<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1997
REGISTRATION NO. 333-20397
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
RYDER TRS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7513 38-331-3542
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
8669 NW 36TH STREET, MIAMI, FLORIDA 33166, (305) 500-4545
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GERALD R. RIORDAN
PRESIDENT AND CHIEF OPERATING OFFICER
RYDER TRS, INC.
8669 NW 36TH STREET
MIAMI, FLORIDA 33166
(305) 500-4545
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH A COPY TO:
CORNELIUS T. FINNEGAN III, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
(212) 821-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 25, 1997
PROSPECTUS
RYDER TRS, INC.
OFFER TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF 10% SENIOR SUBORDINATED NOTES DUE
2006 FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING 10% SENIOR SUBORDINATED
NOTES DUE 2006.
Ryder TRS, Inc., a Delaware corporation (the "Company"), hereby offers to
exchange (the "Exchange Offer") up to $175,000,000 in aggregate principal
amount of its 10% Senior Subordinated Notes due 2006 (the "Exchange Notes") for
up to $175,000,000 in aggregate principal amount of its outstanding 10% Senior
Subordinated Notes due 2006 that were issued and sold in reliance upon an
exemption from registration under the Securities Act of 1933, as amended (the
"Senior Subordinated Notes" and, together with the Exchange Notes, the
"Notes").
The terms of the Exchange Notes will be the same in all respects (including
principal amount, interest rate, maturity and ranking) as the terms of the
Senior Subordinated Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and therefore will
not be subject to certain restrictions on transfer applicable to the Senior
Subordinated Notes. The Exchange Notes will be issued under the indenture
governing the Senior Subordinated Notes and the Exchange Notes will not be
entitled to registration rights except under certain limited circumstances. The
Senior Subordinated Notes are, and the Exchange Notes will be, unsecured and,
prior to the Subordination Termination Date (as defined), will be subordinated
to all existing and future Senior Indebtedness (as defined) of the Company and
will be effectively subordinated to all obligations of the subsidiaries of the
Company. Prior to the Subordination Termination Date, the Notes will rank pari
passu with any future Senior Subordinated Indebtedness (as defined) of the
Company and will rank senior to all other subordinated indebtedness of the
Company. On and after the Subordination Termination Date, the Notes will
constitute Senior Indebtedness and will rank pari passu with all existing and
future Senior Indebtedness of the Company. The Indenture permits the Company to
incur additional indebtedness, including Senior Indebtedness, subject to
certain limitations. See "Description of Notes." As of December 31, 1996, after
giving effect to the Transactions (as defined), to the issuance of the Senior
Subordinated Notes and the application of the proceeds therefrom, the Company
had outstanding $281.0 million (exclusive of unused commitments) in aggregate
amount of Senior Indebtedness (all of which is secured), no Senior Subordinated
Indebtedness other than the Indebtedness represented by the Notes and no
indebtedness that is subordinate or junior in right of payment to the
indebtedness represented by the Notes. For a description of the terms of the
Exchange Notes, see "Description of the Notes." There will be no cash proceeds
to the Company from the Exchange Offer.
The Senior Subordinated Notes were originally issued and sold on November 25,
1996 in a transaction not registered under the Securities Act, in reliance upon
the exemption provided in Section 4(2) of the Securities Act and Rule 144A of
the Securities Act (the "Initial Offering"). Accordingly, the Senior
Subordinated Notes may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities
Act is available. Based upon interpretations provided to third parties by the
Staff (the "Staff") of the Securities and Exchange Commission (the
"Commission"), the Company believes that the Exchange Notes issued pursuant to
the
(continued on next page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE>
(continued from previous page)
Exchange Offer in exchange for the Senior Subordinated Notes may be offered
for resale, resold and otherwise transferred by holders thereof (other than
any holder which is (i) an "affiliate" of the Company within the meaning of
the Securities Act (an "Affiliate"), (ii) a broker-dealer who acquired Senior
Subordinated Notes directly from the Company or (iii) a broker-dealer who
acquired Senior Subordinated Notes as a result of market-making or other
trading activities) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangement with any person to participate in a distribution of such
Exchange Notes. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal that is filed as an exhibit to the Registration Statement of which
this Prospectus is a part (the "Letter of Transmittal") states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Senior Subordinated Notes where such
Senior Subordinated Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date (as defined), it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. Any holder that cannot rely upon such interpretations must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. See "Plan of
Distribution."
The Senior Subordinated Notes and the Exchange Notes constitute new issues
of securities with no established public trading market. The Company does not
intend to apply for listing of the Exchange Notes on any national securities
exchange or for their quotation through the National Association of Securities
Dealers Automated Quotation System. Therefore, there can be no assurance as to
the development or liquidity of any trading market for the Exchange Notes. Any
Senior Subordinated Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Senior Subordinated Notes are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered, and
tendered but unaccepted, Senior Subordinated Notes could be adversely
affected. Following consummation of the Exchange Offer, the holders of Senior
Subordinated Notes will continue to be subject to the existing restrictions on
transfer thereof and the Company will have no further obligation to such
holders to provide for the registration under the Securities Act of the Senior
Subordinated Notes except under certain limited circumstances. See "Senior
Subordinated Notes Registration Rights."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Subordinated Notes being tendered or accepted for exchange.
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1997, unless extended (the "Expiration Date"). The date of acceptance for
exchange of the Senior Subordinated Notes (the "Exchange Date") will be the
Expiration Date, upon surrender of the Senior Subordinated Notes. Senior
Subordinated Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date; otherwise such tenders are irrevocable.
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, covering the Exchange Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to in the Registration Statement are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
Upon consummation of the Exchange Offer, the Company will become subject to
the periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Periodic reports, proxy
statements and other information filed by the Company with the Commission may
be inspected at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its
regional offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material can be obtained
from the Company upon request.
The Company is required by the terms of the indenture dated as of November
25, 1996 between the Company and The Bank of New York, as trustee (the
"Trustee"), under which the Senior Subordinated Notes were issued, and under
which the Exchange Notes are to be issued (the "Indenture"), to furnish the
Trustee and the holders of the Notes with annual reports containing
consolidated financial statements audited by its independent certified public
accountants, with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year and with current reports on Form 8-K.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
FOR NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT, NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A
TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT
WITH THE PROVISIONS OF THIS PARAGRAPH.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY................................................................... 7
The Company............................................................... 7
Company Overview........................................................ 7
Business Strategy....................................................... 8
The Acquisition, Financings and Related Transactions...................... 9
Sources and Uses of Funds for the Transactions.......................... 10
The Financings.......................................................... 10
The Exchange Offer........................................................ 11
Terms of the Notes........................................................ 13
Risk Factors.............................................................. 15
Summary Historical and Pro Forma Financial Information.................... 16
Notes to Summary Historical and Pro Forma Financial Information .......... 17
RISK FACTORS.............................................................. 18
Substantial Leverage and Ability to Service Indebtedness................ 18
Subordination of Notes; Asset Encumbrance............................... 18
Limitations on Access to Cash Flow and Assets of Leasco................. 19
Restrictive Loan Covenants.............................................. 20
Risks Arising from Acquisition.......................................... 20
Highly Competitive Industry............................................. 21
Dependence on Dealers................................................... 21
Dependence on Key Personnel............................................. 22
Controlling Shareholder................................................. 22
Change of Control....................................................... 22
Governmental Regulation................................................. 22
Environmental Matters................................................... 22
Fraudulent Conveyance Considerations.................................... 23
Absence of Public Market; Restrictions on Transfer...................... 23
Consequences of Exchange and Failure to Exchange........................ 24
USE OF PROCEEDS........................................................... 24
THE EXCHANGE OFFER........................................................ 25
Purpose of the Exchange Offer........................................... 25
Terms of the Exchange................................................... 25
Expiration Date; Extensions; Termination; Amendments.................... 26
How to Tender........................................................... 27
Terms and Conditions of the Letter of Transmittal....................... 29
Withdrawal Rights....................................................... 29
Acceptance of Senior Subordinated Notes for Exchange; Delivery of
Exchange Notes......................................................... 30
Conditions to the Exchange Offer........................................ 30
Exchange Agent.......................................................... 31
Solicitation of Tenders; Expenses....................................... 31
Appraisal Rights........................................................ 31
Federal Income Tax Consequences......................................... 31
Other................................................................... 32
CAPITALIZATION............................................................ 33
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION................... 34
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 42
General................................................................. 42
Certain Pro Forma Effects of the Transactions........................... 44
</TABLE>
4
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<TABLE>
<S> <C>
Results of Operations.................................................... 44
Seasonality.............................................................. 47
Inflation................................................................ 47
Liquidity and Capital Resources.......................................... 47
THE ACQUISITION............................................................ 49
BUSINESS................................................................... 50
General.................................................................. 50
Industry Overview........................................................ 51
Business Strategy........................................................ 52
Products and Services.................................................... 53
Truck Rentals............................................................ 53
Management Information Systems........................................... 54
Sales, Marketing and Advertising......................................... 55
Maintenance.............................................................. 56
Vehicle Acquisition and Disposition...................................... 56
Operations............................................................... 56
Dealer Network........................................................... 57
Competition.............................................................. 57
Employees................................................................ 57
Facilities............................................................... 57
Intellectual Property.................................................... 58
Insurance................................................................ 58
Governmental Regulation.................................................. 58
Environmental Matters.................................................... 59
Legal Proceedings........................................................ 59
MANAGEMENT................................................................. 60
Executive Officers and Directors......................................... 60
Compensation of Directors................................................ 61
Summary Compensation Table............................................... 62
RSI Option Grants in the Last Fiscal Year................................ 62
Aggregated RSI Option Exercises in the Last Fiscal Year and Fiscal Year
End Option Values....................................................... 62
Offering of Stock and Options to Management Employees.................... 63
OWNERSHIP OF CAPITAL STOCK................................................. 64
Shareholders' Agreement.................................................. 65
CERTAIN TRANSACTIONS....................................................... 66
Management Agreement with Questor Management............................. 66
Agreement with Jay Alix & Associates, Inc. for Management Consulting
Services................................................................ 66
Other Transactions with Affiliates....................................... 66
RELATIONSHIPS WITH THE SELLER.............................................. 67
Non-Competition Covenants................................................ 67
Dealer and Cooperation Arrangements...................................... 67
Service Agreements....................................................... 68
Intellectual Property.................................................... 68
LEASCO AND PROPOSED SECURITIZATION......................................... 70
DESCRIPTION OF SENIOR BANK FACILITIES...................................... 72
DESCRIPTION OF NOTES....................................................... 74
General.................................................................. 74
Terms of the Notes....................................................... 74
Optional Redemption...................................................... 74
Selection................................................................ 75
Ranking.................................................................. 75
</TABLE>
5
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<TABLE>
<S> <C>
Change of Control......................................................... 77
Certain Covenants......................................................... 79
Merger and Consolidation.................................................. 85
Defaults.................................................................. 85
Amendments and Waivers.................................................... 87
Transfer and Exchange..................................................... 88
Defeasance................................................................ 88
Concerning the Trustee.................................................... 88
Governing Law............................................................. 88
Certain Definitions....................................................... 88
BOOK-ENTRY; DELIVERY AND FORM............................................... 101
SENIOR SUBORDINATED NOTES REGISTRATION RIGHTS............................... 103
PLAN OF DISTRIBUTION........................................................ 105
LEGAL MATTERS............................................................... 106
EXPERTS..................................................................... 107
INDEX TO FINANCIAL STATEMENTS............................................... F-1
</TABLE>
6
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, financial statements and notes
thereto included elsewhere in this Prospectus. As used in this Prospectus,
unless the context otherwise requires, the term the "Company" refers (i) for
periods prior to the Acquisition (as defined), to the Consumer Truck Rental
Division (the "Division") of Ryder Truck Rental, Inc. ("RTR"), a subsidiary of
Ryder System, Inc. ("RSI"), as such Division was constituted prior to the
Acquisition, and (ii) for periods after the Acquisition, to Ryder TRS, Inc. and
(unless the context otherwise requires) its subsidiaries as constituted after
giving effect to the Acquisition. RTR and RSI are sometimes referred to herein
together or individually as "Seller." Ryder(R) is a registered trademark of RSI
and is used throughout this Prospectus pursuant to a license. Unless otherwise
noted, all market data presented in this Prospectus is based on Company
research or studies commissioned by the Company and conducted by third parties.
THE COMPANY
COMPANY OVERVIEW
The Company is the second largest provider of truck rentals and related
moving supplies and services to the consumer and light commercial markets in
the United States, with a fleet of approximately 31,400 trucks as of December
31, 1996. The Company rents trucks, towing equipment and accessory equipment,
and sells liability-limiting products and moving supplies to consumers and
commercial customers through its nationwide network of approximately 4,200
dealers, as of December 31, 1996. The average age of the Company's trucks is
36 months, which is considerably younger than that of its principal competitor.
The Company believes it has the second largest share of the domestic consumer
truck rental market and the largest share of the domestic light commercial
truck rental market. See "Business--Industry Overview." The Company's revenues
and EBITDA grew at compound annual rates of 6.2% and 13.9%, respectively, from
1992 through 1996. Over the same period, EBITDA margins increased from 20.0% to
26.5%. On a pro forma basis for the year ended December 31, 1996, the Company
generated total revenues of $542.8 million, EBITDA of $143.7 million and a net
loss of $8.0 million. (See "Summary Historical and Pro Forma Financial
Information" and "Selected Historical and Pro Forma Financial Information" for
cash flows data.)
The Company rents trucks primarily to consumers who are moving to new
household locations. These customers generally rent trucks from one Ryder
location and return them either to the same location (a "local" rental) or to a
different location (a "one-way" rental). Revenues from consumer rentals
accounted for approximately 74% of the Company's total truck rental revenues in
1996, of which one-way revenues represented 70% and local revenues represented
30%. The Company has focused on the one-way segment because it is generally
more profitable, generates higher revenues per day and capitalizes on the
competitive advantages provided by the Company's state-of-the-art yield
management system as well as its modern and dependable fleet. The Company has
an approximate 27% share of the consumer one-way market and an approximate 20%
share of the consumer local market, based on 1996 revenues.
In addition to serving the consumer market, the Company rents trucks,
primarily on a local basis, to businesses for a wide range of light commercial
uses. Commercial customers range from small local businesses, such as florists,
package delivery companies and local private moving companies, to large
national companies that rent Ryder trucks primarily for the transportation and
delivery of inventory and packages. Revenues from light commercial rentals
accounted for approximately 26% of the Company's total truck rental revenues in
1996. The light commercial segment complements the Company's consumer rental
business by enabling the Company to improve utilization of its trucks on
weekdays, when consumer demand is typically lower than it is on weekends.
The Company supplements its truck rental business with a range of other
products and services. The Company rents automobile towing equipment and other
moving accessories such as hand trucks and furniture
7
<PAGE>
pads and sells moving supplies such as boxes, tape and packing materials. The
Company also offers customers a range of liability-limiting products such as
physical damage waivers, personal accident and cargo protection and
supplemental liability protection. These accessory products enhance the
Company's appeal to consumers by offering customers "one-stop" moving services.
The Company derives important competitive advantages from its proprietary
one-way yield management system, which has enabled the Company to increase
fleet utilization and optimize pricing for one-way transactions and thereby
increase profitability and return on assets. The one-way yield management
system was rolled out to the Company's dealers through its proprietary point-
of-sale (the "POS") system in 1992 and 1993. Management believes that the
Company is the only national truck rental company to have sophisticated POS
computers at every dealer location. The yield management system is designed to
optimize fleet utilization and revenue per vehicle by renting the greatest
number of vehicles each day at the best possible rates. This system determines
the optimal price for each one-way transaction, based on forecasted demand,
vehicle availability, existing reservations, operating costs and competitors'
pricing in each market. In addition, the system enables the Company to offer
its one-way customers a wide range of pricing alternatives to increase
utilization during off-peak periods and position its trucks for the most
profitable peak period rentals. The yield management system has assisted the
Company in increasing utilization and annual revenue per truck (including
accessory rentals and product sales) from 36% and $12,797 in 1991 to 45% and
$16,601 in 1996.
In addition to automating the customer reservation process and providing the
dealers with pricing information, the Company's POS system provides all of its
dealers with valuable information on the location, mileage and maintenance
status of each truck available in a specific market. Furthermore, the POS
system is integrated with the Company's management information systems,
providing management with access to certain operational and financial
information, which is updated at least daily, concerning the Company's
performance at all levels, including the individual dealer.
BUSINESS STRATEGY
The Company's strategy for achieving continued growth in revenues,
profitability and fleet utilization includes: (i) achieving cost reductions and
improving return on capital; (ii) expanding yield management capabilities;
(iii) increasing sales of rental-related products; (iv) enhancing marketing and
advertising efforts; and (v) improving customer service and conversion rates.
Achieve Cost Reductions and Improve Return on Capital. Management believes
that opportunities exist to implement approximately $10 million to $20 million
of continuing annual cost savings over the next several years by streamlining
general and administrative processes, reducing telecommunications costs,
improving insurance claims processing, creating operational efficiencies
through MIS initiatives and more effectively managing maintenance procedures.
In addition, through better utilization of the fleet, the Company anticipates
an additional reduction of its average operating fleet to approximately 31,000
trucks for 1997, resulting in lower interest expense and reduced ongoing
capital expenditure requirements.
Expand Yield Management Capabilities. Management believes that an effective
way to maximize profitability and return on assets is to optimize utilization
by renting the greatest number of vehicles each day at the best possible rates.
Management believes that the Company's one-way yield management system is the
most extensive and advanced in the industry and is largely responsible for the
increase in fleet utilization from 36% in 1991 (the period immediately
preceding the rollout of the one-way yield management system) to 45% in 1996.
The Company is in the process of enhancing this system by implementing a
complementary local yield management system, which is expected to be available
on-line through the POS system to each dealer in 1997. This system will apply
to the Company's local consumer and light commercial business the same
principles that the Company has successfully used to more efficiently manage
its one-way business. Local rental prices will be updated daily based on
forecasted demand, vehicle availability, existing reservations, operating costs
and
8
<PAGE>
competitors' pricing in each market. Management believes that the Company will
be the only major participant in the industry using sophisticated yield
management techniques to price and manage one-way and local transactions. This
should not only result in an increase in local consumer and light commercial
market share but also enable the Company to allocate its fleet more efficiently
between the local and one-way segments, thus further improving overall fleet
utilization and profitability.
Increase Sales of Rental-Related Products. Management believes that there are
significant opportunities to increase revenues and profitability through
greater sales of liability-limiting products and moving supplies. For example,
less than 60% of the Company's consumer customers purchased liability-limiting
products in 1995, even though most consumers are not covered for truck rentals
under traditional personal automobile insurance policies. In addition, less
than one-third of the Company's dealers actively participate in the Company-
sponsored moving supplies program. The Company intends to increase the quality
and frequency of dealer training to improve the marketing and merchandising of
liability-limiting products and moving supplies and to increase the number of
dealers that participate in the Company-sponsored moving supplies program. The
Company is also considering implementing a new dealer compensation structure to
provide better incentives for dealers to sell these products.
Enhance Marketing and Advertising Efforts. As an independent entity, the
Company will be able to focus marketing and advertising programs specifically
on the consumer and light commercial markets. Such marketing efforts will
capitalize on the Company's competitive advantages, featuring the unique
benefits of its modern, comfortable and reliable fleet. Management believes
that these enhanced marketing activities should not only increase the Company's
share of the truck rental market but also attract additional customers from the
owned/borrowed market.
Improve Customer Service and Conversion Rate. Management believes that there
is a significant opportunity to increase the percentage of customer inquiries
that result in booked reservations, referred to as the conversion rate.
Telephone inquiries placed to the 1-800-GO-RYDER number are handled both by
professional customer service agents and by dealers. In general, professional
customer service agents tend to achieve higher conversion rates than dealers.
The Company will seek to provide professional customer service agents with more
accurate information on the location and availability of vehicles, enabling
these professional agents to process a higher percentage of calls placed to the
1-800-GO-RYDER number. Management also believes that there is broad disparity
in the quality of individual dealers' handling of telephone inquiries.
Management will seek to increase the quality and frequency of dealer training
in customer service in an effort to increase the conversion rate for those
calls that are placed directly to the dealers.
The Company's principal executive office is located at 8669 NW 36th Street,
Miami, Florida, 33166. The Company's telephone number is (305) 500-4545. See
"Business--Facilities."
THE ACQUISITION, FINANCINGS AND RELATED TRANSACTIONS
On October 17, 1996 (the "Acquisition Closing Date"), pursuant to an Asset
and Stock Purchase Agreement (together with related agreements, the
"Acquisition Agreements"), the Company acquired from RTR substantially all of
the assets of the Division, other than approximately 32,200 trucks and certain
related assets used in the business conducted by the Division (the "Business"),
and RCTR, Inc., a special purpose subsidiary of the Company ("Leasco"),
acquired such trucks and related assets. The aggregate cash purchase price for
all of the assets acquired was $579.4 million (subject to provisions for post-
closing adjustment). Leasco was formed by the Company to facilitate transfers
to one entity of ownership of and legal title to the trucks and to be the
issuer of securities in the proposed securitized financing referred to below.
Leasco leases the trucks to the Company pursuant to a Master Motor Vehicle
Lease Agreement. See "Leasco and Proposed Securitization."
9
<PAGE>
Financing for such acquisition (the "Acquisition"), and for related fees and
expenses, consisted of (i) $123.0 million of equity capital provided by Questor
Partners Fund, L.P. and Questor Side-by-Side Partners, L.P. (collectively,
"Questor") and certain other investors; (ii) $350.0 million of term loans (the
"Term Facility") and $31.0 million of revolving loans (the "Revolving Credit
Facility") borrowed under a $500.0 million senior secured credit facility among
the Company, the lenders named therein, The Chase Manhattan Bank ("Chase"), as
administrative agent, and Citicorp, U.S.A., Inc., as documentation agent and
collateral agent (the "Senior Bank Facilities"); and (iii) $100.0 million of
loans borrowed under a senior subordinated loan facility among the Company, the
lenders named therein and Chase, as administrative agent (the "Senior
Subordinated Credit Facility"). The Acquisition, the financing thereof (not
including the Initial Offering) and the payment of related transaction fees and
expenses are referred to herein as the "Transactions."
In connection with the Acquisition, the Company entered into various
agreements with the Seller, including agreements regarding dealer
relationships, competition, vehicle maintenance, use of intellectual property,
sales of used trucks, administrative services and management information
systems support. See "Relationships with the Seller."
SOURCES AND USES OF FUNDS FOR THE TRANSACTIONS
<TABLE>
<CAPTION>
AMOUNT
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
SOURCES:
Senior Bank Facilities:
Revolving Credit Facility(1)........................ $ 31,000
Term Facility....................................... 350,000
Senior Subordinated Credit Facility................... 100,000
Equity Proceeds....................................... 123,000
--------
Total Sources..................................... $604,000
========
USES:
Purchase Price of the Acquisition(2).................. $579,400
Excess Cash at Closing................................ 400
Transaction Fees and Expenses......................... 24,200
--------
Total Uses........................................ $604,000
========
</TABLE>
- --------
(1) Borrowings of up to $150.0 million under the Revolving Credit Facility are
available for working capital and general corporate purposes, including up
to $50.0 million for letters of credit ($12.5 million of which were issued
as of December 31, 1996). As of December 31, 1996, the Company's unused
availability under the Revolving Credit Facility totaled approximately
$105.9 million. See "Description of Senior Bank Facilities."
(2) Prior to $6.1 million of purchase price refund from the Seller pursuant to
post-closing adjustment provisions.
THE FINANCINGS
The Company used the net proceeds from the Initial Offering, approximately
$169.0 million after deducting discounts and fees and expenses incurred in
connection therewith, to repay (i) the aggregate principal amount outstanding
under the Senior Subordinated Credit Facility and (ii) approximately $69.0
million of indebtedness outstanding under the Term Facility. See "The
Acquisition" and "Use of Proceeds."
10
<PAGE>
The Company intends to refinance a portion of the Senior Bank Facilities with
the proceeds of a financing consisting of an asset-backed program based on the
truck rental fleet to be effected by Leasco (the "Securitization"). The
proceeds of the Securitization will be used to (i) retire the remaining
outstanding balance of the Term Facility and (ii) reduce amounts outstanding
and commitments under the Revolving Credit Facility. There can be no assurance
that Leasco will be able to effect the proposed Securitization or that it will
be able to effect the Securitization on terms acceptable to Leasco or the
Company. The Company anticipates that following the Securitization it will
retain a smaller revolving credit facility to meet short term working capital
needs. See "Leasco and Proposed Securitization." On the first date (but not
earlier than January 1, 1998) as of which (i) the Securitization has been
consummated, (ii) any consents required under the Senior Bank Facilities in
connection with the transaction contemplated by this sentence shall have been
obtained and (iii) no default or event of default shall have occurred and be
continuing under the Senior Bank Facilities, the subordination provisions of
the Notes will terminate and cease to be effective with respect to any
indebtedness, whenever incurred, and the Notes will constitute Senior
Indebtedness of the Company. The date as of which the subordination provisions
of the Notes shall terminate and cease to be effective in accordance with the
foregoing provisions is referred to herein as the "Subordination Termination
Date." See "Description of Notes--Ranking."
THE EXCHANGE OFFER
The Exchange Offer.......... The Company is offering to exchange up to
$175,000,000 aggregate principal amount of 10%
Senior Subordinated Notes due 2006 (the "Exchange
Notes") for up to $175,000,000 aggregate
principal amount of its outstanding 10% Senior
Subordinated Notes due 2006 that were issued and
sold on November 25, 1996 in reliance upon an
exemption from registration under the Securities
Act (the "Senior Subordinated Notes"). The terms
of the Exchange Notes will be substantially
identical in all respects (including principal
amount, interest rate, maturity and ranking) to
the terms of the Senior Subordinated Notes for
which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes
have been registered under the Securities Act and
therefore will not be subject to certain
restrictions on transfer except as provided
herein (see "The Exchange Offer--Terms of the
Exchange" and "--Terms and Conditions of the
Letter of Transmittal") and will not be entitled
to registration rights except under certain
limited circumstances.
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Senior Subordinated
Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other
than any holder which is (i) an Affiliate, (ii) a
broker dealer who acquired Senior Subordinated
Notes directly from the Company or (iii) a broker
dealer who acquired Senior Subordinated Notes as
a result of market making or other trading
activities) without compliance with the
registration and prospectus delivery provisions
of the Securities Act except as provided herein
and provided that such Exchange Notes are
acquired in the ordinary course of such holders'
business and such holders have no arrangement
with any person to participate in a distribution
of such Exchange Notes.
11
<PAGE>
Minimum Condition........... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Senior
Subordinated Notes being tendered for exchange.
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on [ ], 1997 unless extended
(the "Expiration Date").
Exchange Date............... The first date of acceptance for exchange for the
Senior Subordinated Notes will be the Expiration
Date.
Conditions to the Exchange
Offer...................... The obligation of the Company to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer--Conditions to the
Exchange Offer." The Company reserves the right
to terminate or amend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any such condition.
Withdrawal Rights........... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Senior Subordinated Notes
not accepted for any reason will be returned
without expense to the tendering holders thereof
as promptly as practicable after the expiration
or termination of the Exchange Offer.
Procedures for Tendering
Senior Subordinated
Notes...................... See "The Exchange Offer--How to Tender."
Federal Income Tax
Consequences............... The exchange of Senior Subordinated Notes for
Exchange Notes by holders should not constitute
an exchange for federal income tax purposes, and
U.S. holders should not realize any gain or loss
upon receipt of Exchange Notes. See "The Exchange
Offer--Federal Income Tax Consequences."
Effect on Holders of Senior
Subordinated Notes......... As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Senior Subordinated Notes pursuant to
the terms of this Exchange Offer, the Company
will have fulfilled covenants contained in the
terms of the Senior Subordinated Notes and the
Exchange and Registration Rights Agreement (the
"Exchange and Registration Rights Agreement")
dated November 25, 1996 between the Company and
Chase Securities Inc. as initial purchaser (the
"Initial Purchaser") and, accordingly, the
holders of the Senior Subordinated Notes will
have no further registration or other rights
under the Exchange and Registration Rights
Agreement, except under certain limited
circumstances. See "Senior Subordinated Notes
Registration Rights." Holders of the Senior
Subordinated Notes who do not tender their Senior
Subordinated Notes in the Exchange Offer will
continue to hold such Senior Subordinated Notes
and will be entitled to all the rights and
limitations applicable thereto under the
Indenture. All untendered, and tendered but
unaccepted, Senior Subordinated Notes will
continue to be subject to the restrictions on
transfer provided for in the Senior Subordinated
Notes and the
12
<PAGE>
Indenture. To the extent that Senior Subordinated
Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Senior
Subordinated Notes could be adversely affected.
See "Risk Factors--Consequences of Exchange and
Failure to Exchange."
TERMS OF THE NOTES
The Exchange Offer applies to $175,000,000 aggregate principal amount of the
Senior Subordinated Notes. The form and terms of the Exchange Notes are the
same as the form and terms of the Senior Subordinated Notes except that the
Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof. The Exchange Notes will
evidence the same debt as the Senior Subordinated Notes and will be entitled to
the benefits of the Indenture. See "Description of the Notes."
Notes Offered............... $175,000,000 aggregate principal amount of 10%
Senior Subordinated Notes due 2006.
Maturity Date............... December 1, 2006.
Interest Payment Dates...... June 1 and December 1 of each year, commencing on
June 1, 1997.
Sinking Fund................ None.
Optional Redemption......... Except as described below, the Company may not
redeem the Notes prior to December 1, 2001. On or
after such date, the Company may redeem the
Notes, in whole or in part, at the redemption
prices set forth herein together with accrued and
unpaid interest, if any, to the date of
redemption. In addition, at any time and from
time to time on or prior to December 1, 1999, the
Company, at its option, may redeem up to 33 1/3%
of the original aggregate principal amount of the
Notes with the net cash proceeds of one or more
Public Equity Offerings (as defined) by the
Company following which there is a Public Market
(as defined), at a redemption price equal to 110%
of the principal amount of the Notes to be
redeemed, together with accrued and unpaid
interest, if any, to the date of redemption,
provided that at least 66 2/3% of the original
aggregate principal amount of the Notes remains
outstanding immediately after each such
redemption. See "Description of Notes--Optional
Redemption."
Change of Control........... Upon the occurrence of a Change of Control (i)
the Company will have the option, at any time
prior to December 1, 2001, to redeem the Notes in
whole at a redemption price equal to 100% of the
principal amount thereof plus the Applicable
Premium (as defined), together with accrued and
unpaid interest, if any, to the date of
redemption, and (ii) if the Company does not so
redeem the Notes or if such Change of Control
occurs on or after December 1, 2001, each holder
will have the right to require the Company to
make an offer to repurchase the Notes held by
such holder at a price equal to 101% of the
principal amount thereof, together with accrued
and unpaid interest, if any, to the date of
repurchase. There can be no assurance that the
Company will have sufficient funds to repurchase
the Notes as required upon a Change of Control.
See "Description of Notes--Change of Control."
13
<PAGE>
No Subsidiary Guarantees;
Future Note Guarantors..... The subsidiaries of the Company (the "Existing
Subsidiaries"), other than Leasco, have
guaranteed the Company's obligations under the
Senior Bank Facilities. If any of the Existing
Subsidiaries, other than Leasco, and any
subsequently acquired or organized domestic
subsidiary (other than any subsidiary of Leasco)
or, to the extent that no adverse tax
consequences would result, foreign subsidiary of
the Company becomes a Significant Subsidiary (as
such term is defined in Rule 1-02 under
Regulation S-X ("Regulation S-X") promulgated by
the Commission, the Company will be required to
cause such Significant Subsidiary to guarantee
the Notes on an unsecured, senior subordinated
basis prior to the Subordination Termination Date
(as defined), and on a senior basis thereafter.
At the request of the agents or the lenders under
the Senior Bank Facilities, the Company will be
required to cause Leasco to guarantee the
obligations of the Company under the Senior Bank
Facilities, and to grant security interests in,
and liens on, Leasco's assets as security for
such guarantee, if the Securitization has not
been consummated on or prior to July 17, 1997. If
Leasco does so guarantee the Senior Bank
Facilities, the Company will be required to cause
Leasco and the other subsidiaries of the Company
to guarantee the Notes on an unsecured, senior
subordinated basis. See "Leasco and Proposed
Securitization," "Description of Senior Bank
Facilities" and "Description of Notes--Future
Note Guarantors."
Ranking..................... The Notes will be unsecured and, prior to the
Subordination Termination Date, will be
subordinated to all existing and future Senior
Indebtedness (as defined) of the Company and will
be effectively subordinated to all obligations of
the subsidiaries of the Company. Prior to the
Subordination Termination Date, the Notes will
rank pari passu with any future Senior
Subordinated Indebtedness (as defined) of the
Company and will rank senior to all other
subordinated indebtedness of the Company. On and
after the Subordination Termination Date, the
Notes will constitute Senior Indebtedness and
will rank pari passu with all existing and future
Senior Indebtedness of the Company if (i) any
required consents under the Senior Bank
Facilities shall have been obtained and (ii) no
default or event of default shall have occurred
and be continuing under the Senior Bank
Facilities. As of December 31, 1996, after giving
effect to the Transactions, the Initial Offering
and the application of proceeds therefrom, the
Company has outstanding $281.0 million (exclusive
of unused commitments) of Senior Indebtedness
(all of which is secured), no Senior Subordinated
Indebtedness other than the indebtedness
represented by the Notes and no indebtedness that
is subordinate or junior in right of payment to
the indebtedness represented by the Notes. See
"Description of Notes--Ranking."
Restrictive Covenants....... The indenture under which the Senior Subordinated
Notes were issued and the Exchange Notes will be
issued (the "Indenture")
14
<PAGE>
limits: (i) the incurrence of additional
indebtedness by the Company and its Restricted
Subsidiaries (as defined); (ii) the payment of
dividends on, and redemption of, capital stock of
the Company and its Restricted Subsidiaries and
the redemption of certain subordinated
obligations of the Company and its Restricted
Subsidiaries; (iii) investments; (iv) sales of
assets and Restricted Subsidiary stock; (v)
certain transactions with affiliates; (vi) the
sale or issuance of capital stock of Restricted
Subsidiaries; (vii) the creation of liens; (viii)
the lines of business in which the Company and
its Restricted Subsidiaries may operate; and (ix)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. The
Indenture also prohibits certain restrictions on
distributions from Restricted Subsidiaries.
However, all of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description
of Notes--Certain Covenants" and "--Merger and
Consolidation."
RISK FACTORS
Holders of Senior Subordinated Notes should carefully consider the matters
set forth under the caption "Risk Factors" prior to making a decision with
respect to the Exchange Offer. See "Risk Factors."
15
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth summary historical financial and other data of
the Company for each of the five years in the period ended December 31, 1996,
and certain pro forma financial and other data for the year ended December 31,
1996. The pro forma financial data gives effect to the Transactions, the
Initial Offering and the application of the proceeds therefrom, as if they had
occurred on January 1, 1996 for statement of operations data purposes. The
historical financial information for the period from October 17, 1996 through
December 31, 1996 has been derived from the audited consolidated financial
statements of the Company. Such consolidated financial statements have been
audited by Coopers & Lybrand L.L.P. and are included elsewhere herein. The
historical financial information for each of the years ended December 31, 1994
and 1995 and for the period January 1, 1996 through October 16, 1996 has been
derived from the audited combined financial statements of the Company. Such
combined financial statements have been audited by KPMG Peat Marwick LLP and
are included elsewhere herein. The historical financial information for each of
the years ended December 31, 1992 and 1993 is unaudited but, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information. The pro
forma information does not purport to represent what the Company's results
would have actually been if the Transactions, the Initial Offering and the
application of the proceeds therefrom had occurred at the date indicated, nor
does such information purport to project the results of the Company for any
future period. The summary financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Selected Historical and Pro Forma Financial Information,"
"Unaudited Pro Forma Financial Information" and the Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 1, OCTOBER 17,
1996 1996
YEAR ENDED DECEMBER 31, THROUGH THROUGH PRO
-------------------------------------------- OCTOBER 16, DECEMBER 31, FORMA
1992 1993 1994 1995 1996 1996 1996
--------- --------- --------- --------- ----------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 426,365 $ 479,927 $ 549,633 $ 546,721 $439,779 $ 103,011 $542,790
Operating income(a)..... 6,010 24,612 45,467 36,573 31,107(b) 9,564 32,975
Interest expense(c)..... 20,590 20,049 24,256 29,663 20,291 14,261(d) 44,641 (e)
Net earnings (loss)..... (9,100) 2,480 12,309 3,602 5,822 (2,889) (8,005)(e)
OTHER FINANCIAL DATA:
EBITDA(f)............... $ 85,291 $ 109,462 $ 135,580 $ 140,507 $115,366 $ 28,962 $143,655
EBITDA margin........... 20.0% 22.8% 24.7% 25.7% 26.2% 28.1% 26.5%
Adjusted EBITDA(g)...... $ 85,291 $ 109,462 $ 135,580 $ 146,877 $117,257 $ 28,962 $145,546
Adjusted EBITDA margin.. 20.0% 22.8% 24.7% 26.9% 26.7% 28.1% 26.8%
Cash interest
expense(h)............. $ 20,590 $ 20,049 $ 24,256 $ 29,663 $ 20,291 $ 8,689 $ 42,028
Ratio of Adjusted EBITDA
to cash interest
expense................ 4.1x 5.5x 5.6x 5.0x 5.8x 3.3x 3.5x
Ratio of earnings to
fixed charges(i)....... (i) 1.2x 1.8x 1.2x 1.5x (i) (i)
Capital
expenditures(j)........ $ 180,912 $ 195,675 $ 191,925 $ 223,749 $ 69,228 $ 131 $ 69,359
Proceeds from disposi-
tion of trucks......... 45,484 50,215 50,030 72,211 45,428 10,876(q) 56,304
STATEMENT OF CASH FLOWS
DATA:
Net cash provided by
operating activities... $ 68,325 $ 78,054 $ 114,632 $ 79,333 $116,843 $ 44,427
Net cash used in
investing activities... (135,212) (148,109) (143,758) (153,331) (25,433) (584,966)
Net cash provided by
(used in) financing
activities............. 67,239 69,924 30,285 74,777 (87,699) 558,046
FLEET DATA:
Number of trucks pur-
chased................. 8,500(k) 8,011 7,442 8,468 2,515
Number of trucks sold... 6,384 6,530 5,883 7,603 5,212
Average operating
fleet(l)............... 30,270 31,078 32,814 34,110 31,693
Utilization(m).......... 37.9% 39.8% 44.1% 41.8% 44.9%
Average age in months
(end of period)........ 35 32 31 29 36
Average number of
dealers................ 4,563 4,477 4,765 5,031 4,516(n)
BALANCE SHEET DATA (END
OF PERIOD):
Revenue earning
equipment(o)........... $ 383,400 $ 448,949 $ 503,643 $ 547,365 $490,661 $ 477,391
Total assets............ 430,376 506,501 575,933 629,817 555,267 621,846
Total debt(p)........... -- -- -- -- -- 456,000
Total shareholders'
equity(p).............. 297,060 369,464 412,058 490,437 408,560 120,111
</TABLE>
See Notes to Summary Historical and Pro Forma Financial Information
16
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(a) Operating income includes restructuring and other charges of $6.4 million
and $1.9 million for the year ended December 31, 1995 and the period
January 1, 1996 through October 16, 1996, respectively. In the third
quarter of 1995, the Company consolidated its 20 administrative locations
into two area centers. As a result, the Company incurred restructuring and
other charges for lease termination, employee severance and employee
relocation costs. In 1996, additional consolidating and restructuring
actions were taken by the Seller which impacted the Company; these actions
included management and staff reductions and elimination of the company-
owned car benefit program.
(b) Effective January 1, 1996, the Company changed the estimated useful lives
and residual values used to calculate depreciation expense on certain types
of trucks in order to better reflect recent experience. This accounting
change was treated as a change in estimate and accounted for on a
prospective basis from January 1, 1996. As a result of this change,
depreciation expense was decreased by approximately $6.0 million for the
period January 1, 1996 through October 16, 1996.
(c) Prior to October 17, 1996, historical interest expense consists of interest
on advances from RSI.
(d) Includes the write-off of deferred financing costs of $5.1 million
associated with the repayment of the Senior Subordinated Credit Facility
and a portion of the Term Facility with the proceeds of the Initial
Offering.
(e) Excludes the write-off of deferred financing costs of $5.1 million ($3.1
million, net of related income tax benefit) associated with the repayment
of the Senior Subordinated Credit Facility and a portion of the Term
Facility with the proceeds of the Initial Offering.
(f) EBITDA represents earnings before interest expense, income taxes,
depreciation (net of gains on the disposition of trucks) and amortization.
EBITDA does not include gains on the disposition of trucks. The Company
includes information concerning EBITDA because it is used by certain
investors as a measure of the Company's ability to service and/or incur
debt. EBITDA should not be considered in isolation or as a substitute for
net income or cash flows from operating activities presented in accordance
with generally accepted accounting principles or as a measure of a
company's profitability or liquidity.
(g) Adjusted EBITDA represents EBITDA plus restructuring and other charges.
(h) Cash interest expense represents interest expense exclusive of amortization
of deferred financing costs.
(i) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings (loss) before income taxes and fixed charges.
Fixed charges consist of interest expense, whether expensed or capitalized,
including amortization of deferred financing costs, and the portion of
rental expense considered to be interest (assumed to be one-third).
Earnings were insufficient to cover fixed charges for the year ended
December 31, 1992, for the period October 17, 1996 through December 31,
1996 and, on a pro forma basis, adjusted for the Transactions, the Initial
Offering and the application of the proceeds therefrom, for the year ended
December 31, 1996 by $14.6 million, $4.7 million and $12.4 million,
respectively.
(j) Capital expenditures for rental trucks totaled $171.1 million, $189.0
million, $182.0 million, $210.8 million and $62.9 million for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996 (pro forma)
respectively. Capital expenditures for the year ended December 31, 1995
includes $10.3 million to purchase approximately 1,200 trucks that were
added to the fleet in 1992 under operating leases.
(k) Includes approximately 1,500 trucks added to the fleet under operating
leases, of which approximately 1,200 were purchased in 1995.
(l) Average operating fleet includes those trucks undergoing maintenance and
excludes those trucks removed from the rental fleet for disposition.
(m) Utilization represents the total number of truck rental days generated by
the fleet for the period divided by the total number of calendar days which
were available for the average operating fleet for the period.
(n) At December 31, 1996, the Company had approximately 4,200 dealers.
(o) Revenue earning equipment consists of rental trucks, towing and other
rental equipment and tires in service.
(p) Prior to October 17, 1996, shareholders' equity represents the investment
by and interest-bearing advances from RSI. See Combined Financial
Statements and related notes thereto.
(q) Includes $6.9 million receivable from truck sales as of December 31, 1996.
17
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Senior Subordinated Notes for the Exchange Notes offered
hereby, holders of Senior Subordinated Notes should consider carefully the
following factors, which (other than "Consequences of Exchange and Failure to
Exchange") are generally applicable to the Senior Subordinated Notes as well
as the Exchange Notes:
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE INDEBTEDNESS
As a result of the Transactions and the Initial Offering, the Company is
highly leveraged. As of December 31, 1996, the Company's indebtedness and
shareholders' equity amounted to $456.0 million and $120.1 million,
respectively. In addition, subject to the restrictions in the Senior Bank
Facilities and the Indenture, the Company may incur additional indebtedness
from time to time. The degree to which the Company is leveraged could have
important consequences to holders of the Notes, including the following: (i)
the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes may be
limited; (ii) a substantial portion of the Company's cash flow must be
dedicated to the payment of interest on the Notes and servicing its other
existing indebtedness, thereby reducing the funds available to the Company for
other purposes; (iii) certain indebtedness under the Senior Bank Facilities
will be at variable rates of interest, which will cause the Company to be
vulnerable to increases in interest rates; (iv) the Company may be hindered in
its ability to adjust rapidly to changing market conditions; and (v) the
Company's substantial degree of leverage could make it more vulnerable in the
event of a downturn in general economic conditions or in its business.
The Company's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance, which will
be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond its control. If the Company's cash
flow and capital resources are insufficient to fund its debt service
obligations, the Company may be forced to reduce or delay capital
expenditures, sell assets, obtain additional equity capital or restructure its
debt. There can be no assurance that the Company's cash flow and capital
resources will be sufficient for payment of its indebtedness in the future. In
the absence of such operating results and resources, the Company could face
substantial liquidity problems and might be required to dispose of material
assets or operations to meet its debt service and other obligations, and there
can be no assurance as to the timing of such sales or the proceeds that the
Company could realize therefrom.
The rental trucks used by the Company in the Business are owned by Leasco
and leased by Leasco to the Company pursuant to a Master Motor Vehicle Lease
Agreement. Dividends or other distributions from Leasco could be required by
the Company in order to meet a portion of its debt service obligations and
other operating needs. See "--Limitations on Access to Cash Flow and Assets of
Leasco."
SUBORDINATION OF NOTES; ASSET ENCUMBRANCE
Prior to the Subordination Termination Date, the payment of principal of and
interest on, and any premium or other amounts owing in respect of, the Notes
will be subordinated to the prior payment in full of all existing and future
Senior Indebtedness of the Company, including all amounts owing or guaranteed
under the Senior Bank Facilities. Consequently, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Company, prior to the Subordination Termination Date, assets of the
Company will be available to pay obligations on the Notes only after all
Senior Indebtedness of the Company has been paid in full, and there can be no
assurance that there will be sufficient assets to pay amounts due on any or
all of the Notes. On and after the Subordination Termination Date, the Notes
will constitute Senior Indebtedness and will rank pari passu with all existing
and future Senior Indebtedness of the Company. However, there can be no
assurance that the Subordination Termination Date will occur. In addition,
even if the Subordination Termination Date does occur, the Notes will be
structurally subordinated to the obligations incurred in connection with the
Securitization, which at least initially is expected to constitute
substantially all the indebtedness of the Company and its subsidiaries other
than the Notes.
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Except under the circumstances discussed below, none of the Existing
Subsidiaries (including Leasco, the Company's special purpose subsidiary that
owns the trucks) will guarantee the Notes. The assets of Ryder TRS, Inc.
represented approximately 23.2% of the consolidated assets of the Company and
its subsidiaries at December 31, 1996. The Existing Subsidiaries, other than
Leasco, have guaranteed the Company's obligations under the Senior Bank
Facilities. If any of the Existing Subsidiaries, other than Leasco, and any
subsequently acquired or organized domestic subsidiary (other than a
subsidiary of Leasco) or, to the extent that no adverse tax consequences would
result, foreign subsidiary of the Company becomes a Significant Subsidiary (as
such term is defined in Rule 1-02 under Regulation S-X), the Company will be
required to cause such Significant Subsidiary to guarantee the Notes on an
unsecured, senior subordinated basis (prior to the Subordination Termination
Date, and on a senior basis thereafter). At the request of the agents or the
lenders under the Senior Bank Facilities, the Company may be required to cause
Leasco to guarantee the obligations of the Company under the Senior Bank
Facilities, and to grant security interests in, and liens on, Leasco's assets
as security for such guarantee, if the Securitization has not been consummated
on or prior to July 17, 1997. If Leasco does so guarantee the Senior Bank
Facilities, the Company will be required to cause Leasco and the other
subsidiaries of the Company to guarantee the Notes (collectively, the
"Guarantor Subsidiaries") on an unsecured, senior subordinated basis. Payments
in respect of any such guarantee of the Notes would be subordinated to the
prior payment in full of all existing and future Senior Indebtedness of the
respective Guarantor Subsidiaries, including all amounts owing or guaranteed
in respect of the Senior Bank Facilities. Consequently, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to a Guarantor Subsidiary, its assets would be available to pay
obligations only after the Senior Indebtedness of such Guarantor Subsidiary
had been paid in full, and there can be no assurance that there would be
sufficient assets to pay amounts due in respect of such Guarantor Subsidiary's
guarantee of the Notes.
The Indenture will permit the Company and the Guarantor Subsidiaries to
incur or have outstanding certain secured indebtedness, including indebtedness
under the Senior Bank Facilities, which is secured by pledges of all the
capital stock of the Guarantor Subsidiaries and security interests in, or
liens on, substantially all other tangible and intangible assets located in
the United States of the Company and the Guarantor Subsidiaries, other than
Leasco. The assets of Leasco (consisting of the rental truck fleet and certain
related assets) would be securitized or otherwise encumbered as part of the
Securitization, but if the Securitization has not been consummated on or prior
to July 17, 1997, the Company may be required to cause Leasco to grant
security interests in, or liens on, such assets to secure the Senior Bank
Facilities. The Notes and the guarantees issued in the circumstance referred
to above are or will be unsecured and therefore do not have the benefit of any
collateral. Accordingly, if an event of default occurs under the Senior Bank
Facilities, the lenders thereunder will have a prior right to the assets of
the Company (and, in the circumstance referred to above, the assets of the
Guarantor Subsidiaries), and may foreclose upon such collateral to the
exclusion of the holders of the Notes, notwithstanding the existence of an
event of default with respect thereto. In such event, such assets would first
be used to repay in full amounts outstanding under the Senior Bank Facilities,
resulting in all or a portion of the Company's assets (and, in the
circumstance referred to above, the assets of the Guarantor Subsidiaries)
being unavailable to satisfy the claims of the holders of the Notes and other
unsecured indebtedness.
LIMITATIONS ON ACCESS TO CASH FLOW AND ASSETS OF LEASCO
Except under the circumstances described in "--Subordination of Notes; Asset
Encumbrance," the Notes will not be guaranteed by or otherwise constitute an
obligation of Leasco. As a result, claims of the holders of the Notes will be
structurally subordinated to all indebtedness and other liabilities of Leasco.
Leasco's assets (consisting of the truck rental fleet and certain related
assets) represented approximately 76.8% of the consolidated assets of the
Company and its subsidiaries at December 31, 1996.
In addition, the Company's ability to gain access to the cash flow of Leasco
for the purpose of providing for payment of the principal of, premium, if any,
or interest on the Notes when due may be otherwise limited.
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Under the certificate of incorporation of Leasco (the "Leasco Charter"),
dividends or advances from Leasco to the Company may be paid or made only with
the affirmative vote of all of the members of the Board of Directors of
Leasco, which must include the affirmative vote of the two independent
directors of Leasco. The Leasco Charter requires that there be at least two
independent directors, none of whom may be a stockholder, partner, customer or
supplier of Questor or any affiliate thereof, or may have certain other
specified relationships with Questor or any such affiliate. Each independent
director must have certain prior experience in serving as an independent
director for similar purposes.
Payment of dividends by Leasco will also be subject to restrictions under
the Delaware General Corporation Law, which generally limits payment of
dividends to specified surplus or net profits of a corporation, and is likely
to be subject to additional contractual restrictions in agreements relating to
the Securitization.
Although the Company's rental payments to Leasco will be substantial, a
majority of its revenues are expected to be retained by it to be applied to
debt service and other ongoing requirements. In addition, the rental payments
to Leasco are expected to be applied to meet interest costs and possibly other
expenses associated with the truck rental fleet. Accordingly, the Company
believes that its ability to service the Notes should not be materially
impaired by the Securitization. However, it is possible that the
Securitization will be structured, or other events could occur, such that
dividends or other distributions from Leasco could be required by the Company
in order to meet a portion of its debt service obligations and other operating
needs. If the Board of Directors of Leasco, or any independent director,
should determine that dividends should not be paid in the necessary amounts,
or if such dividends could not be paid as a result of statutory or contractual
restrictions, the Company's ability to pay interest on and principal of the
Notes could be adversely affected. See "Leasco and Proposed Securitization."
RESTRICTIVE LOAN COVENANTS
The Senior Bank Facilities include certain covenants that, among other
things, restrict the ability of the Company and its subsidiaries to: (i)
dispose of assets; (ii) incur additional indebtedness; (iii) incur guarantee
obligations; (iv) prepay other indebtedness or amend certain other debt
instruments; (v) pay dividends; (vi) create liens on assets; (vii) enter into
sale and leaseback transactions; (viii) make investments, loans or advances;
(ix) make acquisitions; (x) engage in mergers or consolidations; (xi) change
the business conducted by the Company; (xii) make capital expenditures; or
(xiii) engage in certain transactions with affiliates, and otherwise restrict
certain corporate activities. In addition, under the Senior Bank Facilities
the Company is required to comply with specified financial ratios and tests,
including minimum interest coverage ratios, maximum leverage ratios and
minimum EBITDA requirements. There can be no assurance that these requirements
will be met in the future. If they are not, the holders of the indebtedness
under the Senior Bank Facilities would be entitled to declare such
indebtedness immediately due and payable. In addition, the Securitization will
impose certain restrictive covenants on Leasco. See "Description of Senior
Bank Facilities" and "Leasco and Proposed Securitization."
RISKS ARISING FROM ACQUISITION
Dependence on the Seller. Prior to the consummation of the Acquisition, the
Company had no operating history, and the business of the Company was
conducted as a part of the business of the Seller. The Company is not able to
rely on the Seller for financial support or for other services, except as
provided in agreements entered into as part of the Acquisition. See "The
Acquisition."
The Company has entered into a number of such agreements, including
agreements relating to vehicle maintenance, sales of used trucks, management
information systems support and other administrative support services. In
addition, the Company and RTR have entered into a Dealer Agreement (the
"Dealer Agreement") under which RTR will act as a dealer for rental of a
portion of the Company's trucks. Each of these agreements contains
requirements for various ongoing payments of substantial amounts and other
obligations on the part of the Company. The loss of certain of the rights and
benefits provided under these arrangements prior to their scheduled
termination dates could have a material adverse effect on the Company's
business. See "Relationships with the Seller."
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Risks Related to the Ryder Name. The Company obtained the right to use
certain Ryder trademarks under the terms of a Trademark License Agreement (the
"License Agreement") between RSI and the Company. The Company will not have
any right to use the Ryder trademarks after October 17, 2006 and must begin
using such trademarks in conjunction with a successor tradename and trademarks
after October 17, 2001. The Company believes that the Ryder trademarks enjoy
wide and favorable recognition among its customers, and the loss of these
trademarks (including any loss that could occur as a result of a failure of
the Company to comply with certain covenants in the License Agreement and with
the non-competition covenants contained in the Acquisition Agreements) could
have a material adverse effect on the Company's business. There can be no
assurance as to the effect on the Company's business of the transition to and
use of a new name. See "Relationships with the Seller--Intellectual Property."
Competition from the Seller. Under the terms of the Acquisition Agreements,
RTR has agreed, among other things, not to engage in the one-way truck rental
business at all or to engage in the local consumer truck rental business
through dealers, franchisees or other third party agents for a period of up to
twelve years. RTR continues to engage in competition with the Company in the
local consumer and commercial rental business through its fleet of trucks. The
Dealer Agreement does not require that RTR rent a Company truck for a local
rental before renting its own truck and therefore RTR will generally rent its
own trucks prior to a Company truck. The Acquisition Agreements do, however,
limit for a period of two years the number of light duty trucks (i.e., trucks
with gross vehicle weight of 16,000 pounds or less) that RTR may hold for
rental, provided that the Company supplies a specific number of trucks for
rental by the Seller's dealers under the Dealer Agreement during this time.
See "Relationships with the Seller--Non-Competition Covenants."
Under the terms of the Acquisition Agreements, during the term of the
License Agreement and under certain circumstances up to one year thereafter,
the Company may not engage in the long-term leasing business or the rental of
heavy duty trucks.
HIGHLY COMPETITIVE INDUSTRY
The truck rental industry is highly competitive and includes a number of
significant competitors. U-Haul International Inc. ("U-Haul") is the Company's
principal competitor with a greater market share and potentially greater
financial resources than the Company. Competition is generally based on price,
product quality, brand name recognition, service, convenience and
availability. Competition could adversely affect the Company's operating
results by forcing it to reduce its prices, incur additional costs or provide
other services. The Seller will also compete with the Company in certain
segments of the Company's business. See "Business--Competition" and "--Risks
Arising from Acquisition--Competition from the Seller."
DEPENDENCE ON DEALERS
The Company operates nationwide through approximately 4,200 dealers, of
which 3,860 are independent Ryder dealers and 340 are RTR dealers. The Company
is dependent on its dealer network to offer its truck rental services to the
public, and the growth and profitability of the Company depend in part upon
its relationship with its dealers. Dealer turnover was approximately 16% for
1995. In 1996, dealer turnover increased to approximately 27%, primarily due
to a planned reduction in the number of dealers. There can be no assurance
that the Company will be able to successfully maintain existing dealerships or
to enter into relationships with qualified new dealers. The loss of a
significant number of dealers or the failure to replace dealers could have a
material adverse effect on the Company's business.
Independent dealerships consist primarily of auto parts retailers and
service suppliers, self storage centers, car rental locations and other
vehicle-related businesses that are owned by third parties. As a result, truck
rental services are not the primary business for independent dealers. There
can be no assurance that the independent dealers will concentrate sufficient
efforts on renting the Company's trucks, which could result in decreased
revenues for the Company.
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DEPENDENCE ON KEY PERSONNEL
The ability of the Company to maintain its competitive position will depend
to a significant degree upon its ability to continue to attract and maintain
highly qualified managerial, sales, marketing and maintenance personnel. There
can be no assurance that the Company will be able to continue to recruit and
retain such personnel. In particular, the Company will be dependent on its key
management personnel, and there can be no assurance that the loss of key
personnel would not have a material adverse effect on the Company's business.
CONTROLLING SHAREHOLDER
The Company is controlled by Questor, and Questor has the power to control
all matters submitted to the shareholders of the Company and to elect a
majority of the directors of the Company. See "Ownership of Capital Stock."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, unless the Company redeems the
Notes, each holder of the Notes will have the right to require the Company to
purchase the Notes held by such holder at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase. The occurrence of a Change of Control would constitute a
default under the Senior Bank Facilities. The Company's failure to repurchase
the Notes would result in a default under the Indenture. The inability to
repay the indebtedness under the Senior Bank Facilities, if accelerated, would
also constitute an event of default under the Indenture, which could have
adverse consequences to the Company and the holders of the Notes. In the event
of a Change of Control, there can be no assurance that the Company would have
sufficient assets to satisfy all of its obligations under the Senior Bank
Facilities and the Notes. See "Description of Senior Bank Facilities" and
"Description of Notes--Change of Control."
GOVERNMENTAL REGULATION
The Company is subject to various federal, state and local laws and
regulations, including those relating to the taxing and licensing of vehicles,
transportation and safety of vehicles, consumer protection, insurance,
advertising, used vehicle sales, labor matters and environmental protection.
The Company is affected by changes, from time to time, in such laws and
regulations.
The Company offers for sale, in addition to the rental of trucks, certain
liability-limiting products relating to such rental, such as physical damage
waivers and limited damage waivers, pursuant to which the Company agrees to
waive its right to recovery from a renter for damage to the truck.
Approximately 8.0%, 10.0% and 10.0% of the Company's revenues in 1994, 1995
and 1996, respectively, were generated from the sale of such liability-
limiting products. Certain states have enacted legislation, generally
applicable to automobile rentals, which limits the rates that may be charged
for collision damage waivers, limits potential customer liability for damage
to rented vehicles or restricts the sale of such waivers. In addition,
Congress has from time to time considered legislation to regulate the sale of
collision damage waivers by rental companies, but no such legislation has been
enacted to date. The adoption of additional state or federal legislation
applicable to truck rentals that would restrict the sale or limit the rates of
collision damage waivers or other liability-limiting products, or would limit
potential customer liability, could adversely affect sales of these products
by the Company.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to various federal, state and
local environmental laws and regulations, including laws and regulations which
impose liability on responsible parties to remediate, or contribute to the
costs of remediating, sites at which petroleum products or hazardous wastes or
substances were disposed of or released, which may include sites operated by
the Company. These remediation requirements may be imposed without regard to
fault or legality at the time of the disposal or release. The Seller has
remediated
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contamination at one property pursuant to such remediation laws, and there can
be no assurance that contamination requiring remediation will not be found in
the future at other properties leased by the Company. The Company also
maintains aboveground storage tanks at one property for the storage of
petroleum products and performs light vehicle maintenance at some of its
leased properties, and asbestos-containing building materials may exist in
certain of its leased buildings. While the Seller has retained liability with
respect to environmental conditions existing prior to the date of the
Acquisition, whether discovered or undiscovered, there can be no assurance
that present or future activities undertaken by the Company will not result in
environmentally related expenditures for which the Company may be responsible.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Company of indebtedness such as the Notes to finance
or refinance the Acquisition may be subject to review under federal bankruptcy
law or relevant state fraudulent conveyance laws if a bankruptcy case or
lawsuit is commenced by or on behalf of unpaid creditors of the Company. Under
these laws, if a court were to find that, after giving effect to the sale of
the Notes and the application of the net proceeds therefrom, either (a) the
Company incurred such indebtedness with the intent of hindering, delaying or
defrauding creditors or (b) the Company received less than reasonably
equivalent value or consideration for incurring such indebtedness and (i) was
insolvent or was rendered insolvent by reason of such transactions, (ii) was
engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital, or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay as they matured,
such court might subordinate such indebtedness to presently existing and
future indebtedness of the Company or void the issuance of such indebtedness
and direct the repayment of any amounts paid thereunder to the creditors of
the Company, as the case may be, or take other action detrimental to the
holders of such indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction that is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its debts, including contingent
liabilities, were greater than the value of all of its assets at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liability on its debts,
including contingent liabilities, as they become absolute and mature.
To the extent that proceeds from the Initial Offering were used to
refinance the indebtedness incurred in connection with the Acquisition, a
court might find that the Company did not receive fair consideration or
reasonably equivalent value for the incurrence of the indebtedness represented
thereby. In addition, if a court were to find that any of the components of
the Transactions constituted a fraudulent transfer, to the extent that
proceeds from the Initial Offering were used to finance or refinance such
Transactions, a court might find that the Company did not receive fair
consideration or reasonably equivalent value for the incurrence of the
indebtedness represented by the Notes.
The Company believes that it received equivalent value at the time the
indebtedness under the Notes was incurred. In addition, after giving effect to
the consummation of the Transactions and the Initial Offering, the Company
does not: (i) believe that it was insolvent or rendered insolvent; (ii)
believe that it will be engaged in a business or transaction for which its
remaining assets constitute unreasonably small capital; or (iii) intend to
incur, or believe that it will incur, debts beyond its ability to pay as they
mature. These beliefs are based on the Company's analysis of internal cash
flow projections and estimated values of assets and liabilities of the Company
at the time of the Acquisition and the Initial Offering. There can be no
assurance, however, that a court passing on these issues would make the same
determination.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Exchange Notes are new securities for which there presently is no
market. Although the Initial Purchaser has informed the Company that it
currently intends to make a market in the Exchange Notes, the Initial
Purchaser is not obligated to do so and any such market making may be
discontinued at any time without notice.
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In addition, such market making activity may be limited during the pendency of
the Exchange Offer. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Notes. The Company
does not intend to apply for listing of the Exchange Notes on any securities
exchange or for quotation of the Exchange Notes through the National
Association of Securities Dealers Automated Quotation System.
The Exchange Notes generally will be permitted to be resold or otherwise
transferred by each holder without the requirement of further registration.
The Exchange Offer will not be conditioned upon any minimum or maximum
aggregate principal amount of Senior Subordinated Notes being tendered for
exchange. In the case of non-exchanging holders of Senior Subordinated Notes,
no assurance can be given as to the liquidity of the trading market for the
Senior Subordinated Notes following the Exchange Offer. See "Plan of
Distribution."
The liquidity of, and trading market for, the Senior Subordinated Notes or
the Exchange Notes also may be adversely affected by general declines in the
market or by declines in the market for similar securities. Such declines may
adversely affect such liquidity and trading markets independent of the
financial performance of, and prospects for, the Company.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Senior Subordinated Notes who do not exchange their Senior
Subordinated Notes for Exchange Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Senior
Subordinated Notes as set forth in the legend thereon as a consequence of the
issuance of the Senior Subordinated Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Senior Subordinated
Notes may not be offered or sold unless registered under the Securities Act
and applicable state securities laws or pursuant to an exemption therefrom.
