $100.0 million (the "Central Acquisition"). The Company acquired the assets of five rent-to-own stores in three separate transactions during the three months ended March 31, 1998 for approximately $832,000. During 1997, the Company acquired the assets of 71 stores in eighteen separate transactions for approximately $30.5 million in cash. All acquisitions have been accounted for as purchases and the operating results of the acquired stores have been included in the financial statements of the Company since the acquisitions. The following pro forma information combines the results of operations as if the acquisitions had been consummated as of the beginning of each of the six and three month periods ending June 30, 1998 and 1997, after including the impact of adjustment for amortization of intangibles and interest expense on acquisition borrowings. (In Thousands of Dollars, except per share data) <TABLE> <CAPTION> Six months ended June 30, Three months ended June 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Revenue $ 234,493 $ 216,344 $ 119,056 $ 109,921 Net Earnings $ 14,772 $ 12,019 $ 7,563 $ 6,468 Basic earnings per common share $ 0.59 $ 0.48 $ 0.30 $ 0.26 Diluted earnings per common share $ 0.59 $ 0.48 $ 0.30 $ 0.26 </TABLE> The pro forma financial information is presented for informational purposes only and is not necessarily indicative of operating results that would have occurred had the acquisitions been consummated as of the above dates, nor are they necessarily indicative of future operating results. 7
8 3. EARNINGS PER SHARE Basic and diluted earnings per common share is computed based on the following information: <TABLE> <CAPTION> (In Thousands Of Dollars, except for per share data) Three Months Ended June 30, 1998 Net earnings Shares Per share ------------ ------ --------- <S> <C> <C> <C> Basic earnings per common share $ 8,529 24,987 $ 0.34 Effect of dilutive stock options -- 247 ------- ------ Diluted earnings per share $ 8,529 25,234 $ 0.34 ======= ====== ====== </TABLE> <TABLE> <CAPTION> Three Months Ended June 30, 1997 Net earnings Shares Per share ------------ ------ --------- <S> <C> <C> <C> Basic earnings per common share $ 6,357 24,817 $ 0.25 Effect of dilutive stock options -- 326 ------- ------ Diluted earnings per share $ 6,357 25,143 $ 0.25 ======= ====== ====== </TABLE> <TABLE> <CAPTION> Six Months Ended June 30, 1998 Net earnings Shares Per share ------------ ------ --------- <S> <C> <C> <C> Basic earnings per common share $16,385 24,954 $ 0.66 Effect of dilutive stock options -- 248 ------- ----- Diluted earnings per share $16,385 25,202 $ 0.65 ======= ====== ====== </TABLE> <TABLE> <CAPTION> Six Months Ended June 30, 1997 Net earnings Shares Per share ------------ ------ --------- <S> <C> <C> <C> Basic earnings per common share $11,769 24,805 $ 0.47 Effect of dilutive stock options -- 287 ------- ------ Diluted earnings per share $11,769 25,092 $ 0.47 ======= ====== ====== </TABLE> 8
9 RENTERS CHOICE, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL This report contains forward-looking statements that involve risks and uncertainties. The actual future results of the Company could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, uncertainties regarding (i) the Company's ability to open new stores, (ii) the ability to acquire additional rent-to-own stores on favorable terms, (iii) the ability to enhance the performance of acquired stores and to integrate acquired stores into the Company's operations, (iv) the passage of legislation adversely affecting the rent-to-own industry, (v) interest rates, and (vi) the ability of the Company to collect on its rental purchase agreements at the current rate. In April 1995, the Company acquired 72 stores located in 18 states, including nine states in which the Company previously had no operations, from Crown Leasing Corporation and certain of its affiliates (the "Crown Acquisition"), and in September 1995, the Company completed the acquisition of an additional 135 stores located in 10 states, including one state in which the Company previously had no operations, from the shareholders of the parent company of a chain of rent-to-own stores doing business as Magic Rent-to-Own and Kelway Rent-to-Own (the "Magic Acquisition", and together with the Crown Acquisition, the "1995 Acquisitions"). In May 1996, the Company acquired all the issued and outstanding stock of ColorTyme, Inc. ("ColorTyme"), a franchisor of, at the time of closing, 313 rent-to-own stores in 40 states and 7 directly owned rent-to-own stores (the "ColorTyme Acquisition"), one of which was sold after the ColorTyme Acquisition to a third party and the remainder of which were purchased by the Company. The Company acquired 88 stores between May 1 and December 31, 1996 (exclusive of the 6 stores purchased from ColorTyme) in 23 separate transactions (together with the ColorTyme Acquisition, the "1996 Acquisitions"). The Company acquired 71 stores in 18 separate transactions during the twelve months ended December 31, 1997 (the "1997 Acquisitions"). In May 1998, the Company acquried 176 stores located in 20 states, including two states in which the Company previously had no operations, from Central Rents, Inc. and certain of its affiliates (the "Central Acquisition"). All of the aforementioned acquisitions were accounted for as purchases and, accordingly, the operating results of the acquired stores