Exhibit 10.1
**CONSULTING AGREEMENT**
     This Consulting Agreement (the “Agreement”) is made and entered into as of March 22, 2005, byand between William E. Morgenstern and Rent-Way, Inc. (“Rent-Way”), a Pennsylvania corporation.For purposes of this Agreement, the “Rent-Way Parties” refers to Rent-Way, together with its pastand present parents, subsidiaries, affiliates and divisions, and each of their respective past andpresent officers, directors, agents, employees, representatives, successors, and assigns, in boththeir individual and corporate capacities. For purposes of this Agreement, the “Rent-WayCompanies” refers to Rent-Way, together with its past and present parents, subsidiaries, affiliatesand divisions.
**RECITALS**
     **WHEREAS**, Morgenstern was one of the founders of Rent-Way and has served as its Chief ExecutiveOfficer and President and a member of its Board of Directors (the “Board”) since the formation ofRent-Way in 1981;
     **WHEREAS**, Morgenstern was elected Chairman of the Board of Rent-Way in October 1999 and iscurrently serving in such position;
     **WHEREAS**, Morgenstern has been serving as Chairman, President, and Chief Executive Officer ofRent-Way pursuant to an Employment Agreement dated as of November 20, 2001 (the “EmploymentAgreement”);
     **WHEREAS**, the Board and Morgenstern believe that a separation of the role of Chairman of theBoard from the role of President and/or Chief Executive Officer should be implemented to enhancethe effectiveness of the Board, among other reasons;
     **WHEREAS**, Morgenstern desires to resign as Rent-Way’s President and Chief Executive Officer andcontinue to serve as Chairman of the Board if selected;
     **WHEREAS**, Rent-Way desires to continue to employ Morgenstern as a consultant, and Morgensterndesires to provide such services; and
     **WHEREAS**, this Agreement is being executed simultaneously with the Noncompetition Agreementbetween Morgenstern and Rent-Way, dated as of March 22, 2005 (the “Noncompetition Agreement”);
     **NOW, THEREFORE**, in consideration of the mutual covenants and agreements hereinafter set forthand set forth in the Noncompetition Agreement, and intending to be and being legally bound hereby,the parties agree as follows:
 

 

**AGREEMENT**
     1. Superceding of Employment Agreement. As of the Effective Date (defined below), theEmployment Agreement and all existing employment agreements between Morgenstern and the Rent-WayParties, whether oral or written, are hereby terminated, and neither Morgenstern nor Rent-Way shallhave any further rights or obligations under any such agreements, except as otherwise expresslyprovided herein or in the Noncompetition Agreement. Except as otherwise expressly provided herein,the parties agree that this Agreement and the Noncompetition Agreement supersede the EmploymentAgreement (and any other existing employment agreements between the parties).
     2. Morgenstern’s Service as Chairman of the Board, Board Member, and Officer ofRent-Way.
          (a) Morgenstern resigns his positions as President and Chief Executive Officer of Rent-Way asof the Effective Date and agrees that he shall resign from any officer, director, or otherpositions he holds with respect to any subsidiary or affiliate of Rent-Way as, when, and to theextent requested by Rent-Way. Morgenstern agrees that he shall execute such documents and takesuch other action (if any) as may be requested by Rent-Way and necessary to give effect to thisSection 2(a).
          (b) Morgenstern agrees that he shall, during the Term, serve or continue to serve as Chairmanof the Board of Rent-Way and/or a member of Rent-Way’s Board as and to the extent requested byRent-Way’s Board. The determination as to whether Morgenstern will remain Chairman of the Board ofRent-Way subsequent to the next meeting of the shareholders of Rent-Way and/or a member ofRent-Way’s Board following the expiration of his current term is solely within the Board’s solediscretion, and nothing herein shall be construed as an obligation of Rent-Way to continueMorgenstern in such capacities for any longer period or, if no longer serving in such capacities,to take steps to have him elected to a position as a member of the Board or as Chairman of theBoard. Subject to the foregoing, if applicable, Morgenstern agrees that he shall execute suchdocuments and take such other action (if any) as may be requested by Rent-Way and necessary toremove Morgenstern from all such positions with Rent-Way.
          (c) If requested by the Board, Morgenstern shall continue to perform the duties of Presidentand Chief Executive Officer until September 30, 2005 or such earlier date as a new, acting, orinterim Chief Executive Officer is appointed.
          (d) Morgenstern’s activities as Chairman of the Board of Rent-Way and/or a member ofRent-Way’s Board shall not be considered consulting services provided pursuant to this Agreement.
          (e) During any period that Morgenstern is Chairman of the Board of Rent-Way and/or a member ofRent-Way’s Board, he shall be eligible to receive such compensation and benefits as may generallybe accorded non-employee directors of Rent-Way.