Except under certain limited circumstances, the Company does not intend to
register the Senior Subordinated Notes under the Securities Act. In addition,
any holder of Senior Subordinated Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent Senior
Subordinated Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Senior Subordinated Notes not tendered could
be adversely affected. See "The Exchange Offer" and "Senior Subordinated Notes
Registration Rights."
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange pursuant to the
Exchange Offer. The Company used the net proceeds from the issuance of the
Senior Subordinated Notes, approximately $169.0 million after deducting
discounts and fees and expenses incurred in connection therewith, to repay the
aggregate principal amount outstanding under the Senior Subordinated Credit
Facility and approximately $69.0 million of indebtedness outstanding under the
Term Facility, the proceeds of each of which were used, together with certain
other funds, to pay the purchase price of the Acquisition and related fees and
expenses.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the Exchange and Registration Rights Agreement.
The Senior Subordinated Notes were originally issued and sold on November
25, 1996 (the "Issue Date"). Such sales were not registered under the
Securities Act in reliance upon the exemption provided by Section 4(2) of the
Securities Act and Rule 144A under the Securities Act. In connection with the
sale of the Senior Subordinated Notes, the Company agreed to file with the
Commission a registration statement relating to an exchange offer (the
"Exchange Offer Registration Statement") pursuant to which senior subordinated
notes of the Company covered by such registration statement and containing the
same terms as the Senior Subordinated Notes, except as set forth in this
Prospectus, would be offered in exchange for Senior Subordinated Notes
tendered at the option of the holders thereof. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Senior
Subordinated Notes, where such Senior Subordinated Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
If (a) prior to the consummation of the Exchange Offer, the Company
reasonably determines in good faith that (i) the Exchange Notes would not,
upon receipt, be tradeable by Holders that are not Affiliates without
restriction under the Securities Act and without material restriction under
applicable state securities laws or (ii) after conferring with counsel, the
Commission is unlikely to permit the consummation of the Exchange Offer within
165 days after the Issue Date, (b) for any other reason the Exchange Offer is
not consummated within 165 days of the Issue Date, (c) the Initial Purchaser
so requests with respect to Senior Subordinated Notes (i) purchased by it from
the Company on the Issue Date, (ii) not eligible to be exchanged for Exchange
Notes in the Exchange Offer and (iii) held by it following consummation of the
Exchange Offer or (d) any Holder (other than an exchanging dealer) is not
eligible to participate in the Exchange Offer or, in the case of any Holder
that participates in the Exchange Offer (other than an exchanging dealer),
does not receive freely tradeable Exchange Notes in exchange for tendered
Senior Subordinated Notes (and in either case so advises the Company within
ten business days following the later of the consummation of the Exchange
Offer or the time at which such Holder becomes aware or is notified by the
Company of such circumstance) or if the Company so elects, in each case the
Company shall promptly (and in any event within three business days) deliver
to the Holders and the Trustee written notice thereof (the "Shelf Notice").
The Company will, at its expense, (i) as promptly as practicable after
delivery of the Shelf Notice, file with the Commission a Shelf Registration
Statement covering resales of the Notes to which such Shelf Registration
Statement is applicable, (ii) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act as
promptly as possible after such filing occurs and (iii) use its best efforts
to keep the Shelf Registration Statement effective until three years after its
effective date (or such shorter period that will terminate when all the Notes
covered thereby have been sold pursuant thereto or in certain other
circumstances).
In the event that (i) the Exchange Offer Registration Statement is not
declared effective within 135 days after the Issue Date, (ii) the Exchange
Offer is not consummated on or prior to 165 days after the Issue Date,
(iii) the Shelf Registration Statement is not filed with the Commission within
45 days after the Shelf Notice is required to be delivered or is not declared
effective within 135 days after such date or (iv) the Shelf Registration
Statement is filed and declared effective within 135 days after the date the
Shelf Notice is required to be delivered but shall thereafter cease to be
effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
or amended Registration Statement filed and declared effective (each such
event referred to in clauses (i) through (iv), a "Registration Default"), the
Company must pay liquidated damages. See "Senior Subordinated Notes
Registration Rights."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying this
Registration Statement of which this Prospectus is a part (the "Letter of
Transmittal"), $1,000 principal amount of Exchange Notes for each $1,000
principal amount of Senior Subordinated Notes. The terms of the Exchange Notes
are identical in all respects to the terms of the
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Senior Subordinated Notes for which they may be exchanged pursuant to this
Exchange Offer, except that (i) the Exchange Notes will generally be freely
transferable by holders thereof and (ii) the holders of the Exchange Notes
will not be entitled to registration rights under the Exchange and
Registration Rights Agreement except under certain limited circumstances. See
"Senior Subordinated Notes Registration Rights." The Exchange Notes will
evidence the same debt as the Senior Subordinated Notes and will be entitled
to the benefits of the Indenture. See "Description of the Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Subordinated Notes being tendered or accepted for exchange.
Based on interpretations set forth in no-action letters issued by the Staff
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Senior Subordinated Notes may be
offered for resale, resold and otherwise transferred by holders thereof (other
than any holder which is (i) an Affiliate, (ii) a broker-dealer who acquired
Senior Subordinated Notes directly from the Company or (iii) a broker-dealer
who acquired Senior Subordinated Notes as a result of market making or other
trading activities) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business, and such
holders have no arrangement with any person to participate in a distribution
of such Exchange Notes. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Senior Subordinated Notes, where such Senior
Subordinated Notes were acquired by such broker-dealer as a result of market
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution." Any holder that cannot rely upon such interpretations
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
Tendering holders of Senior Subordinated Notes will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Senior
Subordinated Notes pursuant to the Exchange Offer.
Interest on each Exchange Note issued pursuant to the Exchange Offer will
accrue from the last interest payment date to which interest was paid on the
Senior Subordinated Notes surrendered in exchange therefor or, if no interest
has been paid on the Senior Subordinated Notes, from the date of original
issue of the Senior Subordinated Notes.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1997 unless the Company in
its sole discretion extends the period during which the Exchange Offer is
open, in which event the term "Expiration Date" means the latest time and date
on which the Exchange Offer, as so extended by the Company, expires. The
Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to The Bank
of New York (the "Exchange Agent") and by timely public announcement
communicated by no later than 9:00 a.m. Eastern time on the next business day
following the Expiration Date, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Senior Subordinated Notes previously
tendered pursuant to the Exchange Offer will remain subject to the Exchange
Offer.
The Exchange Date will be the Expiration Date. The Company expressly
reserves the right to (i) terminate the Exchange Offer and not accept for
exchange any Senior Subordinated Notes for any reason, including if any of the
events set forth below under "--Conditions to the Exchange Offer" shall have
occurred and shall not have been waived by the Company prior to the Expiration
Date and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Senior Subordinated Notes. If any such
termination or amendment occurs, the Company will notify the Exchange Agent in
writing and will either issue a press release
26
<PAGE>
or give written notice to the holders of the Senior Subordinated Notes as
promptly as practicable. Unless the Company terminates the Exchange Offer
prior to 5:00 p.m., New York City time, on the Expiration Date, the Company
will exchange the Exchange Notes for the Senior Subordinated Notes on the
Exchange Date.
If the Company amends the Exchange Offer to increase or decrease the
percentage of the class of securities being sought or the consideration
offered or the dealer's soliciting fee to be given in the Exchange Offer, such
Exchange Offer shall remain open for at least ten business days from the date
that notice of such increase or decrease is first published or sent or given
to security holders. If the Company waives any material condition to the
Exchange Offer, or amends the Exchange Offer in any other material respect,
and if at the time that notice of such waiver or amendment is first published,
sent or given to holders of Senior Subordinated Notes in the manner specified
above, the Exchange Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the fifth business day from, and including,
the date that such notice is first so published, sent or given, then the
Exchange Offer will be extended until the expiration of such period of five
business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Senior
Subordinated Notes and will be furnished to brokers, banks and similar persons
whose names, or the names of whose nominees, appear on the lists of holders
for subsequent transmittal to beneficial owners of Senior Subordinated Notes.
HOW TO TENDER
The tender to the Company of Senior Subordinated Notes by a holder thereof
pursuant to one of the procedures set forth below will constitute an agreement
between such holder and the Company in accordance with the terms and subject
to the conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of a Senior Subordinated Note may tender the
same by (i) properly completing and signing the Letter of Transmittal or a
facsimile thereof (all references in this Prospectus to the Letter of
Transmittal shall be deemed to include a facsimile thereof) and delivering the
same, together with the certificate or certificates representing the Senior
Subordinated Notes being tendered and any required signature guarantees (or a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation")
pursuant to the procedure described below), to the Exchange Agent at its
address set forth on the back cover of this Prospectus on or prior to the
Expiration Date or (ii) complying with the guaranteed delivery procedures
described below. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Senior Subordinated Notes, where such Senior
Subordinated Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
If tendered Senior Subordinated Notes are registered in the name of the
signer of the Letter of Transmittal and the Exchange Notes to be issued in
exchange therefor are to be issued (and any untendered Senior Subordinated
Notes are to be reissued) in the name of the registered holder, the signature
of such signer need not be guaranteed. In any other case, the tendered Senior
Subordinated Notes must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Company and duly executed by the
registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Senior Subordinated Notes not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the note register for the Senior Subordinated Notes, the signature on the
Letter of Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Senior Subordinated Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender Senior Subordinated Notes should contact such holder
promptly and instruct such holder to tender Senior Subordinated Notes on such
beneficial
27
<PAGE>
owner's behalf. If such beneficial owner wishes to tender such Senior
Subordinated Notes himself or herself, such beneficial owner must, prior to
completing and executing the Letter of Transmittal and delivering such Senior
Subordinated Notes, either make appropriate arrangements to register ownership
of the Senior Subordinated Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Senior Subordinated Notes at The Depository Trust
Company (the "Book-Entry Transfer Facility") for purpose of the Exchange Offer
within two business days after receipt of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Senior Subordinated Notes by causing
the Book-Entry Transfer Facility to transfer such Senior Subordinated Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Senior Subordinated Notes may be effected
through book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address specified on the back cover page of this Prospectus on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
THE METHOD OF DELIVERY OF SENIOR SUBORDINATED NOTES AND ALL OTHER DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer, and time will not permit a Letter of Transmittal or Senior Subordinated
Notes to reach the Exchange Agent before the Expiration Date, a tender may be
effected if the Exchange Agent has received at its office listed on the back
cover hereof on or prior to the Expiration Date a letter, telegram or
facsimile transmission from an Eligible Institution setting forth the name and
address of the tendering holder, the principal amount of the Senior
Subordinated Notes being tendered, the names in which the Senior Subordinated
Notes are registered and, if possible, the certificate numbers of the Senior
Subordinated Notes to be tendered, and stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange trading
days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, the Senior Subordinated Notes, in
proper form for transfer, will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal
(and any other required documents). Unless Senior Subordinated Notes being
tendered by the above-described method (or a timely Book-Entry Confirmation)
are deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from
the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Subordinated Notes (or a timely Book-Entry
Confirmation) is received by the Exchange Agent. Issuances of Exchange Notes
in exchange for Senior Subordinated Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required
documents) and the tendered Senior Subordinated Notes (or a timely Book-Entry
Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Senior Subordinated
Notes will be determined by the Company, whose determination will be final and
binding. The Company reserves the absolute right to reject any or all tenders
not in proper form or the acceptances for exchange of which may, in the
opinion of counsel to the Company, be unlawful. The Company also reserves the
absolute right to waive any of the conditions of the Exchange Offer or any
defect or
28
<PAGE>
irregularities in tenders of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders. Neither the
Company, the Exchange Agent nor any other person will be under any duty to
give notification of any defects or irregularities in tenders or shall incur
any liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Senior Subordinated Notes for exchange (the
"Transferor") exchanges, assigns and transfers the Senior Subordinated Notes
to the Company and irrevocably constitutes and appoints the Exchange Agent as
the Transferor's agent and attorney-in-fact to cause the Senior Subordinated
Notes to be assigned, transferred and exchanged. The Transferor represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the Senior Subordinated Notes and to acquire Exchange Notes issuable
upon the exchange of such tendered Senior Subordinated Notes, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Senior Subordinated Notes, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Senior Subordinated Notes. The Transferor further agrees that
acceptance of any tendered Senior Subordinated Notes by the Company and the
issuance of Exchange Notes in exchange therefor shall constitute performance
in full by the Company of its obligations under the Exchange and Registration
Rights Agreement and that the Company shall have no further obligations or
liabilities thereunder (except in certain limited circumstances). All
authority conferred by the Transferor will survive the death or incapacity of
the Transferor, and every obligation of the Transferor shall be binding upon
the heirs, legal representatives, successors, assigns, executors and
administrators of such Transferor.
By tendering Senior Subordinated Notes and executing the Letter of
Transmittal, the Transferor certifies that (a) it is not an Affiliate, that it
is not a broker-dealer that owns Senior Subordinated Notes acquired directly
from the Company or an Affiliate of the Company, that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes or (b) that it is an
Affiliate of the Company or of the Initial Purchaser and that it will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable to it.
WITHDRAWAL RIGHTS
Senior Subordinated Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Senior Subordinated Notes to be withdrawn, the
certificate numbers of Senior Subordinated Notes to be withdrawn, the
principal amount of Senior Subordinated Notes to be withdrawn, a statement
that such holder is withdrawing his or her election to have such Senior
Subordinated Notes exchanged, and the name of the registered holder of such
Senior Subordinated Notes, and must be signed by the holder in the same manner
as the original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the Senior Subordinated Notes being withdrawn. The Exchange Agent
will return the properly withdrawn Senior Subordinated Notes promptly
following receipt of notice of withdrawal. All questions
29
<PAGE>
as to the validity of notices of withdrawal, including time of receipt, will
be determined by the Company, and such determination will be final and binding
on all parties.
ACCEPTANCE OF SENIOR SUBORDINATED NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE
NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Senior Subordinated Notes validly tendered and not
withdrawn and the issuance of the Exchange Notes will be made on the Exchange
Date. For the purposes of the Exchange Offer, the Company shall be deemed to
have accepted for exchange validly tendered Senior Subordinated Notes when, as
and if the Company has given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Senior
Subordinated Notes for the purposes of receiving Exchange Notes from the
Company and causing the Senior Subordinated Notes to be assigned, transferred
and exchanged. Upon the terms and subject to the conditions of the Exchange
Offer, delivery of Exchange Notes to be issued in exchange for accepted Senior
Subordinated Notes will be made by the Exchange Agent promptly after
acceptance of the tendered Senior Subordinated Notes. Senior Subordinated
Notes not accepted for exchange by the Company will be returned without
expense to the tendering holders (or in the case of Senior Subordinated Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the procedures described above, such non-
exchanged Senior Subordinated Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) promptly following the Expiration Date
or, if the Company terminates the Exchange Offer prior to the Expiration Date,
promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange
Notes in respect of any properly tendered Senior Subordinated Notes not
previously accepted and may, prior to the Expiration Date, terminate the
Exchange Offer (by oral or written notice to the Exchange Agent and by timely
public announcement, unless otherwise required by applicable law or
regulation) or, at its option, modify or otherwise amend the Exchange Offer,
if (a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, (ii) assessing or seeking any damages as a
result thereof, or (iii) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Senior
Subordinated Notes pursuant to the Exchange Offer; (b) any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the reasonable judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (a)(i) or (ii) above or, in the reasonable judgment of
the Company, might result in the holders of Exchange Notes having obligations
with respect to resales and transfers of Exchange Notes which are greater than
those described in the interpretations of the Commission referred to on the
cover page of this Prospectus, or would otherwise make it inadvisable to
proceed with the Exchange Offer; or (c) a material adverse change shall have
occurred in the business, condition (financial or otherwise), operations, or
prospects of the Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in
whole or in part at any time or from time to time in its sole discretion. The
failure by the Company at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, and each right will be deemed
an ongoing right which may
30
<PAGE>
be asserted at any time or from time to time. In addition, the Company has
reserved the right, notwithstanding the satisfaction of each of the foregoing
conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or non-
fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Senior
Subordinated Notes tendered, and no Exchange Notes will be issued in exchange
for any such Senior Subordinated Notes, if at such time any stop order shall
be threatened or in effect with respect to the Registration Statement of which
this Prospectus constitutes a part or qualification of the Indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent
at its address set forth on the back cover page of this Prospectus.
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The
Company will, however, pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for reasonable out-of-pocket expenses
in connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and
expenses of the Exchange Agent and printing, accounting and legal fees, will
be paid by the Company and are estimated at approximately $ .
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) holders of Senior
Subordinated Notes in any jurisdiction in which the making of the Exchange
Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction. However, the Company may, at its discretion, take such
action as it may deem necessary to make the Exchange Offer in any such
jurisdiction and extend the Exchange Offer to holders of Senior Subordinated
Notes in such jurisdiction. In any jurisdiction the securities laws or blue
sky laws of which require the Exchange Offer to be made by a licensed broker
or dealer, the Exchange Offer is being made on behalf of the Company by one or
more registered brokers or dealers which are licensed under the laws of such
jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF SENIOR SUBORDINATED NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR
APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of the Senior Subordinated Notes for the Exchange Notes in the
Exchange Offer should not constitute an exchange for federal income tax
purposes. Consequently, (i) no gain or loss should be realized by a
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<PAGE>
U.S. Holder upon receipt of an Exchange Note; (ii) the holding period of the
Exchange Note should include the holding period of the Senior Subordinated
Note exchanged therefor; and (iii) the adjusted tax basis of the Exchange Note
should be the same as the adjusted tax basis of the Senior Subordinated Note
exchanged therefor immediately before the exchange. Even if the exchange of a
Senior Subordinated Note for an Exchange Note were treated as an exchange,
however, such an exchange should constitute a tax-free recapitalization for
federal income tax purposes. Accordingly, an Exchange Note should have the
same issue price as a Senior Subordinated Note and a U.S. Holder should have
the same adjusted basis and holding period in the Exchange Note as it had in a
Senior Subordinated Note immediately before the exchange. As used herein, the
term "U.S. Holder" means a person who is, for United States federal income tax
purposes, (i) a citizen or resident of the United States; (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof; or (iii) an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source.
OTHER
Participation in the Exchange Offer is voluntary, and holders should
carefully consider whether to accept the Exchange Offer and tender their
Senior Subordinated Notes. Holders of the Senior Subordinated Notes are urged
to consult their financial and tax advisors in making their own decisions on
what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Subordinated Notes pursuant to the terms of, this
Exchange Offer, the Company will have fulfilled covenants contained in the
terms of the Senior Subordinated Notes and the Exchange and Registration
Rights Agreement. Holders of the Senior Subordinated Notes who do not tender
their certificates in the Exchange Offer will continue to hold such
certificates and will be entitled to all the rights, and subject to all the
limitations applicable thereto, under the Indenture, except for any such
rights under the Exchange and Registration Rights Agreement which by their
terms terminate or cease to have further effect as a result of the making of
this Exchange Offer. See "Description of the Notes." All untendered Senior
Subordinated Notes will continue to be subject to the restriction on transfer
set forth in the Indenture. To the extent that Senior Subordinated Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for
the Senior Subordinated Notes could be adversely affected. See "Risk Factors--
Consequences of Exchange and Failure to Exchange."
The Company may in the future seek to acquire untendered Senior Subordinated
Notes in the open market or privately negotiated transactions, through
subsequent exchange offers or otherwise. The Company has no present plan to
acquire any Senior Subordinated Notes that are not tendered in the Exchange
Offer.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, which reflects the effects of the Transactions and the
Initial Offering and the application of the proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with "Selected Historical
and Pro Forma Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term debt:
Revolving Credit Facility(a).......................... $ --
Term Facility......................................... 281,000
Senior Subordinated Notes due 2006.................... 175,000
--------
Total long-term debt................................ 456,000
--------
Shareholders' equity:
Common stock, $.01 par value, 275,000 shares
authorized: 109,090 Class A shares and 13,910 Class B
shares issued and outstanding........................ 1
Additional paid-in capital............................ 122,999
Accumulated deficit................................... (2,889)
--------
Total shareholders' equity.......................... 120,111
--------
Total capitalization................................ $576,111
========
</TABLE>
- --------
(a) Borrowings of up to $150.0 million under the Revolving Credit Facility are
available for working capital and general corporate purposes, including up
to $50.0 million for letters of credit ($12.5 million of which were issued
as of December 31, 1996). As of December 31, 1996, the Company's unused
availability under the Revolving Credit Facility totaled approximately
$105.9 million. See "Description of Senior Bank Facilities."
33
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth summary historical financial and other data
of the Company for each of the five years in the period ended December 31,
1996, and certain pro forma financial and other data for the year ended
December 31, 1996. The pro forma financial data gives effect to the
Transactions, the Initial Offering and the application of the proceeds
therefrom, as if they had occurred on January 1, 1996 for statement of
operations data purposes. The historical financial information for the period
from October 17, 1996 through December 31, 1996 has been derived from the
audited consolidated financial statements of the Company. Such consolidated
financial statements have been audited by Coopers & Lybrand L.L.P. and are
included elsewhere herein. The historical financial information for each of
the years ended December 31, 1994 and 1995 and for the period January 1, 1996
through October 16, 1996 has been derived from the audited combined financial
statements of the Company. Such combined financial statements have been
audited by KPMG Peat Marwick LLP and are included elsewhere herein. The
historical financial information for each of the years ended December 31, 1992
and 1993 is unaudited but, in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such information. The pro forma information does not
purport to represent what the Company's results would have actually been if
the Transactions and the Initial Offering had occurred at the date indicated,
nor does such information purport to project the results of the Company for
any future period. The selected financial information should be read in
conjunction with "Unaudited Pro Forma Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and the related notes thereto included elsewhere in
this Prospectus.
34
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JANUARY 1, OCTOBER 17,
1996 1996
YEAR ENDED DECEMBER 31, THROUGH THROUGH PRO
-------------------------------------------- OCTOBER 16, DECEMBER 31, FORMA
1992 1993 1994 1995 1996 1996 1996
--------- --------- --------- --------- ----------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
One-way truck rentals.. $ 167,309 $ 184,875 $ 218,881 $ 224,369 $187,931 $ 36,861 $224,792
Local truck rentals.... 196,015 209,049 229,053 214,520 167,140 47,343 214,483
Accessory rentals and
product sales(a)...... 48,586 68,378 75,782 87,211 70,994 15,879 86,873
Other revenues(b)...... 14,455 17,625 25,917 20,621 13,714 2,928 16,642
--------- --------- --------- --------- -------- --------- --------
Total revenues.......... 426,365 479,927 549,633 546,721 439,779 103,011 542,790
Operating expense....... 171,956 182,893 204,552 185,920 155,264 34,732 189,996
Selling, general and
administrative
expense................ 169,114 187,483 209,399 213,600 166,568 39,317 206,558
Depreciation expense
(net of gains) and
amortization(c)........ 79,285 84,939 90,215 104,258 84,949(d) 19,398 111,370
Restructuring and other
charges(e)............. -- -- -- 6,370 1,891 -- 1,891
--------- --------- --------- --------- -------- --------- --------
Operating income........ 6,010 24,612 45,467 36,573 31,107 9,564 32,975
Interest expense(f)..... 20,590 20,049 24,256 29,663 20,291 14,261(g) 44,641 (h)
Miscellaneous expense,
net.................... 4 89 102 324 690 -- 690
--------- --------- --------- --------- -------- --------- --------
Earnings (loss) before
income taxes........... (14,584) 4,474 21,109 6,586 10,126 (4,697) (12,356)
Provision (benefit) for
income taxes........... (5,484) 1,994 8,800 2,984 4,304 (1,808) (4,351)
--------- --------- --------- --------- -------- --------- --------
Net earnings (loss)..... $ (9,100) $ 2,480 $ 12,309 $ 3,602 $ 5,822 $ (2,889) $ (8,005)(h)
========= ========= ========= ========= ======== ========= ========
OTHER FINANCIAL DATA:
EBITDA(i)............... $ 85,291 $ 109,462 $ 135,580 $ 140,507 $115,366 $ 28,962 $143,655
EBITDA margin........... 20.0% 22.8% 24.7% 25.7% 26.2% 28.1% 26.5%
Adjusted EBITDA(j)...... $ 85,291 $ 109,462 $ 135,580 $ 146,877 $117,257 $ 28,962 $145,546
Adjusted EBITDA margin.. 20.0% 22.8% 24.7% 26.9% 26.7% 28.1% 26.8%
Cash interest
expense(k)............. $ 20,590 $ 20,049 $ 24,256 $ 29,663 $ 20,291 $ 8,689 $ 42,028
Ratio of Adjusted EBITDA
to cash interest
expense................ 4.1x 5.5x 5.6x 5.0x 5.8x 3.3x 3.5x
Ratio of earnings to
fixed charges(l)....... (l) 1.2x 1.8x 1.2x 1.5x (l) (l)
Capital
expenditures(m)........ $ 180,912 $ 195,675 $ 191,925 $ 223,749 $ 69,228 $ 131 $ 69,359
Proceeds from
disposition of trucks.. 45,484 50,215 50,030 72,211 45,428 10,876(t) 56,304
STATEMENT OF CASH FLOWS
DATA:
Net cash provided by
operating activities... $ 68,325 $ 78,054 $ 114,632 $ 79,333 $116,843 $ 44,427
Net cash used in
investing activities... (135,212) (148,109) (143,758) (153,331) (25,433) (584,966)
Net cash provided by
(used in) financing
activities............. 67,239 69,924 30,285 74,777 (87,699) 558,046
FLEET DATA:
Number of trucks
purchased.............. 8,500(n) 8,011 7,442 8,468 2,515
Number of trucks sold... 6,384 6,530 5,883 7,603 5,212
Average operating
fleet(o)............... 30,270 31,078 32,814 34,110 31,693
Utilization(p).......... 37.9% 39.8% 44.1% 41.8% 44.9%
Average age in months
(end of period)........ 35 32 31 29 36
Average number of
dealers................ 4,563 4,477 4,765 5,031 4,516(q)
BALANCE SHEET DATA (END
OF PERIOD):
Revenue earning
equipment(r)........... $ 383,400 $ 448,949 $ 503,643 $ 547,365 $490,661 $ 477,391
Total assets............ 430,376 506,501 575,933 629,817 555,267 621,846
Total debt(s)........... -- -- -- -- -- 456,000
Total shareholders'
equity(s).............. 297,060 369,464 412,058 490,437 408,560 120,111
</TABLE>
See Notes to Selected Historical and Pro Forma Financial Information
35
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(a) Includes rental of automobile towing equipment and moving accessories;
sales of moving supplies; and sales of liability-limiting products such as
physical damage waivers, personal accident and cargo protection, and
supplemental liability protection.
(b) Other revenues represent household relocation services provided by the
Company's subsidiary, Ryder Move Management, Inc. ("RMM").
(c) Gains on the disposition of trucks, net of vehicle disposition costs and
other adjustments, have been reported as reductions of depreciation
expense by the Company. Such gains amounted to $12.5 million, $20.5
million, $25.9 million, $21.9 million and $8.7 million during the years
ended December 31, 1992, 1993, 1994 and 1995 and the period January 1,
1996 through October 16, 1996, respectively.
(d) Effective January 1, 1996, the Company changed the estimated useful lives
and residual values used to calculate depreciation expense on certain
types of trucks in order to better reflect recent experience. This
accounting change was treated as a change in estimate and accounted for on
a prospective basis from January 1, 1996. As a result of this change,
depreciation expense was decreased by approximately $6.0 million for the
period January 1, 1996 through October 16, 1996.
(e) The Company recorded restructuring and other charges of $6.4 million and
$1.9 million for the year ended December 31, 1995 and the period January
1, 1996 through October 16, 1996, respectively. In the third quarter of
1995, the Company consolidated its 20 administrative locations into two
area centers. As a result, the Company incurred restructuring and other
charges for lease termination, employee severance and employee relocation
costs. In 1996, additional consolidating and restructuring actions were
taken by the Seller which impacted the Company; these actions included
management and staff reductions and elimination of the company-owned car
benefit program.
(f) Prior to October 17, 1996, historical interest expense consists of
interest on advances from RSI.
(g) Includes the write-off of deferred financing costs of $5.1 million
associated with the repayment of the Senior Subordinated Credit Facility
and a portion of the Term Facility with the proceeds of the Initial
Offering.
(h) Excludes the write-off of deferred financing costs of $5.1 million ($3.1
million, net of related income tax benefit) associated with the repayment
of the Senior Subordinated Credit Facility and a portion of the Term
Facility with the proceeds of the Initial Offering.
(i) EBITDA represents earnings before interest expense, income taxes,
depreciation (net of gains on the disposition of trucks) and amortization.
EBITDA does not include gains on the disposition of trucks. The Company
includes information concerning EBITDA because it is used by certain
investors as a measure of the Company's ability to service and/or incur
debt. EBITDA should not be considered in isolation or as a substitute for
net income or cash flows from operating activities presented in accordance
with generally accepted accounting principles or as a measure of a
company's profitability or liquidity.
(j) Adjusted EBITDA represents EBITDA plus restructuring and other charges.
(k) Cash interest expense represents interest expense exclusive of
amortization of deferred financing costs.
(l) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings (loss) before income taxes and fixed charges.
Fixed charges consist of interest expense, whether expensed or
capitalized, including amortization of deferred financing costs, and the
portion of rental expense considered to be interest (assumed to be one-
third). Earnings were insufficient to cover fixed charges for the year
ended December 31, 1992, for the period October 17, 1996 through December
31, 1996, and, on a pro forma basis, adjusted for the Transactions, the
Initial Offering and the application of the proceeds therefrom, for the
year ended December 31, 1996 by $14.6 million, $4.7 million and $12.4
million, respectively.
(m) Capital expenditures for rental trucks totaled $171.1 million, $189.0
million, $182.0 million, $210.8 million and $62.9 million for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996 (pro forma),
respectively. Capital expenditures for the year ended December 31, 1995
includes $10.3 million to purchase approximately 1,200 trucks that were
added to the fleet in 1992 under operating leases.
(n) Includes approximately 1,500 trucks added to the fleet under operating
leases, of which approximately 1,200 were purchased in 1995.
(o) Average operating fleet includes those trucks undergoing maintenance and
excludes those trucks removed from the rental fleet for disposition.
36
<PAGE>
(p) Utilization represents the total number of truck rental days generated by
the fleet for the period divided by the total number of calendar days
which were available for the average operating fleet for the period.
(q) At December 31, 1996, the Company had approximately 4,200 dealers.
(r) Revenue earning equipment consists of rental trucks, towing and other
rental equipment and tires in service.
(s) Prior to October 17, 1996, shareholders' equity represents the investment
by and interest-bearing advances from RSI. See Combined Financial
Statements and related notes thereto.
(t) Includes $6.9 million receivable from truck sales as of December 31, 1996.
37
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited Pro Forma Condensed Statement of Operations for the year ended
December 31, 1996 gives effect to the Transactions, the Initial Offering and
the application of the proceeds therefrom, as if each of the underlying
transactions had been consummated on January 1, 1996. The unaudited pro forma
financial information does not purport to be indicative of the results that
would actually have been obtained if the Transactions, the Initial Offering
and the application of the proceeds therefrom had occurred on the date
indicated, or of the results that may be obtained in the future. The unaudited
pro forma financial information is presented for comparative purposes only.
The pro forma adjustments, as described in the accompanying notes, are based
on available information and certain assumptions that management believes are
reasonable.
The Acquisition is accounted for under the purchase method of accounting.
The aggregate purchase price for the Acquisition of $573.3 million plus $9.4
million of fees and expenses (out of total fees and expenses of approximately
$24.2 million) has been allocated to the tangible and identifiable intangible
assets and liabilities of the acquired business based upon the Company's
estimates of their fair value.
For a period of up to two years, RTR has agreed to provide the Company with
certain administrative and management information systems support services.
RTR will also continue to provide various services which it performed prior to
the Acquisition, including acting as a dealer in the rental of the Company's
trucks and rental-related products at certain RTR branch locations, acting as
an agent in the sale of used trucks and performing maintenance on the
Company's trucks. The charge for these services is expected to approximately
equal the internal rate that was previously charged to the Business. The
Seller also charged the Business management-related fees for services such as
finance, accounting, treasury, internal audit, legal and public relations.
These services are expected to be replaced at approximately the same cost as
has been historically charged by the Seller. See "Relationships with the
Seller."
38
<PAGE>
RYDER TRS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
JANUARY 1, OCTOBER 17,
1996 1996
THROUGH THROUGH
OCTOBER 16, DECEMBER 31, TRANSACTIONS TRANSACTIONS INITIAL OFFERING ADJUSTED
1996 1996 ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- ------------ ------------ ------------ ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Truck rental and related
revenue................ $439,779 $103,011 $ -- $542,790 $ -- $542,790
-------- -------- -------- -------- ------ --------
Operating expense....... 155,264 34,732 -- 189,996 -- 189,996
Selling, general and ad-
ministrative expense... 166,568 39,317 673 (a) 206,558 -- 206,558
Depreciation expense
(net of gains) and am-
ortization............. 84,949 19,398 7,023 (b) 111,370 -- 111,370
Restructuring and other
charges................ 1,891 -- -- 1,891 -- 1,891
Interest expense........ 20,291 14,261 15,258 (c) 49,810 (5,169)(d) 44,641
Miscellaneous expense,
net.................... 690 -- -- 690 -- 690
-------- -------- -------- -------- ------ --------
429,653 107,708 22,954 560,315 (5,169) 555,146
-------- -------- -------- -------- ------ --------
Earnings (loss) before
income taxes......... 10,126 (4,697) (22,954) (17,525) 5,169 (12,356)
Provision (benefit) for
income taxes........... 4,304 (1,808) (8,837)(e) (6,341) 1,990 (e) (4,351)
-------- -------- -------- -------- ------ --------
Net earnings (loss)... $ 5,822 $ (2,889) $(14,117) $(11,184) $3,179 $ (8,005)
======== ======== ======== ======== ====== ========
OTHER DATA:
EBITDA(f)............. $115,366 $ 28,962 $143,655
EBITDA margin......... 26.2% 28.1% 26.5%
Adjusted EBITDA(g).... $117,257 $ 28,962 $145,546
Adjusted EBITDA
margin............... 26.7% 28.1% 26.8%
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Statement of Operations
39
<PAGE>
RYDER TRS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(a) To reflect management fee expense of $850,000, on an annual basis, in
accordance with the terms of the Management and Consulting Agreement
between the Company and Questor Management Company.
(b) To reflect the increase in depreciation and amortization resulting from
the step up of revenue earning equipment, including tires in service, by
$14.3 million to its estimated fair value of $504.8 million, and software
development costs and intangible assets by $61.8 million to their
estimated fair value of $66.6 million (in thousands):
<TABLE>
<S> <C>
Elimination of depreciation expense of the Business............... $(84,949)
Depreciation expense resulting from estimated fair values of
revenue earning equipment ($504.8 million) and operating property
and equipment ($14.9 million) for the period January 1, 1996
through October 16, 1996......................................... 87,359
Amortization of acquired capitalized software development costs
and intangible assets of $66.6 million over useful lives of 5 to
15 years for the period from January 1, 1996 through October 16,
1996............................................................. 4,613
--------
$ 7,023
========
</TABLE>
Prior to October 17, 1996, depreciation of revenue earning equipment was
computed using the straight-line method over the estimated useful lives (5
to 7 years) of the assets, giving effect to estimated residual values.
Gains on sales of revenue earning equipment, net of vehicle disposition
costs, were reported as reductions of depreciation expense. Following the
completion of the Acquisition on October 17, 1996, the Company reviewed
planned operating strategies regarding the age and composition of the truck
rental fleet and the expected useful life of the fleet. Upon completion of
this review, the Company established remaining estimated useful lives for
the purchased fleet assuming estimated useful lives of 5 to 8 years from
the date a truck was originally purchased and increased, in some cases, the
estimated residual values of certain classes of trucks.
(c) To reflect the net increase in interest expense resulting from the
incurrence of the Acquisition debt as follows (in thousands):
<TABLE>
<S> <C>
Elimination of interest expense of the Business.................. $(20,291)
Interest resulting from Senior Subordinated Credit Facility of
$100.0 million at an assumed average interest rate of 12.80% for
the period January 1, 1996 through October 16, 1996............. 10,133
Interest resulting from the Term Facility of $350.0 million at an
assumed average interest rate of 7.79% for the period January 1,
1996 through October 16, 1996................................... 21,585
Interest resulting from Revolving Credit Facility of $31 million
less interest income resulting from a preliminary purchase price
reduction of $6.1 million due from Seller, at an assumed average
interest rate of 7.79% for the period January 1, 1996 through
October 16, 1996................................................ 1,537
Estimated annual fees associated with Senior Bank Facilities for
the period January 1, 1996 through October 16, 1996............. 693
Amortization of deferred financing costs related to the above for
the period January 1, 1996 through October 16, 1996, excluding
the write-off of deferred financing costs of $5.1 million
associated with the Initial Offering............................ 1,601
--------
$ 15,258
========
</TABLE>
40
<PAGE>
(d) To reflect the net decrease in interest expense resulting from the Initial
Offering of the $175.0 million Senior Subordinated Notes due 2006 and the
application of the net proceeds therefrom of $169.0 million as follows (in
thousands):
<TABLE>
<S> <C>
Elimination of interest on the Senior Subordinated Credit Facility
of $100.0 million for the period January 1, 1996 through November
25, 1996......................................................... $(11,552)
Elimination of interest on the Term Facility of $69.0 million for
the period January 1, 1996 through November 25, 1996............. (4,851)
Elimination of write-off of deferred financing costs associated
with the Senior Subordinated Credit Facility and Term Facility... (5,102)
Interest on the $175.0 million Senior Subordinated Notes due 2006
at an interest rate of 10.00% for the period January 1, 1996
through November 25, 1996........................................ 15,794
Amortization of deferred financing costs related to the Initial
Offering......................................................... 542
--------
$ (5,169)
========
</TABLE>
A 1/4% variance in interest rate on the Senior Subordinated Credit
Facility, Term Facility and the Revolving Credit Facility would change
interest expense and net loss by $0.6 million and $0.3 million,
respectively.
(e) To reflect the income tax benefit resulting from items (a) through (d) at
an assumed tax rate of 38.5%.
(f) EBITDA represents earnings before interest expense, income taxes,
depreciation (net of gains on the disposition of trucks) and amortization.
EBITDA does not include gains on the disposition of trucks. The Company
has included information concerning EBITDA because it is used by certain
investors as a measure of the Company's ability to service and/or incur
debt. EBITDA should not be considered in isolation or as a substitute for
net income or cash flows from operating activities presented in accordance
with generally accepted accounting principles or as a measure of a
company's profitability or liquidity.
(g) Adjusted EBITDA represents EBITDA plus restructuring and other charges.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations covers periods before completion of the Transactions. As a
result of the Acquisition, the Company's assets and liabilities assumed were
adjusted to their estimated fair values as of October 17, 1996. In addition,
the Company entered into new financing arrangements and, as a newly formed
company, has its own capital structure. Accordingly, the results of operations
for periods subsequent to October 17, 1996 will not be comparable to prior
periods. For further discussion relating to the impact that the Transactions
may have on the Company, see "Summary--The Acquisition, Financing and Related
Transactions," "Risk Factors," "Selected Historical and Pro Forma Financial
Information," "Unaudited Pro Forma Financial Information" and the Financial
Statements and notes thereto included elsewhere in this Prospectus.
Unless otherwise indicated, 1996 amounts discussed below represent the pro
forma results as if the Transactions, the Initial Offering and the application
of proceeds therefrom had occurred on January 1, 1996.
GENERAL
The Company is the second largest provider of truck rentals and related
moving supplies and services to the consumer and light commercial markets in
the United States. The Company rents trucks, towing equipment and accessory
equipment and sells liability-limiting products and moving supplies to
consumers and commercial customers through its nationwide network of
approximately 4,200 dealers as of December 31, 1996. The Company supplements
its truck rental business with a range of other products and services. The
Company rents automobile towing equipment and other moving accessories such as
hand trucks and furniture pads and sells moving supplies such as boxes, tape
and packing materials. The Company also offers customers a range of liability-
limiting products such as physical damage waivers, personal accident and cargo
protection, and supplemental liability protection. As is the case with many
other vehicle rental companies, liability-limiting products provide the
Company with an important and continuing source of revenue and cash flow. Over
the last four years, total revenues have grown at a compound average annual
rate of 6.2% from $426.4 million in 1992 to $542.8 million in 1996.
In 1995, fleet utilization and revenue per truck (including accessory
rentals and product sales) declined from 1994 levels, in part due to an
increase in average fleet size of approximately 1,300 trucks. Accordingly, the
Company accelerated vehicle dispositions in 1995 and 1996, and reduced capital
expenditures for new vehicles purchased in 1996. As a result, the average
fleet for the year ended December 31, 1996 comprised approximately 2,417 fewer
trucks than for the comparable period of 1995. Although total revenues in 1996
decreased 0.7% from 1995, fleet utilization and revenue per truck increased.
In 1996 fleet utilization was 44.9% compared with 41.8% in 1995, while revenue
per truck, including accessory rentals and product sales, increased by 7.6% in
1996 compared with 1995.
In order to streamline its operations, the Company consolidated its 20
administrative locations into two area centers in the third quarter of 1995.
As a result, in 1995 the Company incurred restructuring and other charges of
$6.4 million consisting of employee relocation costs of $3.3 million, employee
severance costs of $2.2 million and lease termination costs of $0.9 million.
During the period January 1, 1996 through October 16, 1996 additional actions
were taken by RSI which impacted the Company, including management and staff
reductions and the elimination of the company-owned car benefit program. The
Company recorded restructuring charges of $1.9 million related to these
actions.
The Company plans to relocate its corporate headquarters from Miami,
Florida, to Denver, Colorado. The Company entered into an agreement in March
1997 pursuant to which it will lease approximately 66,000 square feet of space
in downtown Denver for a minimum term of 10 years and a minimum annual rent
commitment ranging from $0.9 million to $1.4 million. Certain staff from the
Company's facilities in Miami, Florida, Atlanta, Georgia, Dallas, Texas and
Aurora, Colorado will be transferred to the new headquarters in Denver. The
42
<PAGE>
Company also intends to recruit additional employees in the Denver area. As
part of the purchase accounting for the Acquisition, the Company recorded a
reserve of $6.0 million for severance, relocation, lease termination and other
costs associated with these plans.
Over the last four years, the Company's EBITDA increased at a compound
average annual rate of 13.9% from $85.3 million in 1992 to $143.7 million in
1996. Excluding the restructuring charges discussed above, the Company's EBITDA
increased at a compound average annual rate of 14.3% from $85.3 million in 1992
to $145.5 million in 1996. Management believes that the increase in EBITDA is
primarily the result of better utilization of revenue earning equipment,
increased sales of rental-related products and reduction of certain operating
costs.
The Company incurs significant annual capital expenditures primarily to
purchase trucks. Capital expenditures for trucks totaled $182.0 million, $210.8
million and $62.9 million in 1994, 1995 and 1996, respectively. The decrease in
capital spending in 1996 was due primarily to a planned decrease in the average
size of the fleet. Based on the average age and running cost statistics for
different trucks, the Company regularly disposes of vehicles. Dispositions,
including trade-ins through manufacturers, generated proceeds of $50.0 million,
$72.2 million and $56.3 million in 1994, 1995 and 1996, respectively.
Purchasing of trucks is coordinated through the Company's headquarters in
Miami, Florida. Purchases are negotiated annually with each manufacturer.
Orders are typically placed in October or November of each year for delivery
primarily between March and June of the following year. The Company believes
that its purchasing expertise and the volume of its purchases enable it to buy
vehicles on terms believed to be more favorable than those available to its
smaller competitors. The Company disposes of its vehicles through several
outlets, including trade-ins through manufacturers, sales through RTR's used
truck sales operations and sales through the Company's dealers. The Company
disposes of its trucks throughout the year, with a larger proportion being sold
or traded in during the six month period from October through March.
Prior to October 17, 1996, depreciation of revenue earning equipment was
computed using the straight-line method over the estimated useful lives (5 to 7
years) of the assets, giving effect to estimated residual values. Gains on
sales of revenue earning equipment, net of vehicle disposition costs, were
reported as reductions of depreciation expense. Following the completion of the
Acquisition on October 17, 1996, the Company reviewed planned operating
strategies regarding the age and composition of the truck rental fleet and the
expected useful life of the fleet. Upon completion of this review, the Company
established remaining estimated useful lives for the purchased fleet assuming
estimated useful lives of 5 to 8 years from the date a truck was originally
purchased and increased, in some cases, the estimated residual values of
certain classes of trucks.
In connection with the Acquisition, the Company and RTR entered into
agreements pursuant to which RTR will provide the Company with various services
which it performed prior to the Acquisition. For a period of up to two years,
RTR has agreed to provide the Company with certain administrative and
management information systems support services related to the business. RTR
has also agreed to act as a dealer in the rental of the Company's trucks and
rental-related products at certain RTR branch locations and as an agent in the
sale of trucks and to perform maintenance on the Company's trucks. The charges
for these services are expected to approximately equal the internal rates that
were previously charged to the Business. The Seller also charged the Business
management-related fees for services such as finance, accounting, treasury,
internal audit, legal and public relations. These services are expected to be
replaced at approximately the same cost as has been historically charged by the
Seller. During the years ended December 31, 1994, 1995 and 1996, the total
charges for the aforementioned services amounted to $109.3 million, $95.0
million and $88.9 million, respectively, including annual management-related
fees of approximately $5.0 million for 1994, 1995 and the period from January
1, 1996 through October 16, 1996. See "Relationships with the Seller."
Prior to October 17, 1996, the Company was included in consolidated income
tax filings of the Seller for federal and state income tax purposes. However,
the income tax provisions were determined as if the Company were an independent
stand-alone entity filing separate income tax returns.
43
<PAGE>
CERTAIN PRO FORMA EFFECTS OF THE TRANSACTIONS
The Pro Forma Condensed Statement of Operations for the year ended December
31, 1996, reflect the Transactions, the Initial Offering and the application
of the proceeds therefrom, as if they had occurred on January 1, 1996. The pro
forma results of operations do not purport to be indicative of the results
that would actually have been obtained if the Transactions, the Initial
Offering and the application of the proceeds therefrom had occurred on January
1, 1996, or of the results that may be obtained in the future. See "Unaudited
Pro Forma Financial Information."
On a pro forma basis for 1996, the Company's net loss would have been $8.0
million compared to a reported combined net income of $2.9 million in 1996.
Major components of these changes include: (i) an increase in depreciation and
amortization expense as a result of the step-up of revenue earning equipment,
capitalized software development costs and intangible assets to estimated fair
value as part of the Transactions, (ii) an increase in interest expense
resulting from the financing incurred in connection with the Transactions, the
Initial Offering and the application of the proceeds therefrom and (iii)
income tax benefits resulting from the tax effect of the aforementioned
adjustments at an assumed tax rate of 38.5%.
Excluded from pro forma net loss is the write-off of deferred financing
costs ($3.1 million, net of related income tax benefit) associated with the
repayment of the Senior Subordinated Credit Facility and a portion of the Term
Facility with the proceeds of the Initial Offering.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
historical income statement data (pro forma for 1996) for the Company as a
percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues:
One-way truck rentals........................... 39.8% 41.0% 41.4%
Local truck rentals............................. 41.7 39.2 39.5
Accessory rentals and product sales............. 13.8 16.0 16.0
Other revenues.................................. 4.7 3.8 3.1
------- ------- -------
Total revenues................................ 100.0 100.0 100.0
------- ------- -------
Operating expense................................. 37.3 34.0 35.0
Selling, general and administrative expense....... 38.1 39.1 38.1
Depreciation expense (net of gains) and
amortization..................................... 16.4 19.1 20.5
Restructuring and other charges................... -- 1.2 0.3
Interest expense.................................. 4.4 5.4 8.3
Miscellaneous expense, net........................ -- -- 0.1
------- ------- -------
Total costs and expenses...................... 96.2 98.8 102.3
------- ------- -------
Earnings (loss) before income taxes........... 3.8% 1.2% (2.3%)
======= ======= =======
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Revenues in 1996 were $542.8 million compared with $546.7 million
in 1995, a decrease of $3.9 million or 0.7%. Revenues from one-way truck
rentals, local truck rentals and accessory rentals and product sales were
essentially flat, while revenues from RMM declined. Revenues from one-way
rentals increased by 0.2% to $224.8 million. Revenues from local truck rentals
were $214.5 million in both 1996 and 1995. Accessory rentals and product sales
decreased by 0.4% to $86.9 million in 1996 compared with 1995. Revenues from
liability-limiting products were $54.2 million in 1996 and $53.8 million in
1995.
44
<PAGE>
Operating expense. Operating expense increased to $190.0 million from $185.9
million in 1995, an increase of $4.1 million or 2.2%. Operating expense as a
percentage of revenues increased to 35.0% in 1996 from 34.0% in 1995. The
increase in operating expense was primarily due to higher vehicle maintenance
cost. Vehicle maintenance costs in 1996 increased to $100.0 million from $93.9
million in 1995. The increase in vehicle maintenance cost was primarily the
result of an increase in the average age of the fleet from 29 months at
December 31, 1995 to 36 months at December 31, 1996. Vehicle maintenance cost
was 18.4% as a percentage of revenues in 1996 compared with 17.2% in 1995.
This increase was partially offset by a reduction in vehicle operating lease
expense due to the purchase of approximately 1,200 trucks in late 1995 that
had been leased in 1992.
Selling, general and administrative expense. Selling, general and
administrative expense declined to $206.6 million in 1996 from $213.6 million
in 1995, a decrease of $7.0 million or 3.3%. Selling, general and
administrative expense as a percentage of revenues declined to 38.1% in 1996
from 39.1% in 1995. This decrease resulted from cost savings generated from
the consolidation of administrative functions in late 1995 as well as reduced
advertising expenses in 1996 compared with 1995.
Depreciation expense (net of gains) and amortization. Depreciation expense
(net of gains) and amortization increased to $111.4 million from $104.3
million in 1995, an increase of $7.1 million or 6.8%. Depreciation expense
(net of gains) and amortization as a percentage of revenues increased to 20.5%
in 1996 from 19.1% in 1995. Depreciation expense before gains on vehicle sales
and other charges and amortization declined to $120.1 million in 1996 from
$126.2 million in 1995. This decrease resulted in part from a 9.3% decrease in
the average size of the fleet during 1996 as well as changes during 1996 in
the estimated useful lives and residual values used to calculate the provision
for depreciation on certain types of trucks. The impact of these items was
partially offset by increased depreciation and amortization expense associated
with the step-up of revenue earning equipment, software development costs and
intangible assets to their estimated fair value in connection with the
Acquisition. Gains on vehicle sales declined $9.9 million to $12.0 million in
1996 from $21.9 million in 1995. Additionally, a $3.3 million charge against
vehicle gains as a result of a physical inventory of revenue earning equipment
conducted prior to the sale is reflected in the 1996 results. The Company did
not recognize any vehicle gains or losses for the period October 17, 1996
through December 31, 1996 as a result of acquired vehicles being adjusted to
their fair market values at the date of Acquisition.
Restructuring and other charges. Restructuring and other charges were $1.9
million for 1996, compared with $6.4 million in 1995. The 1996 charge reflects
$0.8 million in costs associated with the elimination of the Company-owned car
benefit program and employee severance costs of $1.1 million resulting from
actions taken by RSI during the second and third quarters of 1996. The 1995
charge reflects the Company's consolidation of its 20 administrative locations
into two area centers and includes $0.9 million for lease termination costs,
$2.2 million for employee severance costs and $3.3 million for employee
relocation costs related to these actions.
Interest expense. Interest expense increased $15.0 million to $44.6 million
for 1996 from $29.7 million in 1995. Prior to October 17, 1996, interest
expense reflects charges from RSI based upon its overall interest expense. The
increase reflects the impact of borrowings associated with the Transactions.
Pro forma interest expense excludes the write-off of deferred financing costs
of $5.1 million associated with the repayment of the Senior Subordinated
Credit Facility and a portion of the Term Facility with the proceeds of the
Initial Offering.
Income taxes. The Company's pro forma income tax rate was 35.2% for 1996
compared with 45.3% in 1995. The decrease in the 1996 tax rate compared with
1995 resulted primarily from the impact of a level amount of non-deductible
expenses on changing levels of pre-tax earnings.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues in 1995 were $546.7 million compared with $549.6 million
in 1994, a decrease of $2.9 million or 0.5%. Higher revenues from one-way
truck rentals and accessory rentals and product sales,
45
<PAGE>
primarily liability-limiting products, were more than offset by declines in
revenues from local truck rentals and from RMM. Revenues from one-way truck
rentals increased by $5.5 million, or 2.5%, to $224.4 million in 1995 as a
result of a 6.4% increase in the number of transactions partially offset by a
3.7% decrease in the average revenue per transaction. Revenues from local truck
rentals decreased $14.6 million, or 6.4%, to $214.5 million in 1995. Lower
local truck rental revenues resulted from a 2.6% decrease in the number of
transactions as well as a 3.7% decrease in the average revenue per transaction.
Accessory rentals and product sales increased $11.4 million, or 15.1%, to $87.2
million in 1995, resulting primarily from sales of new liability-limiting
products such as supplemental liability and towed vehicle coverage, which were
introduced in 1995. Revenues from liability-limiting products were $54.8
million in 1995 and $45.8 million in 1994.
Operating expense. Operating expense was reduced to $185.9 million in 1995
from $204.6 million in 1994, a decrease of $18.7 million or 9.1%. Operating
expense as a percentage of revenues declined to 34.0% in 1995 from 37.3% in
1994. This decrease was primarily due to lower bodily injury and property
damage costs as a percentage of revenues, 7.8% in 1995 compared with 9.4% in
1994. Improvement in incident frequency and severity as well as favorable
developments on reserves for open claims resulting from the Company's increased
emphasis on dealer training and safety programs contributed to the expense
reduction in 1995. In addition, maintenance expenses as a percentage of
revenues were slightly lower during 1995 as a result of a decrease in the
average age of the fleet.
Selling, general and administrative expense. Selling, general and
administrative expense increased to $213.6 million in 1995 from $209.4 million
in 1994, an increase of $4.2 million, or 2.0%. Selling, general and
administrative expense as a percentage of revenues increased to 39.1% in 1995
from 38.1% in 1994. The increase was primarily due to start-up costs such as
supplies and training costs associated with the two area centers.
Depreciation expense (net of gains). Depreciation expense (net of gains)
increased to $104.3 million in 1995 compared to $90.2 million in 1994, an
increase of $14.1 million or 15.6%. The increase in net depreciation expense
reflects greater depreciation expense and lower gains on vehicle sales.
Depreciation expense (net of gains) as a percentage of revenues increased to
19.1% in 1995 from 16.4% in the same period of 1994. Depreciation expense
before gains on vehicle sales increased to $126.2 million in 1995 from $116.1
million in 1994. The increase resulted from a 3.9% increase in the average size
of the fleet during 1995 compared with 1994. Depreciation related to
investments in systems technology and development also contributed to the
increase. Gains on vehicle sales decreased to $21.9 million in 1995 from $25.9
million in 1994. The decrease in gains was due to a 34% reduction in the
average gain per vehicle sold, partially offset by a 29% increase in the number
of vehicles sold. Management attributes the decline in the average gain per
vehicle in part to a change in the mix of vehicles sold.
Restructuring and other charges. Restructuring charges of $6.4 million in
1995 resulted from the Company's consolidation of its 20 administrative
locations into two area centers. As a result, the Company incurred
restructuring and other charges totaling $3.1 million, including $0.9 million
for lease termination costs and $2.2 million for employee severance costs. In
addition, the Company incurred relocation costs of $3.3 million in 1995 related
to these actions.
Interest expense. Interest expense reflecting charges from RSI increased to
$29.7 million in 1995 from $24.3 million in 1994, an increase of $5.4 million.
This change resulted from an increase in the balance of interest bearing
advances from RSI as well as an increase in RSI's overall average cost of debt.
Income taxes. The Company's effective income tax rate was 45.3% in 1995
compared with 41.7% in 1994. The increase in the 1995 tax rate compared with
1994 resulted primarily from the impact of a level amount of non-deductible
expenses on changing levels of pre-tax earnings.
46
<PAGE>
SEASONALITY
Truck rentals display some seasonality, with generally higher levels of
demand occurring during the summer months. The Company's third quarter is
typically its strongest quarter. For 1996, the third quarter represented 30.2%
of annual revenues, while the first, second and fourth quarters represented
19.5%, 27.0% and 23.3% of annual revenues, respectively. On average,
approximately 50% of the Company's annual revenues are earned during the five-
month period beginning in May and ending in September. The Company's strongest
month is typically August, which on average accounts for 11% to 12% of annual
revenues.
Because a significant portion of the Company's customers are self-movers, a
larger portion of its sales are concentrated on weekends. In addition, rentals
are generally stronger during the last weekend of the month, when residential
rent and lease contracts typically expire.
The Company's cash flows display more seasonality than its earnings primarily
due to the timing of truck purchases and dispositions. The Company typically
receives delivery of trucks between March and June of each year, resulting in
additional borrowing needs during that period. Dispositions are spread more
evenly throughout the year, with greater dispositions occurring during the
first and fourth quarters. Going forward, management anticipates that
dispositions will occur at times that more optimally meet supply and demand
requirements.
INFLATION
The Company does not believe that inflation has had a material impact on its
financial position or results of operations during the periods covered by the
Financial Statements included herein.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from debt service on
indebtedness incurred in connection with the Acquisition, working capital needs
and the funding of capital expenditures.
Principal and interest payments under the Senior Bank Facilities and the
Notes represent significant liquidity requirements for the Company. Pursuant to
the Term Facility and after giving effect to the Initial Offering and
application of the proceeds therefrom, the Company will be required to make
principal payments totaling $16.1 million in each of fiscal 1998, 1999 and
2000, and $232.7 million in 2001. Outstanding balances under the Senior Bank
Facilities will bear interest at floating rates based upon the interest rate
option selected by the Company. In compliance with the terms of the Senior Bank
Facilities, the Company entered into interest rate protection agreements
effective December 9, 1996 with respect to $125.0 million aggregate principal
amount outstanding under the Term Facility. These interest rate protection
agreements establish an effective minimum base interest rate of 5.33% and an
effective maximum base interest rate of 6.65% with respect to $125.0 million of
the Company's floating rate debt for a period of up to three years. See
"Description of Senior Bank Facilities."
The Company intends to refinance all of the Term Facility, and a portion of
the Revolving Credit Facility, with the proceeds of the Securitization by
Leasco. It is currently anticipated that the Securitization will be effected
through a commercial paper financing, a medium term note financing or other
forms of borrowing and including credit enhancement facilities, but the
refinancing intended to be effected by the Securitization could take other
forms. There can be no assurance that Leasco will be able to effect the
Securitization or that it will be able to effect the Securitization on terms
acceptable to Leasco or the Company. The Company anticipates that following the
Securitization it will retain a smaller revolving credit facility to meet short
term working capital needs.
The Company's capital expenditures, primarily for the purchase of revenue
earning equipment, were $69.4 million in 1996, compared with $223.7 million in
1995 and $191.9 million in 1994. The Company estimates that its total capital
expenditures for 1997 will range between $100.0 million and $115.0 million. The
decrease in capital spending in 1996 was due primarily to a planned decrease in
the average size of the fleet. The increase in
47
<PAGE>
capital spending during 1995 relative to 1994 was due primarily to the
replacement of older trucks and a change in fleet mix coupled with a
simultaneous increase in the size of the fleet. The Company's ability to make
capital expenditures is subject to certain restrictions under the Senior Bank
Facilities.
The Company's principal source of cash to fund its liquidity needs is net
cash from operating activities, proceeds from sales of revenue earning
equipment and borrowings under the Revolving Credit Facility.
The components of net cash from operating activities are detailed in the
Financial Statements and the related notes thereto included elsewhere in this
Prospectus and include net income (loss) adjusted for (i) depreciation and
amortization, (ii) deferred income taxes and (iii) changes in operating assets
and liabilities. Net cash flows from operating activities for the period from
October 17, 1996 to December 31, 1996 amounted to $44.4 million. Such amount is
comprised of $20.3 million of income before depreciation, amortization and
other non-cash charges and $24.1 million of working capital changes,
principally accounts payable and accrued liabilities. The growth in liabilities
reflects the impact of the Acquisition and the fact that the Company assumed
only a small portion of the normal current liabilities of the Business as of
the Acquisition Closing Date. Net cash flows from operating activities amounted
to $116.8 million for the period January 1, 1996 through October 16, 1996.
During the period of January 1, 1996 through October 16, 1996, receivables
decreased due to reductions in used vehicle sales, while accounts payable
decreased due to the timing of vehicle purchases. Cash flows from operating
activities were $79.3 million in 1995 and $114.6 million in 1994. The decrease
in 1995 compared with 1994 resulted primarily from lower earnings combined with
changes in certain working capital items, including reduced accounts payable
due to the timing of vehicle purchases. These items were somewhat offset by
higher non-cash charges for depreciation, net of gains in 1995.
The Company disposes of its vehicles through several outlets, including
trade-ins through manufacturers, sales through RTR's truck sales operations and
sales through the Company's independent dealers. Proceeds from such
dispositions were $56.3 million in 1996, a decrease of 22.0%, or $15.9 million,
from $72.2 million in 1995. For 1994, proceeds from such dispositions totaled
$50.0 million. The change in the amount of proceeds from dispositions is
primarily related to the number and type of vehicles sold during the respective
periods. The Company also disposes of other property and equipment in the
ordinary course of business. Proceeds from such dispositions are not material.
As of December 31, 1996, no loans were outstanding under the Revolving Credit
Facility, and letters of credit in the amount of $12.5 million had been issued
thereunder. Amounts available under the Revolving Credit Facility are subject
to borrowing base availability and may be used for working capital and general
corporate purposes (including $50.0 million for letters of credit), subject to
certain limitations under the Senior Bank Facilities. At December 31, 1996, the
Company's availability under the Revolving Credit Facility was approximately
$105.9 million. The Company believes that cash generated from operations and
asset dispositions, together with the amounts available under the Revolving
Credit Facility, will be adequate to meet its debt service requirements,
capital expenditure requirements and working capital needs for the foreseeable
future, although no assurance can be given in this regard. The Company's future
operating performance and ability to service or refinance the Notes and to
extend or refinance the Senior Bank Facilities will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control.
48
<PAGE>
THE ACQUISITION
On the Acquisition Closing Date, pursuant to the Acquisition Agreements, (i)
the Company acquired (for a cash purchase price of approximately $87.1
million) from RTR substantially all of the assets of the Division, other than
the trucks used in the Business, and (ii) Leasco acquired (for a cash purchase
price of approximately $492.3 million) approximately 32,200 trucks and certain
related assets used in the Business, for an aggregate cash purchase price of
$579.4 million. The purchase price was subsequently reduced by $6.1 million
pursuant to post-closing adjustment provisions. Leasco was formed by the
Company to facilitate transfers to one entity of ownership of and legal title
to the trucks and to be the issuer of securities in a proposed securitized
financing of the trucks. Leasco leases the trucks to the Company pursuant to a
Master Motor Vehicle Lease Agreement. See "Leasco and Proposed
Securitization."
In addition to the trucks, the assets acquired include moving equipment and
related accessories, including car carriers, hand trucks, movers' dollies,
furniture pads and service vehicles, prepaid advertising and license fees and
certain management information systems, hardware and software systems that
comprise the yield management and fleet management systems. The assets also
include the royalty-free right to use the 1-800-GO-RYDER telephone number,
subject to certain restrictions, for a period of up to 13 years; for a period
of three years thereafter, the Seller has agreed not to market the 1-800-GO-
RYDER number in any truck rental or leasing business. In addition, the Company
acquired the royalty-free right to use (i) Ryder trademarks, subject to
certain restrictions, for a period of up to ten years, provided that the
Company must begin using the Ryder name in conjunction with a successor name
after five years, and (ii) the Ryder signature color scheme in perpetuity,
subject to certain restrictions. The Company also acquired all of the
outstanding stock of two wholly-owned subsidiaries of RTR, RMM and Ryder Truck
Rental One-Way, Inc.