and ColorTyme franchisor operations have been included in the operating results of the Company since their respective dates of acquisition. Because of the significant growth of the Company since its formation, the Company's historical results of operations, its period-to-period comparisons of such results and certain financial data may not be comparable, meaningful or indicative of future results. RECENT DEVELOPMENTS ACQUISITION OF THORN AMERICAS, INC. On June 16, 1998, the Company agreed to acquire all of the outstanding stock of Thorn Americas, Inc. for an aggregate purchase price of approximately $900 million in cash, subject to adjustment (the "Thorn Acquisition"). In order to finance the Thorn Acquisition and the retirement of the Company's prior credit facility, the Company obtained commitments from (i) Apollo Management Fund IV, L.P. to purchase approximately $250 million (originally $235 million) of the Company's preferred stock (the "Preferred Stock Issuance"), and (ii) Chase Securities Inc. to provide financing approximating $962 million (the "Chase Financing"). The Thorn Acquisition was completed on August 5, 1998. RESULTS OF OPERATIONS COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 Total revenue increased by $38.2 million, or 24.6%, to $193.5 million for 1998 from $155.4 million for 1997. The increase in total revenue was primarily attributable to the inclusion of the 71 stores purchased in 1997 as well as the Central Acquisition. Same store revenues increased by $12.1 million, or 9.3% to $143.1 million for 1998 9
10 from $131.0 million in 1997. Same store revenues represent those revenues earned in stores that were operated by the Company for the entire six-month periods ending June 30, 1998 and 1997. This improvement was primarily attributable to an increase in both the number of items on rent and in revenue earned per item on rent. Depreciation of rental merchandise increased by $6.3 million, or 23.0%, to $33.8 million for 1998 from $27.5 million for 1997. Depreciation of rental merchandise expressed as a percent of total store rental and fee revenue decreased from 21.2% in 1997 to 20.7% in 1998. The decrease was primarily attributable to higher rental rates on rental merchandise purchased after the 1995 Acquisitions and operational emphasis on increasing the rental life of inventory items. Salaries and other expenses expressed as a percentage of total store revenue decreased to 54.7% for 1998 from 55.9% for 1997. This decrease is attributable to the increase in store revenues from the Central Acquisition, as well as the same store base, and the Company has experienced some efficiencies in spreading costs over a larger store base, in particular advertising costs and certain service costs. General and administrative expenses expressed as a percent of total revenue decreased from 4.4% in 1997 to 3.7% in 1998. This decrease was the result of increased revenues from the 1997 Acquisitions and the Central Acquisition, allowing us to leverage our fixed and semi-fixed costs over the larger revenue base. Operating profit increased by $8.3 million, or 39.5%, to $29.3 million for 1998 from $21.0 million for 1997. This improvement was primarily attributable to an increase in both the number of items on rent and in revenue earned per item on rent, both in stores acquired before 1995 and in stores acquired in the 1996 and 1997 Acquisitions. Net interest expense increased from $590 thousand of interest expense in 1997 to $1.3 million of interest expense in 1998. The increased interest expense and debt level relates primarily to the acquisition of Central Rents in May 1998. Net earnings increased by $4.6 million, or 39.2%, to $16.4 million in 1998 from $11.8 million in 1997. The improvement was a result of the increase in operating profit described above. COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 Total revenue increased by $22.5 million, or 27.9%, to $103.3 million for 1998 from $80.8 million for 1997. The increase in total revenue was primarily attributable to the inclusion of the 71 stores acquired in 1997, as well as the Central Acquisitions. Same store revenues increased by 9.4%, from $70.2 million to $76.8 million. Same store revenues represents those revenues earned in stores that were operated by the Company for the entire three-month periods ending June 30, 1997 and 1998. This improvement was primarily attributable to an increase in both the number of items on rent and in revenue earned per item on rent. Depreciation of rental merchandise increased by $3.9 million, or 27.3%, to $18.3 million for 1998 from $14.4 million for 1997. Depreciation of rental merchandise expressed as a percent of total store rental and fee revenue decreased from 21.1% in 1997 to 20.8% in 1998. The decrease was primarily attributable to higher rental rates on rental merchandise and operational emphasis on increasing the rental life of inventory items. Salaries and other expenses expressed as a percentage of total store revenue decreased to 54.8% for 1998 from 55.8% for 1997 primarily as a result of increased revenues in our 1996 Acquisitions and 1997 Acquisitions, as well as the leveraging of our fixed and semi-fixed costs in these stores. General and administrative expenses expressed as a percent of total revenue decreased from 4.5% in 1997 to 3.8% in 1998. This decrease was primarily the result of increased revenues resulting from the Central Acquisition, allowing us to leverage our fixed and semi-fixed costs over the larger revenue base. Operating profit increased by $4.2 million, or 37.1% to $15.5 million for 1998 from $11.3 million for 1997. This improvement was attributable to the efficiencies discussed above and the profit contribution from ColorTyme. Net earnings increased by $2.2 million, or 34.2%, to $8.5 million in 1998 from $6.3 million in 1997. The improvement was a result of the increase in operating profit described above. 10