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     3. Release of Claims. Except as necessary to enforce the terms of this Agreement andthe Noncompetition Agreement, and in exchange for and in consideration of the promises, covenantsand agreements set forth herein and the Noncompetition Agreement, Morgenstern hereby releases theRent-Way Parties to the maximum extent permitted by law from any and all manner of claims, demands,causes of action, obligations, damages, or liabilities whatsoever of every kind and nature, at lawor in equity, known or unknown, and whether or not discoverable, which Morgenstern has or may havefor any period prior to his execution of this Agreement and which arise out of or are related tohis employment by Rent-Way and the termination thereof, including, but not limited to, all claimsarising out of or related to the Employment Agreement, claims for additional compensation, claimsfor severance pay, claims of defamation, wrongful discharge or breach of contract, claims forunpaid wages or commissions or bonuses, claims arising under any federal, state or local laborlaws, claims of discrimination under the Age Discrimination in Employment Act of 1967, as amended,Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act of 1990,the Pennsylvania Human Relations Act, or any other federal, state or local laws, claims arisingunder the Employee Retirement Income Security Act of 1974, any claim under the common law, and anyclaim for attorneys’ fees or costs. Rent-Way represents that it is not currently aware of anyclaims, demands, causes of action, obligations, damages, or liabilities whatsoever of any kind ornature, at law or in equity, it may have against Morgenstern.
     4. Engagement; Term. Rent-Way hereby engages Morgenstern, and Morgenstern herebyaccepts such engagement and agrees to serve as a consultant to Rent-Way, upon the terms andconditions hereinafter set forth, for a term commencing on May 1, 2005 (the “Effective Date”) and(unless sooner terminated as hereinafter provided) expiring on April 30, 2010 (such term beinghereinafter referred to as the “Term”). Morgenstern shall report to the Board or any committee ofthe Board to which such responsibility may be assigned.
     5. Duties. During the Term, Morgenstern shall be available to render consultingservices from time to time not to exceed 25% of his business time per month (based upon a standardforty-hour workweek), provided that any time spent by Morgenstern rendering services for Rent-Wayin connection with his service as Chairman of the Board or as a member of the Board shall not beincluded in calculating the maximum amount of time Rent-Way may require consulting services fromMorgenstern. Morgenstern’s consulting duties shall include (a) participating in Rent-Way’sbudgeting, strategic planning, expansion, and financing activities, (b) communicating withRent-Way’s shareholders and institutional investors, and (c) providing other services as may bereasonably assigned, consistent with an executive level position, to Morgenstern by the Board orsuch committee of the Board to which such responsibility may be assigned. Morgenstern agrees thathe shall use his best efforts to perform such services faithfully and diligently, and to the bestof his ability and in the best interests of Rent-Way. Such services will be performed atreasonably convenient and mutually acceptable times, with consideration for Morgenstern’s otherbusiness and personal obligations. Morgenstern shall be permitted to engage in other businessactivities (including employment), provided that such activities do not otherwise violate the termsof this Agreement or the Noncompetition Agreement or materially impair his ability to perform hisduties hereunder. The parties expressly agree that Rent-Way shall not be obligated to provideMorgenstern with any staff, office space or office allowance.
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     6. Compensation and Benefits. As full compensation and benefits for the consultingservices to be provided by Morgenstern hereunder, Rent-Way shall provide the following toMorgenstern:
          (a) Consulting Fees. Rent-Way will pay Morgenstern and Morgenstern will acceptconsulting fees (“Consulting Fees”) during the Term at an annual rate of Two Hundred ThousandDollars ($200,000). Such Consulting Fees will be paid in Rent-Way’s normal payroll cycle. TheConsulting Fees to be provided herein shall not affect, limit or restrict any remunerationMorgenstern may be eligible for in connection with rendering services for Rent-Way as its Chairmanof the Board or as a member of its Board.
          (b) 2005 Bonus. At the time Rent-Way pays bonuses to its executives in respect of its2005 fiscal year, Rent-Way shall pay a bonus to Morgenstern for the 2005 fiscal year for workperformed in his capacity as Chief Executive Officer and President in such amount as may bedetermined by the Compensation Committee of the Board, giving consideration to Morgenstern’sperformance during the 2005 fiscal year as Chief Executive Officer and President (whether prior toor subsequent to the Effective Date of this Agreement) and the financial performance of Rent-Way.
          (c) Bonus. The Board, in its sole discretion, may award Morgenstern a bonus inrespect of any fiscal year.
          (d) Benefits and Perquisites. During the Term, Morgenstern shall be entitled toparticipate in, to the extent Morgenstern is otherwise eligible under the terms thereof, thebenefit plans and programs, and receive the benefits and perquisites, generally provided byRent-Way to executive officers of Rent-Way. For purposes of such plans and programs, Morgensternshall be considered to be employed by Rent-Way during his engagement hereunder. Nothing herein isintended to affect, limit or restrict any medical insurance coverage or other benefits Morgensternmay be eligible for by virtue of his service as a member of the Board.
          (e) Life Insurance. During the first two years of the Term, Rent-Way will pay onbehalf of or reimburse Morgenstern for the premiums on that certain policy of life insurance(Policy No. ___) through First Colony Life Insurance Company insuring Morgenstern’s life inthe amount of $7 million in an amount not to exceed $5,000 in any fiscal year.
          (f) Reimbursement of Expenses. Rent-Way will reimburse Morgenstern for all reasonabletravel, business entertainment and other business expenses as may be incurred by him during theTerm in the performance of the duties and responsibilities assigned to him under this Agreement inaccordance with Rent-Way’s standard practices applicable to senior executives of Rent-Way. Suchreimbursements shall be made by Rent-Way on a timely basis upon submission by Morgenstern of properaccounts therefor in accordance with Rent-Way’s standard procedures.