Pursuant to the Acquisition Agreements, the Company agreed to assume all
liabilities and obligations of the Business (i) arising out of the conduct of
the Business by the Company on or after the Acquisition Closing Date, (ii) as
a result of the condition of any asset of the Business (other than with
respect to environmental liability), but only to the extent that the harm to
third parties occurred on or after the Acquisition Closing Date, (iii) arising
from the violation of any laws, but only with respect to periods on or after
the Acquisition Closing Date, and (iv) to the extent recorded as a liability
on the statement of the net book value of the Business as of the Acquisition
Closing Date. RTR and the Company agreed that the Company would not be liable
for environmental conditions existing prior to the Acquisition Closing Date,
whether discovered or undiscovered.
In connection with the Acquisition, the Company and RTR entered into certain
agreements pursuant to which RTR provides services to the Company, including
the provision of maintenance, sales of used trucks and administrative services
and management information systems support. See "Relationships with the
Seller."
49
<PAGE>
BUSINESS
GENERAL
The Company is the second largest provider of truck rentals and related
moving supplies and services to the consumer and light commercial markets in
the United States, with a fleet of approximately 31,400 trucks as of December
31, 1996. The Company rents trucks, towing equipment and accessory equipment
and sells liability-limiting products and moving supplies to consumers and
commercial customers through its nationwide network of approximately 4,200
dealers as of December 31, 1996. The average age of the Company's trucks is 36
months, which is considerably younger than that of its principal competitor.
The Company believes it has the second largest share of the domestic consumer
truck rental market and the largest share of the domestic light commercial
truck rental market. See "--Industry Overview." The Company's revenues and
EBITDA grew at compound annual rates of 6.2% and 13.9%, respectively, from
1992 through 1996. Over the same period, EBITDA margins increased from 20.0%
to 26.5%. On a pro forma basis for the year ended December 31, 1996, the
Company generated total revenues of $542.8 million, EBITDA of $143.7 million
and a net loss of $8.0 million. (See "Summary Historical and Pro Forma
Financial Information" and "Selected Historical and Pro Forma Financial
Information" for cash flows data.)
The Company rents trucks primarily to consumers who are moving to new
household locations. These customers generally rent trucks from one Ryder
location and return them either to the same location (a "local" rental) or to
a different location (a "one-way" rental). Revenues from consumer rentals
accounted for approximately 74% of the Company's total truck rental revenues
in 1996, of which one-way revenues represented 70% and local revenues
represented 30%. The Company has focused on the one-way segment because it is
generally more profitable, generates higher revenues per day and capitalizes
on the competitive advantages provided by the Company's state-of-the-art yield
management system as well as its modern and dependable fleet. The Company has
an approximate 27% share of the consumer one-way market and an approximate 20%
share of the consumer local market, based on 1996 revenues.
In addition to serving the consumer market, the Company rents trucks,
primarily on a local basis, to businesses for a wide range of light commercial
uses. Commercial customers range from small local businesses, such as
florists, package delivery companies and local private moving companies, to
large national companies that rent Ryder trucks primarily for the
transportation and delivery of inventory and packages. Revenues from light
commercial rentals accounted for approximately 26% of the Company's total
truck rental revenues in 1996. The light commercial segment complements the
Company's consumer rental business by enabling the Company to improve
utilization of its trucks on weekdays, when consumer demand is typically lower
than it is on weekends.
The Company supplements its truck rental business with a range of other
products and services. The Company rents automobile towing equipment and other
moving accessories such as hand trucks and furniture pads and sells moving
supplies such as boxes, tape and packing materials. The Company also offers
customers a range of liability-limiting products such as physical damage
waivers, personal accident and cargo protection and supplemental liability
protection. These accessory products enhance the Company's appeal to consumers
by offering customers "one-stop" moving services.
The Company derives important competitive advantages from its proprietary
one-way yield management system, which has enabled the Company to increase
fleet utilization and optimize pricing for one-way transactions and thereby
increase profitability and return on assets. The one-way yield management
system was rolled out to the Company's dealers through its proprietary point-
of-sale (the "POS") system in 1992 and 1993. Management believes that the
Company is the only national truck rental company to have sophisticated POS
computers at every dealer location. The yield management system is designed to
optimize fleet utilization and revenue per vehicle by renting the greatest
number of vehicles each day at the best possible rates. This system determines
the optimal price for each one-way transaction, based on forecasted demand,
vehicle availability, existing reservations, operating costs and competitors'
pricing in each market. In addition, the system enables the Company to offer
its one-way customers a wide range of pricing alternatives to increase
utilization during
50
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off-peak periods and position its trucks for the most profitable peak period
rentals. The yield management system has assisted the Company in increasing
utilization and annual revenue per truck (including accessory rentals and
product sales) from 36% and $12,797 in 1991 to 45% and $16,601 in 1996.
In addition to automating the customer reservation process and providing the
dealers with pricing information, the Company's POS system provides all of its
dealers with valuable information on the location, mileage and maintenance
status of each truck available in a specific market. Furthermore, the POS
system is integrated with the Company's management information systems,
providing management with access to operational and financial information,
which is updated at least daily, concerning the Company's performance at all
levels, including the individual dealer.
INDUSTRY OVERVIEW
The Company competes in two primary segments of the truck rental industry:
(i) the consumer market, consisting of people who rent trucks primarily to
move household goods (the "consumer market"), and (ii) the light commercial
market, which serves a wide range of businesses that rent light- and medium-
duty trucks (i.e., trucks with a gross vehicle weight of less than 26,000
pounds) for a variety of commercial applications (the "light commercial
market").
The Consumer Market. Management believes that the four largest consumer
truck rental companies accounted for approximately 93% of 1996 estimated
consumer market revenues (which includes truck rental and rental-related
products), approximately 80% of which the Company estimates was related to
household moves. Based on data published by the United States Census Bureau,
the total number of household moves, which include people who rent trucks,
hire full service van lines or use owned or borrowed trucks, was approximately
16 million in 1996, approximately 30% of which management estimates involved
the rental of trucks. More than 50% of the total number of household moves are
conducted with owned or borrowed vehicles (the "owned/borrowed market"), which
the Company believes provides an opportunity to expand the consumer truck
rental market. Management estimates that, over the past seven years, the
percentage of household moves in the owned/borrowed market has decreased from
approximately 61% in 1989 to approximately 54% in 1996. During this same
period, the percentage of household moves in the truck rental segment has
increased from 27% to 30%. Management believes that, while the total number of
household relocations has tended to decline slightly during economic
downturns, the total number of truck rental transactions has either remained
stable or has increased. Management believes that truck rentals account for a
higher percentage of household moves during economic downturns because renting
a truck is usually more economical than hiring a full-service van line.
The consumer truck rental market is comprised of the one-way segment and the
local segment. The following table sets forth estimated market shares, based
on the study referred to below, for participants in the consumer market for
1995 and 1996:
<TABLE>
<CAPTION>
ONE-WAY SEGMENT LOCAL SEGMENT TOTAL CONSUMER
REVENUE SHARE REVENUE SHARE MARKET REVENUE SHARE
--------------- --------------- --------------------
PARTICIPANTS 1995 1996 1995 1996 1995 1996
------------ ------- ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
U-Haul.................. 42% 54% 57% 59% 47% 55%
RYDER TRS, INC. ........ 34 27 22 20 30 25
Penske.................. 10 13 4 5 8 10
Budget.................. 5 4 2 2 4 3
Other................... 9 2 15 14 11 7
------- ------- ------- ------- ---------- ----------
100% 100% 100% 100% 100% 100%
======= ======= ======= ======= ========== ==========
</TABLE>
- --------
Source: "Market Segment Share Tracking Study" by ICR dated January 14, 1997
(independent study commissioned by the Company).
51
<PAGE>
The table above indicates that the Company's market share of the consumer
truck rental market as set forth in the Market Segment Share Tracking Study
declined from 1995 to 1996. However, the indicated decline would, based on the
Company's financial results, require that the size of such market increased
from approximately $1.3 billion in 1995 to approximately $1.6 billion in 1996.
Such decline would also require that the one-way segment of the overall
consumer truck rental market increased 25% from 1995 to 1996. The Company does
not believe that available industry information supports the conclusion that
the consumer truck rental market grew from 1995 to 1996 to the extent so
suggested and, accordingly, the Company does not believe that its market share
has declined to the extent indicated. However, in the absence of other
industry data, the Company is unable to provide a different estimate.
Based on the total market estimates set forth above, the one-way segment of
the consumer truck rental market is estimated to have revenues of $1.0 billion
for 1996 and $800 million for 1995 and the local segment of the consumer truck
rental market is estimated to have revenues of $600 million for 1996 and $500
million for 1995. One-way rentals generate higher revenues per day than local
rentals and, in general, are more profitable.
The Commercial Market. Management estimates that the five largest light
commercial truck rental companies accounted for approximately 84% of 1996
estimated light commercial truck rental revenues of $520 million. Customers in
the light commercial market range from small local businesses to large
national companies, which rent trucks primarily for the transportation and
delivery of inventory and packages. Management estimates that since 1992, the
light commercial market has grown at a compound annual rate of approximately
6%. Management attributes a large part of this increase in demand for light-
duty commercial trucks to growth in the number of small businesses, a trend
towards outsourcing and an emphasis on "just-in-time" inventory management.
The following table sets forth management's estimated market shares for
participants in the light commercial market for the 12-month period ended
August, 1996:
<TABLE>
<CAPTION>
LIGHT COMMERCIAL
MARKET REVENUE
PARTICIPANTS SHARE
------------ ----------------
<S> <C>
RYDER TRS, INC.............................................. 28%
RTR......................................................... 27
Rollins..................................................... 12
U-Haul...................................................... 10
Penske...................................................... 7
Other....................................................... 16
---
100%
===
</TABLE>
- --------
Source: Based on "1996 Commercial Truck Rental Market Size and Market Share
Study" by Advertising Research Corporation dated October 25, 1996 (independent
study commissioned by the Company).
BUSINESS STRATEGY
The Company's strategy for achieving continued growth in revenues,
profitability and fleet utilization includes: (i) achieving cost reductions
and improving return on capital; (ii) expanding yield management capabilities;
(iii) increasing sales of rental-related products; (iv) enhancing marketing
and advertising efforts; and (v) improving customer service and conversion
rates.
Achieve Cost Reductions and Improve Return on Capital. Management believes
that opportunities exist to implement approximately $10 million to $20 million
of continuing annual cost savings over the next several years by streamlining
general and administrative processes, reducing telecommunications costs,
improving insurance claims processing, creating operational efficiencies
through MIS initiatives and more effectively managing maintenance procedures.
In addition, through better utilization of the fleet, the Company anticipates
an additional reduction of its average operating fleet to approximately 31,000
trucks for 1997, resulting in lower interest expense and reduced ongoing
capital expenditure requirements.
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<PAGE>
Expand Yield Management Capabilities. Management believes that an effective
way to maximize profitability and return on assets is to optimize utilization
by renting the greatest number of vehicles each day at the best possible
rates. Management believes that the Company's one-way yield management system
is the most extensive and advanced in the industry and is largely responsible
for the increase in fleet utilization from 36% in 1991 (the period immediately
preceding the rollout of the one-way yield management system) to 45% in 1996.
The Company is in the process of enhancing this system by implementing a
complementary local yield management system, which is expected to be available
on-line through the POS system to each dealer in 1997. This system will apply
to the Company's local consumer and light commercial business the same
principles that the Company has successfully used to more efficiently manage
its one-way business. Local rental prices will be updated daily based on
forecasted demand, vehicle availability, existing reservations, operating
costs and competitors' pricing in each market. Management believes that the
Company will be the only major participant in the industry using sophisticated
yield management techniques to price and manage one-way and local
transactions. This should not only result in an increase in local consumer and
light commercial market share but also enable the Company to allocate its
fleet more efficiently between the local and one-way segments, thus further
improving overall fleet utilization and profitability.
Increase Sales of Rental-Related Products. Management believes that there
are significant opportunities to increase revenues and profitability through
greater sales of liability-limiting products and moving supplies. For example,
less than 60% of the Company's consumer customers purchased liability-limiting
products in 1995, even though most consumers are not covered for truck rentals
under traditional personal automobile insurance policies. In addition, less
than one-third of the Company's dealers actively participate in the Company-
sponsored moving supplies program. The Company intends to increase the quality
and frequency of dealer training to improve the marketing and merchandising of
liability-limiting products and moving supplies and increase the number of
dealers that participate in the Company-sponsored moving supplies program. The
Company is also considering implementing a new dealer compensation structure
to provide better incentives for dealers to sell these products.
Enhance Marketing and Advertising Efforts. As an independent entity, the
Company will be able to focus marketing and advertising programs specifically
on the consumer and light commercial markets. Such marketing efforts will
capitalize on the Company's competitive advantages, featuring the unique
benefits of its modern, comfortable and reliable fleet. Management believes
that these enhanced marketing activities should not only increase the
Company's share of the truck rental market but also attract additional
customers from the owned/borrowed market.
Improve Customer Service and Conversion Rates. Management believes that
there is a significant opportunity to increase the percentage of customer
inquiries that result in booked reservations, referred to as the conversion
rate. Telephone inquiries placed to the 1-800-GO-RYDER number are handled both
by professional customer service agents and by dealers. In general,
professional customer service agents tend to achieve higher conversion rates
than dealers. The Company will seek to provide professional customer service
agents with more accurate information on the location and availability of
vehicles, enabling these professional agents to process a higher percentage of
calls placed to the 1-800-GO-RYDER number. Management also believes that there
is broad disparity in the quality of individual dealers' handling of telephone
inquiries. Management will seek to increase the quality and frequency of
dealer training in customer service in an effort to increase the conversion
rate for those calls that are placed directly to the dealers.
PRODUCTS AND SERVICES
The Company's principal line of business consists of renting trucks and
towing equipment and selling moving supplies and rental-related products to
consumers and commercial customers. In addition, the Company offers
comprehensive household goods relocation services to corporate employee
relocation departments through RMM. The following is a brief summary of the
Company's products and services.
Truck Rentals
The Company rents the following four types of vehicles to consumer and
commercial customers: the mini moving van (10 feet); the midsize moving van
(15 feet); the full size moving van (20 feet); and the maxi moving van (24
feet).
53
<PAGE>
One-Way Truck Rentals. The one-way truck rental business involves the rental
of trucks to customers who rent vehicles from one Ryder location and return
them to a different Ryder location. This segment serves primarily consumer
customers. The Company is one of four national companies to offer one-way
truck rentals, which command higher revenues per day and are generally more
profitable than local transactions. The Company's proprietary yield management
system is designed to determine the optimal price for each one-way
transaction, based on forecasted demand, vehicle availability, existing
reservations, operating costs and competitors' pricing in each market. The
yield management system updates prices daily on each one-way transaction,
allowing dealers to offer customers a variety of different rates for
alternative moving dates.
Local Truck Rentals. The local truck rental business involves the rental of
trucks to customers who generally rent and return trucks at the same Ryder
location. This segment serves both consumer and light commercial customers.
Although the majority of local consumer renters are individuals who are moving
to a new household location in the same area, local consumer renters also
include individuals who may rent a truck for other purposes such as to pick up
furniture from a local store or move appliances from one location to another.
Commercial customers range from small local businesses, such as florists,
package delivery companies and local private moving companies, to large
national companies that rent Ryder trucks primarily for the transportation and
delivery of inventory and packages. In many instances, commercial customers
rent Ryder trucks during their peak demand periods; for example, a florist may
rent Ryder trucks just before Valentine's Day.
Accessory Rentals and Product Sales
The Company offers additional rental-related products that complement its
truck rental business.
Towing Equipment and Accessory Rentals. The Company rents automobile
towing equipment, including automobile carriers (which carry an entire car)
and tow dollies (which lift only the front two wheels of the car). In
addition, the Company rents furniture pads (which protect furniture during
the moving process), hand trucks and movers' dollies for moving appliances,
boxes and other large or heavy objects.
Liability-Limiting Products. As part of its rental business, the Company
offers its customers a range of liability-limiting products, including
physical damage waivers, personal accident and cargo protection and
supplemental liability protection. The Company carries commercial insurance
coverage with respect to its supplemental liability protection, and retains
the risk for all other liability-limiting products. More than half of the
Company's 1995 truck rental transactions involved the sale of one or more
liability-limiting products.
Sales of Moving Supplies. The Company sells a variety of moving supplies,
including boxes, packing materials and tape. Management believes that there
is a significant opportunity to increase the sale of moving supplies and
will seek to increase the sale of these products in the future. See "--
Dealer Network."
Ryder Move Management, Inc.
RMM specializes in the management of household goods transportation services
for large and medium sized companies relocating their employees. Operating as
a broker, RMM works with a network of full-service van line operators and
relocation service providers to offer a variety of transportation and
relocation services.
Revenue from Products and Services
The following table sets forth the percentage of total revenues that each of
the Company's products and/or services represents for each of the last four
fiscal years.
<TABLE>
<CAPTION>
1993 1994 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
One-Way Truck Rentals............................ 38.5% 39.8% 41.0% 41.4%
Local Truck Rentals.............................. 43.6 41.7 39.2 39.5
Accessory Rentals and Product Sales. ............ 14.2 13.8 16.0 16.0
Ryder Move Management, Inc. ..................... 3.7 4.7 3.8 3.1
----- ----- ----- -----
Total.......................................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
MANAGEMENT INFORMATION SYSTEMS
The Company's proprietary yield management system is designed to optimize
utilization and revenue per vehicle by renting the greatest number of vehicles
each day at the best possible rates. This system determines the
54
<PAGE>
optimal price for each one-way transaction, based on forecasted demand,
vehicle availability, existing reservations, operating costs and competitors'
prices in each market. In addition, the system enables the Company to offer
its one-way customers a wide range of pricing alternatives to improve
utilization during off-peak periods and position its trucks for the most
profitable peak period rentals. The yield management system has assisted the
Company in increasing utilization and annual revenue per vehicle (including
accessory rentals and product sales) from 36% and $12,797 in 1991 to 45% and
$16,601 in 1996. In addition, by more efficiently managing its truck
inventory, the Company has been able to reduce the long-distance transfer of
trucks from one location to another. The Company is in the process of
enhancing this system by implementing a complementary local yield management
system that it expects to be available on-line through the POS system to each
dealer in 1997. This system will apply to the Company's local consumer and
light commercial business the same principles that the Company has
successfully used in managing its one-way business. Management believes that
the implementation of the local yield management system should not only result
in an increase in local consumer and light commercial market share and
profitability, but should also enable the Company to allocate its fleet more
efficiently between the local and one-way segments, thus further improving
overall fleet utilization and profitability.
The Company interfaces with its dealers through its POS system. Management
believes that it is the only national truck rental company to have a
sophisticated POS computer at every dealer location. Each dealer is equipped
with a computer that provides valuable information on reservations and
pricing, as well as the location, mileage and maintenance status of each truck
available in that dealer's market. The POS system is integrated with the
Company's management information systems, which provide management with real-
time access to operational and financial information concerning the Company's
performance at all levels, including the individual dealer.
The Company continually upgrades existing systems and develops new systems
to enhance its operations and improve the management decision process. The
Company has several new technology initiatives under development. For example,
a new reservations system would provide customer service agents with more
accurate information on the location and availability of vehicles, as well as
information on customer inquiries and reservations. Additionally, in early
1997 the Company implemented its Transfer Optimization Model, which automates
the local vehicle transfer decision process, minimizing costs associated with
the transfer of trucks between dealers.
SALES, MARKETING AND ADVERTISING
The Company's marketing and promotional activities are designed to build
brand awareness and preference by positioning Ryder as the high-quality truck
rental provider and emphasizing the convenience and ease of doing business
with the Company. Approximately half of the Company's advertising budget is
devoted to Yellow Pages advertising, which management believes is the most
effective advertising medium for truck rentals. According to a study
commissioned by the Company, approximately 65% of all renters use the Yellow
Pages to select a truck rental company. The Company also utilizes national
television advertising to build Ryder brand awareness and to position Ryder as
the highest quality truck rental company in the industry. The Company also
utilizes local radio, print and direct mail to support specific market
objectives. In 1992, the Company launched its 1-800-GO-RYDER number designed
to communicate the "ease of doing business" with Ryder.
The Company uses a number of other advertising media to target potential
customers just before they move. For example, the Company currently is a
sponsor of the United States Postal Service Mover's Guide, which is available
in post offices throughout the United States and contains the official post
office change-of-address form which is typically filled out prior to a move.
The guide features a yellow truck on the cover, and contains the Company's
advertisement and coupons. The Company also sponsors "Smart Moves," a moving
planner that is provided to the Apartment Management Association, a nationwide
apartment management group, for distribution to apartment renters when they
sign new leases. This program targets frequent movers, providing them with
moving tips and coupons from the Company.
55
<PAGE>
MAINTENANCE
The Company's maintenance program establishes a schedule of preventive
maintenance customized to each vehicle category. In addition, the Company's
information systems maintain an up-to-date maintenance history on each vehicle
in the fleet, and the POS system notifies dealers when vehicles are due for
preventive maintenance. Each dealer is responsible for performing on-site
vehicle condition inspections after each rental. Management believes that, as
a result of this program, the Company is able to obtain more dependable
performance from its fleet, extend the useful life of its fleet and obtain
more favorable prices for used trucks when they are sold.
VEHICLE ACQUISITION AND DISPOSITION
The Company purchases the chassis for its trucks primarily from General
Motors, Ford and Navistar, and purchases the "boxes" (the storage compartment
on the back of the truck) from Morgan Body Company, UtiliMaster, Grumman Olson
and Supreme Corporation. As of December 31, 1996, the Company's fleet consists
of approximately 16,100 smaller trucks, consisting of mini moving vans (10
feet) and midsize moving vans (15 feet) and approximately 15,300 larger
trucks, consisting of full size moving vans (20 feet) and maxi moving vans (24
feet). The Company has not experienced any significant delays in obtaining
delivery of its trucks.
Purchasing of trucks is coordinated through the Company's headquarters in
Miami, Florida. Purchases are negotiated annually with each manufacturer.
Orders are placed in October or November for delivery primarily between March
and June of the following year in time for the busy summer season. The Company
believes that its purchasing expertise and the volume of its purchases enable
it to buy vehicles on terms that are more favorable than those available to
its smaller competitors.
The Company disposes of its used vehicles through several outlets, including
trade-ins through manufacturers, sales through RTR's truck sales operations
and sales through the Company's dealers. In 1996, the Company sold 23% of its
used vehicles through trade-ins, 69% through RTR's sales operations and 8%
through selected independent dealers. The Company disposes of its trucks
throughout the year, with a larger proportion being sold or traded in during
the first and fourth quarters after the busy summer season.
The Company uses various quantitative analyses to make disposition decisions
based upon the average age and running cost statistics for different trucks.
The Company may dispose of a certain year and make of truck prior to its
targeted holding period if that particular model has high running costs or
above average downtime. Similarly, it will hold trucks beyond the average
holding period if they have low running costs.
OPERATIONS
The Company is presently headquartered in Miami, Florida and operates under
the Ryder name through a national network that approximated 4,200 dealers at
December 31, 1996. The Company has area centers in Norcross, Georgia and
Aurora, Colorado, and maintains regional marketing offices in eleven
metropolitan areas. The Company plans to relocate its corporate headquarters
to Denver, Colorado. See "--Facilities."
Each regional marketing office is headed by a Director of Business
Development ("DBD") who reports to the Vice President, Sales and Dealer
Development. DBDs are primarily responsible for overall business development
and recruiting, training and managing Ryder dealers. Each of the eleven
geographic areas has eight to twelve Dealer Development Managers ("DDMs"),
each of whom manages approximately 5 to 10 Market Teams, each of which, in
turn, is comprised of 3 to 8 dealers. Each geographic area also has a team of
dealer coordinators, based in the respective area centers, who are
collectively responsible for the operation and management of the fleet and who
report to the Vice President of Operations. In addition, each DBD also
supervises a Sales Executive who is responsible for RMM's sales and account
management.
Trucks are shared among the members of each Market Team, and dealers have
access through their POS systems to information concerning inventory levels at
all dealers within their team. The Company involves its dealers in business
planning through local, regional and national dealer councils which meet on a
regular basis to provide the Company with input regarding operating and
marketing issues.
56
<PAGE>
DEALER NETWORK
The Company's truck rental services are offered nationwide through
approximately 3,860 independent dealers, and 340 dealers owned and operated by
the Seller. The number of dealers peaked above 5,000 in 1995 and has now been
reduced to the current level as a result of the Company's efforts to
rationalize its distribution network. Dealer turnover, which often occurs
during the first year after a dealership is established, was approximately 16%
in 1995. In 1996, dealer turnover increased to approximately 27%, primarily
due to a planned reduction in the number of dealers. As part of the
rationalization of the distribution network, management sought to eliminate
dealers with the lowest transaction volume and to allocate its fleet to its
most successful dealers. Management intends to apply more stringent dealer
selection criteria in the future, which it believes should further reduce the
dealer turnover rate.
Dealerships consist primarily of auto parts retailers and service suppliers,
self storage centers, car rental locations and other vehicle-related
businesses that are owned by independent parties. These dealers rent Ryder
trucks in addition to operating their principal lines of business. The 340
dealers owned and operated by the Seller also rent trucks on behalf of the
Company on substantially the same terms and conditions as for independent
dealers. A small number of independent dealers are affiliated with national
organizations (e.g., Shurgard Storage Centers) that negotiate certain matters
with the Company on behalf of the affiliated dealers.
All of the Company's dealers sell liability-limiting products and less than
one-third actively participate in the Company-sponsored moving supplies
program. With respect to moving supplies, the Company's suppliers receive
orders directly from participating dealers and then forward invoices to the
Company, which in turn bills the dealers. Although such products currently
represent a small portion of the dealers' overall business, the Company
believes that opportunities exist to increase the sale of these products
within the dealer network.
Independent dealers receive a 17% commission on all truck rentals, sales of
liability-limiting products and rentals of moving-related products generated
by their dealerships. Certain incentives are offered from time to time to
influence sales in certain areas of the business. The average dealer earns
approximately $20,000 per year in commissions. Dealership agreements can be
terminated by either party upon 30 to 90 days' prior written notice, depending
on dealer tenure. RTR dealership arrangements can be terminated at certain
times depending on dealer revenues. See "Relationships with the Seller--Dealer
and Cooperation Arrangements."
The Company currently operates, either through dealers or directly, 24 pilot
Ryder stores that, in addition to renting trucks, sell a more extensive array
of moving supplies, such as boxes, tape, storage containers and other packing
supplies. These stores have a modern "retail store" design. In some cases,
these stores also earn revenue from other sources such as car or motorcoach
rental, or operate as parcel packaging and shipping stores, but their primary
source of revenue is the rental of Ryder trucks and related services.
COMPETITION
The truck rental industry is highly competitive, with U-Haul being the
principal competitor with a greater market share and potentially greater
financial resources than the Company. U-Haul has more dealers and operates a
significantly greater number of its own stores than does the Company. However,
management believes that the Company's fleet of trucks is younger than U-
Haul's fleet. Other competitors include Budget Rent-A-Car and Penske Truck
Leasing. Competition in the truck rental industry is generally based on price,
product quality, brand name recognition, service, convenience and
availability.
EMPLOYEES
As of December 31, 1996, the Company had approximately 571 full-time
employees, none of whom was represented by a union. The Company also hires
part-time personnel to transfer trucks among dealers. The Company believes
that its relationship with its employees is adequate.
FACILITIES
The Company leases all of its office and retail locations. Of 54 facilities,
30 are used for office space while 24 are pilot Ryder stores. The Company owns
no real property.
57
<PAGE>
Significant office operations are located in Miami, Florida, where the
Company presently maintains its headquarters, and in Norcross, Georgia and
Aurora, Colorado, the Company's two area centers. The Miami office is
subleased from the Seller for a period of two years with three annual renewal
options. Each of the area centers contains approximately 25,000 square feet
and is leased for an initial five-year term with options for annual renewals
thereafter.
The Company plans to relocate its corporate headquarters from Miami,
Florida, to Denver, Colorado. The Company entered into an agreement in March
1997 pursuant to which it will lease approximately 66,000 square feet of space
in downtown Denver for a minimum term of 10 years and a minimum annual rent
commitment ranging from $0.9 million to $1.4 million. Certain staff from the
Company's facilities in Miami, Florida, Atlanta, Georgia, Dallas, Texas and
Aurora, Colorado will be transferred to the new headquarters in Denver. The
Company also intends to recruit additional employees in the Denver area. As
part of the purchase accounting for the Acquisition, the Company recorded a
reserve of $6.0 million for severance, relocation, lease termination and other
costs associated with these plans.
Ryder stores are typically storefront locations in suburban areas. These
locations, on average, contain approximately 800 to 2,500 square feet of store
space, plus a parking area for the rental trucks. Lease terms are typically
two to four years, and the rent is generally no greater than $30,000 annually.
The Company's independent dealers generally operate out of facilities owned or
leased by them for their principal businesses.
INTELLECTUAL PROPERTY
The Company has the royalty-free right to use certain Ryder trademarks,
subject to certain restrictions, for a period of up to ten years. After
October 17, 2001, the Company must begin using these trademarks in conjunction
with a successor name. On October 17, 2006, the Company will no longer be
permitted to use the "Ryder" name in any manner. The Company has the royalty-
free right to use the 1-800-GO-RYDER number, subject to certain restrictions,
for a period of up to 13 years. The Company has the royalty-free right to use
the Ryder signature color scheme in perpetuity, subject to certain
restrictions. See "Relationships with the Seller--Intellectual Property."
Ryder's material trademarks have been registered with the United States Patent
and Trademark Office. The unexpected loss of such trademarks prior to the
expiration of the ten-year period could have a material adverse effect on the
Company's business.
INSURANCE
Historically the Company participated in the Seller's overall risk
management programs for automobile and general liability insurance, workers'
compensation and other insurance programs. In connection with the Acquisition,
the Seller retained liability for claims arising prior to the Acquisition
Closing Date. Since the Acquisition Closing Date, the Company has retained a
portion of its risk under automobile and general liability insurance and other
insurance programs. The reserves for these claims at December 31, 1995 and
1996 were $45.4 million and $4.8 million, respectively. See Notes to Financial
Statements included herein.
Recorded reserves will reflect estimated liabilities, including claims
incurred but not reported. Such liabilities will necessarily be based on
actuarial or other estimates. There can be no assurance that the estimates
will not change as a result of limitations inherent in the estimation process.
Changes in the estimates of these reserves will be charged or credited to
income in the period determined.
GOVERNMENTAL REGULATION
The Company and its operations are subject to various federal, state and
local laws and regulations, including those relating to taxing and licensing
of vehicles, transportation and vehicle safety, consumer protection,
insurance, advertising, used vehicle sales and labor matters. The Company
believes that it is in substantial compliance with applicable laws and
regulations. However, the Company may be affected by changes, from time to
time, in such laws and regulations. In addition, the Company's operations, as
well as those of its competitors, could be affected by any limitation in fuel
supply or any rationing of fuel.
58
<PAGE>
The Company offers for sale, in addition to the rental of trucks, certain
liability-limiting products, such as physical damage waivers and limited
damage waivers, pursuant to which the Company agrees to waive its right to
recovery from a renter for damage to the truck. Approximately 8.0%, 10.0% and
10.0% of the Company's revenues in 1994, 1995 and 1996, respectively, were
generated from the sale of such liability-limiting products. Certain states
have enacted legislation, generally applicable to automobile rentals, which
limits the rates that may be charged for collision damage waivers, limits
potential customer liability for damage to rented vehicles or restricts the
sale of such waivers. In addition, Congress has from time to time considered
legislation to regulate the sale of collision damage waivers by rental
companies, but no such legislation has been enacted to date. The adoption of
additional state or federal legislation applicable to truck rentals that would
restrict the sale, or limit the rates, of collision damage waivers or other
liability-limiting products, or would limit potential customer liability could
adversely affect sales of these products by the Company.
A number of states currently hold a vehicle owner, including vehicle rental
companies, vicariously liable, regardless of fault, for the actions of any
person lawfully driving such owned vehicle.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to various federal, state and
local environmental laws and regulations, including laws and regulations which
relate to the ownership or use of tanks for the storage of petroleum products,
the management and removal of asbestos-containing materials in buildings, and
the disposal of solid or liquid wastes. The Company believes that it is in
substantial compliance with applicable environmental laws and regulations.
Such laws and regulations impose liability on responsible parties to
remediate, or contribute to the costs of remediating, sites at which petroleum
products or hazardous wastes or substances were disposed of or released, which
may include sites operated by the Company or to which it may have sent waste
products for disposal, treatment or recycling. Such remediation requirements
may be imposed without regard to fault or legality at the time of disposal or
release.
The Seller has remediated contamination at one property pursuant to such
remediation laws, and there can be no assurance that contamination requiring
remediation will not be found in the future at other properties leased by the
Company. Also, there can be no assurance that asbestos-containing building
materials, such as asbestos-containing floor and ceiling materials, do not
exist in one or more of its leased buildings. The Seller, however, has agreed,
pursuant to the Acquisition Agreements, to retain liability for certain
environmental conditions existing at the properties at the time the Company
assumed the leases from the Seller. Therefore, the Company believes that it
will not incur material liability in the event that such environmental
conditions are found to exist.
The Company also maintains aboveground storage tanks at one property for the
storage of petroleum products, and performs light vehicle maintenance at some
of its leased properties. While the Seller has retained liability with respect
to environmental conditions existing prior to the date of the Acquisition,
whether discovered or undiscovered, there can be no assurance that present or
future activities undertaken by the Company will not result in environmentally
related expenditures for which the Company may be responsible. The Company
believes, however, that such expenditures would not have a material adverse
effect on its financial condition.
LEGAL PROCEEDINGS
From time to time, the Company is a party to legal actions in the normal
course of its business. The Company is not currently involved in any legal
proceedings that it believes would have a material adverse effect upon its
financial condition or results of operations.
59
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jay Alix................ 41 Chairman of the Board of Directors and Chief Executive Officer
Lawrence J. Ramaekers... 58 Vice Chairman of the Board of Directors
Gerald R. Riordan....... 48 President, Chief Operating Officer and Director
Wayne M. Mincey......... 39 Vice President, Operations
Deborah L. Riston....... 45 Vice President, Human Resources
David S. Russell........ 37 Vice President, Sales and Dealer Development
Gary L. Andrews......... 55 Vice President, Maintenance
Stephen T. D. Dixon..... 37 Vice President and Chief Information Officer
Larry D. Thogmartin..... 48 Vice President and Controller
Christopher G. Mumford.. 51 Vice President and Director
Steven R. Davison....... 45 Vice President and Treasurer
Alfred A. Piergallini... 50 Director
Thomas R. Reusche....... 42 Director
Edward L. Scarff........ 66 Director
</TABLE>
The By-Laws of the Company provide that the Board of Directors shall consist
of such number of directors as shall be fixed from time to time by resolution
of the Board, such number being limited to 15. The members of the Board were
elected in accordance with the provisions of a Shareholders' Agreement among
the Company and all of the shareholders of the Company pursuant to which
Madison Dearborn Capital Partners, L.P. ("Madison Dearborn") has the right to
designate one director, with the other directors being designated by Questor.
See "Certain Transactions--Shareholders' Agreement."
Each director of the Company will hold office until the next annual meeting
of shareholders of the Company or until his successor has been elected and
qualified. Officers of the Company are elected by the Board of Directors and
serve at the discretion of the Board of Directors.
JAY ALIX has been a principal of Questor Principals, Inc. ("Questor
Principals") and Questor Management Company ("Questor Management") since 1995
and has been President of Jay Alix & Associates, Inc. ("JA&A"), a nationally
known turnaround management firm located in Southfield, Michigan, Chicago and
New York City, since 1981. From 1992 to 1995, Mr. Alix and JA&A were retained
by General Motors Corporation to direct the restructuring of its National Car
Rental subsidiary, and during that period Mr. Alix was the Chief Executive
Officer and a director of National Car Rental.
LAWRENCE J. RAMAEKERS has been a principal of JA&A since 1982. In February
of 1997, he became interim Chief Executive Officer of Centennial Technologies,
Inc., which designs, manufactures and markets an extensive line of personal
computer card-based solutions and provides contract manufacturing services to
original equipment manufacturers. Previously, among other engagements, Mr.
Ramaekers was Chief Operating Officer of National Car Rental during the two
and a half years that JA&A was engaged by that entity.
GERALD R. RIORDAN joined the Seller in 1972. Mr. Riordan has been President
of the Company since December 1992. From October 1991 to December 1992, Mr.
Riordan served as Senior Executive Vice President and General Manager of the
Company.
WAYNE M. MINCEY joined the Seller in 1979. Mr. Mincey has been Vice
President, Operations, of the Company since August 1995. From July 1993 to
August 1995, Mr. Mincey served as Vice President, Central
60
<PAGE>
Area. From July 1991 to July 1993, Mr. Mincey served as Vice President,
Operations & Development of the Company and General Manager of RMM.
DEBORAH L. RISTON joined the Seller in 1978. Ms. Riston has been Vice
President, Human Resources, of the Company since October 1995. From July 1991
to October 1995, Ms. Riston served as Director of Human Resources and, prior
to that, as Director of Employee Benefits of the Company.
DAVID S. RUSSELL joined the Seller in 1982. Mr. Russell has been Vice
President, Sales and Dealer Development, of the Company since August 1995.
From November 1993 to August 1995, Mr. Russell served as Vice President,
Operations & Development of the Company and General Manager of RMM. From
September 1991 to November 1993, Mr. Russell served as District Manager of the
Company.
GARY L. ANDREWS joined the Seller in 1963. Prior to becoming Vice President,
Maintenance, in October 1996, Mr. Andrews had been Director of Consumer
Maintenance of the Seller since June 1992. From September 1985 to June 1992,
Mr. Andrews served as Director of Maintenance of RSI.
STEPHEN T. D. DIXON joined the Seller in 1986. Prior to becoming Vice
President and Chief Information Officer, Mr. Dixon had been Director, Central
Operations & Development of the Company and General Manager of RMM since
October 1995. From August 1993 to October 1995, Mr. Dixon served as Director
of Pricing and Inventory Management of RSI. From January 1990 to August 1993,
Mr. Dixon served as Senior Manager, Rental Pricing of RSI.
LARRY D. THOGMARTIN joined the Seller in 1971. Prior to becoming Vice
President and Controller, Mr. Thogmartin had been Controller of the Company
since June 1991. Prior to June 1991, Mr. Thogmartin served as the District and
Region Controller for RTR.
CHRISTOPHER G. MUMFORD has been a managing director of Questor Management
since 1995 and a general partner of Scarff, Sears & Associates in San
Francisco, an investment firm, since 1986. From 1982 to 1994, Mr. Mumford also
served as Executive Vice President and Chief Financial Officer of Arcata
Corporation. Mr. Mumford has been a director of the general partner of Crown
Pacific Limited Partnership and its predecessor entities since 1991.
STEVEN R. DAVISON joined the Company in 1997. Immediately prior thereto, Mr.
Davison served as a consultant to Questor Management. Mr. Davison was with
Hartmarx Corporation, a high-quality apparel manufacturer, from January 1985
to September 1995, most recently as Treasurer.
ALFRED A. PIERGALLINI has been President and Chief Executive Officer of
Gerber Products Co., which manufactures and sells baby food and offers life
insurance services, since April 1989. Mr. Piergallini is also a director of
Comerica Incorporated and Toy Biz Inc.
THOMAS R. REUSCHE has been a principal of Madison Dearborn and a Vice
President of Madison Dearborn Partners, Inc., an investment firm, since their
inceptions in January 1993. From June 1983 to December 1992, he was a Senior
Investment Manager at First Chicago Venture Capital. He is also a director of
Hines Horticulture, Inc.
EDWARD L. SCARFF has been a principal of Questor Principals and Questor
Management since 1995 and the founder and a general partner of Scarff, Sears &
Associates in San Francisco, an investment firm, since 1983. Mr. Scarff has
been a private investment banker in San Francisco since 1971. Prior to
establishing his own business, Mr. Scarff was a Senior Industrial Economist at
the Stanford Research Institute from 1955 to 1959, Head of Investment Research
at Investors Diversified Services from 1959 to 1963, President of North
American Securities Corporation from 1964 to 1965 and President and Chief
Operating Officer of Transamerica Corporation from 1965 to 1970. Mr. Scarff is
also a director of Clorox Company.
COMPENSATION OF DIRECTORS
The current directors of the Company presently receive no compensation. The
Company expects that Mr. Piergallini, who became a director in December 1996,
and other directors appointed or elected in the future who are not otherwise
affiliated with the Company, will be compensated as may be determined by the
Board of Directors from time to time.
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation paid by
the Seller for services rendered by certain of the Company's executive
officers (collectively, the "Named Officers") during fiscal 1995, the last
full fiscal year for which the Named Officers received compensation from the
Seller:
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION COMPENSATION
------------------------------- -----------------------
OTHER ANNUAL 401(K) INSURANCE
NAME AND SALARY BONUS COMPENSATION(A) CONTRIBUTIONS PREMIUMS
PRINCIPAL POSITION $ $ $ $ $
------------------ ------- ------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Gerald R. Riordan....... 240,000 150,000 2,994 8,314 7,376
President
Wayne M. Mincey......... 135,098 55,000 1,469 2,250 3,387
Vice President, Eastern
Area
Deborah L. Riston....... 119,750 42,500 1,497 1,541 3,280
Vice President, Human
Resources
David S. Russell........ 116,583 44,000 0 2,250 650
Vice President, Western
Area
Gary L. Andrews......... 113,333 18,000 0 2,250 0
Director of Consumer
Maintenance
</TABLE>
- --------
(a) This column represents amounts reimbursed for the payment of taxes on
certain perquisites provided to the Named Officers.
For fiscal 1996, from the Acquisition Closing Date through December 31,
1996, the compensation paid by the Company to the Named Officers consisted
only of salary and was as follows: Mr. Riordan $54,083, Mr. Mincey $31,792,
Ms. Riston $28,875, Mr. Russell $30,958 and Mr. Andrews $28,167. Mr. Alix does
not receive any compensation in his capacity as Chief Executive Officer. See
"Certain Transactions."
RSI OPTION GRANTS
The following table sets forth information regarding grants of options to
the Named Officers to purchase stock of RSI during fiscal 1995.
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
OPTIONS OF STOCK PRICE
NUMBER OF GRANTED TO APPRECIATION FOR OPTION
SECURITIES EMPLOYEES EXERCISE OR TERM
UNDERLYING IN FISCAL BASE PRICE EXPIRATION -------------------------
NAME OPTIONS GRANTED YEAR ($/SH) DATE 5% 10%
---- --------------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Riordan....... 20,000 1.75% 25.4375 10/02/05 $ 319,950 $ 810,816
Wayne M. Mincey......... 6,000 0.52 25.4375 10/02/05 95,985 243,245
Deborah L. Riston....... 4,500 0.39 25.4375 10/02/05 71,989 182,434
David S. Russell........ 5,000 0.43 25.4375 10/02/05 79,988 202,704
Gary L. Andrews......... 1,500 0.13 25.4375 10/02/05 23,996 60,811
</TABLE>
AGGREGATED RSI OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table sets forth, on an aggregated basis, information
regarding stock of RSI underlying unexercised options during fiscal 1995 by
the Named Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-
OPTIONS AT MONEY OPTIONS AT
YEAR END 1995 YEAR END 1995
------------- ----------------
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ------------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Gerald R. Riordan....... -- -- 97,820/61,500 $281,975/18,750
Wayne M. Mincey......... -- -- 15,066/ 9,250 19,227/ --
Deborah L. Riston....... 1,641 $19,745 12,299/ 6,300 28,671/ --
David S. Russell........ 1,641 4,493 3,350/ 6,550 -- / --
Gary L. Andrews......... -- -- 7,032/ 2,300 11,518/ --
</TABLE>
62
<PAGE>
OFFERING OF STOCK AND OPTIONS TO MANAGEMENT EMPLOYEES
The Company has offered to certain management employees of the Company the
opportunity to purchase shares of Class C Common Stock for $1,000 per share
(being the price paid by all existing shareholders for the Company's Class A
and Class B Common Stock issued in connection with the Acquisition). The total
number of shares that could be acquired by all such management employees would
be approximately 3,400 shares. In addition, management employees electing to
purchase such shares would receive options to purchase, for the same price,
additional shares of Class C Common Stock in a number equal to the number of
shares purchased directly. There can be no assurance that any or all of the
offered shares will be acquired by the management employees.
The agreements pursuant to which such shares would be issued would contain
provisions requiring the Company to repurchase such shares (and any other
shares of Class C Common Stock acquired by such employees) upon an employee's
death or retirement or termination of employment with the Company (generally,
for fair market value in the case of death and fair market value or book value
in the case of retirement or termination of employment, depending upon the
circumstances of such event). The purchasers of such shares would have certain
other rights, including rights to participate in certain issuances of shares
of capital stock to affiliates of the Company, the right to sell shares in
certain sales by Questor of its own shares of Common Stock and the right to
participate in certain other specified transactions. The agreements would
provide further that it would be a condition to an initial public offering of
the Company's Common Stock that the Company's Restated and Amended Certificate
of Incorporation be amended to provide for the conversion of Class C Common
Stock into Common Stock of the kind held by Questor. The agreements would
generally terminate (except with respect to options granted thereunder) upon
such an initial public offering.
The options referred to above would be exercisable for ten years (subject to
certain provisions for earlier termination) and would be exercisable to the
extent of 20% of the shares covered thereby during each year in the period
1998 through 2002. The options would be generally non-transferable, and the
right to exercise any unexercised portion thereof would expire upon, or within
30 days after, termination of employment.
The maximum numbers of shares being offered for purchase to each of the
Named Officers pursuant to the agreements described above are as follows:
Gerald R. Riordan - 525, Wayne M. Mincey - 215, Deborah L. Riston - 203, David
S. Russell - 197 and Gary L. Andrews - 128.
The Company also expects to grant to certain management employees options to
purchase Class C Common Stock without regard to whether such employees
purchase shares as described above.
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<PAGE>
OWNERSHIP OF CAPITAL STOCK
The Company is authorized to issue 275,000 shares of Common Stock, par value
$.01 per share ("Common Stock"), of which 225,000 shares shall be Class A
Common Stock, 25,000 shares shall be Class B Common Stock and 25,000 shares
shall be Class C Common Stock. As of December 31, 1996, 109,090 shares of
Class A Common Stock and 13,910 shares of Class B Common Stock were issued and
outstanding.
The holders of Class A Common Stock are entitled to vote on all matters to
be voted upon by shareholders of the Company. Holders of Class B Common Stock
and Class C Common Stock have no voting rights other than as required by law
and with respect to certain mergers or other transactions in which such
holders would be treated differently from holders of Class A Common Stock.
Shares of Class A Common Stock are convertible into the same number of shares
of Class B Common Stock, and shares of Class B Common Stock are convertible
into the same number of shares of Class A Common Stock in connection with
certain events, including certain sales of securities, mergers or similar
transactions that would result in a change of control of the Company, as
provided in the Company's Restated and Amended Certificate of Incorporation.
Shares of Class C Common Stock are not convertible into shares of Class A
Common Stock or Class B Common Stock, except under the circumstances described
under "--Offering of Stock and Options to Management Employees."
The table below sets forth certain information, as of December 31, 1996,
regarding the ownership of the Class A Common Stock by (i) each person who
beneficially owns five percent or more of the outstanding shares of such
Common Stock, (ii) each director and executive officer of the Company and
(iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF CLASS A
NAME AND ADDRESS SHARES COMMON STOCK
---------------- --------- ------------------
<S> <C> <C>
Questor Partners Fund, L.P.(1)................... 62,433 57.2%
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Questor Side-by-Side Partners, L.P.(1)........... 4,479 4.1%
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Madison Dearborn Capital Partners, L.P.(2)....... 24,600 22.6%
Three First National Plaza Suite 1330
Chicago, Illinois 60602
All executive officers and directors as a group 91,512 83.9%
(14 in number)(3)...............................
</TABLE>
- --------
(1) Questor Principals is the general partner of (i) Questor General Partner,
L.P., the general partner of Questor Partners Fund, L.P. ("Questor
Partners"), and (ii) Questor Side-by-Side Partners, L.P. ("Questor Side-
by-Side"). Questor Management has been appointed to act on behalf of the
general partners of Questor Partners and Questor Side-by-Side with respect
to matters relating to such partnerships. Questor Partners and Questor
Side-by-Side together own beneficially 66,912 shares of Class A Common
Stock, representing 61.3% of the outstanding shares of such stock. Jay
Alix, Melvyn N. Klein, Dan W. Lufkin and Edward L. Scarff are the
shareholders of each of Questor Principals and Questor Management, with
the power, jointly, to direct the actions of such corporations, and may be
deemed to share beneficial ownership of the shares owned by Questor
Partners and Questor Side-by-Side by virtue of their status and rights as
such shareholders, but each expressly disclaims beneficial ownership of
such shares by reason of such status and rights.
(2) Thomas R. Reusche, a director of the Company, is the designee of Madison
Dearborn as a director of the Company.
(3) Consists of (i) the shares of Class A Common Stock owned by Questor
Partners and Questor Side-by-Side, as to which Messrs. Alix and Scarff,
directors of the Company, may be deemed to share beneficial ownership (see
note (1)), and (ii) the shares of Class A Common Stock owned by Madison
Dearborn, as to which Mr. Reusche, as the designee of Madison Dearborn as
a director of the Company, may be deemed to have beneficial ownership, but
Mr. Reusche expressly disclaims beneficial ownership of such shares by
reasons of such status.
64
<PAGE>
Each of Societe Generale Investment Corporation and Chase Equity Associates,
an affiliate of Chase, owns 5,345 shares of Class A Common Stock (each
representing 4.9% of the outstanding Class A Common Stock). Societe Generale
Investment Corporation also owns 9,415 shares of Class B Common Stock and
Chase Equity Associates also owns 4,495 shares of Class B Common Stock.
SHAREHOLDERS' AGREEMENT
In connection with its formation and the Acquisition, the Company entered
into a Shareholders' Agreement (the "Shareholders Agreement") with all of the
holders of its Class A Common Stock and Class B Common Stock (collectively,
the "Shareholders"). The Shareholders Agreement contains certain restrictions
on transfers of Common Stock and provisions under which Shareholders may sell
Common Stock or require other Shareholders to sell Common Stock or under which
the Company may acquire Common Stock from Shareholders. The Shareholders
Agreement provides that, upon certain issuances by the Company of equity
securities to any of the initial Shareholders (or their permitted
transferees), Shareholders will have rights to maintain their percentage
equity interests in the Company's capital stock by purchasing a portion of
such equity securities.
Pursuant to the Shareholders Agreement, each of the Shareholders agrees to
vote its shares of Common Stock so that the Board of Directors will consist of
one director appointed by Madison Dearborn and as many other directors as
shall be appointed by Questor.
Subject to certain conditions, the Shareholders will have certain demand and
"piggyback" rights to have their shares of Common Stock registered under the
Securities Act. The Company has agreed to pay the costs and expenses
associated with any such registration, except for discounts and commissions.
The Shareholders Agreement will expire on the earlier to occur of the
closing of the underwritten initial public offering of Common Stock of the
Company and October 17, 2006.
65
<PAGE>
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENT WITH QUESTOR MANAGEMENT
The Company has entered into a Management and Consulting Agreement with
Questor Management, pursuant to which Questor Management will provide
consulting, management and advisory services to the Company, including
services with respect to strategic planning, financial matters and operations.
As compensation for such services, Questor Management will be paid an annual
management fee of $850,000 and costs and expenses incurred by Questor
Management in providing such services. In consideration of services previously
rendered by Madison Dearborn and in consideration of consulting, management,
and advisory services relating to the Company to be rendered at a reasonable
level in the future at the request of Questor Management, Questor Management
has agreed to pay to Madison Dearborn 20% of the annual management fee paid to
Questor Management. The Company has also agreed to indemnify Questor
Management and its affiliates from liabilities and claims arising out of or in
connection with the performance by Questor Management of such services, other
than those resulting from the gross negligence or willful misconduct of
Questor Management. This agreement will continue for so long as Questor
Management or any affiliate thereof or affiliate of any such affiliate
continues to hold any shares of common stock of the Company. The Senior Bank
Facilities require that payment of at least 50% of the management fee be
deferred during the occurrence and continuance of an event of default under
the Senior Bank Facilities and that the payment of all of the management fee
be deferred following a change of control of the Company. The agreements
provided for in this Management and Consulting Agreement constituted part of
the agreement by affiliates of Questor Management for the capitalization of
the Company, and, as the Company is controlled by such affiliates, may be
deemed not to have been negotiated at arm's length.
AGREEMENT WITH JAY ALIX & ASSOCIATES, INC. FOR MANAGEMENT CONSULTING SERVICES
The Company has entered into an agreement with JA&A, pursuant to which JA&A
will provide advisory services to facilitate the Company's achievement of its
business plan, including evaluating the Company's organizational structure,
providing and implementing a cash flow planning model and assisting with
capital expenditure planning and other matters. For such services, JA&A will
be paid on an hourly basis and will be paid or reimbursed for its out-of-
pocket expenses. The Company paid JA&A a retainer of $250,000 upon execution
of this agreement, and JA&A has estimated that its total fees and expenses
under the terms of the agreement, excluding contingent success fees, would
approximate $2.6 million. The agreement provides that JA&A will receive a
contingent success fee that ranges from 6% to 15% of EBITDA in excess of
certain EBITDA levels for 1997 and 1998.
The Company has also agreed to indemnify JA&A and its principals, employees
and agents from liabilities and claims relating to or arising from the
engagement of JA&A, other than for actions taken or omitted to be taken by
JA&A in bad faith or gross negligence. The agreement may be terminated at any
time by either party, provided that notwithstanding any such termination, JA&A
will be entitled to any fees and expenses earned under the provisions of the
agreement. The Company believes that the terms of the agreement are at least
as favorable to it as those that could have been obtained from an unaffiliated
third party.
OTHER TRANSACTIONS WITH AFFILIATES
On the Acquisition Closing Date, Questor Management and Madison Dearborn
received $7.6 million and $400,000, respectively, in merger and acquisition
fees relating to the Acquisition.
66
<PAGE>
RELATIONSHIPS WITH THE SELLER
In connection with the Acquisition, the Company entered into a number of
agreements with the Seller, which are summarized below.
NON-COMPETITION COVENANTS
In connection with the sale of the Business, RTR and the Company have each
agreed not to engage in certain types of rental transactions after the
Acquisition Closing Date. In particular, for a period of ten years after such
date (which period may be extended to twelve years in certain circumstances)
(such period, the "Seller Non-Compete Period"), RTR has agreed not to engage
in the "one-way" consumer and "one-way" light commercial truck rental
businesses. For a period of two years following the Acquisition Closing Date,
RTR has agreed to refer to the Company all customers in the one-way consumer
and one-way light commercial rental businesses. For purposes of the Agreement,
the term "one-way" rental means the rental of a truck that is not returned to
the original renting office or, in the case of a commercial rental, to a
rental office within 35 miles of the original renting office.
For as long as the Company is using the Ryder name (such period, the "Buyer
Non-Compete Period"), the Company has agreed not to engage in leasing
(generally defined as the renting of a truck for a period in excess of ninety
days) or heavy duty truck rentals (defined as the renting of vehicles with a
manufacturer's gross vehicle weight of 26,000 pounds or more). Until October
17, 1998, the Company has agreed to refer to RTR all customers of leasing or
heavy duty truck rentals. In the event the Company fails to cure a willful and
material breach of its non-competition covenant within 45 days after notice
thereof by RTR, RTR may, among other things, terminate the service
arrangements described below under "Service Agreements."
The Company and RTR will each engage in the local consumer rental business
and the local light commercial rental business. For this purpose RTR will
serve as a dealer of the Company's trucks. However, during the Seller Non-
Compete Period, RTR has agreed not to advertise with respect to the local
consumer rental business or to engage through third party dealers, agents or
franchisees in the local consumer rental business.
Except as described in the second paragraph of "Dealer and Cooperation
Arrangements" below, neither party, however, is restricted from engaging in
the local light commercial rental business (defined as the rental of trucks
with a manufacturer's gross vehicle weight of under 26,000 pounds for a
business purpose). Pursuant to the Acquisition Agreements, the Company and RTR
have agreed to cooperate with each other to develop a joint marketing and
truck rental program with respect to certain of the largest of RTR's current
customers in the light commercial rental business.
DEALER AND COOPERATION ARRANGEMENTS
Pursuant to the Dealer Agreement, RTR has agreed to act as a dealer of the
Company's trucks and accessory equipment at certain of the RTR branch
locations. RTR's dealers will be paid a commission of up to 16.5% of gross
rental revenues through December 31, 1998 for renting the Company's trucks
(which is below the Company's standard dealer commission rate of up to 17%).
This commission will be adjusted to match the Company's standard commission
rate beginning in 1999. Each party may, upon 60 days' notice to the other
party, remove RTR's dealer locations as dealers of the Company's trucks
without cause (based on rental revenues for such dealers for the immediately
preceding year) according to the following schedule: in 1996, dealers
accounting for up to $1 million of 1995 rental revenues; in 1997, dealers
accounting for up to $6 million of 1996 rental revenues; and in 1998 and each
year thereafter, dealers accounting for up to $12 million of rental revenues
for the previous calendar year. RTR or the Company may terminate the Dealer
Agreement with respect to any dealer location upon a material breach of the
terms of such agreement not cured within 30 days after notice thereof.
67
<PAGE>
RTR has agreed to limit the size of its vehicle fleet of light duty trucks
(i.e., trucks having a manufacturer's gross vehicle weight of 16,000 pounds or
less) to 6,500 trucks in 1997 and 7,500 trucks in 1998, so long as the Company
(i) makes available to RTR dealers a minimum daily average number of 2,600
trucks (calculated on a rolling four calendar quarters in arrears basis) and
(ii) does not open any new dealers within a two-mile radius of any branch of
RTR during such period.
Pursuant to the Acquisition Agreements, the Company and RTR have also agreed
for a period of up to ten years to cooperate with each other in structuring a
joint program for Yellow Pages advertising in phonebooks. RTR has also agreed
to sell to the Company, through RTR's affiliate, Network Sales, Inc., truck
parts and components at wholesale cost for so long as such affiliate is a
distributor of repair parts and components.
SERVICE AGREEMENTS
Following the Acquisition Closing Date, RTR will continue to provide the
Company with various services which it performed prior to the Acquisition,
including acting as agent in the sale of used trucks and providing maintenance
on the Company's trucks.
RTR has agreed to act as the Company's agent in selling the Company's used
trucks at RTR's Used Truck Centers and other RTR branch locations. Upon
delivery of the used trucks to RTR, the Company (on behalf of Leasco) must
designate both an asking price and an acceptable sale price ("Take Price") for
each truck. RTR may not sell any used truck for more than $500 below the Take
Price designated by the Company without the prior consent of the Company. In
consideration for such services, the Company has agreed to pay RTR a fixed
amount per vehicle sold, plus a per vehicle sales commission in accordance
with RTR's used truck representative sales compensation plan consistent with
past practice. The Company also agreed to reimburse RTR for a fixed amount per
truck sold for advertising expenses. The Company has also agreed to consign to
RTR at least 40% of the total number of used vehicles it trades or sells in
1997, 35% in 1998, 30% in 1999, 25% in 2000 and 20% in 2001. After December
31, 2001, either party may terminate the agreement upon 60 days' notice.
RTR has agreed, pursuant to the Vehicle Maintenance Agreement, to provide
maintenance for the Company's vehicles at a rate that is intended to
approximate the rate RTR charged the Company prior to the Acquisition Closing
Date. The Company has agreed to order a minimum amount of labor hours of
repairs each year from RTR, which each party has the unilateral right to
reduce (i) in 1997 by an amount up to 10% of the minimum amount of labor hours
for that year and (ii) in 1998 and thereafter, by an amount up to 20% of the
minimum amount of labor hours for that year.
RTR has agreed, pursuant to the Administrative Services Agreement and the
MIS Support Agreement, to provide the Company, at its request, for a period of
up to two years, with certain administrative and management information
systems support services related to the Business. Services provided under
these agreements include those relating to financial reporting activities,
accounting and tax functions, payroll administration, vehicle purchasing
administration, employee and dealer training, third party automobile liability
claims management and computer systems support. Pursuant to the MIS Support
Agreement, the Company will be charged a rate that is intended to approximate
the internal transfer pricing rate charged the Company by RTR prior to the
Acquisition Closing Date, which rate is fixed for the term of the contract,
provided that the Company's usage of such services does not increase from the
Company's usage prior to the Acquisition Closing Date. Any or all services may
be discontinued upon 90 days' notice from the Company. Pursuant to the
Administrative Services Agreement, the Company will be charged a rate that is
intended to approximate the internal transfer pricing rate charged by RTR to
the Company prior to the Acquisition Closing Date, plus a markup with respect
to certain services. Any or all services may be discontinued upon 60 days'
notice from the Company.
INTELLECTUAL PROPERTY
Pursuant to the License Agreement, RSI has granted the Company the royalty-
free right to use certain Ryder trademarks in connection with providing its
truck rental services and the marketing of such services until October 17,
2006. However, no later than October 17, 2001, the Company must begin using
the Ryder trademarks in
68
<PAGE>
conjunction with a successor tradename and trademarks (subject to approval by
the Seller) until the expiration of the License Agreement. The Company has the
royalty-free right, subject to certain restrictions, to use the Ryder
signature color scheme in perpetuity, notwithstanding the expiration or
termination of the License Agreement.
Pursuant to the License Agreement and the Acquisition Agreements, RTR has
granted the Company the right to use the 1-800-GO-RYDER Number and service
mark. The Company will allocate incoming calls among its dealers, including
RTR dealers, based on the geographic proximity of the applicable dealer to the
prospective customer. If an incoming call for a local transaction is directed
to an RTR dealer, such dealer may rent an RTR truck rather than a Company
truck if an RTR truck is available. The Company has the right to use the phone
number, subject to such limitation, for up to 13 years and, for a period of
three years thereafter, the Seller has agreed not to market the 1-800-GO-RYDER
number in any truck rental or leasing business.
RTR has assigned certain patents, including patents relating to loading
ramps, to the Company. Pursuant to the Patent License Agreement, the Company
has granted RTR the right to use these patents.
Pursuant to the Copyright License Agreement, RTR has granted the Company the
royalty-free right to use written promotional materials, which were developed
and copyrighted by RTR prior to the Acquisition Closing Date, in connection
with marketing the Business for ten years, subject to certain restrictions.
The Company may grant sublicenses of its rights to its dealers, subject to
certain restrictions.
Pursuant to the Software License Agreement, RTR has granted the Company a
royalty-free perpetual right to use certain computer software necessary for
the operation of the Company's business that was not transferred to the
Company by RTR in the Acquisition.
The Company believes that the overall arrangement with the Seller is
adequate, in all material respects, to provide for an effective transition of
the Company to an independently operating entity.
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<PAGE>
LEASCO AND PROPOSED SECURITIZATION
In connection with the Acquisition, the Company formed Leasco as a wholly-
owned, special purpose subsidiary to facilitate transfers to one entity of
ownership in and legal title to the truck fleet and to create an entity that
may be the issuer of obligations in a proposed securitized financing of the
trucks.
On October 17, 1996, Leasco purchased the trucks and certain related assets
being sold by RTR pursuant to the Acquisition Agreements for $492.3 million,
such funds having been contributed to Leasco as capital by the Company, giving
effect to adjustments for Acquisition post-closing provisions and purchase
price allocations. Upon such purchase, the Company and Leasco entered into a
Master Motor Vehicle Lease Agreement (the "Lease Agreement"), pursuant to
which Leasco agreed to lease to the Company, and the Company agreed to lease
from Leasco, the trucks so purchased and all other trucks purchased by Leasco
thereafter. The rent payable by the Company under the Lease Agreement is
calculated, for each vehicle, on the basis of the fair market value (in the
case of the initial trucks) or the capitalized cost (in the case of
subsequently acquired trucks) for such vehicle, taking into account the
remaining economic life of the truck and an interest factor.