11 LIQUIDITY AND CAPITAL RESOURCES The Company's primary requirements for capital are the acquisition of existing stores, the opening of new stores, the purchase of additional rental merchandise and the replacement of rental merchandise which has been sold, charged-off or is no longer suitable for rent. During the six months ended June 30, 1998, the Company acquired 182 stores for an aggregate purchase price of $101.6, all of which was paid in cash. The Company also opened 1 new store during the first two quarters of 1998. The Company purchased $54.0 million and $47.9 million of rental merchandise during the six months ended June 30, 1998 and 1997, respectively. For the six months ended June 30, 1998, cash provided by operating activities increased by $12.3 million, from $11.0 million in 1997 to $23.3 million in 1998, primarily due to increased net earnings and the timing of the payment of various operating expenses. Cash used in investing activities increased by $76.0 million from $31.0 million in 1997 to $107.0 million in 1998, principally related to the greater number of stores acquired in 1998 as compared to the number of stores acquired during the same period for 1997. Cash provided by financing activities was $102.3 million for the six months ended June 30, 1998. At June 30, 1998, the Company had in place a $140 million credit facility (the "Credit Facility") with a group of banks. Borrowings under the Credit Facility bore interest at a rate equal to the designated prime rate (8-1/2% per annum at June 30, 1998) or 1.10% to 1.4% over LIBOR (5.625% at June 30, 1998) at the Company's option. At June 30, 1998, the average rate on outstanding borrowings was 7.1%, and for the quarter the weighted average interest rate under the Credit Facility was 6.875%. Borrowings were collateralized by a lien on substantially all of the assets of the Company. A commitment fee equal to .20% to .30% of the unused portion of the term loan facility was payable quarterly. The Credit Facility included certain net worth and fixed charge coverage requirements, as well as covenants which restrict additional indebtedness and the disposition of assets not in the ordinary course of business. On June 30, 1998, the outstanding borrowings under this revolving credit agreement were $127.5 million. As a result of the Thorn Acquisition, the Credit Facility was replaced by a $962 million Senior Secured Credit Facility arranged by Chase Securities, Inc. (the "Senior Credit Facility") and a $175 million Senior Subordinated Credit Facility. The Company intends to retire the Senior Subordinated Credit Facility with the proceeds from the pending issuance of $175 million of Senior Subordinated Notes. The Company believes that the Senior Credit Facility, the proceeds from the Preferred Stock Issuance, the Senior Subordinated Credit Facility (or the proceeds from the Senior Subordinated Notes), along with its cash flows from operations, will adequately fund the Company's operations and expansion plans during 1998 and beyond. During the next twelve to twenty-four months, the Company's central business strategy is to successfully integrate the Thorn Acquisition and the Central Acquisition into the Renters Choice system. Once completed, the Company intends to resume its strategy to increase its store base and annual revenues and profits through the opening of new stores, as well as opportunistic acquisitions. The Company anticipates ample opportunities to increase its store base through its continued participation in the industry consolidation and the possibility for increased penetration and expansion of its existing customer base. After the assimilation of the Thorn Acquisition and Central Acquisition, the Company plans to accomplish its future growth through selective and opportunistic acquisitions, with an increasing emphasis on new store development. Typically, a newly opened rental store is profitable on a monthly basis in the sixth to seventh month after its initial opening. Cumulatively, the store will achieve break-even profitability in twelfth or fifteenth month after its initial opening. Total financing requirements of a typical new store approximates $350,000, with roughly 80 to 85% of that amount related to the purchase of rental merchandise inventory (both on-rent and idle). A newly opened store will achieve results consistent with other RCI mature stores (stores that have been operating within the system for greater than two years) by the end of its third year of operation. There can be no assurance that the Company will be able to acquire any additional stores, or that any stores that are acquired will be or will become profitable, nor is there any assurance that the Company will open any new stores in the future, or as to the number, location or profitability thereof. 11