          (g) No Other Compensation or Benefits; Payment. Except as provided in theNoncompetition Agreement, the compensation and benefits specified in this Section 6 and in Sections7 and 10 of this Agreement shall be in lieu of any and all other compensation and
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benefits. Payment of all compensation and benefits to Morgenstern specified in this Section 6and in Sections 7 and 10 of this Agreement shall be subject to all legally required and customarywithholdings applicable to payments to employees.
          (h) Cessation of Engagement. In the event Morgenstern’s engagement hereunder shallcease for any reason, then Morgenstern’s compensation and benefits shall cease on the date of suchevent, except as otherwise specifically provided herein or in any applicable employee benefit planor program or as required by law.
     7. Treatment of Stock Options. All stock options previously granted to Morgensternshall continue in accordance with the agreements and plans governing such grants. For purposes ofsuch agreements and plans, Morgenstern shall be considered to be employed by Rent-Way during hisengagement hereunder.
     8. Noncompetition Agreement. Simultaneously with the execution of this Agreement, theparties will execute the Noncompetition Agreement, which is attached as Exhibit A hereto. It is amaterial condition of this Agreement that Morgenstern comply with the obligations contained in theNoncompetition Agreement, the terms of which are incorporated by reference herein.
     9. Termination of Engagement. Morgenstern’s consulting engagement hereunder may beterminated prior to the end of the Term under the following circumstances.
          (a) Death. Morgenstern’s consulting engagement hereunder shall terminate upon hisdeath.
          (b) Morgenstern Becoming Totally Disabled. Rent-Way may terminate Morgenstern’sconsulting engagement hereunder at any time after Morgenstern becomes “Totally Disabled”. Forpurposes of this Agreement, Morgenstern shall be “Totally Disabled” in the event Morgenstern isunable to perform the duties and responsibilities contemplated under this Agreement for a period ofsix (6) consecutive months due to physical or mental incapacity or impairment. Any question as tothe existence of a physical or mental condition which would cause Morgenstern to be consideredTotally Disabled upon which Morgenstern and Rent-Way cannot agree will be determined by a qualifiedindependent physician selected by Morgenstern and reasonably acceptable to Rent-Way (or, ifMorgenstern is unable to make a selection, the selection of the physician will be made by any adultmember of his immediate family). The physician’s written determination shall be delivered toRent-Way and to Morgenstern and shall be final and conclusive for all purposes of this Agreement.During any period that Morgenstern fails to perform his duties hereunder as a result of incapacitydue to physical or mental illness (the “Disability Period”), Morgenstern shall continue to receivethe compensation and benefits provided by Section 6 of this Agreement until Morgenstern’sengagement hereunder is terminated; provided, however, that the amount of base compensation andbenefits received by Morgenstern during the Disability Period shall be reduced by the aggregateamounts, if any, payable to Morgenstern under any disability benefit plan or program provided toMorgenstern by Rent-Way.
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          (c) Termination by Rent-Way for Cause. Rent-Way may terminate Morgenstern’sconsulting engagement hereunder for Cause at any time after providing written notice toMorgenstern. For purposes of this Agreement, the term “Cause” shall mean any of the following:(i) Morgenstern’s willful failure to perform his material duties under this Agreement (other thanas a result of total or partial incapacity due to physical or mental illness) if such failure isnot substantially cured within 15 days after written notice of such failure is provided toMorgenstern; (ii) Morgenstern’s willful breach of his fiduciary duty or duty of loyalty to Rent-Waywhich is injurious to the financial condition or business reputation of Rent-Way; (iii)Morgenstern’s conviction for a felony offense under the laws of the United States or any statethereof; (iv) the willful material breach by Morgenstern of this Agreement if such breach is notsubstantially cured within 15 days after written notice of such breach is provided to Morgenstern;(v) the willful material breach by Morgenstern of any covenant set forth in the NoncompetitionAgreement if such breach is not substantially cured within 15 days after written notice of suchbreach is provided to Morgenstern; and (vi) a preliminary or final determination by any court ofcompetent jurisdiction that any covenant in the Noncompetition Agreement is unenforceable orinvalid in its entirety, provided that (A) Rent-Way cancels theNoncompetition Agreement as a resultof such determination; (B) in the event the court does not strike the offending covenant in itsentirety, but rather reduces the scope, duration and/or area of such provision (and substitutesprovisions for any such invalid or unenforceable provisions) and/or deletes specific words andphrases in order to make such provision enforceable to the fullest extent permitted by law, suchreformation by the court may still constitute Cause, at Rent-Way’s election, provided that Rent-Waycancels the Noncompetition Agreement as a result of such reformation; and (C) Morgenstern contendedin the proceeding resulting in such determination that the Noncompetition Agreement was invalid orunenforceable in whole or in part. For purposes of this “Cause” definition, an act or failure toact will be not deemed “willful” if Morgenstern acted in good faith and with a reasonable beliefthat his action or failure to act was in Rent-Way’s best interests.
          (d) Termination by Rent-Way Without Cause. Rent-Way may terminate Morgenstern’sconsulting engagement hereunder at any time for any reason or no reason.`
          (e) Termination by Morgenstern Without Good Reason. Morgenstern may terminate hisconsulting engagement hereunder without Good Reason (as defined in Section 5(f) below) upon ninety(90) days’ prior written notice to Rent-Way, provided that Rent-Way, in its sole discretion, maywaive this notice requirement, in whole or in part, so long as it pays Morgenstern the ConsultingFees that Morgenstern would have otherwise been due over such 90-day period.