Pursuant to the Lease Agreement, the Company (i) provides maintenance for
the vehicles, at Leasco's cost, obtains insurance, places vehicle orders with
Leasco and handles certain other matters with respect to the trucks and (ii)
after consultation with Leasco, sells used trucks on Leasco's behalf. Leasco
is responsible for registering, licensing and titling the trucks. The Company
has indemnified Leasco against losses and liabilities arising out of the use
and rental of the trucks by the Company in its business. Subject to certain
restrictions, Leasco may terminate the Lease Agreement upon the occurrence of
a default by the Company thereunder, which includes a failure to make lease
payments, breach of a covenant or bankruptcy. The Lease Agreement will expire
on the date of expiration of the lease of the last truck subject to the Lease
Agreement, which will be the date representing the expiration of two-thirds of
the economic life of such truck or such earlier date as of which the truck is
disposed of or Leasco receives proceeds of a casualty with respect thereto.
Legal title (but not rights of ownership) to the trucks was not transferred
to Leasco on the Acquisition Closing Date but will be transferred prior to
October 17, 1997. To provide for such transfers, Leasco and RTR entered into a
Vehicle Title Nominee Agreement pursuant to which RTR will, until transfer of
title, hold title to the trucks as nominee of Leasco and Leasco will undertake
to effect transfers of title by April 17, 1997. Leasco has indemnified RTR for
claims arising out of or relating to ownership of the trucks after the
Acquisition Closing Date (except for claims otherwise provided for in the
Acquisition Agreements or in the following sentence). RTR has indemnified
Leasco for claims by a creditor or purchaser of a truck as a result of RTR's
retention of legal title to the vehicle or breach of the Vehicle Title Nominee
Agreement. The Vehicle Title Nominee Agreement also contains provisions
relating to insurance for the trucks.
The Company intends to refinance all of the Term Facility, and a portion of
the Revolving Credit Facility, with the proceeds of a securitization by Leasco
of the truck rental fleet (the "Securitization"). It is currently anticipated
that the Securitization will be effected through a commercial paper financing,
a medium term note financing, other borrowing or a combination thereof, but
the refinancing intended to be effected by the Securitization could take other
forms. There can be no assurance that Leasco will be able to effect the
Securitization or that it will be able to effect the Securitization on terms
acceptable to Leasco or the Company.
The Company expects that the documents to be entered into in connection with
the Securitization will provide for certain restrictions and limitations on
Leasco's business and assets.
Leasco is not a guarantor of the Notes or the Senior Bank Facilities, and
the lenders under the Senior Bank Facilities do not have liens on or security
interests in any of the assets of Leasco as security for such facilities.
However, the Senior Bank Facilities provide that if the Securitization has not
been consummated on or prior to July 17, 1997, the Company may be required by
the agents or the lenders under the Senior Bank Facilities to cause Leasco to
guarantee the Senior Bank Facilities on a senior basis, and in such event the
obligations of Leasco under such guarantee would be secured by liens on, and
security interests in, the assets of Leasco. If
70
<PAGE>
such a guarantee of the Senior Bank Facilities is provided, the Company would
also be required to cause Leasco and the other subsidiaries of the Company to
guarantee the Notes on an unsecured, senior subordinated basis. All of the
capital stock of Leasco is presently pledged as security for the Senior Bank
Facilities. See "Description of Senior Bank Facilities."
The Leasco Charter requires that the membership of the Board of Directors of
Leasco shall consist of at least two independent directors, each of whom (i)
is not a stockholder (whether direct, indirect or beneficial), partner,
customer or supplier of JA&A or Questor Management or any affiliate of any of
the foregoing (the "Related Corporate Group"), (ii) is not a director,
officer, employee, affiliate or associate of any member of the Related
Corporate Group (other than the Company), (iii) is not a person related to any
person referred to in clause (i) or (ii), (iv) is not a trustee, conservator
or receiver for any member of the Related Corporate Group and (v) has (A)
prior experience as an independent director for a corporation whose charter
documents required the unanimous consent of all independent directors thereof
before such corporation could consent to the institution of bankruptcy or
insolvency proceedings against it or could file a petition seeking relief
under any applicable bankruptcy law and (B) at least three years of employment
experience with one or more entities that provide, in the ordinary course of
business, advisory, management or placement services to issuers of
securitization or structured finance securities. All independent directors of
Leasco must affirmatively vote for any dividend or distribution payable on the
common stock of Leasco or any loan or advance to the Company. The affirmative
vote of the independent directors is also required for certain other actions
by Leasco, including certain mergers, sales of assets or acquisitions and the
filing, or consent to the filing, of any petition under bankruptcy or
insolvency laws, and the affirmative vote of at least one independent director
is required for Leasco to grant a guarantee or liens on assets. See "Risk
Factors--Limitations on Access to Cash Flow and Assets of Leasco."
The By-Laws of Leasco contain various provisions relating to the conduct of
the business of Leasco, including a requirement that Leasco conduct all
transactions and dealings with other members of the Related Corporate Group on
terms that Leasco reasonably believes to be on an arm's-length basis and for
fair consideration. The By-Laws also require that Leasco have at least one
officer who is not an officer of the Company.
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DESCRIPTION OF SENIOR BANK FACILITIES
The Company entered into a Credit Agreement dated as of October 17, 1996
(the "Credit Agreement") with Chase, as administrative agent and lender, and
Citicorp, U.S.A., Inc., as documentation agent, collateral agent and lender,
and the other lenders party thereto that provided for term loans of $350.0
million (the "Term Facility") and a revolving credit facility of $150.0
million, of which up to $50.0 million is available for letters of credit (the
"Revolving Credit Facility" and, together with the provisions of the Credit
Agreement relating to the Term Facility, the "Senior Bank Facilities").
Proceeds of the Initial Offering were used to repay approximately $69 million
of loans then outstanding under the Term Facility. The following is a summary
of the principal terms of the Credit Agreement and is subject to and qualified
in its entirety by reference to the Credit Agreement and related loan
documents, which are available upon request from the Company.
Use of Facilities. On the Acquisition Closing Date, the Company borrowed the
full amount of the Term Facility and $31.0 million under the Revolving Credit
Facility and used $380.6 million of the proceeds thereof, together with
certain other funds, for payment of the purchase price of the Acquisition and
related fees and expenses, with $0.4 million remaining as excess cash. On such
date, the Company also obtained letters of credit for use in the ordinary
course of business in the aggregate face amount of $10.0 million and a letter
of credit issued to RTR in the face amount of $2.5 million. The remainder of
the Revolving Credit Facility is available (subject to borrowing base
availability) for general corporate purposes.
Security; Guarantees. The obligations of the Company under the Credit
Agreement are unconditionally guaranteed, jointly and severally, by each
existing, and will be so guaranteed by each subsequently acquired or organized
domestic and, to the extent that no adverse tax consequences would result,
foreign, subsidiary of the Company, other than Leasco. The obligations under
the Senior Bank Facilities and the guarantees thereof are secured by
substantially all the assets of the Company and the Existing Subsidiaries
other than Leasco, including (i) a first priority pledge of all the capital
stock of Leasco and each existing and subsequently acquired or organized
subsidiary of the Company (which pledge, in the case of foreign subsidiaries,
would be limited to 65% of the capital stock of each such subsidiary to the
extent the pledge of any greater percentage would result in adverse tax
consequences to the Company) and (ii) perfected first priority security
interests in substantially all tangible and intangible assets of the Company
and of each existing and subsequently acquired or organized subsidiary of the
Company, other than Leasco, including accounts receivable, inventory,
equipment, intellectual property, general intangibles, owned real property,
cash and proceeds of the foregoing, in each case subject to certain
exceptions. Notwithstanding the foregoing, at the request of the agents or the
lenders under the Senior Bank Facilities, the Company may be required to cause
Leasco to guarantee the obligations of the Company under the Credit Agreement,
and to grant security interests in, and liens on, Leasco's assets as security
for such guarantee, if the Securitization has not been consummated on or prior
to July 17, 1997.
Borrowing Base. Loans under the Revolving Credit Facility are subject to
maintenance by the Company of a borrowing base, which equals the sum of
specified fixed percentages of (i) eligible accounts receivable, (ii) the
original cost of eligible revenue-producing vehicles, (iii) the book value of
eligible non-vehicle revenue-producing equipment, (iv) the book value of
eligible non-revenue-producing vehicles, (v) the appraised fair market value
of eligible real estate, and (vi) the book value of eligible non-vehicle non-
revenue-producing equipment.
Amortization; Interest. The Term Facility matures on October 17, 2001 and
amortizes in equal quarterly installments totaling $20.0 million in each of
fiscal 1998, 1999, and 2000, and $290 million in fiscal 2001. The Term
Facility bears interest at a rate per annum equal (at the Company's option) to
(i) an adjusted London inter-bank offered rate ("Adjusted LIBOR") plus 2.0% or
(ii) an Alternate Base Rate (equal to the highest of Chase's prime rate, a
certificate of deposit rate plus 1% and the Federal Funds effective rate plus
1/2 of 1%) plus 1.0%. The Revolving Credit Facility matures on October 17,
2001 and bears interest at a rate per annum equal (at the Company's option) to
(i) Adjusted LIBOR plus 2.0% or (ii) the Alternate Base Rate plus 1.0%. If the
Securitization is not consummated on or prior to July 17, 1997, the Term
Facility and Revolving Credit Facility borrowings will each bear interest at a
rate per annum equal (at the Company's option) to (i) Adjusted LIBOR plus 2.5%
or (ii) the Alternate Base Rate plus 1.5%.
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Prepayments and Reduction of Commitments. The Senior Bank Facilities permit
the Company to prepay loans and permanently reduce revolving credit
commitments, in whole or in part, at any time in minimum principal amounts of
$5.0 million, without premium or penalty, subject to reimbursement of the
lenders' redeployment costs in the case of a prepayment of borrowings bearing
interest at Adjusted LIBOR other than on the last day of the relevant interest
period. Until such time as the Securitization is consummated, the Company will
be required to make mandatory prepayments of loans under the Senior Bank
Facilities, subject to certain exceptions, with (i) 100% of the net cash
proceeds of all non-ordinary course asset sales or other dispositions of
property by the Company and (ii) up to 100% of the net proceeds of issuances
of equity and debt obligations (other than the Notes) of the Company and its
subsidiaries. In addition, if the Securitization is not consummated on or
prior to July 17, 1997, then until such time as the Securitization has been
consummated, the Company will be required to make mandatory prepayments of
loans under the Senior Bank Facilities with 75% of excess cash flow (as such
term is defined in the Senior Bank Facilities), subject to reduction to 50%
based upon financial performance and certain other standards.
The mandatory prepayments described in the preceding paragraph will
initially be applied to the Term Facility, first to the next two scheduled
amortization payments and then in inverse order of maturity to the remaining
amortization payments thereunder. When the Term Facility has been paid in
full, such mandatory prepayments will be applied to reduce loans (but not
commitments) under the Revolving Credit Facility. Subject to certain
conditions, the Company may from time to time make optional prepayments under
the Term Facility without premium or penalty. Any optional prepayments of the
Term Facility will be applied pro rata against the remaining scheduled
amortization payments of the Term Facility.
Fees. The Company will be required to pay the lenders under the Revolving
Credit Facility, on a quarterly basis, a commitment fee equal to 3/8 of 1% per
annum on the undrawn portion of the Revolving Credit Facility; provided, that
if the Securitization is not consummated on or prior to July 17, 1997, such
fee will be increased to 1/2 of 1% per annum until such time as the
Securitization has been consummated. The Company will also be required to pay
(i) a letter of credit fee equal to the difference between the spread over
Adjusted LIBOR under the Revolving Credit Facility and 1/4 of 1% on the
average daily exposure of letters of credit, (ii) to the issuing bank, a fee
of 1/4 of 1% on the aggregate face amount of outstanding letters of credit,
(iii) annual administration fees, and (iv) agent, arrangement and other
similar fees. The fees set forth in clauses (i) and (ii) above are computed on
an annual basis and are paid quarterly.
Covenants. The Senior Bank Facilities contain a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries
to dispose of assets, incur additional indebtedness, prepay other indebtedness
or amend certain other debt instruments, pay dividends or make distributions,
create liens on assets, enter into sale and leaseback transactions, make
investments, loans or advances, make acquisitions, engage in mergers or
consolidations, issue capital stock, change the business conducted by the
Company or its subsidiaries, make capital expenditures or engage in certain
transactions with affiliates and otherwise restrict certain corporate
activities, including with respect to the Company's vehicle sales and bank
accounts. In addition, under the Senior Bank Facilities, the Company is
required to comply with specified financial ratios and tests, including
minimum interest coverage ratios, maximum leverage ratios, minimum EBITDA
requirements and minimum fixed charge coverage ratios.
Events of Default. The Senior Bank Facilities contain customary events of
default, including defaults relating to payments, breach of representations
and warranties, covenants, cross-defaults and cross-acceleration to certain
other indebtedness, certain events of bankruptcy and insolvency, ERISA,
judgments, actual or asserted invalidity of security and change of control.
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DESCRIPTION OF NOTES
GENERAL
The Exchange Notes will be issued, and the Senior Subordinated Notes were
issued, under an Indenture, dated as of November 25, 1996 (the "Indenture"),
between the Company and The Bank of New York, as Trustee (the "Trustee"), a
copy of which is available upon request to the Company.
The following summary of the material provisions of the Indenture and the
Notes does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part thereof
by the Trust Indenture Act of 1939, as amended ("TIA"). Capitalized terms used
herein and not otherwise defined have the meanings set forth in the section
"--Certain Definitions."
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially
shall be the principal corporate trust office of the Trustee, at 101 Barclay
Street, New York, New York 10286), except that, at the option of the Company,
payment of interest may be made by check mailed to the registered holders of
the Notes at their registered addresses.
The Exchange Notes will be issued, and the Senior Subordinated Notes were
issued, only in fully registered form, without coupons, in denominations of
$1,000 and any integral multiple of $1,000. No service charge was made, or
will be made, for any registration of transfer or exchange of Senior
Subordinated Notes or Exchange Notes, as the case may be, but the Company may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Exchange Notes will be, and the Senior Subordinated Notes are, unsecured
obligations of the Company, limited to $175.0 million aggregate principal
amount, and will mature on December 1, 2006. Each Note will bear interest at a
rate of 10% per annum from November 25, 1996, or from the most recent date to
which interest has been paid or provided for, payable semiannually to Holders
of record at the close of business on the May 15 or November 15 immediately
preceding the interest payment date on June 1 and December 1 of each year,
commencing June 1, 1997.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time on or after December 1, 2001, and prior to maturity, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed as
a percentage of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on December 1 of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2001........................................................... 105.000%
2002........................................................... 103.333%
2003........................................................... 101.667%
2004 and thereafter............................................ 100.000%
</TABLE>
In addition, at any time and from time to time prior to December 1, 1999,
the Company may redeem in the aggregate up to 33- 1/3% of the original
aggregate principal amount of the Notes with the proceeds of one or more
Public Equity Offerings by the Company following which there is a Public
Market, at a redemption price (expressed as a percentage of principal amount
thereof) of 110% plus accrued interest, if any, to the redemption
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date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided,
however, that at least 66- 2/3% of the original aggregate principal amount of
the Notes must remain outstanding after each such redemption.
At any time on or prior to December 1, 2001, the Notes may also be redeemed
as a whole at the option of the Company upon the occurrence of a Change of
Control, upon not less than 30 nor more than 60 days' prior notice (but in no
event more than 180 days after the occurrence of such Change of Control)
mailed by first-class mail to each Holder's registered address, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued but unpaid interest, if any, to, the
date of redemption (the "Redemption Date") (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date).
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee, by lot or by such other method as the Trustee in
its sole discretion shall deem to be fair and appropriate, although no Note of
$1,000 in original principal amount or less will be redeemed in part. If any
Note is to be redeemed in part only, the notice of redemption relating to such
Note shall state the portion of the principal amount thereof to be redeemed. A
new Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Note.
RANKING
Prior to the Subordination Termination Date (as defined below), the
indebtedness evidenced by the Notes will be unsecured Senior Subordinated
Indebtedness of the Company, will be subordinated in right of payment, as set
forth in the Indenture, to the payment when due of all existing and future
Senior Indebtedness of the Company, will rank pari passu in right of payment
with all existing and future Senior Subordinated Indebtedness of the Company
and will be senior in right of payment to all existing and future Subordinated
Obligations of the Company. The Notes will also be effectively subordinated to
any Secured Indebtedness of the Company and its Subsidiaries to the extent of
the value of the assets securing such Indebtedness. However, payment from the
money or the proceeds of U.S. Government Obligations held in any defeasance
trust described under "--Defeasance" below is not subordinated to any Senior
Indebtedness or subject to the restrictions described herein. On the first
date (but not earlier than January 1, 1998) as of which (i) the Securitization
has been consummated, (ii) any consents required under the Senior Bank
Facilities in connection with the transaction contemplated by this sentence
shall have been obtained and (iii) no default or event of default shall have
occurred and be continuing under the Senior Bank Facilities, the subordination
provisions of the Notes will terminate and cease to be effective with respect
to any Indebtedness, whenever incurred, and the Notes will constitute Senior
Indebtedness of the Company. The date as of which the subordination provisions
of the Notes shall terminate and cease to be effective in accordance with the
foregoing provisions is referred to herein as the "Subordination Termination
Date." The Company has agreed that it will use its reasonable best efforts as
determined in good faith by the Board of Directors to obtain any consents
required in order to effectuate the foregoing provisions.
Certain of the operations of the Company are conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred stockholders (if any) of such Subsidiaries
generally will have priority with respect to the assets and earnings of such
Subsidiaries over the claims of creditors of the Company, including holders of
the Notes. The Notes, therefore, will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders (if any) of
Subsidiaries of the Company. At December 31, 1996, the total liabilities of
the Company's Subsidiaries were approximately $2.5 million, including Trade
Payables. Although the Indenture limits the incurrence of Indebtedness and
preferred stock of certain of the Company's Subsidiaries, such limitation is
subject to a number of significant qualifications.
At December 31, 1996, the outstanding Senior Indebtedness of the Company
amounted to $281.0 million (exclusive of unused commitments) all of which
would have been Secured Indebtedness. Although the Indenture
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contains limitations on the amount of additional Indebtedness which the
Company may Incur, under certain circumstances the amount of such Indebtedness
could be substantial and, in any case, such Indebtedness may be Senior
Indebtedness. See "--Certain Covenants--Limitation on Indebtedness" below.
"Senior Indebtedness" means the following obligations, whether outstanding
on the date of the Indenture or thereafter issued, without duplication: (i)
all obligations consisting of Bank Indebtedness; (ii) all obligations
consisting of the principal of and premium, if any, and accrued and unpaid
interest (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to the Company regardless of
whether postfiling interest is allowed in such proceeding) in respect of (1)
indebtedness of the Company for money borrowed and (2) indebtedness evidenced
by notes, debentures, bonds or other similar instruments for the payment of
which the Company is responsible or liable as obligor, guarantor or otherwise;
(iii) all Capitalized Lease Obligations of the Company; (iv) all obligations
of the Company (1) for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction, (2) under interest
rate swaps, caps, collars, options and similar arrangements and foreign
currency hedges entered into in respect of any obligations described in
clauses (i), (ii) and (iii) (such obligations to be equal at any time to the
termination value of such agreements or arrangements that would be payable by
such Person at such time) or (3) issued or assumed as the deferred purchase
price of property and all conditional sale obligations of the Company and all
obligations of the Company under any title retention agreement; (v) all
obligations of other Persons of the type referred to in clauses (ii), (iii)
and (iv) and all dividends of other Persons for the payment of which, in
either case, the Company is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including guarantees of such obligations and
dividends; and (vi) all obligations of the Company consisting of
modifications, renewals, extensions, replacements, refinancings and refundings
of any obligations described in clauses (i), (ii), (iii), (iv) and (v);
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are not superior
in right of payment to the Notes; provided, however, that Senior Indebtedness
shall not include (1) any obligation of the Company to any Subsidiary, (2) any
liability for Federal, state, local or other taxes owed or owing by the
Company, (3) any accounts payable and accruals or other liabilities (other
than those specified above) arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness, Guarantee or obligation of the Company that is subordinate
or junior to any other Indebtedness, Guarantee or obligation of the Company or
(5) any Indebtedness that is incurred in violation of the Indenture. If any
Designated Senior Indebtedness is disallowed, avoided or subordinated pursuant
to the provisions of Section 548 of Title 11 of the United States Code or any
applicable state fraudulent conveyance law, such Designated Senior
Indebtedness nevertheless will constitute Senior Indebtedness. "Senior
Indebtedness" of any Note Guarantor has a correlative meaning.
The following provisions under this caption "--Ranking" are applicable to
the Notes prior to the Subordination Termination Date as described above.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness that is subordinate
or junior in ranking in any respect to Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated
in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not otherwise purchase, redeem or otherwise retire
any Notes (collectively, "pay the Notes") if (i) any Senior Indebtedness is
not paid when due or (ii) any other default on Senior Indebtedness occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, (x) the default has been cured or waived and any
such acceleration has been rescinded in writing or (y) such Senior
Indebtedness has been paid in full. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Designated Senior
Indebtedness with respect to
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which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the
second preceding sentence) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, the Company
may not pay the Notes for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to the Company) of written notice
(a "Blockage Notice") of such default from the Representative of the
Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) because
such Designated Senior Indebtedness has been repaid in full or (iii) because
the default giving rise to such Blockage Notice is no longer continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such
Designated Senior Indebtedness, the Company may resume payments on the Notes
after the end of such Payment Blockage Period. Not more than one Blockage
Notice may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period. However, if any Blockage Notice within such 360-day period is given by
or on behalf of any holders of Designated Senior Indebtedness other than Bank
Indebtedness, a Representative of Bank Indebtedness may give another Blockage
Notice within such period. In no event, however, may the total number of days
during which any Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any 360 consecutive day period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full of the Senior
Indebtedness before the Noteholders are entitled to receive any payment and
until the Senior Indebtedness is paid in full, any payment or distribution to
which Noteholders would be entitled but for the subordination provisions of
the Indenture will be made to holders of the Senior Indebtedness as their
interest may appear. If a distribution is made to Noteholders that due to the
subordination provisions should not have been made to them, such Noteholders
are required to hold it in trust for the holders of Senior Indebtedness and
pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders
or the Representative of the Designated Senior Indebtedness receive notice of
such acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness or of Senior
Subordinated Indebtedness (including the Notes) may recover less, ratably,
than holders of Senior Indebtedness and may recover more, ratably, than the
holders of Senior Subordinated Indebtedness.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to
repurchase all or any part of such Holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), provided, however, that notwithstanding the occurrence
of a Change of Control, the Company shall not be obligated to purchase the
Notes pursuant to this covenant in the event that it has exercised its right
to redeem all of the Notes as described under "--Optional Redemption":
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(i) prior to the first public offering of Voting Stock of the Company,
either (x) Permitted Holders cease to be the "beneficial owner" or
"beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of the Company, or (y) Permitted Holders cease to be
entitled by voting power, contract or otherwise to elect or cause the
election of directors of the Company having a majority of the total voting
power of the Board of Directors, in each case, whether as a result of
issuance of securities of the Company, any merger, consolidation,
liquidation or dissolution of the Company, any direct or indirect transfer
of securities by any Permitted Holder or otherwise (for purposes of this
clause (i) and clause (ii) below, Permitted Holders shall be deemed to
beneficially own any Voting Stock of an entity (the "specified entity")
held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, a
majority of the Voting Stock of the parent entity);
(ii) following the first public offering of Voting Stock of the Company,
any "Person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire within one year), directly or indirectly,
of more than 35% of the Voting Stock of the Company; provided that the
Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the Voting
Stock of the Company than such other Person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors; or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to
this covenant, then prior to the mailing of the notice to Holders provided for
in the immediately following paragraph but in any event within 30 days
following any Change of Control, the Company shall (i) repay in full all Bank
Indebtedness or offer to repay in full all Bank Indebtedness and repay the
Bank Indebtedness of each lender who has accepted such offer or (ii) obtain
the requisite consent under the agreements governing the Bank Indebtedness to
permit the repurchase of the Notes as provided for in the immediately
following paragraph.
The Board of Directors of the Company may not waive the covenant relating to
the Holders' right to redeem upon the occurrence of a "Change of Control".
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of Holders of record on a record date
to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts and financial information regarding such
Change of Control; (3) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Company, consistent with this covenant, that a
Holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
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The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. The Company has no present plans to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit
ratings.
The occurrence of a Change of Control would constitute a default under the
Senior Credit Agreement. Future Senior Indebtedness of the Company may contain
prohibitions of certain events which would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness,
even if the Change of Control itself does not, due to the financial effect of
such repurchase on the Company. Finally, the Company's ability to pay cash to
the Holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that
the Company may Incur Indebtedness if on the date of the Incurrence of such
Indebtedness the Consolidated Coverage Ratio would be greater than 2.75:1.00.
Notwithstanding the foregoing, the Company shall not permit any Subsidiary to
issue, to any party other than the Company, any Preferred Stock.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness under the Term Loans included in the Senior Credit
Agreement (as the same may be amended from time to time, without increasing
the committed amount thereunder, except as otherwise permitted by this
covenant) and any Refinancing Indebtedness of the Company with respect
thereto in an aggregate principal amount on the date of Incurrence that,
when added to all other Indebtedness Incurred pursuant to this clause (i)
and then outstanding, shall not exceed $350.0 million less the aggregate
amount of all prepayments of principal applied to reduce the then
outstanding Indebtedness under the Term Loans actually made since the Issue
Date;
(ii) Indebtedness of the Company consisting of revolving credit, working
capital or letter of credit facilities in an aggregate principal amount at
any time outstanding not in excess of $150.0 million (less the aggregate
amount of all repayments of principal actually made thereunder since the
Issue Date with Net Available Cash from Asset Dispositions pursuant to
clause (a)(iii)(A) of the covenant described under "--Limitation on Sales
of Assets");
(iii) the Securitization; provided, however, that the amount of
Indebtedness outstanding under clauses (i) and (ii) above and this clause
(iii) shall not in the aggregate exceed $465.0 million at any one time
outstanding;
(iv) Indebtedness (A) of the Company to any Wholly Owned Restricted
Subsidiary or to any Note Guarantor and (B) of any Restricted Subsidiary to
the Company or any other Wholly Owned Restricted Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock or
any other event that results in any such Wholly Owned Subsidiary ceasing to
be a Wholly Owned Subsidiary or any other subsequent transfer of any such
Indebtedness (except to the Company or a Wholly Owned Subsidiary) will be
deemed, in each case, an Incurrence of Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
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(v) Indebtedness represented by the Notes, any Indebtedness (other than
the Indebtedness described in clauses (i), (ii), (iii) or (iv) above)
outstanding on the date of the Indenture and any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (v) or
paragraph (a);
(vi) Indebtedness of the Company or any Restricted Subsidiary for the
deferred purchase price of newly acquired property (other than Vehicles) of
the Company and its Subsidiaries used in the ordinary course of business of
the Company and its Subsidiaries (provided such purchase money financing is
entered into within 180 days of the acquisition of such property) in an
amount (based on the remaining balance of the obligations therefor on the
books of the Company and its Restricted Subsidiaries) which shall not
exceed $20.0 million in the aggregate at any one time outstanding, when
taken together with any Indebtedness outstanding under the covenant
described in clause (b)(viii) below;
(vii) Indebtedness of the Company or any Restricted Subsidiary (which may
comprise Bank Indebtedness) in an aggregate principal amount at any one
time outstanding not in excess of $20.0 million;
(viii) Indebtedness of the Company or any Restricted Subsidiary in the
form of Capitalized Lease Obligations in an aggregate amount not in excess
of $20.0 million at any one time outstanding, when taken together with the
principal amount of any Indebtedness outstanding under the covenant
described in clause (b)(vi) above; provided, however, that any Indebtedness
incurred by a Restricted Subsidiary pursuant to the covenant described in
clause (vi) or (vii) above or this clause (viii) must be secured and all
such Indebtedness shall not exceed $20.0 million in aggregate principal
amount at any time outstanding;
(ix) Indebtedness represented by the Note Guarantees and Guarantees of
Indebtedness Incurred pursuant to clause (i) or (ii) above;
(x) Indebtedness under Hedging Obligations; provided, however, that such
Hedging Obligations are entered into for bona fide hedging purposes of the
Company or Leasco in the ordinary course of business; and
(xi) Indebtedness of a Restricted Subsidiary issued and outstanding on or
prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than Indebtedness Incurred (A) as consideration in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by the Company or (B) otherwise in connection with, or in
contemplation of, such acquisition) and any Refinancing Indebtedness with
respect thereto; provided, however, that on the date of any such
acquisition of a Restricted Subsidiary, the Company shall have been able to
Incur at least an additional $1.00 of Indebtedness under paragraph (a)
above.
(c) Notwithstanding the foregoing, the Company will not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated Obligations
unless such Indebtedness will be subordinated to the Notes to at least the
same extent as such Subordinated Obligations.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital
Stock (including any payment in connection with any merger or consolidation
involving the Company) except dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock) and except dividends or
distributions payable to the Company or any Wholly Owned Restricted Subsidiary
(provided that if such Restricted Subsidiary is not wholly owned, to its other
shareholders on a pro rata basis), (ii) purchase, redeem, retire or otherwise
acquire for value any Capital Stock of the Company or any Restricted
Subsidiary held by Persons other than the Company or another Restricted
Subsidiary, (iii) purchase, repurchase, redeem, defease or otherwise acquire
or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition) or (iv) make any Investment (other than a Permitted Investment)
in any Person (any such dividend, distribution, purchase, redemption,
repurchase,
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defeasance, other acquisition, retirement or Investment being herein referred
to as a "Restricted Payment") if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company could not incur at least an additional $1.00 of
Indebtedness under paragraph (a) of the covenant described under "--
Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Company's Board of Directors, whose
determination shall be conclusive and evidenced by a resolution of the
Company's Board of Directors) declared or made subsequent to the date of
the Indenture would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the Issue Date to the end of
the most recent fiscal quarter ending at least 45 days prior to the
date of such Restricted Payment (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Restricted Subsidiary of the Company and other than an issuance or sale
to an employee stock ownership plan or other trust established by the
Company or any of its Subsidiaries for the benefit of their employees
to the extent the purchase by such plan or trust is financed by
Indebtedness of such plan or trust and for which the Company is liable
as Guarantor or otherwise);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by
a Subsidiary of the Company) subsequent to the Issue Date, of any
Indebtedness of the Company or its Restricted Subsidiaries convertible
or exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash, or other property (other than
Capital Stock), distributed by the Company upon such conversion or
exchange); and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances, in each case to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made by the Company or
any Restricted Subsidiary in such Unrestricted Subsidiary, which amount
was treated as a Restricted Payment.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase or redemption of Capital Stock of the Company or
Subordinated Obligations made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or other trust established
by the Company or any of its Subsidiaries); provided, however, that such
purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments;
(ii) any purchase or redemption of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company that is permitted to be Incurred pursuant
to the covenant described under "--Limitation on Indebtedness"; provided,
however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under "--
Limitation on Sales of Assets"; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments;
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(iv) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with
paragraph (a); provided, however, that such dividend shall be included in
the calculation of the amount of Restricted Payments; or
(v) Permitted Employee Payments in an aggregate amount not in excess of
$5.0 million in the aggregate at any time (giving effect to any
repayments); provided, however, that such payments shall be included in the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligations owed to the
Company, (ii) make any loans or advances to the Company or (iii) transfer any
of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the date of the Indenture;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(3) any encumbrance or restriction pursuant to an agreement effecting a
refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this covenant or this clause (3) or contained in
any amendment to an agreement referred to in clause (1) or (2) of this
covenant or this clause (3); provided, however, that the encumbrances and
restrictions contained in any such refinancing agreement or amendment are
no more restrictive taken as a whole (as conclusively determined in good
faith by the Company's Board of Directors, whose determination shall be
conclusive and evidenced by a resolution of the Company's Board of
Directors) than encumbrances and restrictions contained in such agreements;
(4) in the case of clause (iii) above, any encumbrance or restriction (A)
that restricts in a customary manner the subletting, assignment or transfer
of any property or asset that is subject to a lease, license or similar
contract, (B) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of the Company
or any Restricted Subsidiary not otherwise prohibited by the Indenture or
(C) contained in security agreements securing Indebtedness of a Restricted
Subsidiary to the extent such encumbrance or restrictions restrict the
transfer of the property subject to such security agreements;
(5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(6) in the case of Leasco, restrictions created in connection with the
Securitization that, in the good faith determination of the Board of
Directors, are necessary to effect the Securitization.
Limitation on Sales of Assets. (a) The Company will not, and will not permit
any Restricted Subsidiary to, make any Asset Disposition unless (i) the
Company or such Restricted Subsidiary receives consideration (including by way
of relief from, or by any other Person assuming sole responsibility for, any
liabilities, contingent or otherwise) at the time of such Asset Disposition at
least equal to the fair market value of the shares and assets subject to such
Asset Disposition, (ii) at least 85% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Company elects (or is required by the terms of any
Senior Indebtedness or Indebtedness (other than Preferred Stock) of a Wholly
Owned Subsidiary), to prepay, repay or purchase Senior
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Indebtedness (including the Notes after the Subordination Termination Date) or
such Indebtedness (other than Preferred Stock) of a Wholly Owned Subsidiary
(in each case other than Indebtedness owed to the Company or an Affiliate of
the Company) within six months after the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (B) second, to the
extent of the balance of Net Available Cash after application in accordance
with clause (A), to the extent the Company or such Restricted Subsidiary
elects, to reinvest in Additional Assets (including by means of an Investment
in Additional Assets by a Restricted Subsidiary) with Net Available Cash
received by the Company or another Restricted Subsidiary within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (C) third, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A) and (B), to make an
offer to purchase Notes pursuant and subject to the conditions of the
Indenture to the Noteholders at a purchase price of 100% of the principal
amount thereof plus accrued and unpaid interest to the purchase date and (D)
fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C) above, to fund (to the
extent consistent with any other applicable provision of the Indenture) any
corporate purpose; provided, however, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, the
Company or such Restricted Subsidiary will retire such Indebtedness and will
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and the
Restricted Subsidiaries shall not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $5.0 million.
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of Indebtedness of the Company (other than Disqualified Stock
of the Company) or any Restricted Subsidiary and the release of the Company or
such Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Disposition and (y) securities received by the
Company or any Restricted Subsidiary from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(A) or (a)(iii)(C), the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes (the
"Offer") at a purchase price of 100% of their principal amount plus accrued
and unpaid interest to the Purchase Date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of the Notes tendered pursuant to
the Offer is less than the Net Available Cash allotted to the purchase of
Notes, the remaining Net Available Cash will be available to the Company for
use in accordance with clause (a)(iii)(D) above. The Company shall not be
required to make an Offer for Notes pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as
provided in clauses (a)(iii)(A) and (a)(iii)(B) above) is less than $5.0
million for any particular Asset Disposition (which lesser amounts shall be
carried forward for purposes of determining whether an Offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this paragraph (c) by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter
into or conduct any transaction or series of transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service but excluding rentals of Vehicles (and related ancillary services) in
the ordinary course of business at then prevailing rates) with any Affiliate
of the Company (an "Affiliate Transaction") on terms (i) that are less
favorable to the Company or such Restricted Subsidiary, as the case may be,
than those that could be obtained at the time of such transaction in arm's-
length dealings with a Person who is not such an Affiliate and (ii) that, in
the event such Affiliate Transaction involves an aggregate amount in excess of
$2.5 million, are not in writing and have not been approved by a majority of
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the members of the Board of Directors having no personal stake in such
Affiliate Transaction. In addition, any transaction (excluding rentals of
Vehicles (and related ancillary services) in the ordinary course of business
at then prevailing rates) involving aggregate payments or other transfers by
the Company and its Restricted Subsidiaries in excess of $7.5 million will
also require an opinion from an independent investment banking firm or
appraiser of national prominence, as appropriate, to the effect that the terms
of such transaction are either (i) no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained
at the time of such transaction in arm's length dealings with a Person who is
not an Affiliate or (ii) fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments", (ii) the performance of the
Company's or Subsidiary's obligations under any employment contract,
collective bargaining agreement, employee benefit plan, related trust
agreement or any other similar arrangement heretofore or hereafter entered
into in the ordinary course of business, (iii) payment of compensation to
employees, officers or directors in the ordinary course of business, (iv)
maintenance in the ordinary course of business of benefit programs or
arrangements for employees, officers or directors, including vacation plans,
health and life insurance plans, deferred compensation plans, and retirement
or savings plans and similar plans, (v) any transaction between the Company
and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, (vi)
payment of management fees to Questor Management Company pursuant to the terms
of the Management Agreement in an aggregate amount of up to $850,000 in any 12
month period unless (x) a Default or Event of Default shall have occurred and
be continuing or would result therefrom in which event no more than 50% of
such aggregate amount may be paid to Questor Management Company in any such
period or (y) a Change of Control shall have occurred, in which case no such
amount may be paid to Questor Management Company or (vii) fees paid in respect
of the letter agreement between the Company and Jay Alix & Associates, Inc.
dated as of October 15, 1996, as in effect on and as of the date of the
Indenture, without giving effect to any subsequent downward adjustment to the
1997 and 1998 EBITDA levels set forth therein.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell any shares of Capital Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock except: (i) to
the Company or a Wholly Owned Subsidiary; or (ii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary. Notwithstanding the foregoing, the Company
is permitted to sell all the Capital Stock of a Subsidiary as long as the
Company is in compliance with the terms of the covenant described under "--
Limitation on Sales of Assets".
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist
any Lien (other than Permitted Liens) on any of its property or assets
(including Capital Stock), whether owned on the date of the Indenture or
thereafter acquired, securing any Indebtedness, unless contemporaneously
therewith effective provision is made to secure the obligations due under the
Indenture and the Notes and, in respect of Liens on any Restricted
Subsidiary's property or assets, any Guarantee of the Notes by such Restricted
Subsidiary equally and ratably with (subject to the subordination provisions
of the Notes prior to the Subordination Termination Date, or on a senior basis
to, in the case of Indebtedness subordinated in right of payment to the Notes
and such Guarantee) such obligation for so long as such obligation is so
secured, provided, however, that prior to the Subordination Termination Date,
no such equal and ratable security need be provided if the Indebtedness
secured is Senior Indebtedness of the Company.
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than a Related
Business.
SEC Reports. Notwithstanding that the Company may not be required to be or
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file (if then permitted to do so) with the SEC
and provide (whether or not so filed with the SEC) the Trustee and Noteholders
and prospective Noteholders (upon request) with the annual reports and the
information, documents and other reports,
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in each case without exhibits, which are specified in Sections 13 and 15(d) of
the Exchange Act; provided, however, that the Company shall provide one copy
of the exhibits to the foregoing to the Trustee and shall (upon request)
provide additional copies of such exhibits to any Noteholder or prospective
Noteholder. The Company also will comply with the other provisions of TIA (S)
314(a).
No Subsidiary Guarantees; Future Note Guarantors. The Company will cause
each Domestic Subsidiary other than Leasco (unless Leasco is a Guarantor under
the Senior Credit Agreement) that Incurs Indebtedness or is a guarantor of
Indebtedness pursuant to clause (b)(i) or (b)(ii) of the covenant described
under "--Limitation on Indebtedness" to execute and deliver to the Trustee a
Note Guarantee pursuant to which such Subsidiary will Guarantee payment of the
Notes; provided, however, that there will be no such Note Guarantees from the
Existing Subsidiaries unless (i) Leasco is or becomes a Guarantor under the
Senior Credit Agreement, in which case all Existing Subsidiaries will become
Note Guarantors, or (ii) any of the Existing Subsidiaries, other than Leasco,
and any subsequently acquired or organized Domestic Subsidiary (other than any
subsidiary of Leasco) or, to the extent that no adverse tax consequences would
result, Foreign Subsidiary becomes a Significant Subsidiary, in which case
each such Subsidiary that becomes a Significant Subsidiary will become a Note
Guarantor. Each Note Guarantee will be limited to an amount not to exceed the
maximum amount that can be Guaranteed by that Subsidiary without rendering the
Note Guarantee, as it relates to such Subsidiary, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
will be a corporation organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) will expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Notes and the Indenture; (ii) immediately after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
Successor Company or any Restricted Subsidiary as a result of such transaction
as having been Incurred by the Successor Company or such Restricted Subsidiary
at the time of such transaction), no Default will have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of Indebtedness
under paragraph (a) of the covenant described under "--Limitation on
Indebtedness"; (iv) immediately after giving effect to such transaction, the
Successor Company will have Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of the Company immediately prior to such
transaction; and (v) the Company will have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay
the principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (1) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company and (2) the Company may merge with
an Affiliate incorporated for the purpose of reincorporating the Company in
another jurisdiction to realize tax or other benefits.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated
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Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise, whether or not such payment is prohibited by the provisions
described under "--Ranking" above, (iii) the failure by the Company to comply
with its obligations under the covenant described under "--Merger and
Consolidation" above, (iv) the failure by the Company to comply for 30 days
after notice with any of its obligations under the covenants described under
"--Change of Control" or "--Certain Covenants" above (in each case, other than
a failure to purchase Notes), (v) the failure by the Company to comply for 60
days after notice with its other agreements contained in the Notes or the
Indenture, (vi) the failure by any Note Guarantor to comply with its
obligations under any Note Guarantee to which such Note Guarantor is a party,
after any applicable grace period, (vii) the failure by the Company or any
Significant Subsidiary to pay any Indebtedness within any applicable grace
period after final maturity or the acceleration of any such Indebtedness by
the holders thereof because of a default if the total amount of such
Indebtedness unpaid or accelerated exceeds $10.0 million or its foreign
currency equivalent (the "cross acceleration provision"), (viii) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions"), (ix) the rendering of
any judgment or decree for the payment of money in excess of $10.0 million or
its foreign currency equivalent against the Company or a Significant
Subsidiary if (A) an enforcement proceeding thereon is commenced or (B) such
judgment or decree remains outstanding for a period of 60 days following such
judgment or decree and is not discharged, waived or stayed (the "judgment
default provision") or (x) the failure of any Note Guarantee by a Note
Guarantor which is a Significant Subsidiary to be in full force and effect
(except as contemplated by the terms thereof) or the denial or disaffirmation
by any such Note Guarantor of its obligations under the Indenture or any Note
Guarantee if such Default continues for 10 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body.
However, a Default under clause (iv) or (v) will not constitute an Event of
Default until the Trustee or the Holders of at least 25% in principal amount
of the outstanding Notes notify the Company of the Default and the Company
does not cure such Default within the time specified in clauses (iv) and (v)
hereof after receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least a
majority in principal amount of the outstanding Notes by notice to the Company
and the Trustee, may declare the principal of and accrued but unpaid interest
on all the Notes to be due and payable. Upon such a declaration, such
principal and interest will be due and payable immediately. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs and is continuing, the principal of and interest on all
the Notes will become immediately due and payable without any declaration or
other act on the part of the Trustee or any Holders. Under certain
circumstances, the Holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such
Holders have offered to the Trustee reasonable indemnity or security against
any loss, liability or expense. Except to enforce the right to receive payment
of principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing,
(ii) Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered
the Trustee reasonable security or indemnity against any loss, liability or
expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity and
(v) the Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the Holders of a majority
in principal amount of the outstanding Notes are
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given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust
or power conferred on the Trustee. The Trustee, however, may refuse to follow
any direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that
would involve the Trustee in personal liability. Prior to taking any action
under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses
caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of, premium (if any) or interest on any Note, the Trustee
may withhold notice if and so long as a committee of its Trust Officers in
good faith determines that withholding notice is in the interests of the
Noteholders. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within
30 days after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each Holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose Holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest on any Note, (iii) reduce the
principal of or extend the Stated Maturity of any Note, (iv) reduce the
premium payable upon the redemption of any Note or change the time at which
any Note may be redeemed as described under "--Optional Redemption" above, (v)
make any Note payable in money other than that stated in the Note, (vi) make
any change to the subordination provisions of the Indenture that adversely
affects the rights of any Holder, (vii) impair the right of any Holder to
receive payment of principal of and interest on such Holder's Notes on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder's Notes or (viii) make any change in
the amendment provisions which require each Holder's consent or in the waiver
provisions.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition
to or in place of certificated Notes (provided, however, that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add Guarantees with respect
to the Notes, to secure the Notes, to add to the covenants of the Company for
the benefit of the Noteholders or to surrender any right or power conferred
upon the Company, to make any change that does not adversely affect the rights
of any Holder or to comply with any requirement of the SEC in connection with
the qualification of the Indenture under the TIA. However, no amendment may be
made to the subordination provisions of the Indenture that adversely affects
the rights of any holder of Senior Indebtedness then outstanding unless the
holders of such Senior Indebtedness (or any group or representative thereof
authorized to give a consent) consent to such change (provided that the
foregoing does not apply to the change in subordination provisions described
in "--Ranking").
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
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TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any
taxes or other government changes required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption or to transfer or exchange any Note for a period of 15
days prior to the mailing of a notice of redemption. The Notes will be issued
in registered form and the registered holder of a Note will be treated as the
owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the
covenants described under "--Certain Covenants", the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Subsidiaries
and the judgment default provision described under "--Defaults" above and the
limitations contained in clauses (iii) and (iv) under "--Merger and
Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iv), (vi), (viii) with
respect only to Subsidiaries, (ix) or (x) under "--Defaults" above or because
of the failure of the Company to comply with clause (iii) or (iv) under "--
Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
deposit and defeasance and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of
legal defeasance only, such Opinion of Counsel must be based on a ruling of
the Internal Revenue Service or other change in applicable Federal income tax
law).
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquisition" means the acquisition by the Company and its assignee, Leasco,
of all or substantially all the assets of the Consumer Truck Rental business
unit of Ryder Truck Rental, Inc., a Florida corporation, on October 17, 1996.
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"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a
Restricted Subsidiary; provided, however, that, in the case of clauses (ii)
and (iii), such Restricted Subsidiary is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the covenant described under "--Certain Covenants--
Limitation on Sales of Assets" only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power
of the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Applicable Premium" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the
excess of (A) the present value of all remaining required interest and
principal payments due on such Note, computed using a discount rate equal to
the Treasury Rate plus 75 basis points, over (B) the then-outstanding
principal amount of such Note.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the
purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of inventory,
equipment or Vehicles in the ordinary course of business, (iii) the sale of
Temporary Cash Investments in the ordinary course of business, (iv) the sale
of used or obsolete equipment in the ordinary course of business so long as
the fair market value of the assets disposed of pursuant to this clause (iv)
does not exceed $500,000 in the aggregate in any fiscal year, (v) for purposes
of the covenant described under "--Certain Covenants--Limitation on Sales of
Assets" only, a disposition subject to the covenant described under "--Certain
Covenants--Limitation on Restricted Payments", (vi) transfers required in
connection with the Securitization, (vii) Permitted Liens and (viii) Permitted
Investments.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
assumed in making calculations in accordance with FAS 13) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Senior Credit Agreement and the other Senior Credit Documents,
Indebtedness Incurred pursuant to the covenant described in clause (b)(ii)
under "--Certain Covenants--Limitation on Indebtedness," the Securitization
and any Refinancing Indebtedness with respect to any of the foregoing, as
amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a
claim for postfiling interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
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"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions are authorized or required by law to
close in New York City.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due under such lease.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such
determination to (ii) Consolidated Interest Expense for such four fiscal
quarters (in each case, determined, for each fiscal quarter of the four fiscal
quarters ending prior to the Issue Date, on a pro forma basis to give effect
to the Acquisition as if it had occurred at the beginning of such period);
provided, however, that (1) if the Company or any Restricted Subsidiary has
Incurred any Indebtedness since the beginning of such period that remains
outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such Indebtedness as
if such Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, (2) if since the beginning of such
period the Company or any Restricted Subsidiary shall have made any Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets that are the
subject of such Asset Disposition for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for such
period and Consolidated Interest Expense for such period shall be reduced by
an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
the Company and its continuing Restricted Subsidiaries are no longer liable
for such Indebtedness after such sale), (3) if since the beginning of such
period the Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person that
becomes a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all
of an operating unit of a business, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period and (4) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition or
any Investment or acquisition of assets that would have required an adjustment
pursuant to clause (2) or (3) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment or acquisition of assets occurred on the
first day of such period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of income or
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earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro
forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term as at the
date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of the Company and its Restricted Subsidiaries,
plus, to the extent incurred by the Company and its Subsidiaries in such
period but not included in such interest expense, (i) interest expense
attributable to Capitalized Lease Obligations and rent expense associated with
Attributable Debt, (ii) the earned discount or yield with respect to a sale of
receivables and any corresponding amount relating to the Securitization, (iii)
amortization of debt discount and debt issuance cost, (iv) capitalized
interest, (v) noncash interest expense, (vi) commissions, discounts and other
fees and charges attributable to letters of credit and bankers' acceptance
financing, (vii) interest in respect of or other obligation of any other
Person that has been Guaranteed by the Company or any Restricted Subsidiary,
(viii) net costs associated with Hedging Obligations, (ix) Preferred Stock
dividends in respect of all Preferred Stock of Subsidiaries of the Company and
Disqualified Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary; and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust;
provided, however, that there shall be excluded therefrom (i) any such
interest expense of any Unrestricted Subsidiary to the extent the related
Indebtedness is not Guaranteed or paid by the Company or any Restricted
Subsidiary, and (ii) any write-off of debt issuance costs of the Company and
its Restricted Subsidiaries associated with the Indebtedness Incurred to
finance the Acquisition. For purposes of the foregoing, gross interest expense
shall be determined after giving effect to any net payments made or received
by the Company and its Subsidiaries with respect to Interest Rate Agreements.
"Consolidated Net Income" means, for any period, the consolidated net income
(loss) of the Company and its Restricted Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income:
(i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained
in clause (iv) below, the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) the Company's equity in a net loss of any such
Person (other than an Unrestricted Subsidiary) for such period shall be
included in determining such Consolidated Net Income,
(ii) any net income (loss) of any person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition,
(iii) any net income (loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the limitations contained in (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a dividend
(subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause) and (B)
the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income,
(iv) any gain (but not loss) realized upon the sale or other disposition
of any asset of the Company or its Consolidated Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) that is not sold or
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otherwise disposed of in the ordinary course of business and any gain (but
not loss) realized upon the sale or other disposition of any Capital Stock
of any Person,
(v) any extraordinary gain or loss, and
(vi) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and the Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Unrestricted Subsidiary will be accounted for as an
investment. The term "Consolidated" has a correlative meaning.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount of, or under which, at the date of determination,
the holders thereof are committed to lend up to, at least $5.0 million and is
specifically designated by the Company in the instrument evidencing or
governing such Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"EBITDA" means, for any period, the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation and depletion expense and (iv) amortization of intangibles and
amortization of other non-cash charges or non-cash losses (including financing
and acquisition expenses incurred in connection with the Acquisition).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Subsidiaries" means Leasco, Ryder Move Management, Inc., Ryder
Truck Rental One-Way, Inc., Ryder Relocation Services, Inc. and The Move Shop,
Inc.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not organized under the laws of the United States of America or any state
thereof or the District of Columbia.
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"GAAP" means generally accepted accounting principles in the United States
of America applied on a consistent basis.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other nonfinancial
obligation of any other Person and any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or such other
obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
in the Register.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary. Any Indebtedness issued
at a discount (including Indebtedness on which interest is payable through the
issuance of additional Indebtedness) shall be deemed incurred at the time of
original issuance of the Indebtedness at the initial accreted amount thereof.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal of and premium (if any) in respect of indebtedness of
such Person for borrowed money,
(ii) the principal of and premium (if any) in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments,
(iii) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto), but shall not include commercial letters of credit or letters of
credit issued in connection with liabilities incurred in the ordinary
course of business (including those issued to governmental entities to
self-insure under applicable workers' compensation statutes and the $2.5
million standby letter of credit issued to Ryder System, Inc. pursuant to
the Acquisition) prior to the time of a drawing that gives rise to a
reimbursement obligation,
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which
purchase price is due more than six months after the date of placing such
property in final service or taking final delivery and title thereto or the
completion of such services,
(v) all Capitalized Lease Obligations and all Attributable Debt of such
Person,
(vi) the redemption, repayment or other repurchase amount of such Person
with respect to any Disqualified Stock or, with respect to any Subsidiary
of the Company, any Preferred Stock (but excluding, in each case, any
accrued dividends),
(vii) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other
Persons,
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person, and
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(ix) to the extent not otherwise included in this definition, net Hedging
Obligations of such Person (such obligations to be equal at any time to the
termination value of such agreement or arrangement giving rise to such
Hedging Obligation that would be payable by such Person at such time).
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes
of the definition of "Unrestricted Subsidiary" and the covenant described
under "--Certain Covenants--Limitation on Restricted Payments", (i)
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an amount
(if positive) equal to (x) the Company's "Investment" in such Subsidiary at
the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Investors" means Questor and the other parties that purchased equity
interests in the Company on October 17, 1996.
"Issue Date" means November 25, 1996, the date on which the Senior
Subordinated Notes were originally issued.
"Jay Alix & Associates, Inc." means Jay Alix & Associates, Inc., a Michigan
corporation.
"Leasco" means RCTR, Inc., a special purpose Delaware corporation that is a
Wholly Owned Subsidiary, and any other Wholly Owned Subsidiary that is
established for the purpose of entering into a Securitization with respect to
the Vehicles.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Loan Agreement" means the loan agreement dated as of October 17, 1996,
among the Company, the several lenders (the "Lenders") from time to time
parties thereto and The Chase Manhattan Bank, a New York banking corporation,
as administrative agent for the Lenders.
"Management Agreement" means the Management Agreement dated October 15,
1996, between the Company and Questor Management Company (and its permitted
successors and assigns), as the same may be amended, modified or supplemented
from time to time in accordance with the terms thereof.
"Moody's" means Moody's Investors Service, Inc., and its successors.
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"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness that is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon such assets, or that must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (iv) appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds" means, with respect to any issuance or sale of any
securities of the Company or any Subsidiary by the Company or any Subsidiary,
the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Note Guarantee" means any guarantee that may from time to time be executed
and delivered by a Subsidiary of the Company pursuant to the covenant
described under "--Certain Covenants--Future Note Guarantors". Prior to the
Subordination Termination Date, each such Note Guarantee shall have
subordination provisions equivalent to those contained in the Indenture and
shall be a senior unsecured guarantee after the Subordinated Termination Date.
"Note Guarantor" means any Subsidiary that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary or the Controller of the Company.
"Officer's Certificate" means a certificate signed by one Officer.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Employee Payments" means Restricted Payments by the Company or
any Restricted Subsidiary in respect of (i) the repurchase of Capital Stock of
the Company or any Restricted Subsidiary from an employee of the Company or
any Restricted Subsidiary or their assigns, estates or heirs upon the death,
retirement or termination of such employee or (ii) loans or advances to
employees of the Company or any Subsidiary made in the ordinary course of
business.
"Permitted Holders" means the Investors, their respective Affiliates and any
Person acting in the capacity of an underwriter in connection with a public or
private offering of the Company's Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary, the Company or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments;
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(iv) receivables owing to the Company or any Restricted Subsidiary, if created
or acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade
terms may include such concessionary trade terms as the Company or any such
Restricted Subsidiary deems reasonable under the circumstances; (v) payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses for accounting purposes and
that are made in the ordinary course of business; (vi) loans or advances to
employees made in the ordinary course of business of the Company or such
Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to
the Company or any Restricted Subsidiary or in satisfaction of judgments; and
(viii) securities received as consideration in sales of assets made in
compliance with the covenant described under "--Limitation on Sales of
Assets."
"Permitted Liens" means:
(a) Liens for taxes, assessments or other governmental charges not yet
delinquent or that are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or such Subsidiary, as the case may be, in accordance
with GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
in respect of obligations that are not yet due or that are bonded or that
are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of the
Company or such Subsidiary, as the case may be, in accordance with GAAP;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) pledges or deposits to secure the performance of bids, tenders, trade
or government contracts (other than for borrowed money), leases, licenses,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(e) easements (including reciprocal easement agreements), rights-of-way,
building, zoning and similar restrictions, utility agreements, covenants,
reservations, restrictions, encroachments, changes, and other similar
encumbrances or title defects incurred, or leases or subleases granted to
others, in the ordinary course of business, which do not in the aggregate
materially detract from the aggregate value of the properties of the
Company and its Subsidiaries, taken as a whole, or materially interfere
with or adversely affect in any material respect the ordinary conduct of
the business of the Company and its Subsidiaries on the properties subject
thereto, taken as a whole;
(f) Liens incurred in connection with the Securitization;
(g) Liens existing on the date of the Indenture;
(h) (i) mortgages, liens, security interests, restrictions, encumbrances
or any other matters of record that have been placed by any developer,
landlord or other third party on property over which the Company or any
Restricted Subsidiary of the Company has easement rights or on any leased
property and subordination or similar agreements relating thereto and (ii)
any condemnation or eminent domain proceedings affecting any real property;
(i) Liens securing Hedging Obligations incurred in compliance with the
covenant described under "--Certain Covenants--Limitation on Indebtedness";
(j) Liens arising out of judgments or awards (other than any judgment
that is described in clause (viii) under "--Defaults" and constitutes an
Event of Default thereunder) in respect of which the Company shall in good
faith be prosecuting an appeal or proceedings for review and in respect of
which it shall have secured a subsisting stay of execution pending such
appeal or proceedings for review, provided that the Company shall have set
aside on its books adequate reserves, in accordance with GAAP, with respect
to such judgment or award;
(k) leases or subleases to third parties;
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(l) Liens securing Indebtedness incurred in compliance with clause
(b)(vi) or (b)(viii) of the covenant described under "--Certain Covenants--
Limitation on Indebtedness"; and
(m) Liens securing commercial bank indebtedness.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation means
Capital Stock of any class or classes (however designated) that is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note that is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective
registration statement under the Securities Act.
"Questor" means, collectively, Questor Partners Fund, L.P., a Delaware
limited partnership, and Questor Side-by-Side Partners, L.P., a Delaware
limited partnership.
"Questor Management Company" means Questor Management Company, a Delaware
corporation.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on
the date of the Indenture or Incurred in compliance with the Indenture
(including Indebtedness of the Company that refinances Indebtedness of any
Restricted Subsidiary (to the extent permitted in the Indenture) and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an
Average Life at the time such Refinancing Indebtedness is Incurred that is
equal to or greater than the Average Life of the Indebtedness being refinanced
and (iii) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if issued
with original issue discount, the aggregate accreted value) then outstanding
of the Indebtedness being refinanced, plus fees, underwriting discounts,
premiums and other costs and expenses incurred in connection with such
Refinancing Indebtedness; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary
that is not a Guarantor that refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means those businesses in which the Company or any of its
Subsidiaries is engaged on the date of the Indenture, or that are reasonably
related or incidental thereto.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Revolving Credit Loans" means revolving credit loans available for working
capital needs and letter of credit made under commitments pursuant to the
Senior Credit Agreement.
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"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or such Restricted Subsidiary transfers such property to a Person
and the Company or such Restricted Subsidiary leases it from such Person,
other than leases between the Company and a Wholly Owned Subsidiary or between
Wholly Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securitization" means a financing or series of financings consisting
principally of an asset-backed program based on rental Vehicles owned by
Leasco (funded by the issuance of commercial paper, medium term notes or other
forms of borrowing and including credit enhancement facilities), and which may
consist of or include such other forms of financing consistent with the
foregoing as the Board of Directors shall approve in good faith.
"Senior Credit Agreement" means the credit agreement dated as of October 17,
1996, as amended, waived or otherwise modified, among the Company, the several
lenders party thereto, Chase as administrative agent and Citibank, U.S.A.,
Inc., as documentation and collateral agent (except to the extent that any
such amendment, waiver or other modification thereto would be prohibited by
the terms of the Indenture, unless otherwise agreed to by the Trustee.)
"Senior Credit Documents" means the collective reference to the Senior
Credit Agreement, the notes issued pursuant thereto and the Guarantee
Agreement, the Security Agreement, the Indemnity, Subrogation and Contribution
Agreement, the Pledge Agreement (each as defined in the Senior Credit
Agreement) and each of the security agreements and other instruments and
documents executed and delivered pursuant to any of the foregoing or pursuant
to Section 5.16 of the Senior Credit Agreement.
"Senior Subordinated Indebtedness" means, prior to the Subordination
Termination Date, the Notes and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank pari passu with the
Notes and is not subordinated by its terms to any Indebtedness or other
obligation of the Company that is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"S&P" means Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc., and its successors.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person or (ii) one or more
Subsidiaries of such Person.
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"Successor Company" shall have the meaning assigned thereto in clause (i)
under "--Merger and Consolidation."
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations (x) of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any
agency thereof or (y) of any foreign country recognized by the United States
of America rated at least "A" by S&P or "A-1" by Moody's, (ii) investments in
time deposit accounts, certificates of deposit and money market deposits
maturing within 180 days of the date of acquisition thereof issued by a bank
or trust company that is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America having capital and surplus aggregating in excess of $250.0
million (or the foreign currency equivalent thereof) and whose long-term debt
is rated "A" by S&P or "A-1" by Moody's, (iii) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) or (ii) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 270 days after the date of acquisition, issued
by a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign
country recognized by the United States of America with a rating at the time
as of which any investment therein is made of "P-1" (or higher) according to
Moody's or "A-1" (or higher) according to S&P, (v) investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States
of America, or by any political subdivision or taxing authority thereof, and
rated at least "A" by S&P or "A" by Moody's, (vi) any money market deposit
accounts issued or offered by a domestic commercial bank or a commercial bank
organized and located in a country recognized by the United States of America,
in each case, having capital and surplus in excess of $250.0 million (or the
foreign currency equivalent thereof), or investments in money market funds
complying with the risk limiting conditions of Rule 2a-7 (or any successor
rule) of the SEC, under the Investment Company Act of 1940, as amended, and
(vii) similar investments approved by the Board of Directors in the ordinary
course of business.
"Term Loans" means term loans made pursuant to the Senior Credit Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two Business Days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the Redemption Date to the Stated Maturity; provided, however,
that if the period from the Redemption Date to the Stated Maturity is not
equal to the constant maturity of a United States Treasury security for which
a weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the Redemption Date to the
Stated Maturity is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
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"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness
of, or owns or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total consolidated assets of $1,000 or less or (B) if such
Subsidiary has consolidated assets greater than $1,000, then such designation
would be permitted under "--Certain Covenants--Limitation on Restricted
Payments". The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could incur at least $1.00 of
additional Indebtedness under paragraph (a) in the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Company's Board of Directors giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Vehicles" shall mean any trucks or other vehicles owned by the Company or
any Subsidiary and registered and based in the United States of America, the
body (including the "box" or storage component thereto) and equipment mounted
thereon and all accessions, attachments, and accessories of any type or
description attached to such trucks or vehicles.
"Voting Stock" of an entity means all classes of Capital Stock of such
entity then outstanding and normally entitled to vote in the election of
directors or all interests in such entity with the ability to control the
management or actions of such entity.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned
by the Company or another Wholly Owned Subsidiary.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. The Company expects that the Exchange Notes will be issued
initially in the form of a permanent global certificate in fully registered
form (the "Global Note") and will be deposited with the Trustee as custodian
for The Depository Trust Company ("DTC") and registered in the name of a
nominee of DTC.