12 Management believes that cash flow from operations and its Senior Credit Facility, the proceeds from the Preferred Stock Issuance, the Senior Subordinated Credit Facility (or the proceeds from the Senior Subordinated Notes) will be adequate to fund the operations, integration and expansion plans of the Company during 1998. In addition, to provide any additional funds necessary for the continued pursuit of the Company's growth strategies, the Company may incur from time to time additional short- or long-term bank indebtedness and may issue, in public or private transactions, its equity and debt securities. The availability and attractiveness of any outside sources of financing will depend on a number of factors, some of which will relate to the financial condition and performance of the Company, and some of which will be beyond the Company's control such as prevailing interest rates and general economic conditions. There can be no assurance such additional financing will be available, or if available, will be on terms acceptable to the Company. YEAR 2000 ISSUE Year 2000 issues exist when dates are recorded using two digits (rather than four) and are then used for arithmetic operations, comparisons or sorting. A two-digit recording may recognize a date using "00" as 1900 rather than 2000, which could cause the Company's computer systems to perform inaccurate computations. The Company has received confirmation from its management information system vendors that the Company's system is Year 2000 compliant. The Company expects that all of the Company's systems will be able to properly handle the rollover to the year 2000 in a timely fashion. The Company's Year 2000 issues relate not only to its own systems but also to those of its suppliers. It is anticipated that systems replacements and modifications will resolve the Year 2000 issue with respect to the Company's suppliers. There is no guarantee, however, that such systems replacements and modifications or the Company's efforts to achieve Year 2000 compliance will be completed successfully and on time, which could have a material adverse effect on the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 12
13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company and ColorTyme are party to various legal proceedings arising in the ordinary course of business. Except as described below, neither the Company nor ColorTyme is currently a party to any material litigation. Although the ultimate outcome of any litigation matter can never be predicted with certainty, management of the Company believes that the Company has established sufficient reserves to cover its reasonable exposure with respect to its outstanding litigation. GALLAGHER V. CROWN LEASING CORPORATION On January 3, 1996, the Company was served with a class action complaint adding it as a defendant in this action originally filed in April 1994 against Crown and certain of its affiliates in state court in New Jersey. The class consists of all New Jersey residents who entered into RTO contracts with Crown Leasing Corporation ("Crown") between April 25, 1998 and April 20, 1995. During this period, Crown operated approximately 5 stores in New Jersey. The lawsuit alleges, among other things, that under certain RTO contracts entered into between the plaintiff class and Crown, some of which were purportedly acquired by the Company pursuant to the acquisition of the rent-to-own assets of Crown by the Company in April 1995 (the "Crown Acquisition"), the defendants failed to make the necessary disclosures and charged the plaintiffs fees and expenses that violated the New Jersey Consumer Fraud Act and the New Jersey Retail Installment Sales Act. The plaintiffs seek damages including, among other things, a refund of all excessive fees and/or interest charged or collected by the defendants in violation of such acts, state usury laws and other related statutes and treble damages, as applicable. Pursuant to the Asset Purchase Agreement entered into between Crown, its controlling shareholder and the Company in connection with the Crown Acquisition, the Company did not contractually assume any liabilities pertaining to Crown's RTO contracts for the period prior to the Crown Acquisition. The plaintiffs have obtained class certification and a summary judgment against Crown on the liability issues. Subsequent to these decisions by the New Jersey state court, Crown filed for protection from its creditors under Chapter 11 of the federal bankruptcy laws. The bankruptcy court has allowed the lawsuit to proceed in New Jersey where the state court recently granted summary judgement on the plaintiffs' damages formula against Crown. The plaintiffs calculated actual damages for purposes of their summary judgment motion at approximately $7.6 million. The court ruled that the plaintiffs are entitled to three times actual damages. However, the state courts ruling requires certain minor adjustments pursuant to an accounting. Although the plaintiffs were unsuccessful in their attempt to certify a class against the Company, the plaintiffs have attempted to assert a theory of successor liability against the Company. Management believes there is no basis for a claim of successor liability against the Company. The Company will take appropriate steps to defend the successor liability issues at trial. Due to the uncertainties associated with any litigation, the ultimate outcome of this matter cannot presently be determined. MICHELLE NEWHOUSE V. RENTERS