          (f) Termination by Morgenstern for Good Reason. Morgenstern may terminate hisconsulting engagement hereunder for Good Reason (as defined below) at any time after providingwritten notice to Rent-Way. For purposes of this Agreement, the term “Good Reason” shall mean,without Morgenstern’s prior written consent, (i) a material breach of this Agreement by Rent-Way ifsuch breach is not substantially cured within 15 days after written notice of such breach isprovided to Rent-Way by Morgenstern; (ii) the committee responsible for nominating candidates forelection to the Board, or the Board itself if it exercises that function, fails to nominateMorgenstern for re-election as a director effective upon expiration of
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his current or any subsequent term, other than as a result of Morgenstern’s stated intent ordesire not to serve or his prior removal from the Board pursuant to Section 4.05 of Rent-Way’sBylaws; (iii) the Board has failed or fails to re-elect Morgenstern to serve as Chairman of theBoard, other than as a result of Morgenstern’s stated intent or desire not to serve or his priorremoval from the Board pursuant to Section 4.05 of Rent-Way’s Bylaws, provided that Morgenstern maynot terminate his consulting engagement under this clause (iii) until after the expiration of hiscurrent term as a director; or (iv) a Change in Control has occurred within the preceding 180 days.
          For purposes of this Agreement, a Change in Control shall mean the occurrence of any of thefollowing:
 (A)  a change in control shall have occurred of anature that would be required to be reported in Item 5.01 of Form 8-K,unless such change in control results in control by Morgenstern, anyperson with whom Morgenstern is or was acting in concert, or theirrespective designee(s) or affiliate(s) or any combination thereof;  (B)  any “person” (as such term is used in Sections13(d) and 14(d)(2) of the Exchange Act), other than Morgenstern, anyperson with whom Morgenstern is or was acting in concert, or theirrespective designee(s) or affiliate(s) or any combination thereof, isor becomes the “beneficial owner” (as defined in Rule 13d-3 under theExchange Act), directly or indirectly, of securities of Rent-Wayrepresenting fifty percent (50%) or more of the combined voting powerof Rent-Way’s then outstanding securities;  (C)  the stockholders of Rent-Way approve a mergeror consolidation of Rent-Way with any other corporation, other than (i)a merger or consolidation with any of its affiliates, (ii) a merger orconsolidation which would result in the holders of voting securities ofRent-Way outstanding immediately prior thereto continuing to hold morethan 50% of the combined voting power of the voting securities ofRent-Way or such surviving entity outstanding immediately after suchmerger or consolidation, (iii) a merger or consolidation of Rent-Waywith any corporation 50% or more of the combined voting power of whichis held by Morgenstern, any person with whom Morgenstern is or wasacting in concert, or their respective designee(s) or affiliate(s) orany combination thereof, or (iv) a merger or consolidation effected toimplement a recapitalization of Rent-Way (or similar transaction) inwhich no “person” (as such term is used in Sections 13(d) and 14(d)(2)of the Exchange Act) acquires more than 50% of the combined votingpower of Rent-Way’s then outstanding securities or a reverse takeover;or  (D)  the stockholders of Rent-Way approve a plan ofcomplete liquidation of Rent-Way or an agreement for the sale ordisposition
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    by Rent-Way of, or Rent-Way sells or disposes of, all orsubstantially all of Rent-Way’s assets, provided that this provisionshall not apply to a sale of Rent-Way’s assets to an affiliate ofRent-Way if such affiliate agrees to succeed to Rent-Way’sobligations under this Agreement.
     10. Compensation Following Termination Prior to the End of the Term. In the eventthat Morgenstern’s consulting engagement hereunder is terminated prior to the end of the Term,Morgenstern shall be entitled only to the following compensation and benefits upon suchtermination:
          (a) Termination by Reason of Morgenstern Becoming Totally Disabled; Termination by Rent-Wayfor Cause; Termination by Morgenstern Without Good Reason. In the event that Morgenstern’sconsulting engagement hereunder is terminated prior to the expiration of the Term by reason ofMorgenstern becoming Totally Disabled pursuant to Section 9(b), by Rent-Way for Cause pursuant toSection 9(c), or by Morgenstern Without Good Reason pursuant to Section 9(e), Rent-Way shall paythe following amounts to Morgenstern:
 (i)  any accrued but unpaid Consulting Fees (asdetermined pursuant to Section 6(a)) for services rendered to the dateof termination; provided, however, that in the event Morgenstern’sconsulting engagement hereunder is terminated pursuant to Section 9(b),the amount of Consulting Fees received by Morgenstern during theDisability Period shall be reduced by the aggregate amounts, if any,payable to Morgenstern under any disability benefit plan or programprovided to Morgenstern by Rent-Way;  (ii)  any bonus that has been awarded by theCompensation Committee of the Board pursuant to Section 6(b) or by theBoard pursuant to Section 6(c) but has not yet been paid; and  (iii)  any accrued but unpaid expenses required to bereimbursed pursuant to Section 6(d).