Global Note. The Company expects that upon the issuance of the Global Note,
DTC or its custodian will credit, on its book-entry registration and transfer
system, the respective principal amount of Exchange Notes of the individual
beneficial interests represented by such Global Note to the accounts of
Persons who have accounts with such depositary. Such accounts initially will
be designated by or on behalf of the Initial Purchaser. Ownership of
beneficial interests in the Global Note will be limited to Persons who have
accounts with DTC ("participants") or Persons who hold interests through
participants. Ownership of beneficial interests in the Global Note will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
Persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Exchange Notes represented by such Global Note
for all purposes under the Indenture. No beneficial owner of an interest in
the Global Note will be able to transfer that interest except in accordance
with DTC's procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium (if any) and interest on the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium (if any) or interest in respect of the Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amounts of the Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in the Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a certificated Exchange Note for any
reason, including to sell Exchange Notes to persons in states which require
physical delivery of such Exchange Notes, or to pledge such securities, such
holder must transfer its interest in the Global Note in accordance with the
normal procedures of DTC and with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Note are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such participant or participants has or have
given such direction. However, if there is an Event of Default under the
Indenture, DTC will exchange the Global Note for certificated Exchange Notes,
which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of
101
<PAGE>
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depository for the Global Note and a successor depository is not
appointed by the Company within 90 days, Exchange Notes in definitive form
will be issued in exchange for the Global Note.
102
<PAGE>
SENIOR SUBORDINATED NOTES REGISTRATION RIGHTS
The Company and the Initial Purchaser entered into the Exchange and
Registration Rights Agreement on the Issue Date pursuant to which the Company
agreed to (i) file with the Commission on or prior to 45 days after the Issue
Date a registration statement on Form S-1 or Form S-4, if the use of such form
is then available (the "Exchange Offer Registration Statement") relating to
the Exchange Offer and (ii) use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act
within 135 days after the Issue Date. Upon the Exchange Offer Registration
Statement being declared effective, the Company will offer to the holders of
Senior Subordinated Notes who are not prohibited by any law or policy of the
Commission from participating in the Exchange Offer the opportunity to
exchange their Senior Subordinated Notes for Exchange Notes. The Company will
keep the Exchange Offer open for not less than 30 days (or longer, if required
by applicable law) after the date notice of the Exchange Offer is mailed to
the holders of the Senior Subordinated Notes. For each Senior Subordinated
Note surrendered to the Company for exchange pursuant to the Exchange Offer,
the holder of such Note will receive an Exchange Note having a principal
amount at maturity equal to that of the surrendered Senior Subordinated Note.
Interest on each Exchange Note will accrue from the last interest payment date
on which interest was paid on the Senior Subordinated Note surrendered in
exchange therefor or, if no interest has been paid on such Senior Subordinated
Note, from the date of original issuance. See "The Exchange Offer."
In the event that (a) prior to the consummation of the Exchange Offer, the
Company reasonably determines in good faith that, after conferring with
counsel, that the Commission is unlikely to permit the consummation of the
Exchange Offer within 165 days after the Issue Date, (b) for any other reason
the Exchange Offer is not consummated within 165 days of the Issue Date, (c)
the Initial Purchaser so requests with respect to Senior Subordinated Notes
(i) purchased by it from the Company on the Issue Date, (ii) not eligible to
be exchanged for Exchange Notes in the Exchange Offer and (iii) held by it
following consummation of the Exchange Offer or (d) any holder (other than an
exchanging dealer) is not eligible to participate in the Exchange Offer or, in
the case of any holder that participates in the Exchange Offer (other than an
exchanging dealer), does not receive freely tradeable Exchange Notes in
exchange for tendered Senior Subordinated Notes (and in either case so advises
the Company within ten business days following the later of the consummation
of the Exchange Offer or the time at which such holder becomes aware or is
notified by the Company of such circumstance) or if the Company so elects, in
each case the Company shall promptly (and in any event within three business
days) deliver to the holders and the Trustee written notice thereof (the
"Shelf Notice"). After delivery of the Shelf Notice, the Company will file
with the Commission a shelf registration statement (the "Shelf Registration
Statement") to cover resales of Transfer Restricted Securities (as defined) by
such holders who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. For purposes
of the foregoing, "Transfer Restricted Securities" means each Note until (i)
the date on which such Note has been exchanged for a freely transferable
Exchange Note in the Exchange Offer; (ii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act.
The Company will use its best efforts to have the Exchange Offer
Registration Statement or, if applicable, the Shelf Registration Statement
(each, a "Registration Statement") declared effective by the Commission as
promptly as practicable after the filing thereof. Unless the Exchange Offer
would not be permitted by a policy of the Commission, the Company will
commence the Exchange Offer and will use its best efforts to consummate the
Exchange Offer as promptly as practicable, but in any event prior to 165 days
after the Issue Date. If applicable, the Company will use its best efforts to
keep the Shelf Registration Statement effective for a period of three years
after the date the Shelf Registration Statement is declared effective by the
Commission or such shorter period that will terminate when all the Notes
covered by the Shelf Registration Statement (i) have been sold pursuant to the
Shelf Registration Statement or (ii) are distributed to the public pursuant to
Rule 144 under the Securities Act or are saleable pursuant to Rule 144(k)
under the Securities Act. If (i) the Exchange Offer Registration Statement is
not declared effective within 135 days after the Issue Date; (ii) the Exchange
Offer is not consummated on or prior to 165 days after the Issue Date; (iii)
the Shelf Registration Statement is not filed
103
<PAGE>
with the Commission within 45 days after the Shelf Notice is required to be
delivered or is not declared effective within 135 days after such date or (iv)
the Shelf Registration Statement is filed and declared effective within 135
days after the date the Shelf Notice is required to be delivered but shall
thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 30 days by
an additional or amended Registration Statement filed and declared effective
(each such event referred to in clauses (i) through (iv), a "Registration
Default"), the Company will pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of Registration Default, in an amount
equal to $0.192 per week per $1,000 principal amount of the Notes constituting
Transfer Restricted Securities held by such holder until the applicable
Registration Statement is filed or declared effective, the Exchange Offer is
consummated or the Shelf Registration Statement again becomes effective, as
the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Notes on semi-annual payment dates
which correspond to interest payment dates for the Notes. Following the cure
of all Registration Defaults, the accrual of liquidated damages will cease.
The Exchange and Registration Rights Agreement provides that the Company (i)
shall make available for a period of 90 days after the consummation of the
Exchange Offer additional copies of the prospectus meeting the requirements of
the Securities Act and any amendment or supplement thereto to any broker-
dealer for use in connection with any resale of any such Exchange Notes and
(ii) shall pay all expenses incident to the Exchange Offer (including the
expense of one counsel to the holders of the Notes) other than commissions or
concessions of any brokers or dealers and will indemnify holders of the Notes
(including any broker-dealer) against certain liabilities, including
liabilities under the Securities Act. A broker-dealer which delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Exchange and Registration Rights Agreement
(including certain indemnification rights and obligations).
Each holder of Senior Subordinated Notes who wishes to exchange such Senior
Subordinated Notes for Exchange Notes in the Exchange Offer will be required
to make certain representations, including representations that (i) any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business, (ii) it has no arrangements or understandings with any person to
participate in the distribution of the Senior Subordinated Notes or the
Exchange Notes and (iii) it is not an Affiliate.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Notes. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Senior Subordinated Notes
that were acquired as a result of market-making activities or other trading
activities, it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
Holders of the Notes will be required to make certain representations to the
Company (as described above) in order to participate in the Exchange Offer and
will be required to deliver information to be used in connection with any
Shelf Registration Statement in order to have their Notes included in the
Shelf Registration Statement. A holder who sells Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Exchange and Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
For so long as the Notes are outstanding, the Company will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing summary of certain provisions of the Exchange and Registration
Rights Agreement does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration
Rights Agreement, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
104
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for Senior Subordinated Notes may be offered
for resale, resold and otherwise transferred by holders thereof (other than
any holder which is (i) an "Affiliate," (ii) a broker-dealer who acquired
Senior Subordinated Notes directly from the Company or (iii) broker-dealers
who acquired Senior Subordinated Notes as a result of market-making or other
trading activities) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangement with any person to participate in a distribution of such
Exchange Notes; provided that broker-dealers receiving Exchange Notes in the
Exchange Offer will be subject to a prospectus delivery requirement with
respect to resales of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Senior
Subordinated Notes where Senior Subordinated Notes were acquired as a result
of market-making activities or other trading activities. The Company has
agreed that, for a period of 90 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale. In addition, until , 1997,
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such Exchange Notes.
Any broker-dealer that resells Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 90 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer (including the expenses of one counsel for the holders of
the Notes) other than commissions or concessions of any brokers or dealers and
will indemnify such holders (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
105
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the Exchange Notes
will be passed upon for the Company by Willkie Farr & Gallagher, New York, New
York.
EXPERTS
The consolidated balance sheet of Ryder TRS, Inc. and subsidiaries as of
December 31, 1996, and the consolidated statements of operations, changes in
shareholders' equity and cash flows for the period from September 5, 1996
(date of inception) to December 31, 1996, included in this Prospectus have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The Combined Financial Statements of the Division as of October 16, 1996,
December 31, 1995 and 1994 and for the period January 1, 1996 to October 16,
1996 and for each of the years in the two-year period ended December 31, 1995
included in this Prospectus have been audited by KPMG Peat Marwick LLP,
independent accountants, as stated in their reports appearing herein. Such
Combined Financial Statements are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
106
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
RYDER TRS, INC.
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheet as of December 31, 1996........................ F-3
Consolidated Statement of Operations for the period from September 5, 1996
(date of inception)
to December 31, 1996..................................................... F-4
Consolidated Statement of Changes in Shareholders' Equity for the period
from September 5, 1996 (date of inception) to December 31, 1996.......... F-5
Consolidated Statement of Cash Flows for the period from September 5, 1996
(date of inception) to December 31, 1996................................. F-6
Notes to Consolidated Financial Statement................................. F-7
RYDER CONSUMER TRUCK RENTAL DIVISION
Report of Independent Auditors............................................ F-16
Combined Balance Sheets at December 31, 1994 and 1995..................... F-17
Combined Statements of Operations and Changes in Ryder Investment for the
years ended
December 31, 1994 and 1995............................................... F-18
Combined Statements of Cash Flows for the years ended December 31, 1994
and 1995................................................................. F-19
Notes to Combined Financial Statements.................................... F-20
Report of Independent Auditors............................................ F-28
Combined Balance Sheet at October 16, 1996................................ F-29
Combined Statement of Earnings and Changes in Ryder Investment for the Pe-
riod January 1, 1996
to October 16, 1996...................................................... F-30
Combined Statement of Cash Flows for the Period January 1, 1996 to October
16, 1996................................................................. F-31
Notes to Combined Financial Statements.................................... F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Ryder TRS, Inc.
We have audited the accompanying consolidated balance sheet of Ryder TRS,
Inc. and Subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the period from September 5, 1996 (date of inception) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ryder TRS,
Inc. and Subsidiaries as of December 31, 1996 and the consolidated results of
their operations and their cash flows for the period from September 5, 1996
(date of inception) to December 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 17, 1997
F-2
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents........................................... $ 17,507
Accounts receivable, less allowance for doubtful accounts of $305... 9,151
Receivable from truck sales......................................... 6,926
Purchase price refund receivable from Ryder Truck Rental, Inc. ..... 6,190
Tires in service.................................................... 23,228
Prepaid expenses and other current assets........................... 8,455
--------
Total current assets............................................. 71,457
Revenue earning equipment, net....................................... 454,163
Operating property and equipment, net................................ 12,977
Software development costs, net...................................... 13,929
Intangible assets, net............................................... 51,862
Deferred financing costs, net........................................ 15,381
Deferred income taxes................................................ 2,077
--------
Total assets..................................................... $621,846
========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current liabilities:
Accounts payable.................................................... $ 9,598
Payable to Ryder Truck Rental, Inc., net............................ 5,966
Accrued expenses.................................................... 25,715
--------
Total current liabilities........................................ 41,279
Senior bank facilities............................................... 281,000
Senior subordinated notes............................................ 175,000
Other non-current liabilities........................................ 4,456
--------
Total liabilities................................................ 501,735
--------
Shareholders' equity:
Common stock: $.01 par value, 275,000 shares authorized, 109,090
Class A shares
and 13,910 Class B shares issued and outstanding................... 1
Additional paid-in capital.......................................... 122,999
Accumulated deficit................................................. (2,889)
--------
Total shareholders' equity....................................... 120,111
--------
Total liabilities and shareholders' equity....................... $621,846
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FROM SEPTEMBER 5, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Truck rental and related revenue..................................... $103,011
Operating expense.................................................... 34,732
Selling, general and administrative expense.......................... 39,317
Depreciation and amortization expense................................ 19,398
--------
Operating income................................................. 9,564
Interest expense..................................................... 14,261
--------
Loss before income taxes......................................... (4,697)
Income tax benefit................................................... (1,808)
--------
Net loss......................................................... $ (2,889)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FROM SEPTEMBER 5, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
----------------- ---------------- PAID-IN ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT TOTAL
------- --------- ------ --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 5, -- $-- -- $ -- $ -- $ -- $ --
1996
(date of inception)
Initial capitalization.. 109,090 1 13,910 -- 122,999 -- 123,000
Net loss................ -- -- -- -- -- (2,889) (2,889)
------- ---- ------ ----- -------- ------- --------
Balance at December 31,
1996................... 109,090 $ 1 13,910 $ -- $122,999 $(2,889) $120,111
======= ==== ====== ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FROM SEPTEMBER 5, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss............................................................ $ (2,889)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization expense.............................. 19,398
Amortization of deferred financing costs........................... 5,573
Deferred income tax benefit........................................ (2,077)
Change in operating assets and liabilities, net of effects of ac-
quisition:
Accounts receivable............................................... (9,259)
Prepaid expenses and other current assets......................... (349)
Accounts payable.................................................. 8,419
Accrued expenses.................................................. 19,645
Payable to Ryder Truck Rental, Inc., net.......................... 5,966
--------
Net cash provided by operating activities........................ 44,427
--------
Cash flows from investing activities:
Cash paid for acquisition........................................... (582,703)
Purchase price refund receivable from Ryder Truck Rental, Inc. ..... (6,082)
Capital expenditures................................................ (131)
Proceeds from sales of revenue earning equipment.................... 3,950
--------
Net cash used in investing activities............................ (584,966)
--------
Cash flows from financing activities:
Deferred financing costs............................................ (20,954)
Borrowing under senior bank facilities.............................. 381,000
Borrowing under senior subordinated credit facility................. 100,000
Borrowing under senior subordinated notes........................... 175,000
Payment on senior subordinated credit facility...................... (100,000)
Payment on senior bank facilities................................... (100,000)
Capital contributions............................................... 123,000
--------
Net cash provided by financing activities........................ 558,046
--------
Increase in cash and cash equivalents............................ 17,507
Cash and cash equivalents at beginning of period..................... --
--------
Cash and cash equivalents at end of period........................... $ 17,507
========
Supplemental disclosures:
Cash paid for:
Interest......................................................... $ 3,398
========
Income taxes..................................................... $ --
========
</TABLE>
The accompany notes are an integral part of these financial statements.
F-6
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
Ryder TRS, Inc. ("TRS") was incorporated on September 5, 1996 for the
purpose of consummating the transactions that are more fully described in Note
2 below. TRS (together with its subsidiaries, the "Company") is a provider of
truck rentals and related moving supplies and services to the consumer and
light commercial markets in the United States, with a fleet of approximately
31,400 trucks during the year. The Company rents trucks, towing equipment and
accessory equipment, and sells liability-limiting products and moving supplies
to consumers and commercial customers through a nationwide network that
approximated 4,200 dealers at December 31, 1996.
2. ACQUISITION OF THE RYDER CONSUMER TRUCK RENTAL BUSINESS:
On October 17, 1996, pursuant to an Asset and Stock Purchase Agreement, the
Company acquired from Ryder Truck Rental, Inc., a subsidiary of Ryder System,
Inc. (collectively, the "Seller"), substantially all the assets and assumed
certain of the liabilities of the Seller's Consumer Truck Rental division (the
"Business"). The aggregate cash purchase price for the net assets acquired was
approximately $573.3 million, net of a refund of approximately $6.1 million
receivable pursuant to post-closing adjustment provisions of the agreements.
In addition, the Company paid approximately $9.4 million of fees and expenses
that were capitalized as part of the acquisition cost (see Note 4). The
acquisition of the Business has been accounted for as a purchase and,
accordingly, its results of operations are included in the consolidated
financial statements since the date of acquisition.
Financing for the acquisition and for an additional $14.8 million of
deferred financing costs consisted of (i) $123.0 million of equity capital
through the issuance of 109,090 shares of Class A Common Stock and 13,910
shares of Class B Common Stock; (ii) $350.0 million of term loans and $31.0
million of revolving loans borrowed under a $500.0 million senior secured
credit facility with certain banks (the "Senior Bank Facilities"); and (iii)
$100.0 million of loans borrowed under a senior subordinated loan facility
(see Notes 8 and 9).
The purchase price has been allocated to assets acquired and liabilities
assumed based on fair market value at the date of acquisition. An excess of
fair market value over cost of approximately $24.9 million has been allocated
to non-current assets acquired based on the relative fair market value of the
applicable assets. The resulting adjusted fair value of assets acquired and
liabilities assumed is summarized as follows (in thousands):
<TABLE>
<S> <C>
Tires in service................................................. $ 23,615
Prepaid expenses and other current assets........................ 8,106
Revenue earning equipment........................................ 481,147
Operating property and equipment................................. 14,925
Software development costs....................................... 13,915
Dealer network................................................... 37,400
Tradename........................................................ 15,300
Accounts payable................................................. (1,179)
Accrued expenses................................................. (4,526)
Reserve for facility consolidation and employee relocation....... (6,000)
--------
Total........................................................ $582,703
========
</TABLE>
In conjunction with the acquisition, the Company provided a reserve of $6.0
million with respect to consolidation actions affecting certain of the
Business's organization and facilities existing on the acquisition date
including estimated employee termination and relocation costs of approximately
$3.1 million and estimated lease termination and other costs of approximately
$2.9 million.
F-7
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company plans to relocate its corporate headquarters from Miami, Florida
to Denver, Colorado. The Company entered into an agreement in March 1997,
pursuant to which it will lease approximately 66,000 square feet of space in
downtown Denver for a minimum term of 10 years and a minimum annual rent
commitment ranging from $0.9 million to $1.4 million. Certain staff from the
Company's facilities in Miami, Florida, Atlanta, Georgia, Dallas, Texas and
Aurora, Colorado will be transferred to the new headquarters in Denver. The
Company intends to recruit additional employees in the Denver area.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of the Business had occurred as of January
1, 1996. The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisition been in effect for the
periods presented, nor do they purport to be indicative of the results that
will be obtained in the future (in thousands):
<TABLE>
<S> <C>
Truck rental and related revenue................................ $542,790
Operating income................................................ $ 32,975
Net loss........................................................ $ (8,005)
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation. The accompanying financial statements include the
operations, assets and liabilities of TRS and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents. All highly liquid investments with maturities of
three months or less when purchased are cash equivalents. At times, the
Company maintains cash in bank accounts which exceed federally insured limits.
The Company has not incurred any losses with respect to such accounts.
Revenue Recognition. Truck rental and related revenue is recognized as
earned.
Tires in Service. The Company capitalizes the cost of tires as a component
cost of the purchase of revenue earning equipment and amortizes such tire
costs to expense over the lives of the vehicles and equipment. The cost of
replacement tires and tire repairs is expensed as incurred. For financial
statement purposes, the estimated cost of tires in service is reclassified to
current assets.
Prepaid Expenses. Vehicle licensing fees are deferred when paid and
amortized to income over the period to which the fees relate.
Advertising Costs. Yellow Page directory costs are deferred when paid and
amortized over the period the directories are effective, which is typically 12
months. Prepaid Yellow Page directory costs were $5.4 million at December 31,
1996. The Company expenses the production costs of advertising as incurred.
The cost of air time and print space for media advertising is expensed when
used. Total advertising expense was $3.2 million for the period from September
5, 1996 to December 31, 1996.
Revenue Earning Equipment and Operating Property and Equipment. Revenue
earning equipment, principally rental trucks, and operating property and
equipment that were acquired with the Business are stated at adjusted fair
value, see Note 2. Subsequent additions are stated at cost. Depreciation is
computed, after consideration of estimated residual values, using the
straight-line method on all depreciable assets over their estimated remaining
useful lives as follows: (i) revenue earning equipment--1 to 8 years; (ii)
office equipment and furniture--1 to 7 years; and (iii) transfer vehicles--1
to 4 years. Vehicle repairs and maintenance which do not extend the life or
increase the value of the vehicle are expensed as incurred.
F-8
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Software Development Costs. Software development costs represent the amounts
allocated to internal-use computer software acquired with the Business and are
being amortized on a straight-line basis over their expected useful life of
five years. The accumulated amortization for such costs at December 31, 1996
was $0.4 million.
Deferred Financing Costs. Deferred financing costs relate to costs
associated with the Senior Bank Facilities, senior subordinated loan facility,
and senior subordinated notes. These costs are amortized to interest expense
over the expected terms of the related debt. Accumulated amortization for
remaining deferred financing costs at December 31, 1996 was $0.5 million.
Intangible Assets. Intangible assets represent costs allocated to the
tradename and the dealer network acquired with the Business. The cost of the
tradename is being amortized on a straight-line basis over the ten-year term
of the Trademark License Agreement with the Seller. The cost of the dealer
network is being amortized on a straight-line basis over a fifteen-year
period.
Income Taxes. Deferred tax assets and liabilities are determined based upon
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
currently would be in effect when the differences are expected to reverse.
Deferred tax balances will be adjusted for tax law changes in periods that
include the enactment date of such changes. Deferred tax assets are also
established for the future tax benefits of operating loss carryforwards. A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Impairment of Long-lived Assets. Impairments are recognized in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of". The statement establishes standards for
measuring impairment of long-lived assets, identifiable intangibles and
goodwill related to the assets. No adjustments for impairments were required
at December 31, 1996.
Accrued Insurance and Loss Reserves. The Company retains a portion of the
risk under its automobile and general liability insurance, workers'
compensation and other insurance programs. Recorded reserves reflect estimated
liabilities, including claims incurred but not reported. Such liabilities are
necessarily based on actuarial or other estimates. Changes in the estimates of
these reserves are charged or credited to income in the period determined.
Amounts estimated to be paid within one year have been classified as accrued
expense with the remainder included in other non-current liabilities.
Loss per Share. Loss per common share of $23.49 is computed based on the
weighted average number of common shares outstanding during the period of
123,000.
4. TRANSACTIONS WITH AFFILIATED PARTIES:
On the date of acquisition, the Company paid merger and acquisition fees
totaling $8.0 million to certain shareholders or their affiliates for services
relating to the Acquisition. These fees were capitalized as part of the
acquisition costs. Additionally, the Company entered into a Management and
Consulting Agreement with an affiliate of one of the Company's shareholders
providing for annual compensation of $850,000, subject to certain conditions,
for a period that will continue for as long as the shareholder or certain
affiliates of the shareholder hold any shares of Common Stock of the Company.
The consolidated statement of operations includes costs of $0.2 million with
respect to this agreement. The Company also entered into an agreement for
certain advisory services with another affiliate of one of the shareholders
which can be terminated by either party at any time. The agreement contains a
contingent success fee provision based on certain financial performance levels
for 1997 and 1998 in addition to hourly fees. The consolidated statement of
operations includes costs of $0.8 million with respect to this agreement.
F-9
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. REVENUE EARNING EQUIPMENT:
Revenue earning equipment consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Rental trucks................................................... $456,508
Towing equipment and other...................................... 14,100
--------
470,608
Accumulated depreciation........................................ (16,445)
--------
Total....................................................... $454,163
========
</TABLE>
6. OPERATING PROPERTY AND EQUIPMENT:
Operating property and equipment consists of the following as of December
31, 1996:
<TABLE>
<S> <C>
Office equipment and furniture.................................... $14,336
Transfer vehicles................................................. 397
-------
14,733
Accumulated depreciation.......................................... (1,756)
-------
Total......................................................... $12,977
=======
</TABLE>
7. INTANGIBLE ASSETS:
Intangible assets consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Tradename........................................................ $ 15,300
Dealer network................................................... 37,400
--------
52,700
Accumulated amortization......................................... (838)
--------
Total........................................................ $ 51,862
========
</TABLE>
8. SENIOR BANK FACILITIES:
Senior Bank Facilities consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
$150.0 million Revolving Credit Facility......................... $ --
$281.0 million Term Facility..................................... 281,000
--------
Total........................................................ $281,000
========
</TABLE>
The Senior Bank Facilities, after the reduction described below, consist of
a $281.0 million term facility (the "Term Facility") and a $150.0 million
revolving credit facility (the "Revolving Credit Facility"), of which
$50.0 million is available for letters of credit. The Term Facility matures on
October 17, 2001 and amortizes in equal quarterly installments totaling $16.1
million in each of fiscal 1998, 1999 and 2000, and $232.7 million in fiscal
2001. The Revolving Credit Facility matures on October 17, 2001. In November
1996, the Term Facility was reduced by $69.0 million to $281.0 million with a
portion of the proceeds of a subordinated notes offering. (See Note 9.)
F-10
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Borrowing availability under the Revolving Credit Facility is based on
percentages of accounts receivable, revenue earning equipment and operating
property and equipment. Unused availability under the Revolving Credit
Facility, net of amounts allocated for letters of credit of $12.5 million,
totaled $105.9 million as of December 31, 1996. At the Company's option, the
Term Facility and Revolving Credit Facility bear interest at a rate per annum
equal to (i) an adjusted LIBOR rate plus 2.0%; or (ii) an alternate variable
rate. As of December 31, 1996 the average rate on the Term Facility was 7.58%.
In compliance with the terms of the Senior Bank Facilities, effective December
9, 1996, the Company entered into interest rate collar agreements with respect
to $125.0 million aggregate principal amount outstanding under the Term
Facility. These interest rate collar agreements establish an effective floor
of 5.33% on the base LIBOR rate and an effective cap of 6.65% on the base
LIBOR rate with respect to $125.0 million of the Company's floating rate debt
for periods of up to three years. Pursuant to the Facilities, if a
securitization of the truck rental fleet is not consummated by July 17, 1997,
the spread over the base LIBOR rate or alternate variable rate will be
increased by 0.5%.
The obligations under the Senior Bank Facilities are collateralized by
substantially all of the assets of TRS and a pledge of all the capital stock
of a subsidiary of TRS which owns the revenue earning equipment and leases the
vehicles to TRS. The subsidiary has its own separate creditors which, upon the
liquidation of the subsidiary, will be entitled to be satisfied out of its
assets prior to any value in the subsidiary becoming available to its equity
holders. The Company may be required to grant to the lenders under such
facilities a direct security interest in the revenue earning equipment if a
securitization of the truck rental fleet is not consummated by July 17, 1997.
The Senior Bank Facilities contain a number of covenants that, among other
things, limit the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends or make distributions, issue capital
stock, make capital expenditures or engage in certain transactions with
affiliates. In addition, under the Senior Bank Facilities, the Company is
required to comply with specified financial ratios and tests, including
minimum interest coverage ratios, maximum leverage ratios, minimum EBITDA
requirements and minimum fixed charge coverage ratios.
The fair value of borrowings under the Senior Bank Facilities approximates
its carrying amount because of frequent repricing based on market conditions.
F-11
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. SENIOR SUBORDINATED NOTES:
On November 25, 1996, the Company issued $175.0 million of 10% Senior
Subordinated Notes ("the 10% Notes") due December 1, 2006 with interest
payable semiannually commencing June 1, 1997. The 10% Notes are unsecured
obligations of the Company, are not redeemable prior to December 1, 2001
except as discussed below, and are redeemable at the option of the Company, in
whole or in part, at the following redemption prices (expressed as a
percentage of principal amount), plus accrued interest, if any, to the
redemption date, if redeemed during the 12 month period commencing on December
1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2001............................................................ 105.000%
2002............................................................ 103.333%
2003............................................................ 101.667%
2004 and thereafter............................................. 100.000%
</TABLE>
Prior to December 2, 1999, the Company may also redeem in the aggregate up
to 33 1/3% of the original aggregate principal amount of the 10% Notes with
the proceeds of one or more public offerings, as defined, at a redemption
price of 110% plus accrued interest, if any, to the redemption date; provided,
however, that at least 66 2/3% of the original aggregate principal amount of
the 10% Notes must remain outstanding after each such redemption. In addition,
upon the occurrence of a Change of Control, as defined, the 10% Notes may also
be redeemed as a whole at the option of the Company, and if the Company does
not so redeem, or if the Change of Control occurs on or after December 1,
2001, each holder of the 10% Notes may require the Company to repurchase all
or a portion of such holder's 10% Notes at a purchase price equal to 101% of
the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of the repurchase. The terms of the 10% Notes include
restrictions on additional indebtedness, asset sales, dividends, mergers and
transactions with affiliates.
The net proceeds of $169.0 million from the issuance of the 10% Notes were
used to refinance the then existing $100.0 million senior subordinated loan
facility and $69.0 million of the Term Facility. In connection with the
refinancing, unamortized deferred financing costs of $5.1 million, including
$3.5 million associated with the senior subordinated loan facility and $1.6
million associated with term loans paid under the Senior Bank Facility, were
charged to earnings as interest expense.
The fair value of the 10% Notes approximates its carrying amount in light of
the recent issuance of the 10% Notes.
10. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following as of
December 31, 1996:
<TABLE>
<S> <C>
Reserve for facility consolidation and employee relocation........ $ 6,000
Auto and general liability reserves............................... 4,789
Dealer commissions................................................ 6,930
Interest.......................................................... 5,291
Employee related accruals......................................... 1,640
Other............................................................. 5,521
-------
30,171
Non-current portion............................................... (4,456)
-------
Total......................................................... $25,715
=======
</TABLE>
F-12
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES:
The income tax benefit for the period September 5, 1996 to December 31, 1996
included the following components (in thousands):
<TABLE>
<S> <C>
Current tax expense:
Federal......................................................... $ 224
State........................................................... 45
-------
269
-------
Deferred tax benefit:
Federal......................................................... (1,691)
State........................................................... (386)
-------
(2,077)
-------
Income tax benefit................................................ $(1,808)
=======
</TABLE>
A reconciliation of the Federal statutory tax rate with the effective tax
benefit rate follows:
<TABLE>
<CAPTION>
% OF PRETAX
LOSS
-----------
<S> <C>
Statutory tax rate............................................. (35.0)%
State income taxes, net of Federal income tax benefit.......... ( 4.8)
Surtax exemption............................................... 0.9
Non-deductible items........................................... 0.4
-----
Effective tax benefit rate..................................... (38.5)%
=====
</TABLE>
The components of the net deferred income tax liability were as follows (in
thousands):
<TABLE>
<S> <C>
Deferred income tax assets:
Accrued self-insurance........................................... $1,980
Net operating loss carryforward.................................. 2,087
Alternative minimum tax credit carryforward...................... 269
Miscellaneous other accruals..................................... 364
------
4,700
------
Deferred income tax liabilities:
Property and equipment basis differences......................... (2,506)
Other items...................................................... (116)
------
2,622
------
Net deferred income tax asset...................................... $2,077
======
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards of
$5.0 million expiring in 2012 and alternative minimum tax credit carryforwards
of $0.3 million, which do not expire.
12. TRANSACTIONS WITH SELLER:
In connection with the acquisition of the Business, the Company entered into
various agreements with the Seller regarding dealer relationships, vehicle
maintenance, facility leases, sales of used trucks, administrative
F-13
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
services and management information systems support. During the period from
September 5, 1996 (date of inception) to December 31, 1996, the amount charged
to earnings with respect to these agreements was approximately $17.0 million.
The amount due to the Seller at December 31, 1996 with respect to these
agreements was approximately $6.0 million.
13. COMMON STOCK:
The Company's Certificate of Incorporation authorizes 275,000 shares of
Common Stock, of which 225,000 shares are designated as Class A Common Stock,
25,000 shares are designated as Class B Common Stock and 25,000 shares are
designated as Class C Common Stock.
The holders of the Class B Common Stock and Class C Common Stock have no
voting rights except in certain limited circumstances. Class A Common Stock is
convertible into the same number of shares of Class B Common Stock. Upon the
occurrence of certain events, Class B Common Stock is convertible into the
same number of shares of Class A Common Stock. Class C Common Stock is not
convertible into Class A Common Stock or Class B Common Stock.
The Company and all of the holders of its Class A Common Stock and Class B
Common Stock (collectively, the "Shareholders") are parties to a shareholders'
agreement (the "Shareholders Agreement"). The Shareholders Agreement contains
certain restrictions on transfers of Common Stock and provisions under which
Shareholders may sell Common Stock or require other Shareholders to sell
Common Stock or under which the Company may acquire Common Stock from
Shareholders. The Shareholders Agreement provides that, upon certain issuances
by the Company of equity securities to any of the initial Shareholders (or
their permitted transferees), Shareholders will have rights to maintain their
percentage equity interests in the Company's capital stock by purchasing a
portion of such equity securities.
14. COMMITMENTS AND CONTINGENCIES:
The Company leases facilities and office equipment under operating lease
agreements. The consolidated statement of operations includes rent expense of
$0.6 million. Future minimum payments for facilities and office equipment
leases in effect at December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
Twelve months ended:
December 31, 1997................................................. $2,637
December 31, 1998................................................. 2,109
December 31, 1999................................................. 689
December 31, 2000................................................. 399
December 31, 2001................................................. 44
Thereafter........................................................ 34
------
$5,912
======
</TABLE>
During March 1997, the Company entered into a new facility lease in
connection with the relocation of certain Company operations to Denver,
Colorado, see Note 2.
At December 31, 1996, the Company had commitments totaling approximately
$2.9 million related to the completion of the Company's Customer Reservation
and Customer Service project which was in progress at December 31, 1996 and is
expected to be completed in 1997.
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. While any proceeding or litigation
has an element of uncertainty, management believes that the
F-14
<PAGE>
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
disposition of these matters will not have a material impact on the financial
condition, liquidity or results of operations of the Company.
15. SUBSEQUENT EVENTS:
In March 1997, the Company offered certain employees the opportunity to
purchase an aggregate of up to 3,400 shares of Class C Common Stock at $1,000
per share. Each employee who purchases shares will also receive a ten-year
option to purchase an equal number of shares of Class C Common Stock at $1,000
per share. The options will vest 20% per year. The Company also expects to
grant to this employee group ten-year options to purchase Class C Common Stock
without regard to whether such employees purchase shares as described above.
The Company is obligated to repurchase shares of Class C Common Stock issued
pursuant to these agreements upon an employee's death or retirement or
termination of employment, at either fair market value or book value,
depending upon the circumstances. The holders of the Class C Common Stock have
rights to participate in certain other transactions.
The Company accounts for stock-based compensation in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation." This pronouncement encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options
and other equity instruments to employees based on new fair value accounting
rules. The Company has chosen to continue to account for employee stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation expense for employee stock options is measured as
the difference, if any, between the estimated fair value of the Company's
stock at the date of grant and the amount the employee must pay to acquire the
stock.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Ryder System, Inc.:
We have audited the accompanying combined balance sheets of Ryder Consumer
Truck Rental (a division of Ryder Truck Rental, Inc., a wholly-owned
subsidiary of Ryder System, Inc.) as of December 31, 1994 and 1995, and the
related combined statements of operations and changes in Ryder investment and
of cash flows for each of the years in the two-year period ended December 31,
1995. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Ryder Consumer
Truck Rental as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the years in the two-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Miami, Florida
September 23, 1996
F-16
<PAGE>
RYDER CONSUMER TRUCK RENTAL
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 1,831 $ 2,610
Receivables................................................ 26,611 35,780
Tires in service........................................... 25,455 27,603
Deferred income taxes...................................... 11,035 7,733
Prepaid expenses and other current assets.................. 12,308 10,451
-------- --------
Total current assets..................................... 77,240 84,177
Revenue earning equipment.................................... 478,188 519,762
Operating property and equipment............................. 17,818 21,409
Other assets................................................. 2,687 4,469
-------- --------
Total assets............................................. $575,933 $629,817
======== ========
LIABILITIES AND RYDER INVESTMENT
Current liabilities:
Accounts payable........................................... $ 24,344 $ 6,737
Accrued expenses and other liabilities..................... 39,931 34,886
-------- --------
Total current liabilities................................ 64,275 41,623
Deferred income taxes........................................ 70,625 70,175
Other non-current liabilities................................ 28,975 27,582
Investment by and advances from Ryder........................ 412,058 490,437
-------- --------
Total liabilities and Ryder investment................... $575,933 $629,817
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-17
<PAGE>
RYDER CONSUMER TRUCK RENTAL
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN RYDER INVESTMENT
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Truck rental and related revenue............................. $549,633 $546,721
Operating expense............................................ 204,552 185,920
Selling, general and administrative expense.................. 209,399 213,600
Depreciation expense, net of gains........................... 90,215 104,258
Interest expense............................................. 24,256 29,663
Restructuring and other charges.............................. -- 6,370
Miscellaneous expense, net................................... 102 324
-------- --------
528,524 540,135
-------- --------
Earnings before income taxes............................... 21,109 6,586
Provision for income taxes................................... 8,800 2,984
-------- --------
Net earnings................................................. $ 12,309 $ 3,602
======== ========
Changes in Ryder Investment:
Investment by and advances from Ryder at beginning of peri-
od........................................................ $369,464 $412,058
Net earnings............................................... 12,309 3,602
Net change in investment by and advances from Ryder........ 30,285 74,777
-------- --------
Investment by and advances from Ryder at end of period..... $412,058 $490,437
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-18
<PAGE>
RYDER CONSUMER TRUCK RENTAL
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net earnings........................................... $ 12,309 $ 3,602
Depreciation expense, net of gains..................... 90,215 104,258
Deferred income taxes.................................. 4,291 2,852
Increase in receivables................................ (10,644) (9,169)
Increase (decrease) in accounts payable................ 16,272 (17,607)
Increase (decrease) in accrued expenses and other lia-
bilities.............................................. 1,828 (5,045)
Increase (decrease) in other non-current liabilities... 2,554 (1,393)
Other, net............................................. (2,193) 1,835
--------- ---------
Net cash provided by operating activities............ 114,632 79,333
--------- ---------
Cash flows from investing activities:
Purchases of property and revenue earning equipment.... (191,925) (223,749)
Sales of property and revenue earning equipment........ 50,102 72,410
Other, net............................................. (1,935) (1,992)
--------- ---------
Net cash used in investing activities................ (143,758) (153,331)
--------- ---------
Cash flows from financing activities:
Net increase in investments by and advances from Ry-
der................................................... 30,285 74,777
--------- ---------
Net cash provided by financing activities............ 30,285 74,777
--------- ---------
Increase in cash......................................... 1,159 779
Cash at beginning of period.............................. 672 1,831
--------- ---------
Cash at end of period.................................... $ 1,831 $ 2,610
========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-19
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
NOTE 1--NATURE OF BUSINESS
Ryder Consumer Truck Rental (the "Company") is a division of Ryder Truck
Rental, Inc., a wholly-owned subsidiary of Ryder System, Inc. ("Ryder"). The
Company consists of the U.S.-based consumer truck rental operations of Ryder
and Ryder's wholly-owned subsidiary, Ryder Move Management, Inc. The Company
is engaged in the domestic rental of trucks to do-it-yourself movers and
"light commercial" customers, and the sale of related moving accessories and
liability-limiting products. The Company, through Ryder Move Management, is
also engaged in household goods relocation services for corporate employee
relocation programs. The Company's truck rental distribution network consists
of independent dealers and Ryder branch locations. Approximately 10% to 15% of
the Company's revenue is generated through Ryder branch locations. The
Company's business is seasonal, with generally higher levels of demand during
the summer months. As a result, the Company typically experiences greater
profitability in the second half of the year compared with the first half.
NOTE 2--SALE OF COMPANY
On September 19, 1996, Ryder Truck Rental, Inc. entered into a definitive
agreement to sell substantially all the assets and certain liabilities of the
Company to Questor Partners Fund, L.P. and certain other investors
(collectively "Questor") for approximately $575 million. In addition, Ryder
will give Questor a royalty-free license to use the Ryder trademark and color
scheme, subject to certain restrictions, for a total of 10 years (with
required modifications to the trademark after five years). Ryder and Questor
have also entered into service agreements for various periods of time ranging
from two to five years, with options for extensions after five years for
certain of the agreements. Under the agreements, Ryder will continue to
provide various services to the Company including vehicle maintenance, claims
processing, management information systems and other administrative services.
In addition, certain Ryder branch locations will continue to act as consumer
truck rental dealers and Ryder will continue to assist in the disposition of
the Company's used vehicles through its sales network. Rates agreed upon for
the various services are considered reasonable based on market rates. The
transaction is expected to be completed prior to the end of 1996.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Combined Financial Statements are presented for periods
prior to the date of the sale agreement utilizing the historical accounting
practices followed by Ryder.
Basis of Presentation. The accompanying Combined Financial Statements
include the operations, assets and liabilities of the Company. The financial
statements do not include assets and liabilities of Ryder not specifically
identifiable to the Company. The financial information included herein is not
necessarily indicative of the financial position and results of operations or
cash flows that would have occurred had the Company been an independent stand-
alone entity during the periods presented, nor is it necessarily indicative of
future results of the Company.
Receivables. Receivables consist primarily of trade receivables resulting
from rental transactions and receivables from the sale of revenue earning
equipment. Receivables are reduced by amounts considered by management to be
uncollectible based on historical collection loss experience and review of the
current status of existing receivables.
Revenue Earning Equipment, Operating Property and Equipment and
Depreciation. Revenue earning equipment, principally rental trucks, and
operating property and equipment are stated at cost. Provision for
F-20
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
depreciation is computed using the straight-line method on substantially all
depreciable assets. Annual straight-line depreciation rates are 14% to 20% for
revenue earning equipment, 13% to 25% for office equipment and furniture and
19% to 30% for transfer vehicles and company cars.
Gains on sales of revenue earning equipment, net of vehicle disposition
costs, are reported as reductions of depreciation expense and totaled $25.9
million and $21.9 million for the years ended December 31, 1994 and 1995,
respectively. Gains on operating property and equipment sales are reflected in
miscellaneous expense, net.
Tires in Service. The Company capitalizes the cost of tires as a component
cost of the purchase of revenue earning equipment, and amortizes such tires
cost to expense over the lives of the vehicles and equipment. The cost of
replacement tires and tire repairs are expensed as incurred. For financial
statement purposes, the estimated cost of tires in service are reclassified to
current assets.
Software Development Costs. Internal costs for development of internal use
software are expensed as incurred. Incremental external costs for software
development are capitalized and amortized over the expected useful lives of
the software which range from four to five years. Other assets in the Combined
Balance Sheets are comprised primarily of software development and purchased
software costs.
Advertising Costs. The Company expenses the production costs of advertising
as incurred. The cost of air time and print space for media advertising is
expensed when used. The cost of yellow page advertising is amortized over the
life of the directory, primarily 12 months. Advertising expense was $29.2
million and $30.3 million for the years ended December 31, 1994 and 1995,
respectively.
Accrued Insurance and Loss Reserves. The Company participates in Ryder's
overall risk management programs for auto and general liability, workers'
compensation and other insurance programs. The primary risks to Ryder and the
Company are associated with auto and general liability and Ryder retains
losses for the exposure up to $1 million per occurrence. Ryder insures losses
above $1 million with third party insurance companies.
The Company has recorded insurance reserves for auto and general liability
claims which reflect the Company's portion of the undiscounted estimated
liabilities up to $500,000 per occurrence (plus allocated loss adjustment
expense) and an estimate of claims incurred but not reported. Such liabilities
are necessarily based on estimates and, while management believes that the
amount is adequate, there can be no assurance that changes to management's
estimates may not occur due to limitations inherent in the estimation process.
Changes in the estimates of these reserves are charged or credited to income
in the period determined. Amounts estimated to be paid within one year have
been classified as accrued expenses with the remainder included in other non-
current liabilities. For exposures from $500,000 to $1 million per occurrence,
the Company is charged a premium based on the Company's loss experience and
the related liability is retained by Ryder. Costs associated with insurance
premiums to third party insurance companies for coverage in excess of $1
million are allocated by Ryder to the Company based on the Company's pro rata
share of Ryder's revenue.
Revenue Recognition. Truck rental and related revenue is recognized as
earned.
Income Taxes. The Company has been included in consolidated income tax
filings of Ryder for Federal and state income tax purposes. However, the
income tax provisions included in the accompanying Combined Financial
Statements have been determined as if the Company was an independent stand-
alone entity filing separate income tax returns.
Deferred tax assets and liabilities are determined based upon differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that currently would be in
effect when the differences are expected to reverse. Deferred tax balances
will be adjusted for tax law changes in periods that include the enactment
date of such changes. See Note (9).
Other Costs. Vehicle licensing fees are deferred when paid and amortized to
income over the period to which the fees relate. Vehicle repairs and
maintenance which do not extend the life or increase the value of the
F-21
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
vehicle are expensed as incurred. Yellow Page directory costs are deferred
when paid and amortized over the period the directories are effective, which
is typically 12 months. Advertising and sales promotion costs are expensed as
incurred.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
NOTE 4--TRANSACTIONS WITH RYDER
Certain Ryder branch locations provide vehicle repairs and maintenance
services to the Company and also serve as consumer truck rental dealers. Rates
charged to the Company for repairs and maintenance approximate rates charged
to significant Ryder customers and reflect the cost of parts and the cost of
labor plus a mark-up. Commission rates paid to Ryder for trucks rented through
Ryder locations are based on revenue generated from the transactions and are
generally consistent with those paid to independent dealers.
The Company participates in Ryder's combined risk management programs for
auto and general liability and Ryder processes claims related to auto and
general liability and workers' compensation. The Company also participates in
Ryder medical and dental, pension, postretirement and savings plans. See Notes
(3) and (10).
Ryder provides various general and administrative services to the Company
including information systems, treasury, legal, human resources, payroll,
marketing, purchasing, accounting and others. Costs for these services are
charged to the Company through Ryder's internal cost allocation methodologies
which are designed to estimate the actual costs incurred by Ryder to render
these services. In addition, general and administrative costs charged by Ryder
include a corporate management fee, which is based on the Company's equity and
revenue levels. The Company also shares various facilities with Ryder for
which it is charged an amount based on relative square footage which is
intended to represent the Company's portion of occupancy costs including
utilities, maintenance and other costs.
The Company is charged by Ryder for vehicle disposition costs, including
sales commissions, costs to prepare vehicles for sale and a per vehicle
service fee.
The Company's cash and financing needs are managed by Ryder. The
accompanying Combined Balance Sheets do not include Ryder's general corporate
debt, which is used to finance the operations of all of Ryder's business
units. However, Ryder allocates its corporate interest expense to each
business unit based upon a target debt to equity ratio. The composition of the
investment by and advances from Ryder in the Combined Balance Sheets has been
periodically adjusted to effect this target debt to equity ratio. Interest
expense charged to the Company by Ryder is principally based upon the interest
cost incurred by Ryder for certain of its indebtedness.
Management believes that the method of allocating expenses for the above
plans is reasonable, and that the expense reflected in the financial
statements would not be materially different if the Company operated as an
independent stand-alone entity. However, if the Company operated as an
independent stand-alone entity, actual expenses could differ from these
amounts.
F-22
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
Amounts charged and allocated by Ryder to the Company for the above expense
items are summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Operating expense:
Repairs and maintenance.............................. $ 70,377 $ 57,378
Auto and general liability costs..................... 36,611 26,464
Selling, general and administrative expense:
General and administrative........................... 18,490 20,136
Commissions on truck rentals......................... 13,367 10,071
Pension, postretirement and savings plans............ 1,016 1,078
Other self insurance costs........................... 1,316 1,326
Occupancy............................................ 446 429
Depreciation expense, net of gains:
Vehicle disposition costs............................ 6,591 6,970
Interest expense....................................... 24,256 29,663
</TABLE>
The components of the investment by and advances from Ryder in the Combined
Balance Sheets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest-bearing advances from Ryder.......................... $317,762 $362,607
Ryder investment.............................................. 94,296 127,830
-------- --------
$412,058 $490,437
======== ========
</TABLE>
NOTE 5--RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts receivables.................................... $19,940 $19,785
Receivables from vehicle sales................................ 5,868 14,575
Other receivables............................................. 1,318 1,934
------- -------
27,126 36,294
Allowance for doubtful accounts............................. (515) (514)
------- -------
$26,611 $35,780
======= =======
</TABLE>
Bad debt expense totaled $0.9 million and $1.0 million for the years ended
December 31, 1994 and 1995, respectively.
F-23
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
NOTE 6--REVENUE EARNING EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Rental trucks............................................. $ 738,282 $ 777,610
Towing and other equipment................................ 28,615 31,898
--------- ---------
766,897 809,508
Accumulated depreciation................................ (288,709) (289,746)
--------- ---------
$ 478,188 $ 519,762
========= =========
NOTE 7--OPERATING PROPERTY AND EQUIPMENT
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Office equipment and furniture............................ $ 28,415 $ 38,871
Transfer vehicles and company cars........................ 5,571 5,458
Other..................................................... 51 63
--------- ---------
34,037 44,392
Accumulated depreciation................................ (16,219) (22,983)
--------- ---------
$ 17,818 $ 21,409
========= =========
NOTE 8--ACCRUED EXPENSES AND OTHER LIABILITIES
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Auto and general liability reserves....................... $ 46,239 $ 43,104
Dealer commissions........................................ 3,498 5,210
Advertising............................................... 1,448 818
Other self-insurance reserves............................. 2,193 2,264
Revenue earning equipment rent............................ 4,278 --
Other accruals............................................ 11,250 11,072
--------- ---------
68,906 62,468
Non-current portion....................................... (28,975) (27,582)
--------- ---------
Accrued expenses and other liabilities.................... $ 39,931 $ 34,886
========= =========
</TABLE>
F-24
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
NOTE 9--INCOME TAXES
The provision for income taxes included the following components (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
----------- -----------
<S> <C> <C>
Current tax expense:
Federal............................................. $ 3,901 $ 79
State............................................... 608 53
----------- -----------
4,509 132
Deferred tax expense:
Federal............................................. 3,274 2,377
State............................................... 1,017 475
----------- -----------
4,291 2,852
----------- -----------
Provision for income taxes............................ $8,800 $2,984
=========== ===========
A reconciliation of the Federal statutory tax rate with the effective tax
rate follows:
<CAPTION>
% OF PRETAX INCOME
------------------
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
----------- -----------
<S> <C> <C>
Statutory tax rate.................................... 35.0 35.0
State income taxes, net of Federal income tax
benefit.............................................. 5.0 5.3
Non-deductible items.................................. 1.7 5.0
----------- -----------
Effective tax rate.................................... 41.7 45.3
=========== ===========
</TABLE>
Non-deductible items in the above table are comprised of meal and
entertainment expenses and fines and penalties. As described in Notes (1) and
(3), the Company was a division of Ryder for all of the periods presented in
the accompanying Combined Financial Statements. The deferred tax assets and
liabilities shown below have been determined as though the Company was a
separate company and not part of Ryder's consolidated U.S. income tax returns.
On the date of sale (see Note 2) deferred tax assets and liabilities will be
subject to redetermination by the buyer. No tax attributes will carry over to
the buyer from the Company or Ryder.
The components of the net deferred income tax liability were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred income tax assets:
Accrued self-insurance.................................... $ 19,211 $ 18,428
Alternative minimum taxes................................. 5,344 5,104
Miscellaneous other accruals.............................. 4,515 2,627
-------- --------
29,070 26,159
-------- --------
Deferred income tax liabilities:
Property and equipment basis differences.................. (86,463) (86,264)
Other items............................................... (2,197) (2,337)
-------- --------
(88,660) (88,601)
-------- --------
Net deferred income tax liability........................... $(59,590) $(62,442)
======== ========
</TABLE>
F-25
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
The Company had unused alternative minimum tax credits, for tax purposes, of
$5.1 million at December 31, 1995 available to reduce future income tax
liabilities. The alternative minimum tax credits may be carried forward
indefinitely.
On a separate return basis, no valuation allowance was deemed necessary for
any of the periods presented.
NOTE 10--PENSION, POSTRETIREMENT AND SAVINGS PLANS
Certain employees of the Company participate in a defined benefit pension
plan sponsored by Ryder. This plan generally provides participants with
benefits based on years of service and career-average compensation levels.
Separate calculations of the components of net pension expense and funded
status of the plan are not provided as such information is not maintained
separately for employees of the Company. Pension expense allocated to the
Company by Ryder (based on headcount) totaled $741,000 and $700,000 for the
years ended December 31, 1994 and 1995, respectively. As part of the agreement
for the sale of the Company, employees of the Company participating in the
plan will be treated as terminated and vested at the date of sale and Ryder
will retain both the plan assets and liabilities attributable to such
employees.
Employees of the Company take part in certain non-funded plans sponsored by
Ryder which provide retired employees with certain health care and life
insurance benefits. Substantially all employees of the Company are eligible
for these benefits. Health care benefits for Ryder's principal plan are
generally provided to qualified retirees under age 65 and eligible dependents.
Generally, this plan requires qualified early retirees to make contributions
which vary based on years of service and include provisions which cap company
contributions. The Company's portion of the actuarially determined costs
related to these plans was $139,000 and $106,000 for the years ended December
31, 1994 and 1995, respectively.
Ryder also maintains defined contribution savings plans that cover
substantially all eligible employees. Contributions to the plans include
employee contributions and contributions made by Ryder under a matching
program. Defined contribution expense totaled $163,000 and $272,000 for the
years ended December 31, 1994 and 1995, respectively. Upon sale of the
Company, employees of the Company will become fully vested in the plan and
Ryder will transfer their account balances to a successor plan at a later
date.
Management believes that the method of allocating expenses for the above
plans is reasonable, and that the expense reflected in the financial
statements would not be materially different if the Company operated as an
independent stand-alone entity. However, if the Company operated as an
independent stand-alone entity, actual expenses could differ from these
amounts.
NOTE 11--RESTRUCTURING AND OTHER CHARGES
In the third quarter of 1995, the Company consolidated its twenty
administrative locations into two central locations. As a result, the Company
incurred restructuring charges totaling $3.1 million in 1995 for lease
termination ($.9 million) and employee related costs ($2.2 million), of which
$2.8 million remained accrued at December 31, 1995. Approximately 170
employees were affected by the restructuring actions. In addition, the Company
incurred employee relocation costs of $3.3 million in 1995 related to these
actions.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company leases facilities, office equipment and revenue earning
equipment (in 1994 and 1995) under operating lease agreements. The Company
also shares various facilities with Ryder. For the years ended December 31,
1994 and 1995, rent expense totaled $6.4 million and $5.1 million,
respectively. The Company
F-26
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
had no lease commitments for revenue earning equipment at December 31, 1995.
Future minimum payments for facilities and office equipment leases in effect
at December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
Twelve months ended:
December 31, 1996............................................... $2,536
December 31, 1997............................................... 2,015
December 31, 1998............................................... 1,672
December 31, 1999............................................... 874
December 31, 2000............................................... 819
Thereafter...................................................... 1,104
------
$9,020
======
</TABLE>
At December 31, 1995, the Company had commitments totaling $3.9 million
related to the completion of the Company's Customer Reservation and Customer
Service project which was in progress at December 31, 1995 and is expected to
be completed in 1997.
Ryder is a party to various claims, legal actions and complaints arising in
the ordinary course of business which relate to operations of the Company.
While any proceeding or litigation has an element of uncertainty, management
believes that the disposition of these matters will not have a material impact
on the financial condition, liquidity or results of operations of the Company.
In addition, the Company has no environmental liabilities or contingencies
which management believes will have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Ryder System, Inc.:
We have audited the accompanying combined balance sheet of Ryder Consumer
Truck Rental (a division of Ryder Truck Rental, Inc., a wholly-owned
subsidiary of Ryder System, Inc.) as of October 16, 1996, and the related
combined statements of earnings and changes in Ryder investment and cash flows
for the period January 1, 1996 through October 16, 1996. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Ryder Consumer
Truck Rental as of October 16, 1996, and the results of its operations and its
cash flows for the period January 1, 1996 through October 16, 1996 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Miami, Florida
December 20, 1996
F-28
<PAGE>
RYDER CONSUMER TRUCK RENTAL
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash........................................................... $ 6,321
Receivables.................................................... 18,109
Tires in service............................................... 24,543
Deferred income taxes.......................................... 6,186
Prepaid expenses and other current assets...................... 13,168
--------
Total current assets......................................... 68,327
Revenue earning equipment........................................ 466,118
Operating property and equipment................................. 15,149
Other assets..................................................... 5,673
--------
Total assets................................................. $555,267
========
LIABILITIES AND RYDER INVESTMENT
Current liabilities:
Accounts payable............................................... $ 11,931
Accrued expenses and other liabilities......................... 31,390
--------
Total current liabilities.................................... 43,321
Deferred income taxes............................................ 76,443
Other non-current liabilities.................................... 26,943
Investment by and advances from Ryder............................ 408,560
--------
Total liabilities and Ryder investment....................... $555,267
========
</TABLE>
See accompanying notes to combined financial statements.
F-29
<PAGE>
RYDER CONSUMER TRUCK RENTAL
COMBINED STATEMENT OF EARNINGS AND CHANGES IN RYDER INVESTMENT
<TABLE>
<CAPTION>
JANUARY 1-
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Truck rental and related revenue................................. $439,779
Operating expense................................................ 155,264
Selling, general and administrative expense...................... 166,568
Depreciation expense, net of gains............................... 84,949
Interest expense................................................. 20,291
Restructuring and other charges.................................. 1,891
Miscellaneous expense, net....................................... 690
--------
429,653
--------
Earnings before income taxes................................... 10,126
Provision for income taxes..................................... 4,304
--------
Net earnings................................................... $ 5,822
========
Changes in Ryder Investment:
Investment by and advances from Ryder at beginning of period... $490,437
Net earnings................................................... 5,822
Net decrease in investment by and advances from Ryder.......... (87,699)
--------
Investment by and advances from Ryder at end of period......... $408,560
========
</TABLE>
See accompanying notes to combined financial statements.
F-30
<PAGE>
RYDER CONSUMER TRUCK RENTAL
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1 -
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net earnings................................................... $ 5,822
Depreciation expense, net of gains............................. 84,949
Deferred income taxes.......................................... 7,815
Decrease in receivables........................................ 17,671
Increase in accounts payable................................... 5,194
Decrease in accrued expenses and other liabilities............. (3,496)
Decrease in other non-current liabilities...................... (639)
Other, net..................................................... (473)
--------
Net cash provided by operating activities.................... 116,843
--------
Cash flows from investing activities:
Purchases of property and revenue earning equipment............ (69,228)
Sales of property and revenue earning equipment................ 45,428
Other, net..................................................... (1,633)
--------
Net cash used in investing activities........................ (25,433)
--------
Cash flows from financing activities:
Net decrease in investments by and advances from Ryder......... (87,699)
--------
Net cash used in financing activities........................ (87,699)
--------
Increase in cash................................................. 3,711
Cash at beginning of period...................................... 2,610
--------
Cash at end of period............................................ $ 6,321
========
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 1 THROUGH OCTOBER 16, 1996
NOTE 1--NATURE OF BUSINESS
Ryder Consumer Truck Rental (the "Company") is a division of Ryder Truck
Rental, Inc., a wholly-owned subsidiary of Ryder System, Inc. ("Ryder"). The
Company consists of the U.S.- based consumer truck rental operations of Ryder
and Ryder's wholly-owned subsidiary, Ryder Move Management, Inc. The Company
is engaged in the domestic rental of trucks to do-it-yourself movers and
"light commercial" customers, and the sale of related moving accessories and
liability-limiting products. The Company, through Ryder Move Management, is
also engaged in household goods relocation services for corporate employee
relocation programs. The Company's truck rental distribution network consists
of independent dealers and Ryder branch locations. Approximately 10% to 15% of
the Company's revenue is generated through Ryder branch locations. The
Company's business is seasonal, with generally higher levels of demand during
the summer months. As a result, the Company typically experiences greater
profitability in the second half of the year compared with the first half.
NOTE 2--SALE OF COMPANY
On October 17, 1996, Ryder Truck Rental, Inc. completed the sale of
substantially all the assets and certain liabilities of the Company to Questor
Partners Fund, L.P. and certain other investors (collectively "Questor") for
$579.4 million (subject to adjustment upon final audit of assets sold). In
addition, Ryder gave Questor a royalty-free license to use the Ryder trademark
and color scheme, subject to certain restrictions, for a total of 10 years
(with required modifications to the trademark after five years). Ryder and
Questor also entered into service agreements for various periods of time
ranging from two to five years, with options for extensions after five years
for certain of the agreements. Under the agreements, Ryder will continue to
provide various services to the Company including vehicle maintenance, claims
processing, management information systems and other administrative services.
In addition, certain Ryder branch locations will continue to act as consumer
truck rental dealers and Ryder will continue to assist in the disposition of
the Company's used vehicles through its sales network. Rates agreed upon for
the various services are considered reasonable based on market rates.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Combined Financial Statements are presented utilizing the
historical accounting practices followed by Ryder.
Basis of Presentation. The accompanying Combined Financial Statements
include the operations, assets and liabilities of the Company. The financial
statements do not include assets and liabilities of Ryder not specifically
identifiable to the Company. The financial information included herein is not
necessarily indicative of the financial position and results of operations or
cash flows that would have occurred had the Company been an independent stand-
alone entity during the period presented, nor is it necessarily indicative of
future results of the Company.
Receivables. Receivables consist primarily of trade receivables resulting
from rental transactions and receivables from the sale of revenue earning
equipment. Receivables are reduced by amounts considered by management to be
uncollectible based on historical collection loss experience and review of the
current status of existing receivables.
Revenue Earning Equipment, Operating Property and Equipment and
Depreciation. Revenue earning equipment, principally rental trucks, and
operating property and equipment are stated at cost. Provision for
depreciation is computed using the straight-line method on substantially all
depreciable assets. Annual straight-line depreciation rates are 14% to 20% for
revenue earning equipment, 13% to 25% for office equipment and furniture and
19% to 30% for transfer vehicles and company cars. Effective January 1, 1996,
the estimated useful
F-32
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 1 THROUGH OCTOBER 16, 1996
lives and residual values used to calculate the provision for depreciation on
certain types of revenue earning equipment were changed to reflect recent
experience. As a result of this change, depreciation expense was decreased by
approximately $6.0 million for the period January 1 through October 16, 1996.
Gains on sales of revenue earning equipment, net of vehicle disposition
costs, are reported as reductions of depreciation expense and totaled $8.7
million for the period January 1 through October 16, 1996. Gains on operating
property and equipment sales are reflected in miscellaneous expense, net.
Tires in Service. The Company capitalizes the cost of tires as a component
cost of the purchase of revenue earning equipment, and amortizes such tires
cost to expense over the lives of the vehicles and equipment. The cost of
replacement tires and tire repairs is expensed as incurred. For financial
statement purposes, the estimated cost of tires in service is reclassified to
current assets.
Software Development Costs. Internal costs for development of internal use
software are expensed as incurred. Incremental external costs for software
development are capitalized and amortized over the expected useful lives of
the software which range from four to five years. Other assets in the Combined
Balance Sheet are comprised primarily of software development and purchased
software costs.
Advertising Costs. The Company expenses the production costs of advertising
as incurred. The cost of air time and print space for media advertising is
expensed when used. The cost of yellow page advertising is amortized over the
life of the directory, primarily 12 months. Advertising expense was $23.1
million for the period ended October 16, 1996.
Accrued Insurance and Loss Reserves. The Company participates in Ryder's
overall risk management programs for auto and general liability, workers'
compensation and other insurance programs. The primary risks to Ryder and the
Company are associated with auto and general liability and Ryder retains
losses for the exposure up to $1 million per occurrence. Ryder insures losses
above $1 million with third party insurance companies.