CHOICE, INC./HANDY BOYKIN V. RENTERS CHOICE, INC. On November 26, 1997 a class action complaint was filed against the Company by Michelle Newhouse in New Jersey state court alleging, among other things, that under certain RTO contracts entered into between the plaintiffs and the Company, the Company failed to make the necessary disclosures and charged the plaintiffs fees and expenses that violated the New Jersey Consumer Fraud Act and the New Jersey Installment Sales Act. The claims arising from this action are similar to the claims made in Gallagher v. Crown Leasing Corporation. The proposed class consists of all residents of New Jersey who are or have been parties to contracts to RTO merchandise from the Company within the past six years. During this period, the Company operated approximately 17 stores in New Jersey. The Company removed the case to federal court on January 21, 1998, and was then advised by the plaintiffs' attorney that Michelle Newhouse no longer wished to serve as class representative. A motion to voluntarily dismiss the Newhouse case filed by the plaintiffs' attorney was granted shortly thereafter. However, on May 1, 1998, a new class action complaint against the Company made by Handy Boykin was filed by the plaintiffs' attorney in the Newhouse matter in New Jersey state court alleging the same causes of action with the same proposed class as that of the Newhouse matter. This new filing essentially constitutes a replacement of the named plaintiff in the Newhouse matter with a new named plaintiff, Handy Boykin. Management anticipated such a replacement and intends to defend this matter vigorously. The Company removed the Boykin case to federal court, where Boykin's motion to remand the New Jersey state court is now pending. No motion for class certification has been made; however, due to the uncertainties associated with any litigation, the ultimate outcome of this matter cannot presently be determined. An adverse decision in this case could have a material effect on the Company. 13
14 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In connection with the Preferred Stock Issuance, the proceeds of which were utilized to retire the Company's prior credit facility agreement and to finance a portion of the Thorn Acquisition, and are anticipated to be used for the repurchase of $25 million of the Common Stock owned by J. Ernest Talley, the Company filed a Certificate of Designation for each of the Series A and Series B Preferred Stock (the "Certificates"), setting forth the designation, powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions of the Series A and the Series B Preferred Stock. These Certificates contain provisions which may limit the rights of the Company's common stockholders, as the Certificates contain certain liquidation and preference rights that are superior to those of the Company's common stockholders. In addition to the foregoing, the Certificates contain provisions prohibiting the Company from taking certain actions without the approval of the majority of the outstanding shares of the Series A and Series B stockholders, voting separately as a class. Such actions requiring the consent of the preferred stockholders include (i) increasing the number of authorized shares of Series A Preferred Stock or authorizing the issuance or issuing any shares of Series A Preferred Stock other than to existing holders of Series A Preferred Stock or holders of Series B Preferred Stock; (ii) issuing any new class or series of equity security; (iii) amending, altering or repealing, in any manner whatsoever, the designations, preferences and relative rights and limitations and restrictions of the Series A Preferred Stock or the Series B Preferred Stock; (iv) amending, altering or repealing any of the provisions of the Amended and Restated Certificate of Incorporation or Amended and Restated By-Laws of the Company in a manner that would negatively impact the holders of the Series A Preferred Stock; (v) except in certain situations, directly or indirectly redeeming, purchasing or otherwise acquiring for value (including through an exchange) or setting apart money or other property for any mandatory purchase or other analogous fund for the redemption, purchase or acquisition of any shares of common stock, declare or pay any dividend or make any distribution (whether in cash, shares of capital stock of the Company, or other property) on shares of common stock; (vi) causing the number of directors of the Company to be greater than seven (7); (vii) entering into any agreement or arrangement with or for the benefit of any person who is an affiliate of the Company with a value in excess of $5 million in a single transaction or a series of related transactions; (viii) effecting a voluntary liquidation, dissolution or winding up of the Company; (ix) except in certain situations, selling or agreeing to sell all or substantially all of the assets of the Company; or (x) except in certain situations, entering into any merger or consolidation or other business combination involving the Company (except a merger of a wholly-owned subsidiary of the Company into the Company in which the Company's capitalization is unchanged as a result of such merger). The Company anticipates issuing another $10 million worth of Series A and Series B Preferred Stock. 14