          (b) Termination by Rent-Way Without Cause; Termination by Morgenstern for Good Reason;Termination by Reason of Morgenstern’s Death. In the event that Morgenstern’s consultingengagement hereunder is terminated prior to the expiration of the Term by Rent-Way without Causepursuant to Section 9(d) , by Morgenstern for Good Reason pursuant to Section 9(f), or by reason ofMorgenstern’s death pursuant to Section 9(a), Rent-Way shall pay the following amounts and providethe following benefits to Morgenstern:
 (i)  any accrued but unpaid Consulting Fees (asdetermined pursuant to Section 6(a)) for services rendered to the dateof termination;  (ii)  any bonus that has been awarded by theCompensation Committee of the Board pursuant to Section 6(b) or by theBoard pursuant to Section 6(c) but has not yet been paid;
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 (iii)  any accrued but unpaid expenses required to bereimbursed pursuant to Section 6(d);  (iv)  the continued payment of the Consulting Fees(as determined pursuant to Section 6(a)) for the remainder of the Term(such sums to be paid at the times and in the amounts such ConsultingFees would have been paid had Morgenstern’s consulting engagement notbeen terminated); and  (v)  to the extent permitted by law and theapplicable plan documents and agreements, continued participation inthe plans and programs referenced in Section 6(d) in which heparticipated just prior to such termination through the end of theTerm, provided that if Morgenstern is not permitted to continue inRent-Way’s medical and/or dental plans but elects continuation of suchcoverage in accordance with COBRA, Rent-Way shall pay the premiums forsuch coverage through the earlier of (A) the end of the Term and (B)the date that is eighteen months after such termination of hisengagement hereunder;
          (c) Termination by the Company Without Cause or by Morgenstern for Good Reason Following aChange in Control. In lieu of the payments and benefits provided under Section 10(b) above, inthe event that Morgenstern’s consulting engagement hereunder is terminated prior to the expirationof the Term by the Company without Cause or by Morgenstern for Good Reason following a Change inControl pursuant to Section 9(f)(iv), Morgenstern shall be entitled to a lump sum payment, payablewithin thirty (30) days after such termination, equal to the sum of:
 (i)  any accrued but unpaid Consulting Fees (asdetermined pursuant to Section 6(a)) for services rendered to the dateof termination;  (ii)  any bonus that has been awarded by theCompensation Committee of the Board pursuant to Section 6(b) or by theBoard pursuant to Section 6(c) but has not yet been paid;  (iii)  any accrued but unpaid expenses required to bereimbursed pursuant to Section 6(d); and  (iv)  the Consulting Fees (as determined pursuant toSection 6(a)) that would have been payable through the remainder of theTerm had Morgenstern’s consulting engagement not been terminated.
If it shall be determined that any payment made or benefit provided to Morgenstern in connectionwith a Change in Control (as defined in Section 280G of the Internal Revenue Code of 1986, asamended (the “Code”), or any successor thereto) is subject to the excise tax imposed by Section4999 of the Code, Rent-Way shall pay Morgenstern an amount of cash (the “Additional Amount”) suchthat the net amount received by Morgenstern after paying all applicable taxes on such AdditionalAmount and any penalties, interest and other reasonable
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costs incurred as a result of such excise tax or additional payment, shall be equal to the amountthat Morgenstern would have received if Section 4999 were not applicable. All determinationsconcerning the application of the foregoing shall be made by a nationally recognized firm ofindependent accountants (together with legal counsel of its choosing), selected by Rent-Way afterconsultation with Morgenstern (which may be Rent-Way’s independent auditors), whose determinationshall be conclusive and binding on all parties. The fees and expenses of such accountants andcounsel shall be borne by Rent-Way. If the accounting firm determines that no Excise Tax ispayable by Morgenstern, it shall furnish Morgenstern with an opinion that Morgenstern hassubstantial authority not to report any Excise Tax on his Federal income tax return. In the eventthe Internal Revenue Service assesses Morgenstern an amount of excise tax pursuant to Section 4999of the Code in excess of that determined in accordance with the foregoing, Rent-Way shall pay toMorgenstern an additional Gross-Up Payment, calculated as described above in respect of such excessexcise tax, including a Gross-Up Payment in respect of any interest or penalties imposed by theInternal Revenue Service with respect to such excess excise tax.
          (d) Effect on Payments and Benefits Under Section 10(b)(iv) and (v) of Willful Material Breachof This Agreement or Any Covenant in Noncompetition Agreement or of Finding By Court of CompetentJurisdiction Of Unenforceability or Invalidity of Any Covenant in Noncompetition Agreement.
 (i)  Morgenstern shall not be entitled to anypayment or continued payment or benefits under clauses (iv) and (v) ofSection 10(b) of this Agreement if, at the time of such termination orany time thereafter, Morgenstern is in willful material breach ofSection 11 of this Agreement, or Morgenstern is in willful materialbreach of any covenant contained in the Noncompetition Agreement, andsuch breach, if susceptible of cure, is not substantially cured within15 days after written notice of such breach is provided to Morgenstern.  (ii)  Morgenstern shall not be entitled to anypayment or continued payment or benefits under clauses (iv) and (v) ofSection 10(b) of this Agreement in the event a court of competentjurisdiction renders a preliminary or final determination that anycovenant in the Noncompetition Agreement is unenforceable or invalid inits entirety, provided that (A) Rent-Way cancels the NoncompetitionAgreement as a result of such determination; (B) in the event the courtdoes not strike the offending covenant in its entirety, but ratherreduces the scope, duration and/or area of such provision (andsubstitutes provisions for any such invalid or unenforceableprovisions) and/or deletes specific words and phrases in order to makesuch provision enforceable to the fullest extent permitted by law, suchreformation by the court may still constitute Cause, at Rent-Way’selection, provided that Rent-Way cancels the Noncompetition Agreement asa result of such reformation; and (C) Morgenstern contended in theproceeding resulting in such
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    determination that the Noncompetition Agreement was invalid orunenforceable in whole or in part.