The Company has recorded insurance reserves for auto and general liability
claims which reflect the Company's portion of the undiscounted estimated
liabilities up to $500,000 per occurrence (plus allocated loss adjustment
expense) and an estimate of claims incurred but not reported. Such liabilities
are necessarily based on estimates and, while management believes that the
amount is adequate, there can be no assurance that changes to management's
estimates may not occur due to limitations inherent in the estimation process.
Changes in the estimates of these reserves are charged or credited to income
in the period determined. Amounts estimated to be paid within one year have
been classified as accrued expenses with the remainder included in other non-
current liabilities. For exposures from $500,000 to $1 million per occurrence,
the Company is charged a premium based on the Company's loss experience and
the related liability is retained by Ryder. Costs associated with insurance
premiums to third party insurance companies for coverage in excess of $1
million are allocated by Ryder to the Company based on the Company's pro rata
share of Ryder's revenue.
Revenue Recognition. Truck rental and related revenue is recognized as
earned.
Income Taxes. The Company has been included in consolidated income tax
filings of Ryder for Federal and state income tax purposes. However, the
income tax provision included in the accompanying Combined Financial
Statements has been determined as if the Company was an independent stand-
alone entity filing a separate income tax return.
Deferred tax assets and liabilities are determined based upon differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that currently would be in
effect when the differences are expected to reverse. Deferred tax balances
will be adjusted for tax law changes in periods that include the enactment
date of such changes. See Note (9).
F-33
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 1 THROUGH OCTOBER 16, 1996
Other Costs. Vehicle licensing fees are deferred when paid and amortized to
income over the period to which the fees relate. Vehicle repairs and
maintenance which do not extend the life or increase the value of the vehicle
are expensed as incurred. Yellow Page directory costs are deferred when paid
and amortized over the period the directories are effective, which is
typically 12 months. Advertising and sales promotion costs are expensed as
incurred.
Accounting Changes. On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Statement
establishes standards for measuring impairment of long-lived assets,
identifiable intangibles and goodwill related to these assets. Adoption of the
Statement had no impact on the Company's results of operations or financial
position in 1996.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
NOTE 4--TRANSACTIONS WITH RYDER
Certain Ryder branch locations provide vehicle repairs and maintenance
services to the Company and also serve as consumer truck rental dealers. Rates
charged to the Company for repairs and maintenance approximate rates charged
to significant Ryder customers and reflect the cost of parts and the cost of
labor plus a mark-up. Commission rates paid to Ryder for trucks rented through
Ryder locations are based on revenue generated from the transactions and are
generally consistent with those paid to independent dealers.
The Company participates in Ryder's combined risk management programs for
auto and general liability and Ryder processes claims related to auto and
general liability and workers' compensation. The Company also participates in
Ryder medical and dental, pension, postretirement and savings plans. See Notes
(3) and (10).
Ryder provides various general and administrative services to the Company
including information systems, treasury, legal, human resources, payroll,
marketing, purchasing, accounting and others. Costs for these services are
charged to the Company through Ryder's internal cost allocation methodologies
which are designed to estimate the actual costs incurred by Ryder to render
these services. In addition, general and administrative costs charged by Ryder
include a corporate management fee, which is based on the Company's equity and
revenue levels. The Company also shares various facilities with Ryder for
which it is charged an amount based on relative square footage which is
intended to represent the Company's portion of occupancy costs including
utilities, maintenance and other costs.
The Company is charged by Ryder for vehicle disposition costs, including
sales commissions, costs to prepare vehicles for sale and a per vehicle
service fee.
The Company's cash and financing needs are managed by Ryder. The
accompanying Combined Balance Sheet does not include Ryder's general corporate
debt, which is used to finance the operations of all of Ryder's business
units. However, Ryder allocates its corporate interest expense to each
business unit based upon a target debt to equity ratio. The composition of the
investment by and advances from Ryder in the Combined Balance Sheet has been
periodically adjusted to effect this target debt to equity ratio. Interest
expense charged to the Company by Ryder is principally based upon the interest
cost incurred by Ryder for certain of its indebtedness.
F-34
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 1 THROUGH OCTOBER 16, 1996
Management believes that the method of allocating expenses for the above
plans is reasonable, and that the expense reflected in the financial
statements would not be materially different if the Company operated as an
independent stand-alone entity. However, if the Company operated as an
independent stand-alone entity, actual expenses could differ from these
amounts.
Amounts charged and allocated by Ryder to the Company for the above expense
items are summarized in the following table (in thousands):
<TABLE>
<CAPTION>
JANUARY 1 -
OCTOBER 16,
1996
--------------
<S> <C>
Operating expense:
Repairs and maintenance........................................ $ 47,147
Auto and general liability costs............................... 21,194
Selling, general and administrative expense:
General and administrative..................................... 12,531
Commissions on truck rentals................................... 7,377
Pension, postretirement and savings plans...................... 677
Other self insurance costs..................................... 962
Occupancy...................................................... 245
Depreciation expense, net of gains:
Vehicle disposition costs...................................... 4,836
Interest expense................................................. 20,291
The components of the investment by and advances from Ryder in the Combined
Balance Sheet were as follows (in thousands):
<CAPTION>
OCTOBER 16,
1996
--------------
<S> <C>
Interest-bearing advances from Ryder............................. $284,151
Ryder investment................................................. 124,409
--------
$408,560
========
NOTE 5--RECEIVABLES
<CAPTION>
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Trade accounts receivable........................................ $ 16,546
Receivables from vehicle sales................................... 594
Other receivables................................................ 2,324
--------
19,464
Allowance for doubtful accounts................................ (1,355)
--------
$ 18,109
========
</TABLE>
Bad debt expense totaled $1.9 million for the period January 1 through
October 16, 1996.
F-35
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 1 THROUGH OCTOBER 16, 1996
NOTE 6--REVENUE EARNING EQUIPMENT
<TABLE>
<CAPTION>
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Rental trucks.................................................... $751,636
Towing and other equipment....................................... 28,534
--------
780,170
Accumulated depreciation....................................... (314,052)
--------
$466,118
========
</TABLE>
NOTE 7--OPERATING PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Office equipment and furniture................................... $ 38,575
Transfer vehicles ............................................... 1,289
Other............................................................ 161
--------
40,025
Accumulated depreciation....................................... (24,876)
--------
$ 15,149
========
</TABLE>
NOTE 8--ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Auto and general liability reserves.............................. $ 42,854
Dealer commissions............................................... 2,986
Advertising...................................................... 1,064
Other self-insurance reserves.................................... 2,025
Other accruals................................................... 9,404
--------
58,333
Non-current portion.............................................. (26,943)
--------
Accrued expenses and other liabilities........................... $ 31,390
========
</TABLE>
F-36
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 1 THROUGH OCTOBER 16, 1996
NOTE 9--INCOME TAXES
The provision for income taxes included the following components (in
thousands):
<TABLE>
<CAPTION>
JANUARY 1 -
OCTOBER 16,
1996
-----------
<S> <C>
Current tax expense:
Federal........................................................... $(2,993)
State............................................................. (518)
-------
(3,511)
Deferred tax expense:
Federal........................................................... 6,514
State............................................................. 1,301
-------
7,815
-------
Provision for income taxes.......................................... $ 4,304
=======
</TABLE>
A reconciliation of the Federal statutory tax rate with the effective tax
rate follows:
<TABLE>
<CAPTION>
JANUARY 1 -
OCTOBER 16,
1996
-----------
<S> <C>
Statutory tax rate.................................................. 35.0
State income taxes, net of Federal income tax benefit............... 5.0
Non-deductible items................................................ 2.5
----
Effective tax rate.................................................. 42.5
====
</TABLE>
Non-deductible items in the above table are comprised of meal and
entertainment expenses and fines and penalties. As described in Notes (1) and
(3), the Company was a division of Ryder during the period presented in the
accompanying Combined Financial Statements. The deferred tax assets and
liabilities shown below have been determined as though the Company was a
separate company and not part of Ryder's consolidated U.S. income tax returns.
On the date of sale (see Note 2) deferred tax assets and liabilities are
subject to redetermination by the buyer. No tax attributes will carry over to
the buyer from the Company or Ryder.
F-37
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 1 THROUGH OCTOBER 16, 1996
The components of the net deferred income tax liability follow (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 16,
1996
-----------
<S> <C>
Deferred income tax assets:
Accrued self-insurance............................................. $ 17,009
Alternative minimum taxes.......................................... 4,444
Miscellaneous other accruals....................................... 2,109
--------
23,562
Deferred income tax liabilities:
Property and equipment basis differences........................... (88,856)
Other items........................................................ (4,963)
--------
(93,819)
--------
Net deferred income tax liability................................... $(70,257)
========
</TABLE>
The Company had unused alternative minimum tax credits, for tax purposes, of
$4.4 million at October 16, 1996 available to reduce future income tax
liabilities. The alternative minimum tax credits may be carried forward
indefinitely.
On a separate return basis, no valuation allowance was deemed necessary.
NOTE 10--PENSION, POSTRETIREMENT AND SAVINGS PLANS
Certain employees of the Company participate in a defined benefit pension
plan sponsored by Ryder. This plan generally provides participants with
benefits based on years of service and career-average compensation levels.
Separate calculations of the components of net pension expense and funded
status of the plan are not provided as such information is not maintained
separately for employees of the Company. Pension expense allocated to the
Company by Ryder (based on headcount) totaled $408,000 for the period January
1 through October 16, 1996. As part of the agreement for the sale of the
Company, employees of the Company participating in the plan were treated as
terminated and vested at the date of sale and Ryder retained both the plan
assets and liabilities attributable to such employees.
Employees of the Company take part in certain non-funded plans sponsored by
Ryder which provide retired employees with certain health care and life
insurance benefits. Substantially all employees of the Company are eligible
for these benefits. Health care benefits for Ryder's principal plan are
generally provided to qualified retirees under age 65 and eligible dependents.
Generally, this plan requires qualified early retirees to make contributions
which vary based on years of service and include provisions which cap company
contributions. The Company's portion of the actuarially determined costs
related to these plans was $77,000 for the period January 1 through October
16, 1996.
Ryder also maintains defined contribution savings plans that cover
substantially all eligible employees. Contributions to the plans include
employee contributions and contributions made by Ryder under a matching
program. Defined contribution expense totaled $192,000 for the period January
1 through October 16, 1996. Upon sale of the Company, employees of the Company
became fully vested in the plan and Ryder will transfer their account balances
to a successor plan at a later date.
Management believes that the method of allocating expenses for the above
plans is reasonable, and that the expense reflected in the financial
statements would not be materially different if the Company operated as an
independent stand-alone entity. However, if the Company operated as an
independent stand-alone entity, actual expenses could differ from these
amounts.
F-38
<PAGE>
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 1 THROUGH OCTOBER 16, 1996
NOTE 11--RESTRUCTURING AND OTHER CHARGES
In 1996, actions were taken by Ryder which impacted the Company including
management and staff reductions and elimination of the company-owned car
benefit program. The Company recorded a restructuring charge of $1.9 million
related to these actions consisting of $1.1 million for employee-related costs
(of which $0.7 million remained accrued at October 16, 1996) and asset write-
downs of $0.8 million. These actions are expected to result in ongoing annual
savings of approximately $0.8 million.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company leases facilities and office equipment under operating lease
agreements. The Company also shares various facilities with Ryder. For the
period January 1 through October 16, 1996, rent expense totaled $2.5 million.
The Company had no lease commitments for revenue earning equipment at October
16, 1996. Future minimum payments for facilities and office equipment leases
in effect at October 16, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
Twelve months ended:
October 16, 1997................................................ $2,294
October 16, 1998................................................ 1,867
October 16, 1999................................................ 966
October 16, 2000................................................ 881
October 16, 2001................................................ 520
Thereafter...................................................... 745
------
$7,273
======
</TABLE>
At October 16, 1996, the Company had commitments totaling $3.3 million
related to the completion of the Company's Customer Reservation and Customer
Service project which was in progress at October 16, 1996 and is expected to
be completed in 1997.
Ryder is a party to various claims, legal actions and complaints arising in
the ordinary course of business which relate to operations of the Company.
While any proceeding or litigation has an element of uncertainty, management
believes that the disposition of these matters will not have a material impact
on the financial condition, liquidity or results of operations of the Company.
In addition, the Company has no environmental liabilities or contingencies
which management believes will have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
F-39
<PAGE>
RYDER TRS, INC.
All tendered Senior Subordinated Notes, executed Letters of Transmittal and
other related documents should be directed to the Exchange Agent. Requests for
assistance and for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be directed to the Exchange
Agent.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
By Facsimile:
(212) 571-3080
(For Eligible Institutions Only)
Confirm By Telephone:
(212) 815-6333
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street - 7E
New York, New York 10286
Attention: Reorganization Section
By Hand/Overnight Delivery:
The Bank of New York
101 Barclay Street
New York, New York 10286
Corporate Trust Services Window
Ground Level
Attention: Reorganization Section
UNTIL , 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES,
WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
3.1** Restated Certificate of Incorporation of the Company.
3.2** Restated and Amended By-Laws of the Company.
3.3** Amended and Restated Certificate of Incorporation of Leasco.
3.4** By-Laws of Leasco.
4.1** Indenture, dated as of November 25, 1996, between the Company and The
Bank of New York, as trustee, relating to $175,000,000 principal
amount of 10% Senior Subordinated Notes due 2006, including forms of
Senior Subordinated Notes.
4.2** Credit Agreement, dated as of October 17, 1996, among the Company, The
Chase Manhattan Bank and other lending institutions.
4.3** Security Agreement, dated October 17, 1996, among the Company, the
Guarantor Subsidiaries, and Citicorp, U.S.A., Inc.
4.4** Guarantee Agreement, dated as of October 17, 1996, among the Guarantor
Subsidiaries and Citicorp, U.S.A., Inc.
4.5** Pledge Agreement, dated as of October 17, 1996, among the Company,
certain of its Subsidiaries and Citicorp, U.S.A., Inc.
4.6** Indemnity, Subrogation and Contribution Agreement, dated as of October
17, 1996, among the Company, the Guarantor Subsidiaries and Citicorp,
U.S.A., Inc.
4.7** Exchange and Registration Rights Agreement, dated November 25, 1996,
between the Company and Chase Securities Inc.
5 Opinion of Willkie Farr & Gallagher.
10.1** Purchase Agreement, dated November 20, 1996, between the Company and
Chase Securities Inc., relating to the Senior Subordinated Notes.
10.2** Asset and Stock Purchase Agreement dated as of September 19, 1996
between Ryder Truck Rental, Inc. and the Company.
10.3**+ Dealer Agreement dated October 17, 1996 between Ryder Truck Rental,
Inc. and the Company.
10.4**+ Vehicle Maintenance Agreement dated as of October 17, 1996 between
Ryder Truck Rental, Inc. and the Company.
10.5**+ Used Truck Sales Agreement dated as of October 17, 1996 between Ryder
Truck Rental, Inc. and the Company.
10.6**+ Administrative Services Agreement dated as of October 17, 1996 between
Ryder Truck Rental, Inc. and the Company.
10.7**+ MIS Support Agreement dated as of October 17, 1996 between Ryder Truck
Rental, Inc. and the Company.
10.8**+ Sublease Agreement dated as of October 17, 1996 between Ryder System,
Inc. and the Company.
10.9**+ Office License Agreements dated as of October 17, 1996 between Ryder
Truck Rental, Inc. and the Company.
10.10** Trademark License Agreement dated October 17, 1996 between Ryder
System, Inc. and the Company.
10.11** Patent License Agreement dated as of October 17, 1996 between Ryder
Truck Rental, Inc. and the Company.
10.12** Copyright License Agreement dated as of October 17, 1996 between Ryder
Truck Rental, Inc. and the Company.
10.13** Software License Agreement dated as of October 17, 1996 between Ryder
Truck Rental, Inc. and the Company.
10.14** Management and Consulting Agreement dated as of October 17, 1996
between the Company and Questor Management Company.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.15** Letter Agreement dated October 15, 1996 between the Company and Jay
Alix & Associates, Inc.
10.16** Master Motor Vehicle Lease Agreement, dated as of October 17, 1996,
between the Company and Leasco.
10.17** Vehicle Title Nominee Agreement, dated as of October 17, 1996, between
Leasco and RTR.
10.18 Lease dated March 12, 1997 between Hamilton Oil Building Partnership
and the Company.
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
21** Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Willkie Farr & Gallagher (included in its opinion filed as
Exhibit 5).
23.4 Consent of Advertising Research Corporation.
23.5 Consent of ICR.
24.1** Powers of Attorney (included on signature pages to Registration
Statement on Form S-4).
25.1** Statement on Form T-1 of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to Nominees.
</TABLE>
- --------
** Previously filed.
+ Confidential treatment has been requested for portions of these agreements,
which portions have been omitted herefrom and filed separately with the
Commission.
(b) Financial Statement Schedules:
Schedules have been omitted because they are not applicable or not required
or the required information is included in the financial statements or notes
thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions, described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefor, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved herein, that was not the subject of and included in
this Registration Statement when it became effective.
The Registrant will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this Registration Statement to:
II-2
<PAGE>
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Miami, State of
Florida on the 25th day of March, 1997.
Ryder TRS, Inc.
/s/ Gerald R. Riordan
By: _________________________________
Gerald R. Riordan President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Jay Alix Chairman of the
- ------------------------------------- Board and Chief March 25, 1997
JAY ALIX Executive Officer
(principal
executive officer)
/s/ Lawrence J. Ramaekers Vice Chairman of the
- ------------------------------------- Board of Directors March 25, 1997
LAWRENCE J. RAMAEKERS
/s/ Gerald R. Riordan President and Chief
- ------------------------------------- Operating Officer March 25, 1997
GERALD R. RIORDAN and Director
II-4
<PAGE>
SIGNATURE TITLE DATE
/s/ Larry D. Thogmartin Vice President and
- ------------------------------------- Controller March 25, 1997
LARRY D. THOGMARTIN (principal
financial officer
and controller)
/s/ Christopher G. Mumford Director
- ------------------------------------- March 25, 1997
CHRISTOPHER G. MUMFORD
/s/ Alfred A. Piergallini Director
- ------------------------------------- March 25, 1997
ALFRED A. PIERGALLINI
/s/ Thomas R. Reusche Director
- ------------------------------------- March 25, 1997
THOMAS R. REUSCHE
/s/ Edward L. Scarff Director
- ------------------------------------- March 25, 1997
EDWARD L. SCARFF
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. NO.
------- ----
<C> <S> <C>
3.1** Restated Certificate of Incorporation of the Company.
3.2** Restated and Amended By-Laws of the Company.
3.3** Amended and Restated Certificate of Incorporation of Leasco.
3.4** By-Laws of Leasco.
4.1** Indenture, dated as of November 25, 1996, between the Company
and The Bank of New York, as trustee, relating to $175,000,000
principal amount of 10% Senior Subordinated Notes due 2006,
including forms of Senior Subordinated Notes.
4.2** Credit Agreement, dated as of October 17, 1996, among the
Company, The Chase Manhattan Bank and other lending
institutions.
4.3** Security Agreement, dated October 17, 1996, among the Company,
the Guarantor Subsidiaries, and Citicorp, U.S.A., Inc.
4.4** Guarantee Agreement, dated as of October 17, 1996, among the
Guarantor Subsidiaries and Citicorp, U.S.A., Inc.
4.5** Pledge Agreement, dated as of October 17, 1996, among the
Company, certain of its Subsidiaries and Citicorp, U.S.A.,
Inc.
4.6** Indemnity, Subrogation and Contribution Agreement, dated as of
October 17, 1996, among the Company, the Guarantor
Subsidiaries and Citicorp, U.S.A., Inc.
4.7** Exchange and Registration Rights Agreement, dated November 25,
1996, between the Company and Chase Securities Inc.
5 Opinion of Willkie Farr & Gallagher.
10.1** Purchase Agreement, dated November 20, 1996, between the
Company and Chase Securities Inc., relating to the Senior
Subordinated Notes.
10.2** Asset and Stock Purchase Agreement dated as of September 19,
1996 between Ryder Truck Rental, Inc. and the Company.
10.3**+ Dealer Agreement dated October 17, 1996 between Ryder Truck
Rental, Inc. and the Company.
10.4**+ Vehicle Maintenance Agreement dated as of October 17, 1996
between Ryder Truck Rental, Inc. and the Company.
10.5**+ Used Truck Sales Agreement dated as of October 17, 1996 between
Ryder Truck Rental, Inc. and the Company.
10.6**+ Administrative Services Agreement dated as of October 17, 1996
between Ryder Truck Rental, Inc. and the Company.
10.7**+ MIS Support Agreement dated as of October 17, 1996 between
Ryder Truck Rental, Inc. and the Company.
10.8**+ Sublease Agreement dated as of October 17, 1996 between Ryder
System, Inc. and the Company.
10.9**+ Office License Agreements dated as of October 17, 1996 between
Ryder Truck Rental, Inc. and the Company.
10.10** Trademark License Agreement dated October 17, 1996 between
Ryder System, Inc. and the Company.
10.11** Patent License Agreement dated as of October 17, 1996 between
Ryder Truck Rental, Inc. and the Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. NO.
------- ----
<C> <S> <C>
10.12** Copyright License Agreement dated as of October 17, 1996
between Ryder Truck Rental, Inc. and the Company.
10.13** Software License Agreement dated as of October 17, 1996 between
Ryder Truck Rental, Inc. and the Company.
10.14** Management and Consulting Agreement dated as of October 17,
1996 between the Company and Questor Management Company.
10.15** Letter Agreement dated October 15, 1996 between the Company and
Jay Alix & Associates, Inc.
10.16** Master Motor Vehicle Lease Agreement, dated as of October 17,
1996, between the Company and Leasco.
10.17** Vehicle Title Nominee Agreement, dated as of October 17, 1996,
between Leasco and RTR.
10.18 Lease dated March 12, 1997 between Hamilton Oil Building
Partnership and the Company.
12 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.
21** Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Willkie Farr & Gallagher (included in its opinion
filed as Exhibit 5).
23.4 Consent of Advertising Research Corporation.
23.5 Consent of ICR.
24.1** Powers of Attorney (included on signature pages to Registration
Statement on Form S-4).
25.1** Statement on Form T-1 of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to Nominees.
</TABLE>
- --------
** Previously filed.
+ Confidential treatment has been requested for portions of these
agreements, which portions have been omitted herefrom and filed separately
with the Commission.
<PAGE>
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
March 25, 1997
Ryder TRS, Inc.
8669 NW 36th Street
Miami, Florida 33166
Re: Ryder TRS, Inc.'s Registration Statement
on Form S-4 (File No. 333-20397)
----------------------------------------
Ladies and Gentlemen:
Ryder TRS, Inc., a Delaware corporation (the "Company"), has requested our
opinion in connection with various legal matters relating to the filing of a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended, covering the offer to exchange $1,000
principal amount of 10% Senior Subordinated Notes due 2006 (the "Exchange
Notes") for each $1,000 principal amount of outstanding 10% Senior Subordinated
Notes due 2006 (the "Senior Subordinated Notes"). The Senior Subordinated Notes
were, and the Exchange Notes are to be, issued under the Indenture, dated as of
November 25, 1996 (the "Indenture"), between the Company and The Bank of New
York, as trustee. The exchange will be made pursuant to an exchange offer (the
"Exchange Offer") contemplated by the Registration Statement.
We have examined copies of such records of the Company and such other
certificates and documents as we have deemed relevant and necessary for the
opinions hereinafter set forth. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to authentic originals of all documents
submitted to us as certified or reproduced copies. We have also assumed the
legal capacity of all persons executing such documents and the truth and
correctness of any representations or warranties therein contained. As to
various questions of fact material to such opinions, we have relied upon
certificates of officers of the Company and of public officials.
<PAGE>
March 25, 1997
Page 2
Based upon the foregoing, we are of the opinion that:
1. The Company is duly formed and validly existing under the laws of the
State of Delaware.
2. The execution and delivery of the Indenture has been duly authorized
by the Company, and the Indenture constitutes a valid and binding
obligation of the Company, enforceable against the Company in
accordance with the terms thereof, except as enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance and other similar laws affecting the enforcement of
creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
3. The Exchange Notes will, upon the issuance and authentication of the
Exchange Notes and exchange thereof for the Senior Subordinated Notes
in the manner referred to in the Registration Statement and the
Indenture, constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except
as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance and other similar laws affecting
the enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law).
This opinion is limited to the laws of the State of New York, the General
Corporation Law of the State of Delaware and the federal laws of the United
States of the type typically applicable to transactions contemplated by the
Exchange Offer, and we do not express any opinion with respect to the laws of
any other jurisdiction.
This letter speaks only as of the date hereof and is limited to present
statutes, regulations and administrative and judicial interpretations. We
undertake no responsibility to update or supplement this letter after the date
hereof.
We consent to being named in the Registration Statement and related Prospectus
as counsel who are passing upon the
<PAGE>
legality of the Exchange Notes for the Company and to the reference to our name
under the caption "Legal Matters" in such Prospectus. We also consent to your
filing copies of this opinion as an exhibit to the Registration Statement or any
amendment thereto.
Very truly yours,
/s/
<PAGE>
EXHIBIT 10.18
FOR
ONE CIVIC CENTER
1560 BROADWAY
DENVER, COLORADO
BETWEEN
HAMILTON OIL BUILDING PARTNERSHIP - LANDLORD
AND
RYDER TRS, INC. - TENANT
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I DEMISE AND USE....................................... 1
ARTICLE II DEFINITIONS.......................................... 2
ARTICLE III TERM................................................. 3
ARTICLE IV PRIOR OCCUPANCY...................................... 3
ARTICLE V ANNUAL BASE RENT..................................... 4
ARTICLE VI ADJUSTMENT OF RENT................................... 5
ARTICLE VII ASSIGNMENT, MORTGAGING AND SUBLETTING................ 16
ARTICLE VIII LANDLORD'S WORK; TENANT'S WORK; ALTERATIONS.......... 18
ARTICLE IX ORDINARY REPAIRS..................................... 22
ARTICLE X FLOOR LOAD; OFFICE EQUIPMENT; MOVING HEAVY
EQUIPMENT............................................ 24
ARTICLE XI LAWS, ORDINANCES, AND REQUIREMENTS OF PUBLIC
AUTHORITIES.......................................... 25
ARTICLE XII COMPLIANCE WITH INSURANCE REQUIREMENTS
AND CERTIFICATE OF OCCUPANCY......................... 29
ARTICLE XIII OBSERVANCE OF RULES AND REGULATIONS AND
COVENANT OF QUIET ENJOYMENT.......................... 30
ARTICLE XIV LIABILITY INSURANCE; EXCULPATION OF LANDLORD
AND TENANT........................................... 31
ARTICLE XV DAMAGE BY FIRE OR OTHER CASUALTY..................... 37
ARTICLE XVI BANKRUPTCY; REMEDIES................................. 39
ARTICLE XVII CONDEMNATION......................................... 40
ARTICLE XVIII ELECTRICITY.......................................... 42
ARTICLE XIX ENTRY................................................ 43
ARTICLE XX RIGHT TO CHANGE PUBLIC PORTIONS OF
THE BUILDING......................................... 45
ARTICLE XXI LANDLORD'S AND TENANT'S RIGHT TO PERFORM............. 45
ARTICLE XXII SERVICES, FACILITIES AND EQUIPMENT................... 45
ARTICLE XXIII SIGNS AND GLASS...................................... 48
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<S> <C>
ARTICLE XXIV PRIME LEASE AND SUBORDINATION...................... 49
ARTICLE XXV LANDLORD'S TITLE................................... 50
ARTICLE XXVI RIGHTS OF HOLDER OF LEASEHOLD MORTGAGE IN
THE EVENT OF DEFAULT BY LANDLORD................... 51
ARTICLE XXVII SURRENDER OF PREMISES.............................. 51
ARTICLE XXVIII EFFECT OF CONVEYANCE OR ASSIGNMENT BY
LANDLORD........................................... 52
ARTICLE XXIX WAIVERS............................................ 52
ARTICLE XXX DEFAULTS........................................... 52
ARTICLE XXXI NOTICES............................................ 54
ARTICLE XXXII ESTOPPEL CERTIFICATE............................... 55
ARTICLE XXXIII PLURALS AND PRONOUNS, SUCCESSORS AND
ASSIGNS............................................ 56
ARTICLE XXXIV ENTIRE AGREEMENT, CAPTIONS, SEVERABILITY........... 57
ARTICLE XXXV MEMORANDUM OF LEASE................................ 57
ARTICLE XXXVI CONTINUANCE OF OCCUPANCY........................... 57
ARTICLE XXXVII BROKERAGE.......................................... 57
ARTICLE XXXVIII HOLDOVER TENANCY................................... 58
ARTICLE XXXIX RELOCATION......................................... 58
ARTICLE XL MISCELLANEOUS...................................... 58
ARTICLE XLI EXCULPATION........................................ 59
ARTICLE XLII PARKING............................................ 59
RIDER TO LEASE
EXHIBIT A DEMISED PREMISES
EXHIBIT B DESCRIPTION OF THE LAND
EXHIBIT C SCHEDULE FOR DEVELOPMENT OF TENANT PLANS -
[INTENTIONALLY DELETED]
EXHIBIT D ONE CIVIC CENTER PLAZA RULES AND REGULATIONS
EXHIBIT E MORTGAGES
SECTION IV ONE CIVIC CENTER PLAZA CLEANING SPECIFICATION
</TABLE>
ii
<PAGE>
L E A S E
---------
THIS LEASE, made this 12th day of March, 1997, between HAMILTON OIL
BUILDING PARTNERSHIP, a California general partnership, with its principal place
of business in Denver, Colorado (hereinafter referred to as "Landlord"), and
RYDER TRS, INC., a Delaware corporation (hereinafter referred to as "Tenant").
W I T N E S S E T H :
ARTICLE I
---------
DEMISE AND USE
1.1 Upon the terms and conditions hereinafter set forth, Landlord
does hereby demise and lease to Tenant, and Tenant does hereby hire and take
from Landlord, the premises described in EXHIBIT A, attached hereto and made a
part hereof, in the Building (hereinafter defined) erected on Land (hereinafter
referred to as the "Land") located in the City of Denver, County of Denver,
State of Colorado, the Land being more particularly described in EXHIBIT B,
attached hereto and made a part hereof. No easement for light or air is included
in the Demised Premises; provided, however, that if Landlord, its successors or
assigns: (i) builds a new building on the south parcel (as the same is defined
in the Prime Lease); (ii) otherwise directly causes or permits (other than its
decision not to exercise its option on the south parcel) a structure to be built
upon it; or (iii) otherwise directly causes or permits a structure to be built
upon the seventeenth (17th) floor roof of the Building (other than antennae or
dishes which do not materially obstruct Tenant's view from the Demised
Premises), which obstructs Tenant's view from the Demised Premises, Tenant shall
have the option upon giving Landlord one hundred eighty (180) days prior written
notice after Landlord, its successors or assigns, obtains a building permit for
the structure to either terminate this Lease or relocate to the new building.
Landlord shall notify Tenant in writing of its intent to build such a structure
within ten (10) days after obtaining such a permit.
1.2 Except as otherwise expressly provided in this Lease, all the
outside walls of the Demised Premises (as hereinafter defined) are expressly
reserved to Landlord, and access to any space in the Demised Premises used for
shafts, stacks, pipes, conduits, ducts, electric or other utilities, sinks or
other Building facilities, and the use thereof, as well as access thereto
through the Demised Premises for the purpose of operation, maintenance,
decoration and repair, shall be made available to Landlord in a manner
consistent with Article XIX, below.
1.3 Tenant may use the Demised Premises for general office uses and
for no other purpose; provided, however, that Tenant may, subject to appropriate
governmental approvals, install within the Demised Premises any of the following
amenities for its employees:
<PAGE>
a. an exercise facility so long as it does not unreasonably
disturb other tenants;
b. food preparation and eating facility; provided that the
Tenant shall not install a full service kitchen which
requires venting of odors and smoke, and grease traps; and
c. day care services, subject to Landlord's consent which shall
not be unreasonably withheld.
1.4 Nothing in this Lease shall be deemed to constitute Tenant as a
partner or an associate in business with Landlord, or to make Tenant responsible
in any way for the business of Landlord. Neither Landlord nor Tenant shall have
control over or responsibility for employees of the other.
1.5 Tenant shall have the nonexclusive right, subject to the terms
and conditions of this Lease, with other tenants of the Building to use the
Common Areas of the Building.
ARTICLE II
----------
DEFINITIONS
2.1 The following terms shall, for all purposes of this Lease, and
all agreements supplemental hereto, have the meanings herein specified unless
the context otherwise requires. This Article shall not be construed to limit the
general applicability of terms elsewhere defined in this Lease.
2.2 "Building" shall mean the tower office building consisting of not
less than twenty-two (22) stories, including ground floor and all other
improvements erected by Landlord, at Landlord's expense, and located at the
corner of 16th Avenue and Broadway (1560 Broadway), Denver, Colorado.
2.3 "Building Services" shall mean the provision of electricity,
heating, ventilating, air conditioning, elevator service, and water to the
Demised Premises in accordance with the terms of this Lease.
2.4 "Commencement Date" shall mean May 15, 1997. In no event shall
the Commencement Date be later than May 15, 1997.
2.5 "Common Areas" shall mean all areas and facilities which are
outside the Demised Premises and are designated for the common use, convenience
or benefit of Tenant and other occupants of the Building, including, but not
limited to, corridors, restrooms, lobbies, walkways, landscaped areas, telephone
closets, electrical rooms and janitorial closets.
2
<PAGE>
2.6 "Demised Premises" and "Premises" shall mean the space consisting
of approximately 66,306 rentable square feet described in EXHIBIT A and referred
to in Section 1.1 of this Lease.
2.7 "Holidays" shall mean those days celebrated each calendar year as
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day, or other national legal holidays recognized by national banks in
Denver, Colorado.
2.8 The word "Lease" shall mean this instrument.
2.9 "Normal Business Hours" shall mean from 7:00 a.m. to 6:00 p.m.
weekdays and 8:00 a.m. to 1:00 p.m. Saturdays (Sundays and Holidays excepted).
2.10 The word "Term" shall have the meaning hereinafter defined.
ARTICLE III
-----------
TERM
3.1 The Term of this Lease shall be ten (10) years and four (4)
months to commence on the Commencement Date and to end, unless sooner terminated
or renewed, at midnight on the last day of the on hundred twenty-fourth (124th)
full calendar month thereafter. Promptly after the Commencement Date, Landlord
and Tenant will execute an agreement in recordable form (hereinafter referred to
as the Commencement Date Agreement) stating, among other things, the certified
square foot area of the Demised Premises, the commencement and expiration dates
of this Lease and the Annual Base Rent.
ARTICLE IV
----------
PRIOR OCCUPANCY
4.1 Tenant may, upon complete execution of this Lease and prior to
the Commencement Date, move into and occupy any portion of the Demised Premises
(hereinafter known as "Prior Occupancy") for purposes of completing the tenant
improvements to the Demised Premises and occupying the Demised Premises after
completion, without payment of Rent or commencement of the Term. Such Prior
Occupancy shall not be deemed a taking of possession by Tenant and shall not
operate to commence the Term of this Lease for all or any part of the Demised
Premises, nor shall it operate to diminish or affect any right of Tenant to
require completion and availability of the entire Demised Premises or diminish
or affect any right of Tenant to cancel this Lease (including the Prior
Occupancy) because of incompletion or unavailability of the entire Demised
Premises. If such cancellation shall occur, Tenant shall remove from and
surrender that part of the Demised Premises occupied under the
3
<PAGE>
Prior Occupancy within sixty (60) days after notice of such cancellation shall
have been given.
Except as otherwise provided in this Article or as required by
the nature of the Prior Occupancy, such Prior Occupancy shall be deemed to be
under all of the terms, covenants, conditions, and provisions of this Lease.
ARTICLE V
---------
ANNUAL BASE RENT
5.1 Tenant agrees to pay to Landlord for the use of the Demised
Premises in lawful money of the United States, a base annual rent (hereinafter
"Annual Base Rent") in the sum of ***SEE RIDER TO LEASE***. At Landlord's option
a service charge of five percent (5%) of the rental payment due shall be paid as
additional rent in the event any rental payment is unpaid after the first day of
any calendar month; provided, however, that Tenant shall be entitled to two (2)
grace periods of five (5) days each after receipt of written notice from
Landlord during any twelve (12) consecutive calendar month period during the
Term of the Lease during which period Tenant shall not be charged a service
charge; provided further, however, if the grace periods have been utilized or
the payment is made after the fifth (5th) day, the service charge may be
imposed. The total annual amount of the base rent shall be computed in the
manner set forth in this section and set forth in the Commencement Date
Agreement. All payments shall be made at the office of the Landlord in Denver,
Colorado, or at such other place as may from time to time be designated by the
Landlord, in accordance with the provisions of Article XXI, and shall be made
without demand and without any set off or counterclaim whatsoever, except as
expressly provided otherwise in the Lease.
5.2 If the Commencement Date is not on the first day of the month, or
if the Lease termination date is not the last day of the month, a pro-rated
monthly installment shall be paid at the then current rate for the fractional
month during which the Commencement Date and/or the termination date occurs.
4
<PAGE>
ARTICLE VI
----------
ADJUSTMENT OF RENT
6.1 If, in any calendar year or partial calendar year during the Term
hereof the Operating Expenses, as hereinafter defined, of the Building should
exceed the actual amount of Operating Expenses experienced by the Landlord in
calendar year 1997 (or with respect to the renewal term, the calendar year in
which the renewal term commences) per rentable square foot of area therein (such
excess being hereinafter referred to as the "Operating Expense Differential"),
then as additional rent for that year, or partial calendar year, Tenant shall
pay for each rentable square foot of floor space leased hereunder an amount
equal to the Operating Expense Differential, all in accordance with the terms
herein. Except for increases in real estate taxes, insurance and utilities,
Landlord agrees that increases in other Operating Expenses for which Tenant
shall be obligated during the Term of this Lease will not increase more than
four percent (4%) in any year during the Term of this Lease over the immediately
preceding year; provided, however, that such percentage shall be increased by
the unused portion of the four percent (4%) cap for the preceding three (3)
years of the Term of the Lease. It is further agreed and understood that this
shall constitute a cap on the Tenant's share of Operating Expense during the
Term of this Lease, other than real estate taxes, insurance and utilities which
shall not be subject to the cap.
6.2 At or prior to the commencement of any calendar year during the
Term hereof after 1997, Landlord may deliver to Tenant a written estimate of any
additional rent (such expense being hereinafter referred to as "Estimated
Operating Expense Differential") which may be due hereunder during any such
succeeding year, whereupon the monthly rental for such full or partial calendar
year shall be increased by 1/12 of the amount of the Estimated Operating Expense
Differential for that particular year; provided, that the foregoing shall be
subject to the Tenant's right to review, question or audit. The Estimated
Operating Expense Differential shall be set forth in reasonable detail, and
shall contain (i) a line-item breakdown of component costs, and (ii) the method
of calculation of any gross-up performed by Landlord in estimating Operating
Expenses.
6.3 Statements showing the actual Operating Expenses of the Building
and Tenant's proportionate share thereof (hereinafter referred to as "Statement
of Actual
5
<PAGE>
Adjustment") shall be delivered by Landlord to Tenant within a reasonable period
of time after the end of any calendar year (not to exceed 180 days) in which
Estimated Operating Expense Differential was paid by Tenant or due Landlord
under the provisions hereof. Subject to Tenant's right to question and audit and
obtain a refund if appropriate, within forty-five (45) days after the delivery
by Landlord to Tenant of such Statement of Actual Adjustment, Tenant shall pay
to Landlord the amount by which the actual adjustment exceeds the amount paid by
Tenant as Estimated Operating Expense Differential during said previous calendar
year, or Landlord shall credit Tenant the amount by which the Estimated
Operating Expense Differential exceeded the Statement of Actual Adjustment. The
Statement of Actual Adjustment shall be set forth in reasonable detail, and
shall contain (i) a line-item breakdown of component costs; (ii) the method of
calculation of any gross-up; (iii) the method of prorating the wages, salaries
and payroll burden of employees engaged primarily, but not solely, in the
management, operation or maintenance of the Building; and (iv) an explanation in
reasonable detail of any proportionate cost attributable to the Building which
represents either a proration of costs shared by one or more buildings or a
proration of costs between the office portion of the Building and the retail
portion of the Building.
The total rentable area of the Building as of the date of this Lease
is stipulated to be 589,157 square feet, and the rentable area of the Demised
Premises is stipulated to be 66,306 square feet, which results in Tenant's pro
rata share being 11.254%.
6.4 The computations set forth in this Article shall be made on a
calendar year basis except if this Lease commences on a day other than the first
day of a calendar year or terminates on a day other than the last day of a
calendar year, in such event the computations shall be made on the basis of the
proportion that the number of days that this Lease was in effect for such
calendar year bears to 365.
For the purposes of this Lease, Operating Expenses shall mean any
and all costs paid or incurred in connection with the operation, servicing,
maintenance and repair of the Building, determined in accordance with Generally
Accepted Accounting Principles consistently applied (on an accrual basis) which
shall include, but not be limited to the following:
a. All real estate taxes, assessments, governmental levies, county
taxes or any other governmental charge, ordinary or
extraordinary, unforeseen, as well as foreseen, of any kind or
nature whatsoever, which are or may be assessed or imposed upon
the Building under the laws of the United States, the State of
Colorado, or any political subdivision thereof, or by the City
of Denver, as a substitute in whole or in part for taxes
payable or hereinafter imposed on the Building or resulting
from or due to any change in method of taxation, but excluding
any income,
6
<PAGE>
franchise, excise, corporation, estate, inheritance,
succession, capital stock or transfer tax levied on Landlord to
the extent that it is not a substitute in whole or in part for
real estate taxes. Any special assessment or charge in excess
of Forty Thousand Dollars ($40,000) which is paid in a lump sum
other than on an annual basis shall be allocated either: (i)
over the term of the assessment; or (ii) in the manner
reasonably consistent with other comparable high-rise office
building in the central business district of Denver, Colorado,
which are subject to the same assessment; provided, that any
special assessment or charge which is expensed in such a manner
shall be amortized with interest at the rate of nine percent
(9%) per annum.
b. Compensation provided in the form of wages, salaries and such
other compensation and benefits (including insurance, welfare,
retirement, vacation, holiday, sick pay, and other fringe
benefits) as well as any adjustments thereto for the following
classes of employees, employees of agents, or agents of
Landlord performing services rendered in connection with the
management, operation and maintenance of the Building:
(i) superintendent of the Building;
(ii) Building department heads and assistants;
(iii) clerical and accounting staff;
(iv) elevator operators, including starters and
assistant starters;
(v) window cleaners, porters, janitors, cleaners,
dusters, sidewalk shovelers and miscellaneous
handymen;
(vi) watchmen, gardeners, caretakers and persons
engaged in patrolling and protecting the
Building;
(vii) engineers, firemen, mechanics, electricians,
plumbers and persons engaged in the operating
and maintenance of the heating, air-
conditioning, ventilating, plumbing, electrical
and elevator systems of the Building; and
7
<PAGE>
(viii) carpenters, plasterers, painters and other
persons engaged in connection with the
management, operating and maintenance of the
Building.
c. The uniforms of employees specified in subdivisions (b) above
and the cleaning, pressing and replacement thereof.
d. Payroll taxes, including federal and state unemployment taxes
and social security taxes and any other such taxes that may be
created, payable in connection with the employment of any of
the employees specified in subdivision (b) above.
e. Premiums and other charges incurred by Landlord with respect to
the following insurance on employees specified in subdivision
(b) above, and on the Building as required by the Prime Lease
referred to in Article XXIV, but excluding sums reimbursable to
Landlord from Lessor under said Prime Lease, and if Landlord
elects to self insure some or all of the risks as would
normally be covered by a reasonably prudent operator an amount
deemed to be equal to the amount which would have been incurred
if insurance had been purchased.
(i) fire, extended coverage, including windstorm,
hail, explosion, riot, rioting attending a
strike, civil commotion, aircraft, vehicle and
smoke, and all risk;
(ii) public liability;
(iii) elevator;
(iv) boiler damage, water damage, legal liability,
and pilferage on Building equipment and
materials;
(v) workmen's compensation for the employees
specified in subdivision (b) above;
(vi) health, accident, disability and group life on
employees enumerated in subdivision (b) above as
therein qualified; and
(vii) other insurance which a reasonably prudent
operator of a first-class office building would
carry or which the holder of any mortgage
affecting the
8
<PAGE>
Building or the Building and the Land might
require to be carried under the terms of such
mortgage.
f. Costs or premiums (but not penalties or interest for late
payments) incurred for electricity, steam, gas, water, or
other utilities or fuels required in connection with the
operation and maintenance of the Building, including
electricity furnished by Landlord pursuant to Section
18.1.
g. Water and sewer charges.
h. Repairs or maintenance of the Building and the cost of
supplies, tools, materials, and equipment used in
connection therewith to the extent that the same are
customarily charged as operating expenses by landlords of
comparable high-rise office buildings in the central
business district of Denver, Colorado.
i. Replacement of tools and equipment to the extent that the
same are customarily charged as operating expenses by
landlords of comparable high-rise office buildings in the
central business district of Denver, Colorado.
j. Charges of any independent contractor incurred in
connection with operating, maintaining or repairing the
Building and its appurtenances, including inspection and
servicing of elevator, electrical, plumbing and mechanical
equipment; and the furnishing of cleaning and janitorial
services and the cost of materials, tools, supplies, and
equipment used in connection therewith.
k. Sales, use and excise taxes on goods and services
purchased or provided by Landlord to properly manage,
operate and maintain the Building.
l. Taxes levied against and paid by Landlord on rents
collected, excepting taxes levied and paid under the
provision of (a) above.
m. Vaults or tunnel taxes, permits or rentals.
n. License, permit and inspection fees.
o. Auditor's fees for public accounting.
p. Legal fees of outside or special counsel retained by
Landlord in connection with proceedings for the reduction
of real estate taxes,
9
<PAGE>
labor relations, or other matters to the extent that the
same shall be of general benefit to all tenants in the
Building.
q. Cost of telephone, telegraph, postage, stationery supplies
and other materials required for routine operating of the
superintendent's office.
r. Association dues and subscriptions which are for the
benefit of the Building.
s. Management fees, not to exceed four percent (4%) of the
Building's gross rents in any calendar year, and to the
extent comparable management fees are customarily charged
as operating expenses by other landlords of comparable
high-rise office buildings in the central business
district of Denver, Colorado; provided that the management
fees shall not include salaries of Building personnel
whose salaries are directly paid by the Building and
constitute Operating Expense under Section 6.4, supra.
-----
t. Restroom keys, security passes, directory strips, and
control cards.
u. Amortization of capital improvements which the Landlord
believes in the exercise of its reasonable business
judgment will improve Building operating efficiencies or
which may be required by governmental authorities due to
change in law, rules or regulations or the interpretation
of existing laws by applicable governmental authorities
which become effective after the date of this Lease with
interest at the rate of nine percent (9%) per annum on the
unamortized amount; provided, however, that the Landlord
may charge as an Operating Expense the cost of capital
improvements associated with compliance with the
American's With Disabilities Act ("ADA") in the common
areas and public restrooms in the Building.
v. Such other reasonable expenses and costs of any nature
whatsoever, whether or not herein mentioned, which would
be construed as an operating expense by a reasonably
prudent operator and in accordance with sound real estate
accounting practices.
10
<PAGE>
Notwithstanding anything contained in this Article, no expense
incurred for the following shall be included in Operating Expenses.
a. Any repairs to the Building including the Demised Premises where
the occurrence causing the damage or loss necessitating repair is
reimbursed by insurance carried by Landlord, or would be
reimbursed by insurance as would have normally been carried by a
reasonably prudent operator and for which a charge is includable
under the provisions specified in item (e) above.
b. Leasing or procuring new tenants including leasing commissions
paid to agents of Landlord or other brokers.
c. Renovating space for new tenants or in renovating space vacated
by any tenant.
d. Income, capital stock, estate or inheritance taxes payable by
Landlord provided the same shall not have been levied as a
substitute for or supplement to real property taxes.
e. Cost of utilities charged to tenants and any portion of
Landlord's payroll, material, and contract costs of other
services charged to tenants.
f. Costs incurred by Landlord for Tenant's alterations.
g. Cost of painting and decorating the premises of other tenants.
h. Depreciation of the Building.
i. Cost of capital improvements (except as set forth in (u) above).
j. Interest on debt or amortization payments on any mortgage or
mortgages, or any rent or other amounts paid under or because of
any ground or air rights lease.
k. Any cost or expense of any nature whatsoever which Landlord shall
incur in connection with the operation of the Building which is
specifically reimbursed to the Landlord from any source, charged
directly to the tenant on whose behalf it is incurred (whether or
not the same shall finally be paid), or for which Landlord is
otherwise compensated or recoups such expense by way of setoff,
reduction of recovery allowed, or otherwise.
11
<PAGE>
l. Advertising, marketing or promotional expenses (except those
related to existing tenant relations, such as tenant newsletters,
holiday decorations and event, and other tenant relation
services), including such expenses incurred in leasing or
procuring new tenants.
m. Repairs or rebuilding necessitated by casualty or condemnation.
n. The salaries and benefits of executive officers of Landlord, if
any, but not to the extent the amount paid would otherwise be
included as an Operating Expense under the first Section 6.4(b).
o. Except for cost related to hazardous or toxic materials which are
customarily used in comparable high-rise office buildings in the
central business district of Denver, Colorado, costs incurred to
test, survey, clean up, contain, abate, remove or otherwise
remedy any spill or discharge of hazardous or toxic materials
within, on, under or about the Building of a condition which
existed on the Commencement Date or which was caused by another
tenant in the Building or by a third party.
p. Costs of special services (which shall not include normal
variations in repairs or the need for repairs), not rendered or
offered without reimbursement to all tenants of the Building.
q. The costs of electrical power provided to the premises of other
tenants or occupants of the Building which those tenants are
required to pay under their leases other than as their share of
Operating Expenses.
r. Space planning fees and commissions.
s. Tenant concessions and any other costs associated with the
leasing or sale of the Building, or the assignment of the Prime
Lease, or any portion thereof.
t. Landlord's costs of any special service sold to any tenant or
occupant of the Building for which Landlord is entitled to be
reimbursed as an additional charge or rental over and above the
basic rent and escalations payable under the lease or occupancy
agreement with that tenant or other occupant (including, without
limitation, after-hours HVAC costs or excess electrical
consumption costs incurred by other tenants or occupants).
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u. Any amounts paid to any person, firm or corporation related or
otherwise affiliated with Landlord any general partner, officer
or director of Landlord or any of its general partners, to the
extent they exceed arms-length competitive prices paid by
comparable high-rise office buildings in the central business
district of Denver, Colorado, for the services or goods provided.
v. Costs relating to maintaining Landlord's existence, either as a
corporation, partnership, or other entity, such as trustee's
fees, annual fees, partnership or organization or administration
expenses, deed recordation expenses, legal and accounting fees
(other than with respect to Building operations).
w. Costs incurred in excess of what would customarily be charged as
an operating expense due to Landlord's violation of any terms and
conditions of this Lease or any other lease relating to the
Building or any willful violation by Landlord of any law,
ordinance or governmental rule or regulation affecting the
Building, including without limitation, late charges, penalties
or interest.
x. Overhead profit increments paid to Landlord's subsidiaries or
affiliates for management or other services on or to the Building
in excess of those charged by unaffiliated companies providing
the same quality of the same services.
y. Except for a concierge service operated for all tenants of the
Building, compensation paid to clerks, attendants or other
persons in commercial concessions operated in or around the
Building by Landlord.
z. Legal or accounting fees, costs and disbursements for (i)
negotiating leases, (ii) enforcing the lease obligations of other
tenants in the Building other than the general enforcement of the
Building rules and regulations and other non-rental paying
obligations of all tenants in the Building, or (iii) defending
lawsuits with other tenants or mortgagees who allege a breach of
an agreement with Landlord.
aa. The costs and/or salaries of off-site management personnel except
the pro rata portion attributable to the Building based upon the
amount of time spent on Building matters.
bb. Title insurance, automobile insurance, key man and other life
insurance, long-term disability insurance and health, accident
and
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sickness insurance, except only for group plans providing
reasonable benefits to persons of the grade of building manager
and below employed and engaged in operating and managing the
Building.
cc. Except as there may otherwise be a substitute for taxes set forth
in the first Section 6.4a above, any franchise, succession,
transfer, gift tax, capital levy or corporation.
dd. Any cost of utilities, maintenance or operation of the retail
portions of the Building, in excess of the Operating Expenses
charged to other tenants (on a per square foot of rentable area
basis) in the Building.
ee. Any bad debt losses, rent losses or reserves for bad debt or rent
losses.
ff. Any cost related to the operation, maintenance or repair
of the parking garage.
gg. The cost of (i) existing sculptures, paintings and art work in
and around the Building; and (ii) future acquisitions of
sculptures, paintings and art work for Common Areas, to the
extent the cost of the item is in excess of $25,000 in any year.
hh. The cost of future acquisitions of sculptures, paintings and art
work for other than in Common Areas of the Building.
Landlord shall not recover through Operating Expenses any item of cost
more than once. Landlord shall, at all times during the entire Term of this
Lease, operate, manage, maintain and repair the Building in a manner consistent
with other comparable high-rise office buildings in the central business
district of Denver, Colorado.
If at any time during the Term of this Lease the occupancy of the
Building is less than one hundred percent (100%) of its capacity, then for the
purpose of this Article, the Operating Expenses per rentable square foot of
rentable floor space shall nevertheless be computed as if the Building were one
hundred percent (100%) occupied.
The obligations of Landlord and Tenant under this Article shall
survive the expiration or other termination of this Lease.
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All costs and expenses which Tenant assumes or agrees to pay to
Landlord pursuant to this Lease, including Estimated Operating Expense
Differential pending computation of the Statement of Actual Adjustment
applicable thereto, shall be deemed additional rent, and, in the event of
nonpayment, Landlord shall have all the rights and remedies herein provided for
in case of nonpayment of rent.
Notwithstanding anything contained in this Article VI, any increase in
Operating Expenses resulting from a change in policy or practice in the
operating of the Building shall be included in Operating Expenses only if such
change in policy or practice is one which would have been made by a reasonably
prudent operator of a comparable first-class office building, but only if it is
not otherwise specifically excluded under this Section 6.4.
In no event will the Annual Base Rent be reduced below the amount in
Article V as a result of any adjustments pursuant to this Article.
6.5 Audit. Landlord shall maintain at all times during the Term of this
Lease full, complete and accurate books of account and records (prepared in
accordance with generally accepted accounting practices on a cash basis, with
variations consistent with the practices followed by comparable office building
owners in Denver, Colorado) with respect to Operating Expenses, and shall retain
such books and records, as well as contracts, bills, vouchers, and checks, and
such other documents as are reasonably necessary to properly audit the Operating
Expenses for each year of the Lease Term (as well as the Base Year). Upon
reasonable notice from Tenant, Landlord shall make available for Tenant's
inspection (or inspection performed by Tenant's accountant and/or consultants)
at Landlord's office during normal business hours, Landlord's books and records
relating to the Operating Expenses for the most recent full calendar year,
except that any audit of the Base Year must occur within twelve (12) months
after the end of the Base Year and the audit of all subsequent years must occur
within six (6) months of the date Landlord delivers the Statement of Actual
Adjustment to Tenant. If neither Landlord nor Tenant shall revise or challenge
the Statement of Actual Adjustment within said six (6) month period, the year in
question shall be deemed closed and neither Landlord nor Tenant shall be
entitled to recover, as the case may be, undercharges or overcharges for that
year. In the event Tenant challenges the calculation of a particular line item
on the Statement of Actual Adjustment, it may audit the calculation of such line
item (but not the entire Statement of Actual Adjustment) for the prior two (2)
years. If, on the basis of Tenant's review of Landlord's books and records, any
Statement of Actual Adjustment is determined to be in error (that is to have
resulted in an over charge to Tenant), Landlord shall (subject to its right to
contest) reimburse Tenant within thirty (30) days following such determination
for any overpayment of Operating Expenses, and, in addition, if the error
resulted in an overcharge to Tenant of five percent (5%) or more of the total
Operating Expenses of the Building, Landlord shall also reimburse Tenant, within
thirty (30) days after receipt of evidence of the cost, the reasonable cost of
Tenant's audit of Landlord's books and records (limited to the reasonable hourly
rate
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cost, without contingent fee, of Tenant's accountant or consultant, neither of
which costs may be included as a Operating Expense). If, however, as a result of
Tenant's audit it is determined that Landlord undercharged Tenant for the
Operating Expense in question, Tenant shall reimburse Landlord for the
undercharged amount.
ARTICLE
--------
ASSIGNMENT, MORTGAGING AND SUBLETTING
7.1 Tenant will not, without the prior written consent of Landlord first
obtained in each case, sell, assign, mortgage, deed in trust or transfer this
Lease or sublet all or part of the Demised Premises. Tenant may, however,
without securing Landlord's consent, sublet any portion of the Demised Premises
to a subsidiary or affiliate of Tenant or assign or otherwise transfer this
Lease to any subsidiary or affiliate of Tenant or to any successor by
consolidation, merger, holding company, sale of all or substantially all of
Tenant's assets or stock or transfer of stock on a public exchange, or other
corporate action, provided that such successor shall have a net worth as
determined in accordance with Generally Accepted Principles of Accounting at
least equal to or greater than One Hundred Million Dollars ($100,000,000). Each
assignee or transferee (but not a sublessee) shall assume and be deemed to have
assumed this Lease and shall be and remain liable jointly and severally with
Tenant for the payment of the Annual Base Rent, additional rent and adjustments
of rent, and for the total performance of all of the terms, covenants,
conditions and agreements herein contained on Tenant's part to be performed for
Term of this Lease. No assignment, subletting, or other transfer of this Lease
(other than to a successor resulting from a consolidation, merger or a sale of
all or substantially all of the Tenant's assets or stock and the net worth
criteria is satisfied which shall release Tenant from any future liability or
obligations under this Lease) shall in any way relieve Tenant from its
obligations under this Lease. No assignment shall be binding on Landlord unless
such assignor shall deliver to Landlord a counterpart of such assignment and an
instrument in recordable form which contains a covenant of assumption by the
assignee; but the failure or refusal of the assignee to execute such instrument
of assumption shall not release or discharge the assignee from its liability as
set forth above. The consent of Landlord, if required, to an assignment shall
not include the right of further assignment.
7.2 With respect to any assignment, sublease or other transfer of any
interest herein or in the Demised Premises, Tenant shall notify the Landlord in
writing (hereinafter referred to as "Transfer Notice") of the terms of the
proposed assignment or subletting and the area so proposed to be assigned or
sublet. To the extent Landlord's consent is required, it shall advise Tenant
within fifteen (15) days after receipt of Tenant's Transfer Notice and all of
the information which is required to be provided by Tenant. Notwithstanding any
contrary provision herein, Tenant shall pay to Landlord, promptly following
Tenant's receipt thereof, the amount by which all rental and other payments
(whether paid in installments, as lump sum or otherwise) relating to the space
in question received by Tenant exceed the Base Rent, Additional Rent and other
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amounts payable pursuant to this Lease for the subject period with respect to
such space (with the rental and other amounts payable by Tenant for the Premises
allocated on the basis of leasable area). Amounts payable under this Section by
Tenant to Landlord shall be based on gross figures and shall be net of the
following costs incurred by Tenant in connection with the transaction in
question: tenant improvements, leasing commissions, reasonable market
concessions, advertising costs and reasonable fees for legal, architectural and
engineering services, and any costs (leasing commissions and tenant
improvements) incurred by Tenant in connection with the transaction in question.
The provisions of this Section shall apply regardless of whether such
assignment, sublease or other transfer is made in compliance with the provisions
of this Lease. Any payments made to Landlord pursuant to this Section shall not
cure any default under this Lease arising from such assignment, sublease or
transfer. An assignment, transfer or sublease which does not require Landlord's
consent shall be subject to this Section 7.2 only if the applicable transfer
instrument specifically requires the assignee, transferee or assignee to pay
Tenant an amount of rent for the Demised Premises which Landlord would otherwise
be entitled to receive under this Section 7.2. Tenant shall not artificially
structure any assignment, sublease or other transfer in order to reduce the
amount payable to Landlord under this Section, nor shall Tenant take any steps
for the purpose of circumventing its obligation to pay amounts to Landlord under
this Section.
7.3 In the event Tenant completes a sublease with a third party, the
sublease shall be subject to and made upon the following terms:
a. Any such sublet shall be subject to the terms of this Lease and
no term thereof may extend beyond the expiration of this Lease.
b. The use to be made of the Sublet Space shall be a legal use and
in keeping with the character and tenant mix of the Building.
c. No sublease shall be valid and no subtenant shall take possession
of the premises subleased until an executed counterpart of such
sublease has been delivered to the Landlord and approved thereby
as being in accordance with the terms hereof.
d. No sublessee shall have a right to further sublet, and no
sublessee shall alter or remodel the premises without Landlord's
prior written consent.
Any use or occupancy of the Demised Premises by any corporation or
entity which controls or is controlled by the Tenant or under common control
with the Tenant shall be a use or occupancy of the Demised Premises by the
Tenant and shall not be deemed an assignment or subletting of the Demised
Premises or transfer of any right, title or interest of this Lease, the
leasehold estate created thereby or any part of
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same to any such corporation or entity notwithstanding, that the corporation or
entity may reimburse or pay the Tenant any part of the cost to Tenant for such
use and occupancy.
7.4 In any case, where Landlord's consent is required under this Article
VII, it shall not be unreasonably withheld or delayed.
ARTICLE
--------
LANDLORD'S WORK; TENANT'S WORK; ALTERATIONS
8.1 Landlord shall provide the Demised Premises to Tenant in their "As
Is" condition, without any demolition of the existing improvements.
8.2 Landlord, at Landlord's expense, has previously provided ceilings
throughout the Demised Premises, installed with ceiling grid, ceiling tile,
light fixtures, sprinkler system and heating, ventilating, air conditioning
distribution system. Any revisions, moving or substitutions and improvements of
this ceiling system and components which occur because of the requirements of
Tenant's space development plans and specification will be at Tenant's expense
to the extent the cost thereof exceeds the tenant improvement allowance.
8.3 The work previously performed by Landlord in the Demised Premises,
consisting of the items set forth in Section 8.2 hereof and the ADA work to be
performed by Landlord in the restrooms (exclusive of the showers) within the
Demised Premises, are sometimes referred to herein as "Landlord's Work." The
work to be performed by Tenant in otherwise constructing the Demised Premises in
accordance with the provisions of Sections 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10,
8.11, and 8.12 immediately below is sometimes cumulatively referred to herein as
"Tenant's Work." Within thirty (30) days after the execution of this Lease,
Tenant shall submit to Landlord a Construction Schedule designed to meet the
time periods set forth in this Lease. Landlord shall not unreasonably withhold
or delay its approval of such Construction Schedule.
8.4 Tenant shall have plans and specifications prepared for the
construction of the Demised Premises for Tenant. Tenant will submit those plans
and specifications for Landlord's approval, which will not be unreasonably
withheld or delayed. Landlord will review such plans and specifications without
charge and will, within seven (7) days after the receipt of the complete plans
and specifications, indicate to Tenant any changes, corrections or objections
which it may have to them. Landlord, as of the date hereof, has reviewed and
approved the Tenant's Space Plan dated February 13, 1997, and attached hereto as
EXHIBIT F.
8.5 When the plans and specifications for the construction of the
Demised Premises are completed and approved by Landlord, Tenant shall complete
the Tenant's Work in accordance therewith.