15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. CURRENT REPORTS ON FORM 8-K 1. Current Report on Form 8-K dated May 28, 1998, relating to the acquisition of Central Rents, Inc. 2. Current Report on Form 8-K/A dated May 28, 1998, filed on August 7, 1998, filing the required financial statements of the Company and Central Rents, Inc. EXHIBITS EXHIBIT NUMBER DESCRIPTION 2.1(1) - Asset Purchase Agreement dated April 20, 1995 among Renters Choice, Inc., Crown Leasing Corporation, Robert White, individually and Robert White Company, a sole proprietorship owned by Robert White 2.2(2) - Stock Purchase Agreement dated as of August 27, 1995 among Renters Choice, Inc., Starla J. Flake, Rance D. Richter, Bruce S. Johnson and Pro Rental, Inc. 2.3(3) - Stock Purchase Agreement dated September 29, 1995 between the Company and Terry N. Worrell 2.4(4) - Partnership Interest Purchase Agreement dated September 29, 1995 among the Company, Worrell Investors, Inc., The Christy Ann Worrell Trust and The Michael Neal Worrell Trust 2.5(5) - Agreement and Plan of Merger by and among Renters Choice, Inc., Pro Rental, Inc., MRTO Holdings, Inc. and Pro Rental II, Inc. 2.6(6) - Agreement and Plan of Reorganization dated May 15, 1996, among Renters Choice, Inc., ColorTyme, Inc., and CT Acquisition Corporation 2.7(7) - Asset Purchase Agreement, dated May 1, 1998, by and among Renters Choice, Inc., Central Rents, Inc., Central Rents Holding, Inc. and Banner Holdings, Inc. 2.8(8) - Letter Agreement, dated as of May 26, 1998, by and among Renters Choice, Inc., Central Rents, Inc., Central Rents Holding, Inc. and Banner Holdings, Inc. 2.9* - Stock Purchase Agreement, dated as of June 16, 1998, among Renters Choice, Inc., Thorn International BV and Thorn plc 2.10* - Stock Purchase Agreement, dated August 5, 1998, among Renters Choice, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. 3.1(9) - Amended and Restated Certificate of Incorporation of the Company 3.2(10) - Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company 3.3* - Amended and Restated Bylaws of the Company 4.1(11) - Form of Certificate evidencing Common Stock 4.2* - Certificate of Designations, Preferences and Relative Rights and Limitations of Series A Preferred Stock of Renters Choice, Inc. 4.3* - Certificate of Designations, Preferences and Relative Rights and Limitations of Series B Preferred Stock of Renters Choice, Inc. 15
16 EXHIBIT NUMBER DESCRIPTION 10.1(12) - Amended and Restated 1994 Renters Choice, Inc. Long-Term Incentive Plan 10.2(13) - Revolving Credit Agreement dated as of November 27, 1996 between Comerica Bank, as agent, Renters Choice, Inc. and certain other lenders 10.3(14) - Consulting Agreement dated April 1, 1993, by and between Bob A. Hardesty and Brenda K. Hardesty and Renters Choice, L.P. 10.4(15) - Non-Competition Agreement dated April 1, 1993, by and between Bob A. Hardesty and Brenda K. Hardesty and Renters Choice, L.P. 10.5(16) - Noncompetition Agreement dated as of April 20, 1995, between Renters Choice, Inc. and Patrick S. White 10.6(17) - Consulting Agreement dated as of April 20, 1995 between Renters Choice, Inc. and Jeffrey W. Smith 10.7(18) - Noncompetition Agreement dated as of August 27, 1995 between Renters Choice, Inc. and Starla J. Flake 10.8(19) - Noncompetition Agreement dated as of August 27, 1995 between Renters Choice, Inc. and Bruce S. Johnson 10.9(20) - Noncompetition Agreement dated as of August 27, 1995 between Renters Choice, Inc. and Rance D. Richter 10.10(21) - Option Agreement dated August 27, 1995 between the Company and Terry N. Worrell 10.11(22) - Option Agreement dated August 27, 1995 among the Company, Worrell Investors, Inc., The Christy Ann Worrell Trust and The Michael Neal Worrell Trust 10.15(23) - Portfolio Acquisition Agreement dated May 15, 1996, by and among Renters Choice, Inc., ColorTyme Financial Services, Inc., and STI Credit Corporation 10.16(24) - Employment Agreement, dated March 28, 1997, by and between Renters Choice, Inc. and Danny Z. Wilbanks 10.17(25) - Stock Option Agreement, dated April 1, 1997, by and between Renters Choice, Inc. and Danny Z. Wilbanks 10.18* - Credit Agreement, dated August 5, 1998, among Renters Choice, Inc., Comerica Bank, as Documentation Agent, NationsBank N.A., as Syndication Agent, and The Chase Manhattan Bank, as Administrative Agent, and certain other lenders 10.19* - Guarantee and Collateral Agreement, dated August 5, 1998, made by Renters Choice, Inc., and certain of its Subsidiaries in favor of The Chase Manhattan Bank, as Administrative Agent 10.20* - $175,000,000 Senior Subordinated Credit Agreement, dated as of August 5, 1998, among Renters Choice, Inc., certain other lenders and The Chase Manhattan Bank 10.21* - Stockholders Agreement, dated as of August 5, 1998, by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., J. Ernest Talley, Mark E. Speese, Renters Choice, Inc., and certain other persons 10.22* - Registration Rights Agreement, dated August 5, 1998, by and between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and Apollo Overseas Partners IV, L.P., related to the Series A Convertible Preferred Stock 16