          (e) Effect of Termination on Stock Options. Notwithstanding any contrary provisionscontained in any stock option agreement evidencing stock options granted to Morgenstern, as of theeffective date of any termination pursuant to Section 9(a), (b), (d), or (f), (i) Rent-Way willvest Morgenstern in any outstanding unvested stock options of Rent-Way granted to Morgenstern priorto such termination and (ii) the period during which Morgenstern shall have the right to exercisesuch vested options shall be extended by Rent-Way to the expiration of the term of such optionsassuming no such termination had occurred.
          (f) Benefits Following Termination. Except as otherwise provided in this Section 10,the benefits to which Morgenstern (or, as applicable, his spouse or estate) may be entitledpursuant to the plans and programs referred to in Section 6(c) hereof upon termination ofMorgenstern’s consulting engagement hereunder shall be determined and paid in accordance with theterms of such plans and programs or as may otherwise be required by applicable law.
          (g) No Further Liability; Release. Payment made and performance by Rent-Way inaccordance with this Section 10 shall operate to fully discharge and release the Rent-Way Partiesfrom any further obligation or liability with respect to Morgenstern’s consulting engagement andtermination of such consulting engagement. Other than providing the compensation and benefitsprovided for in accordance with this Section 10 and any payments due under the NoncompetitionAgreement, the Rent-Way Parties shall have no further obligation or liability to Morgenstern or anyother person under this Agreement or the Noncompetition Agreement. The payments and benefits to beprovided pursuant to Section 10(b)(iv) and (v) are expressly conditioned upon the delivery byMorgenstern to Rent-Way of a release in form and substance satisfactory to Rent-Way of any and allclaims Morgenstern may have against the Rent-Way Parties arising out of his employment andconsulting relationships with Rent-Way and the termination thereof.
     11. Proprietary Information; Confidentiality; Inventions.
          (a) Proprietary Information. Morgenstern acknowledges that during the course of hispast employment with Rent-Way and his engagement hereunder, he has had, and will necessarilycontinue to have, access to proprietary information (as defined below) and confidential records (asdefined in Section 11(b)) of the Rent-Way Companies, and has made, and will continue to make, useof proprietary information and confidential records of the Rent-Way Companies. Morgenstern agreesthat he shall not during his consulting engagement with Rent-Way or at any time thereafter,directly or indirectly, use for his own purpose or for the benefit of any person or entity otherthan Rent-Way, nor otherwise disclose, any proprietary information to any individual or entity,unless such disclosure has been authorized in writing by Rent-Way or is otherwise required by law.Morgenstern acknowledges and understands that the term “proprietary information” includes, but isnot limited to: (a) the software products, programs, applications, and processes utilized by theRent-Way Companies; (b) the name and/or address of any customer, vendor or distributor of theRent-Way Companies or any information concerning the transactions or relations of any customer,vendor or distributor of the Rent-Way Companies or any of its or their partners, principals,directors, officers or agents; (c) any
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information concerning any product, technology, or procedure employed by the Rent-WayCompanies but not generally known to its or their customers, vendors or competitors, or underdevelopment by or being tested by the Rent-Way Companies but not at the time offered generally tocustomers, vendors or distributors; (d) any information concerning the structure or content of theproprietary databases of any of the Rent-Way Companies; (e) any information relating to thecomputer software, computer systems, pricing or marketing methods, sales margins, cost of goods,cost of material, capital structure, operating results, borrowing arrangements or business plans ofany of the Rent-Way Companies; (f) customer lists and contact information; (g) any informationwhich is generally regarded as confidential or proprietary in any line of business engaged in bythe Rent-Way Companies; (h) product information and future development plans; (i) any businessplans, budgets, advertising or marketing plans; (j) any information contained in any of the writtenor oral policies and procedures or manuals of the Rent-Way Companies; (k) any information belongingto customers, vendors or distributors of the Rent-Way Companies or any other person or entity whichthe Rent-Way Companies has agreed to hold in confidence; (l) any inventions, innovations orimprovements covered by this Agreement; and (m) all written, graphic and other material relating toany of the foregoing. Morgenstern acknowledges and understands that information that is not novelor copyrighted or patented may nonetheless be proprietary information. The term “proprietaryinformation” shall not include information (i) generally available to and known by the public orinformation that is or becomes available to Morgenstern on a non-confidential basis from a sourceother than Rent-Way, the other Rent-Way Companies, or the directors, officers, employees, partners,principals or agents of any of the Rent-Way Companies (other than as a result of a breach of anyobligation of confidentiality) or (ii) that is within Morgenstern’s general business or industryknowledge, know-how or expertise (collectively, “know-how”), provided such know-how is of a genericnature not specifically pertaining to Rent-Way.