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a. Tenant shall have the right to employ a contractor, an architect
and other persons of its own choosing to perform the work and
shall be responsible for the payment of them, provided, that
Tenant shall, if it can agree upon a contract reasonably
acceptable to Tenant, employ Kazin & Associates as the electrical
design engineer and ABS Consultants, Inc., as the mechanical
design engineer. In the event Tenant has been unable to negotiate
contracts with either Kazin & Associates or ABS Consultants,
Inc., which are reasonably acceptable to Tenant, it shall advise
Landlord of the problem and allow Landlord to attempt to resolve
the problem for Tenant before Tenant selects another electrical
design or mechanical design engineer. Landlord shall have a
reasonable right to approval over the contractor(s) selected by
Tenant evaluating such contractor(s) upon factors such as the
contractor(s') level of experience, insurance carried by the
contractor(s) and past dealings between Building management and
the contractor(s); provided, that PCC, Inc. (Provident
Construction, Inc.) shall be deemed to have been approved by
Landlord as the general contractor. Landlord must give Tenant
written notice of disapproval of any contractor within seven (7)
days of notification of the identity of a contractor or Landlord
will be presumed to have approved such contractor.
b. Landlord shall have no right to receive any fee or remuneration
related to Tenant's Work unless it is for work specifically
performed by Landlord or for Landlord by its agents pursuant to a
separate contractual arrangement for extraordinary work which
Landlord is required to perform for the Building as a direct
result of Tenant's Work.
c. Tenant shall employ people and means to insure so far as may be
possible the operation of the Building without interruption on
account of strikes, work stoppages or similar causes for delay.
All contracts of Tenant involving improvements, architectural and
related services in the Demised Premises shall provide for the
periodic delivery of lien waivers by the contractor and/or
architect and shall contain indemnity clauses by which contractor
will indemnify and hold Landlord harmless against any claim for
wages, materials or other liabilities arising out of the
contract. No less than seven (7) days prior to commencement of
construction, Tenant shall supply Landlord, for its review and
approval, copies of all construction contracts, the construction
budget (contractor bids), certificates of insurance from Tenant
and its contractors which name Landlord, its property manager,
its investment
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advisor, and their respective employees and agents as additional
insureds and if requested by the Landlord. The Landlord shall
have seven (7) days after receipt of the documents referred to in
the immediately preceding sentence (except the construction
budget) to review and either approve or object to the documents,
which shall not be unreasonably withheld, conditioned or delayed.
d. Tenant shall notify Landlord at least twenty (20) days prior to
the commencement of Tenant's Work or first delivery of materials
to the Demised Premises. Landlord shall have the right to enter
the Demised Premises for purposes of posting such notices of
nonresponsibility or other notices designed to prevent Landlord,
the Building and/or the Demised Premises from being liable for
the costs of such improvements. Tenant agrees to defend,
indemnify and hold Landlord harmless against any and all claims
of liens, including, without limitation, reasonable attorneys'
fees arising out of the improvements made by Tenant to the
Demised Premises, including, without limitation, Tenant's Work.
8.6 Tenant shall make all progress and final payments in connection with
construction and moving; provided, however, that Landlord will periodically pay
Tenant its pro rata share of the tenant improvement allowance (which shall be
equal to a fraction the numerator of which is the total tenant improvement
allowance and the denominator of which is the total estimated cost of the tenant
improvements) less any retainage not to exceed ten percent (10%) which shall be
paid with the final invoice within fifteen (15) business days of receipt and
approval by Landlord of the following: (a) contractor's invoice/application for
payment or other reasonably satisfactory evidence; (b) lien waivers and/or
releases from each contractor, subcontractor and supplier; and (c) summary of
approved change orders. Within fifteen (15) business days of the receipt and
approval by Landlord of the following: (i) final contractor's
invoice/application for payment or other reasonably satisfactory evidence; (ii)
final lien waivers and/or releases from each contractor, subcontractor and
supplier; (iii) final summary of approved change orders; (iv) contractor
warranties; (v) certificate from Tenant that final punchlist has been completed
and copy of final punchlist; (vi) final inspection and certificate of completion
from Landlord's architect/consultant which shall be completed within fifteen
(15) days of the receipt by Landlord of Tenant's certificate that the final
punchlist has been completed; and (vii) copy of Tenant's Final Inspection
Approval Certificate, Landlord shall reimburse or pay Tenant the final
contractor invoice, including the amount of any retainage; provided, however,
that the periodic payments of the tenant improvement allowance will only be paid
to Tenant for the actual cost of tenant improvements made in accordance with the
agreed upon plans and specifications and to the extent the cost of Tenant's Work
exceeds the tenant improvement allowance, Tenant shall be responsible for and
shall pay said excess.
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8.7 During the construction of Tenant's Work, Landlord, its agents and
architect/consultant shall have the right to enter upon the Demised Premises for
the purpose of inspecting Tenant's Work to insure, solely for the benefit of
Landlord, that Tenant's Work is being properly and satisfactorily completed in
accordance with Tenant's approved plans and specifications, applicable building
codes, and government laws, rules and regulations. In addition, during the
construction and prior to making any changes in the approved plans and
specifications to the electrical, mechanical, HVAC and life safety systems in
the Demised Premises, Tenant shall submit to Landlord and its architect, for its
approval, copies of change orders, which approval shall not be unreasonably
withheld. Landlord and its architect will review the change orders and will
within two (2) business days after their receipt, indicate to Tenant any
changes, corrections or objections to the change orders. Should Landlord fail to
notify Tenant of any such objections within said two (2) business day period it
shall be deemed to have approved the change order tendered to it. Failure to
complete Tenant's Work by the Commencement Date shall be a cause for extension
of the Commencement Date.
8.8 It shall be the responsibility of Tenant to place firm orders of
communications equipment and its installation with the local telephone company
and others so as to ensure the completion of Tenant's telephones and other
communications facilities concurrent with Tenant's Work. Failure to have the
Tenant's communications facilities completed shall not be a cause for extension
of the Commencement Date.
8.9 Tenant may, from time to time during the Term of this Lease, upon
obtaining Landlord's consent, which shall not be unreasonably withheld or
delayed, make such alterations, additions, substitutions, and improvements to
the Demised Premises as Tenant may reasonably deem necessary or desirable to
adapt the Demised Premises or any part thereof, for its purposes, providing the
outside appearance and strength of the Building are not affected. Tenant agrees
to submit plans to Landlord for said alterations, additions, substitutions and
improvements to be made.
8.10 Except as otherwise agreed upon in writing or to the extent the
following were in the Demised Premises before the execution of this Lease, and
so long as Tenant is not in default of the Lease, all goods, effects, personal
property, movable walls, raised flooring, reception desk, audio visual and
telecom equipment, security equipment, appliances, furniture, business and trade
fixtures, machinery and equipment (including the emergency generator, UPS,
auxiliary HVAC and satellite dish) owned by Tenant or installed by Tenant at
Tenant's expense in the Demised Premises ("Tenant's Effects") shall remain the
personal property of Tenant and may be removed by Tenant at any time, and from
time to time, during the Term of this Lease; provided Tenant shall, in removing
any such property, repair all damage to the Demised Premises and the Building
caused by such removal and restore it to the Building standard, excepting normal
wear and tear.
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8.11 Tenant's Work and all alterations, additions, substitutions, and
improvements made and installed for Tenant, whether at Tenant's or Landlord's
cost, upon termination of this Lease for any reason, shall become Landlord's
property, except for Tenant's Effects. Tenant shall be responsible for the
maintenance of Tenant's Work and all such alterations, additions, substitutions
and improvements made as an addition to or a substitute for Landlord's Work, and
Tenant shall not remove Tenant's Work or Landlord's Work without the prior
written consent of Landlord; provided, however, that in conjunction with the
approval of Tenant's plans and specifications, Landlord shall provide Tenant
with a list of those improvements in addition to the Tenant's Effects which
Landlord may, at its option, require that Tenant shall either remove or leave
and those which Tenant can remove in the Demised Premises upon the termination
of this Lease; provided, however, but subject to Landlord's reasonable review of
Tenant's plans and specifications, Tenant shall not be required to remove any
existing improvements in the Demised Premises or any standard tenant
improvements for office space which are included in the initial tenant
improvement plans for the Demised Premises, such as partition walls, doors and
frames, ceilings, standard lighting and fixtures, HVAC and electrical
installations, electrical wiring, carpet and floor covering, shelving (other
than movable file systems which may be attached to rails), book cases, and
secretarial stations. As soon as possible, but not later than within thirty (30)
days after the termination of the Lease, Landlord shall advise Tenant in writing
of the items on the list which Landlord requires Tenant to remove.
8.12 All Tenant plans for original Tenant's Work (other than
Landlord's work in the restrooms) and for later alterations, additions,
substitutions and improvements shall meet all governmental codes that are
applicable to such Tenant's Work.
8.13 At its own expense, Tenant shall cause to be discharged, or shall
post adequate security against any mechanic's lien filed against the Demised
Premises or the Building for work claimed to have been done for, or materials
claimed to have been furnished to, Tenant, within thirty (30) days of the filing
thereof.
ARTICLE IX
----------
ORDINARY REPAIRS
9.1 Except as otherwise provided in this Lease, Tenant shall keep the
Demised Premises and the Tenant's Work therein in good order and condition and,
at its sole cost and expense, make all repairs thereto caused by its negligence,
misfeasance, or malfeasance or by its use of the Demised Premises, or any part
thereof, in a manner not customary for general office purposes, and commit no
waste in the Demised Premises or the Building.
9.2 Landlord shall maintain or cause to be maintained in a good
condition and repair similar to other comparable high-rise office buildings in
the central business district of Denver, Colorado, the structural portions of
the Building, the roof, roof
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membrane, foundations, floors and exterior walls and exterior windows of the
Building, the electrical, plumbing, life safety, heating, ventilation and air
conditioning systems of the Building (including those within the Demised
Premises, but excluding any equipment installed by Tenant [the "Building
Systems"], and all Building standard hardware, light fixtures and ballasts, the
Common Areas (including lighting, gardening, cleaning, snow removal and
sweeping), and all portions of the Building the maintenance of which is not the
express obligation of Tenant or other occupants of the Building. Landlord shall
also supply the Demised Premises with janitorial service in accordance with the
specifications attached hereto as EXHIBIT G (which specifications may be
reasonably modified from time to time by Landlord in conjunction with its
periodic renegotiation of janitorial contracts) and shall provide window
cleaning for the exterior windows of the building not less than two (2) times
per year. Additionally, Landlord shall provide the Common Areas with such other
services, including, but not limited to, such air-cooling and heating as may in
the reasonable judgment of Landlord, and subject to governmental regulations, be
required for the comfortable use and occupancy of the Building. The term "walls"
for the purpose of this paragraph exclude doors, custom office fronts and entry
areas in the Demised Premises. Landlord shall cooperate with Tenant's efforts to
maintain satisfactory indoor air quality in the Demised Premises, which shall
mean an air quality reasonably equivalent to other comparable high-rise office
buildings in the central business district of Denver, Colorado. Tenant shall
have the right, from time to time, to test the air quality within the Demised
Premises. If it is determined by a qualified third party air quality engineer
that the air quality in any material portion of the Demised Premises that is
occupied by Tenant's employees (as opposed to storage space) is for seven (7)
consecutive days not in accordance with the requirements of this Lease, Tenant
shall notify Landlord in writing and shall provide Landlord with the report and
all testing data and, if the deficiency has not been corrected within thirty
(30) days thereafter or such longer period as may be reasonably necessary to
cure, the Rent shall be abated in the manner provided in Section 22.4 of the
Lease. Landlord agrees that upon receipt of that written notice, it will use
reasonable efforts to correct the deficiency as soon as practicable); provided,
however, that the Landlord shall not be responsible for correcting the
deficiency in the air quality to the extent it is caused by the Tenant. Landlord
shall, if required by Colorado law, also maintain and repair the intra-building
network cable in the Building from the minimum point of entry (i.e., the local
----
telephone company's final access point to the Building exterior to the Demised
Premises. After reasonable notice to Landlord, Tenant shall also have the right,
from time to time, and at its own expense, to inspect the intra-building network
cable serving the Demised Premises (or any rooftop telecommunications facilities
operated by Tenant); provided that Landlord shall have the right to require that
Landlord's representative accompany Tenant's representative on any such
inspection. Landlord shall at all time use its reasonable efforts to ensure that
all locations within the Building which house intra-building network cable
serving the Demised Premises (or any rooftop telecommunications facilities
operated by Tenant) are secure on a twenty-four (24) hour per day basis.
Landlord shall not allow any access points in the intra-building network cable
serving the Demised Premises to be available for general unsecured access.
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Subject to the provisions of Section 6.4 and this Section 9.2, the cost of
Building Services shall be considered part of the Operating Expenses.
Landlord shall at all times maintain the main Building lobby in a
fashion fitting for other comparable high-rise office buildings in downtown
Denver. Landlord shall not allow the main Building lobby to serve as a "waiting
room" for clients or customers of tenants of the Building.
Tenant agrees that, subject to Article 22, Landlord shall not be
liable for any failure to supply or interruption of, Building Services caused by
force majeure delay. Landlord agrees, however, to use reasonable efforts to
supply Building Services.
9.3 Except as expressly provided otherwise in this Lease and as long
as Landlord uses reasonable efforts under the circumstances, there shall be no
allowance to Tenant or diminution of rent and no liability on the part of
Landlord by reason of inconvenience, annoyance, or injury to business arising
from the making of any repairs, alterations, additions, substitutions or
improvements in or to any portion of the Building or the Demised Premises or in
and to the fixtures, appurtenances, and equipment thereof provided that in each
case such repairs, alterations, additions, substitutions, or improvements are
effected in a manner least likely to result in inconvenience to the Tenant, and
provided further that in each case all work done in connection with such
repairs, alterations, additions, substitutions, or improvements is done promptly
and in a good workmanlike manner. This provision shall not be construed as to
require the Landlord to do the work at overtime rates. If Tenant requests that
such work be done in such a manner or on a schedule requiring overtime payment,
Tenant will pay the excess of the overtime cost over ordinary rates. Landlord
agrees to use its best efforts to do any work done by it in such a manner as not
materially to interfere with or impair Tenant's use of the Demised Premises.
ARTICLE X
---------
FLOOR LOAD; OFFICE EQUIPMENT; MOVING HEAVY EQUIPMENT
10.1 Tenant shall not place a load upon any floor of the Demised
Premises which exceeds the floor load per square foot which such floor was
designed to carry. Floor load is stipulated to be 70 pounds per square foot.
Landlord and Tenant will determine jointly the approximate weight and the
position of all safes and heavy installations which the Tenant wishes to place
in the Demised Premises, so as to distribute properly the weight thereof.
10.2 Business machines and mechanical equipment belonging to Tenant
which cause unreasonable noise and/or vibration that may be transmitted to the
structure of the Building or to any leased space to such a degree as to
unreasonably disturb the Landlord or to any tenants in the Building shall be
placed and maintained by the party owning the machines or equipment, at such
party's expense, in settings of cork, rubber,
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or spring-type noise and/or vibration eliminators sufficient to eliminate
vibration and/or noise.
10.3 Should Tenant desire to move any heavy or bulky equipment the
movement of which is regulated by any statute, ordinance, or rule or regulation
of any public authority having jurisdiction, or which requires special
arrangements to be made by the Landlord to accommodate such movement, Tenant
shall submit to Landlord notice of the terms and manner in which it proposes to
move such equipment and Landlord shall, with reasonable dispatch, make
appropriate arrangements to accommodate Tenant's intentions and facilitate such
movement of equipment. All such activities will be carried out in full
compliance with the applicable codes of the City of Denver, and in harmony with
the structural design of the Building.
ARTICLE XI
----------
LAWS, ORDINANCES, AND REQUIREMENTS OF PUBLIC AUTHORITIES
11.1 Tenant, at its expense, shall comply with all laws, rules,
regulations, ordinances or orders of federal, state, county and municipal
authorities having jurisdiction, and with any lawful direction or any public
officer or officers, which shall impose any duty upon Landlord or Tenant with
respect to the use or occupation of the Demised Premises by Tenant, provided
such duty arises from or results from Tenant's failure to comply with Tenant's
covenants in this Lease or from Tenant's negligence or from the use of the
Demised Premises in a manner contrary to the purposes for which the same are
leased to Tenant. Tenant represents and warrants that at the Commencement Date
of this Lease the Tenant's Work in the Demised Premises will be in compliance
with all applicable laws, rules, regulations, ordinances, orders and directions.
Landlord represents and warrants that as of the date of this Lease it has not
received any notice and has no actual knowledge that the Land, Building or the
Demised Premises are not in compliance with all applicable laws, rules,
regulations, ordinances, order or directory (including, without limitation,
environmental laws and the ADA).
11.2 If either Landlord or Tenant should desire to contest the
validity of any such law, rule, regulation, ordinance, order or direction with
which either is obligated to comply, it may, at its expense, carry on such
contest; and non-compliance during such contest shall not constitute a breach of
this Lease; provided that the parties so contesting shall, to the satisfaction
of the other, indemnify and hold the other harmless against the cost of
compliance and against all liability for any loss, damages, and expenses
(including reasonable attorneys' fees) which might result from or be incurred in
connection with such contest or non-compliance; except that non-compliance shall
not continue so as to subject either party to a reasonable likelihood of
prosecution for a crime or unreasonably and materially interfere with Tenant's
use of the Demised Premises.
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11.3 If either party receives written notice of any violation of any
law, ordinance, rule, order, or regulation applicable to the Land, Demised
Premises or the Building, it shall give prompt notice thereof to the other.
11.4 Hazardous Materials:
a. Landlord and Tenant shall, with regard to the Building and
the Demised Premises, at all times and in all respects
comply with all federal, state and local laws, ordinances,
rules and regulations ("Hazardous Materials Laws")
applicable to it relating to industrial hygiene,
environmental protection or their respective use, analysis,
generation, manufacture, storage, presence, disposal or
transportation of any Hazardous Materials (as hereinafter
defined).
b. Tenant shall not cause or permit any Hazardous Materials
(other than the types and quantities which are customarily
used by Tenants in high-rise office buildings in the central
business district of Denver, Colorado) to be brought upon,
kept, stored, generated, treated, manufactured, produced,
disposed of, discharged, released, spilled or used in, on or
about the Demised Premises and Building by Tenant or
Tenant's affiliates, authorized agents, employees or
contractors, sublessees or assignees (collectively, the
"Tenant Parties"). Notwithstanding the foregoing, Tenant may
use Hazardous Materials to the extent customary for the
operation of Tenant's permitted use of the Demised Premises;
provided that Tenant may use such Hazardous Materials only
if used and disposed of in accordance with manufacturers'
specifications, if any, and all applicable laws. If the
presence of Hazardous Materials on the Demised Premises,
caused either directly or indirectly by Tenant, results in
contamination of the Demised Premises, the Building or any
adjacent property, then Tenant shall indemnify, defend and
hold harmless Landlord from and against any and all claims,
judgments, actions, damages, penalties, fines, forfeitures,
costs, expenses, liabilities or losses (including, without
limitation, diminution in value of the Demised Premises, the
Building and/or adjacent property, damages for the loss or
restriction on use of rentable or usable space of any
amenity of the Demised Premises, the Building and/or
adjacent property, damages arising from any adverse impact
on marketing of the Demised Premises, the Building and/or
adjacent property, and sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees and court
costs) which arise during or after the Lease Term or any
extension hereof, as a result of such breach.
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This indemnification of Landlord by Tenant includes, without
limitation, costs incurred after and because of such breach
in connection with any investigation of site conditions or
any cleanup, remedial, removal or restoration work required
by any federal, state or local governmental agency or
political subdivision because Material present in the soil
or ground water on or under the Demised Premises, the
Building and/or adjacent property caused by Tenant. Without
limiting the foregoing, if the presence of any Hazardous
Material on the Demised Premises, caused either directly or
indirectly by Tenant or any of the Tenant Parties, results
in any contamination of the Demised Premises, the Building
and/or adjacent property, Tenant shall promptly take all
actions at its sole cost and expense (subject to the right
to recover against other responsible parties) as are
necessary to return as nearly as possible the contaminated
portion of the Demised Premises, the Building and/or
adjacent property to the condition existing prior to the
introduction of any such Hazardous Material to the Demised
Premises, the Building and/or adjacent property; provided
that Tenant shall not take any remedial action in or about
the Demised Premises or the Building, nor enter into any
settlement agreement, consent decree or other compromise
with respect to any claims relating to Hazardous Materials
in any way connected with the Demised Premises or the
Building, without first notifying Landlord of Tenant's
intention to do so and affording Landlord the opportunity to
appear, intervene or otherwise appropriately assert and
protect Landlord's interest with respect thereto.
c. Landlord shall not cause or permit any Hazardous Materials
(other than the types and quantities which are customarily
used by other landlords in high-rise office buildings in the
central business district of Denver, Colorado) to be brought
upon, kept, stored, generated, treated, manufactured,
produced, disposed of, discharged, released, spilled or used
in, on or about the Demised Premises and Building by
Landlord or Landlord's affiliates, authorized agents,
employees or contractors. Notwithstanding the foregoing,
Landlord may use Hazardous Materials to the extent customary
for the operation of Landlord's use of the Building;
provided that Landlord may use such Hazardous Materials only
if used and disposed of in accordance with manufacturers'
specifications, if any, and all applicable laws.
d. As used in this Lease, the term "Hazardous Materials Laws"
means any requirement of federal, state, or local law, civil
or
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criminal, or regulation, relating to air quality, surface
water quality, ground water quality, soil solid waste
management, hazardous or toxic substances, or the protection
of health or the environment, including by way of
illustration and not of limitation: the Clean Air Act
("CAA"), 42 U.S.C. (S) 7401, et seq., its regulations and
-- ---
equivalent or similar state statute and regulations; the
Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. (S)
1251, et seq., its regulations and equivalent or similar
-- ---
state statute and regulations; the Resource Conservation and
Recover Act ("RCRA"), 42 U.S.C. (S) 6901, et seq., its
-- ---
regulations and equivalent or similar state statute and
regulations; the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S)
9601, et seq., its regulations and equivalent or similar
-- ---
state statute and regulations; the Toxic Substances Control
Act ("TSCA"), 15 U.S.C. (S) 2601, et seq., its regulations
-- ---
and equivalent or similar state statute and regulations; the
Oil Pollution Act, 33 U.S.C. (S) 2701, et seq., its
-- ---
regulations and equivalent or similar state statute and
regulations; the Emergency Planning and Community Right-to-
Know Act ("EPCRA"), 42 U.S.C. (S) 1101, et seq., its
-- ---
regulations and equivalent or similar state statute and
regulations; the Pollution Prevention Act, 42 U.S.C. (S)
1301, et seq., its regulations and equivalent or similar
-- ---
state statute and regulations; the Hazardous Material
Transportation Act ("HMTA"), 49 U.S.C. Ap. (S) 1471, its
regulations and equivalent or similar state statute and
regulations; the Safe Drinking Water Act ("SDWA"), 42 U.S.C.
(S)(S) 300(f) through 300(j), its regulations and equivalent
or similar state statute and regulations; and all
corresponding Colorado statutes and regulations; including
any retroactive amendments or extensions thereof in effect
on the date hereof.
e. As used in this Lease, the term "Hazardous Material" means
any flammable item, explosive, radioactive material,
hazardous or toxic substance, material or waste or related
materials, included in the definition of "hazardous
substances", "hazardous wastes", "infectious wastes",
"hazardous materials", "toxic substances," "biomedical
waste," "biohazardous waste," or "sharps waste" now or
subsequently regulated under any Hazardous Materials Laws.
f. Tenant immediately shall notify Landlord in writing of: (i)
any spill, release, discharge or disposal of any Hazardous
Material in, on, under, around or about the Demised
Premises, the Building or any portion thereof caused by
Tenant and of which Tenant has knowledge; (ii) any
enforcement, cleanup, removal or other
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governmental or regulatory action instituted, contemplated,
or threatened against Tenant pursuant to any Hazardous
Materials Laws and relating to the Demised Premises or the
Building of which Tenant has knowledge; (iii) any claim made
or threatened by any person against Tenant, any of the
Tenant Parties and relating to the Demised Premises, or the
Building relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from or claimed to
result from any Hazardous Materials of which Tenant has
knowledge; and (iv) any reports made by Tenant to any
governmental agency or entity arising out of or in
connection with any Hazardous Materials in, on, under,
around or about or removed from the Demised Premises or the
Building of which Tenant has knowledge, including any
complaints, notices, warnings, reports or asserted
violations in connection therewith. Tenant also shall supply
to Landlord as promptly as possible, and in any event within
five (5) business days after Tenant first receives or sends
the same, copies of all claims, reports, complaints,
notices, warnings or asserted violations relating in any way
to the Demised Premises, the Building or the use or
occupancy thereof by Tenant or any of the Tenant Parties.
Upon any termination of this Lease, whether by lapse of
time, cancellation pursuant to an election provided for
herein, forfeiture or otherwise, Tenant shall immediately
surrender possession of the Demised Premises (and all
improvements to the Demised Premises which Tenant is not
required to remove from the Demised Premises pursuant to
this Lease) to Landlord free of any Hazardous Material
placed on the Premises by Tenant or Tenant Parties and any
cleanup or disposal of Hazardous Materials shall be done in
compliance with all Hazardous Materials Laws.
g. Any failure of Tenant to comply with the provisions of this
Section 11.4 shall be a material default under this Lease
enabling Landlord to exercise any of the remedies set forth
in this Lease.
h. The provisions of this Section 11.4 shall survive the
expiration or earlier termination of the Lease Term.
ARTICLE XII
-----------
COMPLIANCE WITH INSURANCE REQUIREMENTS
AND CERTIFICATE OF OCCUPANCY
12.1 Neither Landlord nor Tenant shall do or permit to be done any act
or thing about in or upon the Building or the Demised Premises within its
reasonable control which will invalidate or be in conflict with the Final
Inspection Approval Certificate or the
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terms of the State of Colorado standard form of fire insurance policies covering
the Building and the fixtures and property therein, excluding Tenant's trade
fixtures and personal property in the Demised Premises. Both parties shall, at
their own expense, comply with all rules, orders, regulations or requirements of
the National Fire Protection Association or any other similar body having
jurisdiction, and neither shall knowingly do or permit, if within its reasonable
control, to be done about, in or upon the Building or the Demised Premises or
bring or keep anything therein or use the same in a manner which increases the
rate of fire insurance upon the Building or on any property or equipment located
therein, including property or equipment located in the Demised Premises.
Notwithstanding the foregoing requirements of this Section 12.1, if the adverse
consequences to one party of non-compliance by the other party with such
requirements are limited to an increase in rate of fire and extended coverage
insurance carried by the party in compliance, non-compliance shall not
constitute a breach of this Lease, but either Section 12.2 or 12.3 below will
apply.
12.2 If any installation in or use of the Demised Premises by Tenant
increases the rate for fire insurance (with extended coverage) on the Building
or on the property and equipment of Landlord, Tenant shall reimburse Landlord
for that part of the fire insurance premiums thereafter paid by Landlord which
shall have been charged because of such installation or use by Tenant, and
Tenant shall make the reimbursement on the first day of the month following
receipt of notice given by Landlord that it has been required to pay and has
paid such higher rate, subject to Tenant's right to contest the increase.
12.3 If, by reason of the action of Landlord in violation of this
Lease, Tenant's rate for fire insurance (with extended coverage) on Tenant's
property and equipment in the Demised Premises shall be higher than it otherwise
would be, Landlord shall reimburse Tenant for that part of Tenant's premiums for
fire insurance (with extended coverage) thereafter paid by Tenant which shall
have been charged because of such action. Landlord shall make such reimbursement
on the first day of the month following the receipt of notice given by Tenant
that it has been required to pay and has paid such higher rate.
ARTICLE XIII
------------
OBSERVANCE OF RULES AND REGULATIONS AND
COVENANT OF QUIET ENJOYMENT
13.1 Tenant, its servants, employees, agents, visitors and licensees
shall observe faithfully and comply strictly with the Rules and Regulations set
forth in EXHIBIT D, attached hereto and made a part hereof; provided, however,
that Landlord shall enforce the same in a uniform and nondiscriminatory manner
as to all office tenants in the Building. Landlord shall have the right to make
reasonable changes in and additions to the Rules and Regulations thus set forth;
provided such changes and additions do not unreasonably affect or materially and
adversely interfere with the
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conduct of Tenant's business in the Demised Premises or which are materially
inconsistent with this Lease.
13.2 Any prior failure by Landlord to enforce any Rules and
Regulations now or hereafter in effect, either against Tenant or any other
tenant in the Building, shall not constitute a waiver of Landlord's right to
enforce uniformly any such Rules and Regulations at a future time.
13.3 Landlord covenants that upon Tenant's paying the Annual Base Rent
and additional rent and observing and performing all the terms, covenants, and
conditions of this Lease on its part to be observed and performed, Tenant shall
be entitled to peaceably and quietly enjoy the Demised Premises without
unreasonable interference by Landlord, subject, nevertheless, to the terms and
conditions of this Lease.
ARTICLE XIV
-----------
LIABILITY INSURANCE; EXCULPATION OF LANDLORD AND TENANT
14.1 Except as otherwise provided in this Lease, Landlord shall not be
liable for any personal injuries occurring in the Demised Premises or for damage
or injury to personal property of Tenant, or of any other person, done or
occasioned by or from electric wiring, plumbing, dampness, water, gas, steam, or
other pipes, or sewage, or the failure of the air-conditioning or refrigeration
system, or the breaking of any electric wire, the bursting, leaking, or running
water from any tank, washstand, water closet, or waste pipe, sprinkler system,
radiator or any other pipe in, above, upon or about the Demised Premises, or
which may at any time hereafter be placed herein; or for any such personal
injury or property damage occasioned by fire, explosion, falling plaster,
electricity smoke, or water, snow, or ice being upon or coming through from the
street, roof, subsurface, skylight, trapdoor, or windows; or for any damages or
injuries to persons or property arising from acts or neglect of any tenant or
occupant of the Building, or of any owners or occupants of adjacent or
contiguous property; or for the loss or theft of any property of Tenant however
occurring, including loss of property entrusted to employees of Landlord;
provided, however, that Landlord shall be liable for such of all or any of the
foregoing as may be due to Landlord's or its employees, agents and contractors
negligence or willful misconduct or breach of its representations or obligations
under this Lease; provided further, that in the event that Tenant shall suffer
any loss or be subjected to any liability as a result of any of the foregoing,
and the same shall have been caused by or is alleged to have resulted from any
architect, engineer, contractor or other third party against whom Landlord shall
have right of recovery if it shall suffer similar loss, Landlord shall be liable
to Tenant for all of Tenant's losses so suffered, but only to the extent that
Landlord shall be successful in recovering such losses from such third party or
parties (or its or their liability insurer) by way of claim or suit instituted
at Tenant's request.
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14.2 Section 14.1 shall not be construed to impose upon Landlord or
Tenant any liability as to which rights of subrogation have been waived under
Section 14.7 of this Lease.
14.3 Landlord's Property Insurance. Landlord shall secure and maintain
"all risk" property insurance on the Building for full replacement cost of the
Building and the initial tenant improvements. Landlord shall not be obligated to
insure any furniture, equipment (including Tenant's emergency generator,
satellite dish and auxiliary HVAC system), trade fixtures, machinery, goods or
supplies which Tenant may lease or maintain in the Demised Premises, or any
addition or improvement which Tenant may make upon the Demised Premises after
the construction of the initial tenant improvements. In addition, Landlord shall
secure and maintain rental income insurance. Landlord may (subject to a showing
of adequate financial responsibility to cover the amount of self-insurance)
elect to self-insure for the coverages required under this Article; provided,
that Landlord and its constituent partners shall be liable to the extent it
self-insures for the coverages and limits set forth as Landlord's obligation in
this Lease. If the annual cost to Landlord for such property or rental income
insurance exceeds the standard rates because of the nature of Tenant's
operations, Tenant shall, upon receipt of appropriate invoices, reimburse
Landlord for such increases in cost.
14.4 Liability Insurance.
(a) Tenant (with respect to the Demised Premises and its
negligence in the Common Areas of the Building) shall secure and maintain, at
its own expense, a policy or policies of Commercial General Liability Insurance
protecting Tenant and naming Landlord and Landlord's representatives (which
term, whenever used in this Article XIV, shall be deemed to include the
following: Landlord's agents and employees; the State of California Public
Employees' Retirement System and its agents, employees, trustees, officers,
directors, property manager, and advisors; which are currently the Galbreath
Company and LaSalle Advisors Limited) as additional insureds against claims for
bodily injury, personal injury, advertising injury and property damage based
upon, involving or arising out of the Tenant's use, occupancy or maintenance of
the Demised Premises and its negligence in the Common Areas of the Building.
Such insurance shall afford a combined single limit of not less than One Million
Dollars ($1,000,000) per occurrence and aggregate of Two Million Dollars
($2,000,000). The coverage required to be carried shall include blanket
contractual liability, personal injury liability (libel, slander, false arrest
and wrongful eviction), and broad form property damage liability and the policy
shall contain an exception to any pollution exclusion which insures damage or
injury arising out of heat, smoke or fumes from a hostile fire. Such insurance
shall be written on an occurrence basis and contain a standard separation of
insureds provision. Tenant shall secure and maintain at its expense business
auto liability insurance which insures against bodily injury and property damage
claims arising out of the ownership, maintenance and use of any business or
hired auto with a minimum combined single limit per accident of One Million
Dollars ($1,000,000). In addition,
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<PAGE>
Tenant shall secure and maintain workers' compensation and employer's liability
insurance with limits as may be required by applicable law. Tenant shall also
secure and maintain umbrella excess liability insurance on an occurrence basis
excess of the required Commercial General Liability Insurance, business auto
liability and employer's liability policies, which insures against bodily
injury, property damage, personal injury and advertising injury claims, arising
out of Tenant's use maintenance of the Demised Premises and Tenant's negligence
in the Common Areas of the Building, with a combined single limit of not less
than Five Million Dollars ($5,000,000) per occurrence and an annual aggregate of
Five Million Dollars ($5,000,000). Tenant's general and umbrella liability
insurance required to be maintained by Tenant under this Lease shall name
Landlord and its representatives as additional insureds. Tenant shall provide
Landlord with a certificate evidencing such insurance coverage. To the extent of
Tenant's obligation under this Lease to indemnify and hold Landlord harmless,
Tenant's insurance shall be primary to and not contributory with any other
insurance available to Landlord, whose insurance shall be considered excess
insurance only; provided, that the foregoing shall apply to the Tenant's use,
occupancy and maintenance of the Demised Premises and its negligence in the
Common Areas of the Building. Not more frequently than every three years, if, in
the reasonable opinion of any mortgagee of Landlord or of the insurance broker
retained by Landlord, the amount of liability insurance coverage at that time is
not consistent with coverage required of similar tenants in the Building, then
Tenant shall increase its liability insurance coverage as required by either any
mortgagee of Landlord or Landlord's insurance broker.
(b) Landlord (with respect to the Building and Common Areas)
shall secure and maintain Commercial General Liability Insurance for at least
the minimum coverage described in Section 14.4(a), but not less than that
carried by comparable high-rise office building in downtown Denver, Colorado.
Subject to the conditions set forth in Section 14.3, Landlord may elect to self-
insure for this coverage. Tenant shall be named as an additional insured on any
liability insurance policy required to be maintained by Landlord under this
Lease for liability resulting from Landlord's negligence in the Common Areas of
the Building. Except to the extent liability results from Tenant's negligence in
the Common Areas of the Building, the Landlord's insurance covering the Building
and the Common Areas shall be primary to and not contributory with any other
insurance available to Tenant, whose insurance shall be considered excess
insurance only. Upon Tenant's request, Landlord shall provide Tenant with
evidence of insurance in the form of a certificate showing that Tenant is
included as an additional insured on Landlord's general liability insurance
required to be maintained by Landlord under this Lease.
14.5 Tenant's Insurance.
(a) Tenant shall secure and maintain, at Tenant's expense, "all
risk" property insurance on all of Tenant's fixtures and personal property in
the Demised Premises and, except to the extent the Landlord is required to cover
the initial tenant
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<PAGE>
improvements, on any improvements or alterations, additions or improvements made
by Tenant, upon the Demised Premises all for the full replacement cost thereof.
Tenant shall use the proceeds from such insurance in such manner as it
reasonably determines is necessary to restore its operation in the Demised
Premises. Tenant shall provide Landlord with certificates of all such insurance.
The property insurance certificate shall confirm that the waiver of subrogation
required to be obtained pursuant to Section 14.8 is permitted by the insurer.
Tenant shall, at least fifteen (15) days prior to the expiration of any policy
of insurance required to be maintained by Tenant under this Lease, furnish
Landlord with an "insurance binder" or other satisfactory evidence of renewal
thereof.
(b) All policies required to be carried by Tenant or Landlord
hereunder shall be issued by and binding upon an insurance company licensed to
do business in the State of Colorado with a rating of at least A-:VIII, as set
forth in the then most current issue of "Best's Insurance Reports." Neither
Landlord nor Tenant shall do or permit anything to be done that would invalidate
the insurance policies referred to in this Article XIV. Evidence of insurance
provided to Landlord by Tenant shall include an endorsement showing that
Landlord and its representatives are included as additional insureds on the
Tenant's general liability insurance required to be maintained by Tenant under
this Lease, and an endorsement whereby the insurer agrees not to cancel, non-
renew or reduce coverage of the policy without at least thirty (30) days prior
written notice to Landlord and its representatives.
(c) In the event that Tenant fails to provide evidence of
insurance required to be provided by it hereunder, prior to commencement of the
Term, and thereafter during the Term, within fifteen (15) days following receipt
of the Landlord's written request therefor, and fifteen (15) days prior to the
expiration date of any such coverage, the Landlord shall be authorized (but not
required) to procure such coverage in the amounts stated with all costs thereof
(plus a fifteen percent [15%] administrative fee) to be chargeable to the Tenant
and payable upon written invoice therefor. Tenant agrees to provide the Landlord
within fifteen (15) days after its request in writing with a certificate
evidencing the insurance required to be provided under this Lease.
(d) The limits of insurance required by this Lease, or as
carried by Landlord or Tenant, shall not limit the liability of the other nor
relieve either of any obligation hereunder.
14.6 Self-Insurance.
(a) Landlord. As long as Hamilton Oil Building Partnership
(including its constituent partners) is the Landlord under this Lease and
Landlord has and maintains a net worth (as determined by generally accepted
accounting principles, consistently applied) of at least One Hundred Million
Dollars ($100,000,000), Landlord shall be entitled to satisfy its insurance
requirements under this Article XIV pursuant to a program of self-insurance. Any
such self-insurance program at all times must satisfy
34
<PAGE>
all of the requirements of this Article XIV, must contain all of the terms and
conditions of the policies Landlord is required to carry under this Lease,
including without limitation the amount of protection and a full waiver of
subrogation and must provide not less than the level of protection which would
be provided by an independent insurer with a "General Policyholder Rating" of at
lease A-VIII as set forth on the most recent "Best Insurance Guide." If Landlord
elects to so self-insure, it shall notify Tenant at least forty-five (45) days
before it intends for the self-insurance to begin and shall furnish with the
notice written evidence reasonably acceptable to Tenant that it then satisfies
the above net-worth requirement ("Evidence of Net Worth") and a copy of the
self-insurance program ("Self-Insurance Program"). When these requirements are
satisfied and the self-insurance election takes effect, and as long thereafter
as such net worth requirement is satisfied and the election remains in effect,
the Self-Insurance Program shall satisfy Landlord's insurance obligations under
this Section. Upon request (but not more often than once a year), Landlord shall
furnish Evidence of Net Worth to Tenant showing that it continues to satisfy the
above net worth requirement. If Landlord elects and is entitled to so self-
insure, then with respect to any claims which may arise or result from incidents
occurring during the Lease Term, such self-insurance obligations shall survive
the expiration or earlier termination of this Lease to the same extent as the
required independent insurance would survive. If after becoming self-insured,
the Landlord wants to terminate the Self-Insurance Program, or if it no longer
satisfies the requirements of this Section, or if it fails to provide the
required Evidence of Net Worth, it shall promptly notify Tenant and comply with
the requirements of this Section. This option to self-insure shall not apply to
an assignee or successor of Landlord unless it satisfies all the requirements of
this Section.
(b) Tenant. As long as Tenant (including its successors and
assigns) is the Tenant under this Lease and Tenant has and maintains a net worth
(as determined by generally accepted accounting principles, consistently
applied) of at least One Hundred Million Dollars ($100,000,000), Tenant shall be
entitled to satisfy its insurance requirements under this Article XIV pursuant
to a program of self-insurance. Any such self-insurance program at all times
must satisfy all of the requirements of this Article XIV, must contain all of
the terms and conditions of the policies Tenant is required to carry under this
Lease, including without limitation the amount of protection and a full waiver
of subrogation and must provide not less than the level of protection which
would be provided by an independent insurer with a "General Policyholder Rating"
of at lease A-VIII as set forth on the most recent "Best Insurance Guide." If
Tenant elects to so self-insure, it shall notify Landlord at least forty-five
(45) days before it intends for the self-insurance to begin and shall furnish
with the notice written evidence reasonably acceptable to Landlord that it then
satisfies the above net-worth requirement ("Evidence of Net Worth") and a copy
of the self-insurance program ("Self-Insurance Program"). When these
requirements are satisfied and the self-insurance election takes effect, and as
long thereafter as such net worth requirement is satisfied and the election
remains in effect, the Self-Insurance Program shall satisfy Tenant's insurance
obligations under this Article XIV. Upon request (but not more often than once a
year), Tenant shall
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furnish Evidence of Net Worth to Landlord showing that it continues to satisfy
the above net worth requirement. If Tenant elects and is entitled to so self-
insure, then with respect to any claims which may arise or result from incidents
occurring during the Lease Term, such self-insurance obligations shall survive
the expiration or earlier termination of this Lease to the same extent as the
required independent insurance would survive. If after becoming self-insured,
the Tenant wants to terminate the Self-Insurance Program, or if it no longer
satisfies the requirements of this Article XIV, or if it fails to provide the
require Evidence of Net Worth, it shall promptly notify Landlord and comply with
the requirements of this Article XIV. This option to self-insure shall not apply
to an assignee or successor of Tenant unless it satisfies all the requirements
of this Section.
14.7 Indemnity and Exoneration.
(a) Except as otherwise provided in this Lease, Landlord shall
not be liable for any loss, injury or damage to person or property of Tenant,
Tenant's agents, employees, contractors, invitees or any other person occurring
in or about the Demised Premises unless caused by the negligence or willful
misconduct of Landlord or its employees, agents or contractors, or Landlord's
violation of this Lease, whether caused by theft, fire, act of God, acts of the
public enemy, riot, strike, insurrection, war, court order, requisition or order
of governmental body or authority or which may arise through repair or
alteration of any part of the Demised Premises or failure to make any such
repair except as expressly otherwise provided in Articles XV and XVII. Landlord
shall not be liable for any loss, injury or damage arising from any act or
omission of any other tenant or occupant of the Building, nor shall Landlord be
liable under any circumstances for damage or inconvenience to Tenant's business
or for any loss of income or profit therefrom (other than the negligence or
willful misconduct of Landlord, its employees, agents or contractors or
Landlord's violation of this Lease or as otherwise provided in this Lease).
(b) Tenant shall indemnify, protect, defend and hold the
Landlord and its representatives, harmless of and from any and all claims,
liability, losses, costs, damages, injury or expenses (including reasonable
costs, expenses and attorneys fees) arising out of or in any way related to or
resulting from the Tenant's use or occupancy of the Demised Premises, the
actions of Tenant, its agents, employees, or contractors in or about the Demised
Premises or their negligence in the Common Areas of the Building and any default
or breach by Tenant in the performance of any obligation of Tenant under this
Lease; provided, however, that the foregoing indemnity shall not be applicable
to claims arising as the result of the negligence or willful misconduct of
Landlord, or its representatives or to the extent the same is to be covered by
insurance to be maintained by Landlord under this Lease or to the extent the
same is caused by the Landlord's violation of this Lease.
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(c) Tenant shall indemnify, protect, defend and hold the
Landlord and its representatives, harmless of and from any and all claims,
liability, losses, costs, damages, injury or expenses (including costs, expenses
and attorneys' fees) arising out of or in any way related to or resulting from
work or labor performed, materials or supplies furnished to or at the request of
Tenant or in connection with obligations incurred by or performance of any work
done for the account of Tenant in the Demised Premises.
14.8 Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant each waives all rights of recovery, claim,
action or cause of action against the other, its agents (including partners,
both general and limited), trustees, officers, directors, and employees, for any
loss or damage that may occur to the Demised Premises, or any improvements
thereto, or the Building or any personal property of such party therein, by
reason of any cause required to be insured against under this Lease, regardless
of cause or origin, including negligence of the other party hereto; and each
party covenants that, to the fullest extent permitted by law, no insurer shall
hold any right to subrogation against such other party with respect to any
property insurance carried under this Lease or with respect to the Building.
Landlord and Tenant shall advise their respective insurers of the foregoing and
such waivers shall be permitted under any property insurance policy maintained
by Landlord and Tenant.
ARTICLE XV
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DAMAGE BY FIRE OR OTHER CASUALTY
15.1 Anything in this Lease to the contrary notwithstanding, if the
Demised Premises or the Building should be partially or totally damaged or
destroyed by fire or other casualty insurable under a standard form policy of
fire and extended coverage insurance (including vandalism and malicious
mischief) or by insurance carried or required to be carried by Landlord then, if
this Lease shall not have been canceled in accordance with the provisions
hereinafter made in this Article XV, Landlord will, with reasonable dispatch
after notice to it of the damage or destruction, repair the damage, and replace,
restore, and rebuild the Demised Premises and the Building at its sole cost and
expense. Landlord will commence and diligently pursue such repair, replacement,
restoration, or rebuilding within ninety (90) days after the occurrence provided
that it has knowledge of the damage or destruction. As used herein, the term
"commence such repair" shall include Landlord's act in contacting architects,
engineers and others to begin the planning process for the repair. Landlord
shall not be required by this Section to repair, replace, restore, or rebuild
any property which Tenant shall, under the provisions of Article VIII above, be
entitled to remove from the Demised Premises, it being agreed that Tenant shall
bear the entire risk of loss, damage, or destruction of such property while it
is on the Demised Premises.
15.2 If the Building or the Demised Premises shall be partially
damaged or partially destroyed, the rent payable under this Lease shall, to the
extent that the
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Demised Premises shall have been rendered unfit for use for Tenant's business
purposes, be abated for the period from the date of such damage or destruction
to the date that such damage or destruction shall be repaired or restored. If
the Demised Premises or a major portion thereof shall be totally or
substantially damaged or destroyed, or rendered completely or substantially
unfit for use for Tenant's business purposes because of fire or other casualty
as provided in Section 15.1, the entire rent shall, as of the date of the damage
or destruction, abate until Landlord shall repair, restore, replace, and rebuild
the Building and the Demised Premises; provided, however, that should Tenant
reoccupy a portion of the Demised Premises while the restoration work is taking
place and prior to the date that the entire Demised Premises are again made fit
for use for Tenant's business purposes, rent shall be apportioned and become
payable by Tenant in proportion to the part of the Demised Premises occupied by
it for the purpose of conducting its business, effective on the date that the
Tenant shall again begin conducting its ordinary business from the Demised
Premises or any portion thereof.
15.3 In the event that it appears from an estimate prepared by
Landlord's contractor that the required repairs, replacement, restoration, and
rebuilding cannot be accomplished within two hundred seventy (270) days from the
date of the damage or destruction, or that it appears improbable to Tenant that,
because of causes beyond Landlord's reasonable control, Landlord will not
complete the repairs and restoration within two hundred seventy (270) days from
the date of the casualty, Landlord and Tenant may each elect to terminate this
Lease. Tenant's election to terminate under this Section 15.3 shall only be
effective if Tenant has not previously notified Landlord under Section 15.1 to
commence repair or reconstruction and Landlord receives Tenant's written notice
of election to terminate within the later to occur of (i) ninety (90) days of
the date of damage or destruction; or (ii) forty-five (45) days after receipt by
Tenant of the contractor's estimate referred to above. Anything in this Lease to
the contrary notwithstanding, if Landlord has not completed within one (1) year
from the date of casualty all repairs, replacements, restoration, and rebuilding
required of Landlord under Section 15.1 above, Tenant may, at its option, cancel
this Lease by written notice to Landlord; provided, however, that said one (1)
year period shall be extended by the number of days (not to exceed 90 days) lost
in actual rebuilding as the result of labor strikes, acts of God, or other non-
monetary causes beyond the reasonable control of Landlord. If the Lease is not
terminated pursuant to the provisions of this Section 15.3, Landlord shall use
its reasonable efforts to rebuild and restore the Building and the Demised
Premises (including Tenant improvements substantially in accordance with the
plans and specifications for the initial tenant improvements to the extent the
Landlord is required to rebuild and restore) or such portion as may be destroyed
or damaged to a condition reasonably comparable to the condition existing
immediately prior to such damage, using materials and workmanship comparable in
quality to those incorporated into the Building and the Demised Premises before
the occurrence. Tenant shall have the right to review and approve (not to be
unreasonably withheld, delayed or conditioned) the plans and specifications for
any such repair work for the Demised
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Premises or any Common Areas used by Tenant on floors on which the Demised
Premises are located. During such repair or restoration, Landlord and Tenant
shall cooperate in good faith so as to allow Tenant access to the Demised
Premises as promptly as possible in order to facilitate the installation by
Tenant of any furniture, fixtures, wiring, etc.
15.4 In the event that the damage to the Building shall render
untenantable in excess of fifty percent (50%) of the Rentable Area of Building,
Landlord may, as soon as reasonably practicable and not more than ninety (90)
days of the casualty, by notice given to Tenant, elect not to repair or rebuild
the Building and this Lease shall thereupon terminate effective as of the date
of casualty. After receipt of such notice, Tenant shall vacate the Demised
Premises as quickly as is reasonably possible; provided, however, that Tenant
shall be entitled to occupy the Demised Premises or any part thereof without
liability to Landlord for as long as is reasonably necessary to salvage or
remove therefrom its personal property as provided in Article VIII above.
15.5 No damages, compensation, or claims shall be payable by Landlord
for inconvenience, loss of business, or annoyance arising from any repair or
restoration of any portion of the Demised Premises or of the Building required
to be made by Landlord under the provisions of this Article XV, but this Section
shall not be construed to limit the abatement of Tenant's rent in accordance
with Section 15.2 above. Landlord covenants with Tenant that it shall use its
best efforts to effect all such repairs promptly and in such manner as not
unreasonably to interfere with Tenant's occupancy if Tenant shall not have
vacated the Demised Premises or the portion thereof to be repaired because the
same shall have become untenantable.
ARTICLE XVI
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BANKRUPTCY; REMEDIES
16.1 If at any time prior to the Commencement Date or during the Term
of this Lease, Tenant files in any court pursuant to any statute either of the
United States or of any state a Petition in Bankruptcy or Insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant's property, or Tenant makes an assignment for the general
benefit of creditors (other than an assignment or corporate action referred to
in Section 7.1) which is not dismissed within ninety (90) days, this Lease shall
ipso facto be canceled and terminated and in such event neither Tenant nor any
person claiming through or under Tenant by virtue of any statute or any order of
any court shall be entitled to possession of the Demised Premises, and Landlord,
in addition to any other rights and remedies given by Section 16.3 and by virtue
of any other provision in this Lease or by virtue of any statute or rule of law,
may retain as liquidated damages any rent, security deposit, or monies received
by Landlord from Tenant or others on behalf of Tenant prior to Tenant's action
described above.
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16.2 In the event that at any time mentioned in Section 16.1 above, an
involuntary insolvency, bankruptcy, or reorganization proceeding shall be
instituted against Tenant, Tenant shall have one hundred sixty (160) days in
which to cause said proceeding to be vacated or dismissed after it receives
notice thereof. In the event Tenant fails to cause such proceeding to be vacated
or dismissed within such period of time after expiration of said 160-day period,
this Lease may be terminated by Landlord in which event neither Tenant nor any
person claiming through or under Tenant by virtue of any statute or any order of
any court shall be entitled to possession or to remain in possession of the
Demised Premises, but shall forthwith quit and surrender the Demised Premises,
and Landlord, in addition to the other rights and remedies given by Section 16.3
and by virtue of any other provision in this Lease or by virtue of any statute
or rule of law, may retain as liquidated damages any rent, security deposit, or
monies received by Landlord from Tenant or others on behalf of Tenant prior to
Tenant's action described above.
16.3 It is stipulated and agreed that in the event of the termination
of this Lease pursuant to Section 16.1 or 16.2 hereof, Landlord shall forthwith,
notwithstanding any other provisions of this Lease to the contrary, be entitled
to recover to the extent allowed by the Bankruptcy Court from Tenant as and for
liquidated damages an amount equal to the difference between the rent reserved
hereunder for the unexpired portion of the Term of this Lease and the rental
value of the Demised Premises at the time of termination (if lower than the rent
reserved) for the unexpired portion of the Term of this Lease, both discounted
at the then published rate of the 11th District Cost of Funds Index to present
worth. Nothing herein contained shall limit or prejudice the right of Landlord
to prove or obtain to the maximum allowed by any statute or rule of law in
effect at the time when, and governing the proceedings in which such damages are
to be proved, whether or not such amount be greater, equal to, or less than the
amount of the difference referred to above.
ARTICLE XVII
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CONDEMNATION
17.1 In the event of a total condemnation, this Lease and the Term and
estate hereby granted shall forthwith cease and terminate as of the date of
taking of possession for such use of purpose.
17.2 In the event that less than the whole or substantially the whole
of the Building or of the Demised Premises is condemned or taken as set forth in
Section 17.1 above, then this Lease shall remain in force and in effect;
provided, however, that if the taking shall so substantially interfere with the
Tenant's use of the Demised Premises as to render the continued operation
thereof economically unfeasible as reasonably determined by Landlord and Tenant,
then Landlord (whether or not the Demised Premises be affected) or Tenant may,
at their option, terminate this Lease and the Term
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and estate hereby granted as of the date of taking of possession for such use
and purchase by notifying the other in writing of such termination.
17.3 In the event that less than the whole or substantially the whole
of the Building or the Demised Premises be so condemned or taken, if the space
so taken is such that the area of the Demised Premises remaining after the
condemnation is such as to render continued operation of the Demised Premises
economically unfeasible as reasonably determined by Tenant, then Tenant may, at
its option, terminate the Lease and the Term and estate hereby granted as of the
day of the taking of possession for such use or purposes by notifying Landlord
in writing of such termination.
17.4 Upon any such taking or condemnation and the continuing in force
of this Lease as to any part of the Demised Premises, all rental shall be
diminished by an amount representing the part of the said rent properly
allocable to the portion of the Demised Premises which may be so condemned or
taken, and Landlord shall, at its expense, proceed with reasonable diligence to
repair, alter, and restore the remaining part of the Building and the Demised
Premises to substantially its former condition, due allowances being made for
the impact of such taking or condemnation.
17.5 Landlord shall be entitled to receive the entire award in any
condemnation proceeding, including any award for the value of any unexpired Term
of this Lease, and Tenant shall have no claim against Landlord or against the
proceeds of the condemnation. Nothing in this Lease shall be deemed or
construed to prevent Tenant from making a claim against the condemning authority
for relocation costs and for the value of or damages to any of Tenant's property
as described in Article VIII above, and for such business damages and/or
consequential damages as may be allowed Tenant by law at the time of the
condemnation. In the event the Landlord receives notice of any such
condemnation or intent to do so, the Landlord shall give Tenant prompt notice of
it and the nature of the taking.
17.6 Anything in this Article XVII to the contrary notwithstanding, if
the temporary use or occupancy of all or any part of the Demised Premises shall
be condemned or taken for five (5) or more days for any public or quasi-public
use by a public authority during the Term of this Lease, this Lease shall be and
remain unaffected by such condemnation or taking, and Tenant shall continue to
pay in full the rent, additional rent, and other sums payable hereunder by
Tenant, and Tenant shall have the right to appear, claim, prove, and receive so
much of the award for such taking as represents compensation for use and
occupancy of the Demised Premises up to and including the date of expiration of
the Term of this Lease or the date of termination of the temporary taking,
whichever is earlier, and Landlord shall be entitled to appear, claim, prove,
and receive the entire balance of the award. Each party shall cooperate fully
with the other in efforts to obtain any such award, and each claimant shall
indemnify and hold harmless the other party to the extent of expenses incurred
as a result of such cooperation.
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ARTICLE XVIII
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ELECTRICITY
18.1 Landlord shall furnish to the Demised Premises electricity during
Normal Business Hours for electrical outlets (120/208 volt three-phase) in an
amount equal to but not in excess of three (3) watts of NEC calculated load per
square foot of rentable area within the leased Premises and for ceiling lighting
(277/480 volt three-phase) in an amount equal to but not in excess of two (2)
watts of NEC calculated load per square foot of rentable area within the Demised
Premises. The cost of any electrical service consumed in the Demised Premises
(i) other than Normal Business Hours, and (ii) during Normal Business Hours but
exceeding .29 KWH per square foot of the Demised Premises per week (based upon
60 hours of operation per week) during each Public Service Company billing cycle
and 265 KW of peak energy demand during each Public Service Company billing
cycle shall be considered Excess Electricity and shall be paid pursuant to
Section 18.2 hereof; provided, however, that the Tenant shall receive a credit
on its Excess Electricity charges, if any, equal to the electricity cost for the
ceiling lighting in the Demised Premises for the period of time during which the
Demised Premises are being cleaned by the Building janitors. Nothing herein
shall be deemed to create any obligation of Landlord to provide electrical
equipment in excess of that provided pursuant to Landlord's Work or as expressly
set forth in this Article XVIII.
18.2 All of Tenant's electricity consumption within the Demised
Premises shall be separately metered to determine Tenant's total demand and
energy usage. Tenant shall pay Landlord for such Excess Electricity at
Landlord's cost for the corresponding month for the same per kilowatt hour (KWH)
and demand charge per KW without markup other than for Landlord's customary
administrative cost. Tenant's total electricity consumption shall be determined
by the Tenant's installation of permanent KWH and KW/demand meters (including
transmitters, wiring and hardware and software in order to connect Tenant's
meters to Landlord's energy management system) and billed at the same rate
including all energy cost, adjustments on all energy usage. Tenant shall pay
Landlord within twenty (20) days of receipt of Landlord's invoice for Tenant's
Excess Electricity consumption, including all applicable taxes that the Public
Service Company billed the Landlord for the same. Said invoices shall be deemed
to be and be paid as additional rent.
18.3 Landlord shall furnish electric current, fixtures, bulbs and
equipment for the lighting of the Demised Premises (to the extent it is building
standard) and to the Building lobbies, public corridors, public restrooms,
public elevator lobbies and other public portions of the Building, and shall
furnish electric current for the Building air-conditioning machinery, elevators,
escalators, and other Building equipment.
18.4 Landlord shall furnish Building standard lamps, bulbs, starters,
and ballasts used in the Demised Premises, and if installed by Landlord, Tenant
agrees to pay Landlord for the reasonable cost, expense, and installation of
non-building standard lamps, bulbs, starters and ballasts.
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18.5 Landlord shall not be liable or responsible to Tenant for any
loss or damage or expense which Tenant may sustain or incur without the fault of
Landlord if either the quantity or character of electric service is changed or
is no longer available or is no longer suitable for Tenant's requirements.
18.6 Tenant covenants and agrees that at all times its use of electric
current shall never exceed five (5) watts per rentable square foot or Tenant's
proportionate share of the capacity of existing feeders to the Building or the
risers or wiring installation without review and approval by Landlord. Any
riser or risers or wiring to meet Tenant's excess electrical requirements upon
written request of Tenant, will be installed by Landlord (at the sole cost and
expense of Tenant) if, in Landlord's sole judgment, the same are necessary and
will not cause permanent damage or injury to the Building or Demised Premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations, repairs or expenses, or interfere with or disturb
other tenants or occupants. Landlord represents that it has determined from a
review of Tenant's Space Plans dated February 13, 1997, that Tenant's initial
use of the Demised Premises and the electrical usage permitted to Tenant under
Section 18.1 will not result in a violation of this Section 18.6.
18.7 Tenant shall make no alteration or additions to the electric
equipment or installations without the prior written consent of Landlord in each
instance, and work shall be done by Landlord at Tenant's expense in accordance
with plans and specifications of Tenant to be submitted and approved by
Landlord.
ARTICLE XIX
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ENTRY
19.1 Subject to the requirements of Sections 19.2 and 19.3, Tenant
shall permit Landlord to erect, use, and maintain plumbing and electrical pipes,
conduits, and wires, and heating, ventilating, and air-conditioning ducts as
required in and through the Demised Premises; provided that the same are
installed and concealed behind the walls or ceiling of the Demised Premises, and
that installation is accomplished at such times and by such methods as will not
unreasonably interfere with the Tenant's use of the Demised Premises or damage
the appearance thereof.
19.2 Landlord or its agents or designees shall have the right to enter
the Demised Premises upon reasonable notice to Tenant and in a manner which will
not unreasonably interfere with Tenant's operation of its business in the
Demised Premises and presentation of adequate identification for the purpose of
making such repairs or alterations to such pipes, conduits, wires, or ducts as
may be required for the proper maintenance or operation of the Building;
provided that in each case such entry is made in a manner and at a time that
will result in the least interference with Tenant's use of the Demised Premises
and cause the least amount of damage to the appearance thereof, and provided
further that any such entry shall be subject to any requirements
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that Tenant deems it necessary to impose in order to protect the security of any
controlled-access area of the Demised Premises. The foregoing shall not be
construed to require Landlord to perform work on any pipes, conduits, wires, or
ducts in the Demised Premises at overtime rates unless Landlord's work within
the Demised Premises would unreasonably interfere with Tenant's day to day
conduct of its business therein.
19.3 Subject to Tenant's right to limit, for security and other
reasonable purposes, the quantity or identity of any material brought into or
upon the Demised Premises, Landlord shall be allowed, so long as it does not
unreasonably interfere with the operation of Tenant's business in the Demised
Premises, to take all material into and upon the Demised Premises that may be
required for the repairs or alterations described in Section 19.2 without the
same constituting an eviction of Tenant in whole or in part, and while said
repairs and alterations are being made the rent reserved shall not (except as
otherwise provided in this Lease) abate by reason of loss of or interruption of
the business of Tenant or because of the prosecution of any such work; provided,
however, that in making any such repairs or alterations, Landlord diligently
proceeds in such manner as to cause the least possible interference with
Tenant's use and enjoyment of the Demised Premises.
19.4 Subject to reasonable notice to Tenant and to such additional
security precautions as Tenant may deem necessary to impose, so long as it does
not unreasonably interfere with the operation of Tenant's business in the
Demised Premises, Landlord shall have the right to enter the Demised Premises
for the purpose of inspecting them for general condition and state of repair or
exhibiting them to prospective purchasers or lessees of the entire Land or
Building, or to prospective mortgagees of the Land or Building, of which the
Demised Premises are a part, or to prospective assignees of any such mortgagees.
The holder of any mortgage of the Landlord's interest in the property, its
agents or designees shall have the same right of entry for inspection as
Landlord.
19.5 During the three (3) months prior to the expiration of the Term
of this Lease, after reasonable notice and so long as it does not unreasonably
interfere with the operation of Tenant's business in the Demised Premises,
Landlord may exhibit the Demised Premises to prospective tenants. Tenant may
impose reasonable restrictions on this right for the purpose of maintaining the
security of any controlled-access areas in the Demised Premises.
19.6 If by virtue of any such work, the Demised Premises (or any
portion of it) becomes unusable by Tenant for Tenant's normal business purposes,
for more than five (5) consecutive business days (unless caused or requested by
Tenant or a governmental authority without Landlord's fault), Tenant shall be
afforded an abatement of rent, calculated in the manner described in Section
22.4, during the entire period of such interruption in Tenant's use of the
Demised Premises (or such portion of the
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Demised Premises). Except in the case of an emergency Tenant shall have the
right to require that Landlord be accompanied by a representative of Tenant
during any such entry, as long as a representative will be available for this
purpose on a timely basis.
ARTICLE XX
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RIGHT TO CHANGE PUBLIC PORTIONS OF THE BUILDING
20.1 At any time after the completion of the Building, Landlord shall
have the right to change the arrangement or location of such of the following as
are not contained within the Demised Premises or any part thereof: entrances,
signs, passageways, doors and doorways, corridors, stairs, toilets and other
like public service portions of the Building; providing, however, that in no
event shall Landlord change the arrangement or location of the elevators serving
the Demised Premises, make any change which shall diminish the area of the
Demised Premises, make any change which shall materially interfere with the
Tenant's access to or use of the Demised Premises from and through the Building,
or change the character of the Building from that of a first-class office
building.