17 EXHIBIT NUMBER DESCRIPTION 10.23* - Registration Rights Agreement, dated August 5, 1998, by and between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and Apollo Overseas Partners IV, L.P., related to the Series B Convertible Preferred Stock 27* - Financial Data Schedule * Filed herewith. (1) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated May 4, 1995 (2) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated August 27, 1995 (3) Incorporated herein by reference to Exhibit 10.19 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (4) Incorporated herein by reference to Exhibit 10.20 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (5) Incorporated herein by reference to Exhibit 2.7 to the registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (6) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated May 15, 1996 (7) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated May 28, 1998 (8) Incorporated herein by reference to Exhibit 2.2 to the registrant's Current Report on Form 8-K dated May 28, 1998 (9) Incorporated herein by reference to Exhibit 3.2 to the registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (10) Incorporated herein by reference to Exhibit 3.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (11) Incorporated herein by reference to Exhibit 4.1 to the registrant's Registration Statement on Form S-1 (File No. 33-86504) (12) Incorporated herein by reference to Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (13) Incorporated herein by reference to Exhibit 10.2 to the registrant's Annual Report on Form 10-K for the year ended December 31, 1996 (14) Incorporated herein by reference to Exhibit 10.5 to the registrant's Registration Statement on Form S-1 (File No. 33-86504) (15) Incorporated herein by reference to Exhibit 10.6 to the registrant's Registration Statement on Form S-1 (File No. 33-86504) (16) Incorporated herein by reference to Exhibit 10.7 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (17) Incorporated herein by reference to Exhibit 10.8 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (18) Incorporated herein by reference to Exhibit 10.10 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (19) Incorporated herein by reference to Exhibit 10.11 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (20) Incorporated herein by reference to Exhibit 10.12 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (21) Incorporated herein by reference to Exhibit 2.2 to the registrant's Current Report on Form 8-K dated August 27, 1995 (22) Incorporated herein by reference to Exhibit 2.3 to the registrant's Current Report on Form 8-K dated August 27, 1995 17
18 (23) Incorporated herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K dated May 15, 1996 (24) Incorporated herein by reference to Exhibit 10.16 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (25) Incorporated herein by reference to Exhibit 10.16 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 18
19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned duly authorized. RENTERS CHOICE, INC. By: /s/ DANNY Z. WILBANKS ------------------------------------- Danny Z. Wilbanks Senior Vice President-Finance and Chief Financial Officer Date: August 14, 1998 Renters Choice, Inc. 19
20 EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION -------------- ----------- <S> <C> 2.1(1) - Asset Purchase Agreement dated April 20, 1995 among Renters Choice, Inc., Crown Leasing Corporation, Robert White, individually and Robert White Company, a sole proprietorship owned by Robert White 2.2(2) - Stock Purchase Agreement dated as of August 27, 1995 among Renters Choice, Inc., Starla J. Flake, Rance D. Richter, Bruce S. Johnson and Pro Rental, Inc. 2.3(3) - Stock Purchase Agreement dated September 29, 1995 between the Company and Terry N. Worrell 2.4(4) - Partnership Interest Purchase Agreement dated September 29, 1995 among the Company, Worrell Investors, Inc., The Christy Ann Worrell Trust and The Michael Neal Worrell Trust 2.5(5) - Agreement and Plan of Merger by and among Renters Choice, Inc., Pro Rental, Inc., MRTO Holdings, Inc. and Pro Rental II, Inc. 2.6(6) - Agreement and Plan of Reorganization dated May 15, 1996, among Renters Choice, Inc., ColorTyme, Inc., and CT Acquisition Corporation 2.7(7) - Asset Purchase Agreement, dated May 1, 1998, by and among Renters Choice, Inc., Central Rents, Inc., Central Rents Holding, Inc. and Banner Holdings, Inc. 2.8(8) - Letter Agreement, dated as of May 26, 1998, by and among Renters Choice, Inc., Central Rents, Inc., Central Rents Holding, Inc. and Banner Holdings, Inc. 2.9* - Stock Purchase Agreement, dated as of June 16, 1998, among Renters Choice, Inc., Thorn International BV and Thorn plc 2.10* - Stock Purchase Agreement, dated August 5, 1998, among Renters Choice, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. 3.1(9) - Amended and Restated Certificate of Incorporation of the Company 3.2(10) - Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company 3.3* - Amended and Restated Bylaws of the Company 4.1(11) - Form of Certificate evidencing Common Stock 4.2* - Certificate of Designations, Preferences and Relative Rights and Limitations of Series A Preferred Stock of Renters Choice, Inc. 4.3* - Certificate of Designations, Preferences and Relative Rights and Limitations of Series B Preferred Stock of Renters Choice, Inc. 10.1(12) - Amended and Restated 1994 Renters Choice, Inc. Long-Term Incentive Plan 10.2(13) - Revolving Credit Agreement dated as of November 27, 1996 between Comerica Bank, as agent, Renters Choice, Inc. and certain other lenders 10.3(14) - Consulting Agreement dated April 1, 1993, by and between Bob A. Hardesty and Brenda K. Hardesty and Renters Choice, L.P. 10.4(15) - Non-Competition Agreement dated April 1, 1993, by and between Bob A. Hardesty and Brenda K. Hardesty and Renters Choice, L.P. </TABLE>