          (b) Confidentiality and Surrender of Records. Morgenstern shall not during hisconsulting engagement or at any time thereafter, except as required by law, directly or indirectlypublish, make known or in any fashion disclose any confidential records to, or permit anyinspection or copying of confidential records by, any individual or entity other than in the courseof such individual’s or entity’s employment or retention by Rent-Way. Upon termination of hisengagement hereunder for any reason or at any earlier time upon request by Rent-Way, Morgensternshall deliver promptly to Rent-Way all property and records of the Rent-Way Companies, including,without limitation, all confidential records. For purposes hereof, “confidential records” meansall correspondence, reports, memoranda, files, manuals, books, lists, financial, operating ormarketing records, magnetic, optical, or electronic or other media or equipment of any kind whichmay be in Morgenstern’s possession or under his control or accessible to him which contain anyproprietary information. Morgenstern agrees that all property and records of the Rent-WayCompanies (including, without limitation, all confidential records) shall be and remain the soleproperty of the Rent-Way Companies during Morgenstern’s consulting engagement with Rent-Way andthereafter.
          (c) Inventions and Patents. All inventions, innovations or improvements (includingpolicies, procedures, products, improvements, software, ideas and discoveries, whether patent,copyright, trademark, service mark, or otherwise) conceived or made by Morgenstern, either alone orjointly with others, in the course of his employment by Rent-Way or his engagement hereunder,belong to Rent-Way. Morgenstern will promptly
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disclose in writing such inventions, innovations or improvements to Rent-Way and perform allactions reasonably requested by Rent-Way to establish and confirm such ownership by Rent-Way,including, but not limited to, cooperating with and assisting Rent-Way in obtaining patents,copyrights, trademarks, or service marks for Rent-Way in the United States and in foreigncountries.
          (d) Enforcement. Morgenstern acknowledges and agrees that, by virtue of his position,his services, and access to and use of confidential records and proprietary information, anyviolation by him of any of the undertakings contained in this Section 11 would cause the Rent-WayCompanies immediate, substantial and irreparable injury for which they have no adequate remedy atlaw. Accordingly, Morgenstern agrees and consents to the entry of an injunction or other equitablerelief by a court of competent jurisdiction restraining any violation or threatened violation ofany undertaking contained in this Section 11. Morgenstern waives posting by the Rent-Way Companiesof any bond otherwise necessary to secure such injunction or other equitable relief. Rights andremedies provided for in this Agreement are cumulative and shall be in addition to rights andremedies otherwise available to the Rent-Way Companies under any other agreement or applicable law.
     12. Non-Disparagement. The parties agree that it is a material condition of thisAgreement that Morgenstern shall not willfully make, publish (orally, electronically, or inwriting), instigate, assist or participate in the making or publication of any public statement orany statement to the press or to any individual or entity with whom Rent-Way has or desires abusiness relationship, which would or could adversely affect, libel, slander or disparage (whetheror not such disparagement legally constitutes libel or slander) or expose to hatred, contempt orridicule (a) Rent-Way or any of its current or former officers or directors; or (b) any of theproducts, services, affairs or operations of Rent-Way or any of its affiliates. Rent-Way agreesthat it will not make any official or internal announcements or issue any press releases whichcontain any negative or derogatory statements about Morgenstern and will direct its officers anddirectors not to make any negative or derogatory statements about Morgenstern. This provision doesnot prohibit Morgenstern, Rent-Way, or any person from cooperating with appropriate regulatoryauthorities or making statements required by such person’s fiduciary duties to Rent-Way or itsshareholders.
     13. Cooperation.
          (a) Morgenstern shall reasonably cooperate with Rent-Way in connection with any and allactions, governmental inquiries or other legal proceedings in which Morgenstern’s assistance may berequested by Rent-Way. Such cooperation shall include, among other things, making documentsrelating to Rent-Way in Morgenstern’s custody or control available to Rent-Way or its counsel,making Morgenstern reasonably available for interviews by Rent-Way or its counsel, and beingreasonably available to appear as a witness at deposition, trial or otherwise. In addition,following termination of his engagement hereunder for any reason, Morgenstern shall reasonablycooperate with Rent-Way, as requested by Rent-Way, to effect a transition of his responsibilitiesand to ensure that Rent-Way is aware of all matters being handled by him. During the Term, anycooperation rendered pursuant to this Section 13 shall be included in calculating the amount ofconsulting time Morgenstern is to provide pursuant to Section 5. Any reasonable voucheredout-of-pocket expenses incurred by
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Morgenstern in fulfilling his obligations under this Section 13 shall be promptly reimbursedby Rent-Way.
          (b) In the event any payments made or to be made pursuant to this Agreement shall be deemed tobe subject to an excise tax imposed pursuant to Section 409A of the Internal Revenue Code, Rent-Wayagrees to negotiate in good faith with Morgenstern to seek to avoid the imposition of, or reducethe amount of, such excise tax.
     14. Indemnification. During the Term and thereafter, Rent-Way shall indemnifyMorgenstern to the full extent permitted under its Certificate of Incorporation or Bylaws andpursuant to any other agreements or policies in effect from time to time in connection with anyclaim or proceeding arising out of his employment by Rent-Way or engagement hereunder.
     15. Key Man Insurance. Morgenstern agrees that Rent-Way may seek and purchase one ormore policies providing key man life insurance with respect to Morgenstern, the proceeds of whichwould be payable to Rent-Way or one of its affiliates. Morgenstern hereby consents to Rent-Wayseeking and purchasing such insurance and agrees that he will (at Rent-Way’s sole expense) providesuch information, undergo such medical examinations, execute such documents, and otherwise take anyand all actions reasonably necessary or desirable in order for Rent-Way to seek, purchase, andmaintain in full force and effect such policy or policies.