ARTICLE XXI
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LANDLORD'S AND TENANT'S RIGHT TO PERFORM
21.1 If Tenant shall after notice as required in this Lease fail to
cure default in the observance or performance of any term or covenant on its
part to be observed or performed under or by virtue of any of the terms or
provisions in any article of this Lease, Landlord, without being under any
obligation to do so and without thereby waiving such default, may remedy such
default for the account and at the expense of Tenant, immediately and without
notice in case of emergency, or in any other case only provided that Tenant
shall fail to remedy such default with all reasonable dispatch after Landlord
shall have notified Tenant in writing of such default. If Landlord makes any
reasonable expenditures or incurs any obligations for the payment of money in
connection therewith including, but not limited to, attorney's fees in
instituting, prosecuting, or defending any action or proceeding, such sums paid
or obligations incurred, with interest and costs, shall be paid to it by Tenant.
ARTICLE XXII
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SERVICES, FACILITIES AND EQUIPMENT
22.1 In addition to the other services and utilities Landlord agrees
to provide under this Lease, Landlord agrees that it shall:
a. Furnish heating, ventilating and air-conditioning daily from
7:00 a.m. to 6:00 p.m.; Saturdays from 8:00 a.m. to 1:00
p.m.; Sundays and Holidays excepted; provided, that Tenant
may have
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after hours usage by prior arrangement with Landlord and
subject to Landlord's need to periodically interrupt
services and utilities for repair and maintenance.
b. Provide passenger elevator service (which may be
operatorless at Landlord's option) in common with others
daily from 7:00 a.m. to 6:00 p.m.; Saturdays, 8:00 a.m. to
1:00 p.m.; Sundays and Holidays excepted, and Landlord shall
use its reasonable efforts to have an elevator for Tenant's
use subject to call at all times when normal passenger
service is not furnished. Provide freight elevator service
in common with others daily from 8:00 a.m. to 6:00 p.m.,
Saturdays, Sundays and Holidays excepted.
22.2 Landlord shall, with respect to the entire Demised Premises:
a. Whenever heat-generating machines or equipment are used in
the Demised Premises which materially and adversely affect
the temperature outside the Demised Premises (provided that
Tenant takes responsibility for the heat effecting its
Demised Premises) otherwise maintained by the air-
conditioning system, Landlord reserves the right, at its
option and after having given Tenant written notice thereof
and a reasonable time within which to cure the problem,
either to require Tenant to discontinue use of such heat-
generating machines or equipment or to install supplementary
air-conditioning equipment in the Demised Premises, and the
cost of such installation shall be paid by Tenant to
Landlord promptly on being billed therefor, and the cost of
operation and maintenance of said supplementary equipment
shall be paid by Tenant to Landlord on the monthly rent
payment dates at such rates as may be agreed upon, but in no
event at the rate less than Landlord's actual cost therefor
of labor, all utilities and other inherent costs.
b. Provide hot water at standard building temperatures and cold
water for drinking, lavatory and toilet purposes, and the
existing kitchen and shower, drawn through fixtures
installed by Landlord. If Tenant requires, uses or consumes
water for any other purpose, Tenant agrees, after written
notice from Landlord, to Landlord's installing a meter or
meters and to pay for the installation and maintenance of
said meter equipment. Tenant shall reimburse Landlord for
the cost of all excess water consumed, as measured by said
meter or meters.
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c. Keep the Building and the adjoining plazas, sidewalks,
curbs, driveways, and entrance and public areas clean and in
good condition, free of accumulation of dirt and rubbish
and, as necessary, remove snow and ice therefrom.
d. Provide janitor and cleaning service on business days in and
about the Demised Premises, and in all public portions of
the Building, which services, without limitation, shall be
at least equal to those then being rendered in other
comparable non-institutional first-class office buildings
located in Denver, Colorado.
e. Should Tenant require special cleaning service, heating,
ventilating or air-conditioning services in addition to
those Landlord is required by this Lease to provide without
a special charge to Tenant, Landlord shall, (upon reasonably
advance notice by Tenant and to the extent, where
applicable, such services are available without overloading
facilities in the Building providing such services) furnish
such additional service, and Tenant agrees to pay to
Landlord with the next installment of rent after being
billed therefor as additional rent, Landlord's cost of
labor, materials, utilities and other inherent costs. It is
agreed that such costs shall not be included in the
definition of Operating Expenses.
f. Landlord does not warrant that any of the services referred
to above or any other services which Landlord may supply
will be free from interruption. Tenant acknowledges that any
one or more such services may be suspended by reason of
causes beyond the reasonable control of Landlord and any
such interruption of service shall never be deemed an
eviction or disturbance of Tenant's use and possession of
the Demised Premises or any part thereof or render Landlord
liable to Tenant for damage by abatement of rent or
otherwise, or relieve Tenant from performance of Tenant's
obligations under this Lease. Landlord agrees to use
reasonable care and exercise due diligence with respect to
avoiding interruption of the services above provided for
and, if interrupted, agrees that it will be for as short a
period as possible, and all repairs will be promptly and
diligently made at such times as will not unduly interfere
with the occupancy and use of the Demised Premises by
Tenant.
22.3 Tenant shall reimburse Landlord for the Landlord's cost of
removal from the Demised Premises and the Building of so much of any refuse and
rubbish of Tenant
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as shall exceed that ordinarily accumulated in the routine of Tenant's permitted
use of the Demised Premises. Should Tenant create wet trash, Tenant shall
reimburse Landlord for Landlord's cost of removal.
22.4 Notwithstanding the foregoing, if any failure to provide any
utilities or Building Services required of Landlord under this Lease is due to
the fault of or within the reasonable control of Landlord and such failure shall
continue for five (5) consecutive business days or more, and provided such
failure to provide the required utilities and Building Services reasonably
causes Tenant not to occupy all or any portion of the Demised Premises then
occupied by Tenant for the conduct of its business operations, then rent shall
be abated hereunder at the rate of one day's rent for each day thereafter of
such interruption and Tenant's inability to occupy; provided, that in the event
Tenant can or does occupy some, but not all of the Demised Premises for that
reason during such interruption, the abatement afforded Tenant shall be a
proportion of daily rent equal to a fraction, the denominator of which is the
rentable area of the Demised Premises and the numerator of which is the rentable
area of the portion of the Demised Premises that cannot be or is not reasonably
occupied by Tenant during such interruption for that reason. If any failure to
provide utilities or Building Services required hereunder is not within
Landlord's control (e.g., force majeure delay) and is covered under Landlord's
rental interruption insurance, and if any such failure continues for seven (7)
consecutive business days and such failure causes Tenant not to occupy all or
any portion of the Demised Premises, then rent shall be abated for the entire
period of such interruption in the manner set forth above until such services
are restored.
ARTICLE XXIII
-------------
SIGNS AND GLASS
23.1 Except as provided in Section 23.4, Tenant shall not install any
sign or advertising or publicity device in any public area, on any roof, on any
window, or on any outside portion of the Building. Tenant may install an
identification sign within or adjacent to the entrance of the Demised Premises
providing that any sign on a floor on which Tenant does not lease the full floor
shall be subject to the prior written approval of Landlord and shall conform to
the graphic standards of the Building.
23.2 Tenant shall replace, at its expense, any and all broken interior
glass, including plate glass partitions and doors, in the Demised Premises
unless caused by Landlord, its employees, agents or contractors.
23.3 Landlord shall maintain in the lobby of the Building, a directory
board which shall include the names of the Tenant and any other names reasonably
requested by Tenant in proportion to the number of listings given to other
tenants of the Building.
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ARTICLE XXIV
------------
PRIME LEASE AND SUBORDINATION
24.1 The leasehold estate created by this Lease constitutes a sublease
of a portion of the premises demised to Landlord, as Lessee, by instruments
dated and recorded in the lease records of Denver County, Denver, Colorado, as
follows: instrument dated September 6, 1982, filed in Lease Record volume 2666,
----------------- ----
Page 550 on October 5, 1982. Such instrument shall be referred to under this
--- ---------------
Lease as the "Prime Lease." This Lease and all of Tenant's rights hereunder are
and shall be subject and subordinate to the Prime Lease, the rights of all
parties under the Prime Lease. In confirmation of such subordination and subject
to Tenant's approval as to form (which approval shall not be unreasonably
withheld), Tenant shall execute and deliver promptly a subordination certificate
that Landlord or its successors in interest may request. Landlord agrees within
forty-five (45) days after the execution of this Lease, it shall obtain for
Tenant's benefit a nondisturbance agreement and estoppel certificate from the
Prime Lease Lessor in a form reasonably acceptable to Tenant and the Prime Lease
Lessor.
24.2 Landlord agrees that it shall refrain from doing any act or
failing to do any act (including without limitation failure to exercise
Landlord's rights of renewal as Lessee under the Prime Lease) which action or
non-action would cause the Prime Lease to be terminated or to expire prior to
the Term of this Lease, including all renewals hereof, if any, while the same
may be exercised by Tenant. Landlord covenants that it will save, indemnify and
hold harmless Tenant from any disturbance of Tenant's possession of the Demised
Premises in accordance with the terms and conditions of this Lease as a result
of termination or expiration of the Prime Lease or foreclosure of any mortgage
to which this lease is subordinate, except to the extent that such termination,
expiration, or foreclosure shall be attributable directly to the default of
Tenant under any of the covenants of this Lease.
24.3 This Lease and all rights of Tenant hereunder are subject and
subordinate to any mortgage or mortgages, blanket or otherwise, which do now or
may hereafter affect the real property of which the Demised Premises form a part
and to any and all renewals, modifications, consolidations, replacements and
extensions thereof. It is the intention of the parties that this provision be
self-operative and that no further instrument shall be required to effect such
subordination of this Lease other than a nondisturbance agreement signed by each
mortgagee which is reasonably acceptable to Tenant (which shall be a condition
of any written subordination). Landlord agrees that within forty-five (45) days
after the execution of this Lease, it shall obtain for Tenant's benefit a
nondisturbance agreement from the holder of the deed of trust on the Building in
a form reasonably acceptable to Tenant and the holder of the deed of trust.
Tenant shall, however, upon demand at any time or times execute, acknowledge,
and deliver to Landlord without expense to Landlord, instruments reasonably
acceptable to Tenant that may be necessary or proper to subordinate this Lease
and all rights of Tenant
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hereunder to any such mortgage or mortgages or to confirm or evidence said
subordination. Tenant covenants and agrees, in the event any proceedings are
brought for the foreclosure of any such mortgage, to attorn to the purchaser
upon any such foreclosure sale, if so requested to by such purchaser at any
time, and to recognize such purchaser as the lessor under this Lease, subject to
the performance of Landlord's obligations under this Lease after the date of
such sale and the provisions of the nondisturbance agreement. Tenant agrees to
execute and deliver at any time and from time to time, upon the request of
Landlord or of any holder such mortgage or for such purchaser, any instrument
which, in the reasonable judgment of such requesting party, may be necessary or
appropriate in any such foreclosure proceeding or otherwise to evidence such
attornment. Tenant further waives the provisions of any statute or rule of law,
now or hereafter in effect, which may give or purport to give Tenant any right
or election to terminate or otherwise adversely affect this Lease and the
obligation of Tenant hereunder in the event any such proceeding is brought,
prosecuted or completed, as long as the new owner performs the Landlord's
obligations under this Lease from and after the date it acquires the Building.
24.4 Anything in this Article XXIV to the contrary notwithstanding, if
the Prime Lease shall be terminated by reason of default by Landlord thereunder
and subject to Tenant's receipt of a nondisturbance agreement from the Prime
Lease Lessor in a form reasonably satisfactory to Tenant, Tenant shall attorn to
the lessor under the Prime Lease (the "Lessor") and shall recognize the Lessor
under the Prime Lease as Tenant's Landlord under this Lease. Tenant shall, upon
request of the Lessor, execute and deliver any instrument reasonably requested
by the Lessor to evidence such attornment, and Tenant waives any right which it
may have by law to terminate this Lease or to surrender possession of the
Demised Premises upon termination of the Prime Lease or upon institution of
proceedings by the Lessor to terminate the Prime Lease.
ARTICLE XXV
-----------
LANDLORD'S TITLE
25.1 Landlord represents that the Land upon which the Building is
erected is owned by the Prime Lease Lessor, and leased to Landlord under the
terms of the Prime Lease, which Landlord warrants is valid and in full force and
effect in accordance with its terms. Landlord shall use its reasonable efforts
to obtain for Tenant's benefit a nondisturbance agreement from the Prime Lease
Lessor.
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ARTICLE XXVI
------------
RIGHTS OF HOLDER OF LEASEHOLD MORTGAGE IN THE
EVENT OF DEFAULT BY LANDLORD
26.1 In the event of any default by act or omission by Landlord which
would give Tenant the right to terminate this Lease or to claim a partial or
total eviction, Tenant shall not exercise any such right until it has notified
in writing the holder of any mortgage which at the time shall be a first
mortgage lien on the Land or the Building (if the name and address of such
holder shall previously have been furnished by written notice to Tenant) of such
default, and until a reasonable period (not to exceed 60 days from the date the
mortgagee receives the notice) for curing default shall have elapsed following
the giving of such notice, during which period the holder shall have failed to
commence and diligently continued to cure such default or to cause the same to
be remedied or cured. During the period between the giving of such notice and
the curing of such default, the Annual Base Rent reserved under Article V, as
the same may be adjusted pursuant to Article VI, shall be abated and apportioned
to the extent that any part of the Demised Premises shall be untenantable.
ARTICLE XXVII
-------------
SURRENDER OF PREMISES
27.1 Tenant shall, upon the termination of this Lease in any manner
whatsoever, remove Tenant's goods and effects and those of any other person
claiming under Tenant, and quit and deliver up the Demised Premises to Landlord
peaceably and quietly in as good order and condition as the same are now or
hereafter may be improved by Landlord or Tenant, reasonable use and wear
thereof, casualty and condemnation damage, and repairs which are Landlord's
obligation excepted. Goods and effects not removed by Tenant at the expiration
of this Lease or its termination by Tenant (or within ten (10) business days
after a termination by Landlord) shall be considered abandoned and Landlord may
dispose of the same as it deems expedient, but Tenant shall promptly upon demand
reimburse Landlord for any expenses incurred by Landlord in connection with such
disposal.
27.2 Upon termination or expiration of this Lease, Tenant shall be
entitled to remove from the Demised Premises any and all property which it would
have been entitled to remove from time to time under the provisions of Article
VIII, provided that Tenant shall, upon removing any such property, repair all
damage (including holes in the drywall) to the Demised Premises or the Building
caused by such removal. If Tenant shall elect not to remove any of such
property and the same shall remain upon the Demised Premises or within the
Building at the time of surrender, the same shall from that time forward become
and remain the Landlord's property. Upon termination or expiration of this
Lease, Tenant shall remove all wiring and data cabling in the Demised Premises
and repair all damage to the Demised Premises caused by such removal.
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27.3 Tenant's obligation to observe or perform the covenants of this
Article shall survive the expiration or other termination of the Term of this
Lease.
ARTICLE XXVIII
--------------
EFFECT OF CONVEYANCE OR ASSIGNMENT BY LANDLORD
28.1 If Landlord shall convey, assign, or transfer this Lease to any
unaffiliated party, joint venture, or entity whatsoever, which assumes in
writing the Landlord's subsequent obligations under this Lease, Tenant shall
look to the purchaser, assignee, or transferee of Landlord's interest in this
Lease for the performance of Landlord's obligations hereunder, and Landlord
shall from and after such conveyance, assignment, or transfer be relieved and
discharged from any and all liabilities and obligations under this Lease which
arise after the transfer. Tenant agrees to attorn to any such purchaser,
assignee or transferee.
ARTICLE XXIX
------------
WAIVERS
29.1 Mutual Waivers of Jury Trial and Certain Damages. The Tenant and
Landlord each hereby expressly, irrevocably, fully and forever release, waive
and relinquish any and all right to trial by jury and all right to receive
punitive, exemplary and consequential damages from the other (or any past,
present or future board member, trustee, director, officer, employee, agent,
representative, or advisor of the other) in any claim, demand, action, suit,
proceeding or cause of action in which the Tenant and Landlord are parties,
which in any way (directly or indirectly) arises out of, results from, or
relates to, any of the following, in each case whether now existing or hereafter
arising and whether based on contract or tort or any other legal basis: this
Lease; any past, present or future act, omission, conduct or activity with
respect to this Lease; any transactions, event or occurrence contemplated by
this Lease; the performance of any obligation or the exercise of any right under
this Lease; or the enforcement of this Lease. The Tenant and Landlord each agree
that this agreement constitutes written consent that trial by jury shall be
waived in any such claim, demand, action, suit, proceeding or other cause of
action and agree that the Tenant and Landlord each shall have the right at any
time to file this Lease with the clerk or judge of any court in which any such
claim, demand, action, suit, proceeding or other cause of action may be pending
as written consent to waiver of trial by jury.
ARTICLE XXX
-----------
DEFAULTS
30.1 Subject to any grace period provided in Section 5.1, in the event of
any failure by Tenant to pay any rental due under this Lease within ten (10)
days after receipt of written notice of its failure to pay rent (which notice
may run contemporaneously with any statutory notice), or in the event of any
other breach of this
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Lease by Tenant and if such other breaches shall continue for a period of thirty
(30) days from and after written notice from Landlord to Tenant (subject to such
additional time, if the default cannot be cured within the initial 30 days and
Tenant has commenced a cure within the initial 30 days and thereafter diligently
and continuously pursues a cure), then Landlord may elect either to terminate
Tenant's right to possession or not to terminate Tenant's right to possession,
whether or not Tenant has abandoned the property; provided, however, that in the
event of nonmonetary defaults Landlord may terminate this Lease without
additional notices in accordance with C.R.S. (S) 13-40-104(1)(e) and (e.5), as
amended. Neither acts of maintenance or preservation nor efforts by Landlord to
relet the property nor the appointment of a receiver upon initiative of Landlord
to protect Landlord's interest under this Lease shall constitute a termination
of Tenant's right to possession. Such right may be terminated only by written
notice given by Landlord to Tenant as aforesaid.
In the event that Landlord does not terminate Tenant's right to
possession in case of any such breach, this Lease shall continue in effect for
so long as Landlord does not terminate Tenant's right to possession and Landlord
may enforce all his rights and remedies under this Lease, including the right to
recover the rent (including charges equivalent to rent) as it becomes due under
this Lease. In the event that Landlord terminates Tenant's right to possession
because of a breach of this Lease, this Lease shall thereupon terminate and upon
such termination, Landlord may recover from Tenant:
a. The worth at the time of award of the unpaid rent (including
charges equivalent to rent) which has been earned at the time
of termination.
b. The worth at the time of award of the amount by which the
unpaid rent (including charges equivalent to rent) which would
have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided.
c. The worth at the time of award of the amount by which the
unpaid rent (including charges equivalent to rent) for the
balance of the Term after the time of award exceeds the amount
of such rental loss that Tenant proves could be reasonably
avoided.
d. Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of
things would be likely to result therefrom, including but not
limited to costs, expenses and attorneys fees.
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The "worth of the time of award" of the amounts referred to in
subparagraphs (a) and (b) hereof shall include interest at the per annum rate of
two percent (2%) over the prime rate charged from time to time by Norwest Bank
of Denver, N.A., or its successor, from the date the applicable sum is due until
paid. The "worth of the time of award" of the amount referred to in
subparagraph (c) hereof shall be computed by discounting such amount at the then
published rate of the 11th District Cost of Funds Index at the time of award.
Nothing herein mentioned shall affect the right of Landlord to equitable relief
where such relief is appropriate. Efforts by Landlord to mitigate the damages
caused by Tenant's breach of the Lease shall not constitute a waiver of
Landlord's right to recover damages hereunder. Nothing in this paragraph shall
affect the right of Landlord to indemnification for liability arising prior to
the termination of the Lease for personal injuries or property damage.
30.2 Except as otherwise provided in this Lease, if Landlord shall fail
to keep or perform any of its obligations under this Lease in respect to the
making of any of its payments to Tenant or in the performance of any of its
other Lease obligations, and upon the continuance of such failure on Landlord's
part for thirty (30) days after the delivery of notice to Landlord (or, in the
case of any such failure other than the payment of money which cannot reasonably
be cured within 30 days, or such shorter time as may be reasonable in the event
of emergency, within such additional period, if any, as may be reasonably
required by Landlord to cure such failure, provided Landlord has previously
commenced such cure within that 30-day period, and thereafter continuously
prosecutes such cure with all due diligence), and without waiving or releasing
Landlord from any such obligation, then Tenant may (but is under no obligation
to) after giving Landlord at least seven (7) days prior written notice, make
such payment or perform such obligation (except obligations affecting the
Building structure, Building systems or which would adversely affect any
warranty or other tenant in the Building), and all reasonable sums actually paid
or incurred by Tenant and all necessary and incidental costs and expenses,
including also reasonable attorneys' fees, incurred by Tenant in making such
payment or performing such obligation, together with interest at the per annum
rate of two percent (2%) over the prime rate charged from time to time by
Norwest Bank of Denver, N.A., or its successor, until paid, shall be paid by
Landlord to Tenant within thirty (30) days after written demand, and if not so
paid by Landlord, Tenant shall upon obtaining a final judgment in a court with
proper jurisdiction, have the right to offset such sums against any rent or any
other amounts thereafter payable by Tenant under this Lease and to recover the
balance, if any, from Landlord.
ARTICLE XXXI
------------
NOTICES
31.1 All bills, statements, notices, demands, and requests (referred to
in this Lease as "Notices") hereunder by either party to the other shall be in
writing and shall be deemed given (if orderly delivery of the mail is not then
disrupted or threatened) when deposited, registered, or certified, postage
prepaid, in the United States mail, addressed
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to the respective parties at its address set forth below, or at such different
address as it shall have theretofore advised the other party in writing.
To Landlord: CALPERS
c/o LaSalle Advisors Limited
1601 Response Road, Suite 300
Sacramento, California 95815
Hamilton Oil Building Partnership
c/o The Galbreath Company
1560 Broadway, Suite 800
Denver, Colorado 80202
To Tenant: Ryder TRS, Inc.
1560 Broadway, Suite 1800
Denver, Colorado 80202
With copies to: Ryder TRS, Inc.
8669 N.W. 36th Street
Miami, Florida 33166
(only until August 30, 1997)
Jesse B. Heath, Jr., Esq.
Holland & Hart LLP
555 Seventeenth Street, Suite 3200
Denver, Colorado 80202-3979
Tenant shall furnish a copy of all Notices given to Landlord to any holder of
any mortgage upon the Building upon written request from such holder giving the
address to which such copies are to be sent; provided, that the address is
delivered to Tenant prior to the date it gives the Notice. Landlord and each
such holder shall also each have the right to have an additional copy of Notices
sent to such persons and addressed as either such party may designate by written
notice to Tenant delivered to Tenant prior to the date the Notice is given.
ARTICLE XXXII
-------------
ESTOPPEL CERTIFICATE
32.1 Tenant shall, at any time and from time to time, upon not less than
fifteen (15) days prior notice by Landlord, execute and deliver to Landlord a
statement in writing, certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), the square footage of the
Demised Premises, the Annual Base Rent,
55
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the amounts and dates to which the Annual Base Rent, Additional Rent, and other
charges have been paid, setting forth the Commencement Date and expiration date
of the Lease and all rights which Tenant may have to renew the Lease and all
rights of first offer and refusal, and stating whether or not to the best
knowledge of the signer of such certificate Landlord is in default in
performance of any covenant, agreement, term, provision, or condition contained
in this Lease, and if so, specifying each such default of which the signer may
have knowledge, it being intended that any such statement delivered pursuant
hereto may be relied upon by any prospective purchaser or lessee of the
Building, Landlord's interest hereunder, or Landlord's interest under the Prime
Lease, or by any mortgagee thereof. Tenant shall also execute and deliver from
time to time such other similar certificates as may be required by an
institutional lender having an interest in this Lease.
32.2 Landlord shall, at any time and from time to time, upon not less
than fifteen (15) days prior notice by Tenant, execute and deliver to Tenant a
statement in writing, certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), the amounts and dates to
which the Annual Base Rent, Additional Rent, and other charges have been paid,
setting forth the Commencement Date and expiration date of the Lease and stating
whether or not to the best knowledge of the signer of such certificate Tenant is
in default in performance of any covenant, agreement, term, provision, or
condition contained in this Lease, and if so, specifying each such default of
which the signer may have knowledge.
ARTICLE XXXIII
--------------
PLURALS AND PRONOUNS, SUCCESSORS AND ASSIGNS
33.1 The word "Tenant," wherever used in this Lease, shall be construed
to mean tenants if by assignment there shall be more than one tenant hereunder.
The necessary grammatical changes required to make all provisions hereof apply
to corporations, partnerships, or individuals, men or women, shall in all cases
be assumed as though in each case fully expressed.
33.2 The word "Landlord" whenever used in this Lease shall include, where
applicable, its property manager, employees and agents.
33.3 Each provision hereof shall extend to and shall, as the case may
require, bind, and inure to the benefit of Landlord and Tenant and their
respective heirs, legal representatives, successors, and assigns; provided that
this Lease shall not inure to the benefit of any assignee, heir, legal
representative, transferee, or successor of any Tenant, except as provided in
Article VII of this Lease, or of Landlord if the transfer be contrary to Article
XXVIII.
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ARTICLE XXXIV
-------------
ENTIRE AGREEMENT, CAPTIONS, SEVERABILITY
34.1 This Lease shall be governed by the laws of the State of Colorado.
This Lease contains the entire agreement between the parties, and any executory
agreement simultaneously or hereafter made shall be ineffective to amend,
modify, or terminate it in whole or in part unless such executory agreement is
in writing and signed by the party against whom enforcement of the amendment,
modification, or termination is sought.
34.2 The captions in this Lease are inserted only as a matter of
convenience and for reference and in no way define, limit, or describe the scope
of this Lease nor the intent of any provision thereof.
34.3 Each and every covenant of this Lease is distinct and severable and
if any provision of this Lease is held invalid by a court of competent
jurisdiction or other governmental authority, the same shall be stricken
herefrom without affecting the validity of this Lease.
ARTICLE XXXV
------------
MEMORANDUM OF LEASE
35.1 The parties hereto shall, upon the written request of either one to
the other, execute a Memorandum of this Lease and, to the extent applicable, a
Memorandum of the Commencement Date Agreement.
ARTICLE XXXVI
-------------
CONTINUANCE OF OCCUPANCY
[INTENTIONALLY DELETED]
ARTICLE XXXVII
--------------
BROKERAGE
37.1 Landlord and Tenant covenant and represent that it has negotiated
this Lease directly with Lunde Commercial, as agent for Tenant, and The
Galbreath Company Brokerage, Inc., as agent for Landlord, and has not acted by
implication to authorize or authorized any other real estate broker or salesman
to act for it in these negotiations and each agrees to indemnify and hold the
other harmless from any and all claims by any such other real estate broker or
salesman for a commission or finder's fee as a result of their entering into
this Lease.
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ARTICLE XXXVIII
---------------
HOLDOVER TENANCY
38.1 If, with Landlord's consent, Tenant holds possession of the Demised
Premises after the Term (or any renewal) of this Lease, Tenant shall become a
tenant from month to month upon the terms herein specified but at a monthly
rental equivalent to one hundred fifty percent (150%) of the then prevailing
rental paid by Tenant at the expiration of the Term of this Lease pursuant to
all the provisions hereof (unless Landlord and Tenant otherwise agree in
writing), payable in advance on or before the first day of each month, and
Tenant may continue in possession until such tenancy shall be terminated by
Landlord or until Tenant shall have given to Landlord thirty (30) days written
notice in advance of its intention to terminate such tenancy.
ARTICLE XXXIX
-------------
RELOCATION
[INTENTIONALLY DELETED]
ARTICLE XL
----------
MISCELLANEOUS
40.1 The submission of this Lease for examination by Tenant does not
constitute a reservation of or option for the Demised Premises, and this Lease
shall become effective only upon execution and delivery thereof by Landlord and
Tenant. If any Term of this Lease and any application thereof shall be invalid
or unenforceable, the remainder of this Lease and any other application of such
term shall be not affected thereby. This Lease may be changed, waived,
discharged, or terminated only by an instrument in writing signed by the party
against whom such enforcement of such change, waiver, discharge or termination
is sought. Subject to Article VII, this Lease shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto. All covenants and agreements of Tenant and Landlord
hereunder shall be deemed to be covenants running with the land, and each such
covenant and agreement shall be deemed to be and shall be construed as a
separate and independent covenant of the party bound by or making the same and
shall not be dependent on any other provision of this Lease, except as
specifically provided for herein.
40.2 Legal Expenses. If either party brings or maintains any action
(including assertion of any counterclaim or cross-claim, or claim in a
proceedings in bankruptcy, receivership or any other proceeding instituted by a
party hereto or by others), or otherwise refers this Lease to an attorney for
the enforcement of any of the covenants, terms or conditions of this Lease or
otherwise relating to or arising from this Lease, the prevailing party in such
action shall, in addition to all other payments required herein,
58
<PAGE>
receive from the other, all the costs incurred by the prevailing party including
reasonable attorneys' fees and such costs and reasonable attorneys' fees which
the prevailing party incurred on any appeal or enforcing any judgment.
ARTICLE XLI
-----------
EXCULPATION
41.1 Except as otherwise specifically provided in this Lease, Tenant
agrees that it shall not seek a personal judgment against any partner of
Hamilton Oil Building Partnership for any default in the performance or
observance of any of the terms or conditions of this Lease, nor seek nor assert
a deficiency judgment or any other amount claimed payable against the same in
any proceeding whatsoever arising out of any alleged breach or non-performance
of this Lease; agreeing that it shall look solely to Hamilton Oil Building
Partnership itself (or its successor or assign, if any) and its interest in the
Building for payment of any such sums, including without limitation any rent
from the Building and any insurance or condemnation proceeds.
ARTICLE XLII
------------
PARKING
42.1 Subject to the continued availability of the underground parking
garage from the Prime Lease Lessor, Landlord agrees to provide Tenant with the
opportunity during the Term of this Lease to lease up to thirty-three (33)
parking spaces on sublevel one of the Building, of which five (5) shall be
reserved and twenty-eight (28) shall be unreserved. The parking spaces may be
used by Tenant on a twenty-four (24) hour per day basis. The cost of such spaces
shall be the garage rates from time to time charged to other tenants of the
Building ($125 per month as of the date hereof); provided, that for the first
three (3) years of the Lease the cost of the reserved parking space shall be the
amount charged from time to time for unreserved parking spaces. Prior to the
Commencement Date of this Lease, Tenant shall advise Landlord in writing of the
number of parking spaces up to a maximum of thirty-three (33) spaces that it
wants to Lease. During the Term of the Lease, Tenant may reduce or increase the
number of parking spaces up to the maximum of thirty-three (33) but in order to
increase the number of spaces it must give the Landlord at least sixty (60) days
prior written notice of its decision to lease additional parking spaces. In the
event Landlord is unable to provide parking space in the garage, its only
obligation shall be to use its reasonable efforts to provide parking spaces in
other parking structures or lots at comparable rates and such inability shall
not constitute grounds to assert that Landlord has breached this Lease. If the
Tenant leases additional space in the Building, it shall be entitled to
additional parking spaces at a ratio of one (1) space for each additional 2,000
square foot space leased. If the Prime Lease Lessor reduces the number of
parking spaces which Landlord may use for its tenants, the Tenant shall be
entitled to lease its pro rata share of the remaining spaces, if any.
59
<PAGE>
AGREED TO AND ACCEPTED this 12th day of March 1997.
LANDLORD:
HAMILTON OIL BUILDING PARTNERSHIP,
a California general partnership
By: State of California Public Employees'
Retirement System, a unit of the State
and Consumer Services Agency of
the State of California
By: LASALLE ADVISORS LIMITED PARTNERSHIP
Its: Investment Manager and Duly Authorized
Agent
By: /s/ Joseph R. Shea
-----------------------------------------
Name: JOSEPH R. SHEA
---------------------------------------
Title: VICE PRESIDENT
--------------------------------------
By: /s/ John S. Levy
-----------------------------------------
Name: JOHN S. LEVY
---------------------------------------
Title: PRINCIPAL
--------------------------------------
TENANT:
RYDER TRS, INC., a Delaware corporation
Signed and Acknowledged
in the Presence of:
By: /s/ Gerald R. Riordan
-----------------------------------------
Thomas W. Arnst
- ---------------------------
Name: Gerald R. Riordan
---------------------------------------
Larry D. Thogmartin
- ---------------------------
Title: President and Chief Operating Officer
--------------------------------------
60
<PAGE>
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF EARNINGS TO FIXED CHARGES
FORM S-4
RYDER TRS, INC.
as filed with the Securities and Exchange Commission on March 21, 1997
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1992 1993 1994 1995
------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
EARNINGS:
Earnings(loss) before income taxes ($14,584) $4,474 $21,109 $6,586
Plus fixed charges:
Interest expense(A) 20,590 20,049 24,256 29,663
Portion of rent expense representing interest(B) 2,021 2,135 2,133 1,700
------------------------------------
Total fixed charges 22,611 22,184 26,389 31,363
------------------------------------
Total earnings $8,027 $26,658 $47,498 $37,949
====================================
FIXED CHARGES $22,611 $22,184 $26,389 $31,363
====================================
RATIO OF EARNINGS TO FIXED CHARGES (C) 1.2 1.8 1.2
====================================
<CAPTION>
January 1, 1996 October 17, 1996 Pro
through through Forma
October 16, 1996 December 31, 1996 1996
-------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
EARNINGS:
Earnings(loss) before income taxes $10,126 ($ 4,697) ($12,356)
Plus fixed charges:
Interest expense(A) 20,291 14,261 44,641
Portion of rent expense representing
interest(B) 833 196 1,029
----------------- ----------------- ---------------
Total fixed charges 21,124 14,457 45,670
----------------- ----------------- ---------------
Total earnings $31,250 $9,760 $33,314
================= ================= ===============
FIXED CHARGES $21,124 $14,457 $45,670
================= ================= ===============
RATIO OF EARNINGS TO FIXED CHARGES 1.5 (C) (C)
================= ================= ===============
</TABLE>
(A) Includes amortization of deferred financing costs.
(B) The portion of rent expense that represents interest expense is one-third.
(C) Earnings were insufficient to cover fixed charges by $14,584, $4,697 and
$12,356 in the year ended December 31, 1992, the period October 17, 1996
through December 31, 1996, and, on a pro forma basis, the year ended
December 31, 1996, respectively.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File
No. 333-20397) of our report dated March 17, 1997, on our audit of the
financial statements of Ryder TRS, Inc. and Subsidiaries. We also consent to
the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 25, 1997
<PAGE>
[LETTERHEAD OF PEAT MARWICK LLP]
EXHIBIT 23.2
The Board of Directors and Shareholders
Ryder TRS, Inc.:
We consent to the inclusion of our reports dated December 20, 1996 and
September 23, 1996, on the combined financial statements of Ryder Consumer
Truck Rental (a division of Ryder Truck Rental, Inc., a wholly-owned
subsidiary of Ryder System, Inc.) as of October 16, 1996, December 31, 1995
and 1994 and for the period January 1, 1996 through October 16, 1996, and for
each of the years in the two-year period ended December 31, 1995, included in
Ryder TRS, Inc.'s Amendment No. 3 to the registration statement (No. 333-
20397) on Form S-4, relating to the offering of up to $175 million in
aggregate principal amount of its outstanding 10% Senior Subordinated Notes
due 2006 and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/
_________________________________
KPMG Peat Marwick LLP
Miami, Florida
March 21, 1997
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF ARC]
CONSENT OF ADVERTISING RESEARCH CORPORATION
March 24, 1997
We consent to the inclusion in this registration statement on Form S-4 (File
No. 333-20397) of the table under the caption "Business--Industry Overview--
The Commercial Market." We also consent to the reference to our company as the
source upon which is based such table.
/s/
_________________________________
Harold Bragen
Vice President
HB/ar
14 Commerce Drive, Cranford, NJ 07016 (908) 276-6300 . Fax (908) 276-1301
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF ICR]
CONSENT OF ICR
To Whom It May Concern:
We consent to the inclusion in Ryder TRS, Inc.'s form S-4 Registration
Statement (File No. 333-20397) of our table under the caption "Business-
Industry Overview--The Consumer Market." We also consent to the reference to
ICR as the source for such table.
/s/ Dianne M. Roso
- ---------------------
DIANNE M. ROSO
Vice President
ICR
Media, Pennsylvania
March 24, 1997
<PAGE>
EXHIBIT 99.1
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON
, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
RYDER TRS, INC.
8669 NW 36TH STREET
MIAMI, FLORIDA 33166
LETTER OF TRANSMITTAL
FOR 10% SENIOR SUBORDINATED NOTES DUE 2006
PURSUANT TO THE PROSPECTUS DATED , 1997
EXCHANGE AGENT:
THE BANK OF NEW YORK
By Facsimile:
(212) 571-3080
(For Eligible Institutions Only)
Confirm by telephone:
(212) 815-6333
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Reorganization Section
By Hand/Overnight Delivery:
The Bank of New York
101 Barclay Street
New York, New York 10286
Corporate Trust Services Window
Ground Level
Attention: Reorganization Section
For Information Call: (212) 815-6333
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated , 1997
(the "Prospectus") of Ryder TRS, Inc., a Delaware corporation (the "Company"
or the "Issuer") and this Letter of Transmittal for 10% Senior Subordinated
Notes due 2006, which may be amended from time to time (this "Letter"), which
together constitute the Issuer's offer to exchange (the "Exchange Offer"), up
to $175,000,000 in aggregate principal amount of its 10% Senior Subordinated
Notes due 2006 (the "Exchange Notes") for up to $175,000,000 in aggregate
principal amount of its outstanding 10% Senior Subordinated Notes due 2006
that were issued and sold in reliance upon an exemption from registration
under the Securities Act of 1933, as amended (the "Senior Subordinated Notes"
and, together with the Exchange Notes, the "Notes").
<PAGE>
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
All holders of Senior Subordinated Notes who wish to tender their Senior
Subordinated Notes must, prior to the Expiration Date: (1) complete, sign,
date and mail or otherwise deliver this Letter to the Exchange Agent, in
person or to the address set forth above; and (2) tender his or her Senior
Subordinated Notes or, if a tender of Senior Subordinated Notes is to be made
by book-entry transfer to the account maintained by the Exchange Agent at The
Depository Trust Company (the "Book-Entry Transfer Facility"), confirm such
book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance
with the procedures for tendering described in the Instructions to this
Letter. Holders of Senior Subordinate Notes whose certificates are not
immediately available, or who are unable to deliver their certificates or
Book-Entry Confirmation and all other documents required by this Letter to be
delivered to the Exchange Agent on or prior to the Expiration Date, must
tender their Senior Subordinated Notes according to the guaranteed delivery
procedures set forth under the caption "The Exchange Offer--How to Tender" in
the Prospectus. (See Instruction 1).
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of
the Prospectus or this Letter may be directed to the Exchange Agent, at the
address listed above, or Thomas W. Arnst, Esq., General Counsel and Secretary
of the Company, at (305) 500-8019, 8669 NW 36th Street, Miami, Florida 33166.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have the
respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Senior Subordinated Notes of which you are the
holder. If the space provided in Box 1 is inadequate, list the certificate
numbers and principal amount of Senior Subordinated Notes on a separate signed
schedule affixed hereto.
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
PRINCIPAL AMOUNT OF SENIOR
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE OF SENIOR SUBORDINATED NOTES
(PLEASE FILL IN IF BLANK) NUMBER(S)(1) SUBORDINATED NOTES TENDERED(2)
- -----------------------------------------------------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
<S> <C> <C> <C>
TOTALS:
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed if Senior Subordinated Notes are being tendered by
book-entry transfer.
(2) Unless otherwise indicated, the entire principal amount of Senior
Subordinated Notes represented by a certificate or Book-Entry
Confirmation delivered to the Exchange Agent will be deemed to have been
tendered. Senior Subordinated Notes tendered hereby must be in a
principal amount of $1,000 and integral multiples thereof.
------------------------------------------------------------------------------
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuer the principal amount of Senior Subordinated
Notes indicated above. Subject to, and effective upon, the
2
<PAGE>
acceptance for exchange of the Senior Subordinated Notes tendered with this
Letter, the undersigned exchanges, assigns and transfers to, or upon the order
of, the Issuer all right, title and interest in and to the Senior Subordinated
Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuer) with respect to the tendered Senior
Subordinated Notes, with full power of substitution, to: (a) deliver
certificates for such Senior Subordinated Notes; (b) deliver Senior
Subordinated Notes and all accompanying evidence of transfer and authenticity
to or upon the order of the Issuer upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to which the undersigned is
entitled upon the acceptance by the Issuer of the Senior Subordinated Notes
tendered under the Exchange Offer; and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Senior Subordinated Notes,
all in accordance with the terms of the Exchange Offer. The power of attorney
granted in this paragraph shall be deemed irrevocable and coupled with an
interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, exchange, assign and transfer the Senior Subordinated
Notes tendered hereby and that the Issuer will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Issuer to
be necessary or desirable to complete the assignment and transfer of the
Senior Subordinated Notes tendered. The undersigned has read and agrees to all
of the terms of the Exchange Offer.
The undersigned agrees that acceptance of any tendered Senior Subordinated
Notes by the Issuer and the issuance of Exchange Notes in exchange therefor
shall constitute performance in full by the Issuer of its obligations under
the Registration Rights Agreement (as defined in the Prospectus) and that,
upon the issuance of the Exchange Notes, the Issuer will have no further
obligations or liabilities thereunder (except in certain limited
circumstances). By tendering Senior Subordinated Notes, the undersigned
certifies (a) that it is not an "affiliate" of the Issuer within the meaning
of Rule 405 under the Securities Act, that it is not a broker-dealer that owns
Senior Subordinated Notes acquired directly from the Issuer or an affiliate of
the Issuer, that it is acquiring the Exchange Notes in the ordinary course of
the undersigned's business and that the undersigned has no arrangement with
any person to participate in the distribution of the Exchange Notes or (b)
that it is an "affiliate" (as so defined) of the Issuer or of the initial
purchasers in the original offering of the Senior Subordinated Notes, and that
it will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable to it.
The undersigned acknowledges that, if it is a broker-dealer that will
receive Exchange Notes for its own account, it will deliver a prospectus in
connection with any resale of such Exchange Notes. By so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The undersigned understands that the Issuer may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of
the undersigned under this Letter shall be binding upon the undersigned's
heirs, personal representatives, successors and assigns. Tenders may be
withdrawn only in accordance with the procedures set forth in the Instructions
contained in this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below, the
Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate
for any Senior Subordinated Notes not tendered but represented by a
certificate also encompassing Senior Subordinated Notes which are tendered) to
the undersigned at the address set forth in Box 1.
3
<PAGE>
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict
between the terms of the Prospectus and this Letter, the Prospectus shall
prevail.
[_]CHECK HERE IF TENDERED SENIOR SUBORDINATED NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
DTC Account Number: ________________________________________________________
Transaction Code Number: ___________________________________________________
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED SENIOR SUBORDINATED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Owner(s): ____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Window Ticket Number (if available): _______________________________________
Name of Institution which Guaranteed Delivery: _____________________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution __________________________________________
DTC Account Number _____________________________________________________
Transaction Code Number ________________________________________________
[_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
SECURITIES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD SECURITIES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name _______________________________________________________________________
Address ____________________________________________________________________
______________________________________________________________________
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
PLEASE SIGN HERE
WHETHER OR NOT SENIOR SUBORDINATED NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X ____________________________________________ ____________________________
X ____________________________________________ ____________________________
SIGNATURE(S) OF OWNER(S) DATE
OR AUTHORIZED SIGNATORY
Area Code and Telephone Number: _____________________________________________
This box must be signed by registered holder(s) of Senior Subordinated
Notes as their name(s) appear(s) on certificate(s) for Senior Subordinated
Notes, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Letter. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting
in a fiduciary or representative capacity, such person must set forth his or
her full title below. (See Instruction 3)
Name(s) _____________________________________________________________________
_____________________________________________________________________________
(PLEASE PRINT)
Capacity ____________________________________________________________________
Address _____________________________________________________________________
_____________________________________________________________________________
(INCLUDE ZIP CODE)
Tax Identification or Social Security Number(s) _____________________________
Signature(s) ____________________________________________________
Guaranteed by an (AUTHORIZED SIGNATURE)
Eligible
Institution:
(If required by
Instruction 3)
____________________________________________________
(TITLE)
____________________________________________________
(NAME OF FIRM)
5
<PAGE>
BOX 3
TO BE COMPLETED BY ALL TENDERING HOLDERS
PAYOR'S NAME: THE BANK OF NEW YORK
__________________
SUBSTITUTE Social Security
FORM W-9 PART 1--PLEASE PROVIDE YOUR Number or
DEPARTMENT OF TIN IN THE BOX AT RIGHT AND Employer
THE TREASURY CERTIFY BY SIGNING AND DATING Identification
INTERNAL BELOW. Number
REVENUE SERVICE ------------------------------------------------------
PART 2--Check the box if you are NOT subject to
back-up withholding under the provisions of Section
2406(a)(1)(C) of the Internal Revenue Code because
(1) you have not been notified that you are subject
to back-up withholding as a result of failure to
report all interest or dividends or (2) the
Internal Revenue Service has notified you that you
are no longer subject to back-up withholding. [_]
CERTIFICATION--UNDER THE PENALTIES PART 3--
OF PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM
IS TRUE, CORRECT AND COMPLETE.
PAYOR'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)
Check if
Awaiting
TIN [_]
------------------------------------------------------
SIGNATURE _______________ DATE _____
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (i) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(ii) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
60 days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature ____________________________________ Date ______________________
Name (Please Print) _________________________________________________________
6
<PAGE>
BOX 4 BOX 5
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if To be completed ONLY if
certificates for Senior certificates for Senior
Subordinated Notes in a principal Subordinated Notes in a principal
amount not exchanged, or Exchange amount not exchanged, or Exchange
Notes, are to be issued in the Notes, are to be sent to someone
name of someone other than the other than the person whose
person whose signature appears in signature appears in Box 2 or to
Box 2, or if Senior Subordinated an address other than that shown
Notes delivered by book-entry in Box 1.
transfer which are not accepted
for exchange are to be returned by
credit to an account maintained at Deliver:
the Book-Entry Transfer Facility (check appropriate boxes)
other than the account indicated [_] Senior Subordinated Notes not
above. tendered
[_] Exchange Notes, to:
Issue and deliver:
(check appropriate boxes) Name ______________________________
(PLEASE PRINT)
[_] Senior Subordinated Notes not
tendered Address ___________________________
[_] Exchange Notes, to: ___________________________________
Please complete the Substitute
Name ______________________________ Form W-9 at Box 3
(PLEASE PRINT)
Tax I.D. or Social Security
Address ___________________________ Number: ___________________________
___________________________________
Please complete the Substitute
Form W-9 at Box 3
Tax I.D. or Social Security
Number: ___________________________
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Senior
Subordinated Notes or a Book-Entry Confirmation, as the case may be, as well
as a properly completed and duly executed copy of this Letter and any other
documents required by this Letter, must be received by the Exchange Agent at
one of its addresses set forth herein on or before the Expiration Date. The
method of delivery of this Letter, certificates for Senior Subordinated Notes
or a Book-Entry Confirmation, as the case may be, and any other required
documents is at the election and risk of the tendering holder, but except as
otherwise provided below, the delivery will be deemed made when actually
received by the Exchange Agent. If delivery is by mail, the use of registered
mail with return receipt requested, properly insured, is suggested.
Holders whose Senior Subordinated Notes are not immediately available or who
cannot deliver their Senior Subordinated Notes or a Book-Entry Confirmation,
as the case may be, and all other required documents to the Exchange Agent on
or before the Expiration Date may tender their Senior Subordinated Notes
pursuant to the guaranteed delivery procedures set forth in the Prospectus.
Pursuant to such procedure: (i) tender must be made by or through an Eligible
Institution (as defined in the Prospectus under the caption "The Exchange
Offer"); (ii) prior to the Expiration Date, the Exchange Agent must have
received from the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission,
mail or hand delivery) (x) setting forth the name and address of the holder,
the description of the Senior Subordinated Notes and the principal amount of
Senior Subordinated Notes tendered, (y) stating that the tender is being made
thereby and (z) guaranteeing that, within three New York Stock Exchange
trading days after the date of execution of such Notice of Guaranteed
Delivery, this Letter together with the certificates representing the Senior
Subordinated Notes or a Book-Entry Confirmation, as the case may be, and any
other documents required by this Letter will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) the certificates for all
tendered Senior Subordinated Notes or a Book-Entry Confirmation, as the case
may be, as well as all other documents required by this Letter, must be
received by the Exchange Agent within five New York Stock Exchange trading
days after the date of execution of such Notice of Guaranteed Delivery, all as
provided in the Prospectus under the caption "The Exchange Offer--How to
Tender."
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Senior Subordinated Notes will
be determined by the Issuer, whose determination will be final and binding.
The Issuer reserves the absolute right to reject any or all tenders that are
not in proper form or the acceptance of which, in the opinion of the Issuer's
counsel, would be unlawful. The Issuer also reserves the right to waive any
irregularities or conditions of tender as to particular Senior Subordinated
Notes. All tendering holders, by execution of this Letter, waive any right to
receive notice of acceptance of their Senior Subordinated Notes.
Neither the Issuer, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER); WITHDRAWALS. If less than the entire principal amount of any Senior
Subordinated Note evidenced by a submitted certificate or by a Book-Entry
Confirmation is tendered, the tendering holder must fill in the principal
amount tendered in the fourth column of Box 1 above. ALL OF THE SENIOR
SUBORDINATED NOTES REPRESENTED BY A CERTIFICATE OR BY A BOOK-ENTRY
CONFIRMATION DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN
TENDERED UNLESS OTHERWISE INDICATED. A certificate for Senior Subordinated
Notes not tendered will be sent to the holder, unless otherwise provided in
Box 5, as soon as practicable after the Expiration Date, in the event that
less than the entire principal amount of Senior Subordinated Notes represented
by a submitted certificate is tendered (or, in the case of Senior Subordinated
Notes tendered by book-entry transfer, such non-exchanged Senior Subordinated
Notes will be credited to an account maintained by the holder with the Book-
Entry Transfer Facility).
8
<PAGE>
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Senior Subordinated Notes, a notice of withdrawal must: (i) be
received by the Exchange Agent before the Issuer notifies the Exchange Agent
that it has accepted the tender of Senior Subordinated Notes pursuant to the
Exchange Offer; (ii) specify the name of the person who tendered the Senior
Subordinated Notes; (iii) contain a description of the Senior Subordinated
Notes to be withdrawn, the certificate numbers shown on the particular
certificates evidencing such Senior Subordinated Notes and the principal
amount of Senior Subordinated Notes represented by such certificates; and (iv)
be signed by the holder in the same manner as the original signature on this
Letter (including any required signature guarantee).
3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this
Letter is signed by the holder(s) of Senior Subordinated Notes tendered
hereby, the signature must correspond with the name(s) as written on the face
of the certificate(s) for such Senior Subordinated Notes, without alteration,
enlargement or any change whatsoever.
If any of the Senior Subordinated Notes tendered hereby are owned by two or
more joint owners, all owners must sign this Letter. If any tendered Senior
Subordinated Notes are held in different names on several certificates, it
will be necessary to complete, sign and submit as many separate copies of this
Letter as there are names in which certificates are held.
If this Letter is signed by the holder of record and (i) the entire
principal amount of the holder's Senior Subordinated Notes are tendered;
and/or (ii) untendered Senior Subordinated Notes, if any, are to be issued to
the holder of record, then the holder of record need not endorse any
certificates for tendered Senior Subordinated Notes, nor provide a separate
bond power. In any other case, the holder of record must transmit a separate
bond power with this Letter.
If this Letter or any certificate or assignment is signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and proper evidence satisfactory to
the Issuer of their authority to so act must be submitted, unless waived by
the Issuer.
Signatures on this Letter must be guaranteed by an Eligible Institution,
unless Senior Subordinated Notes are tendered: (i) by a holder who has not
completed the Box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on this Letter; or (ii) for the account of an Eligible
Institution. In the event that the signatures in this Letter or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by an eligible guarantor institution which is a member of The
Securities Transfer Agents Medallion Program (STAMP), The New York Stock
Exchanges Medallion Signature Program (MSP) or The Stock Exchanges Medallion
Program (SEMP) (collectively, "Eligible Institutions"). If Senior Subordinated
Notes are registered in the name of a person other than the signer of this
Letter, the Senior Subordinated Notes surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuer, in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Notes or certificates for Senior Subordinated Notes not exchanged are
to be issued or sent, if different from the name and address of the person
signing this Letter. In the case of issuance in a different name, the tax
identification number of the person named must also be indicated. Holders
tendering Senior Subordinated Notes by book-entry transfer may request that
Senior Subordinated Notes not exchanged be credited to such account maintained
at the Book-Entry Transfer Facility as such holder may designate.
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder
whose tendered Senior Subordinated Notes are accepted for exchange must
provide the Exchange Agent (as payor) with his or her correct taxpayer
identification number ("TIN"), which, in the case of a holder who is an
individual, is his or her
9
<PAGE>
social security number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, delivery to the holder of the Exchange Notes
pursuant to the Exchange Offer may be subject to back-up withholding. (If
withholding results in overpayment of taxes, a refund may be obtained.) Exempt
holders (including, among others, all corporations and certain foreign
individuals) are not subject to these back-up withholding and reporting
requirements. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
Under federal income tax laws, payments that may be made by the Issuer on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the
TIN provided is correct (or that the holder is awaiting a TIN) and that: (i)
the holder has not been notified by the Internal Revenue Service that he or
she is subject to back-up withholding as a result of failure to report all
interest or dividends; or (ii) the Internal Revenue Service has notified the
holder that he or she is no longer subject to back-up withholding; or (iii)
certify in accordance with the Guidelines that such holder is exempt from
back-up withholding. If the Senior Subordinated Notes are in more than one
name or are not in the name of the actual owner, consult the enclosed
Guidelines for information on which TIN to report.
6. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Senior Subordinated Notes to it or its order
pursuant to the Exchange Offer. If, however, the Exchange Notes or
certificates for Senior Subordinated Notes not exchanged are to be delivered
to, or are to be issued in the name of, any person other than the record
holder, or if tendered certificates are recorded in the name of any person
other than the person signing this Letter, or if a transfer tax is imposed by
any reason other than the transfer of Senior Subordinated Notes to the Issuer
or its order pursuant to the Exchange Offer, then the amount of such transfer
taxes (whether imposed on the record holder or any other person) will be
payable by the tendering holder. If satisfactory evidence of payment of taxes
or exemption from taxes is not submitted with this Letter, the amount of
transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS; NO CONDITIONAL TENDERS. The Issuer reserve the
absolute right to amend or waive any of the specified conditions in the
Exchange Offer in the case of any Senior Subordinated Notes tendered.
No alternative, conditional, irregular or contingent tenders will be
accepted.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Senior Subordinated Notes have been mutilated, lost, stolen
or destroyed should contact the Exchange Agent at the address indicated above,
for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: THIS LETTER (OR A FACSIMILE THEREOF), TOGETHER WITH CERTIFICATES
OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS, MUST
BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF GUARANTEED DELIVERY MUST
BE RECEIVED BY THE EXCHANGE AGENT, ON OR PRIOR TO 5:00 P.M., NEW YORK CITY
TIME, ON THE EXPIRATION DATE.
10
<PAGE>
EXHIBIT 99.2
RYDER TRS, INC.
EXCHANGE OFFER
TO HOLDERS OF THEIR
10% SENIOR SUBORDINATED NOTES DUE 2006
NOTICE OF GUARANTEED DELIVERY
As set forth in the Prospectus dated , 1997 (the "Prospectus") of Ryder
TRS, Inc. (the "Issuer") under "The Exchange Offer--How to Tender" and in the
Letter of Transmittal for 10% Senior Subordinated Notes due 2006 (the "Letter
of Transmittal"), this form or one substantially equivalent hereto must be
used to accept the Exchange Offer (as defined below) of the Issuer if: (i)
certificates for the above-referenced Notes (the "Senior Subordinated Notes")
are not immediately available; or (ii) time will not permit all required
documents to reach the Exchange Agent (as defined below) on or prior to the
Expiration Date (as defined in the Prospectus) of the Exchange Offer. Such
form may be delivered by hand or transmitted by telegram, telex, facsimile
transmission or letter of the Exchange Act.
TO: THE BANK OF NEW YORK (THE "EXCHANGE AGENT")
By Facsimile:
(212) 571-3080
(For Eligible Institutions Only)
Confirm by telephone:
(212) 815-6333
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Reorganization Section
By Hand/Overnight Delivery:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Services Window
Ground Level
Attention: Reorganization Section
For Information Call:
(212) 815-6333
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMITTAL OF THIS INSTRUMENT TO A FACSIMILE OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged,
the aggregate principal amount of Senior Subordinated Notes set forth below
pursuant to the guaranteed delivery procedure described in the Prospectus and
the Letter of Transmittal.
Sign Here
Principal Amount of Senior
Subordinated Notes Tendered* _______ Signature(s) ________________________
_____________________________________
Please Print the Following
Information
Certificate Nos. (if available) _____
Name(s) _____________________________
Total Principal Amount Represented _____________________________________
by Senior Subordinated Notes
Certificate(s) _____________________
Address _____________________________
_____________________________________
Area Code and Tel No(s). ____________
_____________________________________
Account Number ______________________
Dated: _______________________ , 1997
- --------
* Must be in denominations of principal amount at maturity of $1,000 and any
integral multiple thereof.
2
<PAGE>
The undersigned, an Eligible Institution within the meaning of Rule
17(A)(d)-15 under the Securities Exchange Act of 1934, as amended, hereby
guarantees that delivery to the Exchange Agent of certificates tendered
hereby, in proper form for transfer, or delivery of such certificates pursuant
to the procedure for book-entry transfer, in either case with delivery of a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) and any other required documents, is being made within three New York
Stock Exchange trading days after the date of execution of a Notice of
Guaranteed Delivery of the above-named person.
_____________________________________
Name of Firm
_____________________________________
Authorized Signature
_____________________________________
Number and Street or P.O. Box
_____________________________________
City State Zip Code
_____________________________________
Area Code and Tel. No.
Dated: _______________________ , 1997
3
<PAGE>
EXHIBIT 99.3
RYDER TRS, INC.
OFFER TO EXCHANGE
$175,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF
10% SENIOR SUBORDINATED NOTES DUE 2006
IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED
FOR UP TO
$175,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF
ITS OUTSTANDING
10% SENIOR SUBORDINATED NOTES DUE 2006
To Our Clients:
Enclosed for your consideration is a Prospectus dated , 1997 (as the
same may be amended or supplemented from time to time, the "Prospectus") and a
form of Letter of Transmittal (the "Letter of Transmittal") relating to the
offer (the "Exchange Offer") by Ryder TRS, Inc. (the "Issuer") to exchange up
to $175,000,000 in aggregate principal amount of its 10% Senior Subordinated
Notes due 2006 in reliance upon an exemption from registration under the
Securities Act of 1933, as amended (the "Senior Notes"), for $175,000,000 in
aggregate principal amount of its 10% Senior Subordinated Notes due 2006 (the
"Exchange Notes").
The material is being forwarded to you as the beneficial owner of Senior
Notes carried by us for your account or benefit but not registered in your
name. A tender of any Senior Notes may be made only by us as the registered
holder and pursuant to your instructions. Therefore, the Issuer urges
beneficial owners of Senior Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee to contact such registered
holder promptly if they wish to tender Senior Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to tender any
or all Senior Notes, pursuant to the terms and conditions set forth in the
Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your
Senior Notes.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN ORDER
TO PERMIT US TO TENDER SENIOR NOTES ON YOUR BEHALF IN ACCORDANCE WITH THE
PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on [ ], 1997, unless extended (the "Expiration
Date"). Senior Notes tendered pursuant to the Exchange Offer may be withdrawn,
subject to the procedures described in the Prospectus, at any time prior to
the Expiration Date.
If you wish to have us tender any or all of your Senior Notes held by us for
your account or benefit, please so instruct us by completing, executing and
returning to us the instruction form that appears below. The accompanying
Letter of Transmittal is furnished to you for informational purposes only and
may not be used by you to tender Senior Notes held by us and registered in our
name for your account or benefit.
<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of Ryder TRS, Inc.
THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF SENIOR NOTES
INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED
PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE
LETTER OF TRANSMITTAL.
Box 1[_]
Please tender my Senior Notes held by you for my account or benefit.
I have identified on a signed schedule attached hereto the principal
amount of Senior Notes to be tendered, in integral multiples of
$1,000, if I wish to tender less than all of my Senior Notes.
Box 2[_]
Please do not tender my Senior Notes.
Date:[ ], 1997
_____________________________________
_____________________________________
Signature(s)
_____________________________________
_____________________________________
Please print name(s) here
- --------
Unless a specific contrary instruction is given in a signed Schedule attached
hereto, your signature(s) hereon shall constitute an instruction to us to
tender all your Senior Notes.
2
<PAGE>
EXHIBIT 99.4
RYDER TRS, INC.
OFFER TO EXCHANGE
$175,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF
10% SENIOR SUBORDINATED NOTES DUE 2006
IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED
FOR UP TO
$175,000,000 IN AGGREGATE PRINCIPAL AMOUNT
OF ITS OUTSTANDING
10% SENIOR SUBORDINATED NOTES DUE 2006
To Securities Dealers, Commercial
Banks Trust Companies and Other
Nominees:
Enclosed for your consideration is a Prospectus dated , 1997 (as the
same may be amended or supplemented from time to time, the "Prospectus") and a
form of Letter of Transmittal (the "Letter of Transmittal") relating to the
offer (the "Exchange Offer") by Ryder TRS, Inc. (the "Issuer") to exchange up
to $175,000,000 in aggregate principal amount of its 10% Senior Subordinated
Notes due 2006 in reliance upon an exemption from registration under the
Securities Act of 1933, as amended (the "Senior Notes"), for up to
$175,000,000 in aggregate principal amount of its 10% Senior Subordinated
Notes due 2006 (the "Exchange Notes").
We are asking you to contact your clients for whom you hold Senior Notes
registered in your name or in the name of your nominee. In addition, we ask
you to contact your clients who, to your knowledge, hold Senior Notes
registered in their own name. The Issuer will not pay any fees or commissions
to any broker, dealer or other person in connection with the solicitation of
tenders pursuant to the Exchange Offer. You will, however, be reimbursed by
the Issuer for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients. The Issuer will pay
all transfer taxes, if any, applicable to the tender of Senior Notes to it or
its order, except as otherwise provided in the Prospectus and the Letter of
Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the tender of
Senior Notes and for the information of your clients;
3. A form of letter that may be sent to your clients for whose accounts
you hold Senior Notes registered in your name or the name of your nominee,
with space provided for obtaining the clients' instructions with regard to
the Exchange Offer;
4. A form of Notice of Guaranteed Delivery; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on , 1997, unless extended (the "Expiration
Date"). Senior Notes tendered pursuant to the Exchange Offer may be withdrawn,
subject to the procedures described in the Prospectus, at any time prior to
the Expiration Date.
To tender Senior Notes, certificates for Senior Notes or a Book-Entry
Confirmation, a duly executed and properly completed Letter of Transmittal or
a facsimile thereof, and any other required documents, must be received by the
Exchange Agent as provided in the Prospectus and the Letter of Transmittal.
<PAGE>
Additional copies of the enclosed material may be obtained from the Exchange
Agent, The Bank of New York, by calling (212) 815-6333.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT
TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS
AND THE LETTER OF TRANSMITTAL.
2