21 <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION -------------- ----------- <S> <C> 10.5(16) - Noncompetition Agreement dated as of April 20, 1995, between Renters Choice, Inc. and Patrick S. White 10.6(17) - Consulting Agreement dated as of April 20, 1995 between Renters Choice, Inc. and Jeffrey W. Smith 10.7(18) - Noncompetition Agreement dated as of August 27, 1995 between Renters Choice, Inc. and Starla J. Flake 10.8(19) - Noncompetition Agreement dated as of August 27, 1995 between Renters Choice, Inc. and Bruce S. Johnson 10.9(20) - Noncompetition Agreement dated as of August 27, 1995 between Renters Choice, Inc. and Rance D. Richter 10.10(21) - Option Agreement dated August 27, 1995 between the Company and Terry N. Worrell 10.11(22) - Option Agreement dated August 27, 1995 among the Company, Worrell Investors, Inc., The Christy Ann Worrell Trust and The Michael Neal Worrell Trust 10.15(23) - Portfolio Acquisition Agreement dated May 15, 1996, by and among Renters Choice, Inc., ColorTyme Financial Services, Inc., and STI Credit Corporation 10.16(24) - Employment Agreement, dated March 28, 1997, by and between Renters Choice, Inc. and Danny Z. Wilbanks 10.17(25) - Stock Option Agreement, dated April 1, 1997, by and between Renters Choice, Inc. and Danny Z. Wilbanks 10.18* - Credit Agreement, dated August 5, 1998, among Renters Choice, Inc., Comerica Bank, as Documentation Agent, NationsBank N.A., as Syndication Agent, and The Chase Manhattan Bank, as Administrative Agent, and certain other lenders 10.19* - Guarantee and Collateral Agreement, dated August 5, 1998, made by Renters Choice, Inc., and certain of its Subsidiaries in favor of The Chase Manhattan Bank, as Administrative Agent 10.20* - $175,000,000 Senior Subordinated Credit Agreement, dated as of August 5, 1998, among Renters Choice, Inc., certain other lenders and The Chase Manhattan Bank 10.21* - Stockholders Agreement, dated as of August 5, 1998, by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., J. Ernest Talley, Mark E. Speese, Renters Choice, Inc., and certain other persons 10.22* - Registration Rights Agreement, dated August 5, 1998, by and between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and Apollo Overseas Partners IV, L.P., related to the Series A Convertible Preferred Stock 10.23* - Registration Rights Agreement, dated August 5, 1998, by and between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and Apollo Overseas Partners IV, L.P., related to the Series B Convertible Preferred Stock 27* - Financial Data Schedule </TABLE> * Filed herewith. (1) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated May 4, 1995
22 (2) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated August 27, 1995 (3) Incorporated herein by reference to Exhibit 10.19 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (4) Incorporated herein by reference to Exhibit 10.20 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (5) Incorporated herein by reference to Exhibit 2.7 to the registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (6) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated May 15, 1996 (7) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated May 28, 1998 (8) Incorporated herein by reference to Exhibit 2.2 to the registrant's Current Report on Form 8-K dated May 28, 1998 (9) Incorporated herein by reference to Exhibit 3.2 to the registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (10) Incorporated herein by reference to Exhibit 3.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (11) Incorporated herein by reference to Exhibit 4.1 to the registrant's Registration Statement on Form S-1 (File No. 33-86504) (12) Incorporated herein by reference to Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (13) Incorporated herein by reference to Exhibit 10.2 to the registrant's Annual Report on Form 10-K for the year ended December 31, 1996 (14) Incorporated herein by reference to Exhibit 10.5 to the registrant's Registration Statement on Form S-1 (File No. 33-86504) (15) Incorporated herein by reference to Exhibit 10.6 to the registrant's Registration Statement on Form S-1 (File No. 33-86504) (16) Incorporated herein by reference to Exhibit 10.7 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (17) Incorporated herein by reference to Exhibit 10.8 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (18) Incorporated herein by reference to Exhibit 10.10 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (19) Incorporated herein by reference to Exhibit 10.11 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (20) Incorporated herein by reference to Exhibit 10.12 to the registrant's Registration Statement on Form S-1 (File No. 33-97012) (21) Incorporated herein by reference to Exhibit 2.2 to the registrant's Current Report on Form 8-K dated August 27, 1995 (22) Incorporated herein by reference to Exhibit 2.3 to the registrant's Current Report on Form 8-K dated August 27, 1995 (23) Incorporated herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K dated May 15, 1996 (24) Incorporated herein by reference to Exhibit 10.16 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (25) Incorporated herein by reference to Exhibit 10.16 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997