     16. Notices. Any notice required or permitted hereunder shall be in writing and shallbe sufficiently given if personally delivered or if sent by registered or certified mail, postageprepaid, with return receipt requested, addressed: (a) in the case of Rent-Way, to Rent-Way, Inc.,One RentWay Place, Erie, Pennsylvania 16505, attn.: Chairman, Compensation Committee, with a copyto Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York 10022, attn.: RobertN. Holtzman, Esq. if prior to April 10, 2005 and to Kramer Levin Naftalis & Frankel LLP, 1177Avenue of the Americas, New York, New York 10036, attn.: Robert N. Holtzman, Esq. if on or afterApril 10, 2005; and (b) in the case of Morgenstern, to William E. Morgenstern, 4011 Westbury RidgeDrive, Erie, Pennsylvania 16506, or to such other address as Morgenstern shall designate by writtennotice to Rent-Way, with a copy to Kronish Lieb Weiner & Hellman LLP, 1114 Avenue of the Americas,New York, New York 10036, attn: Paul M. Ritter, Esq. Any notice given hereunder shall be deemed tohave been given at the time of receipt thereof by the person to whom such notice is given ifpersonally delivered or at the time of mailing if sent by registered or certified mail.
     17. Assignment and Transfer.
          (a) Rent-Way. This Agreement shall inure to the benefit of and be enforceable by, andshall be assignable by Rent-Way to, any purchaser of all or substantially all of Rent-Way’sbusiness or assets, any successor to Rent-Way or any assignee thereof (whether direct or indirect,by purchase, merger, consolidation or otherwise).
          (b) Morgenstern. The parties hereto agree that Morgenstern is obligated under thisAgreement to render personal services during the Term of a special, unique,
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unusual, extraordinary and intellectual character, thereby giving this Agreement specialvalue. Morgenstern’s rights and obligations under this Agreement shall not be transferable byMorgenstern by assignment or otherwise, and any purported assignment, transfer or delegationthereof shall be void; provided, however, that if Morgenstern shall die, all amounts then payableto Morgenstern hereunder shall be paid in accordance with the terms of this Agreement toMorgenstern’s estate.
     18. Miscellaneous.
          (a) In executing this Agreement, neither Rent-Way nor Morgenstern admits any liability orwrongdoing, and the considerations exchanged herein do not constitute an admission of anyliability, error, contract violation, or violation of any federal, state, or local law orregulation.
          (b) Any waiver of any term or provision hereof, or of the application of any such term orprovision to any circumstances, shall be in writing signed by the party charged with giving suchwaiver. Waiver by any of the parties hereto of any breach hereunder by any other party shall notoperate as a waiver of any other breach, whether similar to or different from the breach waived.No delay on the part of any of the parties in the exercise of any of their respective rights orremedies shall operate as a waiver thereof, and no single or partial exercise by any of the partiesof any such right or remedy shall preclude other or further exercise thereof.
          (c) The unenforceability or invalidity of any provision or provisions of this Agreement shallnot render any other provision or provisions hereof unenforceable or invalid.
          (d) This Agreement shall be governed by and construed (both as to validity and performance)and enforced in accordance with the internal laws of the Commonwealth of Pennsylvania applicable toagreements made and to be wholly performed within such jurisdiction, without regard to theprinciples of conflicts of law or where the parties are located at the time a dispute arises. Theparties consent and submit themselves to the non-exclusive jurisdiction of the state and federalcourts sitting in Erie County, Pennsylvania over any dispute arising out of or related to thisAgreement.
          (e) This Agreement, together with the Noncompetition Agreement and the plans and agreements orgrants governing stock options granted to Morgentstern, constitutes the entire agreement betweenMorgenstern and Rent-Way and cannot be modified or altered except in a writing signed by bothMorgenstern and Rent-Way. The parties acknowledge that they entered into this Agreementvoluntarily, that they fully understand all of its provisions, and that no representations weremade to induce execution of this Agreement, which are not expressly contained herein or in theNoncompetition Agreement.
          (f) The Section headings herein are for convenience of reference only and shall not affect themeaning of any provision of this Agreement
          (g) Cessation or termination of Morgenstern’s consulting engagement hereunder with Rent-Wayshall not result in termination of this Agreement. The respective
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obligations of Morgenstern and rights and benefits afforded to Rent-Way as provided in thisAgreement shall survive cessation or termination of Morgenstern’s consulting engagement hereunder.
     19. Consultation with Attorney; Time Period for Consideration; Revocation.Morgenstern is hereby advised to consult with an attorney prior to executing this Agreement.Morgenstern acknowledges that he has been afforded an opportunity to take at least twenty-one (21)days to consider this Agreement. Morgenstern further acknowledges that he has consulted with PaulM. Ritter, Esq. of Kronish Lieb Weiner & Hellman LLP prior to executing this Agreement, and that heand Mr. Ritter have had an adequate opportunity to review this Agreement before its execution. Theparties understand and acknowledge that Morgenstern will have a period of seven (7) calendar daysfollowing his execution of this Agreement in which to revoke his consent. Such revocation must bein writing and shall be transmitted to:
Robert N. Holtzman, Esq.